Apollo Group looking to buy HGVC [Merged]

[Jason245]

It was not that long ago that they saw it in their strategic interest to spin it off. I am doubtful that is what it is.

Every few years companies do spin offs to "unlock value" or mergers to "create synergies".. imho it is a giant shell game where banks and financiers make millions and the little guys and shareholders generally get screwed.

Examples: Viacom and CBS, att direct TV (they are looking to spin off direct TV now I believe).. all the flip flopping of food brands between Kraft and its competitors.



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[Sapper]

Every few years companies do spin offs to "unlock value" or mergers to "create synergies".. imho it is a giant shell game where banks and financiers make millions and the little guys and shareholders generally get screwed.

Examples: Viacom and CBS, att direct TV (they are looking to spin off direct TV now I believe).. all the flip flopping of food brands between Kraft and its competitors.



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“ Shell game “ is the right word for it, but there is more to it. By doing this it allows for massive tax incentives through write downs, write offs, legal sheltering, etc. It allows for a legal “cooking the books”. Helps to increase the bottom line which is one way the C-level (CEO, CFO, COO, etc) make bonuses. It also is an easy way to make it look like management is doing something other than sitting in the steam room at the golf club.

 

[brp]

It also is an easy way to make it look like management is doing something other than sitting in the steam room at the golf club.

Meanwhile, most of the deals are likely initiated while sitting in the steam room at the golf club.

Cheers.

 

[dayooper]

“ Shell game “ is the right word for it, but there is more to it. By doing this it allows for massive tax incentives through write downs, write offs, legal sheltering, etc. It allows for a legal “cooking the books”. Helps to increase the bottom line which is one way the C-level (CEO, CFO, COO, etc) make bonuses. It also is an easy way to make it look like management is doing something other than sitting in the steam room at the golf club.

Do you think Hilton reacquiring HGVC is a possibility?

 

[CalGalTraveler]

Do you think Hilton reacquiring HGVC is a possibility?

Possibly, but not in the way one may think. These are Wall St types...Hilton wants the buildings and development costs off the balance sheet. That's what drove the spin-out in the first place.

However Hilton likely wants control over their brand, to continue the licensing revenue stream, and enable deeper relationships and more income options for their franchisees by co-locating HGVC in hotel properties.. A more likely scenario is for Hilton (possibly with Blackstone's help) is to to round up a group of large Hilton hotel franchise developers to buy HGVC as a collective.

Once acquired by the collective they could split HGVC into

1) Building /Dev/inventory side to go with the Hotel Franchise Developers
and
2) sell the reservations, and property management part of the business to Hilton.

This would enable Hilton control over the aspects they focus on and then push the building/development to the hotel franchisees to manage (and off Hilton's balance sheet).

 

[Sapper]

Meanwhile, most of the deals are likely initiated while sitting in the steam room at the golf club.

Cheers.

Haha, I know an accountant who writes his golf club membership off as a business expense as he states half his business is generated by conversations in the steam room.

 

[Sapper]

Do you think Hilton reacquiring HGVC is a possibility?

Anything is possible. Probable is a different story. As CalGal states, if it does happen, it will probably be done in a way we are not expecting. I think Hilton could have a real interest in the management fees and the unit rental opportunities. I doubt they want the debt or hard physical assets on their balance sheet. Blackstone might be willing to take the hard assets and profit through unit sales... or to create a trust point system with all current unsold inventory. I could see some kind of strategic partnership where each entity has something to gain. It’s all speculation though.

 

[escanoe]

... or to create a trust point system with all current unsold inventory.

It seems like all the private equity consultant class has theorized a trust point system is the way to go. I go back to what the HGVC exec said in the last quarterly call .... it is not that easily done or guaranteed to turn out as a success for them. If it was a no-brainer, HGV would have done it already. I could easily imagine the purchaser wishing to try to convert it to a points trust, but I am far from convinced that will be where things go.

 

[CalGalTraveler]

Speaking of the private equity class and churning buy and sell transactions, weren't Great Wolf Waterparks spun off from Apollo several years ago? Now Blackstone is picking it up.

https://www.spglobal.com/marketintelligence/en/news-insights/trending/sheufhcmgpidklj4fdp1mw2

 

[Sapper]

It seems like all the private equity consultant class has theorized a trust point system is the way to go. I go back to what the HGVC exec said in the last quarterly call .... it is not that easily done or guaranteed to turn out as a success for them. If it was a no-brainer, HGV would have done it already. I could easily imagine the purchaser wishing to try to convert it to a points trust, but I am far from convinced that will be where things go.

I think there will be some kind of trust product in the future for HGVC. Not necessarily because it’s such a great product, but because it’s something analysts have said will work and future management can sell it (to investors) as a way to make more money for the managing entity. They are not with out risk, Hyatt has made a mini disaster with theirs... primarily from management greed I believe.

 

[escanoe]

I think there will be some kind of trust product in the future for HGVC. Not necessarily because it’s such a great product, but because it’s something analysts have said will work and future management can sell it (to investors) as a way to make more money for the managing entity. They are not with out risk, Hyatt has made a mini disaster with theirs... primarily from management greed I believe.

I have done some reading on Hyatt. I would love to own one of their Key West properties. A mini disaster is the way to describe their trust product, though. It seems to me trying to convert HGV to a trust could run into some of the same pitfalls.

It ain’t happening — but I would love for the Hyatt properties to be in the same trading system as HGV.

 

[Sapper]

I have done some reading on Hyatt. I would love to own one of their Key West properties. A mini disaster is the way to describe their trust product, though. It seems to me trying to convert HGV to a trust could run into some of the same pitfalls.

It ain’t happening — but I would love for the Hyatt properties to be in the same trading system as HGV.

I see some similarities between where Hyatt was when it created the trust points program and where HGVC is now. Specifically, ILG/II acquired the Hyatt properties, had to show investors they could make a profit from the purchase, and created the trust point program using unsold inventory (the stuff no one could sell) at inflated prices to squeeze unrealistic profits from the remaining equity. I can see an acquiring entity believing they can create a points program with unsold HGVC inventory in a similar way.

I think the Hyatt properties are great, but only resale weeks.

 

[CalGalTraveler]

I see some similarities between where Hyatt was when it created the trust points program and where HGVC is now. Specifically, ILG/II acquired the Hyatt properties, had to show investors they could make a profit from the purchase, and created the trust point program using unsold inventory (the stuff no one could sell) at inflated prices to squeeze unrealistic profits from the remaining equity. I can see an acquiring entity believing they can create a points program with unsold HGVC inventory in a similar way.

I think the Hyatt properties are great, but only resale weeks.

aka "putting lipstick on a pig." I find trusts problematic because there are too many opportunities for greed to manipulate inventory and devalue the points. As an industry, the lack of transparency on trusts is appalling. It's like trying to buy a stock mutual fund, but there is no disclosure as to how much of each stock is inside.

I do see however, why the industry has moved to this model. The TS companies are becoming less like property developers with limited inventory and more like year round vacation club point hawkers.

The only reason deeds are offered in trusts and they haven't gone to RTU is because once people see what poor properties are inside, they would walk. Trust deeds make it difficult to walk.

 

[Sapper]

aka "putting lipstick on a pig." I find trusts problematic because there are too many opportunities for greed to manipulate inventory and devalue the points. As an industry, the lack of transparency on trusts is appalling. It's like trying to buy a stock mutual fund, but there is no disclosure as to how much of each stock is inside.

I do see however, why the industry has moved to this model. The TS companies are becoming less like property developers with limited inventory and more like year round vacation club point hawkers.

The only reason deeds are offered in trusts and they haven't gone to RTU is because once people see what poor properties are inside, they would walk. Trust deeds make it difficult to walk.

Agree with everything you have said. I think another reason they have to use the deeds in a trust is because of how the unit weeks were originally sold. If someone were making a system today from scratch, I think it would just be RTU and they would avoid the trust situation all together. The developer could still write in some kind of language that would require a buyer to pay maintenance fees on a RTU to the end of the contract term or face consequences to their credit. Make it an unpaid liability and bury the language in small print on page 33 of a 50 page contract.

 

[Jason245]

You mean like what dvc did on the 90s.. lol.

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[brp]

You mean like what dvc did on the 90s.. lol.

We've owned DVC since the early 2000s, so I don't know that they did to their product in the 90s. Can you enlighten, inasmuch as it may be relevant here?

Cheers.

 

[Tamaradarann]

I see some similarities between where Hyatt was when it created the trust points program and where HGVC is now. Specifically, ILG/II acquired the Hyatt properties, had to show investors they could make a profit from the purchase, and created the trust point program using unsold inventory (the stuff no one could sell) at inflated prices to squeeze unrealistic profits from the remaining equity. I can see an acquiring entity believing they can create a points program with unsold HGVC inventory in a similar way.

I think the Hyatt properties are great, but only resale weeks.

I believe you are saying here what I have been saying about my problem with DRI's Hawaii Collection Trust. I believe most people agree that Timeshares and Vacations in Hawaii are very desirable. Typically Hawaii Properties sell for more than others and are the most challenging to book time. DRI calls it a Hawaii Trust but more than 1/2 the properties in the trust are NOT Hawaii Properties. Therefore, DRI has the ability to sell shares/points in their Hawaii Collection Trust without owning/developing more Hawaii Properties since they have many unsold units in the non Hawaii Properties they own that they have placed in that trust.

 

[Tamaradarann]

aka "putting lipstick on a pig." I find trusts problematic because there are too many opportunities for greed to manipulate inventory and devalue the points. As an industry, the lack of transparency on trusts is appalling. It's like trying to buy a stock mutual fund, but there is no disclosure as to how much of each stock is inside.

I do see however, why the industry has moved to this model. The TS companies are becoming less like property developers with limited inventory and more like year round vacation club point hawkers.

The only reason deeds are offered in trusts and they haven't gone to RTU is because once people see what poor properties are inside, they would walk. Trust deeds make it difficult to walk.

I am repeating the comment I made in my previous post since I believe it is relevant to your comment here about "putting lipstick on a pig". DRI calls it a Hawaii Trust but more than 1/2 the properties in the trust are NOT Hawaii Properties. Therefore, DRI has the ability to sell shares/points in their Hawaii Collection Trust without owning/developing more Hawaii Properties since they have many unsold units in the non Hawaii Properties they own that they have placed in that trust.

The following is in reference to your comment about TS companies becoming less like property developers and more like year round vacation club point hawkers. The destination or vacation club industry has developed without needing to acquire/develop ANY PROPERTIES. So why shouldn't TS companies extend their reach into the opportunities in that industry with what they own rather than letting the destination or vacation club industry reap all the benefits without needing any capital and taking any of the risk of development!

 

[Jason245]

We've owned DVC since the early 2000s, so I don't know that they did to their product in the 90s. Can you enlighten, inasmuch as it may be relevant here?

Cheers.

Dvc is a rtu system where all you really own is points in a system and preferences at 1 resort.. while there are deeds they are not really deeds.. it is trustish..

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[brp]

Dvc is a rtu system where all you really own is points in a system and preferences at 1 resort.. while there are deeds they are not really deeds.. it is trustish..

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Gotcha. I have not really followed the nuances of the trust discussion (despite some really good input here from very knowledgeable people). But, if it actually ends up with something like that, I'd be fine. In fact, in our current use of HGVC, we use it exactly like our DVC - a stash of points that have a home resort preference and default to "just points" at some point. For DVC, we do use Home Resort. For HGVC, we don't.

Cheers.

 

[dougp26364]

There is a post in one of the DRI threads where someone who listened to a Hilton investors call said that they spoke about the merger in the form all the Hawaii collection (maybe just the Hawaii resorts) would be branded Hilton and the rest of DRI would be the US collection.

I’ll believe it when I see it but, interesting to speculate I suppose.

Interestingly, we’ll be at a HGVC timeshare later today. They have NOT called to attempt to get us into an owners update. Maybe they took it to heart the last time we said no?

 

[CalGalTraveler]

Gotcha. I have not really followed the nuances of the trust discussion (despite some really good input here from very knowledgeable people). But, if it actually ends up with something like that, I'd be fine. In fact, in our current use of HGVC, we use it exactly like our DVC - a stash of points that have a home resort preference and default to "just points" at some point. For DVC, we do use Home Resort. For HGVC, we don't.

Cheers.

Actually these trusts are quite different than HGVC (and possibly DVC) because HGVC points values are anchored with a specific deed. Very hard to devalue or change. In trusts, they are anchored to the portfolio of deeds which tend to be low value mud season units they can't sell with higher MF. The developer can shift deeds in and out of the trust at will affecting your MF and the underlying portfolio that you can reserve.

 

[JIMinNC]

Actually these trusts are quite different than HGVC (and possibly DVC) because HGVC points values are anchored with a specific deed. Very hard to devalue or change. In trusts, they are anchored to the portfolio of deeds which tend to be low value mud season units they can't sell with higher MF. The developer can shift deeds in and out of the trust at will affecting your MF and the underlying portfolio that you can reserve.

It's not always true that the trusts are low value/unsold weeks. At least in Marriott's trust, all new resorts are 100% in the trust and through ROFR and buybacks, they have added quite a bit of high quality legacy inventory to their trust. Then on top of that, deeded weeks owners can enroll their weeks into the points system, and while that does not transfer the deed into the trust (the owner retains their deed & just adds points as another usage election option), MVC maintains an internal exchange entity where Trust weeks and those elected weeks are effectively co-mingled, given Trust and other points users great access to high quality weeks. So it CAN work better than the trusts that are dominated by low value weeks.

 

[terces]

It's not always true that the trusts are low value/unsold weeks. At least in Marriott's trust, all new resorts are 100% in the trust and through ROFR and buybacks, they have added quite a bit of high quality legacy inventory to their trust. Then on top of that, deeded weeks owners can enroll their weeks into the points system, and while that does not transfer the deed into the trust (the owner retains their deed & just adds points as another usage election option), MVC maintains an internal exchange entity where Trust weeks and those elected weeks are effectively co-mingled, given Trust and other points users great access to high quality weeks. So it CAN work better than the trusts that are dominated by low value weeks.

I have been wondering about this scenario if it is applied to HGVC. Does the Marriott Trust have the same booking window as the deeded owners?? Is it possible that a new owner could devalue the Club ownership by opening up the Trust to bookings earlier than the current 9 month window? Also I don't know if Marriott had MF's that were specific to each resort and in some cases quite a bit lower or higher in some resorts as HGVC does, but did they force everyone into the same MF structure?

 

[JIMinNC]

I have been wondering about this scenario if it is applied to HGVC. Does the Marriott Trust have the same booking window as the deeded owners?? Is it possible that a new owner could devalue the Club ownership by opening up the Trust to bookings earlier than the current 9 month window? Also I don't know if Marriott had MF's that were specific to each resort and in some cases quite a bit lower or higher in some resorts as HGVC does, but did they force everyone into the same MF structure?

In Marriott deeded week owners can book their deeded week (non points) when inventory is released at 12 months out (13 months for multi-week owners). The Trust can reserve specific intervals on the same terms as any other owner. The weeks reserved by the Trust are then made available for points reservations a couple days later but the weeks and points inventory stays in two separate buckets. The specific inner workings of inventory management are very opaque and are something of a “black box.”

Each resort in Marriott has specific unique maintenance fees just like HGVC. For owners of deeded weeks, they still pay their regular weeks maintenance fees as always. Even if they enroll their week in the MVC points system, their week maintenance fee stays the same.

Marriott stopped selling deeded weeks in 2010 and started only selling points interests in their Trust product. All Trust points owners currently pay the same MF per point, which is the average of all the MF for weeks owned by the Trust plus the operating costs for the Trust itself.