MARRIOTT ANALYST DAY PART 3 - TIMESHARE

Marriott Timeshare Commentary + Q&A

Steve Weisz:  President Marriott Vacation Club International

  • Marriott has 53 timeshare properties
    • Hilton is the second largest competitor with 38 properties, HOT has 24
  • Have 88.5% owner satisfaction this year
  • 2009 contract sales ($543MM):
    • 45% from existing owners
    • Higher than normal driven by steep discounts to incent sales
    • 21% from owner referrals
    • 34% from new customers
      • Normally closer to 50%
  • Have 350,000 timeshare owners
  • What’s the incremental benefit of the new point program?
    • Can check in on day of the week for any amount of time at any resort at any size unit
    • Can use points towards the “explorer collection” – adventure travel (safaris/ cruises)
    • Can use points towards the “world collection” – international travel
  • Benefits to MAR:
    • Will have just in time inventory development
    • Will only sell completed inventory and therefore less deferred revenues
    • Lower unsold maintenance fees
    • Less capex spend
  • 29,000 owners have enrolled 58,000 weeks over the last 4 months
    • Enrolling highly demanded weeks (52% platinum, 26% gold)
    • 51% of owners who tour have converted
    • Purchased $13,600 of points on average
  • Projecting $995MM of contract sales by 2013 (12% CAGR)
    • $192-202MM timeshare segment results
      • $55-60MM of base management fees
      • $255-265MM of timeshare sales and services revenue, net
      • $76-79MM of G&A
      • $42-44MM of interest expense
  • In 2011, they may sell some bulk land that was previously earmarked for fractional and residential
  • Roughly 42% of purchasers used financing in 2010, expect 45% financing through 2013
  • Cumulative Timeshare EBITDA from 2011-2013: $655-690MM
    • Development profit: $330-350MM
    • Financing profit: $265-275MM
    • Services profit: $60-65MM
    • G&A: $220-230MM
    • Timeshare segment results: $435-460MM
    • D&A: $85-90MM
    • Interest expense: $135-140 MM
  • FCF of $625-675MM:
    • EBITDA +
    • Inventory: $85-105MM
    • Less financing activity: $150-160MM
    • Other: $35-40MM
  • Have $1.5BN of timeshare inventory projected at YE 2010 and expect $1.26 BN of inventory by 2013

Q&A

  • They aren’t many qualified franchisers in China – so they will continue to manage the Courtyard. In India, they will also mostly go managed but would consider franchising with the right owners.
  • Bulk fractional inventory sales in 2011? What’s currently on the books?
    • Ritz’s inventory is about $300MM
  • Target of mid teens return over time – but aren’t there yet
  • Believe that the synergy btw timeshare and hotel business is that timeshare owners are better MAR customers and a lot of their timeshare resorts are co-located
  • Sales and marketing costs as a % of sales has gotten a lot higher over the last few years for timeshare – i.e. lower closing rates (around 10%) and under the new program, it's 14% but albeit at a lower dollar amount since people can buy in smaller intervals
  • Have 35 development people internationally, will ramp that up fairly significantly over the next few years
  • Economics of AC deal - no comment (no real estate ownership- will be a JV company that will manage and franchise hotels)