# SPINCO's 9-30-2011 SEC filing



## windje2000 (Oct 2, 2011)

The First amendment to the Form 10 filed by VAC (Spinco) on September 9 included financial data through the 2nd quarter, 24 weeks ended June 17, 2011.  Note 14 to those financial statements indicates all is not well with the numbers for Spinco, to wit:



> 14. SUBSEQUENT EVENT
> 
> In preparing our company to operate as an independent, publicly traded company following the spin-off of our common stock by Marriott International, our management assessed its plan for undeveloped land and built Luxury inventory, including unfinished units, and the current market conditions for such assets.
> 
> ...


(above source page F-72 of the Second Amendment to the VAC Form 10  -  http://files.shareholder.com/downlo...70ea2691995/MVW_Form_10_Amd_No._2_9-30-11.pdf )

Luxury is defined on page F-50 of the same document



> Definitions
> 
> We operate our business in four segments:
> 
> ...



It would appear that much of the problems with the operating performance of what will become VAC is related to the Luxury segment - Ritz Carlton.  

Segment operating results appear on page F-51.  Luxury clearly created virtually all of the operating loss and was the cause of much of the historical 2009 impairment hit, which is broken down by segment on page F-45.  

Inventory is broken down on page F-63 of the same document

Also of interest is the only difference I found between the September 9, 2011 First Amended Form 10 and the September 30, 2011 Second amended Form 10.  The last pages of the pdf file are Annex A, the draft solvency opinion of Duff & Phelps, which addresses the values of the assets and liabilities of both MAR and VAC post transaction.  It makes its first appearance in the Second Amendment.

The actions described in the Subsequent Event note address actions taken late in the third quarter of 2011, when the Duff and Phelps appraisers/bankers were performing their engagement.  

Was Duff & Phelps 'uncomfortable' with the MAR asset values?  The timeline sure makes that look possible.  And that in turn makes one wonder about the quality of E&Y audit of MAR.


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## BocaBoy (Oct 2, 2011)

No surprises here.  The loss in real estate values has already occurred.  This write-down is a non-cash cost to get their balance sheet asset values in order prior to the actual spin-off.  I think we already knew that they would be trying to sell their "excess" undeveloped real estate assets.  I am glad to see that they are addressing these issues now.


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## gblotter (Oct 2, 2011)

There is some very interesting reading here.  I took special note of the risk assessment which begins on page 19.


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## windje2000 (Oct 2, 2011)

BocaBoy said:


> No surprises here.  The loss in real estate values has already occurred.  *This write-down is a non-cash cost *to get their balance sheet asset values in order prior to the actual spin-off.  I think we already knew that they would be trying to sell their "excess" undeveloped real estate assets.  I am glad to see that they are addressing these issues now.



Technically, it is an accounting entry which neither generates nor uses cash in this accounting period.  

MAR spent $275-$325 MM more cash (or its equivalent) to acquire these assets than they will receive for them when they sell.  That's an economic loss.

I was surprised that much of the problem lies with luxury.  I was also surprised that they had to take another write down on these assets.  

I guess I'm more easily surprised than you.


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## gblotter (Oct 2, 2011)

windje2000 said:


> I was surprised that much of the problem lies with luxury.


Marriott spent huge sums to acquire large pieces of property at Kauai Lagoons and Kapalua Bay for development as Ritz Carlton Club.  Both of these acquisitions included golf courses and prime ocean-front land.  Kauai Lagoons never really got off the ground, and the few units built were re-badged as Marriott Vacation Club.  The Kapalua Bay project is now built-out but sales have been disappointing to say the least.  Marriott gambled big on Ritz Carlton Club and lost.  All of Spinco will pay the price for those missteps.


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## BocaBoy (Oct 2, 2011)

windje2000 said:


> Technically, it is an accounting entry which neither generates nor uses cash in this accounting period.
> 
> MAR spent $275-$325 MM more cash (or its equivalent) to acquire these assets than they will receive for them when they sell.  That's an economic loss.
> 
> ...



Yes, it is a big and real economic loss, but the cash is already out the door and this adjustment recognizes that.  They are getting their house in order for the future.


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## curbysplace (Oct 2, 2011)

So didn't the brains behind Spinco understand the valuation issue with respect to Ritz Carleton and the undeveloped properties?  Don't you think that is part of the plan in the spinnoff/acquisition from Marriott and valued accordingly?  They may be smarter than you think (or at least we can hope this is so).


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## mj2vacation (Oct 2, 2011)

The problem is that MVCI kept the same boneheads that caused a 3/4 of a BILLION dollar write-off....  They erased 8-9 years of profits and showed that they really had no idea what they were doing...

The ole Cornell boys really should be among the unemployed.  They drove the golden goose into the ground at warp speed, yet, got to stay....   Un-friggin-believable


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## OldPantry (Oct 3, 2011)

I must say I found this eye-opening.  The Ritz Carleton aura was masking fairly catastrophic losses.  Did anyone go through a Ritz Carleton presentation?  I'm wondering just how much they were charging for access to the "luxury" collection.  Since we all have good insight into how inflated Vacation Club prices were, I can only assume that R-C prices were in the stratosphere.


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## GregT (Oct 3, 2011)

OldPantry said:


> Did anyone go through a Ritz Carleton presentation?  I'm wondering just how much they were charging for access to the "luxury" collection.  Since we all have good insight into how inflated Vacation Club prices were, I can only assume that R-C prices were in the stratosphere.



My recollection from previous visits was that, in May 2008, 3 weeks in St. Thomas were $150K (total, not each week).  The way the weeks system worked was you buy 3 weeks and could reserve 2 weeks in Platinum and 1 week in a shoulder season.  MFs were approx $12K/year, I believe, for the 3 weeks.

The salesman pointed out that St. Thomas was the least expensive way to buy into their program, and that Maui was $500K for the 3 weeks (same approach).

When I was there in January 2011, they'd switched to a points system, and the points required for a one week stay in St. Thomas was $90K.  

This is from memory, but I believe is accurate.  The point system is similar to the Marriott system, but more rigid (no banking/borrowing).

This new disclosure in the SEC filing could also explain why Ritz Carlton's are finding their way into DClub -- DClub may be the best way available to utilize/monetize that built-out inventory.    

Best,

Greg


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## OldPantry (Oct 3, 2011)

GregT said:


> My recollection from previous visits was that, in May 2008, 3 weeks in St. Thomas were $150K (total, not each week).  The way the weeks system worked was you buy 3 weeks and could reserve 2 weeks in Platinum and 1 week in a shoulder season.  MFs were approx $12K/year, I believe, for the 3 weeks.
> 
> The salesman pointed out that St. Thomas was the least expensive way to buy into their program, and that Maui was $500K for the 3 weeks (same approach).
> 
> ...



Thanks Greg.  I think that makes it pretty clear.  Just on maintenance fees, they were looking for a nightly payment of $571, with seven of the nights in shoulder season.  Add in opportunity cost (say $7500 a year on $150,000, or 5%), and that nightly cost looks more like $927.  No wonder their sales were weak.  Even rich folks might think twice about plunking down that kind of scratch.  You can rent some mighty nice units around the world for $900/night, and not lock up the cash.


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## windje2000 (Oct 3, 2011)

GregT said:


> This new disclosure in the SEC filing could also explain why Ritz Carlton's are finding their way into DClub -- *DClub may be the best way available to utilize/monetize that built-out inventory.*
> 
> Best,
> 
> Greg



Yup - that's also my reaction on including RC in DClub.


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## rpw (Oct 4, 2011)

*I guess there wont be any new development for a while*

I guess that makes my decision to not join the points program a little easier to swallow.  The whole "You will not be able to get into new resorts without joining" sounds like a very hollow threat right now.


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## EducatedConsumer (Oct 4, 2011)

GregT said:


> This new disclosure in the SEC filing could also explain why Ritz Carlton's are finding their way into DClub -- DClub may be the best way available to utilize/monetize that built-out inventory.
> 
> Best,
> 
> Greg



The Marriott Destination Club may be the only way for the Ritz Destination Club to unload the Ritz inventory, that few consumers are willing to purchase.


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## Bunk (Oct 6, 2011)

One issue that causes me concern in the Spinco SEC filing is the language in the summary about how Spinco will create revenue:  "We generate most of our revenues from four primary sources: selling vacation ownership products; managing our resorts; financing consumer purchases of vacation ownership products; and renting vacation ownership inventory."

Looking at those four sources:

1.  Selling vacation products:  I look upon the creation of the Destination Club and the sale of memberships to legacy owners as a type of churning.  For example, as a legacy owner, I bought into the program but did not buy any additional points.  But that was a minimal onetime fee and not a major investment.  Can Spinco come up with significant revenue by inducing more legacy owners to buy into the club at a fee of between $595 and $2,000.    Spinco states:  "As a result of these initiatives, the percentage of sales from our owners and their referrals has increased to approximately 70 percent as of June 17, 2011.”  So the major revenue source of Spinco at this time appears to be hitting up existing owners to try to get more money by continued tweaking of the system.  How long can that continue?   Are Legacy Owners going to be wiling and able to spend real money to buy Destination Club points?  If not, will Spinco have to significantly drop the prices for points in order to induce more sales of the points product. 

2.  Managing resorts:  If Marriott hadn’t aggressively tried to expand into high end products such as Ritz-Carlton, Kauai Lagoons, Marco Island, this source of revenue might make sense.  After all, there are a lot of existing well run resorts that most of us are very happy with.  I’m just not smart enough to figure out whether the carrying costs on the white elephants can drag down Spinco.  For example, even if Spinco were able to sell undeveloped land, will there be white elephants that operate at a loss?  If there are, does Spinco have the legal right to remove them from the Spinco umbrella by selling the non-performing resorts? I don't know if Spinco has the legal right to discontinue the unprofitable operations and how they could accomplish that.

3.  Consumer Financing.  I don’t see how you can rely on long term securitzation of consumer financing of unsecured debt of this type, because the resale value of the products being financed in substance are worth much less than the debt.  

4.  Inventory rental:  Finally a source of income I understand.  I don’t know how well this will fare in a recession, and pray that we don’t reach the point where our maintenance fees are significantly less than the cost to rent.


The frightening thing to me is that the continued health of Spinco depends in large part on existing owners continuing to spend more money purchasing points or in new customers buying a Destination Club product that in its current form most of us probably wouldn't recommend to friends or family.  I hope this ends well.


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## GaryDouglas (Oct 6, 2011)

Bunk said:


> The frightening thing to me is that the continued health of Spinco depends in large part on existing owners continuing to spend more money purchasing points or in new customers buying a Destination Club product that in its current form most of us probably wouldn't recommend to friends or family. I hope this ends well.


 
When I talk to people around the pool at MOC (MMO for II people), I haven't run across one person who is TimeShare-Wise. If Marriott relied on a populous of TUGers to sell to, they would have gone out of business a long time ago. Maybe time, word-of-mouth and the internet will eventually change that. My greatest concern is that this new company, if they survive the next decade, will start buying legacy weeks for pennies on the dollar and depositing them into the Trust, and within a couple decades, legacy week owners will be in the minority and loose their voting rights. It probably won't affect me, but it will affect the beneficiaries of my trust...


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## gblotter (Oct 7, 2011)

GaryDouglas said:


> When I talk to people around the pool at MOC (MMO for II people), I haven't run across one person who is TimeShare-Wise. If Marriott relied on a populous of TUGers to sell to, they would have gone out of business a long time ago. Maybe time, word-of-mouth and the internet will eventually change that. My greatest concern is that this new company, if they survive the next decade, will start buying legacy weeks for pennies on the dollar and depositing them into the Trust, and within a couple decades, legacy week owners will be in the minority and loose their voting rights. It probably won't affect me, but it will affect the beneficiaries of my trust...


Yep, Gary - I agree that there are many reasons to be concerned.  I hate to bury my head in the sand, but if I spend too much time thinking about such things, it robs any joy of owning a timeshare.

Given the miserable state of affairs in the economy and the timeshare industry, figuring out a formula to make Spinco a profitable stand-alone corporation will be quite a trick.  Even with these pre-spinoff writedowns, Spinco operating costs are going to rise if for no other reason than they now have to pay for using the Marriott name.  Those escalating costs will ultimately be born by us the timeshare owners.  If Spinco becomes too abusive to its owners/customers through escalating fees and other manipulations, the Marriott brand will be damaged and Marriott may decide to withdraw from the whole arrangement.  Ultimately owners may sue to break the relationship with Spinco and choose a different resort management company.  Even if that option is possible at some sold-out resorts, it would surely be a miserable path for everyone involved.  There are already many sad examples in the timeshare industry that show us how bad it can get.  If/when it reaches that breaking point, I will simply dump my weeks for whatever pennies I can get and consider myself wiser for not throwing away good money after bad.

Ironically, the whole reason why I agreed to buy a timeshare in the first place was because I believed I could trust in the Marriott name to provide a superior experience in a shady industry tainted with many bad players.  That foundation of faith appears to be on shaky ground now.


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## kjd (Oct 7, 2011)

What's the Spinco's definition of "undeveloped inventory"?  I assume it means projects that never were started.  If not, then some current resort owners may have problems.

There are several Marriott resorts that have "undeveloped inventory" on their premises.  All the present owners have in these locations is a promise from Marriott to complete the resort.  Resorts like Oceana Palms, Grand Chateau, Lakeshore Reserve, Crystal Shores, Kuau'i Lagoons, etc all have promised owners that future development will be completed.  Many of these resorts have amenities that were promised owners but will not be completed until the resort is completed.  Some of these promises of completing resort amenities have dragged on for more than five years.

The question of Spinco's willingness to complete these resorts in a timely manner and give the owners what they were promised, must be asked.  The owners who have patiently waited for their resort's amenities to be fully completed have not gotten what they paid for.  In many cases bigger pools, larger lobbys, more recreational areas, more parking, expanded retail, etc were part of the sales package touted to prospective buyers.  In other words, we haven't got what we paid for.

Another alarming question is what Spinco's idea of "completion" is.  Will the undeveloped portions of existing resorts now be used for other purposes than originally intended?  Those new uses could be detrimental to your vacation enjoyment.


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## SueDonJ (Oct 7, 2011)

kjd said:


> What's the Spinco's definition of "undeveloped inventory"?  I assume it means projects that never were started.  If not, then some current resort owners may have problems.
> 
> There are several Marriott resorts that have "undeveloped inventory" on their premises.  All the present owners have in these locations is a promise from Marriott to complete the resort.  Resorts like Oceana Palms, Grand Chateau, Lakeshore Reserve, Crystal Shores, Kuau'i Lagoons, etc all have promised owners that future development will be completed.  Many of these resorts have amenities that were promised owners but will not be completed until the resort is completed.  Some of these promises of completing resort amenities have dragged on for more than five years.
> 
> ...



Marriott/Spinco isn't legally required to complete projects where owners bought during pre- and mid-construction phases; the paperwork that you sign when purchasing makes that clear with disclosures in a number of places.  Even the promotional materials make it clear.  Take a look at this Crystal Shores at Marco Island promotional video; any scenes showing the expected completed project have this language superimposed:

"Developer's conceptual renderings and animation.  Features and amenities are proposed and subject to change.  Estimated completion date is December, 2013."

We bought SurfWatch mid-construction and knew there was a risk that the project wouldn't be completed exactly as advertised.  The Marriott rep didn't dwell on that negative point but she certainly mentioned it, it was highlited in all the promo materials, and the docs we signed contained several related provisions.

From reading TUG it seems to be a fact of timeshare life - not limited to Marriotts - that you take this risk when buying at an incomplete resort.  I agree with you that it would be nice if Spinco were to announce a complete schedule of re-start dates for the mid-construction resorts (Marco, Las Vegas, etc.) but it probably won't happen.  They may not even know themselves which resort(s) will be ultimately completed as advertised, which will remain as is currently, and which will be some form in between.


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## Bunk (Oct 7, 2011)

I don't think it's productive right now to dwell on what disclosures were made in the past.

To me, looking to the future, the more important questions include:  (i) Is there funding available to complete the underdeveloped projects i.e. Oceana Palms, Grand Chateau, Lakeshore Reserve, Crystal Shores, Kuau'i Lagoons; (ii)  If the underdeveloped projects are completed, will Spinco be able to sell enough points packages to pay for this; (iii) Do the underdeveloped projects in their present condition generate enough income from sales, maintenance and rent to pay for their costs (keep in mind they must absorb more of the overhead since the unbuilt portions of the project won't pay a proportionate share; and (iv) What is the financial condition of the Ritz-Carlton portion of the Spinco umbrella.


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## SueDonJ (Oct 7, 2011)

Bunk said:


> I don't think it's productive right now to dwell on what disclosures were made in the past.



I'm not pointing out the disclosures for no reason at all.  They're in response to kjd's post stating that, "... All the present owners have in these locations is a promise from Marriott to complete the resort. ..."  I do think it's productive to point out that the existing disclosures prove there was no such promise, and that Marriott/Spinco suffers no legal requirement to complete every project as advertised.



Bunk said:


> To me, looking to the future, the more important questions include:  (i) Is there funding available to complete the underdeveloped projects i.e. Oceana Palms, Grand Chateau, Lakeshore Reserve, Crystal Shores, Kuau'i Lagoons; (ii)  If the underdeveloped projects are completed, will Spinco be able to sell enough points packages to pay for this; (iii) Do the underdeveloped projects in their present condition generate enough income from sales, maintenance and rent to pay for their costs (keep in mind they must absorb more of the overhead since the unbuilt portions of the project won't pay a proportionate share; ...



All good questions, agreed.  But they're also not much different than similar questions which could be asked if Spinco, or even the new DC Points product, weren't pieces of the puzzle.  Weeks owners at every incomplete project/resort have always had good reason to be concerned about the economy's effect on their resorts.



Bunk said:


> ... and (iv) What is the financial condition of the Ritz-Carlton portion of the Spinco umbrella.



Again, similar to a question that could have been asked if Spinco wasn't a puzzle piece.  Just change a few words and you get this, "What is the financial condition of the MVCI portion of the MAR umbrella?"

{eta} I'm not trying to take this thread off track here by pointing out that some of our ownership-related questions aren't any different now with Spinco than what we were questioning before Spinco was announced.  IMO the most important question to ask now is, what negative effects can our ownerships suffer because Spinco has been introduced into the picture, that we would not suffer if Spinco wasn't in the picture?


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## ocdb8r (Oct 7, 2011)

SueDonJ said:


> All good questions, agreed.  But they're also not much different than similar questions which could be asked if Spinco, or even the new DC Points product, weren't pieces of the puzzle.  Weeks owners at every incomplete project/resort have always had good reason to be concerned about the economy's effect on their resorts.



However both Spinco and the DC Point product magnify these concerns.

1) The ability for Spinco to raise cash to complete products will be much more difficult that had it remained part of Marriott.  That makes it much more difficult for them to complete partial projects.

2) The DC Point product also adds some concern as there is less impetus to finish partial projects given they can likely acquire points inventory for less than the cost to complete many of these projects.  Further, he points product allows them to "sell" small resorts over and over again - they can sell points to 100,000 families pointing them all to the beauty of prime weeks at Crystal Shores if they want - before once weeks ran out they had to build more inventory or sell a different location (granted they could always tout the ability to trade into Crystal Shores, but I don't think it's the same).


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## DB-Wis (Oct 7, 2011)

This has been an interesting and illuminating discussion, but it highlights one of the sad truths about this forum and the timeshare industry.  The industry is so precarious that it makes no sense for interested and informed buyers (like those populating this board) to buy points (or weeks)  from a developer at the prices they must ask to support their business model.   Yet, without those sales, the industry cannot support the successful properties that all of us want.  

A very sad state of affairs.  But, I intend to enjoy my weeks for as long as I can and not dwell on all the negatives.  Our timeshare investments may not be turning out as we hoped, but we are continuing to receive value from our investments (in the form of enjoyable stays are nice properties) and very few of us are going hungry because out timeshare investments have not panned out.  I've made far worse mistakes in my life -- I'm not going to lose sleep or waste time wringing my hands over this.


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## kjd (Oct 7, 2011)

Well, given this information about the sales contract I think the entire intent of the Spinco has to be called into question.  When I purchased my Grand Chataeu units I was told in no uncertain terms that there would be a rooftop pool on top of the parking garage.  Not only that, I was shown a model of it which today still resides in the lobby.  There was also a promised expanded parking garage and a larger lobby with a larger Marketplace retail store.

These amenities were meant for the benefit of present owners as well as future ones and were part of the sales presentation regardless of what the contracts supposedly say.  Is the Spinco going to turn into a scapegoat for Marriott's broken promises to owners?  I hope not.


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## SueDonJ (Oct 7, 2011)

ocdb8r said:


> However both Spinco and the DC Point product magnify these concerns.
> 
> 1) The ability for Spinco to raise cash to complete products will be much more difficult that had it remained part of Marriott.  That makes it much more difficult for them to complete partial projects.



Good point, investors will certainly recognize that Spinco doesn't have the MAR umbrella coverage that MVCI did.  If/when the economy recovers to the point where "vacation lifestyle" becomes a less risky venture, Spinco will have less investor protection than MVCI-under-MAR did at one time.  But pretty much every timeshare developer lost investors and/or stopped construction at incomplete resorts when the economy tanked.  None of them stand a chance at longterm survival if the economy doesn't rebound.



ocdb8r said:


> 2) The DC Point product also adds some concern as there is less impetus to finish partial projects given they can likely acquire points inventory for less than the cost to complete many of these projects.  Further, he points product allows them to "sell" small resorts over and over again - they can sell points to 100,000 families pointing them all to the beauty of prime weeks at Crystal Shores if they want - before once weeks ran out they had to build more inventory or sell a different location (granted they could always tout the ability to trade into Crystal Shores, but I don't think it's the same).



But theoretically, if/when the economy rebounds, doesn't the DC product make it easier for Spinco to raise funds from new purchasers because they're not constrained by a finite number of intervals at specific resorts?  If they can sell the possibility of a reservation of a certain interval over and over again, limited only by the number of DC Points that exist, isn't that better than if they're limited by the number of certain intervals that exist? 

I understand investors are the more important cash cow for Marriott/Spinco and that the overall economy's affect on luxury purchases is the more formidable stumbling block now.  But I think that if/when the economy rebounds, as long as Spinco retains the Marriott name in some fashion (which it intends to) then most timeshare purchasers won't care - and some won't even realize - that the corporate structure is different now.


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## SueDonJ (Oct 7, 2011)

DB-Wis said:


> This has been an interesting and illuminating discussion, but it highlights one of the sad truths about this forum and the timeshare industry.  The industry is so precarious that it makes no sense for interested and informed buyers (like those populating this board) to buy points (or weeks)  from a developer at the prices they must ask to support their business model.   Yet, without those sales, the industry cannot support the successful properties that all of us want.
> 
> A very sad state of affairs.  But, I intend to enjoy my weeks for as long as I can and not dwell on all the negatives.  Our timeshare investments may not be turning out as we hoped, but we are continuing to receive value from our investments (in the form of enjoyable stays are nice properties) and very few of us are going hungry because out timeshare investments have not panned out.  I've made far worse mistakes in my life -- I'm not going to lose sleep or waste time wringing my hands over this.



I'm in complete agreement!


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## windje2000 (Oct 7, 2011)

SueDonJ said:


> IMO the most important question to ask now is, what negative effects can our ownerships suffer because Spinco has been introduced into the picture, that we would not suffer if Spinco wasn't in the picture?



The $50 million annual payment from SPINCO to MAR for use of Marriott name.


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## Bunk (Oct 7, 2011)

$50 million is the minimum license fee:

See page 8 of filing:
"We will agree to pay royalties to Marriott International and Ritz-Carlton under the License Agreements, including a fixed annual fee of $50 million to Marriott International and certain variable fees to Marriott International and Ritz-Carlton based on our sales volumes."


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## SueDonJ (Oct 7, 2011)

windje2000 said:


> The $50 million annual payment from SPINCO to MAR for use of Marriott name.



Yep, that's one thing that's a direct result of the introduction of Spinco.  So with an estimated 400,000 owners it works out to $125 per owner per year - do you think Spinco will put this entire burden on the owners' shoulders, part of it, any guess is good??  I really don't know what to guess.   



Bunk said:


> $50 million is the minimum license fee:
> 
> See page 8 of filing:
> "We will agree to pay royalties to Marriott International and Ritz-Carlton under the License Agreements, including a fixed annual fee of $50 million to Marriott International and certain variable fees to Marriott International and Ritz-Carlton based on our sales volumes."



I'd guess any fees due for "sales volumes" will be included in the costs of any new sales, not foisted off on existing owners.  Of course it's possible we'll be robbed in such a way, but that would practically guarantee Spinco alienating their existing customer base.  Maybe I'm overly optimistic but I don't see the sense in Spinco deliberately sabotaging itself in that fashion from the get-go.


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## windje2000 (Oct 7, 2011)

SueDonJ said:


> Yep, that's one thing that's a direct result of the introduction of Spinco.  So with an estimated 400,000 owners it works out to $125 per owner per year - do you think Spinco will put this entire burden on the owners' shoulders, part of it, any guess is good??  I really don't know what to guess.



If you can identify anyone *other* than owners who might be willing to shoulder any portion of that $50MM burden, I'm sure that those 400,000 owners will be quite grateful.


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## SueDonJ (Oct 7, 2011)

windje2000 said:


> If you can identify anyone *other* than owners who might be willing to shoulder any portion of that $50MM burden, I'm sure that those 400,000 owners will be quite grateful.



Well, I think that one way for Spinco to not completely alienate existing owners by putting the total burden on them, is for Spinco to take a portion of the 10% management fee already being paid by owners and paying it to MAR for the naming rights.  Another way the owners' burden could be reduced is by Spinco paying MAR a portion of the fees they're collecting from all the entities who are involved in the new DC Collections offerings.  Presumably the companies with which the DC has partnered are paying fees for the privilege, yes?

I'm not so naive as to think that we won't see some additional costs in our yearly fees as a direct result of Spinco's introduction.  But I really don't think that the Spinco BOD is naive enough to believe that existing owners will simply accept every new fee that comes down the pike.  Certainly not when they're legally required to give notice to the existing owners that a new corporate structure is being put in place.

Again, maybe I'm overly optimistic, but I think reasonableness must be what Spinco aims to achieve if it expects to be successful.  It's reasonable, IMO, that as an owner I'll sacrifice a little bit IF I see Spinco making similar sacrifices.


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## dioxide45 (Oct 7, 2011)

This is from the first quarter MAR earnings call:



> While all terms of the transaction are not yet complete, post spin-off,
> the company expects the new timeshare company will pay a franchise fee to Marriott International totaling approximately 2 percent of developer contract sales plus a flat $50 million annually for use of Marriott’s brands. The franchise fee is also expected to include a periodic inflation adjustment.



The 2% sales based fee seems reasonable and can be easily built in to the cost of new sales. It is about $0.20 per point.

I truly think the $50MM fee is absurd. We know that there are approximately 400,000 owners, but this fee really should be spread across unit weeks, not owners. I have seen the 800,000 unit weeks number thrown out there. Though I don't think this includes the Ritz brand. If that 800,000 is accurate, it is closer to $65 per unit week.

In the end the customer pays for everything. That burden will at some point fall on owners. Perhaps not until current management contracts are renewed. Though perhaps Spinco can somehow work it in as a line item in the annual budget for each resort before current contracts come up for renewal.

It is great when the fox is watching the hen house. MAR is developing this franchise fee while MVCI is still a part of the company. Just like all the underlying condo documents are written by the developer. MAR is hoping to see Spinco as a cash cow. Honestly $50MM? I am still aghast.


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## gblotter (Oct 8, 2011)

windje2000 said:


> If you can identify anyone *other* than owners who might be willing to shoulder any portion of that $50MM burden, I'm sure that those 400,000 owners will be quite grateful.


If predictions are true, Spinco hopes to become a timeshare exchange enterprise to replace II.  Exchange fees could be an additional source of income to pay the $50MM fee to Marriott.  In addition, Spinco will be renting out a significant number of the timeshare units to non-owners (just look at all that unsold inventory).  That rental revenue could also be used to pay the $50MM Marriott fee.

I agree - the owners will likely shoulder the burden.  I'm just trying to think outside the box here.

With the first 20% maintenance fee increase, we will likely see massive owner defaults on maintenance fee payments.  As a result, some HOA boards will try to end their resort management contract with Spinco.  That's when it will get interesting.


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## kjd (Oct 8, 2011)

If renting unsold inventory comes to pass doesn't that change the nature of the timesharing experience for present owners?  Part of the reason for purchasing deeded weeks or points for that matter, is that owners might treat the property more respectfully and that longer stays remove the transient nature of a resort.  When I invision a resort as a rental project it conjures up images of additional security concerns, lack of guest's concern for rules, units used as hospitality suites for businesses or parties, etc.  

A hotel has much better security because it is less spread out than most timeshare resorts.  Effectively changing a timeshare into a hotel probably affects locations like Orlando, Las Vegas, Hilton Head, Palm Beach more than others.  My concerns may not be realistic but I have observed several condos going rental and it was a bad experience for the owners.  Many condo associations have limits on rentals for that reason.  I'm not sure there are any limits presently on timeshare units.  It's something to think about if the Spinco is going in that direction.


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## SueDonJ (Oct 8, 2011)

But Marriott and II have been renting unsold inventory for years, haven't they?  You can go on marriott.com to rent any un-reserved inventory at the Marriott timeshares, and II makes un-exchanged deposited inventory available through weekly Getaways and nightly Resort Deals (click on the Travel tab at the top of the screen then Resort Deals on the left.)  What's the difference if it's now Spinco facilitating the rental and collecting the revenue, as opposed to marriott.com or II?


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## SueDonJ (Oct 8, 2011)

dioxide45 said:


> ... It is great when the fox is watching the hen house. MAR is developing this franchise fee while MVCI is still a part of the company. Just like all the underlying condo documents are written by the developer. MAR is hoping to see Spinco as a cash cow. Honestly $50MM? I am still aghast.



I agree, $50M sounds ridiculous if it's based solely on the 400K owners/800K Weeks that exist in MVCI.  But is that the sole basis?  Is it possible that the other Spinco ventures are expected to bring in income that makes that figure realistic?  Several Spinco BOD members are moving over from MAR - would they be doing so if they were expecting the new company to fail?  That's what I don't understand - some TUGgers seem to think that the only reasonable outcome based on what we know about Spinco is that failure is certain unless we owners open our pocketbooks W - I - D - E.  How can the MAR board members, especially the ones moving to Spinco, possibly expect from their insider knowledge that we'll simply accept it?  That we won't mutiny en masse which will ruin the timeshare developments they've built over the years, and drag Spinco down with them?

I wish we knew what they know.  I wish we could get our hands on whatever accounting materials gave them the idea that $50M is a reasonable amount for naming rights.


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## SueDonJ (Oct 8, 2011)

gblotter said:


> ... With the first 20% maintenance fee increase, we will likely see massive owner defaults on maintenance fee payments.  As a result, some HOA boards will try to end their resort management contract with Spinco.  That's when it will get interesting.



That's it, right there.  This is why I think owners are NOT in a position where Spinco can just do whatever it wants, force whatever fees on us it needs, to make their business a success.

I do think that there are probably MVCI resorts which Spinco expects to sever ties with sometime within the first five years.  Maybe older resorts, or resorts which have very few unsold Weeks and/or owners enrolled in the DC.  Alienating them through higher fees, forcing them to play their cards to sever the management agreement, could be a way for Spinco to get what it wants.  But raising fees exorbitantly across all resorts would put Spinco at risk of that outcome occurring where they don't want it.  And realistically, all Spinco really has to do to sever the relationships with non-performing (to their business) resorts is wait for the current management agreement contracts to expire and then not elect to re-sign.


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## kjd (Oct 8, 2011)

As I previously pointed out my concern about renting may be ridiculous given the past history of rentals.  Most of the rentals have been on a weekly basis and are normally acquired through a number of means.  If you're talking about building new daily rental buildings (Crystal Shores) or converting the yet to be built twin towers (Grand Chateau) that could be an entirely different matter and changes the character of the timeshare.

Do daily renters and weekly timeshare owners mix well?  I think that's an open question.  Hotel condos have been for the most part a flop whereever they have been tried.


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## SueDonJ (Oct 8, 2011)

kjd said:


> As I previously pointed out my concern about renting may be ridiculous given the past history of rentals.  Most of the rentals have been on a weekly basis and are normally acquired through a number of means.  If you're talking about building new daily rental buildings (Crystal Shores) or converting the yet to be built twin towers (Grand Chateau) that could be an entirely different matter and changes the character of the timeshare.
> 
> *Do daily renters and weekly timeshare owners mix well?*  I think that's an open question.  Hotel condos have been for the most part a flop whereever they have been tried.



Oh.  Hmmm.  I'm not sure I understand what you mean.  If further development is continued at any of the unfinished resorts, are you thinking that the new buildings will not be available as timeshare units?  That they'll be hotel properties under the direction of Marriott and not Spinco?  Or, I'm sorry if I'm way off your topic here into Neverland.

About your question that I bolded - we should get a pretty good idea of how daily renters and weekly owners mix in the next few years, because the DC Points option now makes daily rentals quite enticing for many members.  I happen to agree with you that for the most part owners may take more pride, and therefore cause less damage and wreak less havoc, in the units they own (although some don't agree with this view, and certainly Aruba Week 3 doesn't fit this mold.)  But I wonder if DC Points owners will have that same pride and concern without their ownership being tied to a specific resort?


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## windje2000 (Oct 8, 2011)

dioxide45 said:


> It is great when the fox is watching the hen house. MAR is developing this franchise fee while MVCI is still a part of the company. Just like all the underlying condo documents are written by the developer. MAR is hoping to see Spinco as a cash cow. Honestly $50MM? I am still aghast.




Tradenames and trademarks tell you about the business or product.

The McDonalds name and marks tell you what to expect from its thousands of licensed restaurants worldwide.  The licensees of the McDonalds name pay for using that name because it attracts customers seeking that experience.  They get a huge benefit from paying for that name.

The Marriott name was attractive to many considering purchasing timeshare.  Like McDonalds, the buyer attracted to Marriott had certain expectations regarding the experience associated with the occupancy.  


*Marriott was paid handsomely for its name by every developer purchaser for every unit it sold.  Its profit margins were huge.  
*

The proposed annual $50MM SPINCO charge raises the following question:

"What _continuing benefit_ will I be receiving as an owner from the use of the Marriott name?"  

I can't think of one.  


I'd be just as happy with my occupancy experience no matter what the name.   

The name is useful to those who rent the units, but that's a pretty small population of owners and making a habit of renting is prohibited.  Marriott certainly could charge owners who rent a fee for use of the name as they are receiving a financial benefit from exploiting the name.

The Marriott name no longer makes much if any difference in resale value, which is where it might have had an impact.

So the next question I have is:

"Why should any owner be required to make an annual payment (either directly or indirectly since the cost will be part of the SPINCO overhead) for use of the Marriott name?"  

Unlike any other component of the MF, the payment generates no benefit.



As noted earlier, Marriott was paid handsomely in exploiting its name when the units were sold.  

How many times should Marriott be paid for the name?  

Once is enough.


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## kjd (Oct 9, 2011)

To clarify my comment.  I'm fairly confident that daily renters who are point system members will be no different that the weeks owner when it comes to respecting the property and enjoyment of other guests.  It's the "off the street" business that concerns me in places that have a lot of convention business or transiant guests.  

Hotels are another breed of cat.  They are set up to handle these problems much better than a timeshare resort.  Hotels do a good job of keeping a safe and enjoyable enviornment.  It just seems to me that in some of these unfinished resorts there's the possibility of turning the property into a condo hotel rather than a weeks based timeshare.  That's not what we purchased.


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## dioxide45 (Oct 9, 2011)

Bunk said:


> I don't think it's productive right now to dwell on what disclosures were made in the past.
> 
> To me, looking to the future, the more important questions include:  (i) Is there funding available to complete the underdeveloped projects i.e. Oceana Palms, Grand Chateau, Lakeshore Reserve, Crystal Shores, Kuau'i Lagoons; (ii)  If the underdeveloped projects are completed, will Spinco be able to sell enough points packages to pay for this; (iii) Do the underdeveloped projects in their present condition generate enough income from sales, maintenance and rent to pay for their costs (keep in mind they must absorb more of the overhead since the unbuilt portions of the project won't pay a proportionate share; and (iv) What is the financial condition of the Ritz-Carlton portion of the Spinco umbrella.



We do know that Oceana Palms will be completed. They have started construction on the second tower. Now I don't know if all "promised" amenities will be finished completed, but there may not be very many more of them to complete.

Ko'Olina is another one that you need on your list. I believe they are finishing out the units in the third building, but I think that there is/was a fourth building planned that may not happen any time soon.


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## SueDonJ (Oct 9, 2011)

windje2000 said:


> ... The proposed annual $50MM SPINCO charge raises the following question:
> 
> "What _continuing benefit_ will I be receiving as an owner from the use of the Marriott name?"
> 
> ...



But just like the McDonald's name means that you're practically guaranteed a standard, the same is true with Marriott.  Owners suffer higher MF's but know that a certain brand standard will keep their resorts maintained, updated and performing to the purchased level.

Most important to me is that the Marriott name means that there's a management contract between Marriott and the resort.  It means that owners are afforded protections by that agreement which prevent splinter/minority ownership groups from foisting unwanted changes upon majority owners such as sub-standard maintenance, questionable bylaw revisions, etc.  Sure, theoretically a minority ownership group can never gain control if all owners participate, but we've seen here on TUG how 100% owner participation never happens.  We've seen that Marriott's resources are probably what's needed to fend off a minority take-over because owner apathy allows the possibility of the minority becoming a voting majority.  And yes, we pay for that protection by conceding power to Marriott in most ownership-related matters - but if the majority ownership DOES want out and actively seeks it, those protections shift from Marriott to the majority.

The tie-in with the Marriott Rewards program is a benefit that we make use of with 99% of our non-timeshare travel.  Even if it were probable that my resorts could function materially exactly the same as they do now if the Marriott name were removed (which I don't believe they would,) I would vote against such a change simply because I wouldn't want to lose that MR connection.

You left the exchange value out of the equation.  Despite knowing that II practically guaranteed a downtrade for our particular units, I still knew that the Marriott name would garner better exchange possibilities to other Marriotts than a non-Marriott resort would, and the Marriott priority is a plus.  Now with the DC our particular units can garner even more exchange value than what was possible in II.  Exchange value isn't the highest priority on our list but when we do exchange, we limit ourselves to other Marriotts because we like the security that comes with knowing we're exchanging to similar-standard resorts.  

Like you the renting value doesn't mean anything to us - we don't use our timeshares as rental income and don't expect to get into owner-to-owner trades.  With respect to resale value, I think the Marriott name doesn't prop it up artificially but in most cases it does keep it among the highest within a certain geographical area and/or class of resorts.  That's about all we could ever ask from the resale market, realistically.

Honestly, I don't like the idea of Spinco costing us more money.  But the one constant over the years has been that timesharing pretty much equates to escalating fees; there's no getting around it.  I just hope, like I said, that reasonableness prevails.


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## windje2000 (Oct 9, 2011)

SueDonJ said:


> But just like the McDonald's name means that you're practically guaranteed a standard, the same is true with Marriott.  Owners suffer higher MF's but know that a certain brand standard will keep their resorts maintained, updated and performing to the purchased level.
> 
> That's why Marriott got the sale and gets an annual  management fee that's generous compared to most other TS.
> 
> ...



Escalating fees over time for services rendered are expected; prices change over time.  

But layering an incremental $50MM ANNUAL expense on SPINCO . . . that will inevitably affect the owners MF . . . which (IMHO) provides the owner no incremental ongoing benefits . . . is just gouging.

The Marriott name has sold and continues to sell timeshare at high margins for Marriott's benefit.  True of both weeks and points.

The question to be considered is - Does the incremental ANNUAL payment for the use of the name (at the price $50MM initial price Marriott will charge SPINCO) provide existing owners with ongoing benefits worth $50MM ANNUALLY. . . or not?


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## Bunk (Oct 9, 2011)

SueDonJ said:


> But just like the McDonald's name means that you're practically guaranteed a standard, the same is true with Marriott.  Owners suffer higher MF's but know that a certain brand standard will keep their resorts maintained, updated and performing to the purchased level.
> 
> Most important to me is that the Marriott name means that there's a management contract between Marriott and the resort.  It means that owners are afforded protections by that agreement which prevent splinter/minority ownership groups from foisting unwanted changes upon majority owners such as sub-standard maintenance, questionable bylaw revisions, etc.  Sure, theoretically a minority ownership group can never gain control if all owners participate, but we've seen here on TUG how 100% owner participation never happens.  We've seen that Marriott's resources are probably what's needed to fend off a minority take-over because owner apathy allows the possibility of the minority becoming a voting majority.  And yes, we pay for that protection by conceding power to Marriott in most ownership-related matters - but if the majority ownership DOES want out and actively seeks it, those protections shift from Marriott to the majority.
> 
> ...




I don't have enough information/knowledge/experience to know whether the $50 million annual fee is reasonable.

My concern is that this is not an arms length transaction with respect to the legacy owners.  Does anybody doubt this new system been set up to benefit Marriott; and not Spinco and certainly not the legacy owners nor the points owners. It is clever of Marriott to have devised a system that seems to reduce its potential liability and in addition pay it $50 million annually.  Whether this is sum a reasonable amount I don't know.  Whether the $50 million dollar tribute is an obscene way to suck out more money from a system that will ultimately fail, I don't know.  Hell, I can't even figure out at this point whether Spinco has has a fiduciary duty to the legacy or points owners.  Spinco may even have more of a fiduciary duty to its shareholders, i.e., the Marriott family, than to us.   

But it doesn't look like anything will collapse in the near future, so I agree that the best thing for the moment is to make the best use we can of the present system.


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## dioxide45 (Oct 9, 2011)

Bunk said:


> Spinco may even have more of a fiduciary duty to its shareholders, i.e., the Marriott family, than to us.



Spinco's main responsibility will be to it's shareholders. Sure they want to make sure owners and customers are happy. With unhappy customers there won't be a need for shareholders because the company will ultimately fail.


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## timeos2 (Oct 9, 2011)

The preliminary rating of "Spinco" as B- does not bode well for this spinoff. That is saying they see this as being woefully underfunded as a going company - a stance I would agree with.  The only real way they can raise dollars required quickly is to hit maintenance fees as there is nothing at all certain about sales to prop up this shaky enterprise right from the start. 

It has every sign of a very troubled company before it is even out of the mother ship.  It's been said many times here before. Owners: Beware. You are the potential ATM for this group.


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## gblotter (Oct 9, 2011)

Bunk said:


> Does anybody doubt this new system been set up to benefit Marriott; and not Spinco and certainly not the legacy owners nor the points owners. It is clever of Marriott to have devised a system that seems to reduce its potential liability and in addition pay it $50 million annually.  Whether this is sum a reasonable amount I don't know.  Whether the $50 million dollar tribute is an obscene way to suck out more money from a system that will ultimately fail, I don't know.  Hell, I can't even figure out at this point whether Spinco has has a fiduciary duty to the legacy or points owners.  Spinco may even have more of a fiduciary duty to its shareholders, i.e., the Marriott family, than to us.


You have phrased it well.  The only assured winner from this arrangement is Marriott International.  Given the current dismal state of the economy and the declining timeshare industry, it seems evermore difficult to see a profitable/bright future for Spinco.  But Marriott will make money regardless through management contracts and $50M licensing fees.

Does anyone want to wager on what the percentage plunge in Spinco stock price will be on the first day of the spinoff?


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## GregT (Oct 9, 2011)

All,

I'm not nearly as negative about SpinCo's prospects (and I think OldPantry and I are going to have a beer or two one day over this very topic).

Yes -- $50M+ is a big nut to pay (effectively sucking out the net profit from the base business) and Yes, this company remains dependent on asset sales to sustain its $1.5B revenue run-rate.   The entire world is under financial pressure and no one is buying time shares like they used to.

But....the model of selling $20K chunks of points to new buyers shouldn't be dismissed.   $20K is not the same as building a business model (and related level of operating expenses) that depend on $50K - $75K sales.   Can SpinCo sell $700M of points each year?  That's 100 new purchasers per day -- buying in $2K increments?  That's 10 sales per day at the high volume sales offices?  From a sales force operating on commission?  The Marriott/Ritz network is a marketable commodity.  

New buyers of points will keep re-upping and buying more as they realize they don't have enough points from their first purchase (like they do with Disney).  And SpinCo's acquisition cost for those points is low (either current inventory, partially written down) and also ROFR of good properties that are selling for pennies.

This is not to suggest that I think SpinCo is going to be widely successful, nor a great investment.  But I believe its operational viability is good.   

I agree that we as owners should expect higher fees, the real question will be are we getting anything of value for those higher fees.  And can SpinCo find a way to entice existing owners to want to buy points -- why should I buy Trust Points??   

I expect they will start to add features like the following and charge for them:

1) Pay to rescue your points, ie instead of banking by June 30, you can still extend them to next year as late as December 31 (for $75 -- like HGVC)

2) Enroll your post June 20, 2010 resale purchase -- as long as you buy 2,000 Trust Points (like Starwood, where it is called "re-qualify")

3) Buy single-use points for $1 per point from Marriott to cover your shortfall (instead of renting them from my board) -- for the last night only (like Wyndham)

#1 and #3 will be modest revenue sources -- selling points and financing the sales will remain the core revenue engine -- Can they achieve the sales volumes I noted above????   

There will be many changes in the years ahead -- and I think SpinCo will definitely make it (and will have their primary responsibility to their shareholders, as they should).

But can they be successful AND maintain a happy, loyal ownership base???  That's the real question, to me.   Only Disney and HGVC appear to have been able to do that to date.

Best,

Greg


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## dioxide45 (Oct 9, 2011)

gblotter said:


> You have phrased it well.  The only assured winner from this arrangement is Marriott International.  Given the current dismal state of the economy and the declining timeshare industry, it seems evermore difficult to see a profitable/bright future for Spinco.  But Marriott will make money regardless through management contracts and $50M licensing fees.



Spinco will be the one making the profit from the management contracts, not Marriott International. MI makes money no matter what, and I agree they are the only assured winner here.



> Does anyone want to wager on what the percentage plunge in Spinco stock price will be on the first day of the spinoff?



Will the price plunge? Will it even have a price attached to it when they give shares to current MI stockholders? I am sure the first day trading price won't be good, but it will place a market cap on the new company.


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## dioxide45 (Oct 9, 2011)

GregT said:


> All,
> 
> I'm not nearly as negative about SpinCo's prospects (and I think OldPantry and I are going to have a beer or two one day over this very topic).
> 
> ...



I agree that Spinco is going to have to get creative in order to generate more revenue and the three items you mentioned are great places to start. I really do think that they need some sort of option to enroll post 6/20 weeks. I think even better would be for them to offer an option to turn any week in to true DC points. This would be a way for Spinco to get more control of inventory. They could also sell it as an option for those where their legacy MF are above $0.40pp. People could convey their weeks to the trust by buying X number of points. It may be a way to spur some sales to people that are paying a huge legacy per point MF.


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## cruisin (Oct 9, 2011)

windje2000 said:


> Escalating fees over time for services rendered are expected; prices change over time.
> 
> But layering an incremental $50MM ANNUAL expense on SPINCO . . . that will inevitably affect the owners MF . . . which (IMHO) provides the owner no incremental ongoing benefits . . . is just gouging.
> 
> ...



I wonder how Marriott will vote this issue in the Hoas with the votes they picked up from those joining the DC


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## SueDonJ (Oct 9, 2011)

cruisin said:


> I wonder how Marriott will vote this issue in the Hoas with the votes they picked up from those joining the DC



At some point after the enrollment period opened, the Enrollment Agreement document changed and that voting restriction no longer exists.  Here's TUGger cmore's post from when it was first noticed back in late February.  I just checked and that Section 1(e) hasn't been put back into the docs.


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## SueDonJ (Oct 9, 2011)

windje2000 said:


> ... The question to be considered is - Does the incremental ANNUAL payment for the use of the name (at the price $50MM initial price Marriott will charge SPINCO) provide existing owners with ongoing benefits worth $50MM ANNUALLY. . . or not?



I'm pretty sure you and I could nitpick this thing to death so I'll try to give a short answer.  Yes, the $50M naming rights fee provides ongoing benefits to owners because without it, Marriott will force Spinco to sever the Management Agreements in place.  There goes the name and all the benefits associated with it, poof.  Granted, "benefits" means something different to every one of us - what you want in a resort might be different from what I want might be different from what six thousand other owners might want ...  But all of the documents are written in such a way that should the Management Agreement be terminated, any benefits (Marriott Rewards, II priority, DC enrollment, etc ...) are terminated as well.


***********


windje2000 said:


> ... You bought a unit (3BR SW IIRC) that is inefficient as a trader, because the population of 3BR in II is low. That is NOT II's fault despite your constant II bashing. You are one of the few who do better in DC. We get it.



This is the only thing that isn't a rehash of every other thing we've debated in this thread, the only thing that I think might be leaving you with the wrong impression.  I brought up exchange value because it's important to a whole lot of owners and it fits into the whole benefits-of-the-name discussion.  But what worries me is that you look at my point of view concerning II as "bashing."  That's not how I mean it - II never promised me anything that they didn't deliver.  They don't deserve to be bashed for the way their system works, IMO, not even from those of us who don't make out like bandits when using it.  "It is what it is."  No sense getting riled up enough about it to bash them.  Some folks love II, some are ambivalent, some have waited for an alternative for a while - there's no right or wrong.  

(Although, I'll admit to bashing II from here to kingdom come every time I see a reference to an XYZ exchange on TUG.  I think it's completely and totally ridiculous that every single II rep doesn't know enough to make these things available to every single II member who should be eligible for them.  That bothers me to no end.  Grrrrrrr.)


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## kjd (Oct 10, 2011)

There's nothing inherently wrong with belonging to more than one exchange.  I happen to think that I.I. for all of its' warts is the exchange of choice.  I think that they have done a good job with my trades although I think some of their policies could be better. (Like with AC's)

I'm also enrolled in SFX.  May never use them but they do offer another option for timeshare owners.  I think many of us recognize that in timesharing the more options you have the better it is.  I've used the non-Marriott I.I. Premier resorts and have had good luck with them.  Likewise, with their getaways.  I would hate to see I.I. out of the picture but using another medium of exchange is a another good option for timeshare owners.


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## dioxide45 (Oct 10, 2011)

SueDonJ said:


> I'm pretty sure you and I could nitpick this thing to death so I'll try to give a short answer.  Yes, the $50M naming rights fee provides ongoing benefits to owners because without it, Marriott will force Spinco to sever the Management Agreements in place.  There goes the name and all the benefits associated with it, poof.  Granted, "benefits" means something different to every one of us - what you want in a resort might be different from what I want might be different from what six thousand other owners might want ...  But all of the documents are written in such a way that should the Management Agreement be terminated, any benefits (Marriott Rewards, II priority, DC enrollment, etc ...) are terminated as well.



I am not sure that all of these benefits would be gone. The only one guaranteed to disappear if there were no franchise agreement in place would be the trade for Marriott Reward points. This is the only benefit that will be fulfilled by Marriott International in the future.

DC Enrollment is provided by Spinco. The II agreement in place will be between Spinco and II. I also don't see how without the franchise agreement MI could force Spinco to sever management agreements. Sure our resorts would no longer have Marriott in the name, but the management agreements are between the resorts and Spinco. MI is only selling the use of their name. No risk, guaranteed profit of at least 50MM a year even if Spinco never sells another point.

My guess is also that Spinco will now have to purchase Marriott Reward points from Marriott Rewards in much the same manner that Chase buys them to give away as credit card rewards. It will then be up to Spinco to rent out that week and take on all the risks that entails.


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## windje2000 (Oct 10, 2011)

SueDonJ said:


> I'm pretty sure you and I could nitpick this thing to death so I'll try to give a short answer.  Yes, the $50M naming rights fee provides ongoing benefits to owners because without it, Marriott will force Spinco to sever the Management Agreements in place.  There goes the name and all the benefits associated with it, *poof*.  Granted, "benefits" means something different to every one of us - what you want in a resort might be different from what I want might be different from what six thousand other owners might want ...  But all of the documents are written in such a way that should the Management Agreement be terminated, any benefits (Marriott Rewards, II priority, DC enrollment, etc ...) are terminated as well.
> 
> 
> ***********
> ...



1. So, what exactly goes 'poof?'

2. If XYZ was for everyone, it would be published.  XYZ is a bonus for II's best customers.  Same as first class upgrades are a bonus for an airline's best customers.


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## jimf41 (Oct 10, 2011)

windje2000 said:


> 1. So, what exactly goes 'poof?'
> 
> 2. If XYZ was for everyone, it would be published.  *XYZ is a bonus for II's best customers.*  Same as first class upgrades are a bonus for an airline's best customers.



That's not true. XYZ's are offered to any customer who is trading with a differential in max occupancy. In my case I traded a 3b with a max occupancy of 8 as far as II was concerned and received two 2b's with a max occupancy of four in each unit. II's definition of max occupancy is different, and usually less, than Marriott's stated max occupancy.

There are some other restrictions and rules that go along with it but being a good customer had nothing to do with it in my case. At the point that I used an XYZ I had been with II for six years and had two prior exchanges.


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## windje2000 (Oct 10, 2011)

jimf41 said:


> That's not true. *XYZ's are offered to any customer who is trading with a differential in max occupancy.* In my case I traded a 3b with a max occupancy of 8 as far as II was concerned and received two 2b's with a max occupancy of four in each unit. II's definition of max occupancy is different, and usually less, than Marriott's stated max occupancy.
> 
> There are some other restrictions and rules that go along with it but being a good customer had nothing to do with it in my case. At the point that I used an XYZ I had been with II for six years and had two prior exchanges.



How do you know this?  {EDITED TO ADD:  DW tells me we've received them for straight 2BR to 2BR trades.}

Perhaps I should replace the word "best" with the words 'certain customers selected by II using unknown criteria for a private and unpublicized promotional program.'


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## SueDonJ (Oct 10, 2011)

windje2000 said:


> How do you know this?  {EDITED TO ADD:  DW tells me we've received them for straight 2BR to 2BR trades.}
> 
> Perhaps I should replace the word "best" with the words 'certain customers selected by II using unknown criteria for a private and unpublicized promotional program.'



Or maybe to the words "any customers who know that XYZ's exist and know that all it takes to get them is to call II repeatedly until you reach a rep who knows what s/he's doing and is willing to do it."   

Check out the current ongoing XYZ threads on the Exchanging and Sightings boards.  Pretty much anyone who has a pending confirmed exchange in their II account is eligible for either or both of the two kinds of XYZ's that are offered, as long as they're savvy and lucky enough to eventually deal with an II rep who's on the ball.

Exchanging Board thread here, Sightings Board thread not linked because it's restricted to TUG members.


----------



## windje2000 (Oct 10, 2011)

SueDonJ said:


> Or maybe to the words "certain customers who know that XYZ's exist and know that all it takes to get them is to call II repeatedly until you reach a rep who knows what s/he's doing and is willing to do it."
> 
> Check out the current ongoing XYZ threads on the Exchanging and Sightings boards.  Pretty much anyone who has a pending confirmed exchange in their II account is eligible for either or both of the two kinds of XYZ's that are offered, as long as they're savvy and lucky enough to eventually deal with an II rep who's on the ball.



Absolutely correct, but before any of the sightings board discussions, etc., someone . . .  somewhere . . . must have received the first one . . . based on some II criteria.


----------



## SueDonJ (Oct 10, 2011)

windje2000 said:


> Absolutely correct, but before any of the sightings board discussions, etc., someone . . .  somewhere . . . must have received the first one . . . based on some II criteria.



Yep, and it appears to me that the first TUGger to publicize it was pretty sure that it only takes being lucky enough to deal with "the most helpful II agent in the history of the world."  Note that now that the game has been played for more than a year, most of the rules this TUGger was told have changed to open up XYZ inventory and eligibility.  That's what makes it so maddening - every single time some TUGger tries to be helpful and posts the rules that s/he's learned, another responds almost immediately with info that contradicts.  It's like the Wild, Wild West of II-land, and it's stupid.  Grrrrrr.


----------



## aka Julie (Oct 10, 2011)

SueDonJ said:


> That's what makes it so maddening - every single time some TUGger tries to be helpful and posts the rules that s/he's learned, another responds almost immediately with info that contradicts.  It's like the Wild, Wild West of II-land, and it's stupid.  Grrrrrr.



But is it any better when people talk with MVCI re the "rules" of DC and the different buckets, eligibility, etc.?


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## SueDonJ (Oct 10, 2011)

aka Julie said:


> But is it any better when people talk with MVCI re the "rules" of DC and the different buckets, eligibility, etc.?



Well, yes.  Because regardless of the Marriott sales reps getting things wrong, every DC Points user is playing by the same published rules when they're actually using DC Points for exchange inventory, so one user is not getting more value than any other.  With II, though, there is a very good chance that two users can get completely different exchange value even if they deposit the exact same interval and confirm the exact same exchange.  With Marriott you don't have to "know somebody" to get the most value, with II you do.

(Not that I'm excusing Marriott's sales reps here - it's always been maddening that so much misinformation exists in sales presentations whether you're talking Weeks or Points.  But the end result usage is what I'm comparing here, not the sales crap that's existed since timeshares began.)


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## OldPantry (Oct 10, 2011)

GregT said:


> All,
> 
> I'm not nearly as negative about SpinCo's prospects (and I think OldPantry and I are going to have a beer or two one day over this very topic).
> 
> ...


You had me at "beer."  It's a long shot, but I'll be at Newport over Christmas, and Ko Olina next August 5-12, in both cases not on points.  If you're there, I'll buy (beer, not points).


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## SueDonJ (Oct 10, 2011)

dioxide45 said:


> I am not sure that all of these benefits would be gone. The only one guaranteed to disappear if there were no franchise agreement in place would be the trade for Marriott Reward points. This is the only benefit that will be fulfilled by Marriott International in the future.
> 
> DC Enrollment is provided by Spinco. The II agreement in place will be between Spinco and II. I also don't see how without the franchise agreement MI could force Spinco to sever management agreements. Sure our resorts would no longer have Marriott in the name, but the management agreements are between the resorts and Spinco. MI is only selling the use of their name. No risk, guaranteed profit of at least 50MM a year even if Spinco never sells another point.
> 
> My guess is also that Spinco will now have to purchase Marriott Reward points from Marriott Rewards in much the same manner that Chase buys them to give away as credit card rewards. It will then be up to Spinco to rent out that week and take on all the risks that entails.





windje2000 said:


> 1. So, what exactly goes 'poof?' ...



Okay, so I've been thinking about this for most of the day and it's quite possible that I have the process and/or the structure wrong.  But in its simplest form, the thought I have is that Spinco's name IS Marriott; it's going to be "Marriott Vacations Worldwide."  So if a resort somehow ends up without the Marriott name attached to it, wouldn't that mean that the Management Contract between MAR and the resort or the Affiliation Agreement between VAC and the resort has been severed?  Or will VAC operate in a similar fashion as Host Hotels does, meaning not all VAC resorts will necessarily have any connection to Marriott?  (I know VAC encompasses Ritz Carlton as well, so it's for certain that not all VAC properties will have Marriott actually spelled out in their names.  But some will have no connection at all?)

Marriott Rewards will for certain disappear if a resort does not remain affiliated with Spinco, and not just the exchange-for-MRP benefit.  There is also the Elite Night Status credit for stays, the bonus points for any Marriott VISA transactions at a Marriott resort, the MVC-owner 5-night Travel Packages, the MOD-discount for cash stays at marriott.com properties, etc ...  (Of course the governing docs for both Weeks and DC Points pretty much give Marriott the right to change or cease the MRP program at any time for any reason, anyway.)

I'd guess that II would remove the Marriott priority and internal exchange benefits from any resort which severs its relationship with Marriott, whether it's MVCI or VAC.  Isn't that what happened in the past when formerly-named-Marriott resorts continued with new II contracts when they came under new names and management?

Now if VAC is able to keep formerly-Marriott-affiliated resorts under its umbrella, will those resorts be required to pay towards the naming rights fee?  For what - what exactly are they paying for?  Same thing with a DC-Enrolled Member if his/her Marriott resort severs the Marriott affiliation - even if they can still somehow remain in the DC without taking its name, why would they be required to pay a naming rights fee?  Trust Members, too - if any Trust Properties un-affiliate with Marriott but remain in the Trust and/or extend DC exchange benefits to their newly-named program, what exactly would their portion of the naming rights fee be paying for?

This is too confusing with all the different documents that now exist, nevermind we don't know if Marriott Vacations Worldwide will draw up new Management Agreements and/or Affiliations upon inception that will be materially the same except for name changes as the ones which already exist in the MVCI governing docs of each resort, or if they're entitled to change certain terms, blah blah blah ...

I'm a little bit sorry that I took this thread off track to XYZ's.  But only a little bit, because with those I am completely certain that it's as unfair a program for members as ever existed.  No doubt about it.  All this other stuff gives me a gigantic headache.  (Has anyone ever had success with deciding one day to just forget about the legalities forever?  I'd love to know if there's a program for that.   )


----------



## jimf41 (Oct 10, 2011)

windje2000 said:


> How do you know this?  {EDITED TO ADD:  DW tells me we've received them for straight 2BR to 2BR trades.}
> 
> Perhaps I should replace the word "best" with the words 'certain customers selected by II using unknown criteria for a private and unpublicized promotional program.'



I know this from personal experience. All two bedrooms are not the same, therefore comparing them is not the same. Compare max occupancy to max occupancy, that's one of the ways that II decides whether or not you are eligible for an XYZ. There are others but they don't have anything to do with your status as a customer. II doesn't have a free frequent flyer program.

As for the second sentence I have no idea what you are trying to say. If you are trying to say that II treats good customers better than regular customers then you are dead wrong. They treat all customers the same. Like stuff you don't want to step on. That I know from personal experience also.


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## cruisin (Oct 10, 2011)

As so many resorts resell values drop,  the Marriott name means less and less also, I think debranding meant a lot more 5 years ago, It would mean the value of your ownership would tank, As any resort approaches zero, the Marriott name will mean little compared to dues. If they go their own exchange company Getting shut out of other Marriott properties will matter to a lot of people.


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## dioxide45 (Oct 10, 2011)

jimf41 said:


> I know this from personal experience. All two bedrooms are not the same, therefore comparing them is not the same. Compare max occupancy to max occupancy, that's one of the ways that II decides whether or not you are eligible for an XYZ. There are others but they don't have anything to do with your status as a customer. II doesn't have a free frequent flyer program.
> 
> As for the second sentence I have no idea what you are trying to say. If you are trying to say that II treats good customers better than regular customers then you are dead wrong. They treat all customers the same. Like stuff you don't want to step on. That I know from personal experience also.



You are referring to XYZ Type II, I think everyone else is referring to XYZ Type I. The requirements for each are very different.


----------



## jimf41 (Oct 10, 2011)

dioxide45 said:


> You are referring to XYZ Type II, I think everyone else is referring to XYZ Type I. The requirements for each are very different.



That's interesting. I didn't know that the unpublished XYZ week program was divided into two types. Do either of the types require you to be a "good" customer? There was a good thread on this a while back but I can't seem to find it on a search.


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## SueDonJ (Oct 10, 2011)

dioxide45 said:


> You are referring to XYZ Type II, I think everyone else is referring to XYZ Type I. The requirements for each are very different.



Yes, there are two types - called 2-for-1 and Type II.  But when I rant and rave about the ridiculousness surrounding II's XYZ Program I'm talking about both types.  It's possible with either that two II users can deposit exactly the same thing which matches to the exact same exchange, yet one gets more exchange value because s/he knows about XYZ's and the other doesn't. 



jimf41 said:


> That's interesting. I didn't know that the unpublished XYZ week program was divided into two types. Do either of the types require you to be a "good" customer? There was a good thread on this a while back but I can't seem to find it on a search.



The first one, the 2-for-1, is where you can get another exchange week if you have a pending confirmed exchange in your II account.  Some folks have been told that the XYZ unit must be the same size as the original exchange week; others have been able to get bigger units for the XYZ.  Some have been told that the XYZ stay must take place prior to the date of the original exchange week; others have been told that the XYZ week must be booked by the confirmed exchange date but can take place after.  Some have been told that the XYZ must take place at the same resort as the confirmed exchange; others have booked XYZ's at a different resort.

The second one, Type II, is the one that's available if you give up for an exchange a larger size unit than the one you get with the confirmation.  The same ambiguities exist as far as eligible unit sizes, dates of stay and resorts.

Availability is different for each type of XYZ.  2-for-1 is more limited to excess inventory at less-desirable resorts and/or during less-desirable seasons, and the booking window is similar to flexchange.  Type II is subject to a much less restrictive grid and longer booking window.  But again, chaos reigns and there aren't any hard and fast rules for either type.

Some folks have hit the XYZ jackpot and have managed to piggyback both types of XYZ's onto one single confirmed exchange.  So far the record I've seen on TUG has resulted in 4 different II Weeks with one single deposit.  That's without benefit of lock-offs and/or bonus AC's.

It doesn't appear that you must be a "good" or "valued" or "prized" or any other superlative II customer in order to get an XYZ.  You just have to know that XYZ's exist, have a pending confirmed exchange in your II account, call in and be lucky enough to deal with an II rep who knows what s/he's doing, and pay the exchange fee for each confirmed XYZ.

Jim, there have been so many XYZ threads on TUG since that first one in April, 2010.  Was there any particular phrase used in the thread you remember, that can be used to do a more thorough google search of TUG threads?


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## SueDonJ (Oct 10, 2011)

jimf41 said:


> ... As for the second sentence I have no idea what you are trying to say. If you are trying to say that II treats good customers better than regular customers then you are dead wrong. *They treat all customers the same. Like stuff you don't want to step on.* That I know from personal experience also.



First I laughed right out loud and then I thought "eeeeewwww."


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## gblotter (Oct 10, 2011)

dioxide45 said:


> Spinco will be the one making the profit from the management contracts, not Marriott International. MI makes money no matter what, and I agree they are the only assured winner here.


Perhaps my vision of Spinco is mixed up, but ...

I believe that Spinco will be the owner of unsold inventory and the administrator of the Destinations Club (reserving weeks, points-based trades, selling points, etc).  Spinco will contract with Marriott International for management of the resorts, so it will be MI who profits from the management contracts - not Spinco.  Am I missing something here?

That raises a question in my mind: Will HOA boards contract with Spinco or directly with Marriott International for resort management?


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## gblotter (Oct 10, 2011)

dioxide45 said:


> Will the price plunge? Will it even have a price attached to it when they give shares to current MI stockholders? I am sure the first day trading price won't be good, but it will place a market cap on the new company.


At the opening of the market, Spinco stock will have a price determined by initial buying/selling activity.  The plunge I am referring to is the drop in price between the market opening and the market closing on the first day of the spinoff.


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## dioxide45 (Oct 10, 2011)

jimf41 said:


> That's interesting. I didn't know that the unpublished XYZ week program was divided into two types. Do either of the types require you to be a "good" customer? There was a good thread on this a while back but I can't seem to find it on a search.



Neither requires you to be a good customer. They just require that you know about the XYZ option in order to ask as the II reps are not overly open to share this detail.

There is a new and ongoing thread in the Sighting forum.

II does sometimes give out ACs to their "good" customers. There was one given out in August 2010 and August 2011. So in some cases II does tread their customers differently as not all members received these ACs.


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## dioxide45 (Oct 10, 2011)

SueDonJ said:


> Okay, so I've been thinking about this for most of the day and it's quite possible that I have the process and/or the structure wrong.  But in its simplest form, the thought I have is that Spinco's name IS Marriott; it's going to be "Marriott Vacations Worldwide."  So if a resort somehow ends up without the Marriott name attached to it, wouldn't that mean that the Management Contract between MAR and the resort or the Affiliation Agreement between VAC and the resort has been severed?  Or will VAC operate in a similar fashion as Host Hotels does, meaning not all VAC resorts will necessarily have any connection to Marriott?  (I know VAC encompasses Ritz Carlton as well, so it's for certain that not all VAC properties will have Marriott actually spelled out in their names.  But some will have no connection at all?)
> 
> Marriott Rewards will for certain disappear if a resort does not remain affiliated with Spinco, and not just the exchange-for-MRP benefit.  There is also the Elite Night Status credit for stays, the bonus points for any Marriott VISA transactions at a Marriott resort, the MVC-owner 5-night Travel Packages, the MOD-discount for cash stays at marriott.com properties, etc ...  (Of course the governing docs for both Weeks and DC Points pretty much give Marriott the right to change or cease the MRP program at any time for any reason, anyway.)
> 
> ...





gblotter said:


> Perhaps my vision of Spinco is mixed up, but ...
> 
> I believe that Spinco will be the owner of unsold inventory and the administrator of the Destinations Club (reserving weeks, points-based trades, selling points, etc).  Spinco will contract with Marriott International for management of the resorts, so it will be MI who profits from the management contracts - not Spinco.  Am I missing something here?
> 
> That raises a question in my mind: Will HOA boards contract with Spinco or directly with Marriott International for resort management?



My understanding based on the press releases, earnings calls, and disclosures, is that Spinco would be the company that sells and manages the resorts.

Here is my understanding of the structure.

Spinco (Marriott Vacations Worldwide MVW) is a franchisee. They pay Marriott International (MI) a franchise fee. That fee is currently 2% of all sales and $50MM. MI doesn't have any ownership in the resorts, Spinco still owns unsold units and perhaps some other areas that are used for concessions.

The HOAs are contracted with Spinco to manage the resorts. Spinco has a franchise agreement with MI to use their name on the company and to attached the Marriott name to the resorts it manages. The fee also allows the DC exchange company to have Marriott in the name.

The HOAs pay Spinco to manage the resorts. Spinco pays the franchise fee to MI.

MI has no skin in the game. They earn money off of their name and brand. If Spinco or MI were to sever the franchise agreement all of our resorts would lose the "Marriott" from their name and Marriott Vacations Worldwide would become Vacations Worldwide.

MVW is free to begin managing other resorts and if it chooses to do so, they can attach the Marriott name to them. Though I am sure MI will have their hand held out for more money. If individual HOAs sever ties with Spinco, they lose the Marriott name.

Spinco has a contract with II, the preference would remain for internal trades as long as the HOA and Spinco maintain that agreement. If the Marriott name is gone, the II preference remains, just under a different name. 

Without a franchise agreement it is unlikely that the trade for Marriott Reward points would remain. Remember that MI no longer owns real estate and doesn't take on that risk with Spinco. Spinco must now rent out those weeks traded for Marriott Reward points. My guess that Spinco must now buy Marriott Reward points is likely the case once everything is sorted out. MI doesn't want to take on the risk of that unit sitting empty on their dime. They pass that risk to Spinco in this transaction. 

Just like McDonald's, franchisees own and manage their restaurants, with help from McDonald's. McDonald's doesn't send in their managers. The managers work for the owners.

At some Marriott hotels, the employees work for Marriott International, at others they work for the local franchisee. Similar here, the employees at the resort will work for Spinco.

This is just my understanding of how all this is going to work.


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## gblotter (Oct 11, 2011)

dioxide45 said:


> My understanding based on the press releases, earnings calls, and disclosures, is that Spinco would be the company that sells and manages the resorts.


Interesting.  If Spinco intends to become a resort management enterprise, then that would put them in direct competition with Marriott International - no?  I thought the whole reason for the spinoff is that Marriott International wants to focus on its core strength of resort management shed itself of the unprofitable real estate ownership/development component.


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## gblotter (Oct 11, 2011)

dioxide45 said:


> Without a franchise agreement it is unlikely that the trade for Marriott Reward points would remain. Remember that MI no longer owns real estate and doesn't take on that risk with Spinco. Spinco must now rent out those weeks traded for Marriott Reward points. My guess that Spinco must now buy Marriott Reward points is likely the case once everything is sorted out. MI doesn't want to take on the risk of that unit sitting empty on their dime. They pass that risk to Spinco in this transaction.
> 
> Just like McDonald's, franchisees own and manage their restaurants, with help from McDonald's. McDonald's doesn't send in their managers. The managers work for the owners.
> 
> At some Marriott hotels, the employees work for Marriott International, at others they work for the local franchisee. Similar here, the employees at the resort will work for Spinco.


I claim no particular expertise in such things, but ... aren't franchise agreements and management contracts completely different?

Under a franchise agreement, the owner pays the mothership a fee for use of the brand/label.  The employees work for the owner - not the mothership.  The owner must run the operation in accordance with the standards of the mothership, and the mothership provides direction and advice to the owner.  In a franchise scenario, the owner has significant expertise in running the operation.

Under a management contract, the owner contracts with the mothership to actually run the operation.  The employees work for the mothership - not the owner.  The mothership then passes profits and losses along to the owner under the terms of the contract.  In a management contract scenario, the owners are mainly investors without necessarily having any particular expertise in running the operation.

Are you telling me that for resort management, the Spinco/Marriott relationship will operate like a franchise agreement - not a management contract?


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## SueDonJ (Oct 11, 2011)

gblotter said:


> Interesting.  If Spinco intends to become a resort management enterprise, then that would put them in direct competition with Marriott International - no?  I thought the whole reason for the spinoff is that Marriott International wants to focus on its core strength of resort management shed itself of the unprofitable real estate ownership/development component.



My understanding of Spinco is very similar to dioxide's, which is that the intent of Marriott Int'l is to spin off every facet of what is now MVCI to a new company - Marriott Vacations Worldwide - which will take over every aspect of the timeshare business resulting in MAR being paid only (only?!) the $50M naming rights fee and 2% sales commission from all future timeshare business.

(Dioxide, are you also thinking that all of the common area-related fees that Marriott currently pays towards the individual resort HOA's, will now be assumed by Spinco?  Remember the thread where we talked about Marriott paying for Barony's pool and grill/bar updates and MGV's common area updates?  That's what I'm thinking, that Spinco will assume those and similar expenses that until the spinoff would have been paid by Marriott.)

What I can't seem to figure out is how a currently-named-Marriott resort will be able to sever the current Management Agreement (with either MAR or VAC, whichever is in play at the time) and still expect to be under the Marriott Vacations Worldwide umbrella, and thus be one of the resorts which will be required to pay the naming rights fee to MAR.

Consider an MVCI resort whose ownership votes in sufficient numbers to sever its relationship with the Management Company - either MAR currently or VAC after the spinoff is complete.  I know that's a difficult vote to put in play and pass, but if owners don't want to be under any Marriott umbrella and successfully vote for that change, won't the resort then be a non-Marriott-affiliate, and won't the ownership have to then contract with a different Management Company?  If that's the case, wouldn't that be the point when "Poof!" there would go all of the associated benefits (MRP, Marriott priority in II, DC enrollment, etc) of being an owner at a Marriott resort?

This track started with the thought of what benefits are attached to the $50M naming rights fee that Spinco will have to pay Marriott.  I can't imagine a situation where an existing Marriott-named resort could elect to remove the name from the resort so as to become exempt from the naming rights fee requirement, yet still be eligible for the associated benefits.  I just can't understand how that could happen.


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## gblotter (Oct 11, 2011)

SueDonJ said:


> What I can't seem to figure out is how a currently-named-Marriott resort will be able to sever the current Management Agreement (with either MAR or VAC, whichever is in play at the time) and still expect to be under the Marriott Vacations Worldwide umbrella, and thus be one of the resorts which will be required to pay the naming rights fee to MAR.
> 
> Consider an MVCI resort whose ownership votes in sufficient numbers to sever its relationship with the Management Company - either MAR currently or VAC after the spinoff is complete.  I know that's a difficult vote to put in play and pass, but if owners don't want to be under any Marriott umbrella and successfully vote for that change, won't the resort then be a non-Marriott-affiliate, and won't the ownership have to then contract with a different Management Company?  If that's the case, wouldn't that be the point when "Poof!" there would go all of the associated benefits (MRP, Marriott priority in II, DC enrollment, etc) of being an owner at a Marriott resort?
> 
> This track started with the thought of what benefits are attached to the $50M naming rights fee that Spinco will have to pay Marriott.  I can't imagine a situation where an existing Marriott-named resort could elect to remove the name from the resort so as to become exempt from the naming rights fee requirement, yet still be eligible for the associated benefits.  I just can't understand how that could happen.


How about this scenario?

Suppose an HOA board votes to sever the relationship with Spinco, and then they contract independently with Marriott International for resort management?  Owners would lose the DC trading benefits, but would still retain the Marriott name and still have access to other Marriott perks such as MRP.

Too many complexities to consider.


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## SueDonJ (Oct 11, 2011)

gblotter said:


> I claim no particular expertise in such things, but ... aren't franchise agreements and management contracts completely different?
> 
> Under a franchise agreement, the owner pays the mothership a fee for use of the brand/label.  The employees work for the owner - not the mothership.  The owner must run the operation in accordance with the standards of the mothership, and the mothership provides direction and advice to the owner.  In a franchise scenario, the owner has significant expertise in running the operation.
> 
> ...



What I'm thinking is that the Management Agreements currently in place between the individual resorts and MVCI will change upon the implementation of the spinoff so that Marriott Vacations Worldwide will take the place of MVCI.  Where MVCI was under the Marriott International umbrella, MVW will not be but the franchise agreement between MAR and MVW will allow the resorts to continue using the Marriott name and the owners to keep the associated benefits of MVCI ownership.

I think.


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## SueDonJ (Oct 11, 2011)

gblotter said:


> How about this scenario?
> 
> Suppose an HOA board votes to sever the relationship with Spinco, and then they contract independently with Marriott International for resort management?  Owners would lose the DC trading benefits, but would still retain the Marriott name and still have access to other Marriott perks such as MRP.



It's simple yet creative, but it won't work because Marriott International's intent is to get out of the resort management business.



gblotter said:


> Too many complexities to consider.



You can say that again.


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## gblotter (Oct 11, 2011)

SueDonJ said:


> It's simple yet creative, but it won't work because Marriott International's intent is to get out of the resort management business.


Huh?  I thought the intent of Marriott International is to focus ~MORE~ on their strength in resort management, and to get out of the real estate ownership/development business.


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## SueDonJ (Oct 11, 2011)

gblotter said:


> Huh?  I thought the intent of Marriott International is to focus ~MORE~ on their strength in resort management, and to get out of the real estate ownership/development business.



I dunno.   I thought the intent was for them to spin off the timeshare business so that they could concentrate on the lodging/hotel side of the business, and so that the timeshare business wouldn't affect the MAR bottom line and its stockholders.  But the affiliation between MAR and MVW would allow the resorts to keep the Marriott name if MVW pays the fees and keeps the Marriott brand standard in place.

from 2/15/11 WSJ article:


> ... Under the plan announced Monday, Marriott's existing shareholders will own the new company, receiving shares when it is spun out, which is expected to happen by the end of this year. The new company, which has yet to be named, will control the management and planning of the timeshare properties, as well as unsold and under-construction properties. ...


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## dioxide45 (Oct 11, 2011)

SueDonJ said:


> My understanding of Spinco is very similar to dioxide's, which is that the intent of Marriott Int'l is to spin off every facet of what is now MVCI to a new company - Marriott Vacations Worldwide - which will take over every aspect of the timeshare business resulting in MAR being paid only (only?!) the $50M naming rights fee and 2% sales commission from all future timeshare business.
> 
> (Dioxide, are you also thinking that all of the common area-related fees that Marriott currently pays towards the individual resort HOA's, will now be assumed by Spinco?  Remember the thread where we talked about Marriott paying for Barony's pool and grill/bar updates and MGV's common area updates?  That's what I'm thinking, that Spinco will assume those and similar expenses that until the spinoff would have been paid by Marriott.)
> 
> ...



If Spinco or the HOAs sever the management agreement, the Marriott name is lost along with any benefits that exist by being affiliated with Spinco. This is no different than those resorts in the past that severed the relationship. They can no longer exchange for Marriott Reward Points, no II preference, no DC enrollment.



SueDonJ said:


> What I'm thinking is that the Management Agreements currently in place between the individual resorts and MVCI will change upon the implementation of the spinoff so that Marriott Vacations Worldwide will take the place of MVCI.  Where MVCI was under the Marriott International umbrella, MVW will not be but the franchise agreement between MAR and MVW will allow the resorts to continue using the Marriott name and the owners to keep the associated benefits of MVCI ownership.
> 
> I think.



I agree


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## dioxide45 (Oct 11, 2011)

SueDonJ said:


> It's simple yet creative, but it won't work because Marriott International's intent is to get out of the resort management business.
> 
> 
> 
> You can say that again.





gblotter said:


> Huh?  I thought the intent of Marriott International is to focus ~MORE~ on their strength in resort management, and to get out of the real estate ownership/development business.





SueDonJ said:


> I dunno.   I thought the intent was for them to spin off the timeshare business so that they could concentrate on the lodging/hotel side of the business, and so that the timeshare business wouldn't affect the MAR bottom line and its stockholders.  But the affiliation between MAR and MVW would allow the resorts to keep the Marriott name if MVW pays the fees and keeps the Marriott brand standard in place.
> 
> from 2/15/11 WSJ article:



I was initially surprised when the spinoff was announced that management rights would stay with Spinco. I expected MI to continue to manage the resorts while Spinco handled the real estate transactions and development. I think however that if MI were to continue to manage the resorts, Spinco would have been doomed. The management fee is what will continue to keep Spinco afloat. Relying on contract sales only would not have been wise in the current economic environment.


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## GregT (Oct 11, 2011)

All,

Something further to think about, as we debate SpinCo's prospects.

Let's look at its Income Statement (from page 242 of the link, or page F-53 in the financial statements).

This is for the six month period ended June 2011 -- the most recent available.  These are not numbers for a full year, and annualized numbers would be 2X these amounts.

Revenues (all numbers are in millions):

Sales of points...................$295
Resort management.............108
Financing..............................80
Rental...................................90
Other....................................15
Cost reimbursements............158

Total revenues.....................751

This becomes more interesting (to me -- a finance guy) when I think about the related Costs from each income statement line item -- generating the net profit needed to sustain the business (and cover G&A costs, etc).

Sales of Points:  $295M
Cost of Points  ($116M)
Sales and Marketing: ($154M)

Net profit from selling points:  $25M

SpinCo had $25M of profit from the sales of its points, after considering the related Sales and Marketing Expenses.  Important to remember however, the Cost of Points of $116M comes from the $1.4B of inventory contributed by Marriott -- ie, the related cash to acquire it was spent years ago and SpinCo is loaded with inventory, therefore they don't have to run out and buy more (and use their cash to do it).  So in selling $295M in Points, they really clear a lot more in cash then it appears.  On their Cash Flow Statement, it shows they generated $61M in cash from not having to replace the inventory sold.  In a sense, this is where the famous $50M in franchise fee belongs (and $50M is an annual number, whereas $61M is for six months) -- Marriott has invested $1.5 billion into SpinCo (that's now inventory) and will slowly get their money back via the royalty.

Resort management revenue:  $108M
Resort managment costs:  ($95M)

Net profit from managing resorts:  $13M

They make $13M from managing resorts (on revenues of $108M -- a pretty tight margin).   They're never going to get rich managing resorts until they manage 500 timeshare properties, but at least this is a very stable source of revenue.   

Financing revenue: $80M
Financing expense:  ($17M)
Interest expense: ($22M)

Net profit from offering financing: $41M  

They make money from the interest income and the sales of the underlying notes.  This appears to be an important part of the Marriott business  -- getting points owners to finance the purchases and then securitizing and selling the notes. 

Rental revenue:  $95M
Rental costs:  ($94M)

Net profit from renting units: $1M

Renting units is not a profitable adventure for Marriott.  They are just recovering their costs.   I do not know how they determing the  Rental Costs -- if its MFs, or if there is some other variable included

Other:  $15M

I have no idea what this is -- and I won't talk about cost reimbursements revenue of $158M because its offset by the costs  (there is an offsetting $158 of Cost reinbursements in the Operating Expenses).

When you look at the two primary sources of profit -- they are clearly Sales of Points and the related Financing income.  These are the volatile components of revenue.  Resort management and Rental income, while more stable, aren't that profitable.   SpinCo has G&A expense of $38M, which needs to be covered from these profitable revenues sources.

To me at least, this shows the dependence on SpinCo of selling points.  It needs to sell points to generate the profit needed to cover its costs, _but it has the home field advantage of all of its inventory has been pre-paid by Marriott_, and it doesn't have to use its cash to go buy new inventory for awhile.  It is true that it has to pay Marriott $50M+ annually.

I don't know if this posts adds much to the discussion, but I thought it was interesting seeing how profitable (and cash generating) the point sales were, versus how modestly profitable resort management is, and how unprofitable renting units its.

Best,

Greg


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## kjd (Oct 11, 2011)

"Important to remember however, the Cost of Points of $116M comes from the $1.4B of inventory contributed by Marriott -- ie, the related cash to acquire it was spent years ago and SpinCo is loaded with inventory, therefore they don't have to run out and buy more (and use their cash to do it). So in selling $295M in Points, they really clear a lot more in cash then it appears."

With the above analysis by Greg T, what is the future of ROFR going forward with Spinco in charge?  It would appear that the present ROFR inaction would continue.


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## SueDonJ (Oct 11, 2011)

kjd said:


> "Important to remember however, the Cost of Points of $116M comes from the $1.4B of inventory contributed by Marriott -- ie, the related cash to acquire it was spent years ago and SpinCo is loaded with inventory, therefore they don't have to run out and buy more (and use their cash to do it). So in selling $295M in Points, they really clear a lot more in cash then it appears."
> 
> With the above analysis by Greg T, what is the future of ROFR going forward with Spinco in charge?  It would appear that the present ROFR inaction would continue.



I agree.  It occurs to me, though, that at some point it may become beneficial for Spinco/MVW to enact ROFR and not for purely financial reasons.  If things progress with MVW to the point where owners are fearful of their timeshare values becoming actually worthless (in both financial investment and usage,) the probability of ownership majorities voting to sever their resorts' relationship with MAR/MWV will increase.  (I know, I know, it would be a long difficult process with only a slight chance of success, but it is possible.)  ROFR will be a way for Spinco to pick up the important voting rights attached to every interval.


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## SueDonJ (Oct 11, 2011)

GregT said:


> ... I don't know if this posts adds much to the discussion, but I thought it was interesting seeing how profitable (and cash generating) the point sales were, versus how modestly profitable resort management is, and how unprofitable renting units its.
> 
> Best,
> 
> Greg



Every post adds value to the discussion.  I really do appreciate when TUGgers apply their expertise in an effort to educate those of us who don't share the expertise.  Thank you.

But, nobody warned us that there would be Math today.  Grrrrrrrr.


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## OldPantry (Oct 11, 2011)

GregT said:


> All,
> Let's look at its Income Statement (from page 242 of the link, or page F-53 in the financial statements).
> 
> 
> ...


Greg; fascinating what you can get from reading the public information.  One thing you've demonstrated neatly: Spinco is overwhelmingly dependent upon points sales, both primarily and via financing revenue.  So, how sustainable is this flow?  To date, it seems likely that most of the revenue has come from the base: existing timeshare owners who either seek the "flexibility" of DC points, or who fear losing out on availability over time.  I would suggest that this is a sales pool likely to shrink hugely over time, and not very much time at that.  If Spinco is to generate serious replacement revenue going forward, it's going to have to come from new points sales to non-vacation club folks.  Those guys will have to be convinced that putting out roughly $40,000 (reflecting the minimum number of points to to snag prime weeks at prime resorts) and paying $1600 a year in maintenance fees is a whopping opportunity.  This with NO guarantee of availability at any given time at any given resort.  Since traditional timeshare sales have imploded over the last few years, I'm wondering just how many of these starry-eyed newbies are out there.  If they don't turn up in droves, then (again) it sounds like a big "glub glub" for Spinco (as their preliminary financial ratings seem to forecast).  So, just for kicks: what will a post Spinco bankruptcy world look like for us folks?


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## dioxide45 (Oct 11, 2011)

GregT said:


> Resort management revenue:  $108M
> Resort managment costs:  ($95M)
> 
> Net profit from managing resorts:  $13M
> ...



I am surprised with the high overhead on resort management. It isn't like Spinco has to pay the salaries or any other costs for the resort staff. Those are paid by the owners though the MFs. Spinco makes a flat 10% off the top of all MF payments. Sure there is some accounting and payroll overhead, but I am surprised the margin is to tight.

I would also be curious as to the profit margin that Marriott makes when it acts as the contractor on resort refurbishments. Perhaps that is part of the management revenue?


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## cruisin (Oct 12, 2011)

I am guessing all of the trust units would stay a part of the DC even if the HOA of a resort severed ties? What a mess all of this would be, You would think that Marriott does not foresee severing to occur.


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## Fredm (Oct 12, 2011)

GregT said:


> All,
> 
> Something further to think about, as we debate SpinCo's prospects.
> 
> ...



Greg,

I believe Resort Management Costs (95mm) is returned as Cost Reimbursement Revenue(included in the 158mm).
I suspect some of the rental expense is also reimbursed in the 158mm.


Footnotes:
2   — Timeshare sales and services includes total timeshare revenue except for base management fees and cost reimbursements.

3   — *Cost reimbursements include reimbursements from properties for Marriott-funded operating expenses.*


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## windje2000 (Oct 12, 2011)

cruisin said:


> I am guessing all of the trust units would stay a part of the DC even if the HOA of a resort severed ties? What a mess all of this would be, You would think that Marriott does not foresee severing to occur.



I think you may have hit on the reason MAR wanted the voting power from DC legacy enrollees.


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## funtime (Oct 22, 2011)

"One thing you've demonstrated neatly: Spinco is overwhelmingly dependent upon points sales, both primarily and via financing revenue. So, how sustainable is this flow? To date, it seems likely that most of the revenue has come from the base: existing timeshare owners who either seek the "flexibility" of DC points, or who fear losing out on availability over time. I would suggest that this is a sales pool likely to shrink hugely over time, and not very much time at that. If Spinco is to generate serious replacement revenue going forward, it's going to have to come from new points sales to non-vacation club folks. "

It is a lot easier to sell 1,000 point upgrades to existing Marriott owners which is why I think that they are bound to open up the points program again once things settle down - perhaps in 18 months to a year.  As it is they are missing out on 80% or more of their customer base who did not convert (yet) to points.  It is a lot easier to sell more points to Marriott owners than to bring in new folks for a whopping big purchase.  Sales economics will dictate opening up the points program to existing Marriott owners again. Funtime


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## dioxide45 (Oct 22, 2011)

funtime said:


> It is a lot easier to sell 1,000 point upgrades to existing Marriott owners which is why I think that they are bound to open up the points program again once things settle down - perhaps in 18 months to a year.  As it is they are missing out on 80% or more of their customer base who did not convert (yet) to points.  It is a lot easier to sell more points to Marriott owners than to bring in new folks for a whopping big purchase.  Sales economics will dictate opening up the points program to existing Marriott owners again. Funtime



I am confused by this statement and one you made in another thread. You seem to be under the impression that weeks owners can no longer enroll in the DC program? Did something from a recent sales presentation lead you to this? Am I wrong in my assumption?


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## funtime (Oct 22, 2011)

I thought that there was a grandfather time period that you could change out your weeks for points and that that time period has now expired.  That is what I meant - am I wrong in that assumption?  Funtimne


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## dioxide45 (Oct 22, 2011)

funtime said:


> I thought that there was a grandfather time period that you could change out your weeks for points and that that time period has now expired.  That is what I meant - am I wrong in that assumption?  Funtimne



The only deadline that has recently expired was the ability to convert 2012 weeks in to DC points. That happened on 9/30. Enrolled owners can still enroll, at least through November 30th. Enrolled owners can still book with points and convert 2013 weeks to DC points.


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## pwrshift (Oct 22, 2011)

Luck of the draw I guess.  I bought MAR stock as a hedge with the same amount as each of my direct TS purchases many years back.  Then bought more at the end of the recession.  Sold it all about 6 months after they announced the DC program and made a very nice capital gain.  Spinco just confirms to me the slippery slope Marriott is on.  JMHO.


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