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Here is part one of our notes

Timing of timeshare spin-off:

  • 11/8: Trading of issued shares begins
  • 11/7-11/17: Roadshow
  • 11/22: Regular trading begins

Carl Berquist (CFO of MAR)

  • This is not a way for them to exit the timeshare business but rather a way to grow it faster
  • Why do the spin-off?
    • In 1996, they spun off their owned real estate to Host Hotels
    • Having a company with a singular focus makes it easier to implement strategies faster which will grow their value
    • Allow them to roll out more products
    • MVW will have ample inventory and a good capital structure that will allow them to grow successfully and MI will benefit from this growth through their management fee
    • In 1984, they were the first hotel company to enter the vacation ownership business
    • Have 64 resorts and 400,000 owners
    • Once the spin-off is executed, MVW will become the largest publicly traded timeshare company

Steve Weisz (President and CEO of MVW)

  •  What do they do?
    • Sell timeshare products, manage resorts, provide services for owners and members, finance consumer purchases, rent vacation ownership inventory
    • 45% of their customers finance with them
    • Have exclusive use of the Marriott and Ritz Carlton brands
  • Life cycle of a buyer:
    • Initial purchase, finance income, rentals, additional purchases, and referrals
    • Recurring revenue: club dues, management fees, on-site spending, and interest income
  • Strategic priorities:
    • Drive profitable sales growth and focus on their existing owners and guests
    • Expect to opportunistically dispose of excess land.  They do not intend to develop new projects in the near term.  When they do need to develop new projects, they will seek to do it through capital efficient asset light deal structures
    • Look to pursue new opportunities such as enhanced amenities on site and adding new partnerships
  • Strategy:
    • NA:
      • 80% of the business is NA driven ($530/705MM)
      • Expect to enhance their points program by adding new partnerships
    • Plan to expand their Asia ownership base ($68MM); plan to sell out their European inventory base and no longer develop new inventory there ($63MM) In the Luxury segment; they are selling excess inventory as they have recently been doing ($44MM)
  • Why do the spin now?
    • Success launch of the points program
    • Have a large amount of finished inventory
    • Transaction will open more doors for them, allowing them to pursue new business opportunities that they could not do as part of MI
    • Seamless from a customer standpoint
    • Allows for greater future growth 

Lee Cunningham (COO of MAR)

  • They refurbish their rooms about every 5 years
  • Have seen higher satisfaction service ratings from points owners vs. deeded ownership
  • Points based program was introduced in June 2010:
    • Allows customers to buy into a portfolio vs. a location
    • Allows MAR to sell product from any of their location irrespective of inventory in NA
    • Have 365,000 NA owners that own 550,000 weeks of vacation.  More than 83,000 owners have enrolled in 153,000 weeks in the points program thus far. They have made $46MM in 1x enrollment fees thus far.
    • Point program users have access to a pool of properties: they can bank/borrow points, trade them for MAR Timeshare/Rewards/ II and other Global vacation opportunities.
  • Various MAR collections - access to these are 2500 points:
    • Marriott collection gives access to MAR branded hotels and resorts WW
    • Explorer Collection is provided by partners which include exotic tours, adventure travel,cruises and packages for sporting events
    • World Traveler Collection: access to 2500 affiliated resorts in 75 countries, II, and a wide range of experiences
  • Annual cost of ownership:
    • 60%: resort operations; 20% towards FF&E reserves, 10% to property taxes and insurance, 10% mgmt fees

Brian Miller  (Sales, Marketing and Service Operations EVP)

  • Marketing efforts are highly directed
  • Their biggest competitive advantage is the trust behind the brands of Marriott and Ritz.  Marriott.com is the 8th largest e-commerce site in the world.
  • Also use various Marriott Rewards and travel packages when they sell points
  • Baseline demographic target: Homeowners with household incomes > $100k, college educated, married 35-65 with kids
  • Average owners: 95% are homeowners, 150k income, 80% college educated, 75% married, 56 yrs old
  • Have a proprietary database with 25MM prospect households
  • Various marketing channels mix:
    • In house sales (54%) (on site during a stay)--costs them 9.3% of sale
    • Direct sales (11%): 7% cost of sales
    • They use central marketing previews during shoulder seasons which is their most expensive marketing channel (28% cost of sale)
    • Their average cost of sale is 12% and commission expenses represent 10% of costs.  Think that they can lower costs by being efficient and driving total sales and marketing costs to the low - mid 40s.
  • Have a talented sales force sourced through testing - 1 in 11 are hired;  Have effective sales tools that pre-screen all prospects to make sure that almost all prospects qualify for financing
  • Average contract price was $27k in 2Q2010 before switching to weeks.  Then when they switched to points which allowed customers to buy add-ons, the sales price dropped to $17k due to mix. Last quarter the price increased to $24k as they sold more to new customers and less add ons.
  • Since 2008 owner reloads have increased from 35% to 53%of total sales.  The good news is that this is the most efficient sales channel.  It's not so much that new owners are purchasing so much more but rather the absence of new purchasers.  In 2010, 4.6% of owners bought more product.  In 2012 they are launching a new owner referral program.  1 in 3 new buyers are owner referrals.
  • The points program allows them to market to customers that live locally making the selling process more efficiently.  They are having great success in select international markets: Latin America, Dubai, and some Asian destinations