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  Marriott not a hospitable investment

BENJ GALLANDER and BEN STADELMANN

Thursday, March 12, 2009

People who are finding it difficult to fathom exactly what a trillion dollars is might wish to consider Zimbabwe. In January, this country introduced a $100 trillion note, which equalled about $375 Canadian. That would have covered the rack rate in some Marriott. One of the newest is The Rosseau, a JW Marriott Resort and Spa in Minett, Ontario, a couple of hours north of Toronto.

This lovely $130 million dollar complex sits on 1,500 acres, nearly half of which are designated as a nature reserve. The ongoing development is a team effort between the Marriott and the Red Leaves father-son team of Ken and Peter Fowler, with Ken assuming the developer mantle and Peter the operations guy. Between these two are such names as Prudhomme's Landing in Niagara Region, the Fairmont Hot Springs in the Rockies, West 49, Jack Astor's, Alice Fazooli's and the Loose Moose, amongst others.

The outfit has assembled a great team to help visitors explore the area, including Robin Tapley, a world-renowned naturalist who will take both intrepid and less adventurous guests for an evening snowshoe to bear caves and have them eating from flora.

Dan Arcand of HSR Ski-doo Rentals will take the willing for a tour that will include snow-covered trails through the bush and stories of his time with the Inuit in the Northwest Territories. Summertime has The Rock, a Nick Faldo-inspired golf course. It is all first class, including the rooms, which are beautifully appointed.

The hotel is one of those hotel-condo operations where buyers are often looking for both a place to visit and a financial return. The units, ranging from 464-square-foot studios to 1,100-square-foot suites, range in price from $250,000 to $960,000. There are also the usual maintenance fees associated with these developments. While six months ago the price point of a purchase was less questionable, given the current economic conditions, virtually all real estate acquisitions at 2008 prices are more dubious.

In fact, one has to wonder how Marriott, an upper-end hospitality company best known for its hotel chain, will function in this climate. Lesser known is that it is both the largest convention broker and golf course operator in the world. Results this month sported a quarterly operating loss of $10 million, a far cry from the $236 million of operating income last year.

Revenues declined to $3.8 billion from $4.1 billion. The company expects this negative trend to continue, with sales expected to contract another 20 ti 25 percent in the first quarter of 2009. Beyond this point, the current global climate means the company, which normally offers guidance, is remaining mute.

Employees, who number around 151,000, are probably getting nervous, as it would not surprise us to see many chopped. Perhaps Marriott's investment grade credit rating might also disappear.

The stock market certainly does not expect much. The share price is down to the $14.50 range, far below the high-water mark of better than $50 in 2007. Insiders, many from the Marriott family, have been dumping millions of shares. The debt level has almost doubled from the manageable $1.6 billion dollar level of 2005, as the company has expanded at an inauspicious time, The Rosseau being but one of many examples. Book value resides around the $4 figure.

All of this might be particularly bad news for the top five on the management crew, who combined received about $9 million in salaries in 2007. This pales in comparison to the stock options exercised, worth almost $77 million. This wretched excess, combined with the deteriorating balance sheet and revenue reduction, are reasons that we would not go near this stock, except perhaps as a short sale.

Those people who are thinking of using their trillion-dollar Zimbabwean notes in a Marriott might want to deploy them before June 30, after which they will no longer be legal tender. Twelve zeros are being chopped from the currency, making the trillion note equal to one dollar. The Rosseau, anyone?


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