22,000 existing owners joined new program

[siberiavol]

Marriott's third quarter earnings came out. In it there was a comment that 22,000 existing owners joined the new points program. It said that was above their estimate. Overall timeshare sales were down 6% compared to last year.

22,000 doesn't seem like a lot considering the incentives.What would drive another large legacy group to join in the future? Will all the focus be on new clients? That might be a dangerous approach as the lack of new clients was the contributing factor in lower timeshare sales according to the release.

 

[KathyPet]

I believe that the figure of 400,00 has been the estimated # of owners. 22,000 joining the new program is hardly a roaring success.

 

[dioxide45]

The problem is that Marriott is always very ambiguous with their numbers. Do they have 400,000 owners, or 400,000 owner weeks? Have 20,000 owners enrolled or 20,000 owned weeks?

 

[dioxide45]

The fact that timeshare sales are down is not a good sign for their new trust based points program. In fact this seems to be very bad. I wouldn't have expected sales to at least be flat. It doesn't seem like people are embracing the idea of buying new trust points. They did indicate that sales to current owners increased by 27% over last year. So it seems that current owners are buying more trust points to supplement their ownership.

 

[sparty]

Marriott's third quarter earnings came out. In it there was a comment that 22,000 existing owners joined the new points program. It said that was above their estimate. Overall timeshare sales were down 6% compared to last year.

22,000 doesn't seem like a lot considering the incentives.What would drive another large legacy group to join in the future? Will all the focus be on new clients? That might be a dangerous approach as the lack of new clients was the contributing factor in lower timeshare sales according to the release.

Interesting that sales to existing owners was up 27%... So something is driving sales to existing owners in the right direction, it's just not attracting new owners.

I believe the loss of new owners is fundamentally tied to an overall (total?) liquidity loss in the housing market, not so much tied to the product itself.

 

[DanCali]

They did indicate that sales to current owners increased by 27% over last year. So it seems that current owners are buying more trust points to supplement their ownership.

Not necessarily. What if they count enrollment fees as sales to existing owners? If sales to existing owners were flat but now you have a bunch or revenues from enrollment fees that could account for the 27% increase in "sales to current owners".

And if they do count enrollment fees then the 6% decline in overall revenues number understates the real situation.

 

[GregT]

Marriott's third quarter earnings came out. In it there was a comment that 22,000 existing owners joined the new points program. It said that was above their estimate. Overall timeshare sales were down 6% compared to last year.

22,000 doesn't seem like a lot considering the incentives.What would drive another large legacy group to join in the future? Will all the focus be on new clients? That might be a dangerous approach as the lack of new clients was the contributing factor in lower timeshare sales according to the release.

All,

Very interesting -- this is the firmest data we will get -- a public announcement from a publicly-traded company. This number would have been scrubbed and confirmed before public release.

Siberia, can you give us the link to see how it is written? Each word will be relevant (literally).

22,000 owners out of [400,000]? I don't know what they truly expected but I recall other programs (DRI?) had their best push within 30 days post-announcement, and then things slowed down.

I had thought there would be more, but perhaps they are counting on the fact that many owners haven't visited properties on their annual visit, therefore the number is temporarily depressed. The Q3 2011 number will be more enlightening after 1 year of marketing and exposure.

Best to all,

Greg

 

[Pens_Fan]

But my salesperson told me that 80% of owners were converting.

He wouldn't have been... gasp... lying would he?

 

[m61376]

The company launched Marriott Vacation Club Destinations, a new North American timeshare points program, in June and focused its efforts on educating existing customers about the benefits of the new product. The program allows customers to purchase timeshare in smaller increments than the traditional one-week product and allows greater flexibility of use. Feedback from owners has been favorable. In the third quarter alone, 22,000 existing owners joined the points program, exceeding the company's expectations, and many of those owners purchased additional product. In fact, contract sales to existing owners increased 27 percent in the third quarter. With fewer sales to new customers year-over-year, third quarter adjusted Timeshare segment contract sales decreased 6 percent to $165 million (excluding a $1 million allowance for fractional contract cancellations recorded in the quarter). In the prior year's quarter, Timeshare segment adjusted contract sales totaled $176 million (excluding a $24 million allowance for fractional and residential contract cancellations).
In the third quarter, Timeshare sales and services revenue totaled $275 million and, net of expenses, totaled $56 million for the quarter. Adjusting for the Timeshare impairment and restructuring costs and other charges, as well as the impact of consolidating securitized loans had that occurred at the beginning of 2009 rather than 2010, third quarter 2009 timeshare sales and services revenue would have totaled $290 million and, net of direct expenses, would have totaled $45 million. These adjustments for the 2009 quarter are shown on page A-11.
Third quarter 2010 Timeshare sales and services revenue, net of expense, benefited from lower marketing and sales costs, price increases year-over-year, and a $15 million favorable adjustment to the Marriott Rewards liability resulting from the lower than projected cost of Marriott Rewards redemptions. Results were reduced by $6 million of incremental program costs and $11 million of deferred profit associated with lower reportability of contract sales, both related to the new points-based program.
Timeshare segment results include Timeshare sales and services revenue, net of direct expenses, as well as base management fees, equity in earnings (losses), gains and other income, noncontrolling interest, interest expense and general, administrative and other expenses associated with the timeshare business. Timeshare segment results for the 2010 third quarter totaled $37 million as shown on page A-9. In the prior year quarter, adjusted Timeshare segment results would have totaled $24 million, adjusting for the Timeshare impairment and restructuring costs and other charges, as well as the impact of consolidating securitized loans had that occurred at the beginning of 2009 rather than 2010, as shown on page A-11. Timeshare segment results for the 2010 third quarter included $12 million of interest expense related to the consolidation of securitized Timeshare notes. Adjusted Timeshare segment results for the year-ago quarter included $17 million of interest expense related to the consolidation of securitized Timeshare notes.

So it seems like 22,000 owners joined the program. I wonder if that truly exceeded expectations, because, as pointed out by Greg, interest will expectantly wane over rime, and enrolling 5% of owners in the first 4 months doesn't seem like owners are embracing the program.

 

[Bunk]

Note sure if I'm doing it right, but here is a link to Marriott's press release containing the financial info:
http://investor.shareholder.com/mar/releasedetail.cfm?ReleaseID=515597

Here is a link to an analysis of the timeshare program portion of the financials:
http://www.finchannel.com/Main_News/Travel_Biz/72551_Marriott_Swings_to_Profit/


Here is what Marriott said about shares to existing owners:
The company launched Marriott Vacation Club Destinations, a new North American timeshare points program, in June and focused its efforts on educating existing customers about the benefits of the new product. The program allows customers to purchase timeshare in smaller increments than the traditional one-week product and allows greater flexibility of use. Feedback from owners has been favorable. In the third quarter alone, 22,000 existing owners joined the points program, exceeding the company's expectations, and many of those owners purchased additional product. In fact, contract sales to existing owners increased 27 percent in the third quarter. With fewer sales to new customers year-over-year, third quarter adjusted Timeshare segment contract sales decreased 6 percent to $165 million (excluding a $1 million allowance for fractional contract cancellations recorded in the quarter). In the prior year's quarter, Timeshare segment adjusted contract sales totaled $176 million (excluding a $24 million allowance for fractional and residential contract cancellations).


(This is me not Marriott): The way I read this, I think that 22,000 existing owners joining the points program means that they simply enrolled their weeks but did not buy any points. Purchasing existing product means that they bought extra weeks.

 

[windje2000]

Not necessarily. What if they count enrollment fees as sales to existing owners? If sales to existing owners were flat but now you have a bunch or revenues from enrollment fees that could account for the 27% increase in "sales to current owners".

And if they do count enrollment fees then the 6% decline in overall revenues number understates the real situation.

Dan, the way I read this they DO count enrollment fees. And I wonder about the mix. My view is that high enrollment fee resales ($1,495 - $1,995) represent many of those who joined as there is ambiguity as to whether or not they may be permitted to enroll after 12/31 of this year.

This time period also includes sales to the 'early adopters.' Makes one wonder what will happen after 12/31 when the current plus-point incentives expire and the resale enrollment deadline occurs. Especiall since there were

fewer sales to new customers year-over-year

From Footnote 2 page A-3 LINK

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

 

[ste104]

I had a tour yesterday and salesman indicated overwhelming acceptance by both new and legacy owners. I still not decided on enrolling, he did indicate that by joining the $165 annual fee includes membership in II is this true? He also indicated by joining you would save the lockout fee as well as the exchange fees (not sure what these are). If I lock off my unit and exchange dioes it pay to join? Also he indicated that going forward there would be very few marriott properties available on II. Any advice? Thanks.

 

[jlf58]

Reading above, thats is correct, II will now only have 95%- 97% of all Marriott exchanges ( keep in mind even some people who joined, will exchange outside of MVCI). Without that 3% or 4% extra, you might never get an exchange

I had a tour yesterday and salesman indicated overwhelming acceptance by both new and legacy owners. I still not decided on enrolling, he did indicate that by joining the $165 annual fee includes membership in II is this true? He also indicated by joining you would save the lockout fee as well as the exchange fees (not sure what these are). If I lock off my unit and exchange dioes it pay to join? Also he indicated that going forward there would be very few marriott properties available on II. Any advice? Thanks.

 

[Fredm]

So it seems like 22,000 owners joined the program. I wonder if that truly exceeded expectations, because, as pointed out by Greg, interest will expectantly wane over rime, and enrolling 5% of owners in the first 4 months doesn't seem like owners are embracing the program.

Actually the accounting period represented ~2 1/2 months for enrollment purposes (June 21- Sept 11).

 

[RandR]

While the numbers do seem low, remember that there are some people who may not have even been notified yet or gone on a vacation and sat down with a salesperson. Plus there are many here on TUG who are waiting to see how the program goes for the first 6 - 12 months and then may join.

I do have a good idea though. Anyone who plans on taking a tour, print out the article that says 22000 of 400,000 owners joined and bring it with you. Then when the salesperson says 80% joined, take out the article and ask him to explain it to you.

 

[windje2000]

Actually the accounting period represented ~2 1/2 months for enrollment purposes (June 21- Sept 11).

The statements disclose $164MM of timeshare contract sales for the 12 weeks ended 9-11, and given that there were probably few sales in that first week when the staff was in training for the points roll-out, the MVIC sales are virtually all points sales. The numbers do include the Ritz Carlton timeshare segment, which is probably small.

If 100% of the timeshare contract sales were DClub and they were all points rather than weeks sales, it would represent 17.8 million points at $9.20 per point.

Make some adjustment for

1. Ritz Carlton,
2. the weeks that were sold before 6/20, and
3. foreign sales which are weeks
​

and they have probably sold at least 13-15 MM points.

EDITED TO ADD - - The statement identifies 22,000 EXISTING owners signed up - we don't know the TOTAL enrollment in DClub including NEW owners. and they have probably sold at least 13-15 MM points. If there are 22,000 members, that's an average of 590 to 680 points per member if 100% purchased points.

Since the minimum points purchase is 1,000 for EXISTING owners, many EXISTING owners joined and didn't purchase points since all NEW owners had to purchase a minimum of 1,500 points if I recall correctly.

 

[GregT]

The statements disclose $164MM of timeshare contract sales for the 12 weeks ended 9-11, and given that there were probably few sales in that first week when the staff was in training for the points roll-out, the MVIC sales are virtually all points sales. The numbers do include the Ritz Carlton timeshare segment, which is probably small.

If 100% of the timeshare contract sales were DClub and they were all points rather than weeks sales, it would represent 17.8 million points at $9.20 per point.

Make some adjustment for

1. Ritz Carlton,
2. the weeks that were sold before 6/20, and
3. foreign sales which are weeks
​

and they have probably sold at least 13-15 MM points. If there are 22,000 members, that's an average of 590 to 680 points per member if 100% purchased points.

Since the minimum points purchase is 1,000, many joined and didn't purchase points.

I agree with your approach and much of your conclusions -- I'll take a stab at it also.

We know:

$164M in timeshare revenue for the 12 week quarter
22,000 owners joined

Let's assume that each owner paid $1,345 to enroll (half are resale owners at $1,995 and half are direct owners at $695)

Therefore, of the $164M in timeshare revenue, $30M is from enrollment fees.

The remaining $134M is primarily from the sale of points @ $9.20 apiece, or 14.5M points were sold -- that's 1/3rd of the 42M points that the Trust started with.

If an existing weeks owner is buying 1,000 point blocks (partly because they were skimmed ) then that's 14,500 people who bought 1,000 point packages at $9,200 apiece.

Obviously, some amount of the new points sold come from brand new purchasers, but in most ways of looking at it, it appears to be a higher percentage of enrolling owners that also buy points than I would have expected. This information does give us a metric also to look at subsequent quarters.

Candidly, if these are close to correct, it does look like a successful program, and it appears that many (half?) of the 22,000 enrolling owners probably did buy 1,000 point packages.

That will certainly improve inventory availability in the years ahead as week owners who purchase points will almost certainly annually redeem their weeks for points.

Best to all,

Greg

 

[windje2000]

I agree with your approach and much of your conclusions -- I'll take a stab at it also.

We know:

$164M in timeshare revenue for the 12 week quarter
22,000 owners joined

Let's assume that each owner paid $1,345 to enroll (half are resale owners at $1,995 and half are direct owners at $695)

Therefore, of the $164M in timeshare revenue, $30M is from enrollment fees.

The remaining $134M is primarily from the sale of points @ $9.20 apiece, or 14.5M points were sold -- that's 1/3rd of the 42M points that the Trust started with.

If an existing weeks owner is buying 1,000 point blocks (partly because they were skimmed ) then that's 14,500 people who bought 1,000 point packages at $9,200 apiece.

Obviously, some amount of the new points sold come from brand new purchasers, but in most ways of looking at it, it appears to be a higher percentage of enrolling owners that also buy points than I would have expected. This information does give us a metric also to look at subsequent quarters.

Candidly, if these are close to correct, it does look like a successful program, and it appears that many (half?) of the 22,000 enrolling owners probably did buy 1,000 point packages.

That will certainly improve inventory availability in the years ahead as week owners who purchase points will almost certainly annually redeem their weeks for points.

Best to all,

Greg

The $164MM is identified as timeshare contract sales - no need to strip out the enrollment fees.

Total timeshare segment net revenue is $251MM -- before cost reimbursements.


EDITED TO ADD

"In fact, contract sales to existing owners increased 27 percent in the third quarter. With fewer sales to new customers year-over-year, third quarter adjusted Timeshare segment contract sales decreased 6 percent "

Total sales were pretty much flat and sales to existing owners were up 27%, so sales to new customers represent the balance.

Historically about 40% of sales were to existing owners. Brand new customers and owner referred new customers represent the balance of 60%.


40% times 1.27 = 50.8% = estimate of period sales to existing owners

100% less 50.8% = 49.2% = estimate of period sales to new owners



49.2% times $164MM = approx $81MM sales to newbies

50.8% times $164MM = approx $83 sales to existing owners


Newbies

Sales to newbies = $81MM / $9.2 per point = 8.8 million points

If each bought the minimum of 1,500, the maximum number of newbies equals about 5,866. Since some no doubt bought more, the best estimate is "less than 5,866."

Existing owners (22,000 per the news release)

Sales to existing owners = $83MM / $9.2 per point = 9.0 million points.

Since the minimum purchase is 1,000 points, the maximum number of existing owners who bought points is 9,000. If some bought more, that number goes down.

Note that I assumed all the 164MM of sales were MVIC points, which is overstated by the small amount of Ritz Carlton sales, foreign weeks sales and the final period of weeks sales before the 6/20 roll-out. That assumption presents the best possible case for DClub results.

.

 

[dioxide45]

You are missing other sources of income for the timeshare division. There is Grand Residence and the Ritz Carlton Club. Also, what about units taken in for points and then rented out, also unsold units rented out for cash. Does Marriott operate all of those Marketplaces and pool bars and keep the revenue from those? Marriott was also still selling weeks for a portion of the reporting period. All of this added up can account for a lot of $$ that you didn't take in to account.

I agree with your approach and much of your conclusions -- I'll take a stab at it also.

We know:

$164M in timeshare revenue for the 12 week quarter
22,000 owners joined

Let's assume that each owner paid $1,345 to enroll (half are resale owners at $1,995 and half are direct owners at $695)

Therefore, of the $164M in timeshare revenue, $30M is from enrollment fees.

The remaining $134M is primarily from the sale of points @ $9.20 apiece, or 14.5M points were sold -- that's 1/3rd of the 42M points that the Trust started with.

If an existing weeks owner is buying 1,000 point blocks (partly because they were skimmed ) then that's 14,500 people who bought 1,000 point packages at $9,200 apiece.

Obviously, some amount of the new points sold come from brand new purchasers, but in most ways of looking at it, it appears to be a higher percentage of enrolling owners that also buy points than I would have expected. This information does give us a metric also to look at subsequent quarters.

Candidly, if these are close to correct, it does look like a successful program, and it appears that many (half?) of the 22,000 enrolling owners probably did buy 1,000 point packages.

That will certainly improve inventory availability in the years ahead as week owners who purchase points will almost certainly annually redeem their weeks for points.

Best to all,

Greg

 

[siberiavol]

I listened to the conference call. They said they would be promoting the new program to current owners for six to nine months. I had the impression this meant the focus would be on newbies after that.

They commented that 24% of enrolled owners had bought additional points. I would guess the number of enrolled TUG owners who have bought additional points is much less than the 24% number mentioned.

The plan seems to be to get the current owners to the tours and get them enrolled and try to sell them additional point. They expect overall timeshare sales to be flat in 2011.

They talked about demand from owners for this type program and how referrals are important. Demand for the new program didn't come from owners as we have discussed at great length. The analysts weren't focused on timeshare but did get the information about flat sales in 2011 in response to a question.

 

[windje2000]

You are missing other sources of income for the timeshare division. There is Grand Residence and the Ritz Carlton Club. Also, what about units taken in for points and then rented out, also unsold units rented out for cash. Does Marriott operate all of those Marketplaces and pool bars and keep the revenue from those? Marriott was also still selling weeks for a portion of the reporting period. All of this added up can account for a lot of $$ that you didn't take in to account.

The $164MM is identified on the financial statement as timeshare contract sales. That includes Ritz and Residences, but they're a small percent (less than 10%) of the $164MM. It doesn't include the other stuff.

The financial reporting period is 12 weeks ended 9/11. They stopped selling weeks a few days before 6/20 for training. Therefore weeks sales are likely not material,

 

[siberiavol]

I listened to the conference call. They said they would be promoting the new program to current owners for six to nine months. I had the impression this meant the focus would be on newbies after that.

They commented that 24% of enrolled owners had bought additional points. I would guess the number of enrolled TUG owners who have bought additional points is much less than the 24% number mentioned.

The plan seems to be to get the current owners to the tours and get them enrolled and try to sell them additional point. They expect overall timeshare sales to be flat in 2011.

They talked about demand from owners for this type program and how referrals are important. Demand for the new program didn't come from owners as we have discussed at great length. The analysts weren't focused on timeshare but did get the information about flat sales in 2011 in response to a question.

I am still listening to replay and there is another piece of news in response to question. They don't expect to have any new inventory for several years. They have the inventory they need now(surprise,surprise). When they do start new projects they will be smaller and require less capital was the comment.

 

[rpw]

funny, my sales guy told me the last 100 of his customers bought

but couldn't explain to me how it worked for someone that already owned a property in Hawaii. It sounded like a great deal for some poor smuck that owned a off season week in branson (his example, not mine) to be able to go to Hawaii.

I wonder how many Owners bought just to save II fees? I'll bet MOST of the customers bought in thinking they were going to save money on trading fees.

So far, my opinion is that this points program is a scam to extort money out of existing customers. Anyone that doesn't realize that in a few short years the points you bought to go to that fabulous vacation won't get you to that vacation anymore because they devalue points (like our MR points).

Personally, I think the real proof is the fact that Disney is selling weeks (and points) in Oahu. Marriott is going the wrong way.

 

[dioxide45]

but couldn't explain to me how it worked for someone that already owned a property in Hawaii. It sounded like a great deal for some poor smuck that owned a off season week in branson (his example, not mine) to be able to go to Hawaii.

I wonder how many Owners bought just to save II fees? I'll bet MOST of the customers bought in thinking they were going to save money on trading fees.

So far, my opinion is that this points program is a scam to extort money out of existing customers. Anyone that doesn't realize that in a few short years the points you bought to go to that fabulous vacation won't get you to that vacation anymore because they devalue points (like our MR points).

Personally, I think the real proof is the fact that Disney is selling weeks (and points) in Oahu. Marriott is going the wrong way.

I would have to agree that Marriott is late to the points game. If they were going to try to compete with other point players, they should have been in points a decade ago. They may be too late to the game and the tide may end up turning against them. For us the weeks based system is/was perfect. For others that wanted flexibility from Marriott this works for them. However, I wonder why they considered Marriott over other points systems in the first place.

The poor smuck that owns off season Branson can probably do just fine to get Hawaii with the current weeks and II program. I am one of those just in Orlando. We don't have lofty ambitions that our gold week will get prime Hawaii time, but we were able to get two weeks in 2BR units in Hawaii. I would think that a low season Branson owner wouldn't have lofty ambitions if they bought off season. Though I am sure their sales rep told them otherwise.

 

[Asia2000]

My suspicion is that Marriott will perform the necessary adjustments to make the point program a success. First off, they have to make sure that every point holder secures the reservation he or she wants. This principle seems shaky and inconsistent at this point. Correct me if I'm wrong.

Second, they need to offer more value in the DC than what they currently have. In the Asia program, you can secure weeks within the 59 day window for roughly 33% of what an average week costs. So if it requires 3000 points normally, the flexchange will cost 1000 and allows you to book anything available (2 bedrooms, etc.). Marriott will most likely have to move to this in the US if they want to keep the estimated 5% enrollment so far, in forward motion. I would say 5% is considered a success so far, but I would doubt they will gain another 5% in the next two years with the current program, the state of the economy and the fact that most who were willing to convert, have already done so.

Third, they have to perform all of this without disrupting the current 95% owner base who have not gone into the Destinations Program. This puts Marriott in a very difficult position. Do they go for revenue and irritate most of their customers or do they do a variation and try to keep everyone happy.

One would think that Marriott would start launching the firework promotions, once the economy and unemployment rates turn around. Why give away the farm when people cannot handle it right now. Wait until the market is ripe, and then go for the gusto. In the meantime, mediocrity for most and exciting flexibility for a few.