HGVC 2nd Quarter Investment Call

[dayooper]

Don’t know why, but I really look forward to the quarterly investors calls. I guess I like an inside look at the company.

1 - Sales

Obviously, sales are low, but are better than their peers. They had only 1 month in the quarter for sales. Being able to keep the off site Japan sales centers open helped. 35% of their sales were Hawaiian properties and many those were out of Japan. There was a 41% in virtual sales (no onsite tour). 70% of buyers are current owners. They have 400,000 pre-paid vacations planned with tours already bought and are selling more.

2. Occupancy

The South Carolina and Mountain resorts are running at or around 90% occupancy. Orlando and Vegas are at 30%-40% occupancy. New York, Chicago and Hawaii are still closed. Did not mention California or the SW Florida Affiliates.

3. Expanding/Fee-For-Service

Still very high on the fee-for-service model. Thinks they won’t be “building” anything in the next 10 years. (I took this as others will be building/renovating current properties into timeshares and HGVC will sell and manage them.) They have several fee-for-service deals in the works, but they take time. Said they have a very balanced inventory.

This is the exact verbiage. What do you think?

Stephen Grambling -- Goldman Sachs -- Analyst

Great. And as an unrelated follow-up, you had referenced it's maybe a little bit early to see fee-for-service start to hit the market. I guess when you look back over time, when does that typically happen? And would you generally think that in this case, it would be more independent timeshare properties coming up? Or could we also see hotel conversions?

Mark Wang -- President And Chief Executive Officer And Director

Yes. Look, I think, obviously, this the impact on this pandemic on travel and lodging and resort condos is going to be significant. And those things are my prediction is that we obviously, we're building a number of properties right now. My prediction is and over the next 10 years, we're not going to have to build anything. There's going to be a plentiful amount of inventory that's going to be repurposed. And I think the highest and best use in a number of cases are going to be timeshare. That being said, we've got a good slate of inventory. We've got a good balance of inventory. We're getting ready to complete a number of deals right now that are not new deals, but deals that had been in the pipeline that we're finishing up. So overall, these things take time, Stephen, as you know to work through the process. But I think net-net, our industry as a whole will benefit, unfortunately, from the dislocation that's going to occur from this pandemic.

Stephen Grambling -- Goldman Sachs -- Analyst

Got it. Thanks so much.

Here is the entire transcript from Motley Fool.

 

[Sapper]

Don’t know why, but I really look forward to the quarterly investors calls. I guess I like an inside look at the company.

1 - Sales

Obviously, sales are low, but are better than their peers. They had only 1 month in the quarter for sales. Being able to keep the off site Japan sales centers open helped. 35% of their sales were Hawaiian properties and many those were out of Japan. There was a 41% in virtual sales (no onsite tour). 70% of buyers are current owners. They have 400,000 pre-paid vacations planned with tours already bought and are selling more.

2. Occupancy

The South Carolina and Mountain resorts are running at or around 90% occupancy. Orlando and Vegas are at 30%-40% occupancy. New York, Chicago and Hawaii are still closed. Did not mention California or the SW Florida Affiliates.

3. Expanding/Fee-For-Service

Still very high on the fee-for-service model. Thinks they won’t be “building” anything in the next 10 years. (I took this as others will be building/renovating current properties into timeshares and HGVC will sell and manage them.) They have several fee-for-service deals in the works, but they take time. Said they have a very balanced inventory.

This is the exact verbiage. What do you think?

Stephen Grambling -- Goldman Sachs -- Analyst

Great. And as an unrelated follow-up, you had referenced it's maybe a little bit early to see fee-for-service start to hit the market. I guess when you look back over time, when does that typically happen? And would you generally think that in this case, it would be more independent timeshare properties coming up? Or could we also see hotel conversions?

Mark Wang -- President And Chief Executive Officer And Director

Yes. Look, I think, obviously, this the impact on this pandemic on travel and lodging and resort condos is going to be significant. And those things are my prediction is that we obviously, we're building a number of properties right now. My prediction is and over the next 10 years, we're not going to have to build anything. There's going to be a plentiful amount of inventory that's going to be repurposed. And I think the highest and best use in a number of cases are going to be timeshare. That being said, we've got a good slate of inventory. We've got a good balance of inventory. We're getting ready to complete a number of deals right now that are not new deals, but deals that had been in the pipeline that we're finishing up. So overall, these things take time, Stephen, as you know to work through the process. But I think net-net, our industry as a whole will benefit, unfortunately, from the dislocation that's going to occur from this pandemic.

Stephen Grambling -- Goldman Sachs -- Analyst

Got it. Thanks so much.

Here is the entire transcript from Motley Fool.

Thank you for this!

“ Net income was a loss of $45 million, and diluted earnings per share was a loss of $0.53 compared to net income of $57 million and diluted earnings per share of $0.63 in the second quarter of 2019.”
- OUCH!!!

It looks like this was really focused on current business, impacts of the COVID situation, etc. I did not see anything on the possible acquisition of HGVC by a third party. Do the horrid earnings scare off suitors, or is it blood in the water that may attract an undesirable buyer?

 

[Talent312]

I suspect that red ink all around has reduced interest in acquiring travel companies.
Either they no longer have the capital, or they just see it as too risky an investment.

OTOH, I can see HGVC raising all sorts of user fees to cope with the loss.
.
.

 

[ocdb8r]

I suspect there is still outside interest in HGVC and it's all a matter of timing. Apollo indicated in their Q1 call that travel/hospitality was still an area of interest and they still had plenty of "dry powder" to spend. Just prior to COVID the dynamic between HGVC and Apollo was getting to an interesting point and I suspect everyone has just hit the pause button for a bit.

Aside from Apollo's potential interest, timeshares have typically been one of the quickest segments of the hospitality market to recover from economic troubles. COVID obviously poses a unique threat, but even here, I think timeshares will bounce back quicker (people are obligated to pay their MFs regardless and are more likely to feel compelled to USE their weeks...that will result in resorts getting up and running and staying running quicker than hotels). I also think timeshares are in a better position to respond to COVID than regular hotels (lower density of guests in most instances, less frequent cleaning that can be "deep cleaning" due to typically longer stays and lower reliance on business travelers). In short, as timeshares bounce back, HGVC will re-emerge as an attractive target to others.

 

[1Kflyerguy]

HGV has said very little about any possible merger/ acquisition. Even in call prior to covid they simply acknowledged the interest and said they can't comment.