Unlike Greedy Marriott, Disney 'changes the game" the RIGHT way!

windje2000 said:

Seinfeldian -- have they become 'points nazis'?

Seriously, I think we agree that the sole objective of the whole exercise is to sell points . . . and they could give a rip about anything else.

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wof45 said:

I think the unsimplified view is that they want to sell points, so they will support whatever makes buying points attractive to buyers.

And they want the cash flow from managing resorts, so they want to make sure that the majority of people occupying enjoy their stays.

Click to expand...

Yep, we're definitely in agreement. I'd expand it a little more to them wanting certain Weeks inventory to fuel the Exchange Company, and that's why the DC is more or less attractive to Weeks Owners depending upon what is owned. It's completely by design that some Owners get more usage value from their Weeks in the DC than others.

Wof posted this comment

wof45 said:

It will be interesting to see if the impaired amount is changed in 2010. It sound like they may have set themselves to show a large profit since they might be selling DC trust points for a lot more than the book value.

Click to expand...

And I responded with

windje2000 said:

Neither SFAS 144 nor SFAS 142 permit the recovery of a previous impairment loss. Under U.S. GAAP, the recognition of an impairment loss is permanent.

Click to expand...

This exchange with wof got me thinking -- maybe Marriott has another motivation to its move to selling points.

Marriott is the largest owner of timeshares, and they are not selling. In 2009, the auditors believed it necessary to recognize an impairment of value. Those low resale values may well have come back to bite Marriott. Here's why.

It is relatively simple to calculate an impairment when one is selling weeks - What's the latest price and what's the book amount. The auditors may well have looked at recent resale values in the course of assessing the size of the haircut Marriott took on owned timeshare inventory values in 2009.

So they changed the product. The new product separates the value of the weeks from the product they are selling.

They 'securitized' the weeks in the land trust. They are selling points. (Just like the AAA rated CDOs containing the toxic mortgages.)

But in this case I wonder if an additional objective is to prevent another incremental impairment hit to earnings.

When the auditors review timeshare inventory carrying value in 2010, Marriott can justifiably point to the sales of points and take the position that the points sale transactions support the inventory carrying value. Marriott is selling points at this price, and the Trust owns a portfolio of timeshare interests very similar to the Marriott holdings yet to be contributed to the Trust.

Presto chango - no further impairment hit.

That would also explain why they are seemingly very reluctant to establish any mechanisms for points reseller - they don't want any points value indicators available that would differ from the Marriott list price.

If this is on target, the Marriott CFO and his advisors have sharp pencils.

SueDonJ said:

***
Here's the link for dioxide's thread which details Trust conveyances. Looks like they were at approx 65M after the November expansion.

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I was just trying to search that out. But you already posted it. I always just search by "recorded" and it comes up on the first page of my search.

While there are 65MM points in the trust, we really don't know if this encompases all of the unsold or reaclaimed weeks that Marriott owns. I would think it does, at least through to some point in October 2010, but we won't ever really know for sure.

I think what I am reading here and what may be suggested is that the DC program will be for the upper echelon of owners, resorts, and inventory. Meaning it will be encompassed of mostly prime weeks at prime resorts in prime times. Those looking to use it will also be looking to exchange in to those prime weeks. For those that want to get the lower demand weeks, Marriott can just pull those from II.

dioxide45 said:

I think what I am reading here and what may be suggested is that the DC program will be for the upper echelon of owners, resorts, and inventory. Meaning it will be encompassed of mostly prime weeks at prime resorts in prime times. Those looking to use it will also be looking to exchange in to those prime weeks. For those that want to get the lower demand weeks, Marriott can just pull those from II.

Click to expand...

Dioxide,

That's a very nice summary of what appears to be happening here. The 20% owners that may ultimately enroll (40% of total weeks?) would probably represent much of the Platinum week ownership in the Marriott system.

Interesting strategy.

Best,

Greg

windje2000 said:

Marriott is the largest owner of timeshares, and they are not selling. In 2009, the auditors believed it necessary to recognize an impairment of value. Those low resale values may well have come back to bite Marriott. Here's why.

It is relatively simple to calculate an impairment when one is selling weeks - What's the latest price and what's the book amount. The auditors may well have looked at recent resale values in the course of assessing the size of the haircut Marriott took on owned timeshare inventory values in 2009.

So they changed the product. The new product separates the value of the weeks from the product they are selling.

They 'securitized' the weeks in the land trust. They are selling points. (Just like the AAA rated CDOs containing the toxic mortgages.)

If this is on target, the Marriott CFO and his advisors have sharp pencils.

Click to expand...

I would definitely agree that they are selling product now that has been written down to almost zero -- making the margin on current sales astronomical.

No one remembers the P&L hit from last year -- but today they've sold $170M worth of stuff for probably $150M in gross margin.

windje2000 said:

Neither SFAS 144 nor SFAS 142 permit the recovery of a previous impairment loss. Under U.S. GAAP, the recognition of an impairment loss is permanent.

Click to expand...

And by the way, Windje, that has to be the first reference ever in TUG history to SFAS (by a poster, versus quoting a press release). Nice work, on behalf of my CPA colleagues.

Best,

Greg

GregT said:

I would definitely agree that they are selling product now that has been written down to almost zero -- making the margin on current sales astronomical.

No one remembers the P&L hit from last year -- but today they've sold $170M worth of stuff for probably $150M in gross margin.

And by the way, Windje, that has to be the first reference ever in TUG history to SFAS (by a poster, versus quoting a press release). Nice work, on behalf of my CPA colleagues.

Best,

Greg

Click to expand...

When you all get talking like this I usually tell Don, "they're speaking accounting gobbledygook again, can you please listen and tell me what they're saying." Windje, he says you're right on with the sharp pencils. But then he said we all think way too much about what's supposed to be simple vacations. :rofl:

dioxide45 said:

.....there are 65MM points in the trust...

Click to expand...

Even at 65 million points, they have already sold about 1/3 of the available points. I am afraid that looks to me like a success so far. If they continue to have success, they will within a year or two need to get more inventory, either through buybacks or opening new resorts.

Reading through all the posts the salient thing that strikes me is that Marriott is selling all these points to buyers expecting to make those prime reservations, but really most of the points they have represent off season inventory (with the exceptions as noted above of Marco Island, Kaui Lagoons, some Ko'Olina, etc., as well as some other prime scattered weeks converted to points). It is all well and good to sell small amounts of points to supplement existing ownership so as to allow those owners to make prime reservations elsewhere, but what happens when those Holiday ski weeks or Caribbean weeks, or July in HH, etc., that people envisioned just aren't there?

Every lesser value property owner that they entice to buy more points is now a candidate for those more premium reservations. Every premium owner who enrolls also will want perhaps those peak reservations elsewhere. It seems to me that it will take a lot more than 20% enrollment to fuel the inventory, since at this point in time the bulk of premium weeks are controlled by legacy owners, and will be so for the foreseeable future unless Marriott starts building in a big way.

Personally, I think this program was designed as a means to sell inventory that was difficult to sell. The old model where all weeks paid the same MF was sustainable 5, 10 or 15 years ago, when MF's were low. At the program inception 2 decades or so ago no one thought about triple digit MF's, so having all ownerships pay the same MF seemed like a practical thing. Now Marriott has to face the reality of MF's exceeding rental rates, making it harder and harder to pre-sell vacations; that, coupled with easy information access at one's fingertips (Google is a wonderful thing, but a bane to developers) has made direct sales, esp. of off season weeks, harder and harder. Then along came the economic turmoil and Marriott was forced to create discounts in the form of extended limited time discounts, heretofore unheralded. Once they began their sales, they reached a point of no return to the previous model. The most troublesome part of all of this is that they are not selling point packages with the expectation of booking mud weeks, but with the illusion of prime availability; people are buying with expectations that Marriott does not own the inventory to fulfill. At least before if you bought a Plat. week at least you knew at least one of the weeks in your season was guaranteed.

Maybe it will work with 20% enrollment, but that's assuming that that 20% of legacy owners aren't still vying for prime weeks along with a large percentage of point owners. Competition for those prime weeks could become fierce over time, since all inventory is now being sold that way. It's a win-win for Marriott today but, as pointed out, goodwill is easily destroyed, and disgruntled owners are easily created when reservations can't be made. At least before an unhappy owner (or one whose lifestyle has changed) could at least sell their ownership; without entry into the club, at the moment there is really no resale value to those $10 per point.

When I sat down to a weeks presentation they regaled me with the concept of pre-paid vacations, and showed me how it paid for itself over 10 years or so. Even using the formula posted somewhere on Tug, taking resale value into consideration the purchase still made sense, not only emotionally but also purely financially. How does one justify a purchase today with rental rates low and with no inherent value????

GregT said:

I would definitely agree that they are selling product now that has been written down to almost zero -- making the margin on current sales astronomical.

No one remembers the P&L hit from last year -- but today they've sold $170M worth of stuff for probably $150M in gross margin.

And by the way, Windje, that has to be the first reference ever in TUG history to SFAS (by a poster, versus quoting a press release). Nice work, on behalf of my CPA colleagues.

Best,

Greg

Click to expand...

I'm not sure about the size of the gross margin - I am guessing they didn't write the stuff down to near zero. I believe the rule would be to write it down to where the expected selling price covers the cost of selling the interest plus a 'normal' margin over a 'normal' marketing time. Who knows - they may have talked the auditors into considering the expected sales of the Trust as an indicator of value.

We'll see what the year end numbers disclose about profitability by segment soon enough.

SueDonJ said:

When you all get talking like this I usually tell Don, "they're speaking accounting gobbledygook again, can you please listen and tell me what they're saying." Windje, he says you're right on with the sharp pencils. But then he said we all think way too much about what's supposed to be simple vacations. :rofl:

Click to expand...

Don's absolutely correct - vacations are supposed to be simple . . . which is why I always liked the weeks model.

dioxide45 said:

I was just trying to search that out. But you already posted it. I always just search by "recorded" and it comes up on the first page of my search.

While there are 65MM points in the trust, we really don't know if this encompases all of the unsold or reaclaimed weeks that Marriott owns. I would think it does, at least through to some point in October 2010, but we won't ever really know for sure.

Click to expand...

My guess is that it doesn't represent anywhere near all the unsold inventory.

They took a more than $700M write down on inventory in 2009. I don't believe they wrote it down to zero.

65M points @ $10 = $650M. There is likely plenty more to sell.

m61376 said:

Reading through all the posts the salient thing that strikes me is that Marriott is selling all these points to buyers expecting to make those prime reservations, but really most of the points they have represent off season inventory (with the exceptions as noted above of Marco Island, Kaui Lagoons, some Ko'Olina, etc., as well as some other prime scattered weeks converted to points). It is all well and good to sell small amounts of points to supplement existing ownership so as to allow those owners to make prime reservations elsewhere, but what happens when those Holiday ski weeks or Caribbean weeks, or July in HH, etc., that people envisioned just aren't there?

Click to expand...

I believe the key to usage of points is the points chart. It prices the prime time very high and the unpopular weeks very low, so many people will decide to use multiple bad weeks rather than the prime week. Or people will only be able to take a prime location every other year.

Marriott will have to carefully monitor the point chart and keep it in line with actual reservations. But to an extent, it is not a lot different from the weeks reservations -- a lot of people want presidents week or Christmas / new years week, but settle for another week in season when the week they prefer is not available.

windje2000 said:

I'm not sure about the size of the gross margin - I am guessing they didn't write the stuff down to near zero. I believe the rule would be to write it down to where the expected selling price covers the cost of selling the interest plus a 'normal' margin over a 'normal' marketing time. Who knows - they may have talked the auditors into considering the expected sales of the Trust as an indicator of value.

We'll see what the year end numbers disclose about profitability by segment soon enough.

Click to expand...

Marriott also downsized and consolidated sales and administrative functions. Overhead costs are lower. It will impact margin. (assuming VPG remains constant).
VPG = Volume Per Guest. It is the gross sales revenue divided by the number of sales presentations required to produce it. As marketing cost is the critical variable, it can have a major impact on profitability.

m61376 said:

Reading through all the posts the salient thing that strikes me is that Marriott is selling all these points to buyers expecting to make those prime reservations, but really most of the points they have represent off season inventory (with the exceptions as noted above of Marco Island, Kaui Lagoons, some Ko'Olina, etc., as well as some other prime scattered weeks converted to points). It is all well and good to sell small amounts of points to supplement existing ownership so as to allow those owners to make prime reservations elsewhere, but what happens when those Holiday ski weeks or Caribbean weeks, or July in HH, etc., that people envisioned just aren't there?

Every lesser value property owner that they entice to buy more points is now a candidate for those more premium reservations. Every premium owner who enrolls also will want perhaps those peak reservations elsewhere. It seems to me that it will take a lot more than 20% enrollment to fuel the inventory, since at this point in time the bulk of premium weeks are controlled by legacy owners, and will be so for the foreseeable future unless Marriott starts building in a big way.

Click to expand...

Marilyn,

You raise good points here --- but some of these issues were key areas from my thread "Sources of Inventory".

I believe Marriott has found a way to get inventory from Interval International and is using it to stock the Exchange Inventory in advance of a reservation request, and therefore there will be plenty of inventory for the DClub points users. I think it doesn't matter to Marriott's inventory strategy (critical for filling reservations) how many weeks owners actually enroll -- the source of inventory is not the enrolled owners -- it's II -- and even more clever -- it's II's inventory sourced from both enrolled and unenrolled owners -- any week that II has at Month 12-13 is a candidate.

People who enroll can't be counted on as reliable sources of weeks (they may not redeem their weeks for points), and definitely not if they have until September 30 ahead of their use year to redeem -- so Marriott must have found an alternative way to get the critical inventory.

I'm not sure how to prove it -- other than to continue to find evidence of inventory availability in DClub (for points) where inventory doesn't exist in II (and where there isn't anything in the Trust).

Initial thoughts are Platinum Aruba and Summer Hilton Head -- there must be others too, I just haven't looked hard enough yet.

Good luck to all,

Greg

good morning....

just a couple of thoughts...

Will not re-hash the source of inventory thread, but it is my opinion that there is tons of inventory even at the primo joints. MVCD"s worst nightmare is a customer that purchased 5000 pts of the street, getting stuck in a 'doggy week". Right of the bat, I have snagged Park City ski weeks and Summer Surfwatch HHI. Also snagged Kauai Lagoons , with additional summer inventory on Kauai available as well.

MVCD had to ensure a system is in place to make sure this stuff is available before the rollout...

Interestingly, IMO enrollees have best access to the "good stuff" because according to my guru the average purchase from "off the street" newbies is about 1500-2000 pts + the average enrolled owner that bought additional BI's is only purchasing the 1500 pt. minimum. Thus , only the multiple week legacy enrollees that have large numbers of points can snag these 4000-5000 pt weeks.

We can debate the DC until the end of thime but the bottomline is that I called a VOA, converted to points and snagged multiple 13 week reservations in Park City. For the cost of the skim, I became in actuality a ski week owner with a GV purchase!!! My partner who owns 4 weeks at Summitt does exactly the same thing!!!

GregT said:

. . . I think it doesn't matter to Marriott's inventory strategy (critical for filling reservations) how many weeks owners actually enroll -- the source of inventory is not the enrolled owners -- it's II -- and even more clever -- it's II's inventory sourced from both enrolled and unenrolled owners -- any week that II has at Month 12-13 is a candidate.
. . . .

Click to expand...

I expect DC enrollees to do very well in exchanges (assuming they have enough points to make it worthwhile). It is now pretty clear to me that Marriott will be able to get weeks from II when needed. Ultimately, we will have to wait and see, but I think the early results clearly support what I was told. I don't think this spells gloom-and-doom for non-enrollees. II will always have inventory for them. But, enrollees have more sources from which an exchange request can be satisfied.

windje2000 said:

My guess is that it doesn't represent anywhere near all the unsold inventory.

They took a more than $700M write down on inventory in 2009. I don't believe they wrote it down to zero.

65M points @ $10 = $650M. There is likely plenty more to sell.

Click to expand...

Using your own figures, if they wrote their inventory down 50%, then having 65M points in the trust is about right. This thread contains 2 different concepts of inventory. One is having enough inventory to satisfy requests. That is not the inventory I am talking about. I am talking about inventory that they can SELL to new purchasers. That is where they may have an inventory problem in the near future.

BocaBoy said:

Using your own figures, if they wrote their inventory down 50%, then having 65M points in the trust is about right. This thread contains 2 different concepts of inventory. One is having enough inventory to satisfy requests. That is not the inventory I am talking about. I am talking about inventory that they can SELL to new purchasers. That is where they may have an inventory problem in the near future.

Click to expand...

Maybe if they sell enough points, they will start building again. Hopefully, they will choose places that people want to go to all months.

BocaBoy said:

Using your own figures, if they wrote their inventory down 50%, then having 65M points in the trust is about right. This thread contains 2 different concepts of inventory. One is having enough inventory to satisfy requests. That is not the inventory I am talking about. I am talking about inventory that they can SELL to new purchasers. That is where they may have an inventory problem in the near future.

Click to expand...

Inventory on the books at the end of 2009 was $1.4 B. That's after the haircut of $700M. (Marriott 2009 Annual Report)

They sold about $185 million (19.5 M points @ 9.50) through 12/15/10. That period include the summer seasonal (which is probably prime selling season) and excludes the winter seasonal (which is probably lousy.)

So the $185 is probably more than 50% of a full year's sales.

They have a boatload of inventory.

Not to worry Boca, they won't be sold out for years.

wof45 said:

Maybe if they sell enough points, they will start building again. Hopefully, they will choose places that people want to go to all months.

Click to expand...

If and when they get close to selling everything they have in the Trust at that time, and there is nothing more to add, I am guessing that they will purchase inventory and bring it up to Marriott standards. I doubt that they are going to build any more big resorts any time soon. Considering that people who purchase points are not purchasing large amounts, it seems to me that it does not make sense to build luxurious resorts that cost too much in points for Trust owners to reserve. As it now stands, much of that Hawaiian inventory in the Trust will probably never get used by Trust owners.

windje2000 said:

Inventory on the books at the end of 2009 was $1.4 B. That's after the haircut of $700M. (Marriott 2009 Annual Report)

They sold about $185 million (19.5 M points @ 9.50) through 12/15/10. That period include the summer seasonal (which is probably prime selling season) and excludes the winter seasonal (which is probably lousy.)

So the $185 is probably more than 50% of a full year's sales.

They have a boatload of inventory.

Not to worry Boca, they won't be sold out for years.

Click to expand...

So according to this they have sold about 1/7th of their inventory. But looking at points sold vs total trust points, they have already sold 1/3rd. Seems like they are golding something back.

dioxide45 said:

So according to this they have sold about 1/7th of their inventory. But looking at points sold vs total trust points, they have already sold 1/3rd. Seems like they are golding something back.

Click to expand...

the trust is mainly US-based inventory, and their total inventory is world-wide, accounting for some of the difference.

dioxide45 said:

So according to this they have sold about 1/7th of their inventory. But looking at points sold vs total trust points, they have already sold 1/3rd. Seems like they are golding something back.

Click to expand...

It appears (from the inventory in the Trust) that they deposited mostly "higher point" inventory into the Trust first -- versus any remaining Gold/Silver low point stuff.

When they need more points inventory to sell, they can ROFR the high point stuff -- Maui/Ko Olina/Waiohai/etc. ROFR'ing Platinum weeks inexpensively is a whole lot better than the risk associated with timeshare development.

I think it will be a long time before they need to build/acquire anything brand new.

Best,

Greg

dioxide45 said:

So according to this they have sold about 1/7th of their inventory. But looking at points sold vs total trust points, they have already sold 1/3rd. Seems like they are golding something back.

Click to expand...

Actually, I should have made something more clear in that post.

The retail list price of a point ($10 ) covers Marriott's sales and marketing expense (historically about 40%) and profit margin (historically about 20%)

The cost of building the timeshare represents the balance - 40% of the retail price.

Conceptualize this concept by thinking of a company like Tiffany - their 'selling price' is a lot more than their 'cost of product.' Big margins. Inventory carrying values represent cost.

To compare points sales to the carrying value of inventory, adjust for the cost of selling and margin. Given the building cost is about 40% of the retail prices, divide the inventory value by 0.4 to gross it up to retail. (That assumes it is all finished goods. If it is not, there's even more. But the objective here is a rough calculation of inventory turnover.)

The retail value or selling price of $1.4B (post haircut) of finished timeshare inventory would be about $3.5B. ($1.4B/0.4)

EDITED TO ADD: Another calculation would be to gross up to retail the 'pre-haircut' inventory value, which is $1.4B + $0.7B = $2.1B.

Then gross up inventory cost to retail price. ($2.1B/.4 = $5.25B) This probably defines the upper end of the range.

END OF ADDITION

But the point is these are the numbers you want to compare the $185M of points sales to. Otherwise, you are comparing apples to oranges.

EDITED TO ADD: Annualizing the $185M points sales from 6/20 - 12/15 yields about $370M, assuming no seasonal.

The inventory numbers calculated above suggest they have between 9.5 and 14 years sales in inventory.
END OF ADDITION

Either way, they have a boatload of inventory at this sales run rate.