DVC - The Future

[MickeyMcMouse]

Just wondering what your comments are on all the Disney takeover situation regarding DVC.

I know this has been discussed at length on the US boards but most of the time these things are different from at UK perspective.

David

 

[Scotfan]

We asked this when doing the tour last Wednesday, the guide just tried to brush it off but its one thing that makes us a bit unsure about purchasing.

 

[vernon]

I'd only be repeating the things I've said, ad nauseum, on the US boards. DVC is a huge earner for Disney and has been oine of their most profitable areas in the last 10 years or so, it would be economical suicide to hive off DVC for a number of reasons and any purchasing company would have to wait until 2042 before they could realise the majority of any potential profit.

There's nothing stopping Disney from selling off land on the periphery of WDW to a timeshare company to build their own development ( indeed I think this has already been done) but to sell off land at the heart of Disney property would send some terrible signals to the shareholders and IMHO the current board are in too weakened position to embark on that course of action. Any new company coming in would quickly realise the huge potential tsunami of money that will be coming in to Disney in 2042. The company has the choice of accepting 6 hotels onto it's books for zero cost ( to use as hotels) or the potentially much more lucrative avenue of reselling the DVC points at those resorts ( without the outlay of building the resorts). The economics are absolutely astronomical. Just for fun I've calculated the value of Old Key West's units if they were sold this year (using Disney's current points costs of $89 per point. While it's not difficult to calculate a likely value in 2042, IMHO it serves the purpose to use todays figures as we can all imaghine what these figures mean in todays $s)) it works out the value of

A studio at $456,000
A 2 bedroom at $1,246,000
a grand villa at $2,063,000

there are 709 rooms available at Old Key West, even assuming they are all studios ( which we know they are not) that puts a value on the resort at $323,300,000 . I think a conservative estimate of the value of the resort is in excess of $500 million and whoever owns it gets the buildings back fully in tact in 50 years. It's a licence to print money.

 

[Pootle]

I think Vernon makes a very compelling argument.

My guide told us that following the events of 9/11, it was the DVC side the was the 'darling' of the theme park business - all those dues and repeat visitors.

I've just been told that my request for an OKW add-on has come through (but the points they have are going fast) and I couldn't be more pleased. Yahoo

 

[Daniel&family]

I hate to to put a dampener on DVC, but surely Vernon's calculations put a question mark on the ''value''? of DVC...

I hope I'm wrong, but be carefull!

 

[vernon]

I'm not sure on why you think it's a "dampner". With all timeshares the "value" of al the weeks added together exceed the value if it's sold as a single item.

IMHO it's an arbitrage situation, the sellers get extra value by breaking down the unit into componant parts (weeks of timeshare) and the buyers gain by having access to the limited share of a unit they require without having to make a financial commitment to the other (larger) portion of the unit that they would be unable to use. It also shows the buyer a huge saving on their hotel costs over the length of the program.

Because the owning/building/selling company can make a decent profit out of an offering doesn't mean the "punter" is being ripped off, JMHO. I can ( and often do) make a very good financial justification for DVC from a buyers perspective, the fact that the seller also has a reason to be involved in the transaction doesn't effect that, indeed if there was nothing in it for the seller , it wouldn't happen.

 

[Daniel&family]

Dear Vernon

I can't disagree with anything you have said and your argument, should certainly reassure anyone about the potential takeover.

However my point wasn't questioning the need for a arbitrage between the costs of DVC and the freehold values or Disneys investment returns, but the size of this arbitrage & these profits.

Since your original post implies that Disney make a disporportionately high percentage of it's profits from DVC I was only wondering what 'value' was left for DVC owners.

Regarding the large savings over hotel costs, I agree that this does show that there is still value from a DVC owners viewpoint, but only when potential returns on the capital invested or loan costs are taken into consideration.

I certainly don't know enough about DVC to give a qualified opinion on it's merits or otherwise and my comments are only meant to be 'food for thought'.

I also realize that are other associated benifits and will consider DVC ownership in the future (hence my using this forum) along with the other options, whilst considering the purchase of a holiday home.

 

[vernon]

Disney certainly makes a healthy profit from DVC, but I'm not sure I'd agree that it's disproportional, it certainly wasn't my intention to imply that it is. IMHO it's more of a cash flow difference for the company involved. Disney could certainly make more money in the long run by sticking with hotels, but it runs the risk of losing business to other timeshare companies.

DVC offers value to Disney in that
1) Disney gets its money up front for the development aiding to it's cashflow enormously.
2) Disney has a guaranteed customer base who will return year after year spending money at Disney restaurants, shops and parks.

DVC is a slightly more expensive offering than many other timeshares, BUT it does also offer a better product for those that want to stay on site. All companies need to return a decent amount on their assets, land on Disney property has an intrinsic value and as such Disney would be fully justified, IMHO for valueing that land use at a higher $ amount than say Mariotte if they were building 5 miles away from Disney property.

I think it's slightly disingenuous to adopt the view of what a company is making out of a product, IMHO it's irrelevant what a companies profit margin is on a product, if that product shows value to you as a customer , you buy it. If it doesn't you don't. Perhaps a fair comparison would be oil prices. Would you turn round and say, I'm not going to use petrol made from Saudi oil because it only costs them $2 per barrel to dig out the ground while it sells for the same price as north sea oil which costs $8 to produce (both figures made up for the sake of argument).

Companies are in business to make money, their pricing is decided by what they think the market will bear as a cost. DVC shows the punters a good return (from their point of view) because Disney has to price it at a level where the reason to take up the offer is reasonable clear. America is a very capitalist society, their companies are expected to return decent profits, if they don't their shareholders would be calling for the CEOs head on a plate. Disney property is very highly valued real estate, while it may appear the profits seem high to a layman, I would think they are in line with what most companies would expect, as I previously said the "beauty" of DVC for Disney is that the cashflow advantages it shows the company. Building a hotel is a high upfront cost, but the returns take up to 20 years to fully recoup, with DVC the profits are shown almost immediately. It's that rapid return on investment that makes it so valuable to the company.

 

[Daniel&family]

Thanks Vernon

Once again you make you make some very good points and I'm now more enlightened about DVC.

In hindsight my original post was perhaps poorly worded, but maybe I was influenced by having just roughly estimated a cost in excess of $50,000 for enough points to give my family of six a 2 week DVC time share.

The popularity of DVC and the overwelming endorsment it seems to receive from members on these forums probally says most about it's worth.

However since you refer to one of my views as slightly 'disingenuous', I must pull you up on the analogy you used. Since oil prices are kept artificially high through cartels (which most people would agree are the unaceptable face of capitalism), I feel you could have used a better example. -but we won't go there!-

THANKS AGAIN AND ALL THE VERY BEST

 

[vernon]

Daniel, if you're considering DVC you could, potentially, cut down the number of points you need by cutting out the weekends at either end of the vacation, these are the really high cost parts of the breaks. It often eludes potential buyers that by changing a couple of things slightly you can cut your outlay by a pretty sizable amount. If, like many people, you tend to fly out on a Saturday and return on a Saturday if you're prepared on your first night to just book a cheap motel (near the airport) for that night ( afterall usually most flights get into Orlando in the afternoon/evening and it's usually a case of grab a bite and go to bed). On the return leg treat yourself to a last 2-3 days (Friday Saturday) at one of the Universal hotels (or if you want to save money somewhere in I-Drive). You'll save 3 weekend points which for a 2 bedroom in June (about 70 points a night) saves you 210 points off your total (or about $20k).

It's also worth remembering that as your family grows you may not always need a 2 bed. By buying fewer points and banking and borrowing you should be able to get a 2 bedroom DVC room 3 out of 4 years, giving you the option of going somewhere else one year or paying cash. I've got a few other ideas that can cut corners that you may not have thought about so if you think any of this is potentially helpful to you please feel free to email me with a rough guide of what you'd like to do and I'll try to come up with what I think is the minimum number of point syou need and explain how to use them to best effect.

 

[Daniel&family]

Dear Vernon

I have enjoyed our exchange of posts and found it most informative.
We are travelling to Disney soon and will try to find out more about DVC whilst there. I have started a new thread regarding this as we seem to have taken this thread away from the original subject (SORRY DAVID!).
Thanks for the tips, they certainly make it seem more viable.I'll let you know how we get on when we get back.

Thanks again.