Marriott Vacations Worldwide 2Q 2022 Earnings Conference Call (VAC) Tidbits

[timsi]

I think the biggest problem right now with adding new ground-up resorts is where to build them. While we have all identified places we would like to see added to the MVC/Abound network, the fact is, with the merger of MVC, Westin, and Sheraton, most of the obvious resort markets are covered now by one of those brands.

The problem actually is that MVC has no financial incentive to build new resorts, it is much cheaper to buy "low cost" inventory and transfer wealth from the existing owners who have to sell at a significant loss compared to the price they paid. All the club rules favor Vistana/MVC vs the regular owner and the management can enjoy a pretty nice sail without any identifiable skill. We all like the Marriott brand but they just had to follow the Marriott rules to maintain the resorts. The integration is the true measure of their capabilities and they have failed miserably so far.

 

[JIMinNC]

We went to the Myrtle Beach Sales Center Sunday. While we were told that the full integration was still about a month away, it was our impression that what we were buying was their "new unified product." Albeit, the only thing new from our past understanding of the DC points was that it could be used on any of the resorts listed on the poster (MVC, Westin, and Sheraton) plus eventually some Hyatt resorts.

Don't hold your breath for Hyatt access other than through Interval International. The licensing contracts between Marriott Vacations Worldwide and Hyatt specifically prohibit the Hyatt/Welk locations from being combined with Marriott, Westin, Sheraton. Executive Management has made that clear in their investor presentations. While contracts can certainly be renegotiated, the Hyatt contracts were just renegotiated after the ILG acquisition. So unless Marriott International were to some day buyout Hyatt Hotels, it makes no sense why Hyatt would allow their brands to be combined in a program with a competing hotel brand. Sales reps just need to be told to stop spinning that Hyatt tale.

 

[DRH90277]

My biggest issue with the program now is the company's complete lack of investment in product. These guys are just reselling takebacks now. And in the current environment of recession and high inflation, the level of takebacks is not going to abate anytime soon.

Fifteen or so years ago when I acquired most of my weeks and points directly from Marriott, I knew exactly what I was getting for my purchase price. It went towards the capital cost of brand-new resort properties that I got to enjoy as an owner. Where does such money go today? Frankly, towards the company's common stock buy-back program, dividends for shareholders, and probably executive bonuses too.

New owners today are basically purchasing the right to use a collection of 20-year-old resorts that have long since been built and paid for and are continuing to age. Will this collection of properties be still considered upper-upscale in ten more years? They can continue to distract with acquisitions and integrations. But the resorts they're acquiring aren't any newer on average, and the core problem remains.

Needless to say, I will not be further adding to my ownership under these circumstances.

We participated in a sales presentation in June during which we were offered a 5,000-point purchase deal and the enrollment of 7 of our resale weeks. We were frustrated by the points system as we had been trying to get multiple point reservations at 13 mos and again at 12 mos and both had failed. We passed on the deal because it would have only amplified our points reservation problems. Our solution was to buy 3 more prime resale weeks at the resort which coupled with the 3 we already had eliminated our future need to use points for these reservations.

The points system has its place but is easily overwhelmed by demand at the better resorts and seasons.

Success in this timeshare game is earned - not imagined and done.

 

[EKniager]

Don't hold your breath for Hyatt access other than through Interval International. The licensing contracts between Marriott Vacations Worldwide and Hyatt specifically prohibit the Hyatt/Welk locations from being combined with Marriott, Westin, Sheraton. Executive Management has made that clear in their investor presentations. While contracts can certainly be renegotiated, the Hyatt contracts were just renegotiated after the ILG acquisition. So unless Marriott International were to some day buyout Hyatt Hotels, it makes no sense why Hyatt would allow their brands to be combined in a program with a competing hotel brand. Sales reps just need to be told to stop spinning that Hyatt tale.

FWIW, none of the new stuff had much influence on us. While there are 3 or 4 Westin's we may explore sometime, we aren't fans of Sheratons. The Hyatt's, if they become available, are again in only a few locations that are of interest to us. So the new resorts are just gravy. Our sales rep was... pretty low key on the Hyatt thing. She acknowledge there was too much unknown and wasn't very confident in regard to timing. I feel like her tone was appropriate. She didn't make any promises.

 

[Fallenone]

I wonder if the CEO was announcing that the majority of sales centers have started selling the unified product as of today. Does anyone have a sales rep they can check that with? Did anyone go to a sales presentation today?

I just finished a sales presentation this afternoon. And the salesman did have the Sheraton and Westin properties listed under the main "vacation" tab for the product. There were three tabs, one for Marriott (the ~70 properties I think), one for Sheraton (about a dozen), and one for Westin (about a dozen as well). He claimed that the interface he showed me today will be what owners will be seeing soon.

 

[kozykritter]

I just finished a sales presentation this afternoon. And the salesman did have the Sheraton and Westin properties listed under the main "vacation" tab for the product. There were three tabs, one for Marriott (the ~70 properties I think), one for Sheraton (about a dozen), and one for Westin (about a dozen as well). He claimed that the interface he showed me today will be what owners will be seeing soon.

Did he define what soon means?

 

[Fallenone]

Did he define what soon means?

He didn't mention about the interface specifically but did say come this Sep, owners will be able to book Sheraton/Westin with points with check in dates starting next Sep.

 

[vacationtime1]

The price of VAC shares rose 2.59% today.

 

[timsi]

The price of VAC shares rose 2.59% today.

When everything is rosy, according to the management, are you surprised?

 

[emeryjre]

The price of VAC shares rose 2.59% today.

Yep. Earnings are up and the spin is that earnings growth will continue. If they have a continuing problem with the booking software and the integration of the Abound program, there may be a hit to the earnings.
But we are on the outside and have no real information about IT infrastructure. We just know we are frustrated and upset about the current state of the booking software.

 

[dioxide45]

They stated in the Investor Day presentation back in June that much of the excess inventory came from their acquisitions. They have not specified how much is legacy Marriott, legacy Vistana, Hyatt, or Welk. When they say "low cost" they mean low cost of acquisition through ROFR and foreclosure. Looking at the last few years, I assume they still have unsold inventory from their newer projects - SFO Pulse, Bali, Costa Rica, and maybe Australia on the MVC side; and Westin Los Cabos, Sheraton Kauai, and the second Westin Cancun location on the VSE side. I suspect sales at the Asian locations are still depressed since Asian travel has been the slowest to rebound. Clearly the US Land Trust behind Destination Points/Abound is primarily being funded now through ROFR.

The big question that they don't answer is how much of this unsold inventory sits in what can be easily sold in the domestic US market. SFO Pulse is certainly in the DC Trust, but none of those others are. I don't know how Bali and Australia are being sold exactly and we know Costa Rica is weeks based ownership. Los Cabos is in Westin Aventuras and can be sold in the US to later convert to Abound points. Westin Cancun isn't in Aventuras yet, but they keep saying it will be added to it. Sheraton Kauai is part of Sheraton Flex and could be sold with ability to convert to Abound. I have a feeling that Westin Flex is running a little low on inventory with nothing new there in years except some new units at Desert Willow, but construction there is now at a standstill.

That said, I get the impression that much of their $610 milloin of inventory is actually in Welk. Perhaps half? Not really sure. The bulk of the rest is in international locations that can't be easily sold as the unified product. Meaning, if they want to continue to sell DC points they hopefully have lots of it in their unsold inventory. With contract sales up, mainly in the USA, I would think they are burning that inventory down pretty fast. I just don't see how they can feed this sales machine with ROFR, foreclosure and deed back weeks.

 

[JIMinNC]

The big question that they don't answer is how much of this unsold inventory sits in what can be easily sold in the domestic US market. SFO Pulse is certainly in the DC Trust, but none of those others are. I don't know how Bali and Australia are being sold exactly and we know Costa Rica is weeks based ownership. Los Cabos is in Westin Aventuras and can be sold in the US to later convert to Abound points. Westin Cancun isn't in Aventuras yet, but they keep saying it will be added to it. Sheraton Kauai is part of Sheraton Flex and could be sold with ability to convert to Abound. I have a feeling that Westin Flex is running a little low on inventory with nothing new there in years except some new units at Desert Willow, but construction there is now at a standstill.

That said, I get the impression that much of their $610 milloin of inventory is actually in Welk. Perhaps half? Not really sure. The bulk of the rest is in international locations that can't be easily sold as the unified product. Meaning, if they want to continue to sell DC points they hopefully have lots of it in their unsold inventory. With contract sales up, mainly in the USA, I would think they are burning that inventory down pretty fast. I just don't see how they can feed this sales machine with ROFR, foreclosure and deed back weeks.

I don't know much about Welk. I just looked at the MVW 2021 10-K annual report and they show as of the April 1, 2021 acquisition date they valued the total unsold inventory from Welk at $111 million. The total Inventory on the MVW balance sheet as of 12/31/2021 was $719 million, but in their June Investor Day presentation they quoted a total number of $1.18 billion of "completed inventory balance". I'm not sure why there is a discrepancy there. Not sure where the other $461 million is.

Here is what the 10-K said about recent inventory acquisitions:

Costa Rica
During the first quarter of 2021, we acquired 24 completed vacation ownership units and an operations building located at our Marriott Vacation Club at Los Suenos resort in Costa Rica for $14 million. We accounted for the transaction as an asset acquisition with the purchase price allocated to Inventory ($13 million) and Property and equipment ($1 million).

New York, New York
During 2021, we acquired the remaining 120 completed vacation ownership units located at our Marriott Vacation Club Pulse, New York City property for $98 million.
We accounted for the transaction as an asset acquisition with the purchase price allocated to Property and equipment.
During 2020, we acquired 57 completed vacation ownership units, as well as office and ancillary space, located at our Marriott Vacation Club Pulse, New York City property for $89 million, of which $22 million was a prepayment for future tranches of completed vacation ownership units and $20 million was paid in 2019. We accounted for the transaction as an asset acquisition with the purchase price allocated to Property and equipment ($67 million) and Other assets ($22 million).

San Francisco, California
During the first quarter of 2021, we acquired 44 completed vacation ownership units at our Marriott Vacation Club Pulse, San Francisco property for $34 million. We accounted for the transaction as an asset acquisition with the purchase price allocated to Inventory ($29 million) and Other assets ($5 million).
During the fourth quarter of 2021, we completed the purchase of the remaining inventory at our Marriott Vacation Club Pulse, San Francisco property and wrote off the outstanding management fee receivables deemed uncollectible of $7 million, which was recorded in the Management and exchange expense line on our Income Statement for the year ended December 31, 2021. As part of the purchase, we acquired the remaining 78 completed vacation ownership units, as well as an onsite garage, for $59 million. We accounted for the purchase as an asset acquisition with the purchase price allocated to Inventory ($41 million) and Property and equipment ($18 million). Further, we reclassified $10 million of previous deposits associated with the project from Other assets to Inventory.
During 2020, we acquired 34 completed vacation ownership units located at our Marriott Vacation Club Pulse, San Francisco property for $26 million, of which $5 million was a prepayment for future tranches of completed vacation ownership units. We accounted for the transaction as an asset acquisition with the purchase price allocated to Inventory ($18 million), Other assets ($5 million), and Property and equipment ($3 million).
During 2019, we acquired 78 completed vacation ownership units and a sales gallery located at our Marriott Vacation Club Pulse, San Francisco property for $58 million. We accounted for the transaction as an asset acquisition with the purchase price allocated to Inventory ($48 million) and Property and equipment ($10 million).