Vacation Ownership Industry - corporate-ir.net · Bryant Raper, EVP & Chief Marketing Officer For...
Transcript of Vacation Ownership Industry - corporate-ir.net · Bryant Raper, EVP & Chief Marketing Officer For...
For every kind of traveler. For every kind of trip.
Vacation Ownership Industry
Kenneth N. MayPresident & CEO
RCI Global Vacation Network
2
For every kind of traveler. For every kind of trip.
Leisure Shared Ownership Summary
The industry is comprised of several product types:
Vacation ownership (timeshare) - purchased vacation interval, typically a week or similar point value, backed by a deeded interest or similar legal structure
Fractional and Private Residence Clubs – purchased vacation interval, typically four to six weeks, backed by a deeded interest or similar legal structure
Condo Hotels – one hotel room purchased, four to six weeks personal use, balance of year rented through hotel management company, typically a large financial investment goal driving purchase
Destination Clubs – purchased club membership that provides vacation rights at high-end accommodations; properties typically cost the club between $1 and $5 Million each. No underlying equity ownership in most cases
Whole Ownership Vacation Homes and Condos – deeded interest in real estate, 100% owned property. Rental ability based on owners decision
$100,000 to $400,000
$16,200 average
$300,000 to over $1 Million
Maintenance = $10k to $35k*a portion maybe returned, 80% typically
Maintenance = $10k to $35k
Maintenance = $471 average
Purchase Priceand Annual
Maintenance Fee
$80,000 to $400,000*
3
For every kind of traveler. For every kind of trip.
Global Sales Overview by Major Market
LatinAmerica
MiddleEast
SouthernAfrica
Asia
Australiaand NZ
Canada
Mexico
Europe
China
IndiaJapan
United States8.6
1.3
0.3 0.4
1.6*0.2 Caribbean
0.4 0.2
0.2
1.1
0.2
0.1 0.3
0.3
0.2
0.2
0.2
* $2.7 total, with overlap with U.S.
Sources - American Resort Development Association (ARDA), Bear, Stearns & Company, Inc., NorthCourse (a subsidiary of Wyndham Worldwide), PricewaterhouseCoopers, Ernst & Young 2006
* Excludes Vacation Whole Ownership Sales and Condo Hotels
Industry Revenues for 2005($ in Billions)*
– Vacation Ownership
– Fractional, PRC,Destination Clubs
13
2
4
For every kind of traveler. For every kind of trip.
Vacation Ownership – Strong Continued Growth
0
2
4
6
8
10
12
14
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Vacation Ownership Sales 1990 to 2005($ in Billions)
United States
Non U.S.
Sales15 Year CAGR
Worldwide 9.7%United States 14.0%
Sources - American Resort Development Association (ARDA), Bear, Stearns & Company, Inc., NorthCourse (a subsidiary of Wyndham Worldwide), PricewaterhouseCoopers, Ernst & Young 2006
5
For every kind of traveler. For every kind of trip.
United States – Industry Overview
1,600 physical timeshare resorts operating in the United States with 155,000 units
4.1 million owners/households
Occupancy at U.S. timeshare resorts averaged nearly 82% in 2005 —compared to a 67% occupancy rate for U.S. hotels during the same period
A variety of ownership systems are in operation - points system 31%; floating unit and floating season 21%; traditional fixed unit/fixed interval 39%
Ownership conveyance methodConventional deed - 60%Right-to-use, undivided interest, deed in trust, leasehold, and/or reversionary deed – 40%
94% of owner’s resort intervals are affiliated with one of the major exchange companies – RCI and/or Interval International
Vacation ownership resorts are in 47 of 50 U.S. states
Source – ARDA, Ernst & Young 2006
6
For every kind of traveler. For every kind of trip.
United States – Owner Overview
Consumer Highlights – 4.1 million owners/households
Average age: 52 years
Median income: $81,000
Over 83% of the purchasers are couples
Less than 5% U.S. market penetration
47% of all owners own two or more vacation ownership intervals
Average distance of vacation ownership purchase from owner’s home is approximately 635 miles
The #1 reason for purchasing vacation ownership is FLEXIBILITY
Source – ARDA, Ernst & Young 2006
7
For every kind of traveler. For every kind of trip.
United States – Owner Satisfaction
Satisfaction rates increase with length of ownershipSource – ARDA 2006Note: Percentages do not add to 100% due to rounding
Very Satisfied48.2%
Somewhat Satisfied
32.1%
Neutral7.5%
Somewhat Dissatisfied
7.9%
Very Dissatisfied
4.4%
8
For every kind of traveler. For every kind of trip.
United States – Product Overview
Source – ARDA 2006Note: Percentages do not add to 100% due to rounding
100.00%Total
16.2%$20,000 to $24,999
12.1%$25,000 or more
$15,000Median
$16,200Average
24.3%$15,000 to $19,999
6.9%Under $5,000
23.1%$10,000 to $14,999
17.3%$5,000 to $9,999
Price Per Week of Annual Use The percent of recent buyers purchasing a biennial increased from 24.1 percent in 2002 to 30.5 percent in 2005
9
For every kind of traveler. For every kind of trip.
United States – Developer Overview
Source – ARDA and PricewaterhouseCoopers 2006
Rescissions as a percentage of gross sales
(average rescission rate)
Summary of Key Costs
9.7%9.9%General Administrative Costs
46.9%46.8%Total Sales and Marketing Costs
33.0%
13.8%
26.9%
2004 2005
32.6%Other Sales and Marketing
26.3%Product Costs
14.3%Sales Commissions
Sales and Marketing Costs
(as a percentage of net sales)
15.5% 14.7% 14.8%
0%
5%
10%
15%
20%
2003 2004 2005R
esci
ssio
ns a
s Pe
rcen
tage
of G
ross
Sal
es
Source: PricewaterhouseCoopers based on 42 company survey responses.
Source: PricewaterhouseCoopers based on 38 company survey responses.
10
For every kind of traveler. For every kind of trip.
Summary
Strong growth trends
Low consumer penetration
Sales and marketing practices adaptive and successful
High consumer satisfaction with vacation ownership
For every kind of traveler. For every kind of trip.
Wyndham Vacation Ownership
Teach-In
For every kind of traveler. For every kind of trip.
2
Agenda
Marketing – Bryant Raper, EVP & CMO– Contact Strategy– Core Value Proposition– Marketing Model
Making the Sale – Franz Hanning, President & CEO– Consumers’ Timeshare Interest– People & Development– Why People Buy
Consumer Finance – Mark Johnson, SVP, Wyndham Consumer Finance– Operations– Portfolio Characteristics
Hospitality Services/Delivering on the Promise – Dave Pontius, EVP & CCO– Our Owners– Purchase Motivations– Owner Satisfaction
Product Development – Mike Hug, EVP & CFO– Development Lifecycle
Timeshare Accounting – Mike Hug, EVP & CFO
For every kind of traveler. For every kind of trip.
3MarketingBryant Raper, EVP & Chief Marketing Officer
For every kind of traveler. For every kind of trip.
4
Marketing – Two-Step Process
Step 1 (Preview Opportunity) Market the preview (tour) through incentive-based offers
Step 2 (Sales Tour) Market the core value proposition by developing interest, educating on the product and discovering personal need
Step 1Step 2
For every kind of traveler. For every kind of trip.
5
Consumer Perspectives on Timeshare
0%
10%
20%
30%
40%
50%
60%
Good Understanding Neutral No Understanding
2000 2006
Source: YPB&R 2006 National Leisure Travel Monitor, April 25, 2006.
For every kind of traveler. For every kind of trip.
6
Timesharing Purchase Interest
Marital Status Annual Household Income
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Less than $30,000 $30,000 - $49,000 $50,000+ $100,000+
2005 2006
Asked of adults who are familiar with timeshare or vacation ownership
Source: YPB&R 2006 National Leisure Travel Monitor, April 25, 2006.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Single Married
2005 2006
For every kind of traveler. For every kind of trip.
7
Marketing Model
For every kind of traveler. For every kind of trip.
8
Prospect Pool – Relationship Marketing
Alliance Partners
Exchange Guests
Existing Owners
Internal Database
Media Responders
Referrals
Rental Guests
SweepstakesEntrants
Tourists
SpecialEvents
AcquiredLists
For every kind of traveler. For every kind of trip.
9
Direct Mail
For every kind of traveler. For every kind of trip.
10
Print Advertisement
For every kind of traveler. For every kind of trip.
11
E-Commerce
For every kind of traveler. For every kind of trip.
12
Face-to-Face Solicitation
For every kind of traveler. For every kind of trip.
13
Promotion/Sweepstakes
For every kind of traveler. For every kind of trip.
14
Member Services Update
For every kind of traveler. For every kind of trip.
15
Case Study – Do Not Call
Federal Do-Not-Call registration begins June 2003
Totals 130 million individual registrants or 76% of U.S. adult population
Unsolicited contact requires a previous business relationship or signed permission
State-based DNC restrictions remain in effect
800,000
850,000
900,000
950,000
1,000,000
1,050,000
1,100,000
2003 2004 2005 2006E
Number of Tours
For every kind of traveler. For every kind of trip.
16
Marketing Alliances
For every kind of traveler. For every kind of trip.
17
Future Marketing – Wyndham Brand Integration
�
For every kind of traveler. For every kind of trip.
18
Wyndham Brand Integration – Direct Mail
For every kind of traveler. For every kind of trip.
19
Wyndham Brand Integration – Print Ads
For every kind of traveler. For every kind of trip.
20
Making the Sale – Franz Hanning, President & CEO
For every kind of traveler. For every kind of trip.
21
Our Customers - What we know
Customers increasingly know and understand how our product works
This is probably not their first timeshare presentation
Average buyer attends 2.6 timeshare tours before making a purchase
2003
68%
32%
Good Understanding / Neutral No Understanding
2006
81%
19%
Good Understanding / Neutral No UnderstandingSource: ARDA, 2006
Source: YPB&R 2006 National Leisure Travel Monitor, April 25, 2006.
For every kind of traveler. For every kind of trip.
22
Our Customers - What we know
Our customers likely have some amount ofdiscretionary income
Our customers make a purchase when one or more of the following occurs
They know enough about timesharing to understandit reasonably wellThey have a good sense of pricingA particular product strikes them as superiorThey feel comfortable with a particular salespersonTiming is right in relation to other financial needs and commitments
For every kind of traveler. For every kind of trip.
23
Meet Our People
Professional, career-oriented sales personnel
Cross section of American workforce
Recent college gradsWorking momsSecond-careersRetirees
60% male, 40% female
For every kind of traveler. For every kind of trip.
24
Workforce Development
Diverse Recruiting ChannelsColleges & UniversitiesNational Ad CampaignsEmployee Referrals
Competitive Benefits401(k) w/matched contributionsEducational assistanceStock purchase planComprehensive healthcareState-of-the-art trainingAttractive locales
High income potential2-year tenure: $107,000 avg.High performers: $200,000+2005 #1 producer: $660,000
For every kind of traveler. For every kind of trip.
25
How We Sell: A Standardized Sales Process
For every kind of traveler. For every kind of trip.
26
How We Sell: State-of-the-Art Technology
For every kind of traveler. For every kind of trip.
27
How We Sell: A Relaxed & Enjoyable Environment
For every kind of traveler. For every kind of trip.
28
Why People Buy: A Better Alternative
1 Bedroom1 Bathroom400 Sq. Ft.
Typical Hotel Room
For every kind of traveler. For every kind of trip.
29
Why People Buy: A Better Alternative
2 Bedrooms2 BathroomsLiving AreaFull KitchenWasher/Dryer1,100+ Sq. Ft.
Wyndham Timeshare Unit
For every kind of traveler. For every kind of trip.
30
Why People Buy – It Makes $ense
For every kind of traveler. For every kind of trip.
31Consumer FinanceMark Johnson, SVP, Wyndham Consumer Finance
For every kind of traveler. For every kind of trip.
32
Consumer Finance
Overview
Operations
Portfolio Characteristics
Upcoming
For every kind of traveler. For every kind of trip.
33
Consumer Finance – Overview
Wyndham Consumer Finance is a captive finance company of Wyndham Vacation Ownership
Develops consumer loan programs that support the purchase of vacation ownership intervals
Develops and consummates securitization programs that enable andsupports these consumer loans
Executes upon the processes by which such consumer loans are funded through these securitizations
Services customers and investors through requisite billing, cashmanagement, collections, customer support and reporting activities
Provides accounting, financial planning and portfolio analysis in support of this consumer lending and securitization activity
For every kind of traveler. For every kind of trip.
34
Financing Characteristics
Source – ARDA and PricewaterhouseCoopers 2006
Portion of net sales financed to consumers
Characteristics of a New Customer Loan
14.9%15.0%Down Payment(as percent of contract Price)
13.9%13.9%Interest Rate
104.7104.5Terms (in months)
20052004Average
Source: PricewaterhouseCoopers based on 41 company survey responses for term and interest rate, and 40 company responses for down payment.
70.0% 69.6% 72.9%
0.0%
20.0%
40.0%
60.0%
80.0%
2003 2004 2005
Perc
ent o
f Tot
al N
et S
ales
Fina
nced
Source: PricewaterhouseCoopers based on 38 company survey responses.
For every kind of traveler. For every kind of trip.
35
Consumer Finance – Overview
Based in Las Vegas, NV and comprised of 450+ employees in Las Vegas, Redmond, WA and Orlando, FL across eight functional disciplines
Accounting, Cash Management & TreasuryCollections & BankruptcyContract Processing & ComplianceFinancial Planning & Portfolio AnalysisFinancial ServicesQuality Process and SystemsSecuritizations & Investor ReportingTraining & Employee Development
For every kind of traveler. For every kind of trip.
36
Consumer Finance - Operations
Foundational Mission We offer innovative financing of lifetime vacations,
deliver best-in-class servicing, and generate exceptional value for our stakeholders
in an environment where employees can thrive and excel.
ObjectivesEnhance customers’ ability to purchase
Drive cash flow & earningsSatisfy customers and stakeholders
Metrics Leverage Rate
Percent of Sales FinancedNII and Cash Flow to Budget
G&A Expense to Net Interest IncomeG&A Expense to Loan Portfolio Serviced
G&A Expense per Serviced Member BaseVOC, Employee Training and Turnover Ratios
Measured performance is delivered from a clearly communicated mission.
For every kind of traveler. For every kind of trip.
37
• Sale made, documents printed and signed (SalePoint)
• SalePointdata feeds (nightly) into CSS
• Documents sent to WCF (Las Vegas or Seattle)
• WCF ensures adequacy and propriety of contract documents
• WCF verifies down payment
• Contract assigned to WCF
• WCF establishes funding eligibility of contract
• WCF images contract documents
• WCF boxes and ships original documents to document custodian
• Document custodian verifies documents received
• WCF draws ACH for, or bills and receives, first payment
• Loan placed into rated warehouse line of credit
• Loan removed from warehouse line of credit and placed into rated term transaction
Sarbanes Oxley Check Points along the Way
Consumer Finance – Operations
Day 1 - Day 3 Day 15 Day 30 Day 60 Day 90
Eligible loans are generally placed within 30-90 days of the sale.
For every kind of traveler. For every kind of trip.
38
Consumer Finance – Operations
We are one of the largest issuers and servicers of securitizations in the asset class$525 Million transaction in August 2005 is the industry’s 2nd largest transaction to date$550 Million transaction in July 2006 is the industry’s largest transaction to dateWarehouse line of credit increased to $1 Billion in November 2006
Currently Serviced Commercial FinancingsOriginal Balance Current Senior Debt Balance Current Collateral Balance
*Securitizations $2,415 Million $949 Million $1,189 Million Conduit Line of Credit - $445 Million $560 Million
Fully Satisfied Commercial FinancingsIssue Date Original Balance Call Date
FFC II August 1998 $50 Million November 2003TRI II March 1998 $130 Million March 2004FFC III July 2001 $213 Million May 2005TRI III August 1999 $160 Million March 2006TRI IV November 2000 $163 Million October 2006
*Includes off-balance sheet transaction with $24.4 Million in outstanding senior debt
We are an experienced and successful securitization issuer and servicer.
Data as of September 30, 2006
For every kind of traveler. For every kind of trip.
39
81%
19 months
92 months
111 months
12.86%
95%
657
$10,645
243,657
$2.59 Billion
9/30/06
79%% paying via automatic bank draft
20 monthsW.A. Age
87 monthsW.A. Remaining Term
107 monthsW.A. Original Term
13.15%W.A. Gross Coupon
92%% of Portfolio Scored
652W.A. FICO
$9,795Avg. Loan Balance
231,439Loan Count
$2.24 BillionQualified Receivables
12/31/05
Serviced Consumer Loans
Our consumer loan portfolio is stable and growing.
Consumer FinancePortfolio Characteristics (North America)
For every kind of traveler. For every kind of trip.
40
93%94%% paying via automatic bank draft
19 months18 months W.A. Age
85 months78 monthsW.A. Remaining Term
104 months96 monthsW.A. Original Term
12.07%12.06%W.A. Gross Coupon
$7,830$7,472Avg. Loan Balance
18,50016,550Loan Count
$144.9 Million$123.7 MillionQualified Receivables
9/30/0612/31/05
Serviced Consumer Loans
Currency converted at dates shown from Australian Dollars to U.S. Dollars:
12/31/05: AUSD = 0.7301 USD 9/30/06: AUSD = 0.7468 USD
Consumer FinancePortfolio Characteristics (Asia Pacific)
For every kind of traveler. For every kind of trip.
41Consumer Finance – Portfolio Characteristics Static Pool Default Curves – North America
Wyndham Vacation Ownership Aggregate Cume Defaults
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 63 66 69 72
Loan Age In Months
% C
ume
Defa
ults
Arithmetic Average Cume DefaultsWeighted Average Cume Defaults19981999200020012002200320042005
Cumulate aggregate default rates are charted and consistent.
Year No Score 401-550 551-700 701-850 Total2003 4.81% 7.20% 50.09% 37.90% 100.00%2004 5.03% 8.97% 46.66% 39.34% 100.00%2005 6.55% 8.49% 46.21% 38.74% 100.00%
Wyndham Vacation Ownership FICO Banded Pools
Data as of September 30, 2006
For every kind of traveler. For every kind of trip.
42
Consumer Finance
Continue with “Enhanced Financing Options”Interest rate based upon obligor FICO score and purchase amount
– Adjustments allowed for equity and PAC» Rates between 8.99% and 17.99%
– Floor of 8.99%Program throughout Wyndham Vacation Resorts, Inc.
– Rolled out in July 2005– No diminution of close rates or APG– WAC improved 27 bps on front line sales (July ’05 to July ’06)
Planning implementation within TrendwestRevisit rates consistent with market rates twice annually
Increase leverage rateExploring opportunities for currently ineligible receivablesAnticipating two term transactions in 2007
For every kind of traveler. For every kind of trip.
43
Consumer Finance - Wrap-Up
Wyndham Vacation Ownership encompasses a captive finance company, Wyndham Consumer Finance
Wyndham Consumer Finance performance is measured and delivered consistent with its Mission
Eligible loans are generally placed within 30-90 days of the sale
Wyndham Consumer Finance is an experienced and successful securitization issuer and servicer
Performance on our term securitizations is consistent and predictable
Our consumer loan portfolio is stable and growing
Cumulative aggregate default rates are charted and consistent
For every kind of traveler. For every kind of trip.
44Hospitality ServicesDave Pontius, EVP & Chief Customer Officer
For every kind of traveler. For every kind of trip.
45
Ownership Experience – Delivering on the Promise
For every kind of traveler. For every kind of trip.
46
Our Owners – Cohort Analysis
Urban families who, despite having children at home, have sufficient financial resources to own the latest high tech products and to lead very active recreational and cultural lifestyles.
Median age 43Median income $141KMedian net worth $474K
Jeffrey & EllenAffluent Couples with Kids
10.6%
Middle-aged, middle-income families whose teen-dominated households keep busy with outdoor activities, computers, and video games.
Median age 42Median income $58KMedian net worth $251K
Danny & VickieTeen-Dominated Families
6.2%
Unburdened by children, these creditworthy, dual-income couples divide their time between the great outdoors & domestic hobbies.
Median age 49Median income $75KMedian net worth $332K
Stan & CaroleUpscale Middle-Aged Couples
8.4%
Dual-income, older couples who use their high discretionary incomes to enjoy all aspects of the good life.
Median age 61Median income $144KMedian net worth $851K
Alex & Judith Affluent Empty-Nesters
10.0%
Comfortable, close-to-retirement homeowners who are active investors and who engage in charitable activities, travel, politics and their grandchildren.
Median age 66Median income $57KMedian net worth $471K
Burt & MarilynMature Couples
16.7%
7.2%
WVO %
Educated, dual-income, childless couples who have connoisseur tastes and are focused on their careers, staying fit, andinvesting.
Median age 46Median income $133KMedian net worth $545K
Barry & KathleenAffluent Professional Couples
Predominant Owner Segment By Cohort
1.The remaining 40% of owner base is spread between 25 distinct cohort segments
2. Median net worth is based on WVO specific owner base
Our predominant owner segments reflect healthy psychographic diversity.
For every kind of traveler. For every kind of trip.
47
Share of Owner Leisure Travel
WVO owners average 23 leisure travel nights per yearApproximately 10 nights (42% of total) are capturedthrough WVO ownership
Source: 2006 WVO Owner Survey
Camp, RV, 1.7
WVO Club Use/Exchange Timeshare, 9.9
Condo, vacation home, etc., 2.0
Cruises, yachts (non-exchange),
1.5
Rented Hotel Stays, 6.3
Other timeshare, 1.9
For every kind of traveler. For every kind of trip.
48
Purchase Motivations
Source: 2006 WVO Owner Survey
93%
88%
81%
78%
69%
68%
64%
64%
0% 20% 40% 60% 80% 100%
Flexibility to use different locations, unit sizes, times of year
Certainty of quality accommodations
Resort location(s)
Save money on future vacation costs
Credibility of company
Affordable financial terms
Opportunity to own vacation home at affordable price
Liked resort toured: units, amenities, location, etc.
For every kind of traveler. For every kind of trip.
49
Owner Expectations
Source: 2005 WVO Owner Survey and Current Resort Attributes
% of Owners Requesting Activity/Experience
0%
10%
20%
30%
40%
50%
60%
70%
80%
Sightse
eing
Relaxing
/Sunning
Historic
al/Tou
rs
Nature Viewing
/Eco
tour
Boatin
g/Hou
seboa
t/Fish
ing
Museu
m Visits
Family
(Reu
nions)
Amusement/
Theme Park
(Majo
r)
Snorke
ling/Scu
baThe
ater/Dram
a
Profes
sional
Sports
Nightclub
s/Stag
e Sho
wsSho
pping
Hiking
Fine D
ining
Golf
% O
wne
r Int
eres
t
% of Owners Requesting Activity/Experience
For every kind of traveler. For every kind of trip.
50
Upgrade Purchase Motivations
Source: 2006 WVO Owner Survey
81%
54%
41%
36%
31%
30%
27%
0% 20% 40% 60% 80% 100%
Greater variety of resort locations
Ability to use points/credits for greater variety of travel services: hotels, airlines, etc.
Ability to use points/credits for activities/services in resort area: golf, ski, etc.
More units of large size
More foreign locations
More luxurious accommodations/resorts
More high-end, exclusive resort locations
For every kind of traveler. For every kind of trip.
51
Summary
WVO owners express twice as much interest in making an upgrade purchase than the industry average
80% of WVO owners express a willingness to recommend our products to friends and family
Industry Source: American Resort Development Association - Resort Timeshare Consumers, Who They Are, Why They Buy, 2006 Edition; WVO Owner Source: 2006 WVO Owner Survey
For every kind of traveler. For every kind of trip.
52
Product Development – Mike Hug, EVP & CFO
For every kind of traveler. For every kind of trip.
53
Product Development Lifecycle
For every kind of traveler. For every kind of trip.
54
Wyndham Phased Development
Number of units: 100 – 400
Construction: Phased units (40 – 50 units per phase)
Sales Life: 4 years – 6 years
VOI sales: $100M - $400M
Project costs: Product costs ~25% of gross sales price
Mgmt Fee: 5-10% of annual maintenance fees
Sales: Begin approximately 9 – 12 months prior to certificate of occupancy (CO)
For every kind of traveler. For every kind of trip.
55
Phased Development
(40,000)
(20,000)
-
20,000
40,000
60,000
80,000
100,000
120,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17+
Year
Pre
-tax
Cas
h Fl
ow
Cumulative Net Cash Flow Annual Net Cash Flow
*Dev elopment ROIC = 32%
(In Millions) NPV of MarginNPV of Construction Cost
*ROIC =
Phased Cash Flow
For every kind of traveler. For every kind of trip.
56
Phased Development
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
$110,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17+
Year
Gro
ss R
even
ue
Gross RevenueMargin(In Millions)
% of Total Gross Revenue
72%
22%7% Gross VOI
Gross Interest Income
Gross Management Fee
Total Gross Revenue = $591M
Phased Gross Revenue + Margin
For every kind of traveler. For every kind of trip.
57
Phased Gross Revenue Mix
% of Total Project Gross Revenue Earned Each Year
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Year
Management Fee
Interest Income
Revenue from VOI Sales
For every kind of traveler. For every kind of trip.
58
Phased Gross Revenue Mix
Gross Revenue Mix
76
8285
899496
3
19
42
61
73
8187
90
23
1715
1154
9294
97
81
58
39
27
1913
1086111100
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17+
Year
Mix
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
Rev
enue
(In
Mill
ions
)
% Management Fee% Interest Income% VOI$ Gross Revenue
For every kind of traveler. For every kind of trip.
59
Wyndham Tower Development
Number of units: 200 – 400
Construction: Single tower with up to 40 floors
Sales Life: 3 years – 5 years
VOI sales: $400M - $600M
Project costs: Product costs ~25% of gross sales price
Mgmt Fee: 5-10% of annual maintenance fees
Sales: Begin approximately 9 – 12 months prior to CO
For every kind of traveler. For every kind of trip.
60
Tower Development
(100,000)
(50,000)
-
50,000
100,000
150,000
200,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15+
Year
Pre-
tax
Cas
h Fl
ow
Cumulative Net Cash Flow Annual Net Cash Flow
*Development ROIC = 30%
(In Millions) NPV of MarginNPV of Construction Cost
*ROIC =
Tower Cash Flow
For every kind of traveler. For every kind of trip.
61
Tower Development
$0$15,000
$30,000$45,000$60,000$75,000
$90,000$105,000$120,000$135,000
$150,000$165,000$180,000$195,000
$210,000$225,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15+
Year
Gro
ss R
even
ue
Gross RevenueMargin
(In Millions)
% of Total Gross Revenue
73%
22%5% Gross VOI
Gross Interest Income
Gross Management Fee
Total Gross Revenue = $816M
Gross Revenue + Margin
For every kind of traveler. For every kind of trip.
62
Gross Revenue Mix
Tower Development% of Total Project Gross Revenue Earned Each Year
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Year
Management Fee
Interest Income
Revenue from VOI Sales
For every kind of traveler. For every kind of trip.
63
Tower Gross Revenue Mix
Gross Revenue Mix
8289
9496
4
29
55
72
8186
90929495
1711
54
96
71
45
28
1914
108651100
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15+Year
Mix
$0
$50,000
$100,000
$150,000
$200,000
$250,000
Rev
enue
(In M
illio
ns)
% Management Fee% Interest Income% VOI$ Gross Revenue
For every kind of traveler. For every kind of trip.
64
Overview
Timeshare Accounting
For every kind of traveler. For every kind of trip.
65
Accounting for Vacation Ownership
SFAS 152 - Accounting for Real Estate Timesharing Transactions
Revenue Recognition
Cost of Sales
Provision for Loan Losses
Interest Income and Expense
For every kind of traveler. For every kind of trip.
66SFAS 152 - Accounting for Real Estate Timesharing Transactions
Specific accounting guidance for accounting for sales of real estate(SFAS 66)
Modified revenue recognition requirements by requiring sufficient cash to be collected in order to cover the fair value-of-incentive awarded
ExampleSale of $15,500Fair value of incentive of $500Required cash collected prior to utilization of incentive = $1,500+$500Depending on type of incentive, $500 may be reported in other revenues
Clarified which expenses can be considered in the percentage-of-completion calculation
Only direct expenses (COS, commissions, provision) may be included.Indirect marketing costs are not deferred.
Requires that provision for uncollectible accounts be recorded as a revenue reduction rather than an operating expense
Estimated inventory recovery included in the provision for uncollectible accounts as a revenue reduction
For every kind of traveler. For every kind of trip.
67
Revenue Recognition
Full Accrual Recognition
Percentage of Completion
For every kind of traveler. For every kind of trip.
68
Full Sales Recognition Criteria
Non-reversionary title passes to purchaser
Minimum down payment received of 10% plus fair value of incentive
Transaction is beyond statutory rescission period
Risk of reversion to rental property is remote
Building is substantially complete (generally receipt of certificate of occupancy), otherwise revert to percentage-of-completion accounting
If purchase is financed, collectibility must be reasonably assured
For every kind of traveler. For every kind of trip.
69
Percentage-of-Completion (POC)
Project is under construction but beyond a preliminary stage in order to recognize revenue
Revenues and relevant expenses are deferred in direct relation to the percentage of which the project is incomplete
Only direct costs (COS, commissions, provision for loan losses) are deferred.Marketing expenses are not deferred.
Financially reported results will differ from the timing of the sales transaction
Revenues deferred under POC are recognized as construction progresses – no additional sales and/or marketing efforts are required
For every kind of traveler. For every kind of trip.
70
Revenue Recognition Flowchart
Purchaser Signs
Contract
Seller-provided
financing?
Initial investment adequate?
Continuing investment adequate?
Subject to future
subordination?
Yes
Yes
Full Accrual Method
Deposit Method
Transfer risks &
rewards?
Completed building?
Yes
Percentage of
Completion Method
No
No
No
No Yes
(1) Contractually required annual payments sufficient to amortize debt over a customary amortization period(2) Answer is “Yes” for all sales financed by WVO as all contracts are on a seven or 10-year term(3) Answer is “No” for all sales financed by WVO as WVO retains a first position on all its financed contracts(4) Answer is “Yes” for all sales financed by WVO as WVO does not retain any involvement that results in retention of substantial risks or rewards
of ownership
(1)
(2)(3) (4)
10% down payment
plus FV ofincentive
Footnotes:
Yes
For every kind of traveler. For every kind of trip.
71
Cost of Sales
Inventory cost equals acquisition/construction costs, as well ascapitalized interest and taxes, if applicable
Relative sales value methodCost of sales equals total estimated final product cost divided by total estimated future sales revenue
Total construction costs = COS %Projected revenues
$25M Total construction costs = 25% COS$100M Projected revenues
Changes in estimates are applied retrospectively as a current period adjustment
For every kind of traveler. For every kind of trip.
72
Provision for Loan Losses
Recognized as a revenue reduction under SFAS 152, rather than an operating expense
Estimated inventory recovery included in the revenue reduction as a result of SFAS 152
Recorded during the period the revenue is recognized based on anticipated cancellations
Example: $100,000 in gross VOI sales
$ 69,000$ 75,000 Gross margin
(23,000)2,000 (25,000)COS
$ 92,000 (8,000)$100,000 Sale amount
NetProvisionGross
For every kind of traveler. For every kind of trip.
73
Interest Income and Expense
Interest is recognized on the receivable portfolio on an accrual basis as earned
Interest past due 90 days or more is not recognized as income
Current securitizations are structured such that there is no gain upon sale to Special Purpose Entities
Interest expense associated with securitizations is recognized in Operating Expenses within EBITDA
For every kind of traveler. For every kind of trip.
74
Accounting Wrap-Up
Interest is recognized on the receivable portfolio on an accrualbasis as earned
Sufficient cash to cover 10% down payment plus value of first day incentive is key to revenue recognition
Percentage-of-completion accounting results in deferral of revenue in those situations where buildings are still under construction
SFAS 152 results in the provision for loan losses being accounted for as a revenue reduction
Relative sales value method of accounting for cost of sales is designed to result in a constant cost of sales rate over the life of the project
Cash outflows are prevalent in the early stages of the project with cash inflows later in the project life as financed contracts paydown