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Starwood Sells $125 Million in Timeshare loans to a private party

Twinkstarr

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I think it maybe awhile before "surprise and delight" are used again by any CEO/CFO in the lodging sector.

Disney Visa just offered free dining codes from early Oct-Dec 17. The general public will probably get this offer next week when "traditional" free dining promo ends.
 

DavidnRobin

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I may do some short selling of HOT - that may be a good way to recoup some of the ever increasing SVO MFs also being used directly and indirectly to prop up Starwood.
 

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I may do some short selling of HOT

Look at HOT's jump (about 9% yesterday) in price after Fritz' announcement. Good thing the tax break and timeshare loan sale just happened to be in the same quarter as Starwood's overwhelming losses associated with actually running the business. Funny how those things just happen like that.

-nodge
 
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gregb

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Reading the various SVO documents, it occurs to me that one way Starwood can "take cash out" of the timeshares business is to find a reason for special assessments. According to the documents, SVO gets to keep 10% of all assessments, regular or special. That in addition to any management fees they get to manage the construction work. So scheduling refurbishment of units actually may help SVO's bottom line, as well as make the units better.

Greg
 

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I am so happy to be done with Starwood. Cashed my check on Thursday. Hope the new owners enjoy their new lock-off unit and the delightful, ever growing annual maintenance fees....... when there is no more cash to be harvested from SVO, what do you think Starwood will do then??
 

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Here are a couple of recent articles about Starwood's financial picture.

Not much of a positive spin I can put on this one.

This one at least uses the words "Starwood" and "management is proactively exploring ways to go on the offense . . . ." in the same article, just not necessarily in the same sentence.

-nodge
 

pianodinosaur

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Thank You, Nodge

The articles Nodge has posted are very interesting. Although I do not own a Starwood TS, I frequently stay in Starwood hotels and participate in SPG. As Starwood is offering all kinds of discounts on hotel reservations I think Starwood is looking to increase MFs so they can rob Peter to pay Paul. This is the only way I can understand Starwood selling loans to a company where they have a large ownership.
 

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Folks, this is nothing new, and is not in the least irregular.

Starwood, Marriott and other timeshare developers finance 60%+ of all sales. They have never kept the paper.

In past years the loans were bundled (securitized) and sold in the credit markets. A portion of the income stream was retained and was a source of profits.

The credit market dislocations of last year made it impossible to sell these timeshare loans. No money available.

This is precisely the reason that development of timeshare resorts has stopped. Developers would go broke providing the capital to actually fully fund the loans of all the financed timeshare sales.

Of course, demand also slowed. But, the reason for consolidation of operations, sales, and marketing were a direct result of the collapse of the credit markets.

For the last 4 months private capital has become available as a source for monetizing the loans. Terms are not as good as with a healthy credit market, so these private placements will not return an income stream as in the past. But, they do dramatically reduce the the amount of capital required to sell a timeshare.

Marriott just concluded a 500 mm placement similar to this.
It is routine business.
 

nodge

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Folks, this is nothing new, and is not in the least irregular. [. . .] It is routine business.

Really?!?

It is routine for a major lender like Wells Fargo to cut Starwood's rating to "underperform" while at the same time increasing Marriott's rating to "outperform?" If this were all "the economy" doing this, wouldn't both Starwood and Marriott's ratings rise and fall together?

Moreover, I think we all agree that Starwood selling its timeshare loans isn't really that big of a deal. What is a big deal, at least in my mind, is what it did with the proceeds from that sale. In SVO's case, it appears to have plowed that cash into propping up the hotel division numbers for a quarter.

Is THAT practice routine too? If so, how long can Starwood sustain itself long-term doing that, especially now that one lender has gone on record to negatively distinguish Starwood from the rest of the pack as an "underperform[er]?"

In light of Starwood's credit crunch, poor bank rating, $2 million/month CEO payment, $100 million/quater loss from its hotel business, and oh yeah, "the economy," shouldn't we, the captive cash cow timeshare owners that we are, expect a "routine" massive increase in our "maintenance" fees then too?

-nodge

Thank God General Motors didn't sell any timeshares.
 
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Fredm

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Really?!?

It is routine for a major lender like Well Fargo to cut Starwood's rating to "underperform" while at the same time increasing Marriott's rating to "outperform." If this were all "the economy" doing this, wouldn't both Starwood and Marriott's ratings raise and fall together?

Moreover, I think we all agree that Starwood selling its timeshare loans isn't really that big of a deal. What is a big deal, at least in my mind, is what it did with the proceeds from that sale. In SVO's case, it appears to have plowed that cash into propping up the hotel division numbers for a quarter.

Is THAT practice routine too? If so, how long can Starwood sustain itself long-term doing that, especially now that one lender has gone on record to negatively distinguish Starwood from the rest of the pack as an "underperform[er]?"

In light of this, shouldn't we expect a "routine" massive increase in our maintenance fees then too?

-nodge

nodge,

I am not making a case for or against Starwood's management of its business. Its their business to do with as they see fit.
If managed poorly their stock price suffers.
Sooner or later the Board of Directors will weigh in on that.

My use of the word "routine" is in relation to the selling of timeshare notes. All timeshare companies do it. It is how they get the cash from the sale.

I am not defending how Starwood manages its VO business. Simply explaining the matter of notes sale. The topic of this thread, which some seem confused about.

As for maintenance fees, they are too high. Can you expect them to go higher? Yep.

As for the Starwood VO business model in general, it is not as owner friendly as some. Not as bad as others.

What I do not understand is why you are hoping on me over it.
For that matter, why you are doing here.

I do have a constructive suggestion. And I sincerely mean this.
Take a look at the Starwood Management poll.
64% of owners are hopping mad at Starwood.
You know what else? That 64% represents a whopping total of 51 owners. Trust me, you are preaching to the wrong audience. There are 100's of 1000's of Starwood timeshare owners. 51 of them know why they are upset.

The way you can affect change is to organize. That is hard, very hard and frustrating work. But, it can be done. I salute those willing to put forth the effort.

I have my beefs with how Starwood VO runs its operation.
How they spend their money is not one of them. I don't own the stock.
How they get it is. But, THAT is another issue entirely. They are not going to give it back. You can trust me on that one also.
 
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LisaRex

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This is the part that intrigues me:

"(Chief Financial Officer Vasant Prabhu) added the company does not plan to invest "a lot of money" in its vacation ownership business, a segment that saw a 35 percent drop in revenue in the second quarter.

"I think we need to be very convinced why it's a good business relative to our fee business, which delivers an extraordinary return," Prabhu said."

Uh huh. What have I been opining for months?: If it isn't producing results, it's going to be sold off.

http://www.reuters.com/article/companyNews/idUKN0129056220091001
 

komosatp

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It is routine for a major lender like Wells Fargo to cut Starwood's rating to "underperform" while at the same time increasing Marriott's rating to "outperform?" If this were all "the economy" doing this, wouldn't both Starwood and Marriott's ratings rise and fall together?
You've mistaken stock price performance for a company's fundamental performance.

And Wells Fargo the 'lender' did not issue these ratings abouth each companies' ability to pay back debt, Wells Fargo, f.k.a. Wachovia Securities, f.k.a. Fist Union securities, issued this about its opinion of these companies' future stock prices. The article notes that this was based on valuations, not fundamentals.

Marriot and Starwood could have exactly the same operating occupancy and room rates, but have wildly different financial performance because of things unrelated to operating hotels. Like having a big timeshare business, or having chosen to borrow money from a bank, rather than issue preferred or common stock.
 
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komosatp

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In light of Starwood's credit crunch, poor bank rating, $2 million/month CEO payment, $100 million/quater loss from its hotel business, and oh yeah, "the economy," shouldn't we, the captive cash cow timeshare owners that we are, expect a "routine" massive increase in our "maintenance" fees then too?

Hit submit to soon.....

Anyway: aren't all of our associations run as non-profits to maintain our resorts? Therefore the only way that Starwood could directly put our money in its pockets is by jacking up the management fee, right? And isn't that just one of the many (though one of the largest) line items in the overall operating budget of each resort?

If we suddenly had >10% MF increase due to Starwood changing all our subcontractors to Starwood owned services, I'm sure there's be many a class-action lawyer out there eager to take the on matter on contingency. Our board members could have their indemnification revoked if they didn't try to stop this, and we'd be able to personally sue them for breach of their fiduciary duty. I doubt any of them are rich enough to handle those kind of damages.
 
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OK, OK I’m not trying to make this personal, I’m just trying to figure out if Starwood (a cash strapped corporation desperate for money, not unlike a heroin addict) would take more money than is needed from us SVO owners (captive cash cows not unlike an unguarded mother’s purse left on the kitchen counter) to make its numbers look better and keep their jobs.

Let’s try looking at this situation from a purely math perspective.

From the available data it appears that Starwood hotels needs to bring in about $100 million/quarter more than it currently takes in to pay everyone, including Fritz, and keep the lights on. This translates into about $400 million a year.

It also appears that Starwood is pretty good at finding things to sell ($125 million timeshare loans, A W hotel here and there, left over timeshare inventory) to make up about $200 million of that difference. This leaves a shortfall of about $200 million/year.

So how much would our maintenance fees have to go up to make up that shortfall?

Well, last time I checked, there were about 250,000 SVO timeshare owners (give or take). So . . . . .

$200,000,000 divided by 250,000 owners = $800/year per villa

Now the powers that be at SVO would have a hard time implementing a blanket across the board $800/year maintenance fee increase. But if it cut costs to maintain our properties and pocketed the difference, and it cut the cost of operating its hotels too, then the maintenance fee increase needed to balance the hotel books may just appear “reasonable” enough to timeshare owners.

Now, Fritz has reported that SVO has cut its operating costs by 30%, and it has cut its hotel operating costs by 30%. Applying those “savings” to the calculation you get.

$140,000,000 (needed by the hotels to balance the books with a 30% cost savings) divided by 250,000 owners = $560/year per villa needed.

Assuming the average maintenance fee for an SVO property is $1000/year. The 30% savings in reduced overhead costs at SVO translates into $300 in SVO’s pocket.

So, applying that savings to the money needed for the hotels means . . . . $560/year less $300 savings in reducing SVO overhead by cutting services we’re paying for = $260/year increase in maintenance fees. (This amount could be easily spread around the various line items – “management, “ “operating costs,” etc., to hide it even more).

In other words, using my rough estimates, if SVO increases, on average, our maintenance fees by $260/year per villa and cut its hotel and SVO operating costs by 30% (as it claims to have done), it could balance its hotel operating books (and even keep giving away all those hotel rooms and paying Frtiz top dollar like its currently doing).

The only problem is that our “maintenance fees” would no longer be (if they ever actually were) rationally related to the actual costs associated with maintaining our properties. We would be paying, on average, $1260/year per villa, but SVO would be spending only about $700/year per villa (including its already over-inflated “management fee” and other mark-ups and profits) to actually maintain our properties.

Sooooo, these rough calculations suggest that Starwood is configuring itself to take about $140,000,000 out of our collective “maintenance fee” purse on the counter, in exchange for a big ol’ pile of nothin’, except the privilege of us continuing to use the Starwood brand names (Sheraton, Westin, Vistana) on our timeshares because the corresponding hotel chains stay in business with the help of our forced “donations.”

Does anyone have any better data or analysis of this situation? If not, I anticipate that our 2010 maintenance fees will increase, on average, about $260/villa, but the maintenance and service quality of our villas will decrease, on average, about 30% under SVO’s continued "care."

As for “why” I’m reporting this information here on TUG, I figure owners and potential owners of SVO properties would be interested to know where their money goes, or would go if they bought an SVO property. That way they can make informed decisions as to whether to buy or sell an SVO property separate from the smoke and mirrors information provided by SVO and even some resales agents.

-nodge
my website
 
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komosatp

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I question your premise of HOT being in such financial straights. They've been profitable throughout The Great Recession....that's very admirable.

Where does your estimate of "about $100 million/quarter more than it currently takes in to pay everyone, including Fritz, and keep the lights on" come from? Airlines are sometimes lucky when they don't LOSE $100 MM in a quarter...and HOT's been reporting profits (though I see cash diminishing).
 

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I question your premise of HOT being in such financial straights. They've been profitable throughout The Great Recession....that's very admirable.

Look what HOT had to do to make that statement true last quarter. Is that strategy sustainable every quarter?

-nodge
 

komosatp

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Look what HOT had to do to make that statement true last quarter. Is that strategy sustainable every quarter?

-nodge
Your analysis of Q2 earnings has some fundamental flaws.

The sale of the loans did not add to the bottom line...it only menaingfully impacted the balance sheet. The difference between what they sold the loans for, and how much they had previously valued them at is the impact on profit. And that looks to be all of $3 million.

There are two other things that make me much less concerned than you. Operating Earnings were $100 million for Q2. That's before all of those things you assert are cooked up. And the cash flow statement shows that operations generated $224 Million in cash in the first half of 2009. Which means this paragraph from your earlier post is just plan wrong:

With Starwood apparently burning more cash then it brings in from its day-to-day operations to the tune of over $100 million a quarter, how long can it keep paying Fritz $2 million A MONTH and giving away free and heavily discounted rooms?

It is not burning through...it is generating cash through operations. Look at an airline statement of cash flows and see what I mean.

All of this adds up to a company that has been impacted by the worst recession since the great depression, but not one that is on the brink of failure or in a death spiral, or one that is going to scuttle a very profitable business by sticking it to its timeshare owners.
 

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All of this adds up to a company that has been impacted by the worst recession since the great depression, but not one that is on the brink of failure or in a death spiral, or one that is going to scuttle a very profitable business by sticking it to its timeshare owners.

I agree with you in theory if we were talking about a normal, publically traded, US company. But this is Starwood and its subsidiary SVO, so the best I can say is "we shall see."

So how many shares of HOT do you plan on buying?

-nodge
 

komosatp

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I agree with you in theory if we were talking about a normal, publically traded, US company. But this is Starwood and its subsidiary SVO, so the best I can say is "we shall see."

So how many shares of HOT do you plan on buying?

-nodge
One of the enduring lessons I took out of business school was that valuation of a company is a bear (for me at least). And companies that are in multiple lines of business are a den of bears.

So I have no idea if HOT is over or under priced. There are too many moving parts in its business. And then you have to factor in the relative attractiveness of hotels stocks, compared to every other industry. So I have no idea where the stock is going.

But I can read financial statements pretty well and HOT is not that bad looking right now, relatively. But that does not preclude your worries...just makes them less likely...and I really think it would be a bad business decision. Developing timeshares is a profitable business, as is managing them, and I'm sure HOT does not want to ruin that potential future income stream by burning all of its existing customers.
 
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nodge

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. . . I'm sure HOT does not want to ruin that potential future income stream by burning all of its existing customers.

That certainly makes sense. If this is a goal of most companies, maybe you can help us understand why SVO made these decisions over the past few years and it recently made this decision.

SVO drums to its own beat.

-nodge
 
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komosatp

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That certainly makes sense. If this is a goal of most companies, maybe you can help us understand why SVO made these decisions over the past few years and it recently made this decision.

SVO drums to its own beat.

-nodge
Here's my perspective:

The vast majority of people only care about MFs. Here at TUG we're a bit more informed, so we see the little things SVO has to do to keep things running smoothly...and maximize profit where they can tweak. so the things in that post are details where they'll never satisfy the uber-user.

But most importantly, the complaints are about the fringe of owning timeshares....and SVO knows it....and serves the average owner the most. A timeshare is fundamentally the right to use a specific resort during a specific period. Anything other than that and you are subject to the vicissitudes of randomness and volatility. One year everyone wants to go to Harborside...the next, Hawaii. Expecting to use your ownership for anything other than exactly what you bought puts you in place where games can be played.

Only but what you want for when you want. Otherwise you're trying to game a system, where the rules can change over time. SVO will always be selling the flexibility, but unless it coverts to a pure points based system, the constraints will remain and they'll always be tweaking and people will have thought they bought one thing (a flexible system) that is really something else (a defined week or season system).
 
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Troopers

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Here's my perspective:

The vast majority of people only care about MFs. Here at TUG we're a bit more informed, so we see the little things SVO has to do to keep things running smoothly...and maximize profit where they can tweak. so the things in that post are details where they'll never satisfy the uber-user.

But most importantly, the complaints are about the fringe of owning timeshares....and SVO knows it....and serves the average owner the most. A timeshare is fundamentally the right to use a specific resort during a specific period. Anything other than that and you are subject to the vicissitudes of randomness and volatility. One year everyone wants to go to Harborside...the next, Hawaii. Expecting to use your ownership for anything other than exactly what you bought puts you in place where games can be played.

Only but what you want for when you want. Otherwise you're trying to game a system, where the rules can change over time. SVO will always be selling the flexibility, but unless it coverts to a pure points based system, the constraints will remain and they'll always be tweaking and people will have thought they bought one thing (a flexible system) that is really something else (a defined week or season system).

:clap: :clap: :clap:
 

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Here's my perspective:
so the things in that post are details where they'll never satisfy the uber-user.

Fair enough. Let's test the "only uber-users are unhappy with SVO" theory on a specific case, like, I dunno this one.

Here is a poor sap who is trying to sell his Westin Princeville Villas 2 BR/LO on ebay for $25,000. He erroneously thinks that the sale includes "[a]ccess to any of Starwoods family of timeshare resorts through StarOptions (148,100)." Why does he think that? Because no one at SVO told him it didn't, or more probably, his salesperson specifically told him that it did. SVO also didn't tell him that if he had bought at WKORV-N (which was still on sale when WPORV first went on the market) for about the same price, those StarOptions WOULD have transferred to a resale buyer. Here is how we "uber-users" on TUG were able to figure this out. As you can see from that thread, unlike SVO, we Tuggers even also tried to warn him (and others) of this danger.

When this owner, or his buyer, eventually find out that those StarOptions don't transfer with the sale, do you think he (or his buyer) will still be happy with SVO? If not, could they really be considered "disgruntled uber-users?" Wouldn't they more accurately be considered just more victims of SVO who finally found out how they had been screwed?

The only difference between disgruntled and "gruntled" SVO owners, uber-users or not, is the gruntled ones haven't been screwed (or at least don't know they've been screwed) by SVO . . . . yet.

-nodge
 

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Was in no way trying to defend SVO...though I don't think they are all that different than other management companies. I think its just very important to understand that SVO does everything possible to prevent them being arbitraged. And having signed up with a class action lawyer to work on my beef, I've learned how one sided (in SVO's favor) our original contracts are. And SVO has many conflicts of interest.

But you're post reiterates one of my main point: a person buys a specific unit a a specific resort. That's what our contracts say (and my floating week even has as specific week associated with it in the contract).

Which is to say you have to be super-uber-summa-careful when dealing with anything other than a a timeshare's designed purpose. That's my bigger point.
 
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