Marriott's $466M Timeshare Loss

Last Updated Oct 10, 2009 3:13 PM EDT

Marriott International lost $466 million in timeshare writeoffs last quarter, following an announcement last month that it would stop developing any new luxury-residential and new timeshare properties. The company said it would finish building any development still under construction.

In an earnings call, Marriott president Arne Sorenson said that the company is dropping pricing to "accelerate cash flow" and that more than half of its timeshare customers are now paying cash for one-week timeshares and not relying on company financing. "Our timeshare business looks forward to a stronger economy," he said.

Despite the sugarcoating, critics took aim.

"I took issue with the whole timeshare debacle," said Bryan Maher, managing director at Collins Stewart LLC. "Taking a write-down [of that size] shows that you let that business get out of control. I think that's a black eye for the company."

Moving from a cash-based business like lodging to a financing-based business like timeshares isn't without risk, as Marriott found out when the housing bust hit hard in 2007 and credit markets dried up. Its timeshare customers, some awash in debt from easy credit, couldn't make payments while new customers couldn't qualify for financing. And the the number of unsold units piled up.

Hotel companies found that getting in the real estate business had real drawbacks (although Marriott did well for several years,) making a profitable business model difficult. There's something to be said for just selling rooms one day at a time.

However with recent high-profile PR moves, from ousting tennis player Melanie Oudin from her room before her quarterfinal at the U.S. Open to its "Blame the Rape Victim" legal strategy, Marriott is often proving to be its own worst enemy.