HGVC up for sale?

[1Kflyerguy]

Obviously just a guess, but based on the CEO's comments and recent investor presentations, the company seems to be reasonably pleased with the performance of HGVC. They also mentioned that HGVC feeds business into the hotels.

Hilton is moving into becoming a services company, not a property owner and they also mentioned the possibility of selling off the Hilton owned hotels to a REIT.

If they do something with HGVC, my guesses in order of likelihood are:

1) Selling or moving the resorts they own outright to a REIT or other company, with HGVC to retain the right to manege and sell the intervals. They are already doing this will all the new resorts, so this would align the existing resorts with the new model.

2) Sell off the HGVC business to a 3rd party not associated with another hospitality brand. The company while not owned by Hilton would keep the name and program similar to the current one.

3) Sell to a competing hospitality company... That seems to be rumor from sales people, while possible it seems unlikely to me. I just don't see them creating a situation where you book stays at the timeshare portion of HHV with Marriott or DRI.. Of the Iconic Properties they highlight in the investor info every quarter, three have significant time share affiliation, HHV, Hilton Waikaloa, and New York Hilton. Not to mention the challenges of integrating two very different programs.

I think 1 or 2 are possible, and 3 pretty unlikely...

 

[NJDave]

A spin off to a REIT is often done for income tax purposes to create shareholder value. While the new entity (i.e. the REIT) which holds the real estate assets obtains a tax advantage, a spinoff of a REIT has challenges.

Below is a link to an article (that is somewhat technical) regarding REITs that discusses the benefits and challenges.

http://www.mofo.com/~/media/Files/C...medium=syndication&utm_campaign=View-Original

 

[taffy19]

Two questions

I've heard two rumors lately:

1. "New" HGVC resorts (e.g. Maui) would be "trade-able" via II instead of RCI.
2. Diamond Resorts were in talks to buy the Marriott Timeshare brand/resorts.

Both conversations were with sales folks, which means their lips were moving and we all know what that means.


Time will tell whether or not either rumor becomes fact or fiction...

Has anyone seen a floor plan or a brochure (artist rendering) of the new Hilton resort that started construction in Kihei?

Has anyone else heard rumor #2? I hope not!

 

[krh2o]

I thought the individual timeshare owners actually own the timeshare and Hilton just has a management contract. And I assume as developer/managing group they have a certain number of units they can rent out through Hilton.com.

If that's true then wouldn't the owners need to vote on a new management company coming in? And why would Hilton want to get rid of the VC? It seems like easy money and good properties for their portfolio.

 

[Tamaradarann]

Ownership of Timeshares and HGVC

I thought the individual timeshare owners actually own the timeshare and Hilton just has a management contract. And I assume as developer/managing group they have a certain number of units they can rent out through Hilton.com.

If that's true then wouldn't the owners need to vote on a new management company coming in? And why would Hilton want to get rid of the VC? It seems like easy money and good properties for their portfolio.

I like the thoughts that you express here. The timeshare owners own most of the units. HGVC owns some portion of the units and they can sell them if they choose instead of renting them out through Hilton.com. Whoever, bought those units would then be able to sell them or rent them out.

Some questions come to mind:


1. Would Hilton still manage the timeshare reservations system, or would a new company manage and/or implement a new system and all the aspects of it?
2. Would the new owners of the units need to pass ROFR if they wanted to sell them?
3. Would the new owners be required to rent the units they buy out as full weeks for the season that they bought?

I believe that most of us value the HGVC system more than we value the actual timeshare that we purchased. Therefore, the system is where the value is. Any discussion concerning this issue needs to answer questions about the timeshare system if it is to capture my interest.

 

[Jason245]

I like the thoughts that you express here. The timeshare owners own most of the units. HGVC owns some portion of the units and they can sell them if they choose instead of renting them out through Hilton.com. Whoever, bought those units would then be able to sell them or rent them out.

Some questions come to mind:


1. Would Hilton still manage the timeshare reservations system, or would a new company manage and/or implement a new system and all the aspects of it?
2. Would the new owners of the units need to pass ROFR if they wanted to sell them?
3. Would the new owners be required to rent the units they buy out as full weeks for the season that they bought?

I believe that most of us value the HGVC system more than we value the actual timeshare that we purchased. Therefore, the system is where the value is. Any discussion concerning this issue needs to answer questions about the timeshare system if it is to capture my interest.

This is why I believe in paying as little as possible for the buy in... worst case scenario, I lose nothing or next to nothing on liquidation.

 

[JIMinNC]

I thought the individual timeshare owners actually own the timeshare and Hilton just has a management contract. And I assume as developer/managing group they have a certain number of units they can rent out through Hilton.com.

If that's true then wouldn't the owners need to vote on a new management company coming in? And why would Hilton want to get rid of the VC? It seems like easy money and good properties for their portfolio.

The individual timeshare owners only own the individual timeshare real estate. They do not own the developer and management company. Those entities are owned by their shareholders. So only the shareholders need to vote on a sale or spinoff of the company - not the timeshare owners. The new owner(s) of the developer/management company simply assume the management contracts that are already in force (as well as acquiring any unsold intervals). I have been involved with one such sale as a timeshare owner, and have knowledge of another due to my current ownership.

1) I was an owner at Sunterra's Kaanapali Beach Club when that company was sold to Diamond. When Diamond bought Sunterra, that included the subsidiary that acted as resort manager for all of the Sunterra-developed resorts. That management company and all of their management contracts were just automatically transferred to Diamond. Diamond became our new management company. I suspect there was language in the original timeshare documents for each resort that allowed the contracts to be transferred to any successor company in the case of a sale or acquisition. Diamond was buying Sunterra in part for the management fee revenue stream, so without contractual certainty that those contracts would remain in force after a sale, then the buyer (Diamond) would have been buying a revenue stream that could have evaporated. From a practical matter however, even if the transfer of the management contract did require approval of the individual resorts (which I doubt it did for the reasons noted above), since the Boards of Directors were controlled by Sunterra/Diamond employees/associates, any required approval from the resort Boards would have been a rubber stamp.

2) I am now a Marriott owner, and while I was not an owner when Marriott International spun off Marriott Vacations Worldwide into a separate New York Stock Exchange traded company, Marriott Vacations Worldwide simply assumed all of the old Marriott management contracts for the MVCI resorts.

As for why Hilton might consider a sale or spinoff, here is what Bloomberg said about the Marriott spinoff back in 2011:

The spinoff will allow investors to choose between Marriott’s hotel management and property development businesses. It will likely give the hotel company a higher valuation after separating from the slower-growth timeshare business, according to Joseph Greff, an analyst at JPMorgan Chase & Co.
“Marriott’s lodging fee business needs little capital investment, while timeshare needs some level of investment, so this spin could be accretive to free cash flow,” Greff wrote in a research note yesterday. “Our initial take on the spinoff is that this is likely going to be well received by investors.”
The company has pursued an asset-light strategy, divesting most of its hotel real estate and concentrating on operating properties rather than building and owning them. The timeshare business, hurt by a slump in demand during the recession, is focused more on development, said Patrick Scholes, a New York-based analyst with FBR Capital Markets

Here is a statement from the Wall Street Journal back in 2011:

Mr. Sorenson said the company tried to partner with outside investors to build timeshare resorts but found that the model of providing management for third-party owners, which is the basis for the hotel business, didn't work well with timeshares. Several other hotel and timeshare companies, however, including Hilton Worldwide, are still seeking private investors for new timeshare properties.

Earlier this year, when Starwood announced they would be doing a similar spinoff of their timeshare business into a separate company, this is what was said about that in the business press:

The spin-off will support the company’s asset disposition strategy and capitalize on increasing growth opportunities in the timeshare industry. Further, vacation ownership business involves continuous investment in the existing properties and development of new ones. The spin-off will enable the hotelier to use the capital for developing its hotel and franchise business.

Basically hotel companies have moved to a model of not owning anything. Most hotel properties are owned by individual investment companies or REITs, and Hilton, Marriott, Starwood, etc just manage the properties under a franchise agreement. Even in "asset light" timeshare development where third parties take the initial risk to build the timeshare, the developer will generally acquire the inventory in batches prior to sale. So hotels and timeshares are a different investment model.

In my opinion, if Hilton decides to move their timeshare business off of their balance sheet, it will more likely be a spinoff like Marriott and Starwood than a sale like Sunterra. In the case of Marriott, Starwood, and Hilton, the brand association with the hotel brand is a key driver of sales. Given that a number of HGVC timeshares are closely associated with Hilton hotel locations, I would think HGVC would want to pursue an option that would allow the Hilton/HGVC branding to continue. In the case of both Marriott and Starwood, the new spinoff companies have long-term marketing agreements with Marriott International and Starwood respectively to license and use the trademarks, brands, reservations systems, and loyalty programs owned by Marriott and Starwood.

 

[Talent312]

Hilton owns "the club." The "rules" say they can do what they want with it (even close it).
Of course, they won't kill a goose that lays golden eggs, but they might sell the goose.

 

[Tamaradarann]

So what would be the bottom line on the HGVC System?

Would Hilton still manage the timeshare reservations system, or would a new company manage and/or implement a new system and all the aspects of it?

The flexibility of the HGVC reservation system gives the value to the timeshares that I purchased. If there were new rules that compromised that flexibility I am not interested in owning.

 

[JIMinNC]

Would Hilton still manage the timeshare reservations system, or would a new company manage and/or implement a new system and all the aspects of it?

The flexibility of the HGVC reservation system gives the value to the timeshares that I purchased. If there were new rules that compromised that flexibility I am not interested in owning.

This is all theoretical at this point, so there is no answer to your question because nothing is changing now and may not change in the future. But Hilton can do whatever they wish with their program - keep it, sell it, spin it off, or shut it down entirely. But you can't worry about what might happen, because anything might happen. Hilton can also change any of the rules within their system in any way they want, even without selling the company. There are no guarantees with "club based" ownerships off any kind.

But if you want to focus on realistic scenarios, then as long as the HGVC name stays on the properties, there will likely be some linkage to the Hilton Hotels systems. Marriott timeshares are now part of a company that is a totally separate legal entity from Marriott International, but the systems still talk to one another. When I make a points reservation in the Marriott system, I get an acknowledgement from the Marriott Vacation Club system which is owned and operated by the now-separate timeshare company (Marriott Vacations Worldwide, Inc.). But, I also get a confirmation from the Marriott.com system which is owned and operated by Marriott International (the hotel company). So that means the systems talk to each other. So as long as it says "Hilton" on the HGVC resorts, I would think there will need to be some sort of a linkage between the timeshare reservation system and the hotel systems.

But at the other extreme, if for some strange reason Hilton decided they wanted to be totally out of the timeshare business and didn't want the Hilton name associated with timeshare in any way, then yes, they would likely break the reservations relationship with Hilton as well. But given that HGVC is actively investing in new resorts, it would be hard to imagine this scenario any time in the near future.

 

[JIMinNC]

The flexibility of the HGVC reservation system gives the value to the timeshares that I purchased. If there were new rules that compromised that flexibility I am not interested in owning.

I will add, the only guarantee you have with any timeshare is your deeded interest. Any club, points-based system, reservations system, or brand can change at any time.

That happened to us with the first timeshare we owned. We bought in 1998 at the Embassy Vacation Resort at Kaanapali Beach on Maui. We bought partially due to the Embassy brand and the plans they had to expand the network beyond the locations at that time in Maui, Kauai, Orlando, Myrtle Beach, Tahoe, and Scottsdale. But when Hilton Hotels bought Embassy a couple years later, they decided not to integrate the Embassy timeshares into HGVC because the Embassy properties were all developed and managed by third parties (Maui, Kauai, Orlando, and Tahoe by Sunterra; and Scottsdale and Myrtle Beach by Vistana) and those third parties didn't want to give up their lucrative management contracts to Hilton. The Embassy brand was just a franchise arrangement, so Hilton, Sunterra, and Vistana agreed to do away with the Embassy Vacation Resort name. The Sunterra locations were folded into the rest of Sunterra's network (and later merged into Diamond), and the Vistana properties became part of Vistana (which was soon acquired by Starwood). As I understand it, Sunterra and Hilton came close to a deal to make the Maui property part of HGVC, but that deal fell apart before it could be completed during the 2001-2002 recession and the travel downturn after 9/11.

We still had our deeded ownership in Maui, but the Embassy Vacation Resort network we thought we were buying evaporated. We were limited to pure RCI trading with no more in-network priority to the old Embassy locations. We sold that ownership last fall after buying into the Marriott system. We may add an HGVC location in the next year or two.

Again, I think the risk is very, very low that the HGVC brand will be abandoned by Hilton any time soon, but low does not mean zero.

 

[Tamaradarann]

But if you want to focus on realistic scenarios, then as long as the HGVC name stays on the properties, there will likely be some linkage to the Hilton Hotels systems. Marriott timeshares are now part of a company that is a totally separate legal entity from Marriott International, but the systems still talk to one another. When I make a points reservation in the Marriott system, I get an acknowledgement from the Marriott Vacation Club system which is owned and operated by the now-separate timeshare company (Marriott Vacations Worldwide, Inc.). But, I also get a confirmation from the Marriott.com system which is owned and operated by Marriott International (the hotel company). So that means the systems talk to each other. So as long as it says "Hilton" on the HGVC resorts, I would think there will need to be some sort of a linkage between the timeshare reservation system and the hotel systems.

Perhaps I didn't clarify what I meant about changing the HGVC reservation system. First of all the Hilton Hotel reservation system and the HGVC reservation system DO NOT talk to each other.

However, I don't really care whether they communicate or not. The reservation system that I care about is the HGVC point reservation system. While I understand that the weeks that I purchased are all that I own, the flexibility of that system is what got me to purchase most of my Hilton timeshares. If that system changes and prevents me from vacationing where I want, for as long as I want, starting and ending on the days I want, in the size unit I want, for the number of points that I use I will not continue as a loyal maintenance fee paying owner.

 

[JIMinNC]

Perhaps I didn't clarify what I meant about changing the HGVC reservation system. First of all the Hilton Hotel reservation system and the HGVC reservation system DO NOT talk to each other.

However, I don't really care whether they communicate or not. The reservation system that I care about is the HGVC point reservation system. While I understand that the weeks that I purchased are all that I own, the flexibility of that system is what got me to purchase most of my Hilton timeshares. If that system changes and prevents me from vacationing where I want, for as long as I want, starting and ending on the days I want, in the size unit I want, for the number of points that I use I will not continue as a loyal maintenance fee paying owner.

Could it change someday? Sure. Hilton or any future owner can do whatever they want to. But is there any evidence it is going to change? No. There is not even any concrete evidence that Hilton wants to change anything about their system; only a rumor started by a competing sales rep, plus the industry background that says if Marriott and Starwood see value in spinning off their timeshare operation into a separate company, maybe so would Hilton someday.

So could Hilton sell HGVC or spin it off? Yep. But based on past experiences, that simple transaction alone would not, in and of itself, change anything for HGVC owners. That was the reason for my Marriott examples, not trying to make the point that the system connectivity was important - simply that Marriott spun off their operation in 2011 and it was transparent to owners.

I wouldn't spend much time worrying about what might happen in HGVC based on "what ifs" and rumors.

 

[MikeinSoCal]

On a sidenote, Hyatt in talks to buy Starwood

 

[Jason245]

On a sidenote, Hyatt in talks to buy Starwood

And the TS business was just sold to Interval.

 

[Tamaradarann]

Not Worrying about a sale, but Value is Important

Could it change someday? Sure. Hilton or any future owner can do whatever they want to. But is there any evidence it is going to change? No. There is not even any concrete evidence that Hilton wants to change anything about their system; only a rumor started by a competing sales rep, plus the industry background that says if Marriott and Starwood see value in spinning off their timeshare operation into a separate company, maybe so would Hilton someday.

So could Hilton sell HGVC or spin it off? Yep. But based on past experiences, that simple transaction alone would not, in and of itself, change anything for HGVC owners. That was the reason for my Marriott examples, not trying to make the point that the system connectivity was important - simply that Marriott spun off their operation in 2011 and it was transparent to owners.

I wouldn't spend much time worrying about what might happen in HGVC based on "what ifs" and rumors.[/QUOTE

I am not worrying about a sale. My plans are for over 100 or so days of great vacations in 2016 from HGVC. I want to continue that forever.

However, I believe it is important to put forth here and other places that the real value of HGVC timeshares is the system. Without the system I would not own nearly as many HGVC timeshares. If I was selling one HGVG timeshare or the entire HGVC I would stress the flexibility of the system over other timeshare systems. If I was a buyer of the HGVC system I would want to understand the value of the HGVC system since I would be selling that system if I was to purchase it. From my perspective if I changed that system my purchase could become another Westgate.

 

[JSparling]

I'm a Starwood owner as well as HGVC and just got this e-mail today. Perhaps this would be the type of thing HGVC will do one day. From reading this there doesn't appear to be much change coming to SVO owners:

Dear Owner,

Earlier this year, Starwood Hotels & Resorts (Starwood) announced its intention to spin off its vacation ownership business into a stand-alone, public company. Today, we are excited to share that immediately following the spin, Starwood Vacation Ownership will be acquired by Interval Leisure Group (ILG), to become one of the industry’s largest providers of world-class vacation experiences. We anticipate this transaction to be completed in the second quarter of 2016, when we officially become a wholly-owned subsidiary of ILG.

ILG is a global provider of non-traditional lodging with a portfolio of leisure businesses, including branded vacation ownership, vacation rentals and resort management, that currently operates more than 200 resort properties around the world. As an Owner, you may be familiar with Interval International® – their exchange subsidiary – and a valued partner with us over the past 15 years. With the combination of our two companies, we will create a stronger, more integrated timeshare and exchange business resulting in a more robust portfolio of vacation offerings for Owners and Guests.

We will continue to be the exclusive provider of vacation ownership for the renowned Westin® and Sheraton® brands, while providing all of the features and benefits of ownership you have come to expect. As an Owner, you will continue enjoying your timeshare resorts as you always have as well as continued access to the industry-leading Starwood Preferred Guest® (SPG) program. Current reservation guidelines and fees, exchange rules, reservation rights, and exchange privileges through Starwood Vacation Network℠, Interval International and other current exchange options will all remain the same.

This announcement reinforces our plans for accelerated growth as ILG is committed to invest in new Westin and Sheraton properties. Most notably, The Westin Nanea Ocean Villas, currently under construction, will be the newest resort on beautiful Kā‘anapali Beach in Maui, opening in 2017. In early 2016, we are also scheduled to begin converting the remaining 96 poolside hotel rooms into vacation ownership villas at The Westin St. John Resort & Villas.

In addition, the five transferring Starwood properties announced earlier this year remain part of the transaction and are anticipated to provide additional inventory for Owners over time, including The Westin Resort & Spa, Los Cabos; The Westin Cancún Resort & Spa; The Westin Resort & Spa, Puerto Vallarta; Sheraton Kaua‘i Resort; and Sheraton Steamboat Resort. You can continue to access these hotel properties through the SPG program.

We believe becoming part of ILG is transformational for our company and holds great value for our Owners. This transaction puts us at the forefront of our industry, offering you and your family even more choices for unique and memorable vacation experiences.

Thank you for your continued loyalty. We are excited about our bright future together and will update you as more details become available. To view today’s press release and for a list of questions and answers, click here.

Best Regards,

Stephen G. Williams
Chief Operating Officer

 

[Helios]

Program Changes due to HGVC being sold

Anyone worried about what would happen if HGVC was sold and all the very nice perks you get even if you buy resale go away?

 

[GregT]

Anyone worried about what would happen if HGVC was sold and all the very nice perks you get even if you buy resale go away?

I'm not worried about it. The thing I care most about is the ability to use my Orlando points to book the Hawaii properties -- and that is very structural to the system. I do not know what they would take away that would be that bad so I am not that worried about any possible changes if HGVC were to be sold.

I've also noticed that when something dramatic does happen, existing owners tend to be grandfathered in. I've seen this twice now, first with Worldmark and then with Marriott, and in both situations, they left the existing owners rights basically intact.

We will see.

Best,

Greg

 

[dsmrp]

I'm not worried about it for HGVC. I bought my Hawaii unit to use it, and while the HGVC points system lets us conserve points, I'll probably use the points for more Hawaii stays.

Grandfathering from one system to another is kinda variable, depending upon who's doing the acquisition. When Starwood acquired the (Sheraton) Vistana florida location many years ago, I believe they grandfathered the owners who bought direct from Vistana developer, into SVN. Starwood sales said they "offered" resale owners to get into network. I'm not sure if my FIL, who owned unit at time, saw the offer or just ignored it.

 

[Helios]

I'm not worried about it. The thing I care most about is the ability to use my Orlando points to book the Hawaii properties -- and that is very structural to the system. I do not know what they would take away that would be that bad so I am not that worried about any possible changes if HGVC were to be sold.

I've also noticed that when something dramatic does happen, existing owners tend to be grandfathered in. I've seen this twice now, first with Worldmark and then with Marriott, and in both situations, they left the existing owners rights basically intact.

We will see.

Best,

Greg

I hope you are right. I am new to HGVC and the ability to exchange to other HGVC properties was my main reason to do it.

 

[Helios]

I bought my Hawaii unit to use it, and while the HGVC points system lets us conserve points, I'll probably use the points for more Hawaii stays

Same here, ability to exchange to other HGVC properties is invaluable IMHO.

 

[Jason245]

There are no guarantees in life.. be ready for whatever comes.. this is why the initial buy in should be viewed as a sunk cost. . Use the system for as long as it works for you and dump it for nothing as soon as it doesn't. .

Sent from my SAMSUNG-SM-N910A using Tapatalk

 

[Cyberc]

There are no guarantees in life.. be ready for whatever comes.. this is why the initial buy in should be viewed as a sunk cost. . Use the system for as long as it works for you and dump it for nothing as soon as it doesn't. .

Sent from my SAMSUNG-SM-N910A using Tapatalk

Not that it has been a strategy of mine but as a non-US citizen I have been told, that I can always just stop paying my MF bills and at some point I would loose my unit.

Since i am a non-US citizen i wont have a credit score and all i got to loose is the unit and my up front cost.

I would however prefer to keep what I have. IMHO I dont think that selling HGVC and then have a buyer kill the concept would do anyone any good. All the resale buyers would dump their HGVC units and who should then pay for all the MF's and whatever fees they are going to charge.

Unless this is the plan and then sell the resorts piece by piece.

Since its only a rumor lets keep it as that I wouldn't put too much faith into it.

Regards

 

[dioxide45]

This was my first time reading through this thread. I think it is inevitable that Hilton spins off HGVC at some time. If you look back at the Marriott spinoff of Marriott Vacation Club, it added value to the shareholders for nothing more than splitting in to two companies.

The split was completed in November 2011 in a stock split. At that time, Marriott International stock was selling for around $26. Looking at historical stock information, it was a 1061:1000 split. So, my math would put that Marriott International valued Marriott Vacation Club at 6.1% of its overall companies value. You would expect the value of Marriott International to drop in an amount equivalent to that split valuation; however, Marriott International stock didn't take that hit. If anything, it actually went up in the days and weeks following the spinoff. That was in addition to the fact that all current Marriott International shareholders also owned the new Marriott Vacations Worldwide company. Shareholders actually saw more value in the company by it not having to carry the weight of its timeshare segment.

That new company trading under the VAC symbol started out with a stock price of about $17. It is now trading close to $60. Of course the overall market is way up since then too and the travel business is booming.

The overall point is that a spinoff in the end can still create value for the shareholders by doing nothing more than spinning the company off. Shareholders see the unloading of asset heavy and riskier business like timeshare as a good thing and invest in the original company. The original company also earns handsome franchise and licencing fees for nothing more than letting the new company carry its name and have its name on the new companies resorts. The new company gets additional flexibility and freedom to chart their own path.

I think this trend will continue within the timeshare segment. There is really only one big company left still holding on to its timeshare segment and that is Hilton. I think Hilton will continue to get pressure from its shareholders to spinoff HGVC. I think a spinoff is most likely followed by a sale to either a private equity or another hospitality company like Interval Leisure Group. Though I would think that II has its hands full right now with their recent acquisitions of Hyatt and Starwood Vacation Network. I am not sure if the Department of Justice would have an issue with II acquiring a third big brand timeshare company?

While I can understand that the unknown is always of concern, HGVC has a business model that works and I wouldn't expect the spunoff company or even new owner to make a lot of changes to that.