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)