Marriott to Spin Off Timeshare Business [merged]

[disnefile]

Want to know why they dumped timeshares? Sales of timeshares and profits from timeshares are plummetting while Hotel income is rising. The "old model" of selling timeshare weeks had quit working, so they swapped to a new model (points). That has not stopped the slide. When the new excitement of points wear off (most anything new will have a spike in sales) the slide will probably deepen. Here is a quote from the WSJ article:

"Marriott's revenue per available room, a key industry metric, increased 7.6% in constant dollars. The company said it expects revenue per available room to increase between 6% and 8% in 2011."

"In the fourth quarter of 2010, Marriott's timeshare sales fell to $201 million, a $2 million decline from the previous year. The unit's revenue has dropped around 30% since 2007."

Revenus of 98% of Q4 is showing that sales are still falling from the dismal prior 3 years.

Marriott needs financing because selling points using their own money has a cost that they will not want to incur. It is hard to sell stock in a company who has falling revenues for several consecutive years and is loaded in debt.

Very few retail buyers can afford pay cash for $40,000 to $50,000 worth of points. If you think Marriott weeks are almost worthless, try to resell your Marriott points through a licensed reseller (the only way Marriott will allow the sale) if they ever authorize one. Marriott must borrow money (which they will not want to do) or find someone willing to finance points buyers. I doubt Marriott will find a financial institution willing to finance Marriott points because every foreclosure amounts to a virtual total loss since the product is worthless resale. No financing, no sales.

The future for this division is bleak with regards to sales growing profits. Stock value will never increase unlessthe company can show profit and growth. That leaves mgt of the resorts as the company's cash cow. A 10% increase in Mgt fees with no increase in employees or services translates into about a 10% increase in profit. Assess and renovate and Marriott makes money. They after all must be paid for the additional work they do supervising and planning for the renovations. Get ready, increases are coming. You are a captive income flow for the new Marriott timeshare division and there is nothing you can do about it but sell or pay the ever increasing costs Marriott will charge you to be an owner. But heck if you buy some stock in the new company at least when you pay your ever increasing MF's you can at least feel like you are contributing to your own stock portfolio.

Exactly,

Big inceases in fees for owners and no possible growth. The shareholders of the new Company will eventually go belly up. They will not be able to sell stock or get any bank loans. Wait until you see how many people will walk away from their units and every other owner will pick up the tab. This has already started. The economy is part of the issue but this is a real death blow to the timeshare industry. Disny will be the next to go down hill. They have started to make changes that will really screw the current owners. If you can't sell your timeshare values will plummet. You are better off renting for less than the annual fees.

 

[siberiavol]

I don't know the percentages but using hotels as a model corporate Marriott gets two potential major sources of revenue from franchise. The first is a franchise fee which they get from everyone flying the Marriott flag. The second is a management fee which they get if they manage the property. Some Marriotts have independent management companies.

In the new arrangement Marriott International will get a franchise fee from all MVCI properties. The new company will get the management fees and own the unsold properties. In the Marriott quarterly they mentioned if I recall correctly that there were twenty three MVCI properties in active sales. I was surprised they had that many.

 

[Fredm]

I wonder about the DC program now. it originally was an attempt to increase the profit margin, but now do they see it is a failed attempt so they decided instead of swimming up stream to just spin it off? obviously all speculation, but interesting stuff indeed. I'm sure some of you wished they just spun it off to begin with instead of "fixing something that ain't broke" --> i.e. creating DC

obviously DC is here to stay for the time being, that is not what I was implying in case anyone misunderstood my post.

It's all part of the same plan.
This is not some reactionary event.

The timeshare segment is no longer a growth business. So, it is being spun off from Marriott International. Just like Host and Assisted Living in the 90's. Both continue to do what they always did.

The DC is a shift from an asset based business model to a fee for service model.
The points monitized standing inventory, thereby allowing for a lower sales/marketing/administrative cost structure.
Reacquired weeks will be profitably sold as points, thereby assuring ongoing new contract revenue, albeit not a growth market.
The fee for service model assures ongoing (and growing) revenue from the owner base.
Operations Management fees will flow to the new company, from which franchise fees to MI will be paid. Nothing different here.

Relax. There is a difference between investing in the stock and using the timeshare.

It should not be a surprise to anyone that the system will not be expanding its resorts anytime soon, if ever.

 

[TUGBrian]

washington post article on this same topic

http://www.washingtonpost.com/wp-dyn/content/article/2011/02/14/AR2011021406410.html

 

[jlf58]

I would agree, not counting the fact that Marriott International financed all new projects.

They have taken measures to protect Marriott International not Marriott Timeshares. Marriott Timeshares will be a very weak company. It will not be investment grade and the wall street journal has said that. That is very very bad for any company and especialy in this economy. So, yes things have changed significantly from yesterday for the worse.

 

[CatJ114683]

This seems very similar to what Marriott did when they spun off their group of senior housing (Senior Living Service or Sunrise Living). They owned and managed many facilities and spun that bank of business off back in 2003 or 04. They also had a distribution arm that they spun off (I think they serviced the airline industry.) With all the unsold inventory that Marriott has, the rising $$ to maintain such large expanses of property etc.etc., this makes fiscal sense. I suspect that the Spinco will handle things in the short term, like all holding companies do, then parcel it out 5 years down the road or so....

 

[Cobra1950]

In the end when the dust is settled, each resort HOA will be free to determine whether to continue with Marriott managing the resort. Perhaps it will become more competitive and not be uncommon for resorts to change brands with some frequency and just competitively bid it out like the cleaning service.
This will be ok for the best resort locations, but the "dogs" like the lower end Orlando resorts will just disappear or sell out to become hotels
Like so many other similar issues in our deteriorating culture, corporate America can again take an easy way out, ignoring the promises it made to its customers and leave them (us) with the tab.

 

[Swice]

For Sure

What is for sure:

If the Marriott timeshare division was barely chugging along last week, you can bet that the business just slowed down to one mph today.

Management just applied the brakes to an already slow moving operation. For the next ten months, the division will be stuck in neutral. Big Marriott is not going to let them spend a dime on pencils or staples. Expenses will be cut until the spinoff actually occurs.

So for the most part, the operation you see today is what you can expect to see until next January.

...Then we can only hope the economy will have improved and the timeshare bosses will then be free to actually work on the product.

Best case: The spinoff could work in our favor. Timeshare spinoff will be more nimble and free to make decisions and the product could improve.

Worst case: The economy is still in the tank over worries about federal debt and the timeshare spinoff is looking for any revenue it can find to pay the bills -- meaning our fees go up.

 

[Numismatist]

As a Frenchman's Cove topic: I'd be really ticked if this means that Cove owners can't use adjacent Reef & Morningstar properties (or if they make us pay a fee to use them) becuase now they are 'separate'.

The opportunity to fee us to death is increased by this.

 

[WBP]

If you read in between the lines, and listen carefully to Mr. Sorenson's reference to luxury residential real estate (his one point of referernce to the Caribbean, I believe is The Abaco Club on Winding Bay), your'e likely to discover that MVCI has done pretty well through the low; it was The Ritz-Carlton Club and Ritz-Carlton Club whole ownership (bundled under MVCI and into MVCI's profit and loss line items) that caused MVCI's financial performance to be adversely impacted.

My take: Marriott remains "smart as a fox," and amazingly skilled at protecting its assets during downturns in the economy.

 

[timeos2]

Bad bad news for owners. Better have an exit strategy

If you read in between the lines, and listen carefully to Mr. Sorenson's reference to luxury residential real estate (his one point of referernce to the Caribbean, I believe is The Abaco Club on Winding Bay), your'e likely to discover that MVCI has done pretty well through the low; it was The Ritz-Carlton Club and Ritz-Carlton Club whole ownership (bundled under MVCI and into MVCI's profit and loss line items) that caused MVCI's financial performance to be adversely impacted.

My take: Marriott remains "smart as a fox," and amazingly skilled at protecting its assets during downturns in the economy.

All you have to do is look at Marriott's history in timeshares and especially hotels. When they "tire" of a resort/hotel they are quick to simply walk away. They may try to make it seem that THEY are the ones being spurned but in reality they raise fees and require upgrades - done ONLY by THEIR captive & no-bid contractors - that make staying prohibitively expensive for the Association. When the Board wisely says "no - enough!" they say "we were thrown out".

I fail to see how a no bid contractor likely giving Marriott a rebate while they also charge at least a 15% management fee on every dollar does a better job than one with the same materials and far lower overhead will. It is a total ripoff of the owners but Marriott sees it as easy money and will turn up the spigot once they have to survive as a standalone operation. You don't have to look far to see examples of resorts dropped even in the past - it will be easier to "justify" now which is likely a key reason for the change. And look what has happened to fees with other groups that bought out bankrupt or failing operations, pledged upgrades and then put the whole bill on the captive owners. Again, not hard to find examples if you look.

If having the Marriott name on my resort meant anything to me I'd be very worried about the direction they have taken in the past 5 years and where they appear to be headed. They have taken a once prime and respected brand, sullied it beyond repair, will cut it loose from the very support that let it exist and expect it to thrive? Fat chance. This is the start of a firesale of "assets" that barely meet the term and very bad news for timeshare owners. If I owned I'd start thinking of how much it will cost me to get out in lost purchase expense (most of it now) vs rising fees that already are some of the highest in the industry. Simply not worth the risk anymore despite the current beauty and finish of the resorts. Renting never looked better! Ownership never looked much worse.

 

[davidn247]

Tombo,

Welcome back! It's nice to see you again on the Marriott board -- lots more excitement now!

All,

I think we can all agree that a business model that depends upon the development and sale of new timeshare interests is getting killed by the internet -- and may be dead.

However, I think we are being hasty in announcing the demise of SpinCo, or what I am calling the new Marriott timeshare business (because it is being spun out of Marriott, and will exist as an entirely different company).

Seriously, who wouldn't want to be the CEO of a brand new company, with two of the most respected brand names in the hospitality industry? And that brand new company comes with $1.5B worth of inventory for sale/deployment in some of the most desirable places on the planet?

And there are some recurring revenues? And an (abused) ownership base of 400,000 owners that can be courted? And shareholder expectators are very loowwww....

What an opportunity ---- Plus, there are a plethora of other properties/companies that can be consolidated to make an even more formidable company -- forget developer sales and find new ways to leverage the portfolio.

So, in time....we will learn which path they pursue:

They can be a consolidator and build an entirely new company -- a truly high quality leisure company that treats its ownership base like partners and creates a model for the leisure community.

Or, they can follow the path of Wyndham and bilk their captive owners for everything they can, and use contracts to tighten the noose.

Personally, I'm glad to rid of corporate Marrriott -- the timeshare business had outlived its usefulness and it was clear that our value to them was in the past, when we purchased the week. Hopefully, a new model can be developed that has a brighter future for all of us.

Best to all,

Greg

Fully agree. Working in Corporate World means a lot of politics to please bosses, this will now provide more transparency and put the customers/owners at the centre of the equation. Finally, by reporting separately, they will not be able to cut corners or avoid key questions like in the past.

If they play it smart, this can be a fantastic opportunity. They have the best brand in the industry and now all the flexibility to consolidate this desperate timeshare industry/market. Personnaly, I think that this announcement is not bad at all.

 

[siberiavol]

I listened to quarterly conference call and not a lot to report. They did say there would be information about fees coming out in an SEC document around the end of second quarter.

The head of new company said they might be open to some bulk sales. I think he might have been talking about some land they own. I don't see how they could sell bulk points unless they had certain resellers that bought on the cheap and sold retail similar to what cell phone companies do.

It seems DC enrolled owners might benefit from delays. They have more access to some of the newer properties than they would if points were selling like hot cakes.

 

[bogey21]

Looks like no-one but me sees Marriott Spinco making good money using the RCI model; that is skimming off and renting Weeks. Fewer and fewer available for exchanges. More and more being rented for the benefit of Spinco. If this stock comes out and craters, I may be a buyer.

George

 

[timeos2]

It seems DC enrolled owners might benefit from delays. They have more access to some of the newer properties than they would if points were selling like hot cakes.

There is no requirement that points unsold and the use they represent be given to the system for access. It doesn't do anything to improve availability to points members as all the inventory they are entitled to is what is sold & fees paid for. The Marriott holdings COULD be made available as well but why would tehy do that? They can rent it and use it as incentives - or anything else they want. But placing it in the pool is like giving it away so they are unlikely to do that in any big way.

 

[sharo]

Marriott timeshare spinoff does anyone know what this means?

Does anyone know how this will affect us 400,000 "owners"? It was a money losing area and I am worried it will be starved or owner fees will skyrocket. They say (Wall St Journal)we will be given "shares" in the new company. If the company is part of Marriott still then we are cut loose in the pool of loss????What happens to shares in the points program and those outside?

 

[FlyerBobcat]

Lots of discussion in this fairly new thread.

 

[SueDonJ]

See this thread: Marriott to Spin Off Timeshare Business

 

[sharo]

Marriott has cut us loose

I agree with previous posts that we 400,000 "owners" will see a starved
company and higher owner fees- how can this possibly be considered an
"opportunity" for growth. If it was such an "opportunity" Marriott would have kept it. Does anyone have any idea how we can salvage anything?
Should have listened to my old Dad on warnings about owning timeshares.
:annoyed:

 

[cbdmvci]

Spin-off Direct Affects on Owners (as opposed to the corporate/business thread)

A few examples of open questions, now and in the future...

Staying at Aruba Ocean Club ... separate check-in desks ... charging at Marriott resort restaurants ... etc.?

Will "vacation club" disappear from Marriott Hotels reservation brands option? What happens to the MOD option?

Will charges at a MVCI resort paid with a Marriott card earn the same number of MR points?

When Marriott hotels rents out a club unit, who gets what share of the income, Marriott, SpinCo, Club? For trust and non-trust resorts?

Guests at Desert Village I used to get free access to some Resort facilities. Now you have to pay. Will this become universal whenever a Club and a Resort share grounds? Will the whole shared grounds thing start causing lots of daily and even eventually legal problems?

Will stays at MVCI clubs no longer qualify days for elite Marriott status?

As ongoing customers who must eventuallysupport SpinCo's viability, do we have to worry about SpinCo have to send Marriott Hotels a check every time an owner trades for MR points for their week? How big a check?

I could go on and on ... but I'll let others.

 

[wuv pooh]

The apocolypse has come, sell your timeshare and buy gold

From a business perspective the theory is that the timeshare business is hindering the total valuation of Marriott because of the lack of transparency and the unknown obligations. By spinning it off, Marriott International should receive a higher multiple based on its growing outlook and the Timeshare business should be no worse off and the sum of the parts will be higher. No different than the old LBO breakup guys.

From a practical perspective Mr. Marriott is not going to piss away 21% of his wealth so I don't see any cataclysm in the near term. As mentioned they did the same thing with the HMT Reit and Senior Living.

Longer term I wish they were AAA rated like Lehman Brothers, Bear Stearns, and all the MBS that were sold :hysterical: However, they will instantly become the market leader in their business segment the moment they are created, so they will have an opportunity to succeed and change the business. Time will tell if they are the market leader in the buggy whip business or the search engine business

If you believe that the timeshare industry is dead, then this is another nail in the coffin. If you believe that the timeshare industry is morphing from the old model into the new "destination/experience" model that the DC points is selling then this is an exciting opportunity to break new ground, consolidate old dead companies and transform the business into something better.

As always, we will end up somewhere in the middle of the extremes and I will continue to enjoy my vacations until I believe that the value is no longer there. For now I will enjoy my upcoming week at Grande Ocean

 

[wof45]

I guess I am confused by all the comments here that do not match any of the data in the Wall Street Journal article.

TS were not a losing business.

the results for 2010 were off only 1% from 2009 and only 30% from 2007 -- this is much better than the real estate market.

The transaction is just splitting Marriott into two divisions, each with its own assets. In this kind of transaction, there is close scrutiny of assets and costs that result in defining a market price for each part.

If you are a TS owner, you own a TS and not a part of the new or old company.

There is really nothing new here --
except that Marriott's DC program did only 1% less in revenue in the 4th quarter than weeks did a year ago, despite all the discussion on the board that DC was totally failing from what was sold in the past.

 

[wof45]

Guests at Desert Village I used to get free access to some Resort facilities. Now you have to pay. Will this become universal whenever a Club and a Resort share grounds? Will the whole shared grounds thing start causing lots of daily and even eventually legal problems?
[/I]

I will just comment on this, since it is not what it seems.

The hotel is not owned by Marriott Intl, but by another owner. DS1 payed a yearly fee to the hotel to cover the "free" sap services.

The new hotel owners decided that they wanted a much higher fee for services, and the DS1 HOA decided not to pay the fee for use since many owners didn't use any hotel services. They did negotiate a lower fee structure, but it was no longer free for those who used the hotel.

As an owner, I'm glad they didn't pay the higher fees, since the hotel is just cutting its own throat, and why should all DS1 owners pay for this.

I don't see that the DS1 v hotel fee changes have anything to do with the split companies.

 

[kjd]

Too much of an overreaction

Let's not get way ahead of ourselves on this issue. It's certainly not an abandonment before the collapse of MVCI. An "exit strategy" is a foolish notion before any facts are brought to light. This a calculated business decision by Marriott, with their best interests in mind. It does not portend anything but that. There are many examples of successful spinoffs in business history.

When IBM spun off their personal computer business they did it because they no longer wanted to manufacture small computers. They wanted to focus their attentions elsewhere. The new company called Lenovo is doing very well and IBM is purchasing all of the computers used in their systems from Lenovo. In fact, Lenovo might be doing better than when they were with IBM because they are concentrating on just their products.

This could very well happen with this new development. The new timeshare company would have a single focus. As in the case with IBM and Lenovo, Marriott could still do business with the new company giving it all of the advantages perviously enjoyed by MVCI owners. The new company may benefit owners more than the previous one. I am not ready to sell or engage in rumor mongering which can only drive down property values for every owner in MVCI.

 

[equitax]

There is one difference though - when people need/want out of their DC points ownerships (and Marriott is selling them as a quick scan of the Orange County land register easily reveals), "The Developer" ie spinco is allowed to levy up to USD 1.00 per point for waiving ROFR - so if you take the current turnover of ownership weeks, adjust it for the fact that the economy is not quite as bad as it was, adjust it for all the people who are still buying timeshares "direct from the developer" because they are being bullied into it by high pressure sales tactics, I think you will find that the average number of direct buyers that want out within x period of time will remain somewhat the same, with one major difference - The Developer (i.e. Spinco) now earning between 1600-3500 $ per resale vs the current $95 (currently 95$ goes to MVCI and 25$ to the resort, at least thats the case for MGR/MGV as per Condo dox)

Maybe the actual number of DC sales is a little discouraging to Marriott, but I do give Bill and the rest of the crew over at Marriott a little more credit than that. After all, nobody likes losing money.

I think that Spinco will be excellently positioned to get a significant piece of the resale market, because of the higher ROFR waiver fee - Let's face it, If you want to sell a 10K week, an agent charges about $2000.00, tack on ROFR waiver fee and you can see my point.

DC points owned also don't provide a tenant in common residual value in fee simple once condo associations dissolve if they are not extended.

It will be interesting to see what happens, but I don't think all is lost yet...

There is really nothing new here --
except that Marriott's DC program did only 1% less in revenue in the 4th quarter than weeks did a year ago, despite all the discussion on the board that DC was totally failing from what was sold in the past.