wyypndham vacation ownership may 9, · pdf filethe information in this presentation should be...
TRANSCRIPT
Wyndham Vacation Ownershipy pMay 9, 2012
Wyndham Worldwide Forward Looking StatementsgCertain statements in this presentation constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Any statements that refer to expectations or other characterizations of future events, circumstances or results are forward-looking statements. Such forward-looking statements include projections. Such projections were not prepared in accordance with public guidelines of the American Institute of C f fCertified Public Accountants regarding projections and forecasts, nor have such projections been audited, examined or otherwise reviewed by independent auditors of Wyndham Worldwide Corporation (“WYN”).
Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Wyndham Worldwide to be materially different from any future results performance or achievements expressed or implied by such forward-looking statementsresults, performance or achievements expressed or implied by such forward looking statements.
You are cautioned not to place undue reliance on these forward-looking statements. Important assumptions and other important factors that could cause actual results to differ materially from those in the forward looking statements are specified in Wyndham Worldwide’s most recent Form 10-K under “Risk Factors” filed with the Securities and Exchange Commission. Except for ongoing obligations of Wyndham Worldwide to disclose material information under the federal securities laws, Wyndham Worldwide does not undertake any obligation to release any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.
The information in this presentation should be read in conjunction with the consolidated financial statements and accompanying notes, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Wyndham Worldwide's 2011 Form 10-K and Form 10-Q for the quarterly period ending March 31 2012 filed with theWyndham Worldwide s 2011 Form 10-K and Form 10-Q for the quarterly period ending March 31, 2012 filed with the Securities and Exchange Commission on February 17, 2012 and April 25, 2012, respectively.
2
Wyndham Worldwide Key Investment Highlights
Market leading businesses• Leadership position in every business• Outstanding execution during recent economic turmoil
St t t• Strong management team
Company focused on maximizing cash flow• Sustainable annual free cash flow of approximately $600 - $700 million
Company embarked on transformative changes• Rebalancing portfolio to focus on fee-for-service businesses• Asset-light vacation ownership model• Migration to web in exchange and rentals businessMigration to web in exchange and rentals business• Strengthen franchisee value proposition in the Hotel Group• Enabled by strong balance sheet and cash flow generation
Significant growth opportunityg g pp y• Proper applications of cash yields more than organic growth alone
Valuation upside
3
Agenda
WVO Business OverviewWVO Business Overview
Timeshare Market
The WVO Sales Formula
Financial Overview
4
About Wyndham Vacation Ownership
World’s largest vacation ownership business
• More than 813,000 owner families• More than 160 resorts• Nearly $1 6 billion in annual VOI sales• Nearly $1.6 billion in annual VOI sales
In business for over 40 years• Rebranded in 2006
Based in Orlando, Florida
5
Wyndham Vacation Ownership makes money three ways
VOI Sales C P tVOI Sales Consumer Financing
Property Management
6
Business Transformed Since Downturn
Executed All Major Strategic Initiatives• Continue to drive cash, improve efficiencies, deliver improved customer
service
Reduced capital deployment• Capital spend reduced from $686M in 2007 to $79M in 2011
Business practices refocused to achieve cash flow objectivesBusiness practices refocused to achieve cash flow objectives • Free Cash Flow contribution of $630M of 2011
Embarked on transformative changesI l t d W dh A t Affili ti M d l (WAAM)• Implemented Wyndham Asset Affiliation Model (WAAM)
• Increased cash at point-of-sale- Average down payment increased to 27% from 18% (Q1 12 vs. Q1
09)09)
7
WAAM - Advantages
A complementary component of the overall WVO business• Over the next five years, as we seek to reduce the balance sheet,
WAAM will be an opportunistic and a complementary source of business, which may augment overall levels of growth.
• Once our balance sheet has been streamlined, we could target more WAAM or purchase distressed inventory ourselves to drive overall returnreturn.
Reduces the capital investment and will likely take on various forms
• We may purchase some inventory to facilitate a transaction• We may purchase some inventory to facilitate a transaction.• We may participate in various parts of the value chain (e.g., property
management, financing, loan servicing, etc.).• In WAAM 2 0 we finance the receivables - this enables us to captureIn WAAM 2.0, we finance the receivables this enables us to capture
the attractive consumer finance EBITDA, while optimizing the balance sheet and cash flow
8
The Truth About Wyndham Vacation Ownership
The business is a transparent and clean model with higher than perceived business quality.
Improving returns as the company streamlines its balance sheet.
Generates significant amounts of recurring free cash flow.
Generates recurring income associated with management fees.
Generates recurring interest income associated with receivables.
Generates recurring sales driven by upgrades from a deeply loyal customer base.
9
Committed To Reduced Levels of Capital Allocation & Moderate Growth Going ForwardModerate Growth Going Forward
“Balance Sheet Streamlining”Inventory($ billions) Pre‐Tax ROIC
25%
30.0%$1.5
10 %
$1.2
$1.1
$1.0
20.0%
$1.0
10 %$0.9
$0.9 $0.8
$0.8
10.0%
0.0%$0.5 2009 2010 2011 2012e 2013e 2014e 2015e
Pre‐Tax ROIC Inventory
10
Transforming Alternative Asset-light Business Model into an Ongoing Source of Product
Pursuitof Growth
Balance Sheet Streamlining
Hypothetical End State
Pre‐Tax ROIC
Ongoing Source of Product
11
Timeshare produces greater yield per unit than any other real estate strategy
Whole Unit Sale52 Points Based
Interval Sales
real estate strategy
Pricing Yield = $250 thousand Pricing Yield = $1.2 million
Selling units by a time interval increases total pricing by 4.8 times.
Proven experience in selling a wide range of vacation products from multiple
Pricing Yield $250 thousand Pricing Yield $1.2 million
Proven experience in selling a wide range of vacation products from multiple points.
Experience in selling third-party inventory.
12
Timeshare development is not the housing development b ibusiness
Minimum DownturnMinimum Development Risk
• The points product i i i i di id l
Reduced Buyer Risk
• Timeshare is a “sold” d t d h th
Downturn Resistance
• WVO timeshare has itt ffminimizes individual
project risk.
• With the club structure, sales are nationwide
product, and has the ability to manage the flow of potential buyers.
• Tour flow is proactively
never written off any developed inventory.
sales are nationwide. • Tour flow is proactively cultivated and not dependent on consumer demand.
13
Timeshare Market
14
Competitive Landscape
813,000 Wyndham
Total Vacation Ownership Revenue ($ in Millions) Owners
$1,500
$636
Wyndham
M i tt 425,000
160,000
235,000
Marriott
Disney
Starwood *
$636
$385
$330
Marriott
Disney
Starwood
****
237,000 Hilton
Resorts Units
$690Hilton
162
72
11
Wyndham
Marriott
Disney
20,803
12,768
3,500
Wyndham
Marriott
Disney** **
**
14
39
y
Starwood
Hilton
,
4,834
6,037
y
Starwood
Hilton
Source: Vacation Ownership WORLD Magazine, March – April 2012 (based on 2011 data). **Reflects 2010 data published in Vacation Ownership WORLD Magazine, March – April 2011* Reflects 2008 data published in Vacation Ownership WORLD Magazine, March – April 2009
15
Timeshare Market – Significantly Underpenetrated
• There are approximately 8 million U.S. households who alreadyown timeshare
The penetration rate among “eligible” U.S. households is 10%
• Leaving an addressable market of 53 million households
16
Timeshare – Owner ProfileTimeshare purchasers are trending younger
• 58% of recent purchasers under the age of 45
Timeshare purchasers are educatedTimeshare purchasers are educated• 62% of timeshare owners have at least a
college degree
Timeshare purchasers have stable incomesTimeshare purchasers have stable incomes and assets
• 33% earn between $50,000 and $75,000 annuallyy
• 50% earn between $75,000 and $150,000 annually
• 92% own a primary residence
17
Timeshare Owners – Overwhelmingly Satisfied
• 86% of all vacation ownership owners have had a positive ownership experience overall
69% f ll ld d th i t• 69% of all owners would recommend their own resort or vacation club
• 56% of recent purchases across the industry were upgrades by56% of recent purchases across the industry were upgrades by existing owners to a bigger unit or a higher season
18
Property Videop y
19
Count On Me!
• Exceptional Customer Service
• 95% satisfaction with resort staff customer service
• 97% satisfaction with vacation97% satisfaction with vacation planning counselors
• 93% satisfaction with resort propertiesp p
20
The WVO Difference – How We’ve Changed the Industry
• Pioneers• Points-based products since 1991• CLUB WYNDHAM Access; the next generation of points; g p• Wyndham Asset Affiliation Model
• InnovatorsHi hl d l d i t t d k ti lli (C ’• Highly developed integrated marketing alliances (Caesar’s, Outrigger, Avis/Budget, Sea World, etc.)
• Cutting edge sales technology• Extensive database• Extensive database
21
The WVO Sales Formula
Highly Developed Sales, Marketing & Service Channels
Largest in industry• 79 active sales centers• 2,200 sales professionals• 128 marketing locations• 1 500 customer service agents1,500 customer service agents
23
The Ingredients for SuccessThe Ingredients for Success
Prospects
PeopleProcess
Product
24
The Skills of the GameThe Skills of the Game(The Psychology of the Sale)
Focus on the customer
Earn the right to advance
Influence through involvement
3 Reasons Our Customers BuyT l blTo solve a problem • Problem: The difference between what you have and what
you wantTo satisfy a needy• Need: The lack of something essential
To achieve a goal• Goal: Dreams unfulfilled
25
The 5 Why’sThe 5 Why s
Why Vacation?Why Vacation?
Why Timeshare?Why Timeshare?Why Timeshare?Why Timeshare?
Why Wyndham Vacation Ownership?Why Wyndham Vacation Ownership?
Why Points / Credits?Why Points / Credits?
Why Today?Why Today?
26
Rent Vs. Own
If the cost is the same…
…which would you prefer?
27
Why People Buy – A Better Alternative
Typical Hotel Room• 1 Bedroom
1 B th• 1 Bathroom• 400 Sq. Ft.
28
Why People Buy – A Better Alternative
Wyndham Timeshare Unit• 2 Bedrooms• 2 Bathrooms• 2 Bathrooms• Living Area• Full Kitchen• Washer/Dryery• 1,100+ Sq. Ft.
29
The TourThe Tour
• Property Tour includes• Amenities and common areas• Kiosk• Wall Tour• Movie
• Model TourModel Tour• Their chance to “kick the tires”• Build the anticipation• Put them in the picture• Put them in the picture
30
The CloseThe Close
• This is the natural conclusion to presentation
• ABC
• Isolate and overcome the customer’s real objections
• Ask for the sale
• Close on emotion and logic
• Introduce additional assistance or authority
31
Count On Me!Count On Me!
32
Financial Overview
33
Vacation Ownership Sales
• Strategic restructuring resulting in 40% gross vacation ownership revenue reduction in 2009
• Tour flow reduced by 50% in 2009• Tour flow reduced by 50% in 2009
• Focus on quality vs. quantity
• Drive cash flow and margin improvement• Drive cash flow and margin improvement
34
The WVO Difference – Execution
2008 VS 2011
Gross VOI Sales $1,987M $1,595M
VPG $1,602 $2,229
Margin 16%* 25%
Down Payment/Cash Sales** 33.7% 46.6%
Free Cash Flow <$204M> $630M
* 2008 excludes impairment and restructure charges** Cash down and cash sales combined as a percentage of US VOI sales Cash down and cash sales combined as a percentage of US VOI sales
35
Improving VOI Margins (% of VOI Sales)
~25% ~20%
Explanation of improved margin
• Lower product cost
• Improved yield
Product costs (COS)• Land/Inventory acquisition
~25% 20% Improved yield
• Lower sales overhead• Decreased lead
generation and tour costs
and product development
Sales and marketing costs• Lead generation
~46%~42%
generation and tour costs• Lead generation
• Tour costs
• Sales commissions
• Sales administration
17%~26%
~12%
~12%G&A (overhead)
~17%
2006 2011
36
Lifetime Contribution of a VOI Sale
20% 20%
Upgrade
COS
Initial Sale
Average Transaction
= 32%
20%
Average Transaction
= $17,000
12%
58%Sales & Marketing
$22,000
36%16%
Loan Loss
Profit
• The owner EBITDA contribution over 20 years is over $20,000 (including resortmanagement fees and including financing).
6%
Profit
37
Wyndham Vacation Resorts Owner Upgrades
Owners who purchased over 15 years ago continue to value the product and purchase more
Owners who have purchased in the last few years continue to upgrade at levels consistent with historical trends
WVO’s new owner focus ensures that the upgrade model is sustainable
38
Property management provides a strong, stable, fee-for-service income stream
Ensures on-going quality and brand standards, which in turn supports customer satisfaction and ongoing sales
fee-for-service income stream
customer satisfaction and ongoing sales
190 resort HOAs provide recurring, long term relationships that are “sticky” in nature (voluntary attrition rates of less than 5% over the last 5 years)( y y )
Owner maintenance fees provide bulk of CapEx; Wyndham’s ongoing investment is minimal
Mid-single digit EBITDA growth supported by contractual “cost of living” adjustments
39
Property Management Fee-for-Service Profile – 2011
Profile Reimbursable Net Profile
2011($ millions)
Costs
Management Fees $424 ($226) $198Resort Management Expenses (334) 226 (118)g p ( ) ( )G&A (24) $0 (24)EBITDA $56 $0 $56
Margin 13% 0% 28%CapEx < $0.5 < $0.5
40
Originations Platform Focused on Quality• Financing options
• FICOs 600+Minimum 10% down payment or equity for FICOs ≥ 640Mi i 20% d t it f 600 639 FICOMinimum 20% down payment or equity for 600 – 639 FICOsTen-year fixed rate fully amortizing loanSmall bucket of longer tenor loans is being explored
• FICOs <600Minimum 50% down paymentFive-year fixed rate fully amortizing loan
• Interest rate determination• Rate based on FICO, down payment, and purchase amount• Current range from 11.49% to 17.99%• Incentives for extra down payment/equity
Adjustments for 600+ FICO obligors begin at 20%
• Criteria is reviewed and revised at least twice per annum• Review is focused upon factors such as WVO’s cost of funds and leverage rate
41
Serviced Loan Portfolio Characteristics*
Weighted average coupon of receivables is increasing
Weighted average age of receivables is increasing
12/31/07 12/31/08 12/31/09 12/31/10 12/31/2011
Qualified Receivables $3.13 billion $3.50 billion $3.22 billion $3.07 billion $2.98 billion
L C 245 657 247 974 228 062 216 647 209 771Loan Count 245,657 247,974 228,062 216,647 209,771
Avg. Loan Balance $12,727 $14,109 $14,125 $14,193 $14,209
W.A. Gross Coupon 12.48% 12.69% 12.92% 13.14% 13.33%
W A Original Term 116 121 121 121 121W.A. Original Term 116 121 121 121 121
W.A. Remaining Term 98 102 96 92 90
W.A. Age 18 20 26 29 30
% Enrolled in Electronic Payment 85% 84% 84% 86% 88%
* Qualified Non-defaulted North American Portfolio
% Enrolled in Electronic Payment 85% 84% 84% 86% 88%
Qua ed o de au ted o t e ca o t o o
42
Composition of Portfolio* by Equity and FICO
Average transaction equity and aggregate portfolio equity continue to increase
Weighted average FICO of portfolio (at origination) continues to increase
Year Ending 12/31
Average Amount Financed per Receivable
Averaged Amount Purchased per
Receivable
Average Amount of Equity per Receivable
Weighted Average FICO of Portfolio (at origination)
2005 $12,317 $15,343 19.7% 656
2006 $13,572 $17,585 22.8% 663
2007 $15,148 $20,446 25.9% 673
2008 $16,625 $23,173 28.3% 680
2009 $17,124 $24,746 30.8% 690
2010 $17,646 $26,596 33.6% 697
2011 $17,957 $28,282 36.5% 702
* Qualified Non-defaulted North American PortfolioQua ed o de au ted o t e ca o t o o
43
Wyndham Vacation OwnershipOrigination Composition(1)
Consistent decrease in sub-600 FICO band originations was accelerated in 2009 and continued throughout 2010 Higher originations in 700+ FICO band
g p
Higher originations in 700+ FICO band
Year of Origin No Score 350 – 599 600 – 699 700 – 850
Distribution of All Annual Originations by FICO Score
g
2005 8% 21% 37% 34%
2006 4% 19% 37% 40%
2007 3% 15% 36% 46%2007 3% 15% 36% 46%
2008 3% 13% 33% 51%
2009 3% 2% 32% 63%
2010 3% 1% 31% 65%
(1) FICO banding reflects original score.(2) 2011 data includes originations through 10/31/2011
3% 1% 31% 65%2011 (2)
4% 0% 32% 64%
44
(2) 2011 data includes originations through 10/31/2011
Significant Financing Spread
2009 2010 2011
Financing Spread
Weighted average coupon to owners 12.44% 12.67% 12.76%
Weighted average cost of capitalWeighted average cost of capital- Conduit average
- ABS average
- Company Financed
Total weighted average rate
9.80%
8.05%
6.30%
7 33%
6.00%
6.82%
8.09%
7 37%
3.75%
5.44%
7.19%
6 04%Total weighted average rate 7.33% 7.37% 6.04%
Net financing spread 5.11% 5.29% 6.71%
Contribution $169 million $165 million $201 million
Average portfolio balance (net) $3,308 million $3,110 million $2,992 millionAverage portfolio balance (net) $3,308 million $3,110 million $2,992 million
45
When a receivable defaults, the inventory is “reusable” and sold at a higher price than originally sold
Auto • Asset repossessed
sold at a higher price than originally sold
• Asset repossessed • Asset value significantly discounted to original price• Sold at a loss
Home Equity • Asset repossessed• Asset value is linked to real estate market conditions
Vacation Ownership• Interval / Points reclaimed• Condition of underlying asset maintained by our property
management group• Asset resold for higher price than original sale
46
Loan Loss Allowance
Designed to cover losses associated with uncollectible receivables
Ongoing strategic analysis of current and economic environmentOngoing strategic analysis of current and economic environment compared to historical trends
Balance SheetBalance Sheet • Monthly evaluation conducted• Required balance determined primarily by FICO and length of
outstanding receivables– Historical static loss curves utilized and applied to FICO
• Required reserve, as calculated, is compared to general ledger balance– Additional allowance requirement recorded as revenue reduction
through loan loss provision• Allowance reduced by contract cancellations and increased by recorded
provision
47
Cash Flow Drivers
Reduced capital deployment• Capital spend reduced from $686 Million in 2007 to approximately $79
Million in 2011
• Wyndham Asset Affiliation Model (WAAM) sales began in 2010 at Myrtle Beach Towers on the Grove and Reunion Resort in Orlando and in the third quarter of 2011 at Smuggler’s Notch in Stowe, Vermont, and Emerald Grande in Destin, Florida
Increased cash received at point-of-sale• Average down payment increased from 18% to 27% (Q1 09 vs. Q1 12)• Percentage of sales financed decreased from 58% to 51% (Q1 09 vs. Q1
12)
48
We have developed an alternative, asset-light business model into a ongoing source of product
A complementary component of the overall Vacation Ownership business.
model into a ongoing source of product
• Over the next five years, as we seek to reduce the balance sheet, WAAM will be an opportunistic and a complementary source of business, which may augment overall levels of growth.
O b l h t h b t li d ld t t WAAM• Once our balance sheet has been streamlined, we could target more WAAM or purchase distressed inventory ourselves to drive overall return.
WAAM will reduce the capital investment of the vacation ownership business and will likely take on various forms.
• We may purchase some inventory to facilitate a transaction.
• We may participate in various parts of the value chain (e.g., property management, financing, loan servicing, etc.).
• In WAAM 2.0, we finance the receivables - this enables us to capture the attractive consumer finance EBITDA, while optimizing the balance sheet and cash flow
49
ABS Market CycleAdvanceAdvance
Rate at Close Interest RateDisruption of MarketsPre-Downturn
9.0%
10.0%
90%
100%
6 0%
7.0%
8.0%
80%
90%
4.0%
5.0%
6.0%
60%
70%
1.0%
2.0%
3.0%
40%
50%
0.0%
1.0%
30%
Yield Advance Rate at Close
50
From an accounting perspective, the vacation ownership business is transparent
• No gain on sale accounting.
business is transparent
• No more deferred revenue and percentage of completion (POC) accounting.
• No off balance sheet accounting.
• No hidden liabilities.
Vacation Ownership is not an opaque,accounting-intensive and confusing business!
51
Project level IRR’s are strong when financial markets reflect historical patternshistorical patterns# of Units 50Gross Revenue $75 millionCOS 20.0%Financed Sales 60 0%Financed Sales 60.0%Weighted Average Coupon 13.5%Advance Rate 70.0%
Project Level IRR (Traditional) Average Net Cash Flow ($ millions)
Cash Inflow Year 0 Year 1 Year 2 Year 3 Years 4+ Total CashCash Inflow Year 0 Year 1 Year 2 Year 3 Years 4+ Total Cash-Cash @ sale 33.8 33.8-Principal payments 3.3 5.0 25.5 33.8-Interest income 2.7 4.5 15.6 22.7-A/R borrowing 28.9 28.9
Total Cash Inflow 68.6 9.4 41.1 119.1
Cash Outflow-Capital outlay for product 3.8 11.3 15.0-Sale comm & overhead / marketing 32.1 32.1-G&A 7.8 0.4 1.6 9.8-Interest expense 0.9 1.7 4.6 7.1-Principal payments 1.7 3.5 23.7 28.9
Total Cash Outflow 3.8 11.3 42.4 5.6 29.9 92.9Net Cash Flow (3.8) (11.3) 26.2 3.8 11.2 26.2
Average IRR 67%Average IRR (Unsecuritized) 27%
52
g ( )
Vacation Ownership Summary
• The Wyndham Vacation Ownership business has higher than perceived business qualities and improving returns profile.
• While this business is strong, we are taking steps to further strengthen the financial profile of this business.
• Improvements in the financial markets support enhanced business profitability• Improvements in the financial markets support enhanced business profitability.
• From an accounting perspective, the vacation ownership business is transparent.
• We have the best management team in the industry.
• Finally we understand the vacation ownership buyer and believe the demand• Finally, we understand the vacation ownership buyer and believe the demand profile for this business will be strong for many years to come.
53