Hilton Grand Vacations strikes deal to acquire Diamond Resorts

[Zenichiro]

Interesting article on the CEP mindset.

Hilton Grand Vacations CEO on Diamond acquisition: it 'really sets us up for recovery'

Yahoo Finance’s Julie Hyman, Myles Udland, and Brian Sozzi speak with Hilton Grand Vacations CEO Mark Wang about the company's $1.4 billion Diamond Resorts Acquisition, and timeshare industry outlook.

www.google.com

 

[artringwald]

Nice pictures and quite representative.

We regard Point at Poipu as a place to live. We bought there because it felt to us like a home, not a hotel. It was a place we could almost see ourselves living in. A place that we would come back to and where our adult kids might want to come as well, bringing their kids. And we could all spend time together as a multi-generational family. Glad to say that it has worked out exactly that way.

Our feelings precisely! I believe they were originally planned to be condos, and it's part of the reason they're all at least 1100 sq ft. Unfortunately, construction wasn't complete when hurricane Iniki hit in 1992. The condo project collapsed and they were rezoned as timeshares.

 

[T_R_Oglodyte]

Interesting article on the CEP mindset.

Hilton Grand Vacations CEO on Diamond acquisition: it 'really sets us up for recovery'

Yahoo Finance’s Julie Hyman, Myles Udland, and Brian Sozzi speak with Hilton Grand Vacations CEO Mark Wang about the company's $1.4 billion Diamond Resorts Acquisition, and timeshare industry outlook.

www.google.com

BRIAN SOZZI: Mark what are your plan-- are you going to rebrand Diamond Resorts? How do you think about the integration of the asset?

MARK WANG: Sure. No, great-- great question. That's where we can bring significant value. We have this iconic brand with Hilton Grand Vacations, and we're going to be rebranding the Diamond portfolio. It'll take a couple of years to get the rebranding completed.

But when you think about the power of putting the Hilton brand on and connecting it to the Hilton [? engine, ?] it will, number one, create a tremendous amount of credibility. It'll allow us to attract customers, higher-quality customers than Diamond was able to attract. And we think the performance of the combined entity is going to be very powerful.

JULIE HYMAN: And when you're talking about that acquisition, Diamond is a little bit more targeted sort of younger timeshare users. I think, you know, the sort of stereotypical idea of a timeshare buyer is on the older end of the spectrum. So is this an explicit effort to appeal to younger buyers? And is it-- is it going to be successful? How-- how well do you think you're going to do with that?

MARK WANG: Look, one of the benefits with Diamond and what we're planning to do is we're going to be-- we're launching a new brand called Hilton Vacation Club. And Hilton Vacation Club will be positioned just below Hilton Grand Vacation Club, which is an upper upscale brand. And Hilton Vacation Club will be an upscale brand. And the entry price points are significantly lower, about $20,000 lower to-- to enter the system.

And so our goal is to capture these customers in a earlier part of their life cycle. And-- and that's-- when you look at Diamond's success over the last couple of years, they have been driving a higher percentage of millennials than we have. And so we see this as an opportunity over the long term to-- to widen-- widen our ability to attract new customers and provide great vacation experiences.

Reinforces what I was speculating:

From this comment (highlights added):

Welcome to HGVC!

Welcome back, Doug ! You and DRI were meant to be DRI always seems to be coming back around to me like a cosmic pimple

tugbbs.com

Item #6 suggests that some Diamond resorts will be rebranded as HGV resorts. I would expect those to be the upper end DRI properties - probably most of the properties that are in the DRI Hawaii Collection since that Collection was intended to be for the higher end resorts.

Item #16 suggests that a new brand will be created with the DRI properties that don't get converted to HGV. Presumably this would be a "downscale" brand from HGV. This will give the sales teams something to pitch to people who might be finding HGV too rich for their blood. Wouldn't surprise me to see them rebranded as something like Hampton Vacation Club.

If these guesses are correct, I suspect they already have a good idea of which resorts they want to bring into HGV and the changes they intend to make before the rebranding. Until those changes are made, they will keep them as Diamond resorts. There's also a significant amount of legal and logistic work that needs to get done. It's not going to be easy to sort out how a Diamond resort, with ownership interests held by individual owners and by the Diamond collections, can move over to HGV while preserving continuity in owner usage rights and privileges in both systems.

As for the remaining resorts - the "Hampton Vacation Club" brand level - I expect the first priority will be to identify resorts that HGV wants to carry the new brand, and which resorts they might want to get rid of. They probably have a pretty good idea of that already from the pre-acquisition due diligence, but it wouldn't suprise me if they spent a bit more observing the resort operations and the market positions before coming to final decisions. They also need to prepare upgrade plans for the resorts they want to keep, and then work up the capital spending plan for the upgrades The resorts they decide to keep will then go through a period of making whatever upgrades or changes are needed to meet whatever quality standards they want to have for the new brand. Once that is complete, the rebranding will occur. This process will likely extend over quite a few years. I would also expect maintenance fee increases, just as when Diamond acquired Sunterra and began making upgrades.

As for any resorts that they don't believe warrant upgrade to meet the standards of the new "Hampton Vacation Club" brand, HGV will then need to figure out how to dispose of those. They can't just drop the resort, because ownership is those resorts is held by one of the Diamond trusts, where it is mingled with all other resorts. Inventory control also requires that the number and type of units or occupancy interests owned by the trust balance with the total usage rights of the trust owners. HGV would not be able to simply jettison resorts because then there would be an imbalance between unit availability and trust ownership interests. (The governing documents for the trusts require this balance - except apparently for the European collection.). So if they get rid of a resort they simultaneously would have to add another resort to offset the loss of inventory.

 

[T_R_Oglodyte]

Our feelings precisely! I believe they were originally planned to be condos, and it's part of the reason they're all at least 1100 sq ft. Unfortunately, construction wasn't complete when hurricane Iniki hit in 1992. The condo project collapsed and they were rezoned as timeshares.

That matches my understanding. I believe they also had to get a zoning waiver to make the property into timeshare. That area of Poipu was zoned residential (only the Grand Hyatt was zoned resort). After Iniki, the county was open to a zoning waiver to facilitate restoration of the property. That's another reason why it has such a residential feel to it.

In 1999 we originally bought at the Marriott in Lihue. Before we left the island we looked around some more and found Point at Poipu - at the time branded as Embassy Vacation Resort. It appealed to us so much more than the resort atmosphere at the Marriott.

 

[Sandy VDH]

Mark Wang said, branding with be Hilton Club Vacations (rebranded Diamond), and Hilton Grand Club Vacations (existing HGVC plus select DRI locations). If anyone was looking for naming info.

 

[T_R_Oglodyte]

Mark Wang said, branding with be Hilton Club Vacations (rebranded Diamond), and Hilton Grand Club Vacations (existing HGVC plus select DRI locations). If anyone was looking for naming info.

I liked the part where he said HCV would be an "upscale brand". Thue HGVC is "upper upscale".

 

[T_R_Oglodyte]

Mark Wang said, branding with be Hilton Club Vacations (rebranded Diamond), and Hilton Grand Club Vacations (existing HGVC plus select DRI locations). If anyone was looking for naming info.

Another interesting aspect in the interview is that within the industry Diamond is perceived as having a better handle on sales and marketing to millenials. I would have never thought that.

 

[geist1223]

It will be interesting if Cabo Azul is rebranded HGCV. We just switched our DRI Membership from Hawaiian Collection to Cabo Azul. So we may end up in HGCV. We have no idea what that will mean.

 

[dayooper]

It will be interesting if Cabo Azul is rebranded HGCV. We just switched our DRI Membership from Hawaiian Collection to Cabo Azul. So we may end up in HGCV. We have no idea what that will mean.

Yeah, I think that will be the interesting part. Will you get access to club bookings without an additional purchase or will you be “stuck” with just the Cabo Resort.

 

[BingoBangoBongo]

BRIAN SOZZI: Mark what are your plan-- are you going to rebrand Diamond Resorts? How do you think about the integration of the asset?

MARK WANG: Sure. No, great-- great question. That's where we can bring significant value. We have this iconic brand with Hilton Grand Vacations, and we're going to be rebranding the Diamond portfolio. It'll take a couple of years to get the rebranding completed.

But when you think about the power of putting the Hilton brand on and connecting it to the Hilton [? engine, ?] it will, number one, create a tremendous amount of credibility. It'll allow us to attract customers, higher-quality customers than Diamond was able to attract. And we think the performance of the combined entity is going to be very powerful.


Kind of a harsh way to talk about your recently acquired customer base.

 

[dayooper]

Diamond regularly withdraws deeds from the trusts. The only legal requirement is the one-to-one correspondence. So if deeds are taken out of say the Hawaii trust, they would have to be replaced with use rights at another location.

I apologize for asking so many questions as I’m not familiar with the trust product. In your opinion, would taking one or two resorts out of one of Diamond‘s collections and combining the collections be a way to satisfy the requirement? I know this is just speculation and conjecture, but I’m trying to wrap my head around what Mark Wang was saying when he alluded to rebranding a few of The Diamond resorts into HGVC (not HVC).

 

[escanoe]

Interesting article on the CEP mindset.

Hilton Grand Vacations CEO on Diamond acquisition: it 'really sets us up for recovery'

Yahoo Finance’s Julie Hyman, Myles Udland, and Brian Sozzi speak with Hilton Grand Vacations CEO Mark Wang about the company's $1.4 billion Diamond Resorts Acquisition, and timeshare industry outlook.

www.google.com

I Generally like HGVC management, but seems like a bit too much elitism from the CEO, "It'll allow us to attract customers, higher-quality customers than Diamond was able to attract."

Any of you Diamond owners thinking about the transition to HGV offended? Wonder how they talk about us resale buyers behind our back?

 

[T_R_Oglodyte]

Wonder how they talk about us resale buyers behind our back?

They think we are the scum of the earth. When someone makes it to Tug, and heeds the advice to rescind, they see us as taking food out of their babies' mouths.

 

[Jason245]

They think we are the scum of the earth. When someone makes it to Tug, and heeds the advice to rescind, they see us as taking food out of their babies' mouths.

I don't think they view resale that poorly. I would hazard to guess that about half of the people that make it to TUG have bought retail. And even if they rescind and buy resale, I would say that TUG members who buy resale are probably members who don't just stop paying MF. So it is better for Resort MF and the management fees.

 

[Eric B]

I don't think they view resale that poorly. I would hazard to guess that about half of the people that make it to TUG have bought retail. And even if they rescind and buy resale, I would say that TUG members who buy resale are probably members who don't just stop paying MF. So it is better for Resort MF and the management fees.

Probably true for the resort/HOA management side, but likely not true for the sales side....

 

[Talent312]

... seems like a bit too much elitism from the CEO: "It'll allow us to attract customers, higher-quality customers than Diamond was able to attract."

I like being included in Mark Wang's upper, upscale class.
But now, Diamond's customers may get use our showers!
.

 

[Jason245]

Probably true for the resort/HOA management side, but likely not true for the sales side....

The sales team might not be happy, but they only deal with the customer for 3 hours.... the management/HOA side deals with customers forever. And honestly they are the ones that dictate your experience. The thing that kills resorts is owners that don't pay their MF.... if owners are not paying, maintenance has to be delayed and fees have to go up to cover the missing funds and it just starts a downward spiral.

Success of Timeshare resorts are very dependent on having owners that pay their MF every year timely, and my impression of TUG is that as a collective we are probably the best owners of resorts on the market, not because of our individual finances, but because we understand what we own, know the value, take advantage of that value, know the financial commitments that come with that value and are willing to make the payments on those commitments.

As an owner of a resort or a system, I would wish that every other owner was a TUG member.

 

[T_R_Oglodyte]

I don't think they view resale that poorly.

They do on the sales floor. On the operations side, resale vs. "new" doesn't matter unless that distinction passes through and causes them to have to treat some owners differently from others.

 

[Eric B]

The sales team might not be happy, but they only deal with the customer for 3 hours.... the management/HOA side deals with customers forever. And honestly they are the ones that dictate your experience. The thing that kills resorts is owners that don't pay their MF.... if owners are not paying, maintenance has to be delayed and fees have to go up to cover the missing funds and it just starts a downward spiral.

Success of Timeshare resorts are very dependent on having owners that pay their MF every year timely, and my impression of TUG is that as a collective we are probably the best owners of resorts on the market, not because of our individual finances, but because we understand what we own, know the value, take advantage of that value, know the financial commitments that come with that value and are willing to make the payments on those commitments.

As an owner of a resort or a system, I would wish that every other owner was a TUG member.

Completely agree. IMHO, one of the major problems with TS sales is the lack of alignment of incentives between the sales staff and the HOAs. With resort management typically outsourced so that the HOA responsible for collecting the MFs and setting the budgets to maintain the resorts is separate from the folks that earn a living by selling ownerships, we will always have that sort of tension. Imagine a world where the sales staff had their salaries determined by continuing revenue from maintenance fees paid by their customers rather than by a commission on the sales price; I've got to think that the customers would be happier.

 

[Magus]

I Generally like HGVC management, but seems like a bit too much elitism from the CEO, "It'll allow us to attract customers, higher-quality customers than Diamond was able to attract."

Any of you Diamond owners thinking about the transition to HGV offended? Wonder how they talk about us resale buyers behind our back?

Hah! How do you think everyone in C-suite + Investment banker + Gov power jobs in NYC, DC, Chicago, LA/SF etc thinks about you behind your back? This is actually VERY mild. (And people wonder why Trump had a lot of support)

I'm sure the sales people absolutely hate re-sale, but I'm sure management/Corp realizes its a necessary evil. They can always exercise ROFR if they don't like resale. The more they exercise ROFR, the fewer resale owners there are!

 

[Jason245]

Completely agree. IMHO, one of the major problems with TS sales is the lack of alignment of incentives between the sales staff and the HOAs. With resort management typically outsourced so that the HOA responsible for collecting the MFs and setting the budgets to maintain the resorts is separate from the folks that earn a living by selling ownerships, we will always have that sort of tension. Imagine a world where the sales staff had their salaries determined by continuing revenue from maintenance fees paid by their customers rather than by a commission on the sales price; I've got to think that the customers would be happier.

HGVC makes a nice management fee and also collects a few million in just membership fees, which is recurring money in the pocket with no effort on their part.... While the instant revenue of selling inventory and the huge markup makes it appealing, there is a reason why when you google the name of different timeshares/brands you get different feedback. If someone makes it to TUG, they usually discover that certain brands (e.g. Westgate) are generally reviewed less favorable than others (Like say DVC, Mariott, HGVC or Wyndham).

I think we can all agree that there is a huge disconnect in real value vs retail selling price on the sales side of timeshares, mostly driven by the inflated selling price due to the absence of a true free market. Honestly, the only organization I know that is more focused on the service side than the sales side is DVC... everyone else is out for the big front end cash grab to some degree or other.... If we had a true free market on these things (similar to the housing market), and people were valuing and comparing based on experience, I think that it would weed out most of the people who buy timeshares but shouldn't, and allow the free market to weed out some of the resorts that really do not offer value for the experience/benefits.

 

[Jason245]

Hah! How do you think everyone in C-suite + Investment banker + Gov power jobs in NYC, DC, Chicago, LA/SF etc thinks about you behind your back? This is actually VERY mild. (And people wonder why Trump had a lot of support)

I'm sure the sales people absolutely hate re-sale, but I'm sure management/Corp realizes its a necessary evil. They can always exercise ROFR if they don't like resale. The more they exercise ROFR, the fewer resale owners there are!

I guarantee you that DRI and HGVC management all view their customers with the same question "How much money can I get out of them?"

 

[nuwermj]

I apologize for asking so many questions as I’m not familiar with the trust product. In your opinion, would taking one or two resorts out of one of Diamond‘s collections and combining the collections be a way to satisfy the requirement? I know this is just speculation and conjecture, but I’m trying to wrap my head around what Mark Wang was saying when he alluded to rebranding a few of The Diamond resorts into HGVC (not HVC).

Thanks for the questions. They are not a problem. A "collection" in the Diamond system is an HOA, so I don't think they can be combined without the approval of some fraction of the owners. If Wang is thinking about the Embarc resorts, then my guess is that the whole trust would be affiliated with HGVC. The Modern in Hawaii could be easily integrated as it is not in any of the Diamond trusts. It could even be sold off as deeded weeks. If Wang wants to integrate locations already affiliated with the Diamond Club, then my guess it that the resorts would be shared; some inventory controlled by the Diamond Club and other weeks controlled by the HGVC. I don't image they would withdraw an entire Diamond resorts from one of the trusts and then sell it as deeded weeks. I hope this addresses your question.

 

[dayooper]

Thanks for the questions. They are not a problem. A "collection" in the Diamond system is an HOA, so I don't think they can be combined without the approval of some fraction of the owners. If Wang is thinking about the Embarc resorts, then my guess is that the whole trust would be affiliated with HGVC. The Modern in Hawaii could be easily integrated as it is not in any of the Diamond trusts. It could even be sold off as deeded weeks. If Wang wants to integrate locations already affiliated with the Diamond Club, then my guess it that the resorts would be shared; some inventory controlled by the Diamond Club and other weeks controlled by the HGVC. I don't image they would withdraw an entire Diamond resorts from one of the trusts and then sell it as deeded weeks. I hope this addresses your question.

Yes! That helps tremendously! Thank You!

 

[Magus]

I think we can all agree that there is a huge disconnect in real value vs retail selling price on the sales side of timeshares, mostly driven by the inflated selling price due to the absence of a true free market.

I actually very much disagree with this statement. I think there is a huge disconnect between *resale* value and the real value of timeshares, not retail and real value. Timeshares are complicated and no one (corporate/gov) is pushing re-sales nor educating potential buyers of resales and the various programs. When I explain how HGV works, most people can't believe how cheap some of the resales are....I've had 2 friends buy in the last two months. If every timeshare program was even half as easy to use as HGV is, I think resale would be 70% of retail.