Disney to sell their DVC unit?

[hhisc16]

I could see Disney hiring a management company - ex. Marriott is a managing company- but I don't see them selling. They'd never let go of property they own that close to the parks assuming the new buyers would also want the land those resorts sit on.

For example, the management fee for DVC @ HHI is 1.4 million for 2021 budget.
I am unsure if Marriott (or others) would be interested if they could only be the managers and not owners right?

 

[RivShore]

I was a bit surprised when I scanned Disney’s 10-K. From the revenue recognition section:
“Resorts and vacations - Sales of hotel room nights and cruise vacations and rentals of vacation club properties are recognized as revenue as the services are provided to the guest. Sales of vacation club properties are recognized as revenue upon the later of when title transfers to the customer or when construction activity is deemed complete.”

I interpret rentals of vacation club properties as breakage income, whereas sales in the second sentence as normal DVC contracts.

ETA - I don’t know how Disney’s subsidiaries work (e.g. DVC, DVD etc), and the ownership structure of the land and buildings.

Thanks for the research!

I am shocked they don't line up revenue and cost over the term of the contract but there's probably some special rules around timeshare and real estate accounting that I have no knowledge of.

That does really change things on how I was viewing what Len said. This means the properties are supplying a service (the room) over a 50 year span, which obviously has a cost, but is not seeing any revenue for it. Offloading that albatross sounds like a good deal for the property! But then there's the MF's, so I guess the intent is that the property just breaks even on DVC rooms, with costs offset by MF's?

Anyway, in the overall picture, DVC sales is just a tiny piece of the pie - by my very rough calculations based on 2019 results, it's just 1.5% or so of the parks division revenue and just a half of a percent of overall revenue. You could make the argument for dumping it since its so small or keeping it since it's so small.

It will be interesting to see where this goes. DVC is so tied into the resorts, separating it would be a difficult task. I could see them outsourcing the management of it to someone like a Marriott, we all know DIS can't answer phones and run a proper website so maybe someone else could do better. It all depends on what the flavor of the day is at DIS corporate, are they tired of running a hotel business, then maybe they offload DVC and all the hotels and collect a big fat licensing fee with no risk. But they always indicated that they really did not like Swalphin having outside ownership.

That silly little podcast really did create a stir - just as intended, I'm sure.

 

[Brian Noble]

Stepping back a minute...

The last decade has seen nearly every hospitality company that owns a timeshare business spin it out into a separate company. The idea behind this is that the companies are better able to build market capitalization (i.e. more money for the shareholders) separately than they are together. I don't know why this is, but it's noticeable. Marriott did this about ten years ago. Hilton and Wyndham both did sometime in 2017. Bluegreen has always been independent (and public) while Westgate has always been independent (and private). That leaves just IHG (Holiday Inn Vacations Club) and Disney as the lone holdouts of the major players.

So, if there is anything behind this, it could just be a spin-out as a stock price manipulation move.

There has also been significant consolidation in the timeshare industry over more or less the same period. Some of this consolidation has also merged the systems; other combinations keep the systems separate, but take advantage of economies of scale in management, marketing, etc. Marriott has added Sheraton and Hyatt. They've stated they plan to fold Sheraton/Vistana into Marriott Vacation Club (just as they already have on the hotel side), but they plan to keep Hyatt separate. Wyndham has added WorldMark and Shell. WorldMark is (and for complicated reasons probably always will be) a separate system, but Shell is being absorbed into Wyndham. Diamond spent the last decade acquiring a bunch of different resorts and smaller resort networks merging them into The Club, but has since been acquired by Hilton. Hilton has been open about creating a two-tier system, with their existing resorts (Hilton Grand Vacation Club) as the top tier, and some (but not all) of the Diamond resorts as the second tier (Hilton Vacation Club, sans Grand). Holiday Inn VC has acquired Silverleaf, and added it to its existing system.

So, it is also possible that DVC would sell the brand off to someone else. That someone else could manage as a separate entity (as Marriott does with Hyatt and Wyndham does with WorldMark) or combine it into an existing system.

If I was the CFO at TWDC, I'd think it would be near-malfeasance if I didn't have someone periodically asking: "Should we spin out or sell <business X>?" for just about any business I ran. That's not because I wanted to sell off X, but it's because I need to always know what my options are. Answering those questions almost certainly requires talking to people outside the company to get an idea of valuations, etc. So, it's also entirely possible that (a) these conversations happened and were overheard but (b) they don't mean anything at all in terms of intent.

That's because all of these questions get filtered through company strategy and culture. And Disney is not currently a company that spins out or sells businesses. Instead, they have been near-fanatical about trying to acquire other brands and businesses that have synergy with things they already own, relying on the network effect to increase value across the portfolio. If I were to place bets about how consolidation works with respect to the DVC portfolio, I could see Disney acquiring a small, aspirational brand and using BVTC to make exchanging between them easy. But, I'm not sure which if any of those are still independent, so the opportunity for that has probably passed.

 

[Brian Noble]

One addendum: in each of those "merger" cases (Wyndham adding Shell, Diamond adding Sunterra, HIVC adding Silverleaf) that have actually happened, the inventory wasn't just suddenly combined. Existing owners in the acquired system had to buy into the merged system, or could retain the usage rights they already had. As you can imagine, many owners stayed put. The inventory they owned stayed with them.

So, even if TWDC sells DVC, and even if the buyer wants to merge it with an existing system, there is still a long period during which nothing much will change.

 

[Chuck S]

But, almost all other timeshares are forever, DVC has a built in end date, many resorts only have 20 years left, which may very well limit how attractive such an acquisition would be to an outside buyer.

 

[Suzabella]

For example, the management fee for DVC @ HHI is 1.4 million for 2021 budget.
I am unsure if Marriott (or others) would be interested if they could only be the managers and not owners right?

In essence, that's what they do with their own timeshares. Once sold out, the way I understand it, they manage the property and can be voted out by majority vote of owners. Their owners hold deeds in perpetuity. It has happened to at least one of their TS locations. What happened as a result was that the value tanked without the Marriott name attached. They are a management company to their own TS.

 

[Westerlin]

I just watched the DVC Fan on OKW. They were talking about how something is changing at DVC they just did not know what. Hopefully Pete and crew address this.

 

[The Jackal]

You can make fun of how it got to Testa, but Testa has a solid track record. My guess is at this point it is probably just Disney exploring their options when it comes to quick ways to pay down debt and to free more cash for streaming productions. Which were two priorities Chapek laid out in his Goldman conference.

That’s the reason why they are in debt, buying 20th Century Fox. The spent $71.3 BILLION on it. Time will tell if it was a wise move. They bought Fox for the streaming service.

 

[DonMacGregor]

Lawyers and accounting firms would likely be needed for certification of the votes.

Not necessarily. Cyber Ninjas is free at the moment, and they're local...

 

[Chuck S]

They may simply spin off DVD and DVCMC as a separate corp, but I doubt it, since Fox, Star Wars, Marvel and Muppets are all TWDC divisions, but not separate stock entities, as far as I know.

 

[GAN]

it's a joke. neither. i have bet on games before. . . i have zero luck. . .

No ...my comment was just a joke! Or at least an attempt at sarcasm...

 

[jimim]

No ...my comment was just a joke! Or at least an attempt at sarcasm...

No harm no foul.

 

[RivShore]

Stepping back a minute...

The last decade has seen nearly every hospitality company that owns a timeshare business spin it out into a separate company. The idea behind this is that the companies are better able to build market capitalization (i.e. more money for the shareholders) separately than they are together. I don't know why this is, but it's noticeable. Marriott did this about ten years ago. Hilton and Wyndham both did sometime in 2017. Bluegreen has always been independent (and public) while Westgate has always been independent (and private). That leaves just IHG (Holiday Inn Vacations Club) and Disney as the lone holdouts of the major players.

So, if there is anything behind this, it could just be a spin-out as a stock price manipulation move.

There has also been significant consolidation in the timeshare industry over more or less the same period. Some of this consolidation has also merged the systems; other combinations keep the systems separate, but take advantage of economies of scale in management, marketing, etc. Marriott has added Sheraton and Hyatt. They've stated they plan to fold Sheraton/Vistana into Marriott Vacation Club (just as they already have on the hotel side), but they plan to keep Hyatt separate. Wyndham has added WorldMark and Shell. WorldMark is (and for complicated reasons probably always will be) a separate system, but Shell is being absorbed into Wyndham. Diamond spent the last decade acquiring a bunch of different resorts and smaller resort networks merging them into The Club, but has since been acquired by Hilton. Hilton has been open about creating a two-tier system, with their existing resorts (Hilton Grand Vacation Club) as the top tier, and some (but not all) of the Diamond resorts as the second tier (Hilton Vacation Club, sans Grand). Holiday Inn VC has acquired Silverleaf, and added it to its existing system.

So, it is also possible that DVC would sell the brand off to someone else. That someone else could manage as a separate entity (as Marriott does with Hyatt and Wyndham does with WorldMark) or combine it into an existing system.

If I was the CFO at TWDC, I'd think it would be near-malfeasance if I didn't have someone periodically asking: "Should we spin out or sell <business X>?" for just about any business I ran. That's not because I wanted to sell off X, but it's because I need to always know what my options are. Answering those questions almost certainly requires talking to people outside the company to get an idea of valuations, etc. So, it's also entirely possible that (a) these conversations happened and were overheard but (b) they don't mean anything at all in terms of intent.

That's because all of these questions get filtered through company strategy and culture. And Disney is not currently a company that spins out or sells businesses. Instead, they have been near-fanatical about trying to acquire other brands and businesses that have synergy with things they already own, relying on the network effect to increase value across the portfolio. If I were to place bets about how consolidation works with respect to the DVC portfolio, I could see Disney acquiring a small, aspirational brand and using BVTC to make exchanging between them easy. But, I'm not sure which if any of those are still independent, so the opportunity for that has probably passed.

Great info, thanks!

 

[Minniesgal]

But, almost all other timeshares are forever, DVC has a built in end date, many resorts only have 20 years left, which may very well limit how attractive such an acquisition would be to an outside buyer.

That's what gets me why would anyone want to buy it makes no sense.

 

[RivShore]

That’s the reason why they are in debt, buying 20th Century Fox. The spent $71.3 BILLION on it. Time will tell if it was a wise move. They bought Fox for the streaming service.

But their debt load, even after the Fox buy, is not that bad and is much better than their peers.

And the sale of DVC, which has a built in end date starting in just 20 years, is not going to move the overall debt needle at all.

 

[dvc lover 1970]

Thanks for the research!

I am shocked they don't line up revenue and cost over the term of the contract but there's probably some special rules around timeshare and real estate accounting that I have no knowledge of.

That does really change things on how I was viewing what Len said. This means the properties are supplying a service (the room) over a 50 year span, which obviously has a cost, but is not seeing any revenue for it. Offloading that albatross sounds like a good deal for the property! But then there's the MF's, so I guess the intent is that the property just breaks even on DVC rooms, with costs offset by MF's?

Anyway, in the overall picture, DVC sales is just a tiny piece of the pie - by my very rough calculations based on 2019 results, it's just 1.5% or so of the parks division revenue and just a half of a percent of overall revenue. You could make the argument for dumping it since its so small or keeping it since it's so small.

It will be interesting to see where this goes. DVC is so tied into the resorts, separating it would be a difficult task. I could see them outsourcing the management of it to someone like a Marriott, we all know DIS can't answer phones and run a proper website so maybe someone else could do better. It all depends on what the flavor of the day is at DIS corporate, are they tired of running a hotel business, then maybe they offload DVC and all the hotels and collect a big fat licensing fee with no risk. But they always indicated that they really did not like Swalphin having outside ownership.

That silly little podcast really did create a stir - just as intended, I'm sure.

The only way I see them getting rid of dvc is to offload all hotels. Dvc is too entwined with the hotels. I can see them selling HHI and vb and AUL, sadly.

 

[CanadaDisney05]

I can see them selling HHI and vb and AUL, sadly.

This keeps getting brought up in this thread, so I'll bring it up again. DVC doesn't own HHI, VB, or AUL. The "owners" (the people) do. There really isn't anything of value for Disney to sell off here. All a potential buyer would get is

1) all unsold Aulani points. Considering they've been trying to sell these for 10+ years I'm not sure what true value their is here.

2) the small inventory of ROFR points they have

3) the ability to ROFR future resales.

4) the 2% of points that the developers are required to own.

5) the small profit they earn every year for managing the properties.

6) the ability to add these properties into their existing systems as a trade opportunity.

Given this, their just isn't enough value for a prospective buyer to offer any nominal amount.

 

[Brianstl]

That’s the reason why they are in debt, buying 20th Century Fox. The spent $71.3 BILLION on it. Time will tell if it was a wise move. They bought Fox for the streaming service.

They bought Fox for the existing library and IP. It doesn't help them with the production cost for new content for Disney+ and much more new content is what Disney+ needs right now for subscriber growth and to reduce churn.

 

[StitchesGr8Fan]

I started to be upset about this and then realized it would give us access to more of the “good” non-Disney timeshares in other parts of the world if one of the major timeshares bought it. That means Disney gets less of my money for tickets, food, and merch for the next 47 years. But I still get lots of fun vacations.

 

[CanadaDisney05]

I started to be upset about this and then realized it would give us access to more of the “good” non-Disney timeshares in other parts of the world if one of the major timeshares bought it. That means Disney gets less of my money for tickets, food, and merch for the next 47 years. But I still get lots of fun vacations.

We already have that through RCI