Marriott International Inc (MAR), Starwood Hotels & Resorts Worldwide, Inc (HOT): Three Hotel Companies for Luxurious Returns

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Marriott International Inc (NYSE:MAR)With the global economy on the path to recovery, it will lead to a rise in the spending capacity of the population. This directly impacts the demand for hotel rooms, as the tourism industry gets a boost. According to PFK Hospitality Research, residents staying away from home for more than one day are expected to rise to 3.3% this year. Compare that to the increase in supply of hotel rooms, which stands at only 1%. Consequently, revenue per available room, or RevPAR, of the hotel industry will rise 7.7% in 2014, after 5.7% growth in 2012.

Here are the three picks from the hotel industry that are expanding through the approach of franchisee and management contracts to cater the robust demand of hotel rooms. Let’s discuss them in detail.

Condos – high in demand

During the recession, Starwood Hotels & Resorts Worldwide, Inc (NYSE:HOT)’s EBITDA was down by 50%, and its fee-based revenue was down by 20%. From that point forward, the company transitioned its focus to franchisee-based business with 1,100 franchise properties in approximately 100 countries. At present, it generates 50% of EBITDA from fee-based business and plans to reach 80% by 2016. To generate more profits from fee-based business, it is increasing the number of rooms franchised to 134,688 in 2013 from 127,666 in 2012. With more rooms franchised, it expects to generate $222 million in fee revenue this year and $240 million next year from $200 million in 2012.

Starwood Hotels & Resorts Worldwide, Inc (NYSE:HOT) demolished and replaced the Sheraton with St. Regis Bal Harbour Resort. The company put $375 million cash into this project from 2008 to 2011. St. Regis features condos within the resort. Its infrastructure was unique in Florida, which created high demand for the condos. Approximately $1 billion worth of condos have sold, and the company expects to be completely sold out by the end of this year. This venture will bring $611 million in cash by the end of this, benefiting the company.

Expanding in China for more benefits

InterContinental Hotels Group PLC (ADR) (NYSE:IHG)’s franchisee business makes up 74% of its total number of rooms. The owner of the franchised hotel pays approximately 6% of sales as royalty fees for using the company’s brand name. Franchise fees contributed 60% of EBITDA in 2012, generating high profit margins of 84%. To capitalize on this further, it is increasing the number of rooms franchised by 5,300 worldwide in 2013 and will reach approximately 511,273 rooms in 2014. Revenue from franchise fees will to reach $704 million this year from $653 million in 2012.

Chinese residents were the highest spenders, reaching $102 billion on travel and tourism in 2012. This was up 40% from 2011. To monetize this opportunity, the company will increase the number of rooms in China by approximately 7,700 in 2013, reaching 78,000 rooms in 2014. This expansion will match China’s demand and increase revenue in China from $230 million in 2012 to $251 million in 2014.

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