Timeshare Traveler Episode 164... Timeshare Traveler is Bearish on Marriott Vacation Club

[Clifbell]

I was shocked to get my annual maintenance fees and see a 15% increase in my Vistana Maintenance. I then had a sigh of relief that I didn't buy any more Marriott / Vistana. And then came the sarcastic thoughts about ABOUND not being about More vacations but MORE maintenance costs. But this gave me the idea that I should look at Marriott's financial statements and see what I could learn.

Given my experience as a real estate agent, I thought I would at least be able to gain some insight from the annual reports... And so I looked at 2019 thru 2022 (The period after the purchase of ILG / Vistana)... And I decided to publish what I learned in a video... And the reality of what I found gave me pause about how well Marriott is NOT doing... I don't think their price increases are sustainable for a product that is not a necessity. Hope you enjoy my perspective.

Timeshare Traveler Episode 164... Timeshare Traveler is Bearish on Marriott Vacation Club

Map of all my timeshare reviews

 

[DanCali]

@Clifbell I wantched your video and had a few comments...

First, you are showing the numbers for their "Vacation Ownership" segment, excluding "Exchange and 3rd Party Management" which is fair. But what you call "Maintenance Fees" is actually "Resort management and other services" (see below screenshot from your video vs. annual report)

If you dig deeper, that "Resort management and other services" also includes "ancillary revenues" (like food, beverage, golf) and that is where most of the growth has been (makes sense post-pandemic). That's not coming out of your pocket... The actual increase in management fees has not been outlandish.

And while you're commenting specifically on your Vistana dues in your post (I assume it's Flex points, since weeks dues don't get released till December), Marriott Abound trust points are seeing similar increases. In my view, it has to do more with they inventory they buy at ROFR to dump in the trust. Just take a look below at the gross margins they have on the vacation products they sell (72.5% in 2020, 78.3% in 2021, and 82.1% in 2022). That can be accomplished by buying cheaper and cheaper weeks at ROFR (think silver/mud weeks that pay the same dues but are worth very few points) and dumping them in the trust. That will, by definition, increase the dues per point even if the dues for the underlying weeks don't increase at all. It definitely helps quarterly earnings, but it remains to be seen what will happen in the long-run...

(It would be more in owners' interests in they ROFRed oceanfront and event weeks to dump in the trust, which would reduce the MFs per point, but that would be a lot more costly and hurt earnings in the short run. And the company has a fiduciary duty to shareholders, not the timeshare owners...)

 

[Clifbell]

@Clifbell I wantched your video and had a few comments...

First, you are showing the numbers for their "Vacation Ownership" segment, exclusing "Exchange and 3rd Party Management" which is fair. But what you call "Maintenance Fees" is actually "Resort management and other services" (see below screenshot from your video vs. annual report)

View attachment 81641

View attachment 81642

If you dig deeper, that "Resort management and other services" also includes "ancillary revenues" (like food beverage, golf) and that is where most of the growth has been (makes sense post-pandemic). That's not coming out of your pocket... The actual increase in management fees has not been outlandish.


View attachment 81644

And while you're commenting specifically on your Vistana dues in your post (I assume it's Flex points, since weeks dues don't get released till December), Marriott Abound trust points are seeing similar increases. In my view, it has to do more with they inventory they buy at ROFR to dump in the trust. Just take a look below at the gross margins they have on the vacation products they sell (72.5% in 2020, 78.3% in 2021, and 82.1% in 2022). That can be accomplished by buying cheaper and cheaper weeks at ROFR (think silver/mud weeks that pay the same dues but are worth very few points) and dumping them in the trust. That will, by definition, increase the dues per point even if the dues for the underlying weeks don't increase at all. It definitely helps quarterly earnings, but it remains to be seen what will happen in the long-run...

(It would be more in owners' interests in they ROFRed oceanfront and event weeks to dump in the trust, which would reduce the MFs per point, but that would be a lot more costly and hurt earnings in the short run)


View attachment 81645

I love your analysis... I still don't like the increases in property and maintenance... And they aren't adding families... That is my biggest concern... No new people, higher prices and higher maintenance that is not sustainable

 

[DanCali]

I love your analysis... I still don't like the increases in property and maintenance... And they aren't adding families... That is my biggest concern... No new people, higher prices and higher maintenance that is not sustainable

I don't see how adding new owners matters in terms of maintenance fees. The dues per deeded week have to do with itemized resort expenses and management fees. The dues per point are the total dues for the weeks in the trust divided by the number of points in the trust. It doesn't really matter if those points are owned by many people who own few points, or fewer people who each own more points - that shouldn't affect the dues per point. The same in a weeks system - you could have 100 owners each owning 10 weeks, or 1000 owners each owning 1 week but the dues per week are the same.

If the number of owners is stagnant, there can be two extremes: (i) they may be selling all the points just to existing owners, or (ii) all points sold are bought at ROFR from existing owners who are divesting weeks or points, and recycled to new owners. Reality is probably somewhere in between. But I don't see how any extreme affects the dues per point.

 

[Clifbell]

I don't see how adding new owners matters in terms of maintenance fees. The dues per deeded week have to do with itemized resort expenses and management fees. The dues per point are the total dues for the weeks in the trust divided by the number of points in the trust. It doesn't really matter if those points are owned by many people who own few points or fewer people who each own more points - that shouldn't affect the dues per point. The same in a weeks system - you should have 100 owners each owning 10 weeks, or 1000 owners each owning 1 week but the dues per week are the same.

If the number of owners is stagnant, there can be two extremes: (i) they may be selling all the points just to existing owners, or (ii) all points sold are bought at ROFR from existing owners who are divesting weeks or points, and recycled to new owners. Reality is probably somewhere in between. But I don't see how any extreme affects the dues per point.

it matters because the cost of maintaining the building is covered by the maintenance fees... If they are renting the buildings to cover the costs, then the owners are covering the maintenance for the renters.. If they are not adding families, then the business isn't growing and costs are left to spread amongst the same number of families... Economy of scale says that more families would reduce the average payment for similar services... There is only so much you can raise prices before you see what we are seeing... Less families buying... If they continue to raise prices, then as people age out, we will see a drop in families and an increase in maintenance fees because the base of people is less. Their model of increasing prices alone doesn't work without a bigger base of families (in my opinion)

 

[Fasttr]

it matters because the cost of maintaining the building is covered by the maintenance fees... If they are renting the buildings to cover the costs, then the owners are covering the maintenance for the renters.. If they are not adding families, then the business isn't growing and costs are left to spread amongst the same number of families... Economy of scale says that more families would reduce the average payment for similar services... There is only so much you can raise prices before you see what we are seeing... Less families buying... If they continue to raise prices, then as people age out, we will see a drop in families and an increase in maintenance fees because the base of people is less. Their model of increasing prices alone doesn't work without a bigger base of families (in my opinion)

The MF’s of unsold units are paid by MVC, not by the rest of the owners, so I think your basic assumptions on the MF portion of your analysis is a bit flawed.

 

[dioxide45]

Marriott rents what Marriott owns, mostly unsold inventory. For that unsold inventory, Marriott pays the maintenance fees. Not the other owners. So the maintenance fees for rentals is not covered by other owners.

Certainly there is risk of selling to an older demographic as they have the likely hood of aging out sooner, but this isn’t new with timeshare. Timeshare companies have long targeted buyers who are in an older age group. Marriott tried targeting young families with their Horizons brand. It didn’t go well. Young families don’t tend to have the income requirements to afford a luxury product like timeshare.

 

[1Kflyerguy]

. If they are not adding families, then the business isn't growing and costs are left to spread amongst the same number of families... Economy of scale says that more families would reduce the average payment for similar services... There is only so much you can raise prices before you see what we are seeing... Less families buying... If they continue to raise prices, then as people age out, we will see a drop in families and an increase in maintenance fees because the base of people is less. Their model of increasing prices alone doesn't work without a bigger base of families (in my opinion)

They are also selling more to the same owners, i.e. current owners buy more Abound points, If i buy more points direct from MVC, they i will have a larger ownership and pay more MF but they won't gain a new owner. Likewise if a current weeks owner buys points, there won't be growth in the owners number.

 

[davidvel]

I don't see how adding new owners matters in terms of maintenance fees. The dues per deeded week have to do with itemized resort expenses and management fees. The dues per point are the total dues for the weeks in the trust divided by the number of points in the trust. It doesn't really matter if those points are owned by many people who own few points, or fewer people who each own more points - that shouldn't affect the dues per point. The same in a weeks system - you could have 100 owners each owning 10 weeks, or 1000 owners each owning 1 week but the dues per week are the same.

If the number of owners is stagnant, there can be two extremes: (i) they may be selling all the points just to existing owners, or (ii) all points sold are bought at ROFR from existing owners who are divesting weeks or points, and recycled to new owners. Reality is probably somewhere in between. But I don't see how any extreme affects the dues per point.

I don't follow the "logic" either. The number of owners doesn't affect MF or the like.

 

[davidvel]

@Clifbell I wantched your video and had a few comments...

If you dig deeper, that "Resort management and other services" also includes "ancillary revenues" (like food, beverage, golf) and that is where most of the growth has been (makes sense post-pandemic). That's not coming out of your pocket... The actual increase in management fees has not been outlandish.

And while you're commenting specifically on your Vistana dues in your post (I assume it's Flex points, since weeks dues don't get released till December), Marriott Abound trust points are seeing similar increases. In my view, it has to do more with they inventory they buy at ROFR to dump in the trust. Just take a look below at the gross margins they have on the vacation products they sell (72.5% in 2020, 78.3% in 2021, and 82.1% in 2022). That can be accomplished by buying cheaper and cheaper weeks at ROFR (think silver/mud weeks that pay the same dues but are worth very few points) and dumping them in the trust. That will, by definition, increase the dues per point even if the dues for the underlying weeks don't increase at all. It definitely helps quarterly earnings, but it remains to be seen what will happen in the long-run...

(It would be more in owners' interests in they ROFRed oceanfront and event weeks to dump in the trust, which would reduce the MFs per point, but that would be a lot more costly and hurt earnings in the short run. And the company has a fiduciary duty to shareholders, not the timeshare owners...)

Your comments point out what my biggest criticism of a points program, and what I call the intentional smoke and mirrors effect. No one (savvy TUGGERs excepted) really knows what they are buying (the makeup of the underlying inventory), and in most cases even that there is an underlying weeks inventory structure at all.

No, they are SOLD a bill of goods that there are just points, and these act as some type of magical currency to reserve MVC resort time at high end locations during prime times. If any buyer looks at a points chart, they will only look at where they want to go, and ignore the crappy locations and times, not knowing they are buying a part of that inventory.

In a sense it is a bit like a Ponzi scheme, where there is truly only a limited number of people that can avail themselves of the locations/times they thought they were buying into. As they add more and more crap less desirable weeks into the trust, the scheme will become more and more painful. But don't worry for Marriott, they can use this as an opportunity to convince owners that they need to buy even more Ponzi points in order to access the inventory they want (and were originally sold.)

 

[4TimeAway]

Not all weeks are worth anything. Look at the places with consistent seasonal clearance inventory. It's highly unlikely "developer" makes anything significant off them in rental.

But with a POINTS System, PROBLEM SOLVED! You sell that to people who "want" a deal.

Everyone gets the Bronze Time usage and "developer" gets the CASH!

 

[DanCali]

Your comments point out what my biggest criticism of a points program, and what I call the intentional smoke and mirrors effect. No one (savvy TUGGERs excepted) really knows what they are buying (the makeup of the underlying inventory), and in most cases even that there is an underlying weeks inventory structure at all.

I agree, but it should be pointed out that some points programs are a lot "cleaner" than others. The original Starwood Vacation Ownership program (later Vistana, but pre-"Flex") where they built actual resorts, sold you a deeded week, and all the inventory at 8 months out was automatically available for internal exchanges via "points" was a great way to do it and not subject to these aspects. You could buy an expensive week in Hawaii if you wanted to guarantee availability, or buy a cheap week in the desert and take your chances on Hawaii trades with a 4-month disadvantage. And for the first few resorts, the resale product was virtually identical to the direct product without meaningful restrictions. Disney's timeshare exchange system is very similar; everything there is denominated in "points" but you are actually buying a fractional deeded week, with an expiration date, at a specific resort with home resort advantage at 11 months and internal exchanges available everywhere else at 7 months out (more recently they started imposing resale restrictions similar to the Vistana mandatory/voluntary). It's when developers stop building new resorts and find the need to create a "trust" to sell points as a "superior product" that things start getting messy.

 

[Clifbell]

Marriott rents what Marriott owns, mostly unsold inventory. For that unsold inventory, Marriott pays the maintenance fees. Not the other owners. So the maintenance fees for rentals is not covered by other owners.

Certainly there is risk of selling to an older demographic as they have the likely hood of aging out sooner, but this isn’t new with timeshare. Timeshare companies have long targeted buyers who are in an older age group. Marriott tried targeting young families with their Horizons brand. It didn’t go well. Young families don’t tend to have the income requirements to afford a luxury product like timeshare.

UNsold inventory is like a rental property without any renters... Somebody is paying for the maintenance... I still don't like that Marriott is not adding new owners at a faster rate.

 

[dioxide45]

Yes. Marriott is paying the maintenance fees. They hope to rent for more than the fees and turn a profit.

 

[davidvel]

UNsold inventory is like a rental property without any renters... Somebody is paying for the maintenance... I still don't like that Marriott is not adding new owners at a faster rate.

The analogy doesn't fit. There is no "unpaid rent" with unsold inventory. Unsold inventory is the same as sold inventory in this respect: the owner pays the maintenance fees.

I don't understand why this is so confusing.