Marriott gets 49% of Ritz-Carlton

March 07, 1995|By Kevin L. McQuaid | Kevin L. McQuaid,Sun Staff Writer

Marriott International Inc. said yesterday it has agreed to purchase a significant minority interest in the Ritz-Carlton Hotel Co. for nearly $200 million in cash, part of the hotel operator's push into the luxury lodging business.

Although the 49 percent interest will add only 31 hotels to Marriott's 900-property portfolio, the Bethesda-based operator is expected to benefit from the high brand-name recognition enjoyed by Ritz-Carlton. At least part of Marriott's efforts are expected to center around bringing competing luxury hotels under the Ritz-Carlton operation.

Furthermore, Marriott hopes to enhance operating efficiency and trim costs within the Atlanta-based chain by introducing its sophisticated reservation systems, marketing efforts and purchasing programs. Although privately held, several Ritz-Carlton hotels are believed to be losing money because of poor operations and poor management, according to published reports.

Overall, the Ritz-Carlton's average occupancy is just under 80 percent, slightly above the industry's average.

While exact terms of the transaction have yet to be finalized, it is expected Marriott will manage the Ritz-Carlton properties in exchange for a standard 6 percent management fee, with performance incentives.

The sale, which is subject to Marriott examination and federal approval, is scheduled to close this spring.

"The Ritz-Carlton Hotel company has long demonstrated its global leadership in the luxury lodging tier," said J. W. Marriott Jr., chairman and president of Marriott International. "This transaction will accelerate the growth and distinctive positioning of the prestigious Ritz-Carlton name."

Marriott eventually intends to acquire the balance of the interests in the 10,311-room Ritz-Carlton Co., currently controlled by Atlanta real estate developer William B. Johnson. Mr. Johnson has controlled the Ritz-Carlton name since 1983.

Marriott, one of the world's largest hotel operating companies with 185,000 rooms and 170,000 employees worldwide, is making its initial investment together with two Washington, D.C., investment firms, Thayer Capital Partners and Rappahannock Investment Co.

With roughly $260 million in net cash flow predicted in 1995, the transaction is expected to have little effect on Marriott's ability to operate its properties, analysts said.

For Marriott, the minority stake will augment the company's full-service, extended-stay and economy divisions, which generate about 55 percent of the company's $8.4 billion in annual sales.

Of its 900 operating contracts, only 260 are for full-service hotels.

"We think it offers an attractive growth opportunity in the luxury market, especially internationally, where we have a limited presence," said Robert T. Souers, a Marriott spokesman. "It affords us instant and significant entry."

Although the two chains have some market overlap, both Marriott and analysts who track the company said the distinction between the two brand names should be sufficient enough to avoid cannibalization of the other's share.

Marriott also will benefit from the overall lack of inventory being added to the nation's hotels, despite increases in demand tied to the improvement in the economy.

"We view this as a significantly positive development for Marriott, because Ritz-Carlton is a well-known brand but apparently has not generated big returns for investors," said Camille E. Humphries, an Alex. Brown & Sons Inc. analyst who tracks Marriott.

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