Marriott timeshare profits and other statistics (update)

In July 2005, I posted some info regarding Marriott’s timeshare financial info for 2004, along with some selected demographic info for MVCI owners. Last November, I updated that info.

Here, from a presentation by Marriott earlier this year, is some more MVCI info, primarily related to 2006:

• The average price that Marriott sells a timeshare for is $27,000. The typical MVCI customer has household income of $75K-$200K.
• The typical timeshare project has a 10-year sales life. 43% of sales price represents marketing and sales costs, 40% is project hard costs and 17% is profit margin.
• Of Marriott’s $280 million of profit from vacation ownership activities in 2006, $163MM (58%) was from sales, $97MM (35%) was from financing and $20MM (7%) was from management fees and rental commissions.
• 55% to 65% of purchasers finance their purchase through Marriott, with the down payment typically about 15%. A credit score above 600 generally gets automatic loan approval.
• After some steep jumps, Marriott’s total vacation ownership profit has leveled off, at least for a year:
  • 2000 - $138 million
  • 2001 - $147
  • 2002 - $139
  • 2003 - $149
  • 2004 - $203
  • 2005 - $271
  • 2006 - $280
• Marriott currently has 34 properties (including Ritz-Carlton) in active sales. There are about 20 properties “in various planning stages”, but not yet in sales.

Dave M said:

55% to 65% of purchasers finance their purchase through Marriott

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Interesting stuff - but this part kills me. The interest rate on that loan is about 10-15% isn't it?

According to the data in the link, the rate is typically 13%-13.5%

....(7%) was from management fees and rental commissions.

Is "management fees" in reference from the annual MF's that owners pay? I can understand profit from rental commissions, but management fees?

Yes. Approximately 10% of our maintenance fees go to Marriott for support and, in effect, licensing of the product and Marriott name. That's about normal for the big resort chains.

Dave M said:

17% is profit margin

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So that should put timeshare related revenue around $1.65 Billion....assuming a 17% profit margin...

also then assuming the 17% gm on timeshare sales that equates to about 35,512 timeshares sold a year at $27K each...although I would imagine the margin on the timeshares is probably higher..

34 in active sales and 20 in planning.

I quickly counted 47 resorts on our maintenance fee list. Does that mean that there are only 13 resorts that are sold out -- 47 less the 34 in sales?

JimC,
don't forget about the ones that are in sales, but still under construction (not on maintenance fee list yet).

That still leaves close to your number that aren't sold out.

There are 23 that are sold out and 34 still in active sales. However, the total number includes not only MVCI and Horizons properties, but also Grand Residences and Ritz-Carlton.

Also, there is at least one new resort - Marco Island - now in active sales that isn't included on the historical MFs schedule, because there will be no occupancy available in 2007. Thus, no MFs for 2007. Thus, no listing on our historical MFs schedule.

Thank you, Dave and Matt.

Great stuff Dave. Thanks big time.

I find it interesting that the biggest MR incentives to purchase in recent years was 2001-2002 when sales levelled off - upwards of 500,000+ for less than a $20,000 purchase at some resorts (MSE & MCV for example) ... I wonder if they will increase those incentives again with the current slow growth, which they could now afford to do with the higher price quotient to buy in places like Marco. Things go in cycles...we will probably see something that will enhance the buy direct business.

Brian

Dave M said:

• • 2000 - $138 million
  • 2001 - $147
  • 2002 - $139
  • 2003 - $149
  • 2004 - $203
  • 2005 - $271
  • 2006 - $280

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One last thing to note:

Marriott costs
Construction costs _____40%
Marketing cost ________43%
Developer Profit________17%

No wonder developer bought TSs lose >50% of their value, when you walk out the door.

So this could explain the incentives now on loan financing ... their financing rates used to be around 10 - 11% back in 2001 - 2003, and now it is up at 13.99 - 14.99.

Beverley

Doubt most people stay w/Marriott for duration

Cathy in Boston said:

Interesting stuff - but this part kills me. The interest rate on that loan is about 10-15% isn't it?

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I believe most will go w/their rate for 3months to lock in the incentive points and the sales people will even recommend refinancing after that point.

Bill4728 said:

One last thing to note:

Marriott costs
Construction costs _____40%
Marketing cost ________43%
Developer Profit________17%

No wonder developer bought TSs lose >50% of their value, when you walk out the door.

Click to expand...

This is remarkable. I don't think there are many viable businesses in which marketing and sales make up such a large percentage of sales.

Would you still recommend holding on to the stock or not? It made a kind of double top (over $50) earlier this year so we decided against it. Every time, I call a resort, I ask how sales are doing but do you ever get an honest answer? Every resort tells you that sales are doing great and the same for other hotel brands too.

Our friend owns at the NCVs in CA and our neighbor at the Waiohai in Kauai and both tell me that sales are on target according to their sales contact but the Marriott is starting to offer more MRPs if you buy today. That tells me enough! I even heard that sales quotas had surpassed the Marriott estimates at one of their resorts. Are sales still strong because they offer a lot of MRPs if you finance with them too?

How many of these people will regret it later when they get in a financial bind? They will lose their shirt if they have to get rid of their timeshare in a hurry. I honestly believe that we will see a lot more first time buyers, from the developers direct, having to sell their timeshare in a hurry at a very big loss because they were uneducated about the true value of the timeshare condo they bought at that resort unless they keep it for many years.

I believe in financing so long it doesn't cost you a dime in interest fees. I would also consider it if they paid a lot of MRPs and you would keep the loan going for three months only in that case. You have to weigh it up what you really get for the MRPs as they are constantly downgrading the benefits of the MRPs too. When we upgraded, sales were still doing great so they didn't offer us any MRPs but now they offer MRPs for upgrading too, I believe. Sales must not be as brisk as they make you believe they are and the same for all other big developer resorts too. JMHO.

They keep saying that people outside the country are still buying because they want part of the vacation "dream" too but I hear also that general real estate is slowing down in Europe so I doubt if they are buying so eagerly today. I don't know about Asia as a lot of buyers seem to come from there. Since the Marriott is selling over there, they may still be doing OK.

If you owned this stock today, would you still keep it in your portfolio?

Emmy -

I don't have an answer for you regarding Marriott's stock. However, I would not make my hold-or-sell decision based on the MVCI segment of Marriott's business. Revenues from that segment are only about 15% of the company's $12 billion total.

I suppose it's possible that there is currently or will eventually be some adverse impact to MVCI sales from the current credit crunch. If so, that's almost certainly already taken into account in the market price, especially since large institutions (mutual funds, pension funds, etc.) with expert investment advisors own about 54% of Marriott's stock.

If you do some research on the stock, you'll see that 13 of the 17 analysts that publicly list themselves as following Marriott's stock currently have strong or moderate "buy" recommendations for the stock. That's a pretty strong endorsement. I don't pay as much attention to such recommendations as I do to fundamentals, which I haven't carefully reviewed for this stock in several years. It's not in my portfolio.

Everyone's investment portfolio should be designed for your own risk comfort zone, so I wouldn't give you a 'buy' signal on MAR either. I'm not buying any right now as I've got a ton of it, after splits and growth since 2002, that the US economy would have to collapse before I'd even get back to what I paid for it.

Regarding foreign ownership of vacation properties, it's very interesting what is happening in the Toronto Condo-Hotel market. Just 2 hours north of the city in a very ritzy cottage country area called Muskoka, there's a JW Marriott being built and planned to open next Spring - it's a condo hotel in Canada, the first JW in Canada, studios start at $600,000 and 30% of them are sold to people in the UK.

The Shangri-La condo-hotel-residences (60 stories) is breaking ground in downtown Toronto and almost 70% of the sales are to non-Canadians...and prices start at $1.5 million and up to $8 million per suite. The Trump organization is building one too, but it's slow to get off the ground for some reason, but I think it will go.

The Ritz Carlton, 58 stories, is being built too right now ... 75% sold out with residences as high as $10 million and they also have condo-hotels as part of the complex. The Four Seasons also has a condo-hotel and residence underway ... the 4 penthouse suites all sold the first day for $16 million apiece...MF apparently $50,000 a month. Not much of a RE slowdown here in Canada (yet).

Brian

pwrshift said:

Not much of a RE slowdown here in Canada (yet).

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The same seems to be true in Mexico too. Every time we are down there, we talk to residential real estate brokers and every time again they tell us that the real estate boom is only beginning to take off because of the financing that is available now and they don't need the USA economy because other nations are buying and that includes many Canadians too. They are retiring there, Brian. There is a lot of construction going on. That is true.

Thanks Dave, for your opinion about the stock. Since there are so many cheap flights offered lately, I assume that people are traveling less right now. I don't know if it hurts the Marriott or equivalent hotels or not as we never stay in such expensive hotels at their rack rates. That's why owning a timeshare condo at these resorts is a good buy and certainly if you buy it re-sale or better yet when you trade up from a cheaper resort.