# HGV 2Q Earnings Call/New Locations & Possible Trust Product



## JIMinNC (Aug 1, 2019)

Hilton Grand Vacations (HGV) had their 2Q 2019 earnings call with stock analysts this morning. It was very interesting. They failed to meet earnings/revenue forecasts and lowered their guidance for the rest of the year. The stock dropped 14% today. They now expect full year 2019 Contract Sales to be anywhere from flat to down 3% from 2018. They attributed the weakness in sales to two main factors:

1. A reduction in the average transaction price
2. Additional pressure due to a decline in closure rate

They further said both factors were driven by limited available sales inventory in key locations, and they expect those headwinds to continue for the rest of 2019 until more inventory becomes available in 2020 and beyond.

Here are some details on that:

Their Hawaii sales offices are suffering due to lower average transaction prices since they currently lack the "optimal mix of new and upgradeable inventory." They only sold $9 million of Ocean Tower inventory in 2Q 2019 compared to $57 million in 2Q 2018, due to the essential sell-out of Phase I of that project.
The lack of proper Hawaii inventory particularly hurt their sales in the Japan sales centers. Even though the Hawaii inventory they did have was the wrong mix, they thought they could steer prospects into the Hawaii inventory they did have, but the prospects wound up buying into the Las Vegas product instead. That significantly reduced the average selling price for these transactions.
They experienced lower close rates in their Las Vegas and Orlando sales centers due to a lack of desirable upgrade inventory.
They also saw a reduced closing percentage in the US mainland. They saw a younger demographic prospect coming in as Hilton widens the customer mix in their HHonors program and in their hotel target marketing. This resulted in a higher ratio of prospects with under $100K family income versus over $100K, and historically for that younger under $100K customer segment, they close a lower percentage and have lower transaction prices.
A significant level of new inventory will be coming online in 2020 and 2021 which should allow growth to return in 2020. *In 2020, they expect to add sales of 1) Phase II of Ocean Tower, 2) Maui, 3) Waikiki Sequel, 4) Los Cabos. *In 2021 they expect to add* Okinawa.*
This new sales inventory will give them more entry level and upgrade inventory versus their current inventory mix, which is skewed towards "mid-tier inventory." They think this will help them match inventory to their prospects better.
*Los Cabos *renovation/conversion has just started. Plan to have that finished later this year and sales in first half of 2020.
They announced *a new fee-for-service HGV project in the Smoky Mountains of Tennessee.* They did not name an exact location, but I'm assuming it might be in the Gatlinburg/Pigeon Forge area.
In locations with new available inventory, sales were up - South Carolina was up 8% and sales of The Central in NYC have been strong, up 30%.
The Chicago and Charleston locations are new and small, so won't have a material impact on sales growth in 2019. Chicago is currently only 16 units and they just started selling Charleston inventory out of the Washington, DC sales center.
In 2018 they committed a large investment to inventory spend and they said they have a lot of inventory coming on line. As a result, they have no inclination to purchase any inventory in 2019, 2020, and 2021 beyond what they have already committed to. If any comes in 2021, it will be in the back half of that year.
*New Products Possible; Maybe a Trust Product*

One of the analysts asked if, given the difficulty they are having with sales volatility from quarter-to-quarter (because of them being limited to selling deeded weeks at specific resorts), would they consider shifting to a pure points-based business model like Marriott went to. Here was CEO Mark Wang's response:

*"We do realize the benefits of a trust product. It does have benefits on reducing some of the variability, and so we're exploring it. Not only a trust product - for certain markets - but also other prepaid vacation forms. We want to figure out how to capture even more buyers to bring into our system.

I would say though, even if we do introduce an additional product form, there's no current plans for a full discontinuation of what we're currently doing. We don't think a trust product would serve us well in markets like Hawaii and New York with their premium prices; and especially with the Japanese, because they want the certainty that a lot of times you don't get out of a trust product - meaning you don't have a home resort window for reservations.

But, we're looking at it. We think it could be done on a regional basis and could reduce some of the variability in the business. But we also have to be cognizant that we have a robust fee-for-service business, and its really difficult to have a trust product with multiple fee-for-service partners like we have now. We have a half dozen fee-for-service partners, and I just don't know how you negotiate whose  product goes into the trust first, whereas now we can sell multiple fee-for-service projects simultaneously."*


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## brp (Aug 1, 2019)

JIMinNC said:


> They experienced lower close rates in their Las Vegas and Orlando sales centers due to a lack of desirable upgrade inventory.
> They also saw a reduced closing percentage in the US mainland. They saw a younger demographic prospect coming in as Hilton widens the customer mix in their HHonors program and in their hotel target marketing. This resulted in a higher ratio of prospects with under $100K family income versus over $100K, and historically for that younger under $100K customer segment, they close a lower percentage and have lower transaction prices. already committed to. If any comes in 2021, it will be in the back half of that year.



I'd like to think that they saw reduced closure rates due to better-educated consumers...but I doubt that's the case...

Cheers.


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## PigsDad (Aug 2, 2019)

Smoky Mountains location would be a great addition!

Kurt


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## klpca (Aug 2, 2019)

PigsDad said:


> Smoky Mountains location would be a great addition!
> 
> Kurt


Any additional locations! From a consumer perspective, Marriott is eating their lunch.


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## dayooper (Aug 2, 2019)

What do you all make of the trust point discussion? How would that work with the current system?


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## bizaro86 (Aug 2, 2019)

dayooper said:


> What do you all make of the trust point discussion? How would that work with the current system?



I think it would be pretty easy for HGVC to sell a trust system if they wanted to. Put a bunch of deeds and new resorts in a trust. Sell points packages from the trust. Trust point buyers can book anything in the trust during the home resort period, and anything in HGVC during the club period.


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## CanuckTravlr (Aug 2, 2019)

Interesting information.  Any discussion about The Crane in Barbados or any other expansion into the Caribbean?  Things seem to be on a back-burner there.


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## GT75 (Aug 2, 2019)

Very interesting with the conclusions of why sales are down.   That would indicate that HGV would need to continue to be very aggressive in new projects.   Well, good for us because new locations are great but I expect that they will be of the higher point requirements too.   I also would like HGV to add the Smoky Mountains to the mix.   I would be able to use OS there if the price was reasonable.    At least I could utilize it for a short getaway.


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## SmithOp (Aug 2, 2019)

bizaro86 said:


> I think it would be pretty easy for HGVC to sell a trust system if they wanted to. Put a bunch of deeds and new resorts in a trust. Sell points packages from the trust. Trust point buyers can book anything in the trust during the home resort period, and anything in HGVC during the club period.



Wouldn’t be able to mix deeded inventory with trust inventory, so they would not be able to book in the deeded pool.  

They could move all unsold deeds into a trust and sell pure points, then churn the deeded owners to convince them to turn in deeds for trust points. Buy up resales through rofr and a deedback program and move into the trust.

I think the sticky issue was affiliates where HGV is just a service provider.

The point system we already have works like a trust point system so I don’t see a need to fix it, but I can understand how investors see trust points as a way to improve profit by reselling what we already have at virtually no cost to HGV.

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## GT75 (Aug 2, 2019)

SmithOp said:


> The point system we already have works like a trust point system so I don’t see a need to fix it, but I can understand how investors see trust points as a way to improve profit by reselling what we already have at virtually no cost to HGV.



I agree.    I don't see any advantage to the current owners.   I would only see it as a way for HGV to generate more profits.


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## bizaro86 (Aug 2, 2019)

SmithOp said:


> Wouldn’t be able to mix deeded inventory with trust inventory, so they would not be able to book in the deeded pool.
> 
> They could move all unsold deeds into a trust and sell pure points, then churn the deeded owners to convince them to turn in deeds for trust points. Buy up resales through rofr and a deedback program and move into the trust.
> 
> ...



Why couldn't they mix it? It seems to me a trust could own HGVC deeds (I suspect some tuggers own their hgvc in a trust). 

If that trust owned hgvc deeds it could make home week reservations and let it's members use them during that period. 

And it could make club reservations and let it's members use them during that period.

Obviously the trust would need inventory, but hgvc has been building lots and could put some in.


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## JIMinNC (Aug 2, 2019)

GT75 said:


> I agree.    I don't see any advantage to the current owners.   I would only see it as a way for HGV to generate more profits.



The reason they would do it would not be to benefit owners, but would be a way to smooth out the bumps and dips in sales they get when new resorts come online. The Hawaii example from this quarter is an extreme example, but they didn’t have attractive inventory to sell there, so sales suffered. With a trust, a point is a point, so it doesn’t matter whether it is in Hawaii or Florida. It’s all one pool, with no home resort, so you always have points to sell.


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## CalGalTraveler (Aug 2, 2019)

@JIMinNC Thank you for summarizing the calls for both HGVC and MVC (on the MVC forum). Since the CEO must be truthful and could go to jail if he lies per SEC, this is the most accurate representation of where the programs are heading.

I found this information on HGVC being inventory limited as eye-opening. What we love as consumers vs. business realities.

I can see how the smoke and mirrors of a trust points program would mitigate this sales wise.  Take all the crappy inventory no one wants to buy. Throw it into a trust. Add a few desireable properties to lure in the buyer (but with extremely limited availability or off season) and voila, you have a trust points program!

Lipstick on a pig.

I sincerely hope HGVC doesn't go there. MVC didn't have a points program and is trying to play catch-up with their weeks system. Hyatt tried this and it has been a failure. Vistana Flex has not been very successful either. HGVC has a well designed points program. Adding complexity adds hidden costs to the system which we will all pay for.


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## CalGalTraveler (Aug 2, 2019)

FYI...on the MVC forum @JIMinNC has done a terrific job summarizing the August 1 investor call for Marriott Vacation Club. It's interesting to compare the differing business challenges each company faces and the industry outlook. Both companies were down in the stock market yesterday after the calls.

What I find most interesting is that MVC only closed 1/3 new buyers vs. 2/3 existing owners this year. Average age of a new buyer is 52 vs. 59 for existing owner. I would be curious to compare to HGVC stats if anyone has those figures.

https://tugbbs.com/forums/index.php...-call-integration-update.293553/#post-2317120

Also FYI...there has been a discussion of how owning HGVC + Vistana mandatory combo or HGVC + MVC combo looks from portfolio perspective (pros/cons):

Marriott Vacations Worldwide 2Q 2019 Earnings Conference Call  & Integration Update

I won't repeat here, but head on over to the links above on the MVC forum if you are interested.


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## SmithOp (Aug 2, 2019)

JIMinNC said:


> The reason they would do it would not be to benefit owners, but would be a way to smooth out the bumps and dips in sales they get when new resorts come online. The Hawaii example from this quarter is an extreme example, but they didn’t have attractive inventory to sell there, so sales suffered. With a trust, a point is a point, so it doesn’t matter whether it is in Hawaii or Florida. It’s all one pool, with no home resort, so you always have points to sell.



They had trouble selling the high cost/ high point contracts in Hawaii because of the buyer pool, too many with lower incomes that wanted a cheaper Vegas contract.  Selling them trust points will not get them enough to use for a full week in Hawaii, so it would matter when it came time to use points.  Not HGV’s problem after the sale.


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## SmithOp (Aug 2, 2019)

bizaro86 said:


> Why couldn't they mix it? It seems to me a trust could own HGVC deeds (I suspect some tuggers own their hgvc in a trust).
> 
> If that trust owned hgvc deeds it could make home week reservations and let it's members use them during that period.
> 
> ...



I understand what you are saying, during home season only book what is deeded in the trust but then open it up to all inventory at 9 months the way points work now.  I’m just not sure it is legal to do that, mix trust with deeded inventory.  In the other systems I don’t think its allowed.


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## CalGalTraveler (Aug 2, 2019)

SmithOp said:


> I understand what you are saying, during home season only book what is deeded in the trust but then open it up to all inventory at 9 months the way points work now.  I’m just not sure it is legal to do that, mix trust with deeded inventory.  In the other systems I don’t think its allowed.
> 
> 
> Sent from my iPad using Tapatalk Pro



Correct. In the other systems the inventory is separate. There prob is a legal reason preventing this.  However MVC offers enrollment into the trust (for $) for weeks owners where you deposit your week into an exchange for booking points in the trust.

For HGVC it seems like it would be a scheme to re-sell club point properties which we've already had access back to us which may have legal ramifications.


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## bizaro86 (Aug 2, 2019)

CalGalTraveler said:


> Correct. In the other systems the inventory is separate. There prob is a legal reason preventing this.  However MVC offers enrollment into the trust (for $) for weeks owners where you deposit your week into an exchange for booking points in the trust.
> 
> For HGVC it seems like it would be a scheme to re-sell club point properties which we've already had access back to us which may have legal ramifications.



They would probably be legally separate but from a practical point of view I don't think it would matter.

The Marriott destination points trust owns a bunch of weeks, and books those weeks on demand for trust point owners.

I'm pretty confident HGVC could do the same thing. 

Maybe a better analogy would be sheraton/westin flex. Those owners can book the inventory owned in their trusts during the home resort period. During the club period they can book any SVN resort, and SVN members can book their inventory. 

HGVC could easily do the same. I don't think they would replace week sales entirely because of the 3rd party factor. But it would allow them to effectively sell "fractions" of weeks. Ie. Sell an entry level buyer 3500 points annually (1/2  a 2 bedroom play) or sell an upgrade buyer a 10k contract that is actually backed by 1.5 units in the trust or whatever.


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## JIMinNC (Aug 2, 2019)

SmithOp said:


> They had trouble selling the high cost/ high point contracts in Hawaii because of the buyer pool, too many with lower incomes that wanted a cheaper Vegas contract.  Selling them trust points will not get them enough to use for a full week in Hawaii, so it would matter when it came time to use points.  Not HGV’s problem after the sale.
> 
> 
> Sent from my iPad using Tapatalk Pro




That's not what they actually said on the call. They said the younger/lower income tour prospects issue primarily impacted their mainland US close percentage and transaction size. They specifically said the Hawaii issue was directly related to the sell out of Phase I of Ocean Tower and the impact that had on their inventory mix they had available to sell. When the prospects were presented with the Hawaii inventory they did have (and many of those prospects were from Japan) they opted to just buy in Vegas instead. They were confident that when the new inventory came on line in 2020, sales would recover.


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## Sandy VDH (Aug 2, 2019)

Smoky Mountains is a wash for me.  With Wyndham already having 2+ resorts there, the Margaritaville only has 6 rooms allocated to Wyndham so you can't count on that.  HICV has 1, but it is very booked up.  Since I have points in both of those system HGVC setting up shop there does nothing for me.


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## terces (Aug 2, 2019)

Maybe the push into higher cost bHGV product is hurting their sales.  They got greedy thinking they can keep pushing people into higher cost inventory, and what are the Japanese doing? the same as us, sourcing lower cost product in Vegas.  Hopefully they have a really hard time selling the bHGV concept and are forced to bring it into the HGVC fold.  The other thing is the market has almost for sure embarked on a significant correction right now, and this could easily be followed up by a recession in the not too distant future, so their more-expensive product could be a very ill timed wrong-way bet.  They have created such a confusing array of product and affiliates and point structures that they really do deserve to get kicked around a bit.


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## JIMinNC (Aug 2, 2019)

terces said:


> Maybe the push into higher cost bHGV product is hurting their sales.  They got greedy thinking they can keep pushing people into higher cost inventory, and what are the Japanese doing? the same as us, sourcing lower cost product in Vegas.  Hopefully they have a really hard time selling the bHGV concept and are forced to bring it into the HGVC fold.  The other thing is the market has almost for sure embarked on a significant correction right now, and this could easily be followed up by a recession in the not too distant future, so their more-expensive product could be a very ill timed wrong-way bet.  They have created such a confusing array of product and affiliates and point structures that they really do deserve to get kicked around a bit.



Remember, they said the problem was not *unsold* inventory, but *lack* of the proper, higher-priced inventory. If too much higher cost inventory was the problem, sales at The Central in NYC would not be up 30% and they would not have sold out of inventory tory at Ocean Tower in Waikoloa. The problem they noted with the Japanese buyers was they didn't have the higher value inventory to sell them. In 2Q 2018 they sold $57 million at Ocean Tower; this year only $9 million because there was nothing left. They won't have the inventory until Phase II comes online in 2020.

On the market, we are only about 3% off the all time high in the S&P 500, which was reached only about a week ago. The market had a bad reaction on Wednesday to some comments that Fed Chairman Powell made in his press conference, but it had fully recovered virtually all of those losses on Thursday, but then tanked when the new China tariffs were announced. Today, it continued to sell off until about 11am, but by the close had recovered almost half of the day's losses. We could certainly see more downward pressure depending on how the trade issues develop, maybe as much as 10%, but markets do tend to look for a reason to sell off after reaching new highs because the traders want to take some profits. The basic fundamentals of the US economy seem strong, even though there is some global weakness. With the Fed backing off on their rate hikes, that should serve to provide some support to markets. Very few economists see a recession in the immediate future. It will happen eventually, but the fundamentals are still intact.


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## CalGalTraveler (Aug 2, 2019)

_"As a result, they have no inclination to purchase any inventory in 2019, 2020, and 2021 beyond what they have already committed to. If any comes in 2021, it will be in the back half of that year."_

Hmmm...does this mean that they will have limited ROFR budget?

Did they mention anything about The Quin or Crane Barbados inventory coming online?


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## escanoe (Aug 2, 2019)

I appreciated being able to read that. It’s the upside to me of it being a public company. I was hoping it would include an update on what is happening with inventory in Barbados. Perhaps next time.


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## JIMinNC (Aug 2, 2019)

CalGalTraveler said:


> _"As a result, they have no inclination to purchase any inventory in 2019, 2020, and 2021 beyond what they have already committed to. If any comes in 2021, it will be in the back half of that year."_
> 
> Hmmm...does this mean that they will have limited ROFR budget?
> 
> Did they mention anything about The Quin or Crane Barbados inventory coming online?



The same thing occurred to me about ROFR, although I interpreted that statement as being more about new out of the ground type development. I think they tend to use ROFR to fuel sales at places where there is no/less new inventory.

No mention of Barbados. I think there was some mention of the Quin as it related to rental revenue, but it wasn't something that struck me as particularly relevant. Once they put the transcript online, it will be easier to comb back through it. Now it means listening to the 45 minute call again. There was a LOT of stuff I didn't include. Just tried to hit the most relevant things that I thought would be meaningful to this audience.


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## terces (Aug 3, 2019)

JIMinNC said:


> The same thing occurred to me about ROFR, although I interpreted that statement as being more about new out of the ground type development. I think they tend to use ROFR to fuel sales at places where there is no/less new inventory.
> 
> No mention of Barbados. I think there was some mention of the Quin as it related to rental revenue, but it wasn't something that struck me as particularly relevant. Once they put the transcript online, it will be easier to comb back through it. Now it means listening to the 45 minute call again. There was a LOT of stuff I didn't include. Just tried to hit the most relevant things that I thought would be meaningful to this audience.


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## terces (Aug 3, 2019)

In reading through the management agreements for the Boulevard it appears the HGVC also has been appointed, or has the right to handle foreclosures, so that would be another source of inventory for them to sell.  The Boulevard is fully sold out of the original inventory but they continue to have a time share selling function there.


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## JIMinNC (Aug 3, 2019)

terces said:


> In reading through the management agreements for the Boulevard it appears the HGVC also has been appointed, or has the right to handle foreclosures, so that would be another source of inventory for them to sell.  The Boulevard is fully sold out of the original inventory but they continue to have a time share selling function there.



Yes. ROFR, foreclosures, and buybacks/trade-ins are all a source of inventory at sold out locations.


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## 1Kflyerguy (Aug 3, 2019)

A trust product could help out with some of challenges people have upgrading to a larger ownership.  Many people have reported that some resorts are not eligible for trade-in.  With a trust you don't have to trade in your previous purchase, just add more points.  

Depending how the trust is setup, HVC might even buy back existing deeds for people wanting to bump up their points.


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## CalGalTraveler (Aug 3, 2019)

If HGVC could set up a trust to rent points and rent out your points,that might have some value if the trust had decent properties.


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## dayooper (Aug 3, 2019)

How did MVC deal with the transition from weeks to trust points? I know the two systems were different to start from, but what was the mechanism from turning weeks into points?


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## Tamaradarann (Aug 3, 2019)

SmithOp said:


> I understand what you are saying, during home season only book what is deeded in the trust but then open it up to all inventory at 9 months the way points work now.  I’m just not sure it is legal to do that, mix trust with deeded inventory.  In the other systems I don’t think its allowed.
> 
> 
> Sent from my iPad using Tapatalk Pro



I went to a Diamond Resorts Presentation in May and it seemed to me that what they have done is linked together resorts in very sort after locations like Maui, and Kauai with less sort after locations like Las Vegas and Arizona in a trust.  Therefore, they could sell inventory that comes from any one of those locations as trust inventory while they may have very limited inventory to sell in the Hawaiian Islands.  The question of the inventory they allow you to book in a good one that I can't answer.  However, one could argue in any of these timeshare systems that once the exclusive home week period ends all inventory is part of the CLUB.  They make the trust part of "THE CLUB".


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## Tamaradarann (Aug 3, 2019)

CalGalTraveler said:


> _"As a result, they have no inclination to purchase any inventory in 2019, 2020, and 2021 beyond what they have already committed to. If any comes in 2021, it will be in the back half of that year."_
> 
> Hmmm...does this mean that they will have limited ROFR budget?
> 
> Did they mention anything about The Quin or Crane Barbados inventory coming online?



What effect would HGVC not purchasing any inventory until late 2021 have on the resale market if you wanted to sell your HGVC timeshares?


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## GregT (Aug 3, 2019)

Tamaradarann said:


> What effect would HGVC not purchasing any inventory until late 2021 have on the resale market if you wanted to sell your HGVC timeshares?



I was just thinking the same thing from the other angle -- is this a good time to buy HGVC timeshares?

If they are not going to be as active on ROFR, don't prices typically settle a bit?  I think this has been a controversial topic on TUG, but my own experience is that softer ROFR activity has allowed me to get weeks at lower prices....

I don't need any more timeshares (for sure) but I always wonder when there are (perceived) buying opportunities.  Hmmmm....

Best,

Greg


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## JIMinNC (Aug 3, 2019)

Tamaradarann said:


> What effect would HGVC not purchasing any inventory until late 2021 have on the resale market if you wanted to sell your HGVC timeshares?





GregT said:


> I was just thinking the same thing from the other angle -- is this a good time to buy HGVC timeshares?
> 
> If they are not going to be as active on ROFR, don't prices typically settle a bit?  I think this has been a controversial topic on TUG, but my own experience is that softer ROFR activity has allowed me to get weeks at lower prices....
> 
> ...



As I said earlier in this thread, I'm not sure we can absolutely conclude that the statement that they are not going to be making significant inventory investment over the next 18-24 months is indicative of lower ROFR activity. Those statements were made in the context of a discussion about cash usage - should they return that capital to shareholders with stock buybacks or use it to develop new inventory. Their point was, given the amount of new inventory they have coming online next year, they have minimal interest in developing more properties in the short run, so they may be more likely to use any excess cash for stock buybacks. It was also discussed in the context of the specific high-cost inventory in New York, Maui, Waikiki, and Waikoloa that their customers are apparently wanting and which will drive up average transaction price. ROFR seems to be a more tactical way to acquire mid-tier inventory to sell in their core high volume markets like Vegas, Orlando, etc.


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## SmithOp (Aug 3, 2019)

It sure would be nice to peek into their sales inventory pipeline, like insider trading on the stock market.  The resale agents speculate on rofr prices as if they have insider info.  We speculate on the $1/point rule of thumb.  Be nice to know which units were soft rofr targets.

I’ve often wondered about the resort availability vs account points owned pool, how do they track how many bonus points can be awarded.  At least I hope they track it and its not just willy-nilly and pity the fool with a bunch of points and no units left to book, like a musical chairs game.

When I purchased developer I got a pre-construction deal, was not allowed to book home resort the following year and given a ton of bonus points, it ended up being 3 years before I stayed there.  I don’t see why they can’t start selling these new Hawaii units now if the demand is so great.


Sent from my iPad using Tapatalk Pro


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## JIMinNC (Aug 3, 2019)

SmithOp said:


> When I purchased developer I got a pre-construction deal, was not allowed to book home resort the following year and given a ton of bonus points, it ended up being 3 years before I stayed there.  I don’t see why they can’t start selling these new Hawaii units now if the demand is so great.
> 
> 
> Sent from my iPad using Tapatalk Pro



I may be wrong, but I got the impression that each project has to get to a certain point before they can do all of the legal registrations and approvals they need to begin sales - CCRs need to be drafted and registered with the local regulators, etc. These are mostly deals that are being developed by third parties for HGVC, so all of the contracts and legalities have to be in place before they can sell.


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## CalGalTraveler (Aug 3, 2019)

IMO the CEO doesn't sound positive about a trust points product because of limitations with fee-for-service model (which MVC doesn't have). Sounds like complications with lack of control relative to the property developer/owner in terms of managing it in a trust with properties they fully control. He mentioned regional possibilities too.

I wonder what the following means?

"Not only a trust product - for certain markets -* but also other prepaid vacation forms. We want to figure out how to capture even more buyers to bring into our system."*

Do you think they may offer an RTU type of vacation trust for the next 10 - 20 years with certain properties in a points package to mitigate exit fear and lower the entry cost?


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## GT75 (Aug 3, 2019)

JIMinNC said:


> The reason they would do it would not be to benefit owners,



I also thank you for giving us a summary.   I started to read the fillings but got lost after a few sentences (this isn't my background because I come from a completely different field).   Please feel free to continue to provide us with summaries in the future.   I know that some of what you reported, I certainly wouldn't like HGV to head in that direction.    But, I still believe this provides us with the best look at what HGV upper management is considering for the future (much better than any reports from sales).


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## bizaro86 (Aug 3, 2019)

CalGalTraveler said:


> IMO the CEO doesn't sound positive about a trust points product because of limitations with fee-for-service model (which MVC doesn't have). Sounds like complications with lack of control relative to the property developer/owner in terms of managing it in a trust with properties they fully control. He mentioned regional possibilities too.
> 
> Wonder what this means?
> 
> ...



I would guess they probably don't want to do a rtu - the Hilton Club in NYC originally had that form, but they had to book the gains over the term of the lease which made it unattractive from an earnings standpoint. Although I think there have been some changes to lease accounting, so who knows.

I would guess some sort of vacation club. Maybe something with a lower price point that can only book off season


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## Jason245 (Aug 4, 2019)

My personal read on this is as follows:

1. Japanese owners seem to prefer the fixed week over the flexibility. 

2. I think the whole upgradable inventory problem is bs. They could be more aggressive on rofr if this was a real issue.  

3. They are not doing a trust. 

4. They are having challenges finding/targeting the wealthier millenials especially since the economic headwinds have caused this generation to suffer wage stagnation. At the same time the generation with most of the wealth (baby boomers) are all in process of retiring and have more or less set their retirement plans in place. 



Sent from my SM-N950U using Tapatalk


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## terces (Aug 4, 2019)

Is the transcript of the Earnings Webcast available now?  I could not access it on their web page and don't have the time to listen to the entire 45 minute presentation.


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## JIMinNC (Aug 4, 2019)

terces said:


> Is the transcript of the Earnings Webcast available now?  I could not access it on their web page and don't have the time to listen to the entire 45 minute presentation.



They have not posted the transcript yet.


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## 1Kflyerguy (Aug 4, 2019)

JIMinNC said:


> They have not posted the transcript yet.



The transcript is now available on Seeking Alpha.  

I see the discussion on a possible Trust was in the Q&A.  Sounds like something they are looking at, but not imminent.  Lots of challenges with all the various development partners.


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## 1Kflyerguy (Aug 4, 2019)

JIMinNC said:


> I may be wrong, but I got the impression that each project has to get to a certain point before they can do all of the legal registrations and approvals they need to begin sales - CCRs need to be drafted and registered with the local regulators, etc. These are mostly deals that are being developed by third parties for HGVC, so all of the contracts and legalities have to be in place before they can sell.



I agree with your assessment.    You don't have to look very hard to find real estate or resort projects that got started but never completed.  Just imagine if HGV had started selling Maui when it was first announced...


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## JIMinNC (Aug 4, 2019)

Jason245 said:


> My personal read on this is as follows:
> 
> 1. Japanese owners seem to prefer the fixed week over the flexibility.
> 
> ...



I disagree with your conclusions in #2 and #4.

This whole issue of inventory availability first reared its head in the 1Q 2019 earnings, when they also missed targets. In that call, Mark Wang said where they have inventory, they are getting good results. In that call back in early May, an analyst basically asked about the topics you allude to in #2 & #4 - that could there be other "macro issues" impacting the results? Here is the Q&A:

_*Analyst Stephen Grambling: *_*So one last one. Just given that, you know, the availability could be important, how can you get comfortable that the trend that you saw in March wasn’t just because of the availability versus something going on in the macro? Do you see that in the conversion rates, or is there something else from a tour standpoint?

CEO Mark Wang: Well, it’s interesting, from a consumer standpoint, our consumers are behaving very good in markets where we have inventory. A great example, we just launched Central toward the middle of March. That’s our new property in New York. Consumers are behaving really good. We’re exceeding expectations there. Orlando, where we have ample inventory, again, another really strong market, and we’re starting to see this pick up in Myrtle Beach as we will be opening the Enclave there, and so in markets where we have inventory, the consumer is behaving better. In markets where in APAC in particular, where we’ve exhausted most of Ocean Tower and we don’t have that high-end upgrade inventory, that’s a market that we’re struggling with.

And so it’s hard for me to really quantify and judge the consumer based on that, so I guess what I’m saying is where we have ample inventory, we’re good. Where we don’t, we’re seeing lower commitment levels.
*
They have said repeatedly that what their customers are demanding - in Hawaii and New York particularly - is higher-end inventory to fuel upgrades. If you look at some of their other investor presentations that are on their web site, you can see upgrades are a big part of their sales strategy. I suspect there is less of that higher-end stuff coming in via ROFR than the more mid-tier stuff in Vegas and Orlando. In any event, if development delivers a new phase of Ocean Tower with - just guessing here - 30 new units, then that's over 1500 intervals available to sell. Might be hard to find 1500 high-end Hawaii intervals via ROFR in a short period of time.

Here are two charts from a May 2019 investor road show that talk about the importance of upgrades and discusses their demographic targets. It's still not a heavily Millennial target market - only 22%. And there are many Millennials who are doing very well. Our son is making six figures less than two years out of undergraduate college.


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## GregT (Aug 4, 2019)

If I was an investor, I would be very unhappy that they didn't have the inventory available -- how could they miss that?  They are paid alot of money to make sure they have product available to sell.

Can't they start new phases at Kings Land?  Why couldn't they start the next Ocean Tower phase when they saw Phase 1 moving faster than expected (had to have been faster, otherwise they would have adequate inventory?)  Are they now stuck with too much Kings Land?  If so, why not adjust the upgrade program?

Again, it just sounds like they were slow to see trends and got caught short -- and investors lost money.  This is the kind of thing that will hurt the credibility of management.   Interesting.

Best,

Greg


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## CalGalTraveler (Aug 4, 2019)

Interesting to compare MVC demographics to HGVC:

HGVC
56 avg. Owner age
20% Japan


MVC
59 avg. Owner age
52 first time buyer

Clearly the industry is not attracting Millennials.


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## JIMinNC (Aug 4, 2019)

GregT said:


> If I was an investor, I would be very unhappy that they didn't have the inventory available -- how could they miss that?  They are paid alot of money to make sure they have product available to sell.
> 
> Can't they start new phases at Kings Land?  Why couldn't they start the next Ocean Tower phase when they saw Phase 1 moving faster than expected (had to have been faster, otherwise they would have adequate inventory?)  Are they now stuck with too much Kings Land?  If so, why not adjust the upgrade program?
> 
> ...



I agree that management needs to answer to these issues. A lot of shareholder value has been wiped out since May 1. If you look at where the stock was on May 1 before their 1Q earnings, it was $32/share. After the 1Q miss and now the 2Q miss they are at about $26.50 - a 17% drop. By all accounts, it's because of the lack of high end inventory, mainly in Hawaii, so someone in management should have to answer to that.

The clear impression I got was that Ocean Tower sold out a lot faster than they had expected. Given the lead time on these kinds of projects - legal approvals, registration of each phase, etc. - maybe they couldn't accelerate it much, or maybe the 2020 target for Phase 2 *is* accelerated. I'm not sure what the original phasing plan was and if the current 2020 schedule was what was originally planned or an acceleration of the original plan.

Any idea how far along they are on selling-out Kings Land Phase III? Could that be already sold out? Or maybe that's the "mid-tier inventory" they spoke of trying to shift buyers into, but they didn't bite. Since a big part of their Hawaii sales is targeted to Japan, perhaps the Japanese are attracted to the hotel-like project at Ocean Tower as opposed to the more condo-like Kings Land.


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## SmithOp (Aug 4, 2019)

Phase 3 at KL was only 3 buildings so very little to sell.  The problem with expanding KL is the site prep, it took them a long time to pulverize the lava for a stable base.

You are right on about OT, the asian buyers are more attracted to the location and smaller units with high point values.


Sent from my iPad using Tapatalk Pro


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## GregT (Aug 4, 2019)

JIMinNC said:


> I agree that management needs to answer to these issues. A lot of shareholder value has been wiped out since May 1. If you look at where the stock was on May 1 before their 1Q earnings, it was $32/share. After the 1Q miss and now the 2Q miss they are at about $26.50 - a 17% drop. By all accounts, it's because of the lack of high end inventory, mainly in Hawaii, so someone in management should have to answer to that.
> 
> The clear impression I got was that Ocean Tower sold out a lot faster than they had expected. Given the lead time on these kinds of projects - legal approvals, registration of each phase, etc. - maybe they couldn't accelerate it much, or maybe the 2020 target for Phase 2 *is* accelerated. I'm not sure what the original phasing plan was and if the current 2020 schedule was what was originally planned or an acceleration of the original plan.
> 
> Any idea how far along they are on selling-out Kings Land Phase III? Could that be already sold out? Or maybe that's the "mid-tier inventory" they spoke of trying to shift buyers into, but they didn't bite. Since a big part of their Hawaii sales is targeted to Japan, perhaps the Japanese are attracted to the hotel-like project at Ocean Tower as opposed to the more condo-like Kings Land.



I think you're right and they are seeing more people than expected trading in their Kings Land week for the Ocean Tower week.  That creates two problems -- too much absorption of the higher demand stuff and too much supply of the mid-tier Kings Land (if I'm correct that this is happening).   I don't know why they are making it so easy to upgrade, which creates this (predictable) problem.

Personally, I much prefer Kings Land so I'm happy to see more supply at KL -- that's where I want to use my HGVC points.   Interesting.   Thanks for posting this.

Best,

Greg


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## GregT (Aug 4, 2019)

SmithOp said:


> Phase 3 at KL was only 3 buildings so very little to sell.  The problem with expanding KL is the site prep, it took them a long time to pulverize the lava for a stable base.
> 
> You are right on about OT, the asian buyers are more attracted to the location and smaller units with high point values.
> 
> ...


That's interesting, I'd not thought about the difficulty the lava presented.    Do we have any idea if they are going to continue with a Phase 4 (I think there were 6 phases total?)   I do love an expanding KL....

Best,

Greg


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## JIMinNC (Aug 4, 2019)

GregT said:


> Personally, I much prefer Kings Land so I'm happy to see more supply at KL -- that's where I want to use my HGVC points.   Interesting.   Thanks for posting this.



We'll be at Kings Land for the first time in February, staying in a 1KP, which is supposed to be a 1BR Plus second floor and is one of the higher-point units from Phase 1/3. Any idea which building these are in? We toured Phase 1 many years ago on a presentation tour when we were staying at Kohala Suites on an RCI exchange. Since 2005, we have stayed at Kohala 4 times, so we are looking forward to trying Kings Land.



GregT said:


> That's interesting, I'd not thought about the difficulty the lava presented.    Do we have any idea if they are going to continue with a Phase 4 (I think there were 6 phases total?)   I do love an expanding KL....
> 
> Best,
> 
> Greg



I thought I had read here on TUG that someone was told that Phase 4 would follow Ocean Tower. But that begs the question, when that high-end Ocean Tower inventory is 100% gone, all phases, is more Kings Land going to be able to satisfy the potential buyers from Japan?


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## Tamaradarann (Aug 4, 2019)

JIMinNC said:


> I disagree with your conclusions in #2 and #4.
> 
> This whole issue of inventory availability first reared its head in the 1Q 2019 earnings, when they also missed targets. In that call, Mark Wang said where they have inventory, they are getting good results. In that call back in early May, an analyst basically asked about the topics you allude to in #2 & #4 - that could there be other "macro issues" impacting the results? Here is the Q&A:
> 
> ...


----------



## Tamaradarann (Aug 4, 2019)

Here are two charts from a May 2019 investor road show that talk about the importance of upgrades and discusses their demographic targets. It's still not a heavily Millennial target market - only 22%. And there are many Millennials who are doing very well. Our son is making six figures less than two years out of undergraduate college.

Millennials are in a different stage of life than Baby Boomers!   Millennials have a different agenda at this time of their lives than Boomers.  Millennials are trying to save to buy a house.  Unless they are single or married with no intention of having children soon or ever they are starting or getting ready to start on the raising a family treadmill!

Also, when I first got marred my husband was making about 13K per year.  However, that was in 1977 and our house cost 33K.   While over 100K sounds like a lot, there has been a lot of inflation since 1977.  You can't buy a house on Long Island for anywhere near 33K; more like $330,000 for an low priced house.  

Boomers are for the most part finished with having and raising children.  Therefore, boomers are at the stage of their life when nice frequent vacations may be a high priority.


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## GregT (Aug 4, 2019)

JIMinNC said:


> We'll be at Kings Land for the first time in February, staying in a 1KP, which is supposed to be a 1BR Plus second floor and is one of the higher-point units from Phase 1/3. Any idea which building these are in? We toured Phase 1 many years ago on a presentation tour when we were staying at Kohala Suites on an RCI exchange. Since 2005, we have stayed at Kohala 4 times, so we are looking forward to trying Kings Land.
> 
> I thought I had read here on TUG that someone was told that Phase 4 would follow Ocean Tower. But that begs the question, when that high-end Ocean Tower inventory is 100% gone, all phases, is more Kings Land going to be able to satisfy the potential buyers from Japan?



Jim,

We really like Phase 1 and we request Building 6, because we like the proximity to the Super Pool and the fitness center (not that I spend much time in it).  I would call them a few weeks before check in and ask for a building close to the Super Pool, assuming that is your preference.   I've attached a property map if you want to study the different layout, but it lacks the building numbers.   This is Phase 1 only and Building 1 starts next to service building A.  Building 6 is right next to the Super Pool.

I think it was me that posted about Phase 4 but information would have been pretty dated (2 years old?) and things seem to change.   I hope you enjoy KL as much as we do!  It's only rap is that it is not on the water, but that has never bothered us, it's a great property.

Best,

Greg


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## JIMinNC (Aug 4, 2019)

Tamaradarann said:


> Here are two charts from a May 2019 investor road show that talk about the importance of upgrades and discusses their demographic targets. It's still not a heavily Millennial target market - only 22%. And there are many Millennials who are doing very well. Our son is making six figures less than two years out of undergraduate college.
> 
> Millennials are in a different stage of life than Baby Boomers!   Millennials have a different agenda at this time of their lives than Boomers.  Millennials are trying to save to buy a house.  Unless they are single or married with no intention of having children soon or ever they are starting or getting ready to start on the raising a family treadmill!
> 
> ...



Also the younger Millennials are the AirBnB generation. That may make them harder sells than their parents were for the timeshare developers.


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## JIMinNC (Aug 4, 2019)

GregT said:


> Jim,
> 
> We really like Phase 1 and we request Building 6, because we like the proximity to the Super Pool and the fitness center (not that I spend much time in it).  I would call them a few weeks before check in and ask for a building close to the Super Pool, assuming that is your preference.   I've attached a property map if you want to study the different layout, but it lacks the building numbers.   This is Phase 1 only and Building 1 starts next to service building A.  Building 6 is right next to the Super Pool.
> 
> ...


Looks like the property map attachment didn't make it through cyberspace.


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## GregT (Aug 4, 2019)

JIMinNC said:


> Looks like the property map attachment didn't make it through cyberspace.


Sorry !!!  Attached to the original message now....


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## JIMinNC (Aug 4, 2019)

GregT said:


> Sorry !!!  Attached to the original message now....



Thanks!

Since we are not traveling with kids, Building 6's proximity to the Family Pool/Kids Pool isn't necessary (or maybe even desirable, but I guess the rooms look the other way toward the golf course, so noise wouldn't be an issue). Looks like Building 7 is closer to the Adult Pool, but looking at the satellite view, buildings 10 and 11 have nice views overlooking the lake and the 4th green on the Kings Course. Buildings 6 and 4 would have nice sunset views in February. Decisions, decisions!


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## Jason245 (Aug 4, 2019)

JIMinNC said:


> I disagree with your conclusions in #2 and #4.
> 
> This whole issue of inventory availability first reared its head in the 1Q 2019 earnings, when they also missed targets. In that call, Mark Wang said where they have inventory, they are getting good results. In that call back in early May, an analyst basically asked about the topics you allude to in #2 & #4 - that could there be other "macro issues" impacting the results? Here is the Q&A:
> 
> ...


I see over 20 Hawaii units listed for sale just on tug.

I am sure more are comming online on Ebay every day. 

If the inventory issue was serious like they say, I would expect to see resale prices rising as they begin to more aggressively take rofr (think dvc). 

I think they are telling only part of the story,  I tend to take most investor relations stuff with a grain of salt because it is designed to make company look as good as possible.  

As for market penetration.. the  melenials are now in their 30s with gen x being in their 40s. 

These are the "prime years" of selling them timeshare products.  And they are not buying. 





Sent from my SM-N950U using Tapatalk


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## JIMinNC (Aug 4, 2019)

Jason245 said:


> I see over 20 Hawaii units listed for sale just on tug.
> 
> I am sure more are comming online on Ebay every day.
> 
> ...



But most of the inventory on TUG and elsewhere are at Kings Land, Kohala Suites, Bay Club, Lagoon Tower, etc., plus a few at the Grand Waikikian. They said on the call that they had Hawaii inventory, just not the right mix for their demand - not enough entry level and not nearly enough higher-end upgrade inventory (i.e. - the high-point stuff they sold $57 million of at Ocean Towers in 2Q 2018.) As you say, they can get all of that KL, KS, BC, LT stuff they need from ROFR and upgrades. What they said they don't have enough of is the higher point inventory needed to entice their Japanese and other Hawaii prospects to upgrade. When you see that sales of Ocean Tower inventory dropped from $57 million to $9 million from 2Q 2018 to 2Q 2019, it's easy to see where that could create a revenue shortfall, and difficult to see how ROFR could generate similar inventory. It doesn't exist. Basically, the huge success of Ocean Tower in 2018, created a problem for 2019, since for whatever reason, Phase II was not ready to sell yet. That does beg the question, once Ocean Tower is all gone, all phases, where is that high end inventory going to come from?

I agree investor relations tries to put a positive company spin on bad results, but if they were intentionally misleading analysts about the reasons for the issue, they would be in big trouble with the SEC.

I agree that Millennials are probably not going to adopt timeshares to the degree that Boomers have, but if you look at the demographics of both HGVC and Marriott, their market is 50+. HGVC average owner is 56; MVC average is 59; and MVC's first time buyer is 52. It's been that way for a long time. I think I saw something from a Marriott presentation in the last year that said the demographics of their typical buyer has been fairly stable over the last 10-20 years. I think the long term issue they may have with Millennial's is real, but I think it will be another 10 years at least before that starts impacting their sales growth. They can still make a lot of hay with the older Gen Xers and the younger Boomers.

Also, since it appears that a big piece of their high-end inventory issue is directly related to Hawaii, don't underestimate the impact of the Japanese tourist. They say 20% of their owners are from Japan, I bet that is an even bigger - probably significantly bigger - portion of their Hawaii owners. They mentioned that a lot of their Hawaii inventory is actually sold in their sales offices in Japan.


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## bizaro86 (Aug 4, 2019)

If they sell their ocean tower inventory from all phases, their are lots of other buildings at Waikoloa that they could buy rooms in and convert. The owner of  that resort is a REIT - if the price is right they will sell.

I also wonder if it's possible that they are re-jigging the inventory mix in the later phases. Add more bigger units by combining multiple smaller units. Could slow them down but be more profitable in the end if they have demand for high point units.


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## JIMinNC (Aug 4, 2019)

bizaro86 said:


> If they sell their ocean tower inventory from all phases, their are lots of other buildings at Waikoloa that they could buy rooms in and convert. The owner of  that resort is a REIT - if the price is right they will sell.
> 
> I also wonder if it's possible that they are re-jigging the inventory mix in the later phases. Add more bigger units by combining multiple smaller units. Could slow them down but be more profitable in the end if they have demand for high point units.



Yeah, they have the Palace Tower and Lagoon Tower which are also hotel rooms, although it might be hard to imagine them converting that entire property to timeshare. You can fit so many more people into a property when its just hotel rooms, I would think they would need the volume to keep the restaurants and shops in business. Converting one tower to timeshare makes sense because the property is so big, and having one tower with the more predictable guest flow of a timeshare makes sense because it takes that tower "off-budget" and increases occupancy in the rest, but there are still guests in the timeshares to pay for the use of the amenities. Anything can happen of course, and money talks, but the expense to maintain that facility with the monorail and the boats and all of that probably dictates that there will always be a hotel on that site.


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## bizaro86 (Aug 4, 2019)

JIMinNC said:


> Yeah, they have the Palace Tower and Lagoon Tower which are also hotel rooms, although it might be hard to imagine them converting that entire property to timeshare. You can fit so many more people into a property when its just hotel rooms, I would think they would need the volume to keep the restaurants and shops in business. Converting one tower to timeshare makes sense because the property is so big, and having one tower with the more predictable guest flow of a timeshare makes sense because it takes that tower "off-budget" and increases occupancy in the rest, but there are still guests in the timeshares to pay for the use of the amenities. Anything can happen of course, and money talks, but the expense to maintain that facility with the monorail and the boats and all of that probably dictates that there will always be a hotel on that site.



I think the convention center will probably dictate that some of it stays as a hotel. I suspect the timeshare owners are paying their proportionate share of the boat/monorail costs already. 

All that said, I don't think they've even bought the whole ocean tower, so before they move on to other towers I'd expect them to buy the rest of that one.

Also, I'd imagine they would consider adding new buildings to the resort (as they have in HHV on Oahu) assuming zoning allows.


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## bizaro86 (Aug 4, 2019)

Link to trancript:

https://seekingalpha.com/article/42...wang-q2-2019-results-earnings-call-transcript


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## JIMinNC (Aug 4, 2019)

bizaro86 said:


> I think the convention center will probably dictate that some of it stays as a hotel. I suspect the timeshare owners are paying their proportionate share of the boat/monorail costs already.
> 
> All that said, I don't think they've even bought the whole ocean tower, so before they move on to other towers I'd expect them to buy the rest of that one.
> 
> Also, I'd imagine they would consider adding new buildings to the resort (as they have in HHV on Oahu) assuming zoning allows.



Very good point about the convention center. That requires a hotel portion to be significant.

Their development partner, I believe, has acquired the entire Ocean Tower, but is only turning over inventory to HGVC as they complete each phase. Until they turn it over to HGVC to sell, they are renting it through Hilton.com. If you look at Hilton.com, you'll see Ocean Tower is listed as a separate hotel from the rest of the Hilton Waikoloa Village (at least it was when we made our reservations for a one night stay there back in March). I believe that is because Ocean Tower is now owned by the separate entity from the rest of the hotel. Eventually, it will all be turned over to HGVC and then they will rent any excess nights on Hilton.com, just as they do for other HGVC resorts.


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## Jason245 (Aug 4, 2019)

JIMinNC said:


> But most of the inventory on TUG and elsewhere are at Kings Land, Kohala Suites, Bay Club, Lagoon Tower, etc., plus a few at the Grand Waikikian. They said on the call that they had Hawaii inventory, just not the right mix for their demand - not enough entry level and not nearly enough higher-end upgrade inventory (i.e. - the high-point stuff they sold $57 million of at Ocean Towers in 2Q 2018.) As you say, they can get all of that KL, KS, BC, LT stuff they need from ROFR and upgrades. What they said they don't have enough of is the higher point inventory needed to entice their Japanese and other Hawaii prospects to upgrade. When you see that sales of Ocean Tower inventory dropped from $57 million to $9 million from 2Q 2018 to 2Q 2019, it's easy to see where that could create a revenue shortfall, and difficult to see how ROFR could generate similar inventory. It doesn't exist. Basically, the huge success of Ocean Tower in 2018, created a problem for 2019, since for whatever reason, Phase II was not ready to sell yet. That does beg the question, once Ocean Tower is all gone, all phases, where is that high end inventory going to come from?
> 
> I agree investor relations tries to put a positive company spin on bad results, but if they were intentionally misleading analysts about the reasons for the issue, they would be in big trouble with the SEC.
> 
> ...


Gen x is moving into that 52.. many were screwed by recessions). 

As for the sale of inventory issues... consider this. The Hawaii hgvc properties started in what early 2000s/late 90s?

That means that the average owner is now in their 70s if bought in 50s...I see a lot of inventory starting to become available for those original Hawaii properties.  

Sent from my SM-N950U using Tapatalk


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## JIMinNC (Aug 4, 2019)

Jason245 said:


> Gen x is moving into that 52.. many were screwed by recessions).
> 
> As for the sale of inventory issues... consider this. The Hawaii hgvc properties started in what early 2000s/late 90s?
> 
> ...



Yes, but the inventory from those older Hawaii properties is not the issue based on the call. They noted in both the 1Q and 2Q calls that they do have Hawaii inventory (I assume fueled by trade-ins/upgrades, ROFR, etc), the problem is the *mix*. Their buyers are wanting the newer, high-value inventory like what they were selling at Ocean Tower for upgrades. That is a very popular property with their prospects from Japan. They stated specifically that they have plenty of what they called "mid-tier" Hawaii inventory, but their problem is mainly a lack of the higher end inventory, and that is where they said the demand was. Their supply is not matching their demand.


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## CalGalTraveler (Aug 5, 2019)

MVC (incl. Vistana and Hyatt) and HGVC have been unable to provide products that attract significant Gen X and Millennials. What I am trying to square is whether this is a concern? or simply an attribute of the product? i.e.

Is it a downtrend? i.e.
    a)  The proliferation of travel points from credit cards is at an all-time high - why pay for rooms when you can get them for free with a new credit card?
    b)  AirBnBs offering unique stays in treehouses, glamping etc. that Millennials value
    c) The timeshare exit ads create fear so avoid long-term commitment

Despite this... ARDA claims the industry grew 9% last year.

or

Is this simply the mark of a product designed primarily for this age group which tends to have more disposable income?
    a) Many people don't consider timeshares and air travel until they are at a later stage in life (with teens, pre-retirement)
    b) ARDA cites average TS buyer median of 39 and 30% of new timeshare buyers are millennials (vs. HGV at 22% and 55 avg owner age).  MVC and HGVC are at the top of the food chain attracting buyers with average $150k income.


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## GT75 (Aug 5, 2019)

CalGalTraveler said:


> MVC and HGVC have been unable to provide products that attract significant Gen X and Millennials. What I am trying to square is whether this is a concern? or simply an attribute of the product?. i.e.



I think that you have brought up some of my concerns also about where HGV is heading and if they are completely missing the indicators.    I reread the summary and @JIMinNC comments.    What both you and I are missing in our views is the non-American contribution specifically the Japanise market.    This was discussed in detail on the call.    I have been wondering who is buying these high priced OT units (~$180K).   Now, I know.

The other thing which I am not sure that @JIMinNC mentioned is that total contract sales were up 1.7% and revenue was up 3%.   HGV had an increase of sales tours of 8%.     So my takeaway is that both HGV and the investors want more.   To me, it looks like HGV is going after higher point value sales.


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## terces (Aug 5, 2019)

GT75 said:


> I think that you have brought up some of my concerns also about where HGV is heading and if they are completely missing the indicators.    I reread the summary and @JIMinNC comments.    What both you and I are missing in our views is the non-American contribution specifically the Japanise market.    This was discussed in detail on the call.    I have been wondering who is buying these high priced OT units (~$180K).   Now, I know.
> 
> The other thing which I am not sure that @JIMinNC mentioned is that total contract sales were up 1.7% and revenue was up 3%.   HGV had an increase of sales tours of 8%.     So my takeaway is that both HGV and the investors want more.   To me, it looks like HGV is going after higher point value sales.


Interesting take on it GT75 -do you suggest this means they are after more bHGV, and will leave HGVC out of the equation?


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## GT75 (Aug 5, 2019)

terces said:


> do you suggest this means they are after more bHGV, and will leave HGVC out of the equation?



I think that we need to realize the reason behind the SEC fillings and who the audience is for this telecon.    Also as @JIMinNC pointed out to me, HGV isn't discussing making these changes to benefit us current owners but to generate greater profits. I don't think that they will abandon HGVC just continue to throw both HGVC and bHC into the mix.


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## CalGalTraveler (Aug 5, 2019)

terces said:


> Interesting take on it GT75 -do you suggest this means they are after more bHGV, and will leave HGVC out of the equation?



NYC and Hawaii are hot markets for HGVC right now.

Comparing the calls of MVC and HGVC you get a sense of different business models driving their decision-making.

HGVC's business model is still very developer-centric with deeds that have fixed point values to trade. They have strength in Japan where pure points programs are disliked. HGVC is much more affiliate related with asset light models and fee for service.

MVC has shifted completely to a points vacation club model where you can only buy points as a new buyer so selling real estate is in the background in an opaque trust.  Although a significant part of their business is still managing legacy weeks and II. (won't rehash but both models have pluses and minuses for the buyer.)

It appears that HGVC will continue to drive high-end projects similar to OT and Central to feed the development beast, and add more locations to compete with MVC. This will have good and bad implications for HGVC owners. More locations, more options, more inventory. On the downside it will take more points so requiring owners to pick up another resale or two to get trades into newer properties. Resales will have lower ROFR as HGVC will need to manage inventory levels so will need resale buyers to pick up and make the HOA payments on these older properties hence the need to be good to resale buyers. (good for buyer, bad for seller). OTOH, buyer financing over 10 years delays inventory entering the market and ease supply so will put less pressure on downward resale prices and ROFR budgets.

In contrast, MVC will not be adding new properties but will be consumed absorbing the ones' they acquired - namely Vistana and Hyatt - for the foreseeable future. They will be focusing on upselling and cross-selling their existing base. They will have a hard time selling into Japanese/Asian markets due to the reported skepticism of pure points programs.


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## JIMinNC (Aug 5, 2019)

GT75 said:


> I think that you have brought up some of my concerns also about where HGV is heading and if they are completely missing the indicators.    I reread the summary and @JIMinNC comments.    What both you and I are missing in our views is the non-American contribution specifically the Japanise market.    This was discussed in detail on the call.    I have been wondering who is buying these high priced OT units (~$180K).   Now, I know.
> 
> The other thing which I am not sure that @JIMinNC mentioned is that total contract sales were up 1.7% and revenue was up 3%.   HGV had an increase of sales tours of 8%.     So my takeaway is that both HGV and the investors want more.   To me, it looks like HGV is going after higher point value sales.



The other thing I learned after skimming the transcript for their 1Q call back in May was that one of the reasons they are in this position is they slowed/stopped some development activities in 2017 when they were dealing with the spinoff from Hilton Hotels. They started working on development actively again in 2018, but the lead times on some of the projects mean those won't be ready for sales until 2020. So it seems the spinoff contributed to this inventory gap they had, as did a more rapid sell-out of Ocean Tower, partially fed by Japanese buyers who were trading-in their older Hawaii weeks and upgrading to Ocean Tower. When they ran out of Ocean Tower inventory, they didn't have the right mix of inventory to sell. Their buyers didn't want Kings Land or Kohala.


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## CalGalTraveler (Aug 5, 2019)

The CEO, Mark Wang began his tenure in 2017. Previously, there was a lull in new properties being added to the system. Not sure if this was because of the spin-off, Hilton Hotels putting pressure to keep new resorts off the balance sheet, or the strategic direction of the prior CEO.  These deals take a long time and it's possible we are still seeing fallout from the dearth of new deal inventory from 2016- 2017.


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## Tamaradarann (Aug 5, 2019)

JIMinNC said:


> The other thing I learned after skimming the transcript for their 1Q call back in May was that one of the reasons they are in this position is they slowed/stopped some development activities in 2017 when they were dealing with the spinoff from Hilton Hotels. They started working on development actively again in 2018, but the lead times on some of the projects mean those won't be ready for sales until 2020. So it seems the spinoff contributed to this inventory gap they had, as did a more rapid sell-out of Ocean Tower, partially fed by Japanese buyers who were trading-in their older Hawaii weeks and upgrading to Ocean Tower. When they ran out of Ocean Tower inventory, they didn't have the right mix of inventory to sell. Their buyers didn't want Kings Land or Kohala.


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## Tamaradarann (Aug 5, 2019)

I am wondering if the HGVC statements about not having enough high end inventory is coming from a different philosophical place.  High End Properties with lots of points tend to be lower in maintenance/point and enable members to obtain Higher Elite Levels with fewer purchases.  Therefore, as members learn more about how the system works want to trade in their low point contracts for higher point contracts.


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## PigsDad (Aug 6, 2019)

Tamaradarann said:


> I am wondering if the HGVC statements about not having enough high end inventory is coming from a different philosophical place.  High End Properties with lots of points tend to be lower in maintenance/point and enable members to obtain Higher Elite Levels with fewer purchases.  Therefore, as members learn more about how the system works want to trade in their low point contracts for higher point contracts.


That is a good point, and I agree.  I follow a few popular HGVC Facebook groups, and a common theme that often comes up there (and seems to come from sales staff talking points) is that it is better to "upgrade" to a higher point package vs. buy a second deed because of a perceived fear of having multiple maintenance fees -- even though it would be far less expensive (10's of thousands less!) just to purchase a second deed resale.  

There are many people there who know about resale but continue to "upgrade" direct from HGVC, I think mainly due to how successful the sales staff have been in delivering this message (got to hand it to them!).  There is also the Elite thing, but even though it has been demonstrated how one can still obtain Elite via resale, it doesn't seem to sway many people's "fear" of multiple maintenance fees.

Kurt


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## Sandy VDH (Aug 6, 2019)

Elite Premium has the only perks I think are useful, but for me to go from Elite, which I got via Resales purchase which qualified when Elite was rolled out, to Premium would be to purchase another 20K HGVC points.  Not going to happen for me.


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## dayooper (Aug 6, 2019)

PigsDad said:


> That is a good point, and I agree.  I follow a few popular HGVC Facebook groups, and a common theme that often comes up there (and seems to come from sales staff talking points) is that it is better to "upgrade" to a higher point package vs. buy a second deed because of a perceived fear of having multiple maintenance fees -- even though it would be far less expensive (10's of thousands less!) just to purchase a second deed resale.
> 
> There are many people there who know about resale but continue to "upgrade" direct from HGVC, I think mainly due to how successful the sales staff have been in delivering this message (got to hand it to them!).  There is also the Elite thing, but even though it has been demonstrated how one can still obtain Elite via resale, it doesn't seem to sway many people's "fear" of multiple maintenance fees.
> 
> Kurt



I am too. While many do talk about the market, there are many that like purchasing from the developer.  I think fear is a big motivator here as well. On one recent thread, a member brought up that a sales person in a presentation said changes were coming to the elite status and that only elite members would be allowed to use the points system. Any non elite members would only be able to use their deeds in the home week/ season/ unit designation. They were going to upgrade this individual to elite plus for $100,000. Luckily, they declined, but was worried that the system was changing.

Being part of those Facebook groups, I really learned how truly knowledgeable this forum is.


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## PigsDad (Aug 6, 2019)

dayooper said:


> On one recent thread, a member brought up that a sales person in a presentation said changes were coming to the elite status and that only elite members would be allowed to use the points system. Any non elite members would only be able to use their deeds in the home week/ season/ unit designation.


I saw that one as well, and just about fell off my chair laughing!  I know sales slime often stretch the truth and outright lie in order to make a sale, but that was a whopper!



> Being part of those Facebook groups, I really learned how truly knowledgeable this forum is.



Ain't that the truth!

Kurt


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## Tamaradarann (Aug 7, 2019)

PigsDad said:


> That is a good point, and I agree.  I follow a few popular HGVC Facebook groups, and a common theme that often comes up there (and seems to come from sales staff talking points) is that it is better to "upgrade" to a higher point package vs. buy a second deed because of a perceived fear of having multiple maintenance fees -- even though it would be far less expensive (10's of thousands less!) just to purchase a second deed resale.
> 
> There are many people there who know about resale but continue to "upgrade" direct from HGVC, I think mainly due to how successful the sales staff have been in delivering this message (got to hand it to them!).  There is also the Elite thing, but even though it has been demonstrated how one can still obtain Elite via resale, it doesn't seem to sway many people's "fear" of multiple maintenance fees.
> 
> Kurt



I concur that resale is the way to go since it costs about 1/4 of the cost of developer purchases and all of my HGVC purchases have been resales.  However, my comments about HGVC's statements about not having enough high end inventory is explaining perhaps why that is true.  Since High End Properties with lots of points tend to be lower in maintenance/point and enable members to obtain Higher Elite Levels with fewer purchases it is a salesperson's selling point for those who already own developer properties or those who already own resales.  If the higher end properties are NOT available to sell then this is a non-starter.


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## GT75 (Aug 12, 2019)

Has anyone seen any other official HGV announcements for the Smoky Mountains besides this report here on the Earning Call?


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## 1Kflyerguy (Aug 13, 2019)

GT75 said:


> Has anyone seen any other official HGV announcements for the Smoky Mountains besides this report here on the Earning Call?



I have not seen anything else mentioned about this resort.   However in the past they often discuss or mention things at the earnings call months before there is any sort of formal announcement to the members.  

I believe this is due to the fact that during investor presentations they can speak at a really high level,  such as we are adding a new resort here.    Then they wait until there are more details nailed down for a press release or other noticed to members,  estimated opening date, number of units, amenities maybe a artists rendition. etc.   

Of course they also sometimes mention things that never or at least so far have not come to pass...


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