Marriott to slash funding for new construction in 1991

September 26, 1990|By Kim Clark

Bethesda-based Marriott Corp. announced yesterday that it will slash its funding for new construction in 1991, likely bringing its addition of hotel rooms and homes for the elderly to a halt.

Marriott said, however, that projects currently under construction will be completed.

The announcement of the cutback came one day after the stock of the hotel and food-service company lost 12 percent of its value as investors unloaded stocks tied to the troubled hospitality and real estate industries.

The Marriott cutback also came one day after Standard & Poor's Corp. announced it was thinking about downgrading some of Marriott's bonds because of concerns about Marriott's vulnerability in a recession.

After the cutback was announced yesterday, Marriott's stock closed up 75 cents at $11.50.

Marriott officials did not say which projects the company was delaying or canceling, but a company spokesman did say that at least one housing project for the elderly in Dallas would be put on hold.

Marriott plans to spend $1.3 billion on rehabilitation and new construction in 1990, and it originally planned to spend about the same amountnext year.

But as the company's earnings faltered this spring, Marriott executives scaled back their projected capital spending to about $900 million.

Industry analysts generally praised Marriott's move yesterday though some said it was not enough and might hurt Marriott's long-term earnings.

Sarah Sheckler, a hotel-industry analyst for Duff & Phelps Inc., said she estimates that it costs Marriott about $600 million just for rehabilitation and maintenance of existing facilities, which leaves very little for new construction.

The move will reduce Marriott's interest expenses but also might also hurt long-term earnings, the Chicago-based analyst said.

"If they don't invest in capital expenditures, then they don'expand their hotel system and they'll have slower earnings growth over the long term," Ms. Sheckler said.

Sheckler said she was concerned about any attempt by Marriott to cut its costs further, because "it is in a service industry."

But Ed Eyring, who watches the hotel industry for Argus $H Research Corp. in New York, praised the cutback and said more were needed to raise Marriott's stock price.

"If they care what happens to the stock price, they need to deven more," Mr. Eyring said.

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