MVC Trust Proposed 2016 Maintenance Fee

[JIMinNC]

I think people miss the point when they compare maintenance fee increases to travel costs, including hotel room rates. The real comparison should be to luxury condo fees because that is what they are. They are the costs to maintain the property. Of course timeshares will cost more than a residential condo, but here we are talking about percentage increases in this fees.

But stock price should not affect maintenance fees at all. The Association Boards set them. (I do realize Marriott controls many of these Boards.) And Marriott itself pays the fees on many many units. The maintenance fees are spent to maintain the property.

But Vacation Club point fees aren't actually maintenance fees. A MVC point owner owns no property to pay MF on. They are paying a fee for access to a slice of the pool of timeshares owned by the MVC. The MVC is a middle man. Do you expect them to work for no profit...

(Note: there are pluses and minuses to this construct. YMMV,,,)

When you drill into the numbers of the proposed budget, it becomes a little more interesting...

I'm focusing only on the expense side here since the revenue just recoups the expenses. Shown below per beneficial interest:


Component Expenses (1)
2015: $111.808
2016: $114.866
Change: +2.7%

Direct Expenses (2)
2015: $0
2016: $2.134
Change: N/A

Trust Association Admin
2015: $21.252
2016: $25.95
Change: +22.11%

(1) Component Expenses includes the assessments paid by the Association to the owners associations which govern the resorts in which the Trust owns timeshare interests.

(2) Direct expenses are expenses billed directly to the Association, or to the Management Company on behalf of the Association, with respect to the operation and management of Trust Property located at Marriott Vacation Club at the Mayflower.

So what this shows is the actual assessments paid by the Trust Owners Association to the resorts (Component Expenses) were only up 2.7% (this is the part most closely comparable to condo fees). The big increase was due to the first time addition of the direct expenses of the Mayflower units and a whopping 22% jump in Trust Administration.

So drilling deeper into the Trust Admin expenses to see what is driving that increase, the biggest percentage jumps in the subcategories of Trust Admin are:

Bad debt expense: +29.9%
Component servies: +53.87% (3)
Credit Card Fees: +32.8%
Exchange Company Dues: +21.6% (4)
Management Fee: +16.6%
Property Taxes: +22.8%

(3) Component services includes the incremental costs of services provided in connection with Beneficiaries' nightly use of Accommodations which are not otherwise included in Component Expenses or Direct Expenses. These services may include but are not limited to, housekeeping, engineering, loss prevention, and front desk services necessitated by nightly use of Accommodations.

(4) This increase is directly reflected in the increase in the Club dues, and does not impact the maintenance fee itself

So excluding the Exchange company dues (which doesn't directly impact the $0.5025 maintenance fee), Trust Admin Expenses were $10,680,979 in the 2015 budget and are $13,816,107 in the proposed 2016 budget. So the increase in Trust Admin Expense that directly impacts the Maintenance fee was $3,135,128, or 29.4% from 2015 to 2016. The largest $$$ contributions to the increase were:

Bad debts: +$833,039
Credit Card Fees: +$590,545
Property Taxes: +$515,776
Management Fee: +$512,370
Component Services: +$408,635


These four categories account for $2.86 million of the $3.14 million increase in Trust Admin expenses, or 91% of the aggregate rise. So these are the primary categories that are driving the 5.8% increase in the Trust maintenance fee.

 

[JIMinNC]

To summarize the above for those that don't like lots of numbers, the bottom line is the Trust expenses reimbursed to the individual resort owners associations only is increasing a modest 2.7% from 2015 to 2016. The larger increase in maintenance fees are being driven by other factors unique to the Trust:

1) A small expense increase from the addition of the Mayflower units to the Trust;

2) A 22% rise in Trust Administration costs driven by increased bad debt expense, credit card fees, property taxes, the management fee, and the cost of nightly use of timeshare units (extra housekeeping, etc)

 

[GregT]

To summarize the above for those that don't like lots of numbers, the bottom line is the Trust expenses reimbursed to the individual resort owners associations only is increasing a modest 2.7% from 2015 to 2016. The larger increase in maintenance fees are being driven by other factors unique to the Trust:

1) A small expense increase from the addition of the Mayflower units to the Trust;

2) A 22% rise in Trust Administration costs driven by increased bad debt expense, credit card fees, property taxes, the management fee, and the cost of nightly use of timeshare units (extra housekeeping, etc)

Jim, that was a nice analysis -- thanks very much for the data!

Best,

Greg

 

[davidvel]

To summarize the above for those that don't like lots of numbers, the bottom line is the Trust expenses reimbursed to the individual resort owners associations only is increasing a modest 2.7% from 2015 to 2016. The larger increase in maintenance fees are being driven by other factors unique to the Trust:

1) A small expense increase from the addition of the Mayflower units to the Trust;

2) A 22% rise in Trust Administration costs driven by increased bad debt expense, credit card fees, property taxes, the management fee, and the cost of nightly use of timeshare units (extra housekeeping, etc)

And this seems to dispel the rumor/fear that the DC Club's flexibility (ie. nightly vs. 1 week stay) costs would be borne by the HOAs and weeks owners. Good to know.

 

[bazzap]

And this seems to dispel the rumor/fear that the DC Club's flexibility (ie. nightly vs. 1 week stay) costs would be borne by the HOAs and weeks owners. Good to know.

"Costs would be borne by the HOAs and weeks owners"
I would say that is most definitely NOT very good news!

*** Just rereading this, I have probably been rather hasty and not picked up that this suggests
my fear may have actually been dispelled - I hope so anyway? ***

 

[JIMinNC]

*** Just rereading this, I have probably been rather hasty and not picked up that this suggests my fear may have actually been dispelled - I hope so anyway? ***

Yes, no need to fear. It appears the Trust incurs the extra costs for the nightly stays, not the HOAs. That is what "Component Services" are in the Trust Association budget - the extra costs of supporting nightly stays.

 

[Ralph Sir Edward]

When you drill into the numbers of the proposed budget, it becomes a little more interesting...

I'm focusing only on the expense side here since the revenue just recoups the expenses. Shown below per beneficial interest:


Component Expenses (1)
2015: $111.808
2016: $114.866
Change: +2.7%

Direct Expenses (2)
2015: $0
2016: $2.134
Change: N/A

Trust Association Admin
2015: $21.252
2016: $25.95
Change: +22.11%

(1) Component Expenses includes the assessments paid by the Association to the owners associations which govern the resorts in which the Trust owns timeshare interests.

(2) Direct expenses are expenses billed directly to the Association, or to the Management Company on behalf of the Association, with respect to the operation and management of Trust Property located at Marriott Vacation Club at the Mayflower.

So what this shows is the actual assessments paid by the Trust Owners Association to the resorts (Component Expenses) were only up 2.7% (this is the part most closely comparable to condo fees). The big increase was due to the first time addition of the direct expenses of the Mayflower units and a whopping 22% jump in Trust Administration.

So drilling deeper into the Trust Admin expenses to see what is driving that increase, the biggest percentage jumps in the subcategories of Trust Admin are:

Bad debt expense: +29.9%
Component servies: +53.87% (3)
Credit Card Fees: +32.8%
Exchange Company Dues: +21.6% (4)
Management Fee: +16.6%
Property Taxes: +22.8%

(3) Component services includes the incremental costs of services provided in connection with Beneficiaries' nightly use of Accommodations which are not otherwise included in Component Expenses or Direct Expenses. These services may include but are not limited to, housekeeping, engineering, loss prevention, and front desk services necessitated by nightly use of Accommodations.

(4) This increase is directly reflected in the increase in the Club dues, and does not impact the maintenance fee itself

So excluding the Exchange company dues (which doesn't directly impact the $0.5025 maintenance fee), Trust Admin Expenses were $10,680,979 in the 2015 budget and are $13,816,107 in the proposed 2016 budget. So the increase in Trust Admin Expense that directly impacts the Maintenance fee was $3,135,128, or 29.4% from 2015 to 2016. The largest $$$ contributions to the increase were:

Bad debts: +$833,039
Credit Card Fees: +$590,545
Property Taxes: +$515,776
Management Fee: +$512,370
Component Services: +$408,635


These four categories account for $2.86 million of the $3.14 million increase in Trust Admin expenses, or 91% of the aggregate rise. So these are the primary categories that are driving the 5.8% increase in the Trust maintenance fee.

Thanks, Jim. This explains to em how to project the impact of the next recession on VAC...

 

[dioxide45]

As someone who is Chairman's Club I personally have a problem with a $250 a year fee as opposed to $185 or $225. I get nothing special from the membership. I enrolled my weeks strictly for the possibility of having flexibility. I have to have a separate II account for my non Marriott weeks and in my Marriott weeks none of my units are lock offs. I'd like to know what I am getting for the extra 25/65 dollars!

For $65 you are getting the ability to book 1+ nights 13 months out and an extra 5% off with the owners discount. Those paying the $185 don't have those privileges. For $25 you get an extra half year on banked points.

 

[dioxide45]

It's also interesting because in combination with the new promotion, I suspect there will be many brand new enrolled owners who are instantly Chairman's Club.

The annual dues don't really move the needle -- this financial model is still heavily dependent on point sales -- but it's nice to have recurring revenue.

Best,

Greg

If 5% of the owners are Chairman's, that means that about 20,000 owners are at that level. By charging them $25 more than what they would have charged them last year, they are pulling in an extra half a million dollars. Not much to move the needle, but those dollars add up fast.

 

[BocaBoy]

But Vacation Club point fees aren't actually maintenance fees. A MVC point owner owns no property to pay MF on. They are paying a fee for access to a slice of the pool of timeshares owned by the MVC. The MVC is a middle man. Do you expect them to work for no profit.

I think you misunderstand the nature of trust ownership. Trust point owners do in fact own a small piece of each resort. It is true that MVCI acts as a middleman but that does not change the nature of the ownership.

It is also true that Trust maintenance fees include items over and above the individual resort fees. But here we are talking about increases in those fees, not the absolute level.

 

[BocaBoy]

For $65 you are getting the ability to book 1+ nights 13 months out and an extra 5% off with the owners discount. Those paying the $185 don't have those privileges. For $25 you get an extra half year on banked points.

At the higher elite levels, you also get the opportunity to exchange your weeks for more points and potentially save a lot more money on things like exchange fees. These two items probably provide the greatest justification for the higher fees.

 

[dansimms]

Seems pretty reasonable

Considering that most Chairman, derive most of their points from their Legacy weeks, this seems to be a modest increase in the total picture. I have 2500 Trust Points and over 10,000 points through Legacy, so my combined average will still be in the low 40 cent range with the typical bump I expect to get in the Legacy resorts I own. Hopefully my grand total won't average over 50 cents for another couple of years. The entire system seems to be well maintained, so I continue to be pleased. I am still making payments, so when they are done in the next 3 years, these type of increases will easily be overshadowed by not having to make thousands of dollars of mortgage payments per year.

 

[BocaBoy]

Regarding inflation, there may be deflation in fuel prices, some airfare and some technology products, but everywhere else for the most part, I see higher prices for products and services locally.

That is certainly not what I have seen as a Board member of our condominium association. In recent years our biggest challenge has been energy cost, and this year our overall expenses are WAY down because of the current cheaper energy. Nothing else in the budget has shown much inflation. For next year the big budget decision will be whether to reduce our expense budget, not how much to increase it.

 

[AlmostRetired]

The 2016 MF fee for DC points should be the normalization of all of the 2016 MF of underlying units within the resorts that are in the trust. It also has whatever overhead there might be associated with the DC Program.

I would think inherent in the DC program is an added conversion fee within MF when moving weeks into the trust. This is based on the assumption that many of the units moved into the trust were the unsold non prime time units. These units have fewer DC point value associated with them yet the MF fees are the same as the prime units at the same resorts not moved into the trust. The cost of this is spread across all DC point owners. This evens out as more and more prime units get moved in the trust with ROFR acquisitions. If every unit was moved under the trust the fee goes away.

 

[dioxide45]

When you drill into the numbers of the proposed budget, it becomes a little more interesting...

I'm focusing only on the expense side here since the revenue just recoups the expenses. Shown below per beneficial interest:


Component Expenses (1)
2015: $111.808
2016: $114.866
Change: +2.7%

Direct Expenses (2)
2015: $0
2016: $2.134
Change: N/A

Trust Association Admin
2015: $21.252
2016: $25.95
Change: +22.11%

(1) Component Expenses includes the assessments paid by the Association to the owners associations which govern the resorts in which the Trust owns timeshare interests.

(2) Direct expenses are expenses billed directly to the Association, or to the Management Company on behalf of the Association, with respect to the operation and management of Trust Property located at Marriott Vacation Club at the Mayflower.

So what this shows is the actual assessments paid by the Trust Owners Association to the resorts (Component Expenses) were only up 2.7% (this is the part most closely comparable to condo fees). The big increase was due to the first time addition of the direct expenses of the Mayflower units and a whopping 22% jump in Trust Administration.

So drilling deeper into the Trust Admin expenses to see what is driving that increase, the biggest percentage jumps in the subcategories of Trust Admin are:

Bad debt expense: +29.9%
Component servies: +53.87% (3)
Credit Card Fees: +32.8%
Exchange Company Dues: +21.6% (4)
Management Fee: +16.6%
Property Taxes: +22.8%

(3) Component services includes the incremental costs of services provided in connection with Beneficiaries' nightly use of Accommodations which are not otherwise included in Component Expenses or Direct Expenses. These services may include but are not limited to, housekeeping, engineering, loss prevention, and front desk services necessitated by nightly use of Accommodations.

(4) This increase is directly reflected in the increase in the Club dues, and does not impact the maintenance fee itself

So excluding the Exchange company dues (which doesn't directly impact the $0.5025 maintenance fee), Trust Admin Expenses were $10,680,979 in the 2015 budget and are $13,816,107 in the proposed 2016 budget. So the increase in Trust Admin Expense that directly impacts the Maintenance fee was $3,135,128, or 29.4% from 2015 to 2016. The largest $$$ contributions to the increase were:

Bad debts: +$833,039
Credit Card Fees: +$590,545
Property Taxes: +$515,776
Management Fee: +$512,370
Component Services: +$408,635


These four categories account for $2.86 million of the $3.14 million increase in Trust Admin expenses, or 91% of the aggregate rise. So these are the primary categories that are driving the 5.8% increase in the Trust maintenance fee.

Interesting analysis. Overall it seems then that HOA MFs are only up about 2.7%. The new Direct Expense must be the fee that they are paying to The Mayflower to cover housekeeping and other costs related to the property ownership there.

I do find it odd that trust administration fees are up so much. Why is it costing them so much more in 2016 to administer the trust than it did in 2015? Also, why are Component Serveries up so much if HOA fees only went up about 2.7%? The numbers don't seem to add up.

 

[JIMinNC]

Interesting analysis. Overall it seems then that HOA MFs are only up about 2.7%. The new Direct Expense must be the fee that they are paying to The Mayflower to cover housekeeping and other costs related to the property ownership there.

I do find it odd that trust administration fees are up so much. Why is it costing them so much more in 2016 to administer the trust than it did in 2015? Also, why are Component Serveries up so much if HOA fees only went up about 2.7%? The numbers don't seem to add up.

Remember these are budget numbers, not actuals, so it is based on expectations. The comparisons are budget to budget not actual to budget so we are comparing apples to apples.

As I said above, over 90% of the increase comes from increased budget numbers for Bad debts, credit card fees, Property taxes, the management fee, and component services. Not sure why they are allocating so much more to bad debt. The credit card fees are sort of an uncontrollable expense, I presume, as are property taxes. The management fee is certainly controllable by Marriott.

I theorize that they are allocating so much more for component services maybe because they are expecting more less-than-a-week stays. That is what component services is - the Trust is paying for the extra costs the individual resorts incur due to people breaking weeks and staying just a few nights.

 

[dioxide45]

I theorize that they are allocating so much more for component services maybe because they are expecting more less-than-a-week stays. That is what component services is - the Trust is paying for the extra costs the individual reports incur due to people breaking weeks and staying just a few nights.

This makes sense, with more people now able to book 1+ nights 13 months out it is to be expected that there may be a lot more short stays on points.

 

[tschwa2]

As much as owners complained about the skim, I don't think the skim is covering the "component fees" for legacy owners and trust owners may have to suck up the extra expenses. Remember that MVCI loses the $80 lock off fee for every enrolled owner who locks off each year.

And I am certainly not surprised about the 20+% increase in the exchange company services (II). It seems like those enrolled owners who still exchange with II are making 2-3 times the retrades they would have made had it not been for the "free" M to M trades and retrades.

I would still love to know how much II gets for each corporate II account and then if MIVC pays II a token amount for each exchange or if their is a flat rate charged per account based on the average number of internal exchange.

In a way I don't care because I just sold back my final Marriott week (although I may be opening to buying again in the future) but would not be surprised if Marriott started charging a Guest Cert fee either just to non enrolled owners (claiming the annual fee covers these) or to everyone. I would imagine it would start fairly nominal at around $20 but would climb to hopefully not more than $59.

 

[dioxide45]

As much as owners complained about the skim, I don't think the skim is covering the "component fees" for legacy owners and trust owners may have to suck up the extra expenses. Remember that MVCI loses the $80 lock off fee for every enrolled owner who locks off each year.

I think there are several components to the extra fees that the HOA incurs because of short stays. Perhaps the trust is only covering the expenses that are as a result of trust based stays. I suspect that the weeks based owners are covering the costs for enrolled points short stays. That is why we saw huge increases in this line item on the HOA financial statements.

 

[JIMinNC]

And I am certainly not surprised about the 20+% increase in the exchange company services (II). It seems like those enrolled owners who still exchange with II are making 2-3 times the retrades they would have made had it not been for the "free" M to M trades and retrades.

I do not think the "Exchange Company Dues" line item in the budget refers to just II - although II fees are certainly a portion of those fees. The total line item "Exchange Company Dues" ties dollar-of-dollar to the Destination Club Dues of $185/$225/$250. So it must cover not only II fees when DC members trade through II, but the fees for internal booking/trading within the Destination Club as well.

 

[JIMinNC]

The new Direct Expense must be the fee that they are paying to The Mayflower to cover housekeeping and other costs related to the property ownership there.

Yes. The sub-accounts under "Direct Expenses" are:

Site Administration
Front Desk
Housekeeping
Insurance
Maintenance
Management Fee
On-Site Operations Fee
Property/Other Tax
Recovery of Start Up Costs
Reserves
Security/Loss Prevention
Utilities

According to the notes, all are 100% attributable to The Mayflower.

 

[JIMinNC]

I just saw one other key fact in the notes that explain the "Property Tax" number in the Trust Association Admin Expenses. I had wondered why property taxes were included in the Trust Admin expenses instead of being part of the Component Expenses paid to the resort HOAs.

"The real estate taxes are for the Newport Coast, Timber Lodge, Desert Springs 1, Desert Springs 2, Shadow Ridge 1, Shadow Ridge 2, Frenchman's Cove, St Thomas Suites, and GRC Tahoe Accommodations because the Component Expenses for California and the US Virgin Islands properties do not include the real estate taxes. The Association will pay these property taxes to the appropriate taxing authority for the jurisdiction in which the California and US Virgin Islands Accommodations are located."

So all other property taxes for the other MVC resorts are included in Component Expenses, just not California and the US Virgin Islands, which the Trust pays directly.

 

[AlmostRetired]

It makes sense that the membership fee for all tier levels increase and higher levels increase faster.

The higher tier levels seem to be mainly acheived through legacy week participation in the DC program. Week ownership will only increase its contribution to higher levels with the current post 6/10 program. The 1 + night flexibility benefit hence participation increases at higher tiers. As noted above the cost of this is contained with the component services of the DC MF. So the biggest contributor of its usage is from week ownership yet the week MF goes to the resort. This puts the cost burden for this in the pure DC Program MF. The only way to recoup this is from membership fees.

 

[bazzap]

It makes sense that the membership fee for all tier levels increase and higher levels increase faster.

The higher tier levels seem to be mainly acheived through legacy week participation in the DC program. Week ownership will only increase its contribution to higher levels with the current post 6/10 program. The 1 + night flexibility benefit hence participation increases at higher tiers. As noted above the cost of this is contained with the component services of the DC MF. So the biggest contributor of its usage is from week ownership yet the week MF goes to the resort. This puts the cost burden for this in the pure DC Program MF. The only way to recoup this is from membership fees.

This makes absolutely no sense at all to me!
Higher levels already pay higher fees, why on earth should we also face higher increases on those higher fees?
What next?
We have gone from 3 levels to 6 levels, will it be 12 levels next with associated even higher fees and even higher increases?

 

[JIMinNC]

The 1 + night flexibility benefit hence participation increases at higher tiers. As noted above the cost of this is contained with the component services of the DC MF. So the biggest contributor of its usage is from week ownership yet the week MF goes to the resort. This puts the cost burden for this in the pure DC Program MF. The only way to recoup this is from membership fees.

I want to make sure you are not confusing the two different expense line items - "Component Expenses" and "Component Services"...

"Component Expenses" make up a whopping $0.46/point of the $0.5025/point proposed 2016 DC Trust MF ($114.866 per beneficial interest divided by 250 points per BI for Component Expenses). These are the payments from the Trust to the individual HOAs for the resort MF for the weeks owned by the Trust. The total dollar amount paid by the Trust to the resort HOAs is projected to be $147 million in 2016.

Under Trust Association Admin expenses, there is another expense line item - "Component Services". This line item is the additional expenses that the Trust pays to the HOAs to compensate them for the extra housekeeping, maintenance, front desk time, etc that results from the 1+ night option. For 2016 this is projected to be a little over $1 million, so it represents only about $.003 of the 2016 Trust MF. This is the category that is increasing by over 50% from 2015, presumably to cover the increased usage of the 1+ option due to the new tiers expanding access to that benefit.

What this means is the extra cost of the 1+ night option is covered in the Trust Admin Expenses, and does not have to be covered by the $185/$225/$250 Club Membership Dues.