SPINCO's 9-30-2011 SEC filing

[dioxide45]

All,

I'm not nearly as negative about SpinCo's prospects (and I think OldPantry and I are going to have a beer or two one day over this very topic).

Yes -- $50M+ is a big nut to pay (effectively sucking out the net profit from the base business) and Yes, this company remains dependent on asset sales to sustain its $1.5B revenue run-rate. The entire world is under financial pressure and no one is buying time shares like they used to.

But....the model of selling $20K chunks of points to new buyers shouldn't be dismissed. $20K is not the same as building a business model (and related level of operating expenses) that depend on $50K - $75K sales. Can SpinCo sell $700M of points each year? That's 100 new purchasers per day -- buying in $2K increments? That's 10 sales per day at the high volume sales offices? From a sales force operating on commission? The Marriott/Ritz network is a marketable commodity.

New buyers of points will keep re-upping and buying more as they realize they don't have enough points from their first purchase (like they do with Disney). And SpinCo's acquisition cost for those points is low (either current inventory, partially written down) and also ROFR of good properties that are selling for pennies.

This is not to suggest that I think SpinCo is going to be widely successful, nor a great investment. But I believe its operational viability is good.

I agree that we as owners should expect higher fees, the real question will be are we getting anything of value for those higher fees. And can SpinCo find a way to entice existing owners to want to buy points -- why should I buy Trust Points??

I expect they will start to add features like the following and charge for them:

1) Pay to rescue your points, ie instead of banking by June 30, you can still extend them to next year as late as December 31 (for $75 -- like HGVC)

2) Enroll your post June 20, 2010 resale purchase -- as long as you buy 2,000 Trust Points (like Starwood, where it is called "re-qualify")

3) Buy single-use points for $1 per point from Marriott to cover your shortfall (instead of renting them from my board) -- for the last night only (like Wyndham)

#1 and #3 will be modest revenue sources -- selling points and financing the sales will remain the core revenue engine -- Can they achieve the sales volumes I noted above????

There will be many changes in the years ahead -- and I think SpinCo will definitely make it (and will have their primary responsibility to their shareholders, as they should).

But can they be successful AND maintain a happy, loyal ownership base??? That's the real question, to me. Only Disney and HGVC appear to have been able to do that to date.

Best,

Greg

I agree that Spinco is going to have to get creative in order to generate more revenue and the three items you mentioned are great places to start. I really do think that they need some sort of option to enroll post 6/20 weeks. I think even better would be for them to offer an option to turn any week in to true DC points. This would be a way for Spinco to get more control of inventory. They could also sell it as an option for those where their legacy MF are above $0.40pp. People could convey their weeks to the trust by buying X number of points. It may be a way to spur some sales to people that are paying a huge legacy per point MF.

 

[cruisin]

Escalating fees over time for services rendered are expected; prices change over time.

But layering an incremental $50MM ANNUAL expense on SPINCO . . . that will inevitably affect the owners MF . . . which (IMHO) provides the owner no incremental ongoing benefits . . . is just gouging.

The Marriott name has sold and continues to sell timeshare at high margins for Marriott's benefit. True of both weeks and points.

The question to be considered is - Does the incremental ANNUAL payment for the use of the name (at the price $50MM initial price Marriott will charge SPINCO) provide existing owners with ongoing benefits worth $50MM ANNUALLY. . . or not?

I wonder how Marriott will vote this issue in the Hoas with the votes they picked up from those joining the DC

 

[SueDonJ]

I wonder how Marriott will vote this issue in the Hoas with the votes they picked up from those joining the DC

At some point after the enrollment period opened, the Enrollment Agreement document changed and that voting restriction no longer exists. Here's TUGger cmore's post from when it was first noticed back in late February. I just checked and that Section 1(e) hasn't been put back into the docs.

 

[SueDonJ]

... The question to be considered is - Does the incremental ANNUAL payment for the use of the name (at the price $50MM initial price Marriott will charge SPINCO) provide existing owners with ongoing benefits worth $50MM ANNUALLY. . . or not?

I'm pretty sure you and I could nitpick this thing to death so I'll try to give a short answer. Yes, the $50M naming rights fee provides ongoing benefits to owners because without it, Marriott will force Spinco to sever the Management Agreements in place. There goes the name and all the benefits associated with it, poof. Granted, "benefits" means something different to every one of us - what you want in a resort might be different from what I want might be different from what six thousand other owners might want ... But all of the documents are written in such a way that should the Management Agreement be terminated, any benefits (Marriott Rewards, II priority, DC enrollment, etc ...) are terminated as well.


***********

... You bought a unit (3BR SW IIRC) that is inefficient as a trader, because the population of 3BR in II is low. That is NOT II's fault despite your constant II bashing. You are one of the few who do better in DC. We get it.

This is the only thing that isn't a rehash of every other thing we've debated in this thread, the only thing that I think might be leaving you with the wrong impression. I brought up exchange value because it's important to a whole lot of owners and it fits into the whole benefits-of-the-name discussion. But what worries me is that you look at my point of view concerning II as "bashing." That's not how I mean it - II never promised me anything that they didn't deliver. They don't deserve to be bashed for the way their system works, IMO, not even from those of us who don't make out like bandits when using it. "It is what it is." No sense getting riled up enough about it to bash them. Some folks love II, some are ambivalent, some have waited for an alternative for a while - there's no right or wrong.

(Although, I'll admit to bashing II from here to kingdom come every time I see a reference to an XYZ exchange on TUG. I think it's completely and totally ridiculous that every single II rep doesn't know enough to make these things available to every single II member who should be eligible for them. That bothers me to no end. Grrrrrrr.)

 

[kjd]

There's nothing inherently wrong with belonging to more than one exchange. I happen to think that I.I. for all of its' warts is the exchange of choice. I think that they have done a good job with my trades although I think some of their policies could be better. (Like with AC's)

I'm also enrolled in SFX. May never use them but they do offer another option for timeshare owners. I think many of us recognize that in timesharing the more options you have the better it is. I've used the non-Marriott I.I. Premier resorts and have had good luck with them. Likewise, with their getaways. I would hate to see I.I. out of the picture but using another medium of exchange is a another good option for timeshare owners.

 

[dioxide45]

I'm pretty sure you and I could nitpick this thing to death so I'll try to give a short answer. Yes, the $50M naming rights fee provides ongoing benefits to owners because without it, Marriott will force Spinco to sever the Management Agreements in place. There goes the name and all the benefits associated with it, poof. Granted, "benefits" means something different to every one of us - what you want in a resort might be different from what I want might be different from what six thousand other owners might want ... But all of the documents are written in such a way that should the Management Agreement be terminated, any benefits (Marriott Rewards, II priority, DC enrollment, etc ...) are terminated as well.

I am not sure that all of these benefits would be gone. The only one guaranteed to disappear if there were no franchise agreement in place would be the trade for Marriott Reward points. This is the only benefit that will be fulfilled by Marriott International in the future.

DC Enrollment is provided by Spinco. The II agreement in place will be between Spinco and II. I also don't see how without the franchise agreement MI could force Spinco to sever management agreements. Sure our resorts would no longer have Marriott in the name, but the management agreements are between the resorts and Spinco. MI is only selling the use of their name. No risk, guaranteed profit of at least 50MM a year even if Spinco never sells another point.

My guess is also that Spinco will now have to purchase Marriott Reward points from Marriott Rewards in much the same manner that Chase buys them to give away as credit card rewards. It will then be up to Spinco to rent out that week and take on all the risks that entails.

 

[windje2000]

I'm pretty sure you and I could nitpick this thing to death so I'll try to give a short answer. Yes, the $50M naming rights fee provides ongoing benefits to owners because without it, Marriott will force Spinco to sever the Management Agreements in place. There goes the name and all the benefits associated with it, poof. Granted, "benefits" means something different to every one of us - what you want in a resort might be different from what I want might be different from what six thousand other owners might want ... But all of the documents are written in such a way that should the Management Agreement be terminated, any benefits (Marriott Rewards, II priority, DC enrollment, etc ...) are terminated as well.


***********


This is the only thing that isn't a rehash of every other thing we've debated in this thread, the only thing that I think might be leaving you with the wrong impression. I brought up exchange value because it's important to a whole lot of owners and it fits into the whole benefits-of-the-name discussion. But what worries me is that you look at my point of view concerning II as "bashing." That's not how I mean it - II never promised me anything that they didn't deliver. They don't deserve to be bashed for the way their system works, IMO, not even from those of us who don't make out like bandits when using it. "It is what it is." No sense getting riled up enough about it to bash them. Some folks love II, some are ambivalent, some have waited for an alternative for a while - there's no right or wrong.

(Although, I'll admit to bashing II from here to kingdom come every time I see a reference to an XYZ exchange on TUG. I think it's completely and totally ridiculous that every single II rep doesn't know enough to make these things available to every single II member who should be eligible for them. That bothers me to no end. Grrrrrrr.)

1. So, what exactly goes 'poof?'

2. If XYZ was for everyone, it would be published. XYZ is a bonus for II's best customers. Same as first class upgrades are a bonus for an airline's best customers.

 

[jimf41]

1. So, what exactly goes 'poof?'

2. If XYZ was for everyone, it would be published. XYZ is a bonus for II's best customers. Same as first class upgrades are a bonus for an airline's best customers.

That's not true. XYZ's are offered to any customer who is trading with a differential in max occupancy. In my case I traded a 3b with a max occupancy of 8 as far as II was concerned and received two 2b's with a max occupancy of four in each unit. II's definition of max occupancy is different, and usually less, than Marriott's stated max occupancy.

There are some other restrictions and rules that go along with it but being a good customer had nothing to do with it in my case. At the point that I used an XYZ I had been with II for six years and had two prior exchanges.

 

[windje2000]

That's not true. XYZ's are offered to any customer who is trading with a differential in max occupancy. In my case I traded a 3b with a max occupancy of 8 as far as II was concerned and received two 2b's with a max occupancy of four in each unit. II's definition of max occupancy is different, and usually less, than Marriott's stated max occupancy.

There are some other restrictions and rules that go along with it but being a good customer had nothing to do with it in my case. At the point that I used an XYZ I had been with II for six years and had two prior exchanges.

How do you know this? {EDITED TO ADD: DW tells me we've received them for straight 2BR to 2BR trades.}

Perhaps I should replace the word "best" with the words 'certain customers selected by II using unknown criteria for a private and unpublicized promotional program.'

 

[SueDonJ]

How do you know this? {EDITED TO ADD: DW tells me we've received them for straight 2BR to 2BR trades.}

Perhaps I should replace the word "best" with the words 'certain customers selected by II using unknown criteria for a private and unpublicized promotional program.'

Or maybe to the words "any customers who know that XYZ's exist and know that all it takes to get them is to call II repeatedly until you reach a rep who knows what s/he's doing and is willing to do it."

Check out the current ongoing XYZ threads on the Exchanging and Sightings boards. Pretty much anyone who has a pending confirmed exchange in their II account is eligible for either or both of the two kinds of XYZ's that are offered, as long as they're savvy and lucky enough to eventually deal with an II rep who's on the ball.

Exchanging Board thread here, Sightings Board thread not linked because it's restricted to TUG members.

 

[windje2000]

Or maybe to the words "certain customers who know that XYZ's exist and know that all it takes to get them is to call II repeatedly until you reach a rep who knows what s/he's doing and is willing to do it."

Check out the current ongoing XYZ threads on the Exchanging and Sightings boards. Pretty much anyone who has a pending confirmed exchange in their II account is eligible for either or both of the two kinds of XYZ's that are offered, as long as they're savvy and lucky enough to eventually deal with an II rep who's on the ball.

Absolutely correct, but before any of the sightings board discussions, etc., someone . . . somewhere . . . must have received the first one . . . based on some II criteria.

 

[SueDonJ]

Absolutely correct, but before any of the sightings board discussions, etc., someone . . . somewhere . . . must have received the first one . . . based on some II criteria.

Yep, and it appears to me that the first TUGger to publicize it was pretty sure that it only takes being lucky enough to deal with "the most helpful II agent in the history of the world." Note that now that the game has been played for more than a year, most of the rules this TUGger was told have changed to open up XYZ inventory and eligibility. That's what makes it so maddening - every single time some TUGger tries to be helpful and posts the rules that s/he's learned, another responds almost immediately with info that contradicts. It's like the Wild, Wild West of II-land, and it's stupid. Grrrrrr.

 

[aka Julie]

That's what makes it so maddening - every single time some TUGger tries to be helpful and posts the rules that s/he's learned, another responds almost immediately with info that contradicts. It's like the Wild, Wild West of II-land, and it's stupid. Grrrrrr.

But is it any better when people talk with MVCI re the "rules" of DC and the different buckets, eligibility, etc.?

 

[SueDonJ]

But is it any better when people talk with MVCI re the "rules" of DC and the different buckets, eligibility, etc.?

Well, yes. Because regardless of the Marriott sales reps getting things wrong, every DC Points user is playing by the same published rules when they're actually using DC Points for exchange inventory, so one user is not getting more value than any other. With II, though, there is a very good chance that two users can get completely different exchange value even if they deposit the exact same interval and confirm the exact same exchange. With Marriott you don't have to "know somebody" to get the most value, with II you do.

(Not that I'm excusing Marriott's sales reps here - it's always been maddening that so much misinformation exists in sales presentations whether you're talking Weeks or Points. But the end result usage is what I'm comparing here, not the sales crap that's existed since timeshares began.)

 

[OldPantry]

All,

I'm not nearly as negative about SpinCo's prospects (and I think OldPantry and I are going to have a beer or two one day over this very topic).

Yes -- $50M+ is a big nut to pay (effectively sucking out the net profit from the base business) and Yes, this company remains dependent on asset sales to sustain its $1.5B revenue run-rate. The entire world is under financial pressure and no one is buying time shares like they used to.

But....the model of selling $20K chunks of points to new buyers shouldn't be dismissed. $20K is not the same as building a business model (and related level of operating expenses) that depend on $50K - $75K sales. Can SpinCo sell $700M of points each year? That's 100 new purchasers per day -- buying in $2K increments? That's 10 sales per day at the high volume sales offices? From a sales force operating on commission? The Marriott/Ritz network is a marketable commodity.

New buyers of points will keep re-upping and buying more as they realize they don't have enough points from their first purchase (like they do with Disney). And SpinCo's acquisition cost for those points is low (either current inventory, partially written down) and also ROFR of good properties that are selling for pennies.

This is not to suggest that I think SpinCo is going to be widely successful, nor a great investment. But I believe its operational viability is good.

I agree that we as owners should expect higher fees, the real question will be are we getting anything of value for those higher fees. And can SpinCo find a way to entice existing owners to want to buy points -- why should I buy Trust Points??

I expect they will start to add features like the following and charge for them:

1) Pay to rescue your points, ie instead of banking by June 30, you can still extend them to next year as late as December 31 (for $75 -- like HGVC)

2) Enroll your post June 20, 2010 resale purchase -- as long as you buy 2,000 Trust Points (like Starwood, where it is called "re-qualify")

3) Buy single-use points for $1 per point from Marriott to cover your shortfall (instead of renting them from my board) -- for the last night only (like Wyndham)

#1 and #3 will be modest revenue sources -- selling points and financing the sales will remain the core revenue engine -- Can they achieve the sales volumes I noted above????

There will be many changes in the years ahead -- and I think SpinCo will definitely make it (and will have their primary responsibility to their shareholders, as they should).

But can they be successful AND maintain a happy, loyal ownership base??? That's the real question, to me. Only Disney and HGVC appear to have been able to do that to date.

Best,

Greg

You had me at "beer." It's a long shot, but I'll be at Newport over Christmas, and Ko Olina next August 5-12, in both cases not on points. If you're there, I'll buy (beer, not points).

 

[SueDonJ]

I am not sure that all of these benefits would be gone. The only one guaranteed to disappear if there were no franchise agreement in place would be the trade for Marriott Reward points. This is the only benefit that will be fulfilled by Marriott International in the future.

DC Enrollment is provided by Spinco. The II agreement in place will be between Spinco and II. I also don't see how without the franchise agreement MI could force Spinco to sever management agreements. Sure our resorts would no longer have Marriott in the name, but the management agreements are between the resorts and Spinco. MI is only selling the use of their name. No risk, guaranteed profit of at least 50MM a year even if Spinco never sells another point.

My guess is also that Spinco will now have to purchase Marriott Reward points from Marriott Rewards in much the same manner that Chase buys them to give away as credit card rewards. It will then be up to Spinco to rent out that week and take on all the risks that entails.

1. So, what exactly goes 'poof?' ...

Okay, so I've been thinking about this for most of the day and it's quite possible that I have the process and/or the structure wrong. But in its simplest form, the thought I have is that Spinco's name IS Marriott; it's going to be "Marriott Vacations Worldwide." So if a resort somehow ends up without the Marriott name attached to it, wouldn't that mean that the Management Contract between MAR and the resort or the Affiliation Agreement between VAC and the resort has been severed? Or will VAC operate in a similar fashion as Host Hotels does, meaning not all VAC resorts will necessarily have any connection to Marriott? (I know VAC encompasses Ritz Carlton as well, so it's for certain that not all VAC properties will have Marriott actually spelled out in their names. But some will have no connection at all?)

Marriott Rewards will for certain disappear if a resort does not remain affiliated with Spinco, and not just the exchange-for-MRP benefit. There is also the Elite Night Status credit for stays, the bonus points for any Marriott VISA transactions at a Marriott resort, the MVC-owner 5-night Travel Packages, the MOD-discount for cash stays at marriott.com properties, etc ... (Of course the governing docs for both Weeks and DC Points pretty much give Marriott the right to change or cease the MRP program at any time for any reason, anyway.)

I'd guess that II would remove the Marriott priority and internal exchange benefits from any resort which severs its relationship with Marriott, whether it's MVCI or VAC. Isn't that what happened in the past when formerly-named-Marriott resorts continued with new II contracts when they came under new names and management?

Now if VAC is able to keep formerly-Marriott-affiliated resorts under its umbrella, will those resorts be required to pay towards the naming rights fee? For what - what exactly are they paying for? Same thing with a DC-Enrolled Member if his/her Marriott resort severs the Marriott affiliation - even if they can still somehow remain in the DC without taking its name, why would they be required to pay a naming rights fee? Trust Members, too - if any Trust Properties un-affiliate with Marriott but remain in the Trust and/or extend DC exchange benefits to their newly-named program, what exactly would their portion of the naming rights fee be paying for?

This is too confusing with all the different documents that now exist, nevermind we don't know if Marriott Vacations Worldwide will draw up new Management Agreements and/or Affiliations upon inception that will be materially the same except for name changes as the ones which already exist in the MVCI governing docs of each resort, or if they're entitled to change certain terms, blah blah blah ...

I'm a little bit sorry that I took this thread off track to XYZ's. But only a little bit, because with those I am completely certain that it's as unfair a program for members as ever existed. No doubt about it. All this other stuff gives me a gigantic headache. (Has anyone ever had success with deciding one day to just forget about the legalities forever? I'd love to know if there's a program for that. )

 

[jimf41]

How do you know this? {EDITED TO ADD: DW tells me we've received them for straight 2BR to 2BR trades.}

Perhaps I should replace the word "best" with the words 'certain customers selected by II using unknown criteria for a private and unpublicized promotional program.'

I know this from personal experience. All two bedrooms are not the same, therefore comparing them is not the same. Compare max occupancy to max occupancy, that's one of the ways that II decides whether or not you are eligible for an XYZ. There are others but they don't have anything to do with your status as a customer. II doesn't have a free frequent flyer program.

As for the second sentence I have no idea what you are trying to say. If you are trying to say that II treats good customers better than regular customers then you are dead wrong. They treat all customers the same. Like stuff you don't want to step on. That I know from personal experience also.

 

[cruisin]

As so many resorts resell values drop, the Marriott name means less and less also, I think debranding meant a lot more 5 years ago, It would mean the value of your ownership would tank, As any resort approaches zero, the Marriott name will mean little compared to dues. If they go their own exchange company Getting shut out of other Marriott properties will matter to a lot of people.

 

[dioxide45]

I know this from personal experience. All two bedrooms are not the same, therefore comparing them is not the same. Compare max occupancy to max occupancy, that's one of the ways that II decides whether or not you are eligible for an XYZ. There are others but they don't have anything to do with your status as a customer. II doesn't have a free frequent flyer program.

As for the second sentence I have no idea what you are trying to say. If you are trying to say that II treats good customers better than regular customers then you are dead wrong. They treat all customers the same. Like stuff you don't want to step on. That I know from personal experience also.

You are referring to XYZ Type II, I think everyone else is referring to XYZ Type I. The requirements for each are very different.

 

[jimf41]

You are referring to XYZ Type II, I think everyone else is referring to XYZ Type I. The requirements for each are very different.

That's interesting. I didn't know that the unpublished XYZ week program was divided into two types. Do either of the types require you to be a "good" customer? There was a good thread on this a while back but I can't seem to find it on a search.

 

[SueDonJ]

You are referring to XYZ Type II, I think everyone else is referring to XYZ Type I. The requirements for each are very different.

Yes, there are two types - called 2-for-1 and Type II. But when I rant and rave about the ridiculousness surrounding II's XYZ Program I'm talking about both types. It's possible with either that two II users can deposit exactly the same thing which matches to the exact same exchange, yet one gets more exchange value because s/he knows about XYZ's and the other doesn't.

That's interesting. I didn't know that the unpublished XYZ week program was divided into two types. Do either of the types require you to be a "good" customer? There was a good thread on this a while back but I can't seem to find it on a search.

The first one, the 2-for-1, is where you can get another exchange week if you have a pending confirmed exchange in your II account. Some folks have been told that the XYZ unit must be the same size as the original exchange week; others have been able to get bigger units for the XYZ. Some have been told that the XYZ stay must take place prior to the date of the original exchange week; others have been told that the XYZ week must be booked by the confirmed exchange date but can take place after. Some have been told that the XYZ must take place at the same resort as the confirmed exchange; others have booked XYZ's at a different resort.

The second one, Type II, is the one that's available if you give up for an exchange a larger size unit than the one you get with the confirmation. The same ambiguities exist as far as eligible unit sizes, dates of stay and resorts.

Availability is different for each type of XYZ. 2-for-1 is more limited to excess inventory at less-desirable resorts and/or during less-desirable seasons, and the booking window is similar to flexchange. Type II is subject to a much less restrictive grid and longer booking window. But again, chaos reigns and there aren't any hard and fast rules for either type.

Some folks have hit the XYZ jackpot and have managed to piggyback both types of XYZ's onto one single confirmed exchange. So far the record I've seen on TUG has resulted in 4 different II Weeks with one single deposit. That's without benefit of lock-offs and/or bonus AC's.

It doesn't appear that you must be a "good" or "valued" or "prized" or any other superlative II customer in order to get an XYZ. You just have to know that XYZ's exist, have a pending confirmed exchange in your II account, call in and be lucky enough to deal with an II rep who knows what s/he's doing, and pay the exchange fee for each confirmed XYZ.

Jim, there have been so many XYZ threads on TUG since that first one in April, 2010. Was there any particular phrase used in the thread you remember, that can be used to do a more thorough google search of TUG threads?

 

[SueDonJ]

... As for the second sentence I have no idea what you are trying to say. If you are trying to say that II treats good customers better than regular customers then you are dead wrong. They treat all customers the same. Like stuff you don't want to step on. That I know from personal experience also.

First I laughed right out loud and then I thought "eeeeewwww."

 

[gblotter]

Spinco will be the one making the profit from the management contracts, not Marriott International. MI makes money no matter what, and I agree they are the only assured winner here.

Perhaps my vision of Spinco is mixed up, but ...

I believe that Spinco will be the owner of unsold inventory and the administrator of the Destinations Club (reserving weeks, points-based trades, selling points, etc). Spinco will contract with Marriott International for management of the resorts, so it will be MI who profits from the management contracts - not Spinco. Am I missing something here?

That raises a question in my mind: Will HOA boards contract with Spinco or directly with Marriott International for resort management?

 

[gblotter]

Will the price plunge? Will it even have a price attached to it when they give shares to current MI stockholders? I am sure the first day trading price won't be good, but it will place a market cap on the new company.

At the opening of the market, Spinco stock will have a price determined by initial buying/selling activity. The plunge I am referring to is the drop in price between the market opening and the market closing on the first day of the spinoff.

 

[dioxide45]

That's interesting. I didn't know that the unpublished XYZ week program was divided into two types. Do either of the types require you to be a "good" customer? There was a good thread on this a while back but I can't seem to find it on a search.

Neither requires you to be a good customer. They just require that you know about the XYZ option in order to ask as the II reps are not overly open to share this detail.

There is a new and ongoing thread in the Sighting forum.

II does sometimes give out ACs to their "good" customers. There was one given out in August 2010 and August 2011. So in some cases II does tread their customers differently as not all members received these ACs.