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Marriott to Take On Airbnb in Booming Home-Rental Market
Company poised to be the first major hotel company to create a U.S. home-rental platform
Marriott International Inc. is starting a new home-rental business, aiming to take on Airbnb Inc. and other home-sharing companies in one of the lodging industry’s hottest segments.
The Bethesda, Md.-based company could unveil details for the plan’s first phase as early as next month, according to people familiar with the matter.
Marriott is the world’s biggest hotel operator with about 1.3 million guest rooms globally, according to data tracker STR Inc. Now, the company is poised to be the first major hotel company to create a U.S. home-rental platform. It follows a pilot program in Europe and marks the next step in the company’s plans to go global with the business, these people said.
Marriott, which owns the Sheraton, W Hotels, and Ritz-Carlton brands, would allow home-rental guests to earn and redeem loyalty points as they do when booking a stay at any other Marriott property, said the people familiar with the program.
Other big U.S. hotel operators, including Hilton Worldwide Holdings Inc. and Hyatt Hotels Corp. , also have been exploring or studying the home-rental business, some of the people said. Some hotel executives, who had long dismissed Airbnb and Expedia Group Inc.’s HomeAway as competitors, now believe they are growing in part at the expense of hotel companies, especially with leisure travelers and large families.
At the same time, Airbnb has been moving aggressively into the traditional hospitality business. Airbnb said last month it was acquiring Hotel Tonight Inc., a company that culls inventory from hotels and offers discounted rooms. It also recently invested in the Indian hotel-booking company Oyo Hotels & Homes.
Airbnb has the largest home-rental platform with nearly 5 million accommodations globally, according to data tracker AirDNA and based on listings with at least one booking in a month. Airbnb’s website puts the figure at more than 6 million, based on active listings.
The San Francisco startup is expected to pursue an initial public offering next year, bankers say, and some hotel-industry executives say that prospect is driving a convergence between home-rental companies and hotel operators. Airbnb is looking to diversify its offerings before going public, while hotel companies want a piece of the home-rental business before an IPO helps Airbnb solidify its position.
The promise of new competition in its core business comes as Airbnb already faces heightened scrutiny from city governments that say some Airbnb hosts have turned their homes into illegal hotels.
New York City passed a law last year that would have required Airbnb and other home-sharing services to disclose to the city detailed listing information, although a federal judge in Manhattan blocked it as too broad. Airbnb has said the law protected the hotel industry while trampling on hosts’ rights.
Marriott would have to abide by any other city restrictions on short-term rentals, but people familiar with the company’s thinking say executives decided the home-rental market was too big an opportunity to pass up.
“It’s clear that the home sharing phenomenon is here to stay, and hotel companies want to make sure they get their piece of this pie,” said Ryan Meliker, an industry professional who has worked as a hotel investor and a Wall Street lodging analyst.
Entering the home-sharing business isn’t without risk. The big hotel operators work primarily on management or franchise basis these days, licensing their brands to hotel owners. By offering apartment rentals, they risk alienating their hotel partners by creating new competition.
Maintaining the brands’ same fire and safety requirements in apartment buildings has been another challenge. Hotels often have stricter standards than many apartment buildings. Fire stairwells in some residential buildings are too narrow to meet the hotel operators code, which would eliminate certain buildings.
Marriott’s successful pilot rental program in Europe is expected to serve as a model for the U.S. initiative, say people familiar with the matter. The hotel company joined with Hostmaker, a London-based home-rental management company, to offer home-sharing stays at 340 properties in Paris, Rome, Lisbon and London. Marriott is working with one or more property management firms in the U.S., some of these people said.
Marriott found that guests tended to stay more than twice the typical hotel length, and the rentals appealed to customers who wanted more space and kitchen and laundry facilities. The European homes included a 24-hour support line and an in-person check-in at the property through Hostmaker, Marriott has said.
Other global hospitality brands have also dabbled in the home-rental business, but without much to show for it. Hyatt took a minority stake in onefinestay, a company that enables travelers to rent upscale private homes.
Accor, the giant Paris-based hotel company, acquired onefinestay in 2016 but noted in an October 2018 press release that the unit had turned in a “negative performance.” An Accor spokeswoman said the company is “continuing its work to turn onefinestay around, primarily through rationalization programs,” and that it was introducing new home collections.
Hyatt also took a stake in Oasis Collections and incorporated the home-rental firm’s listings into its distribution system and loyalty program. After the rental-management company Vacasa LLC bought Oasis last year, Hyatt said it was ending its affiliation with Oasis.
Airbnb, meanwhile, is courting business travelers. It developed a unit aimed at corporate travelers that Airbnb says has attracted 400,000 companies, and it is leading a $160 million funding round for Lyric, a luxury-rental startup that caters to business travelers by offering hotel services such as room cleaning and 24-hour customer support.
Referring to any new competitors in the apartment-rental business, Airbnb’s head of policy and communications Chris Lehane offered this: “We welcome them to the party and wish them bon voyage.”
Marriott’s foray into the home-rental business shows how far the hotel industry has come in recognizing the threat to its business from Airbnb.
Even with much of the hospitality industry now embracing the home-rental business, many key players remain ambivalent, including Hilton chief executive officer Chris Nassetta. “We really view home sharing as a different business,” he said in a statement, adding, “we may think differently in the future.”
US facial recognition will cover 97 percent of departing airline passengers within four years
Biometric Exit is already used at 15 US airports
The Department of Homeland Security says it expects to use facial recognition technology on 97 percent of departing passengers within the next four years. The system, which involves photographing passengers before they board their flight, first started rolling out in 2017, and was operational in 15 US airports as of the end of 2018.
The facial recognition system works by photographing passengers at their departure gate. It then cross-references this photograph against a library populated with facesimages from visa and passport applications, as well as those taken by border agents when foreigners enter the country.
The aim of the system is to offer “Biometric Exit,” which gives authorities as good an idea of who’s leaving the country as who’s entering it, and allows them to identify people who have overstayed their visas. Quartz notes that US authorities have traditionally relied on airline flight manifests to track who’s leaving the country.
Critics argue that building up a database of millions of people’s photographs is a threat to civil liberties. Once you have the database, it would be easy to share it with other agencies, effectively turning it into a search tool for all law enforcement.
The current iteration of the system first entered trials in 2017 on a single flight between Atlanta and Tokyo. It was originally planned to roll out more widely at the beginning of 2018, but its implementation was fast-tracked by the Trump administration and was expanded to more airports in the summer of 2017.
Spotify misses by €0.35, beats on revs; guides Q2 revs in-line; reaffirms FY19 revs, MAU guidance (138.25)
- Reports Q1 (Mar) loss of €0.79 per share, €0.35 worse than the S&P Capital IQ Consensus of (€0.44); revenues rose 32.7% year/year to €1.51 bln vs the €1.47 bln S&P Capital IQ Consensus.
- MAUs grew 26% Y/Y to 217 million, slightly lower than the midpoint of 215-220 million MAU guidance range.
- Gross Margin was 24.7% in Q1, above the high end of our guidance range of 22.5-24.5%. Outperformance relative to our expectations resulted from a combination of outperformance of Premium Subscribers, slower than anticipated release of original podcast content, and supply constraints of Google Home Mini devices relating to our Family Plan promotion.
- "We launched India in late February expanding our global market footprint to 79 countries. More than 1 million users signed up for Spotify in our first week in the market, and growth has continued to outpace our expectations. We now have more than 2 million users in India."
- Co issues in-line guidance for Q2, sees Q2 revs of €1.51-1.71 bln vs. €1.62 bln S&P Capital IQ Consensus; sees total MAUs of 222-228 million
- Co reaffirms revs & MAU guidance for FY19, sees FY19 revs of €6.35-6.8 bln vs. €6.67 bln S&P Capital IQ Consensus; sees total MAUs of 245-265 million
- Co now sees operating Profit/Loss of €(180)-(€340) million (Prior €(200)-(€360) million
Diamond Offshore beats by $0.06, misses on revs
- Reports Q1 (Mar) loss of $0.53 per share, excluding non-recurring items, $0.06 better than the S&P Capital IQ Consensus of ($0.59); revenues fell 24.4% year/year to $223.5 mln vs the $231.9 mln S&P Capital IQ Consensus.
- As of April 1, 2019, the Company's total contracted backlog was $1.8 bln, which excludes over $450 mln of backlog secured in April 2019 associated with the Ocean BlackRhino, Ocean BlackHawk and Ocean GreatWhite contracts discussed above and a $135 mln margin commitment from one of the Company's customers
Armstrong World Industries beats by $0.16, misses on revs; reaffirms FY19 revs guidance
- Reports Q1 (Mar) earnings of $1.10 per share, $0.16 better than the S&P Capital IQ Consensus of $0.94; revenues rose 6.5% year/year to $242.1 mln vs the $247.38 mln S&P Capital IQ Consensus.
- Co reaffirms guidance for FY19, sees FY19 revs of +7-10% yr/yr to ~$1.04-1.07 bln vs. $1.07 bln S&P Capital IQ Consensus.
- Co also continues to expect economic conditions in 2019 to be similar to 2018.
- 2019 guidance is unchanged and we anticipate sales growth of 7%-10% and adjusted EBITDA growth of greater than 10%
China Is a Stock Picker’s Paradise
Mainland markets offer outsize opportunities for stock pickers, but for how long?
In recent years, it has become easier for global fund managers to invest in Shanghai and Shenzhen-listed shares, thanks to programs such as Stock Connect, a trading link with Hong Kong.
This could be a fertile hunting ground for savvy investors.
China Has Been Unusually Good for Active Managers
In China, foreigners who don’t just replicate an index have tended to beat their benchmarks by a wide margin—unlike in much of the rest of the world
That Might Be Because Its Markets Are Choppy…
The Chinese market is notorious for its dramatic moves, including the surge at the start of 2019. The average daily swing in the Shanghai Composite has overshadowed its peers in the U.S., Japan, and the U.K. in nine of the past 12 months.
...And Mom and Pop Investors Play an Outsize Role
A lot of trading is done by individuals, who are often armed with leverage and pile into hot stocks. Even institutional investors remain relatively green, with the average portfolio manager having an average of just over three years of experience, according to a report from Allianz Global Investors, citing UBS data.
For nimble managers, that could create more opportunities to scoop up bargains or sell out of other positions at rich prices.
Beating the Market Matters, Too
For all the swings, Chinese shares have had something of a lost decade. That bolsters the case for effective active management.
Among foreign funds monitored by Morningstar, standouts include funds managed by Aberdeen Standard and UBS, which have returned more than 45% in the two years through March.
One important question: How long will Chinese markets offer outsize opportunities for stock pickers?
Benchmark providers such as MSCI are increasing the importance of mainland Chinese companies in popular gauges for emerging markets. In time that should lead to a more efficient—but perhaps less exciting—market.
UK shopping centre investment hits 16-year low
Buyers struggle to assign values to properties affected by retailers restructuring leases
The market for UK shopping centres has all but frozen up as buyers struggle to assign values to properties affected by troubled retailers restructuring their leases.
Just £20m of shopping centres changed hands in the first quarter of this year, according to data from CoStar, against a 10-year quarterly average of £783m.
That was the weakest quarter since at least 2003 and “probably this century”, said Mark Stansfield, head of UK analytics at CoStar.
Retail formed a core part of most real estate investors’ portfolios until the current downturn in the sector, which was prompted by retailers’ battles with higher costs and the transition to online sales.
But properties, including retail parks and shopping centres, made up only 9 per cent of transactions by value in the first quarter — down from 12 per cent last year and about a third in the 2008-2011 period, CoStar said.
Mark Garmon-Jones, director of UK retail investment at the property agency Savills, said the slow market was because of “occupational uncertainty, and political and economic uncertainty around Brexit”.
Investors are concerned about shopping centres’ exposure to retailers such as Debenhams, which announced a restructuring of its leases on Friday, and Arcadia Group, which is expected to carry out a similar process, he added.
The cost of borrowing against retail property assets has doubled over the past four years, according to separate data from Laxfield Capital, a private equity firm that monitors loan requests by property owners in the UK.
“In what feels like the blink of an eye, retail has moved from core to a specialist asset class, and battering headwinds show no signs of abating yet,” said Emma Huepfl, director at Laxfield.
She said that a rash of company voluntary agreements — an insolvency procedure used by retailers to restructure leases — had led to uncertainty over the value of the income from retail properties. Lenders “are struggling to make a risk based assessment of how far the downside could go,” particularly for less favoured “secondary” centres, she said.
However, Mr Garmon-Jones said a variety of investors were eyeing the troubled sector, including private equity firms on the hunt for distressed assets, listed property companies looking to redevelop sites, and buyers who believed parts of the sector had been oversold, with everything “tarnished with the same negative brush”.
Among the trickle of shopping centres changing hands were some redevelopment opportunities. Bards Walk shopping centre in Stratford-upon-Avon was sold for £7.25m in the first quarter to investor Cervidae, which said it looked forward to “converting the upper parts into a viable use for the town centre”.
Ms Huepfl added: “We are not yet near establishing stability because there is too much retail space for the real need. That hasn’t settled down yet and the redundant assets haven’t yet found a new purpose. That’s where future opportunity will lie once the market has bottomed out.”
Buyout group Inflexion raises £1bn as weak pound boosts UK’s appeal
Private equity owner of Mountain Warehouse draws on appetite from US investors
Inflexion, the private equity owner of Times Higher Education’s rankings unit and outdoor retailer Mountain Warehouse, has raised £1bn in two funds largely from US investors finding the UK more attractive because of a Brexit-related slide in sterling.
The New York State Teachers’ Retirement System, the State of Wisconsin and the Illinois Municipal Retirement Fund are among institutional investors in these funds, according to people briefed on the matter.
The funds separately target small and midsized deals and co-investment opportunities, mainly in the UK but also Europe, and raised the money in just 10 weeks.
Buyout groups are raising funds at their fastest pace since the financial crisis, taking just 12 months on average to do so, compared with 20 months in 2010.
Only existing investors in current Inflexion funds were targeted and both funds were more than twice subscribed, said people close to the deal said.
“The UK has become more attractive due to the devaluation of the pound against the dollar and the euro,” said a person with direct knowledge of the fundraising. “If you are a US investor, you might conclude that right now sterling is inexpensive on a historic basis.”
A financial adviser to buyout funds in London said: “It’s a very cheap time for dollars to be buying sterling.”
Hedge funds have recently bet on a further decline of the pound, which has dropped sharply since Britain’s 2016 referendum. However, the consensus has turned marginally positive in recent weeks, with some even expecting a pound rally.
A person familiar with Inflexion’s fundraising stressed the interest was not only Brexit-related and that investors had also been attracted by the private equity group’s performance and the team behind the deals.
More than half of the investors in the two Inflexion funds came from the US, with 20-30 per cent from Asia and the rest from Europe, said people familiar with the matter.
Inflexion, whose funds have delivered three-times returns on invested capital to investors during the life of its funds, declined to comment. An official announcement on the fundraising is expected this week.
Despite demand for UK-specific funds, the uncertainty surrounding Brexit has made it difficult for funds to invest, according to multiple industry insiders.
The UK also recently lost its crown as Europe’s largest buyout market by deal value for the first time since 2011 as investors worried about a lack of clarity around Brexit.
In some cases investors are demanding no more than 30 per cent exposure to UK assets, and executives at private equity groups have downgraded the UK as their top-tier investment destination in recent months.
“People have found it very difficult to price in the risks associated with Brexit,” said one banker who advises some of the large private equity groups in Europe.