# Diamond Resorts Buying Marriott Vacation Club?



## csalter2 (Nov 18, 2014)

I don't believe it because the salesman's lips were moving. However, there are several rumors being initiated throughout various sales offices throughout Diamond Resorts International's expansive properties that DRI will be buying MVCI. 

I am actually tired of hearing it. However, I've heard rumors like this before of DRI buying something and it has been true. 

Anyone on the MVCI hear any of this? What are your thoughts if it were to occur?


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## bazzap (Nov 18, 2014)

I have not heard of it and I don't believe it.
From my limited experience of them in the UK though, they have a few really top quality locations along with a fair number of lesser standard ones that are no match at all for MVC resorts.


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## winger (Nov 18, 2014)

They now do have some money to work with, since going public. However, this goes totally against their MO of buying beaten down companies, those is despair. Time will tell, I guess.


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## RuralEngineer (Nov 18, 2014)

*rationale*

what logic / rationale are they using?  usually DRI buys distressed properties.

Stephen


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## dougp26364 (Nov 18, 2014)

The rumor likely stems from the silent partnership DRI has with MVCI involving Grand Chateu. Originally, Grand Chateua was a DRI project. At one point the CEO of DRI decided to get out of the timeshare business, concentrate on developing other commercial properties and contemplate a run for the goveners office in NV. It was only when the opportunity to buy the bankrupt Sunterra system that he decided to get back into timeshare full time. 

Back when he decided to get out, he had the plans and approval for Grand Chateau. He had inventory still to be sold at Polo Towers as well. He cut a deal/partnership with MVCI. MVCI took over the Sales at Polo Towers and also received the rights to brand Grand Chateau as. Marriott timeshare. The partnership was labled Hard Carbon. At that time, the rumor was that MVCI was going to buy Polo Towers. 

So now the rumor has come full circle. Several years ago it was MVCI buying the loan DRI property. Now it's DRI buying MVCI. The rumors might give the salesmen something to talk about but neither was ever true. The closest I'd get to half believing anything was the possibility that there's a clause in the Grand Chateau partnership giving DRI the right or option to re-acquire Grand Chateau. It could be what's pushing Marriott to continue the build there if the contract was based on completing the project or, there could be an option for DRI to purchase back the rights to Grand Chateau at an agreed upon price. Other than that, DRI is big but I'm not sure they're a big enough fish to squire MVCI without stretching their finances dangerously thin.


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## ilene13 (Nov 18, 2014)

I hope that never comes to fruition.  A sales executive from Diamond Resorts was hired by the Royal Resorts to revitalize their sales program.  It has been a nightmare.  That person has now been fired and the Royal Resorts are trying to re-find themselves.  If he was an example of Diamond Resorts executives I want no part of them.


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## TheTimeTraveler (Nov 18, 2014)

If Diamond takes over then I'm "outta here".




.


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## GregT (Nov 18, 2014)

I can't see this happening.

Marriott has a market capitalization of $2.4B.  DRI has a market capitalization of $1.9B.  Nothing prevents a smaller company from acquiring a larger company but it's uncommon.  Is DRi really going to offer $3.0B+ to acquire VAC?  And give up 60% of itself since this would have to be a stock deal. 

I think it's highly unlikely.    Even if it did, this would be a merger of relative equals, and then the battle becomes over who runs it - who is the CEO, CFO, etc and I would suspect both management teams think they are better and point to the recent years to support it. 

I think Marriott is going to continue to find upscale offerings and add them opportunistically.  I could see something like this High Country Club (if it still exists) being purchased for a discount when it has financial troubles. 

We will see.  Interesting rumor.  Purchasing II makes more sense to me than a merger with DRI. 

Best,

Greg


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## EducatedConsumer (Nov 18, 2014)

csalter2 said:


> I don't believe it because the salesman's lips were moving. However, there are several rumors being initiated throughout various sales offices throughout Diamond Resorts International's expansive properties that DRI will be buying MVCI.
> 
> I am actually tired of hearing it. However, I've heard rumors like this before of DRI buying something and it has been true.
> 
> Anyone on the MVCI hear any of this? What are your thoughts if it were to occur?



A kind person would say they are early (or late) April Fools jokes.

Someone who doesn't necessarily embody kindness, but who calls a spade a spade, would say that the representations made by the DRI salesperson are outright lies. To the person or people who lie and make false representations, there are a lot of crosswalks on the Vegas Strip, you best look both ways before crossing the street......karma.


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## johnrsrq (Nov 18, 2014)

I've heard that before. It would be complicated and dilutive. I'm sure MVCI properties would be treated at the premium level most of them deserve. There would be some premium's amongst the DRI collections . Added places would be great. MVCI would get more places on the map.

It might encourage some to pick cheap points and match/convert them for the premium properties. I wouldn't buy but would welcome such a prospect.


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## csalter2 (Nov 19, 2014)

*I'd keep it simple*



johnrsrq said:


> I've heard that before. It would be complicated and dilutive. I'm sure MVCI properties would be treated at the premium level most of them deserve. There would be some premium's amongst the DRI collections . Added places would be great. MVCI would get more places on the map.
> 
> It might encourage some to pick cheap points and match/convert them for the premium properties. I wouldn't buy but would welcome such a prospect.



I would keep my Marriott weeks and not turn them into points. I would use my lockoff for two weeks and call it a day. I would keep it real simple.


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## thinze3 (Nov 19, 2014)

I believe The Marriott Grand Chateau and Polo Towers story is from 2003. Funny how things linger and then come back as news.


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## dougp26364 (Nov 19, 2014)

thinze3 said:


> I believe The Marriott Grand Chateau and Polo Towers story is from 2003. Funny how things linger and then come back as news.



I never said it was new news, just a fact that might have generated the current rumor. 

There remains the possiblity that DRI had built into the silent partnership the opportunity to re-aquire the branding rights for Grand Chateau under certain circumstances. That could inclued MVCI's abandonment of fully completing the build and might provide an explanation as to why MVCI built tower 3 despite MVCI not appearing to need newly constructed inventory.

While I have always considered the possiblity that there was some fine print that would allow DRI to re-aquire the rights to Grand Chateau, I've never seen or heard anything as fact. Just wild specultion on my part based on how I feel DRI would potentially word a contract. Basically, I wouldn't put it past them.


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## windje2000 (Nov 21, 2014)

GregT said:


> I can't see this happening.
> 
> Marriott has a market capitalization of $2.4B.  DRI has a market capitalization of $1.9B.  Nothing prevents a smaller company from acquiring a larger company but it's uncommon.  Is DRi really going to offer $3.0B+ to acquire VAC?  And give up 60% of itself since this would have to be a stock deal.
> 
> ...



Not only that, but currently there may be some risk of endangering the tax free status of the spin off from Marriott if there is not 'continuity of interest' in ownership for several years (read 5) under the Section 355 statutes regs and case law. 

http://www.steptoe.com/assets/attachments/4358.pdf  bottom of page 442


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## dougp26364 (Nov 21, 2014)

FWIW, I once had a timeshare salesman from another company tell me that MVCI was going bankrupt and getting out of the timeshare industry. The rumor/speculation was based on the fact that MVCI was closing it's sales office in Branson, slowing the construction there down to a crawl and abondoning the Horizon's by Marriott concept. 

Sometimes there's a grain of truth in a statement but it gets blown out of proportion until it becomes a story like Jack and the Beanstalk.


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## jimf41 (Nov 21, 2014)

dougp26364 said:


> FWIW, I once had a timeshare salesman from another company tell me that MVCI was going bankrupt and getting out of the timeshare industry. The rumor/speculation was based on the fact that MVCI was closing it's sales office in Branson, slowing the construction there down to a crawl and abondoning the Horizon's by Marriott concept.
> 
> Sometimes there's a grain of truth in a statement but it gets blown out of proportion until it becomes a story like Jack and the Beanstalk.



If you run into that rep again tell him to check VAC's closing price yesterday. For a company going out of business they seem to be doing quite well.


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## artringwald (Nov 21, 2014)

winger said:


> They now do have some money to work with, since going public. However, this goes totally against their MO of buying beaten down companies, those is despair. Time will tell, I guess.



Now they have more cash. They just borrowed $260M:

http://www.marketwatch.com/story/diamond-resorts-international-completes-260-million-securitization-of-vacation-ownership-receivables-2014-11-20


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## kalima (Nov 21, 2014)

*Interesting*

wonder what they are up to!


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## GregT (Nov 21, 2014)

artringwald said:


> Now they have more cash. They just borrowed $260M:
> 
> http://www.marketwatch.com/story/diamond-resorts-international-completes-260-million-securitization-of-vacation-ownership-receivables-2014-11-20




Marriott just did a securitization recently too -- I believe this is just a normal way that timeshare companies monetize the notes that they take back from selling timeshares.  So, they aren't raising money for acquisitions, they are monetizing their notes receivables.

Makes sense for DRI to do the same -- they don't want to hold the paper for XX years, they want the (discounted) cash for the note.

Best,

Greg


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## JIMinNC (Nov 21, 2014)

GregT said:


> Marriott just did a securitization recently too -- I believe this is just a normal way that timeshare companies monetize the notes that they take back from selling timeshares.  So, they aren't raising money for acquisitions, they are monetizing their notes receivables.
> 
> Makes sense for DRI to do the same -- they don't want to hold the paper for 10+ years, they want the (discounted) cash for the note.
> 
> ...



Precisely. Banks do the same thing with mortgages - package them and sell them to other investors for cash.


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## Big Matt (Nov 22, 2014)

The securitization that MVCI did was certainly done for a couple reasons including the need to keep feeding the furnace on the font end of the business, but also to move some of the risk of holding the loans to the investors.  MVCI still holds a position in the Securitization.

Borrowing money at reasonable rates and lending money at credit card rates isn't a bad model either.  They just need to make sure that if they see defaults increasing that they have a hedge (thus the securitization).

Great business model with very little risk other than holding real estate that loses value and doesn't generate any income.  That's why buying already built and sold timeshares is a much better model than building from dirt and selling them.  There is way less risk.


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## dougp26364 (Nov 22, 2014)

Big Matt said:


> The securitization that MVCI did was certainly done for a couple reasons including the need to keep feeding the furnace on the font end of the business, but also to move some of the risk of holding the loans to the investors.  MVCI still holds a position in the Securitization.
> 
> Borrowing money at reasonable rates and lending money at credit card rates isn't a bad model either.  They just need to make sure that if they see defaults increasing that they have a hedge (thus the securitization).
> 
> Great business model with very little risk other than holding real estate that loses value and doesn't generate any income.  *That's why buying already built and sold timeshares is a much better model than building from dirt and selling them.  There is way less risk.*



So long as there is an adaquate supply of already built timeshares in the locations and of the quality to fit the model. It's easier when if you're selling moderate quality units (DRI, Festiva, Westgate et....) vs higher end units (MVCI, DVC, Hyatt, Starwood et....) HGVC has been successful on a few fronts aquiring property and remodeling in locations such as Las Vegas, Park City and Honolulu.


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## GregT (Nov 22, 2014)

dougp26364 said:


> HGVC has been successful on a few fronts aquiring property and remodeling in locations such as Las Vegas, Park City and Honolulu.



HGVC has even taken this a step further by simply managing someone else's property (and selling the timeshare slots).  They work with a developer who has built 200 condo's and now must find buyers willing to pay $500K for each condo so the developer can earn their $100M on the sales, and persuade the developer to let then break the condo up into 50 timeshare weeks, and sell each one for $20K.  Over the time, the developer will now earn $1M for each condo, not $500K (and will pay HGVC for their sales services).   HGVC continues to manage the property over time. 

That is true asset - but I don't see any evidence of Marriott pursuing a similar arrangement, and the nature of Trust points may complicate it. Adding the last of the Ritz properties to the Trust is the final piece to Marriott's solution to its excess inventory and one day they need to think about expanding. 

Best,

Greg


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