The race to worthless

[Chili327]

Disney will most likely foot the bill.

Not sure i agree with that. lol

 

[Genie+]

All any DVC resort needs is enough people to find some value to it. In VB’s case it attracts people wanting low buy-in and people wanting home priority. It’s not a big resort (1.8m points) and a small fraction of DVC. The lower resale $ goes, the less motivation to be the seller. I think if DVC/DVD thought VB was getting dangerously close to becoming near $0 resale, they’d just pump the experience there by adding more activities or whatever.

I don’t think VB is much higher risk than buying one of the large SAP resorts, SSR, OKW, AKV. If something comes along that upsets the resale market, these might have the biggest hit on salvage value compared to purchase price. There’s just so many of those points. If demand took a serious hit there’d be a real struggle with owners competing to sell. For example, if several years from now DVC decided to better enforce commercial renting. You’d have many owners trying to sell that would quickly outpace buyer interest. Same thing with dues for OKW and maybe AKV (if for some reason the animals became extra expensive). What if dues increases impact those resorts more than others (how we saw CM pay raises push OKW dues up disproportionately). With such large resorts even 15% of owners trying to exit around the same time would be very painful. In both the renting and dues scenarios, you have more owners wanting to sell and less buyers interested. The larger the resort the more those imbalances could spiral.

 

[bakerr6]

Not sure i agree with that. lol

It's a cost of doing business. Similar to paying for wages, insurance, benefits, marketing etc.

 

[Chili327]

I don’t think VB is much higher risk than buying one of the large SAP resorts, SSR, OKW, AKV. If something comes along that upsets the resale market, these might have the biggest hit on salvage value compared to purchase price. There’s just so many of those points. If demand took a serious hit there’d be a real struggle with owners competing to sell

Being able to sell isn't the problem (i mean there will always be buyers), the price may be lower if the market dictates that, but people will only be giving them away when the rental market is higher than the dues or when dues are just too high in general. SSR, OKW, etc will always have owners that are willing to stay there, so I think its different.

 

[Chili327]

It's a cost of doing business. Similar to paying for wages, insurance, benefits, marketing etc.

Yes, but if someone is under contract why would Disney take it from them (pay to rofr) when they are under contract to pay those dues. Now if people just let them get repo'd that maybe true, Disney is probably happy to take them for free & use the points for rental.

 

[CastAStone]

DVD has a brand to maintain for future years with their new premium product. I do think eventually it will no longer make sense to ROFR these contracts, but it will be much closer to the end of the contract (maybe 8 years from now).

While VB is not a parks hotel, Disney will do whatever they deem reasonable to drive revenue for parks (at least until other business units increase margins). DVD is a great way for them to generate additional mandatory revenue for parks, as it forces people to spend their points on disney hotels. They must have a general knowledge of average attendance and expenditures for DVC owners over the life of the contract.

These contracts are worth more in their eyes than just the sunk real estate cost. There's additional revenue Disney earns and retains from higher income earners spending time and money in the disney ecosystem.

A good example of this outside of disney is to look at caterpillar. They've significantly increased revenues per sale through offering customer value agreements.

In a vacuum, they typically would want to purchase when the cash rental values exceed acquisition costs for the contract. We forget the two items below (and many other criteria unknown to us) when analyzing contract values:

The contract value is comprised of hotel cash values and service value add (what amount is spent by customers on an average basis during each stay).

Disney still sets pricing for these hotels. Rental values are derived from the pricing strategy held by disney. Theory would suggest there will always be a market for renting points, as disney will do whatever they can to avoid renting at a loss. I would anticipate a squeeze on further. Increases where possible in the future, as they still need the hotel to be profitable.


The third unknown that I'm not sure how they would calculate is the goodwill value for their brand. If the resale market is a benefit for maintaining higher direct sales (I would argue this is probably not the case), the value of VB would have some arbitrary value assigned for goodwill as well.

If Disney has to buy back all of the contracts to keep them from becoming worthless, then they’re worthless.

That doesn’t mean they have no value - my disgusting, high mileage old minivan has value to me because I can stick my whole family in it and take them places, and they don’t see the layer of filth they’ve contributed to it over the years, but on the resale market it would be worthless, expect maybe to a scrap dealer.

Worthless and without value are different concepts, especially in the timeshare world.



Separately, I think it’s reasonable to think that Disney would take back unlimited unwanted VB contracts for free; there are a few timeshare developers willing to do this.

But to pay for them? No way.

 

[Brian Noble]

Anyone who thinks Disney uses ROFR to prop up resale values is fooling themselves. Disney uses ROFR for one reason and one reason only: to obtain inventory that they (a) do not have to bid competitively for and (b) can turn around and sell back to someone else.

If they cared about resale value, they would not have spent the last many years doing everything they could think of to devalue resales--up to and including selling restricted resorts.

If they wanted to hold inventory for rental purposes, they'd've built hotels---you know, things with rooms they rent out---not timeshares.

Edited to add: I do suspect they would take inventory back, but it will be at below market rates, as they have been doing for years in dribs and drabs. And if VB is selling for $0 on the open market, you plausibly would have to pay Disney to get them to take it back. This is also something other timeshare developers do.

 

[Brian Noble]

And if you don't want to take The Great Recession as an indicator, you can also take the fact that they currently buy back approximately nothing that isn't named "Old Key West" to recycle '42s into '57s, plus the resort with the shiny new tower they are in the process of building.

 

[bakerr6]

Anyone who thinks Disney uses ROFR to prop up resale values is fooling themselves. Disney uses ROFR for one reason and one reason only: to obtain inventory that they (a) do not have to bid competitively for and (b) can turn around and sell back to someone else.

If they cared about resale value, they would not have spent the last many years doing everything they could think of to devalue resales--up to and including selling restricted resorts.

If they wanted to hold inventory for rental purposes, they'd've built hotels---you know, things with rooms they rent out---not timeshares.

Edited to add: I do suspect they would take inventory back, but it will be at below market rates, as they have been doing for years in dribs and drabs. And if VB is selling for $0 on the open market, you plausibly would have to pay Disney to get them to take it back.

I agree with you on Disney not caring about resale value. I think the challenge for them lies in vacancy rates. They need to maintain a certain value for each nightly rental. Their pricing model is based on simple economic principles of supply and demand.

If their cash rooms lay vacant at 20%, the operating expenses need to be distributed amongst all the occupied rooms. I'm curious how this would be modeled in if they pulled all inventory.

I agree that they would prefer to acquire worthless, but I'm wondering how likely that would be, seeing as nightly rates should continue to climb. It may be more dependant on what was described above where the maintenance fees exceed the nightly rental rate.

 

[bakerr6]

You said it earlier. It has to make financial sense for them to rofr those contracts. Resale rates for most resorts are at or above pre covid levels. I don't see that making financial sense for them to rofr contracts with so much inventory already in house.

Financially, contracts are holding up well. People that expect their contracts to appreciate in a similar fashion to covid would be foolish. The recent decline is on-par with prior years from a percentage perspective, even with a larger amount of contract value utilization (due to less years to expiration).

 

[Flash_Sloth]

Annual maintenance fees are the main expense of a timeshare over the years. Sure, the initial purchase price is important, but the dues stick with you and increase year after year. If the annual dues at a particular resort get too high, that could quickly drive its value to $0 even when it has years of points left.

I think that the main value of DVC contracts is with their location close to WDW & DLR and some of the perks that go along with them like EPTE, EEH, transportation to/from the parks, etc. That leaves VB, HH, and AUL as outsiders, though their points can be used elsewhere at the 7 month mark. I'd expect one of these to be the first to go to $0.

Every once in a while, I read a post that says something to the effect that they're glad that DVC contracts have expiration dates. Maybe they don't want to burden their heirs with annual dues, or they think that they'll get to an age where they won't want to or can't travel, etc. (BTW, odds are that I'll expire before my Riviera contracts expire.)

If a DVC contract is something of value, it is something that can be sold by you or your heirs. Selling might be a minor headache, but hey, it is $ greater than 0. As a quick data point, OKW-E contracts have an extra 15 years over OKW contracts, and typically sell for more, so more years is good. If a DVC contract didn't have an expiration date, I'd expect it to be worth more than those with expiration dates, but that'll never happen.

If the dues at VB keep going up, it is going to quickly get to a point where the dues cost more than the value of renting out the reservation. IMHO, resale value should approach $0 when we get there. And once it gets there, maybe it is good for the owners to have a way out when the contract expires.

But CFW, yikes! At least it is close to WDW and has transportation. 1 room/cabin type, high dues, resale restrictions, and we're still trying to figure out what the long term plans are with the trust. It is going to take a hell of a beating on the resale market, much more so than RIV or VDH with their resale restrictions. I don't think that CFW will be the first to reach $0, but it is going to be a tough sell.

 

[disneylandtour]

... with David’s or DVC Rental Store, you’re only going to get $14-$16 per point.

If you can’t rent out your points for enough to cover dues, is there any value left? This seems very likely to happen in the next 5 years.

I don't disagree with your overall point, particularly with VB, but I believe you're using the wrong metric here. The value of those points is not $14-$16, as you, essentially, are paying a business to rent them out on your behalf. The value of those points is what they rent for. If you were going to replace your owned points with rented points, you wouldn't replace them for $14 to $16 pp (typically), you'd be paying $19 or $20 pp for VB. You can easily rent the points on your own, even on the DIS boards, for $18 or $19 point direct to a renter and keep the entire amount yourself. That's their actual value. The $5 or $6 is what you're paying to David's or DVC Store or whomever to rent them as a service for you.

 

[disneylandtour]

Also, I think we're headed into a couple of difficult years. Disney can't even rent out all of its own hotel rooms most of the time because there's very little new at the parks. I doubt DVC point rental rates are going up much in the next two years. But then Tropical Americas, Monsters Inc land, Cars land or whatever it's called, and Villains land--all that will fill rooms and will create an opportunity to push point rental rates higher. So even though there's a couple of sucky years ahead, by the end of the 2020s, rental rates should be significantly higher than MFs for everything.

 

[Chili327]

I agree with you on Disney not caring about resale value. I think the challenge for them lies in vacancy rates. They need to maintain a certain value for each nightly rental. Their pricing model is based on simple economic principles of supply and demand.

If their cash rooms lay vacant at 20%, the operating expenses need to be distributed amongst all the occupied rooms. I'm curious how this would be modeled in if they pulled all inventory.

I agree that they would prefer to acquire worthless, but I'm wondering how likely that would be, seeing as nightly rates should continue to climb. It may be more dependent on what was described above where the maintenance fees exceed the nightly rental rate.

I think you're confusing hotels with DVC... As DVC we don't pay anything when we stay whether we go or not, so there is no "vacant room" issue, they just get sucked up at 7 months from other DVC members. And whoever signed the contracts keeps paying the dues.

Now if were talking about some odd situation where hundreds (if not 1000's) of members gave up their contracts, then it all becomes rack rates, rentals, etc then there could be that vacancy issue.

 

[OKW Lover]

Disney can't even rent out all of its own hotel rooms most of the time

Where did you get this info?

 

[gmi3804]

Renting points is not the equivalent to owning because you don’t have control of the reservation.

Owning DVC is a very expensive way of "having control of the reservation." When you're in the unit, it feels exactly the same if you own it or you're renting.

 

[gmi3804]

Where did you get this info?

Every time I see the "rooms available tonight" signs.

 

[Ruttangel]

On the plus side for CFW we have seen lower dues increases for new resorts so in 5 years, CFW may have similar dues to OKW
Also, just 1 room type but it has low point charts and sleeping 1-6 is pretty flexible
On the down side, I don’t know what they thought about adding CFW to DVC, doesn’t fit at all to me
Must have been an idea to transfer financial risk to owners

As for Vero, great resort, great location but dues are spiralling so that gets my vote

All of our purchases could be zero if something extraordinary happened like Disney sells to Apple who mess up the parks experience….

 

[Chili327]

Every time I see the "rooms available tonight" signs.

Where do you see that.. on the DVC side or Disney hotel side?

 

[BrianLo]

Vero is probably the one that gets there first. That still doesn't mean Vero will be worthless--as long as there is a gap between owning it and using it.

Currently DVC rental store has different rates for every resort and David’s pays out (and charges) a lower rate for SSR, VB, HHI, and OKW.

The thing is that within 7 months, when (virtually) all points are the same, they all pay their lowest rate and they all charge less too. So VB’s rate is tied to WDW at that point. And before that point, the fact that DVC rental store and David’s are already charging their lowest rates tells me the demand isn’t there for them to charge more. Or they would.

I think I’d like to change my tune a bit. Vero’s value isn’t lock stepped to what an owner can get for its home priority resort, it’s more determined by the usage it can achieve. Which is still 0-7 month bookings at the O14. 10 of those resorts command a 23$ cost in that window at David’s if you are a renter.

As mighty as the maintenance fees are, they are still, in an ideal use scenario, providing a 40% discount over renting points, “today”.

I think when we get within 5 years of expiry that becomes even more relevant. You don’t really want to get into VB at the moment because it is actually still a big, longer term, expensive financial proposition.

But when VB is 5 years out from expiry and if those discounts apply, a 5$/pp resale will be relatively attractive as a low cost commitment for a few years of points. This is of course assuming the other 2042’s don’t also crash to near zero simultaneously.