Which Hotel Company Is the Best Stay for Your Portfolio?
Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One segment of the market that continues to be strong is the international hotel business. Particularly in Asia, there's a building boom of new hotels as countries prosper and attract more international travelers. Hotel companies that have an international presence are able to leverage their brands and develop a loyal clientele. By having all price points, these hotel companies are also able to appeal to a wider range of customers. For investors, it's important to identify not only which hotel to stay in while traveling, but also the best hotel company to own.
In business since 1927
Marriott International (NYSE: MAR) was founded by J.W. Marriott in 1927. The company now has more than 3,800 properties spread across more than 74 countries and territories. Marriott brands include Marriott, JW Marriott, The Ritz-Carlton, Renaissance, Residence Inn, Courtyard, TownePlace Suites, Fairfield Inn, Springfield Suites, Gaylord, Bulgari and EDITION.
In the first quarter of this year, the company reported earnings of $0.43 per share, which was better than the company's forecast of $0.37 to $0.42. The operating margin increased from 34% to 38% in the quarter. Marriott repurchased over 5 million shares. The Ritz-Carlton luxury brand was the strongest performer with North American REVPAR (revenue per available room) increasing 9% and 11% outside North America.
Going forward, the Ritz-Carlton chain is going to grow by 35% with 31 new properties in the pipeline. The luxury market globally is particularly strong and that will benefit Marriott as Ritz-Carlton continues to expand. In addition to expansion of the Ritz-Carlton brand, Marriott has a total of 135,000 hotel rooms in development with 62,000 hotel rooms already under construction.
For the full year, Marriott expects EBITDA (earnings before interest, taxes, depreciation, and amortization) of $1.2 billion, which is up from last year's $1.14 billion. Earnings are forecast to be between $1.93 to $2.08 per share, an increase of 12% to 21% from 2012. Marriott plans on returning $800 million to $1 billion to shareholders in the form of dividends and share repurchases.
An aggressive acquirer
Starwood Hotels (NYSE: HOT) was formed from the acquisition binge of former CEO Barry Sternlicht. His biggest acquisition was in 1998 when Starwood merged with ITT Sheraton. Starwood's brands include St. Regis, The Luxury Collection, Four Points, Aloft, W, Westin, Le Meridien, and Element. Starwood has approximately 1,146 properties in 100 countries.
In the first quarter of this year, EBITDA was $315 million. In China, REVPAR was up over 5%. Revenues grew 6% in Thailand, Indonesia and Malaysia. North America rose 6%. The company is seeing tight supply and is bullish for the rest of the year on this segment. Earnings were $0.73 per share compared to $0.65 in the prior year's quarter. In the company's real estate segment, Starwood has sold and closed 86% of its St. Regis Bal Harbour residences.
Going forward, Starwood will continue to exit its company-owned hotels and continue transitioning to a managed and franchised fee business model. As the company sells more hotels with long-term management contracts, fees are forecast to grow 9% to 12% per year. By 2016, Starwood expects to sell another $3 billion worth of hotels and derive 80% of profits from management and franchise fees. Starwood has 100,000 hotel rooms in development, with 80% outside the U.S. The company now gets 56% of its fees from outside the U.S. Overall, Starwood expects REVPAR growth of 5% to 7%, EBITDA growth of 10% to 12%, and earnings per share growth of 16% to 20%.
The smaller competitor
Hyatt Hotels (NYSE: H) has been owned and controlled by the Pritzker family for decades. The company's portfolio comprises 508 properties under the brands Park Hyatt, Andaz, Grand Hyatt, Hyatt Regency, Hyatt, Hyatt Place, Hyatt House and Hyatt Residence Club.
In the first quarter of this year, REVPAR in the U.S. rose 6.7%. Group revenue declined 6% and that represents 45% of Hyatt's business. The decline in revenue was associated with major properties in San Diego, Dallas and Washington, D.C. undergoing renovations. Hyatt owns a majority of its properties and is more affected by issues such as property tax increases in the U.S., which is a concern for the company.
Going forward, Hyatt has 200 hotels or 45,000 rooms in the pipeline. The company is also exploring the sale of 6 full-service hotels in the U.S. The company just redeemed $250 million in notes due in 2015 and increased the authorized share repurchase program by $200 million.
The problem with Hyatt Hotels is that the company doesn't provide much future guidance. As a result, it has missed analysts' earnings estimates in three of the past four quarters. Management says that their focus is on the long-term, but the market remains unclear as to what future earnings will look like. Hyatt is also more dependent on the U.S. market and in particular the meeting business. This segment is being affected by less government travel due to the sequester. Because of these reasons, it is best to pass on owning shares in Hyatt.
My favorite stock in the hotel sector is Starwood Hotels, followed by Marriott International. Starwood has the best collection of assets in the luxury segment and has a strong exposure in Asia and the Middle East. Starwood has a great record of selling its properties and getting long-term management contracts. I see Starwood as the best hotel company as a stay for your portfolio for these reasons.
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Mark Yagalla has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!