Despite the seasonality of revenue, the hotel and motel industry requires constant renovations and maintenance to keep businesses healthy. In such a competitive environment, most global hotel companies are searching to augment guest satisfaction and gain a better foothold in the industry. Hence, brand conversion and remodeling are very important.
I am going to analyze three companies, focusing on their investments and performance.
Big investments and ambitious renovation plans
Starwood Hotels & Resorts Worldwide, Inc (NYSE:HOT) is one of the world’s largest hotel-operating companies. It has several subsidiaries, such as ITT Sheraton, and CIGA S.p.A.
The company plans to renovate its New York City portfolio, which is comprised of 21 hotels at a cost of approximately $400 million. The properties to be revamped include W New York Times Square, W New York Union Square, Sheraton New York Times Square Hotel, The Westin New York at Times Square and The Westin New York Grand Central. Hosting more than 50 million tourists each year, New York City is one of the most important cities for the industry.
Plus, the company has a dividend policy and a share repurchase program that ensures a solid return to shareholders. Starwood Hotels & Resorts Worldwide, Inc (NYSE:HOT) pays out 25% to 40% of earnings per share every year.
Great performance in North America
Marriott International Inc (NYSE:MAR) operates and franchises hotels under the Marriott, JW Marriott, The Ritz-Carlton, Renaissance, Residence Inn, Courtyard, TownePlace Suites, Fairfield Inn, SpringHill Suites and Ramada International brand names; and develops and operates various vacation-ownership resorts.
The company’s reported EPS of $0.43 for the first quarter 2013, up 43.3% from the year-ago level, shows that Marriott International Inc (NYSE:MAR)’s margin expansion, effective pricing and share-repurchase strategy are in action. Marriott’s revenue for the quarter was $3.1 billion, an increase of 23% year-over-year, explained by a solid performance of the North American market and a rise in fee revenue at Marriott’s owned, licensed and franchised properties.
For 2013, management estimates that comparable system-wide revenue per available room will increase from 4.5% to 7% in North America and 4% to 7% worldwide. Marriott International Inc (NYSE:MAR) is benefiting from low supply growth in North America and increased demand in the corporate and leisure business lines.
As per Marriott’s acquisition strategy, the recent purchase of Gaylord will enforce the company’s share in the US bookings segment.
Gaining presence in the US
Wyndham Worldwide Corporation (NYSE:WYN) operates in the lodging, vacation exchange and rentals, and vacation ownership segments of the hospitality industry.
The company reported earnings per share of $0.71, representing 18.3% growth year-over-year for the first quarter of 2013. The better-than-expected fourth-quarter results are mostly due to a growth in the lodging and vacation ownership businesses in addition to stock repurchases.
I believe Wyndham Worldwide Corporation (NYSE:WYN)’s strategy to shift to a greater fee-for-service business and its solid free cash flow generation will guarantee higher revenue in the future as long as global travel demand continues to grow.
Wyndham Worldwide Corporation (NYSE:WYN)’s European business, however, will suffer from the sluggish economic environment in the region, especially in the U.K., where consumer confidence is being hit by current austerity measures.
Regarding acquisitions, the company acquired The Resort Company in August 2011 and Hoseasons Holding in February to secure a European vacation-rental business.
My conclusion
Hotel renovations are necessary; they form part of the expenses of any company in the industry. As we all know, renovation work affects near-term revenue, but they are expected to boost returns once completed. So the key is to identify which renovations will give the most revenue per dollar spent.
Vanina Egea has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Hotel Investments: A Review originally appeared on Fool.com.
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