Resort ownership question??`

[AllisonG]

I just read on another board about Disney leasing out there resorts to other hotels.
Now, I know about DTD and S & D, but what about the others?
I, for some reason thought CBR and possibly others were owned by outside companies.
Help, anyone?

 

[rangebob]

All the resorts except for the hotel row near Downtown Disney and the Swan and Dolphin are Disney's hotels.

 

[Walt's Frozen Head]

I, for some reason thought CBR and possibly others were owned by outside companies.

Patience, Grasshopper.

-WFH

 

[lrodk]

There's a been a rumor floating around for about a year now which claims that Disney, in an effort to raise cash, may lease one of it's flagship resorts(ie BeachClub, Grand Floridian,Animal Kingdom) to an outside company. Another rumor claims that Disney has also considered leasing one of it's moderates(ie Carribean) in an effort to ease the problem of having so many rooms to fill during periods of slow tourism(ie as in the last 2 years), thus cutting their overhead.

 

[AllisonG]

Just for thinking that...... Do I move to the car behind?
Honestly. Think about it..?

 

[doubletrouble_vb]

I can't imagine what the advantage would be...

They would have to provide bus service just as they do to S&D...they would have to disallow room charging privileges...and then they would be competing with whatever promotions the new company wants to provide.

 

[DVC-Landbaron]

There was talk a while back about Marriot... Or was that just the DVC part?

AV?? Any details you can fill in?

Thanks.

 

[OnWithTheShow]

Considering what a huge cash cow DVC is I doubt it would be leased to an outside organization.

 

[Another Voice]

Actually the DVC are a huge cash cow only once during the initial selling period. But that’s less so now that the interest rates Disney pays have skyrocketed due to their falling credit rating. The game used to be that Disney would get a chunk of coin up front which they could invest at higher returns than the cost of the money they borrowed to build the place. But the investments they’ve chosen – such as leasing air planes to bankrupt airlines and making movies like ‘Bad Company’ – just aren’t working.

This is the part where are lot of tapping dance has to happen around various rumors. What we know is that Disney has a very substantial debt right now. Sure, it’s not AOL or Vivendi sized, but Disney isn’t as large as those companies are either. It’s big enough that it’s trashed Disney’s credit rating, affected the stock price, eliminated any chance that Disney can make another acquisition (not necessarily a bad thing), and reduced the break-up price Disney would fetch for a certain soon-to-be ex-CEO exit strategy.

It isn’t that a selling the DVCs or the resorts would provide more money to Disney in the long run – they are a way of getting a lot of cash immediately. It would also significantly lower Disney’s operational costs which, if you manage by only looking at a spreadsheet, is also a good thing. Remember, the current crowd used to bad mouth the Tokyo Disney deal but now proclaims it’s the “model” for how they want to do things.

 

[Cruelladeville]

DVC continues to be a cash-cow, otherwise they wouldn't be building Saratoga Springs. The current DVC resorts recoup their entire initial investment when they sell the points needed to stay there, with a healthy margin of extra cash. Maintenance fees that the members pay take care of ongoing costs, including some or all wages, depending on the resort. Aside form all that, it appears in the DVC documents that it's Disney's until 2042, but after that date, who knows? Also, the Marriott thing is for a joint timeshare venture at Disneyland Paris, which I believe is currently being constructed. It doesn't appear to have anything to do with DVC, since nothing has been mentioned to DVC members, yet it's been touted in the Marriott timeshare newsletter at least twice, to my knowledge.

The drain to the Disney budget is Pop Century, which sits unused and unfinished, as well as the slump in the economy from 9-11, which affects not only their stock, but their investments. Disney's economic slump is the same slump which affects companies all over the United States--uncertainty about Bush and a war that no one can afford.

 

[Horace Horsecollar]

Disney not only makes money upfront by selling the DVC real estate ownership "slices" for far more that it costs to build the units, Disney continues to make money by collecting a management fee of roughly 2% of the annual fees. That's guaranteed net profit, in good times and bad. (This 2% doesn't go to admin costs; the admin costs are considered expenses in the budget, just like housekeeping and reserve funds.) In addition, DVC brings back guests year after year -- whether there are new attractions or not -- to spend money at Disney parks, restaurants and shops.

By the way, there's nothing wrong with having a management fee. That's how property management companies make money.

When it comes to the regular Disney resort hotels -- value, moderate and deluxe -- it's just good business to consider whether it makes more sense to own the assets, or just to operate them, or to operate them with a brand affiliation, or to let a lodging company operate them (either with a Disney brand or a chain affiliation). What's the best way to make money for shareholders? Wouldn't it make sense to sell the assets to free up capital, use that capital to reduce debt, and then lease back the hotels and operate them with no visible change to the guests?

Marriott International used to own hotels. Their return on investment stunk. Marriott set up separate companies to own the assets, to operate the hotels, and to manage the brand. This has worked out well for Marriott International shareholders.

There is nothing wrong with Disney making sure that their shareholders get the best return on their investments. But if Disney frees up capital from hotels and then uses the money for their aircraft leasing business or to make bad movies or to subsidize follies in broadcasting, well, let's just say that would not be in the interest of shareholders.