# Marriott Forecast - Poor Timeshare Sales



## rfb813 (Oct 2, 2008)

Marriott books lower 3Q profit, expects tough 2009
Thursday October 2, 2:23 pm ET 
By Kristen A. Lee, AP Business Writer  
Marriott reports lower 3rd-quarter profit and warns of tough 2009 amid economic turmoil 


BETHESDA, Md. (AP) -- Hotel company Marriott International Inc. said Thursday that its third-quarter profit dropped 28 percent, compared to 2007, and it warned investors about deteriorating conditions for 2009 amid the ongoing financial crisis.
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Marriott said its revenue per available room declined in North America, and timeshare sales dried up amid the tight credit market and cutbacks in business and consumer spending. Revenue per available room, or revpar, is considered a key gauge of a hotelier's performance.

"It's ugly and getting uglier," said Susquehanna Financial Group analyst Robert LaFleur in a note to investors. "The domestic lodging business has slowed, and the pace of decline is accelerating."

Marriott is the first major hotel company to report third-quarter earnings. Thomas Weisel Partners analyst Jake Fuller said the company's gloomy projections "set a bad tone for the group."

In a sober conference call with investors, Chief Financial Officer Arne Sorenson argued that Congress should pass a financial bailout package:

"There are thousands, maybe tens of thousands of jobs at stake in our company alone, and we are typical," he said. And it is crucial "that the plan be big and enacted very, very soon."

Marriott's earnings projections came in well below analysts' expectations at 44 cents to 50 cents per share, compared to the consensus forecast of 63 cents. The company lowered its full-year 2008 earnings guidance to $1.62 to $1.68 per share, from its previous guidance of $1.77 to $1.88 per share. Analysts had forecast 2008 profit of $1.78 per share.

Marriott shares lost 93 cents, or 3.7 percent, to $24.15 in afternoon trading. The stock has traded between $22.12 and $45.10 during the past 52 weeks, and is off nearly 27 percent since January.

Sorenson said Marriott has a cushion under its $2.4 billion revolver, which is effective until 2012, to keep it comfortable until liquidity returns to the marketplace.

For the third quarter ended Sept. 5, net income slipped to $94 million, or 26 cents per share, from $131 million, or 33 cents, a year ago. Excluding a $29 million tax planning charge, the company's adjusted income from continuing operations totaled $123 million, or 34 cents per share.

Bethesda, Md.-based Marriott said revenue rose 1 percent to $2.96 billion from $2.94 billion.

Analysts polled by Thomson Reuters forecast earnings of 32 cents per share on revenue of $2.95 billion.

In North America, Marriott said third-quarter comparable company-operated revpar declined 1 percent and is expected to drop further -- between 3 and 5 percent -- in the fourth quarter.

Overall worldwide revpar gained 2.2 percent on a systemwide basis in the third-quarter, but is expected to drop between 1 percent and 3 percent in the fourth quarter.

Sorenson said Marriott's corporate group business has suffered as businesses have delayed booking events and trimmed their meeting and travel budgets.

The squeezed credit markets are also affecting the company's development pipeline, although Marriott expects nearly two-thirds of the 130,000 rooms now under construction or in the planning stages to open on schedule.

The company's timeshare business was hit the hardest.

"Tight credit, soft consumer spending and a difficult securitization market have lowered our expectations for the fourth quarter and 2009," Chairman and Chief Executive J.W. Marriott Jr. said in a statement.

The company booked no new residential sales during the quarter and said it does not expect a sale in the fourth quarter. It now expects 2008 timeshare sales to total $158 million to $168 million, down from its previous forecast of $230 million to $250 million.

Marriott's timeshare results worry investors in Wyndham Worldwide Corp., which relies more on them. Wyndham shares lost 80 cents, or 5.2 percent, to $14.49 in afternoon trading.

For 2009, Marriott said the outlook is uncertain, but the company expects the environment to remain "unusually challenging." The company expects at least a 3 percent decline in North American revpar next year.

Marriott forecast 2009 earnings between $1.48 and $1.60 per share, below analysts' consensus profit estimate of $1.85 per share.

Marriott said it will focus on cash flow by trimming investments and share repurchases.

Oppenheimer & Co. analyst David Katz said stock buybacks had been "a key positive" for the company.


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## cp73 (Oct 2, 2008)

rfb813 said:


> The company's timeshare business was hit the hardest.
> 
> It now expects 2008 timeshare sales to total $158 million to $168 million, down from its previous forecast of $230 million to $250 million.



This should take away any worries buyers have about ROFR. Sure doesn't look like to me they will be interfearing and intercepting many offers. So much for any of you that thought ROFR helps keep your prices up.


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## joestein (Oct 2, 2008)

rfb813 said:


> The company booked no new residential sales during the quarter and said it does not expect a sale in the fourth quarter. It now expects 2008 timeshare sales to total $158 million to $168 million, down from its previous forecast of $230 million to $250 million.



Wow, no new sales.  I can't imagine that they didn't sell any timeshares in the 3rd qtr.  The sales must be reserved to cover the debt on them.


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## Latravel (Oct 2, 2008)

That's impossible - we bought 2 weeks in Shadow Ridge the first week of July.  It probably closed in August.  Either way, both July and August are 3rd quarter sales.  It must mean something else?   

I sure hope things get better for Marriott.  We all have thousands of dollars riding on the company doing well.


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## dougp26364 (Oct 2, 2008)

joestein said:


> Wow, no new sales.  I can't imagine that they didn't sell any timeshares in the 3rd qtr.  The sales must be reserved to cover the debt on them.



Timeshare sales are not included in residential sales.


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## winger (Oct 2, 2008)

joestein said:


> Wow, no new sales.  I can't imagine that they didn't sell any timeshares in the 3rd qtr.  The sales must be reserved to cover the debt on them.



does residential sale mean timeshare sale??n


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## dmaxdmax (Oct 2, 2008)

The easiest way to cut expenses is chop heads.  I won't be surprised if the staff/unit ratio gets hit.  If I were a shareholder I'd demand it, especially in properties that are sold-out.


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## JimC (Oct 2, 2008)

dmaxdmax said:


> The easiest way to cut expenses is chop heads.  I won't be surprised if the staff/unit ratio gets hit.  If I were a shareholder I'd demand it, especially in properties that are sold-out.



Why?  The owners pay for it not Marriott shareholders.


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## JimC (Oct 2, 2008)

cp73 said:


> This should take away any worries buyers have about ROFR. Sure doesn't look like to me they will be interfearing and intercepting many offers. So much for any of you that thought ROFR helps keep your prices up.



ROFR keeps prices up if it is exercised.  

I wonder how many timeshares are financed?  Tighter underwriting standards and limited credit availability would hit here even harder than it has already hit auto sales.


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## gores95 (Oct 2, 2008)

rfb813 said:


> In a sober conference call with investors, Chief Financial Officer Arne Sorenson argued that Congress should pass a financial bailout package:  "There are thousands, maybe tens of thousands of jobs at stake in our company alone, and we are typical," he said. And it is crucial "that the plan be big and enacted very, very soon."



You know I am still on the fence about this whole "Government bailing out large corporate businesses" but Marriott wasn't hit with the whole sub-prime fiasco, now were they?? 

Unbelievable that companies that are not doing real well right now are just sitting back and waiting for those taxpayer dollars to bail them out.  I understand there are jobs at stake but at its core it just doesn't seem right.  

I guess large corporations can piss away profits, invest poorly and not have enough saved for the lean times, then rely on the government when times get tough....where's MY bailout package??!?!?!


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## dmaxdmax (Oct 2, 2008)

JimC said:


> Why?  The owners pay for it not Marriott shareholders.



I assume that the properties aren't completely self-contained and that some cash either flows from them to Papa Marriott or vice versa.  The net income from each property is definitely rolled to Inc's P&L probably via one or more sub-corps.  If there isn't net income then Marriott would jettison the business since they're not in it for the glory.  It would be reasonable to think the CFO might ask for x% improvement from each profit center and that would include the TSs.  It's gotta come from somewhere and heads are the easiest place.  Increased MFs are good too but I don't know if there are restrictions on that.


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## JimC (Oct 2, 2008)

gores95 said:


> You know I am still on the fence about this whole "Government bailing out large corporate businesses" but Marriott wasn't hit with the whole sub-prime fiasco, now were they??
> 
> Unbelievable that companies that are not doing real well right now are just sitting back and waiting for those taxpayer dollars to bail them out.  I understand there are jobs at stake but at its core it just doesn't seem right.
> 
> I guess large corporations can piss away profits, invest poorly and not have enough saved for the lean times, then rely on the government when times get tough....where's MY bailout package??!?!?!



I suspect Marriott's comment for government intervention is in regard to the state of the credit markets.  That affects everyone irrespective of how well off you are fiscally.


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## jerseyfinn (Oct 2, 2008)

JimC said:


> I suspect Marriott's comment for government intervention is in regard to the state of the credit markets.



Agree. Marriott is in the same boat as any other business in this regard. As to declining TS sales. No surprise there. TS is a discretionary decision and in this environment, I do not expect people to be throwing a lot of money around for this sort of thing. It's akin to observing that one gets wet when they step outside in the rain. Presently, there's quite a storm brewing outside. Not much owners or Marriott can do except hunker down and see where the government ( and subsequently consumers ) take this thing.

The TS product remains what it is if you are an owner with goals and objectives. I doubt that purchasing more weeks is on many people's agendas at this moment given the dysfunctional credit system. But life goes on for our resorts and our HOAs. Fortunately Marriott is a large entity which should be able to make it to daylight ( whenever that finally happens ).

Barry


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## tombo (Oct 2, 2008)

JimC said:


> ROFR keeps prices up if it is exercised.



First no it doesn't. The week sells for whatever the week sold for. ROFR only changes who ends up owning the week at the price it already sold for, not one penny more. Second, if ROFR was actually this wonderful Marriott tool to raise prices, wouldn't Marriott ROFR now more than ever before with current resale prices as low as they have ever been? Just the opposite is happening. Prices are falling and Marriott is ROFR'ing less, if at all. 

Where is Marriott and their ROFR when it is needed the most?  It is absent because it is only used when it is good for Marriott, and it has absolutelly nothing to do with helping prop up resale prices..

ROFR resort owners are treated like family.
ROFR: "Robbing Our Family's Resales".


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## thinze3 (Oct 2, 2008)

It's obviuos that Marriott now has concerns about its own cash flow in the future.
Most likely Marriott cannot offer financing for every buyer that comes along like they could a couple of years ago.
Most likely Marriott WILL NOT be excorsizing ROFR for ANY properties any time soon!

Marriott spent billions of dollars on stock repurchases to make their earnings per share look better.
Now I bet they are kicking themselves for that.



> .... Since the beginning of 2002 and through July 31, 2007, the company has repurchased approximately 181 million shares for *$5.6 billion*. LINK




Terry


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## jerseyfinn (Oct 3, 2008)

*it ain't magic & it ain't rocket science*

*. . . Where is Marriott and their ROFR when it is needed the most? It is absent because it is only used when it is good for Marriott . . . *

We're mixing apples and oranges here. 

ROFR has always held a mutual benefit for both MVC and an owner of certain seasons at certain resorts. This objective fact has not changed ( nor has the business ethos of Marriott in general ). What has changed is the lending environment for *every *type of business in this terrible fallout from the subprime mess. And this effect trickles down to individuals as well. So you are not comparing  Marriott's response to what one would term a "normal" business/financial environment. Not a surprise at this moment of tight credit and fleeing capital ( which means customers flee as well ). 

So just what should one expect of the so-called market at this moment? Once again, it is pouring rain and we all get wet if we venture out into the market environment -- no surprise at all. Marriott is not lucky enough to be the recipient of a $25 billion bailout like GM receives from our upstanding members of Congress ( for it's own poor business decisions ). Marriott stands and acts on its own.

Abracadabra!:deadhorse: 

Barry


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## tombo (Oct 3, 2008)

If a company's business policy is to make sure that resale prices of their product remain high through the use of ROFR (to help both themselves and their customers), I would expect them to show everyone that they would continue their policy in bad times and in good. If you actually believe that ROFR helps prices (I don't), then it is sad that Marriott is forsaking it's owners at the time they need the most help. I guess their mantra should be "When times are good we are there for you. When times are bad, you are on your own".


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## dmaxdmax (Oct 3, 2008)

tombo said:


> If a company's business policy is to make sure that resale prices of their product remain high through the use of ROFR (to help both themselves and their customers), I would expect them to show everyone that they would continue their policy in bad times and in good. If you actually believe that ROFR helps prices (I don't), then it is sad that Marriott is forsaking it's owners at the time they need the most help. I guess their mantra should be "When times are good we are there for you. When times are bad, you are on your own".



I doubt it's a matter of business policy as much as fiscal reality.  I haven't looked at their balance sheet but I suspect they aren't sitting on a pile of cash and there's no way they are going to dip into debt.  Buying a resale unit is as much a discretionary expense for them as it is for us.


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## Dave M (Oct 3, 2008)

*With my moderator hat on....*

Those who wish to debate the merits and effects of ROFR should do so (as I have previously requested) in this linked thread devoted to that topic. This is not the thread for such a discussion.


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## thinze3 (Oct 3, 2008)

dmaxdmax said:


> I doubt it's a matter of business policy as much as fiscal reality.  I haven't looked at their balance sheet but I suspect they aren't sitting on a pile of cash and there's no way they are going to dip into debt ....



Marriott has already begun drawing from its line of credit for the first time.  



> Marriott International was the latest company to say the credit storm was hurting it.
> 
> The hotel giant's chief financial officer, Arne Sorenson, said on Thursday it drew down $900 million from its bank credit lines to "supplement the dramatically reduced liquidity in the commercial paper market."
> 
> Sorenson, who spoke on a conference call after the release of Marriott's quarterly results, said it was the first time the company borrowed from its credit facility, currently worth $2.4 billion, since the September 11 attack.


 LINK


Terry


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## dmaxdmax (Oct 3, 2008)

thinze3 said:


> Marriott has already begun drawing from its line of credit for the first time.
> 
> LINK
> 
> ...



Exactly - there's obviously no money for buy-backs.  Low-ball offers are certainly worth trying.  

If the numbers get bad enough there's always the chance that the TSs could get spun off.  I'm sure there are "what if" threads regarding this but it would be too distressing to seek them out.


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## bongo (Oct 3, 2008)

*Question*

Dmax,  what do you mean by "spun off"?  Thanks!


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## pgnewarkboy (Oct 3, 2008)

A Washington Post article cites Marriott as saying that when they sell a timeshare through financing Marriott does not keep the note but sells it.  Apparently, there are no takers for these loans at the present moment.  Marriott is not in the banking mortgage business.  If they can't sell the mortgages, they are not in a position to hold these notes without great costs.  In other words, the profit in selling the timeshare diminishes when you have to add in the administrative costs and risks associated with the mortgage business and people defaulting on payment.  This is very bad news for their timeshare operations.


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## dmaxdmax (Oct 3, 2008)

bongo said:


> Dmax,  what do you mean by "spun off"?  Thanks!



The TS business could be stripped out from Marriott Inc and sold to another corporation or set up as a stand-alone corp, with or w/out the Marriott name.


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## winger (Oct 3, 2008)

dmaxdmax said:


> The TS business could be stripped out from Marriott Inc and sold to another corporation or set up as a stand-alone corp, with or w/out the Marriott name.


say it ain't so !!!


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## AwayWeGo (Oct 3, 2008)

*Motel 6 Or Super 8 ?*




dmaxdmax said:


> The TS business could be stripped out from Marriott Inc and sold to another corporation or set up as a stand-alone corp, with or w/out the Marriott name.


What a shock it would be if the former Marriott timeshares were shucked off & stood alone & rebranded as _Motel 6 Timeshares_ -- or even _Super 8 Timeshares_. 

If that happens, how the mighty will have fallen. 

_Note*:*_  There's already a Super 8 casino-hotel out in Las Vegas -- way off The Strip, naturally (not that there's anything wrong with that).  I don't know of any Motel 6 casino in Las Vegas. 

-- Alan Cole, McLean (Fairfax County), Virginia, USA.​


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## JimC (Oct 3, 2008)

Marriott is a long term player.  This is a short term problem.  I would be surprised if Marriott would abandon the timeshare market.  Unless it concluded that a fundamental shift had occurred.

More likely they will defer construction of future resorts and additional phases of existing resorts.  They might also allow land options to expire, but I suspect that would only happen if there were a prolonged and deep recession.

Although I believe they could handle both the liquidity and risk issues; I am doubtful they would self finance the mortgages until the credit markets rebounded for that type of debt.


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## dioxide45 (Oct 3, 2008)

pgnewarkboy said:


> A Washington Post article cites Marriott as saying that when they sell a timeshare through financing Marriott does not keep the note but sells it.  Apparently, there are no takers for these loans at the present moment.  Marriott is not in the banking mortgage business.  If they can't sell the mortgages, they are not in a position to hold these notes without great costs.  In other words, the profit in selling the timeshare diminishes when you have to add in the administrative costs and risks associated with the mortgage business and people defaulting on payment.  This is very bad news for their timeshare operations.



It isn't so much that there is cost to hold these notes. They do earn interest and Marriott still services these loans for the note holder and collects upon default and foreclosure, so they pay those costs. Marriott receives a servicing fee for their services. Marriott sells the notes to free up capital. If all there capital were in notes they wouldn't get all their money back for 10 years when the loan is paid in full. It is all about freeing up money to relend and put in to new projects.


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## Icarus (Oct 3, 2008)

Marriot packages and sells there loans in the marketplace. Nobody is there to buy them now. They make a profit at each step of the way, and the sale makes more money available for more loans, etc.

The subprime thing affects the entire world economy. Nobody wants to spend money on things like timeshares now. (except for those TUG members and some others that are snapping up resale bargains and can afford to do that.) Nobody wants to spend money on anything discretionary right now.

-David


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## billymach4 (Oct 4, 2008)

Will everybody just hold your opinions. Marriott is not going away from the Timeshare business!!!

For Pete's sake! King George just signed the Bailout Bill. We now own all of that bad debt... Are you OK with that... 

So now Marriott can sell those lousy notes, and we can get on with our lives.

Besides..... There are so many properties intermingled with Marriott Hotels, and Timeshare resorts side by side. Marriott would never let this house of cards fall.


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## jerseyfinn (Oct 4, 2008)

*If a company's business policy is to make sure that resale prices of their product remain high through the use of ROFR . . .  *

No, the business of MVCI is *selling timeshare* and MVCI is itself a subset of Marriott's hotel/accomodation business. This fact always seems to get overlooked here. Everything else ( the management agreements, the MRP options for owners, and yes, ROFR )  all flow from Marriott International doing the accomodation thing which also includes selling TS. So whatever Marriott is doing at the moment reflects this goal/objective. GM builds cars *and *they are into leasing. The former is the _raison detre _of the company & the later is an ancillary synergy from the primary business. 

Just as this thread originally notes, the business side of things is down for Marriott ( and their other hotel and TS brethren will surely follow ). Marriott is making business decisions based wholly upon the present market conditions. The interesting thing for we timeshare people to ponder is where TS pricing is going to settle after this subprime effect finishes flushing through the real estate system -- in other words, were MVCI and others gaging the market reasonably accurately ( and the way I am using "reasonable" is very loose and slippery   ).

Barry


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## Icarus (Oct 4, 2008)

You still want to talk about ROFR in this thread?

-David


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## dougp26364 (Oct 4, 2008)

dmaxdmax said:


> The easiest way to cut expenses is chop heads.  I won't be surprised if the staff/unit ratio gets hit.  If I were a shareholder I'd demand it, especially in properties that are sold-out.





JimC said:


> Why?  The owners pay for it not Marriott shareholders.




Not for the marketing, sales and developement side of the equation. Owners pay for the maintenance, upkeep and management of their resorts only. Owners may elect to remove Marriott as the managing company if they wish. They will, of course, lose the Marriott branded name and no longer have the rights afforded for "internal" exchaning with other Marriott resorts. Likewise, Marriott can remove it's management from resorts and remove it's brand or name from those resorts.


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## winger (Oct 4, 2008)

dougp26364 said:


> Not for the marketing, sales and developement side of the equation. Owners pay for the maintenance, upkeep and management of their resorts only. Owners may elect to remove Marriott as the managing company if they wish. They will, of course, lose the Marriott branded name and no longer have the rights afforded for "internal" exchaning with other Marriott resorts. Likewise, Marriott can remove it's management from resorts and remove it's brand or name from those resorts.


if marriott is voted out of my MVCI resort, will I still have the option of exchanging my unit for MRP's ?


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## Dave M (Oct 4, 2008)

You would have to check the terms of the legal documents that come with your ownership. For some resorts, the "Program Rules", which generally include that trading-for-points provision, can be changed by Marriott at any time without a vote of the homeowners.


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## winger (Oct 4, 2008)

Dave M said:


> You would have to check the terms of the legal documents that come with your ownership. For some resorts, the "Program Rules", which generally include that trading-for-points provision, can be changed by Marriott at any time without a vote of the homeowners.


thanks I will search for this for my MMC ownership.

Hey you start use those zillion MRP's yet?


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## Dave M (Oct 4, 2008)

I sure have.  

Some Travel Packages and hotel stays. Extended trips to Australia-New Zealand and Europe are already booked for next year. Retirement is bliss....


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## rfb813 (Oct 5, 2008)

As was noted earlier Marriott packages the timeshare loans and resells the notes in order to provide more capital to invest int he business. The ability to resell these notes has been made difficult due to the current financial crisis (the same is occurring with Westgate Resorts).  I don't believe that Marriott will exit the timeshare business but will slow the development of new resorts or the expansion of existing resorts.  If this occurs the I expect that Marriott will ultimately need to exercise more ROFR's in order to get inventory to sell for their core sales staff.


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## JimIg23 (Oct 5, 2008)

I don't see Marriott ever leaving the timeshare business, maybe just hold off some new construction for a year or so.  It is too profitable.  Like every other time in our history, the economy will rebound and it get back to growth.  However, it may be the time to buy a few more resales...  I have been thinking about buying another, either MMC or Horizon Branson, their prices are pretty good now.


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## jerseyfinn (Oct 5, 2008)

*I don't see Marriott ever leaving the timeshare business, maybe just hold off some new construction for a year or so. It is too profitable . . . *

I'm not one who "never says never", but I do agree that Marriott seems to be in the TS game to stay. Of course last year, they have a statement of the projected TS sales market which looks very upbeat. But I do agree with their instinct which says that folks want destination travel and that Marriott can lasso a nice chunk of that demand.

It's my own opinion that these difficult times afford Marriott and the TS sceptic crowd a chance to put up or shut up. I myself am betting on Marriott. That said, I have no idea where the bottom lies at the moment, but I'm satisfied with our portfolio and what it allows us to do in good times and during these difficult times. There is something to be said for aligning yourself with one of the big players, especially in tough market situations.

We just do our owner tuneup at Playa Andaluza where they are still selling TS, even in this downward-trending market. Naturally their numbers are down from a year ago, but they continue to do business and there does indeed exist a Euro-demand market at these Spanish resorts ( and Europeans do indeed continue to dabble in purchases at American resort destinations because of the favorable exchange rates ). Call it diversification. But TS still goes on despite current events.

Barry


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## thinze3 (Oct 8, 2008)

*Marriott - are you listening??*

Maybe Marriott could sell rewards points at a discount as a way to garner a little cash during these tough times. 

I can se it now.  


> *"Stuff your stockings this winter with Marriott Rewards Points, good for hotel stays, vacation getaways and much more! Buy between now and December 15th and get 25% "bonus" points free! Act fast as this is a limited time offer!"*




*Terry*


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## dmaxdmax (Oct 8, 2008)

JimIg23 said:


> I don't see Marriott ever leaving the timeshare business, maybe just hold off some new construction for a year or so.  It is too profitable.



Good profit can actually be a reason to get out.  If Marriott determines the TS business is worth $x but Newco thinks it's worth $3x, Marriott could be offered a deal too sweet to ignore.  This is especially true if they need cash today.

If IBM can get out of the PC business then anything is possible.

Please understand that I've done no research and don't pretend to have any specific knowledge.  My comments could apply generically to almost any corporation.


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## winger (Oct 8, 2008)

dmaxdmax said:


> Good profit can actually be a reason to get out.  If Marriott determines the TS business is worth $x but Newco thinks it's worth $3x, Marriott could be offered a deal too sweet to ignore.  This is especially true if they need cash today.
> 
> If IBM can get out of the PC business then anything is possible.
> 
> Please understand that I've done no research and don't pretend to have any specific knowledge.  My comments could apply generically to almost any corporation.


Yes, like Westin or Hyatt can can come in and buy out Marriott's TS devision and rebrand all the MVCI TS's as their own.  How nice of a thought.


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