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SpinCo

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Wondering what the implications are to legacy owners and/or trust owners of the spinoff of the Marriott Timeshare business.

Best article I have found is from Bloomberg: http://www.businessweek.com/news/2011-02-15/marriott-shares-climb-after-timeshare-spinoff-planned.html

Would appear that at a minimum, SpinCo will have less availability of, and higher cost of, funds with which to build any new properties.

I have seen some posts expressing concern is that there may be significantly greater increases of MF's in the future due to the spinoff, but no rationale as to why this may be the case.

Thots??
 

dioxide45

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I don't think the need for capital will be an issue over the next few years since there is plenty of inventory to get them through for a long time. Thy may need some capital to complete some projects where they may have obligations, but they may already have had capital financing in place when those initial commitments were made.

The issue they have is their carrying cost for their inventory. That isn't cheap inventory to carry given the MF on the underlying weeks.
 

Lawlar

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Franchise Fees

I have seen some posts expressing concern is that there may be significantly greater increases of MF's in the future due to the spinoff, but no rationale as to why this may be the case.

Thots??

Marriott is going to treat the spinoff company as a franchisee. Marriott will be charging the spinoff company a yearly franchise fee (and probably other fees as well) which the spinoff company will pass off to TS owners (MFs???). Marriott will undoubtedly want to maximize the franchise fees as an ongoing future source of revenue.

Spinoff company will also want to profit from us TS owners, so they will do what they can to maximize their profits.

Bottom line: there will now be two companies trying to find ways to make money from us poor TS owners.
 

Fredm

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The issue they have is their carrying cost for their inventory. That isn't cheap inventory to carry given the MF on the underlying weeks.

The carry cost may not be nearly as high as you might assume.
Not all available inventory is carried in the Trust.
And not all standing inventory has been converted to salable product. Consequently, is not subject to the same fee schedule as applies to the HOA.
Sure, the standing inventory must be maintained, but is on the developers maintenance schedule until included under an annexation agreement for those underlying shares.

Those registered weeks which have been assumed by the Trust were, and are, the first sold as a bookkeeping matter. By the time Spinco is a reality, carry costs of registered unsold Points inventory (converted from weeks) should be minimal.
 

kjd

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Marriott has a ton on unsold inventory and the right to build additions to existing property in several locations. It's really a question of how much of it is going to be available for you. There will always be legacy owners as long as there is an ebay but eventually the points owners will represent the majority of ownership. They will not have an understanding of anything but the points system they purchased and will march off like zombies to whatever tune the spinco plays. The best protection for legacy owners is the deed that gives them the right to a week at their home resort.

Marriott's current infatuation with legacy owners is only to sell them the trust and get them to buy more points. After that plays out, legacy owners will be considered dinosaurs. Don't plan on going to a lot of presentations to get the free gifts.
 

Bunk

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The carry cost may not be nearly as high as you might assume.

And not all standing inventory has been converted to salable product. Consequently, is not subject to the same fee schedule as applies to the HOA.
Sure, the standing inventory must be maintained, but is on the developers maintenance schedule until included under an annexation agreement for those underlying shares.
.

Fred: Are you saying that there could be finished rooms in an HOA and the developer doesn't have to pay the same amount of maintenance and pay it at the same time as the time share owner?
 

timeos2

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There is one sure source and they aren't afraid to tap it

Marriott is going to treat the spinoff company as a franchisee. Marriott will be charging the spinoff company a yearly franchise fee (and probably other fees as well) which the spinoff company will pass off to TS owners (MFs???). Marriott will undoubtedly want to maximize the franchise fees as an ongoing future source of revenue.

Spinoff company will also want to profit from us TS owners, so they will do what they can to maximize their profits.

Bottom line: there will now be two companies trying to find ways to make money from us poor TS owners.

Exactly the way I see it playing out. The "new" company has but two sources of income. One is very sporadic but highly profitable - new sales. But that market is in the tank - thats why Marriott wants it off their books! The other is the captive audience of managed resorts. There they are charging the franchise fees, the management fees as well as a hefty percentage of all required work / purchases to "Marriott standards".

Need more income? Raise the franchise fee which is passed through to owners. Demand new flat screens in every room to meet "standards". And collect 15% on the purchase price on top of the fact that they require purchase from often high priced "approved" vendors not competitive bids. Plus the percentage overhead for oversight of the work. Nice.

Need more? Raise the management fees. Why not, the Association has to use them or lose the name outside. And more. Every one on the backs of the owners. The only real source of income the so called Spinco has. I would not want to be in that owner group given this new turn of events. Too many ways they can simply pass on a new cost and there is virtually nothing the owners can do except sell at an ever increasing loss.
 

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you seem to be forgetting that MVC is limited just like any other business.

If there fees are too high, the HOA will not accept them, and then MVC won't get any management fees.

The same is true of the fees on the trust. If the fees are high, people won't buy new points and there will be no new sales.

The Desert Springs thread is a perfect example. The owner of the JW hotel wanted to charge more for SPA services paid as a package by the DS1 resort, and the HOA said no, so there is now no SPA income going to the JW hotel.

Exactly the way I see it playing out. The "new" company has but two sources of income. One is very sporadic but highly profitable - new sales. But that market is in the tank - thats why Marriott wants it off their books! The other is the captive audience of managed resorts. There they are charging the franchise fees, the management fees as well as a hefty percentage of all required work / purchases to "Marriott standards".

Need more income? Raise the franchise fee which is passed through to owners. Demand new flat screens in every room to meet "standards". And collect 15% on the purchase price on top of the fact that they require purchase from often high priced "approved" vendors not competitive bids. Plus the percentage overhead for oversight of the work. Nice.

Need more? Raise the management fees. Why not, the Association has to use them or lose the name outside. And more. Every one on the backs of the owners. The only real source of income the so called Spinco has. I would not want to be in that owner group given this new turn of events. Too many ways they can simply pass on a new cost and there is virtually nothing the owners can do except sell at an ever increasing loss.
 

gblotter

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Exactly the way I see it playing out. The "new" company has but two sources of income. One is very sporadic but highly profitable - new sales. But that market is in the tank - thats why Marriott wants it off their books! The other is the captive audience of managed resorts. There they are charging the franchise fees, the management fees as well as a hefty percentage of all required work / purchases to "Marriott standards".

Need more income? Raise the franchise fee which is passed through to owners. Demand new flat screens in every room to meet "standards". And collect 15% on the purchase price on top of the fact that they require purchase from often high priced "approved" vendors not competitive bids. Plus the percentage overhead for oversight of the work. Nice.

Need more? Raise the management fees. Why not, the Association has to use them or lose the name outside. And more. Every one on the backs of the owners. The only real source of income the so called Spinco has. I would not want to be in that owner group given this new turn of events. Too many ways they can simply pass on a new cost and there is virtually nothing the owners can do except sell at an ever increasing loss.
You have articulated well the concerns I have about the spinoff decision.
 

timeos2

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Can't compete? Then stack the Board!

If there fees are too high, the HOA will not accept them, and then MVC won't get any management fees.

The same is true of the fees on the trust. If the fees are high, people won't buy new points and there will be no new sales.

But the Boards are under control of Marriott so they don't take the necessary steps to make them price competitive.

The Desert Springs thread is a perfect example. The owner of the JW hotel wanted to charge more for SPA services paid as a package by the DS1 resort, and the HOA said no, so there is now no SPA income going to the JW hotel.

Easy to do with a small perk at a resort. Much harder when dealing with a management contract from the very company that signs your paycheck.

Yes they can price themselves out of the job but not likely as long as the Boards remain under the control of Marriott (fox watching hen comes to mind). IF owners had the control as it should be then Marriott would have to be competitive and have a true threat of being removed (As has in fact occurred when owners actually do have control. Instead of acting to improve performance or be price competitive they stack the Board with employees to virtually ensure they stay on indefinitely).
 

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it must be terrible to be so paranoid
 

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Fred: Are you saying that there could be finished rooms in an HOA and the developer doesn't have to pay the same amount of maintenance and pay it at the same time as the time share owner?

No. I am saying that there could be inventory built that has not been annexed to the resort HOA.
In this case the developer is maintaining it apart from the HOA. The costs incurred by the Trust would be less.
For example, a building containing say 16 units may be built, but not yet annexed to the resort. The developer has not yet sold them. Because they remain unsold, property taxes on the real estate is less, as is housekeeping, common area maintenance contribution, etc.
Once annexed, these units DO assume the HOA fee schedule because it is presumed that they will be occupied.

That is why resort governing documents contain some number of annexation amendments over time.

Acquired weeks inventory from resorts that were converted to the TRUST were already annexed. Therefore, must pay fees based on the HOA fee schedule.
From an bookkeeping perspective, the Trust points represented by those weeks are the first sold, thereby relieving the Trust of having to carry the cost of them.

There is, no doubt, unsold inventory that has been annexed.
For example, if 1 week in a unit was sold, the entire unit containing 52 weeks must be annexed.
BUT, most often Marriott sold these without first year use, because the building itself was not yet annexed. How many here purchased a resort and were given Rewards in lieu of occupancy for the first year?

In this way, Marriott avoids having to pay the full HOA burden.
Nothing wrong with this practice. The HOA is not being cheated. The resort owners (and HOA costs) are not unfairly impacted. Marriott (or any developer) is permitted to sell pre-annexation inventory in an ongoing development because they place a completion bond to obtain the final public report (which makes the sale offering legal).

Edited to add:
The presumption made by the Department of Real Estate is that the units will be annexed, satisfying the completion bond.

This all goes to say that Spinco's carry costs of unsold inventory may not be as high as some assume they will be.
 
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windje2000

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No. I am saying that there could be inventory built that has not been annexed to the resort HOA.
In this case the developer is maintaining it apart from the HOA. The costs incurred by the Trust would be less.
For example, a building containing say 16 units may be built, but not yet annexed to the resort. The developer has not yet sold them. Because they remain unsold, property taxes on the real estate is less, as is housekeeping, common area maintenance contribution, etc.
Once annexed, these units DO assume the HOA fee schedule because it is presumed that they will be occupied.

That is why resort governing documents contain some number of annexation amendments over time.

Acquired weeks inventory from resorts that were converted to the TRUST were already annexed. Therefore, must pay fees based on the HOA fee schedule.
From an bookkeeping perspective, the Trust points represented by those weeks are the first sold, thereby relieving the Trust of having to carry the cost of them.

There is, no doubt, unsold inventory that has been annexed.
For example, if 1 week in a unit was sold, the entire unit containing 52 weeks must be annexed.
BUT, most often Marriott sold these without first year use, because the building itself was not yet annexed. How many here purchased a resort and were given Rewards in lieu of occupancy for the first year?

In this way, Marriott avoids having to pay the full HOA burden.
Nothing wrong with this practice. The HOA is not being cheated. The resort owners (and HOA costs) are not unfairly impacted. Marriott (or any developer) is permitted to sell unfinished inventory in an ongoing development because they place a completion bond to obtain the final public report (which makes the sale offering legal).

Thanks for posting this. Your posts always make me smarter about timeshare.

Note also that Marriott has various types of inventory in the development pipeline that ranges from visions plans and options to raw land to partially completed structures to completed units.
 

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Thanks for posting this. Your posts always make me smarter about timeshare.

Note also that Marriott has various types of inventory in the development pipeline that ranges from visions plans and options to raw land to partially completed structures to completed units.

My pleasure. Happy to know my ramblings can be understood.
 

dioxide45

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However, is it not possible now that those usually vacant units will be filled some of the time. The one that comes to mind is NCV. If I recall correctly there is an entire phase there that is built but not yet opened for occupancy. I am sure in peak seasons they could fill every unit at NCV including those in the phase that hasn't been opened.

Perhaps MVCI is still keeping those closed for the time being as if they were to open them up for summer, they would be responsible for the fees for the entire year.

Another resort that has a lot of trust inventory is Oceana Palms, yet it seems that it is just about full this time of year. So that would make me think that MVCI has annexed all of them to the HOA?
 

Fredm

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Another resort that has a lot of trust inventory is Oceana Palms, yet it seems that it is just about full this time of year. So that would make me think that MVCI has annexed all of them to the HOA?

If occupied, I would think so.
And if fully occupied, it suggests that the Trust has sold enough Points to offload the fees to owners.
At least enough to fill units during this time of year.

The question as it relates to Spinco is how much of annexed inventory will remain unsold at the end of 2011, when they will be responsible for a portion of the carry? We don't know. My contribution to the discussion is simply to counter the assumption that Spinco will labor under an unmanageable fee burden at its inception.
Remember, unlike weeks which carry equal cost irrespective of season, Trust fees are .40/point. Prime season occupancy covers a disproportionate amount of the annual cost.
 
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tschwa2

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I know this may not be how it works for Marriott but last year when the MF for Starwood came out I asked the board if Starwood paid MF on the unsold units. I was told they did not but were required to pay a percentage of the profit they received if they were able to rent them out (whether it be through Starwood.com or through explorer packages, etc). In addition they paid a "guaranteed amount" for the first several years which is also known as a MF supplement.
 

Fredm

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I know this may not be how it works for Marriott but last year when the MF for Starwood came out I asked the board if Starwood paid MF on the unsold units. I was told they did not but were required to pay a percentage of the profit they received if they were able to rent them out (whether it be through Starwood.com or through explorer packages, etc). In addition they paid a "guaranteed amount" for the first several years which is also known as a MF supplement.

Yes, that is essentially how it works. Marriott calls it a "subsidy". It is intended to cover the costs of maintaining sold units not yet annexed to the HOA.
I don't know how Marriott handles rentals of its owned inventory. I am under the impression that it keeps all the money.

I do not have data to support this, but my observation is that the subsidy proves to be inadequate to fully offset the real costs to the HOA. The reason I say this is HOA fees increase once the subsidy ends.
 
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Several comments come to mind

1) is to echo wof45...Paranoia seems to feed on itself. We timeshare owners see everyone as out to get us...thats not always true

2) Marriott has done this before. Their core business is operations. They really dont want to own anything. I remember when they spun off the capital hungry, hotel development business from management. This spin off dosent seem to be any different.

3) we timeshare buyers and owners have always been there to provide income. Until now we were but one source of income in a large company. But there was still management in place, whose job it was to extract every penny possible from us. That hasn't changed. We are still the customer, and they will have to use us (some might say please us) to drive profits

4) Im sure that Marriott does not pay the same fees for the unsold units in a resort as the owners do for the sold ones. and that they never did. The spin off wont change that

5)The Marriott and the other timeshare giants like so many of us got caught with their pants down when the economy crashed. The spinoff is one way that they are coping. but I believe that they would have spun off the timeshare business sooner or later anyhow.

6) as for future timeshare development Marriott is now free to pursue other ways to grow the company, (other than developing new projects from the ground up) ie go after other sales and management contracts, ie hang the Marriott name on properties they didnt build. Wyndham is doing it with WAAM. (Reunion in Orlando is one example) dont think Marriott dosent see what Wyndham is doing

To sum up my comments. The changes in Bethesda (Marriott Central) wont change your experience at the resorts
 

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I don't know how Marriott handles rentals of its owned inventory. I am under the impression that it keeps all the money.

In my mind the big question is how they handle the rentals of unused owner weeks. IMO this could be a bonanza for Marriott.

George
 
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