Hilton Grand Vacations Inc (HGV) 2018 Q1 法說會逐字稿

Good morning, and welcome to the Hilton Grand Vacations First Quarter 2018 Earnings Conference Call. Today's call is being recorded and will be available for replay beginning at 2:00 p.m. Eastern daylight time today. The dial-in number is (888) 312-9854, and enter PIN number 8205589. (Operator Instructions)

I would now like to turn the call over to Robert LaFleur, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Don. Welcome to the Hilton Grand Vacations First Quarter 2018 Earnings Call.

Before we get started, we would like to remind you that our discussion this morning will include forward-looking statements. Actual results could differ materially from those indicated by these forward-looking statements, and the forward-looking statements made today are effective only as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the factors that could cause actual results to differ, please see the Risk Factors section of our previously filed 10-K or our 10-Q which we expect to file later today.

In addition, you will -- we will refer to certain non-GAAP financial measures in our call this morning. You can find definitions and components of such non-GAAP numbers as well as reconciliations of non-GAAP and GAAP financial measures discussed today in our earnings press release and on our website at investors.hgv.com.

This morning, Mark Wang, our President and Chief Executive Officer, will provide highlights from the first quarter of 2018 in addition to an overview of current operations and company strategy. Jim Mikolaichik, our Executive Vice President and Chief Financial Officer, will then provide more details on our first quarter and expectations for the balance of the year. Following their remarks, we will open the line for questions.

With that, let me turn the call over to Mark.

Well, thank you, Bob, and thanks, everyone, for joining us this morning. 2018 is off to a great start with very strong operating metrics across the board.

In real estate, contract sales were up 14.6%. And our resort operations and club management business segment revenue and adjusted EBITDA increased by double digits, and margins were north of 60%. We just announced an exciting new project in Charleston, and our 2018 inventory spending remains on track, with multiple project announcements expected in the coming months. We started the year off stronger than anticipated. We're confident in our trajectory, and we've raised our full year guidance.

With that, let's take a closer look at the business. As I said, we saw strong contract sales in our real estate business with double-digit gains in each of our major markets except for New York, where limited inventory continues to affect us. Asia Pacific again led the way, with contract sales growth exceeding 20%.

While trends were very strong in Oahu and Japan, the real standout was Waikoloa, where we started selling our new Ocean Tower project in January. While we've been in this market for years, this is the first time we've had oceanfront inventory in the big island. The product is exceptional, and the market response has been very positive, especially among our owners and Japanese customers.

The consumer is in a very good place right now, and we clearly saw that in our results, with improvements in all of our real estate drivers: tours, close rates and pricing. Tours increased 7.3%, driven by very positive trends in our first-time buyer channels. VPG increased 7% to nearly $4,000, and we continue to invest in new owners who embed significant future value into our system. NOG was 7.1%, driven by a 9% increase in first-time buyer tours and strong conversion rates.

While first-time buyers are very important, we are equally focused on realizing the value that's embedded in our existing owner base. In the quarter, we saw mid-teens growth in our contract sales. In fact, this quarter's close rate on owner tours was the highest we've seen in our system since the second quarter of 1999.

We're often asked if having a higher mix of first-time buyers means that we're overlooking an opportunity to increase our volume with high-margin owner sales. In reality, we have a proven track record of successfully selling to both groups at the same time. Because over half of our owners made their first HGV purchase within the past 7 years, our owner base is fresh, providing us with a large pool of buyers with a high propensity to purchase additional product. We believe that if you take our annual contract sales to owners and divide it by our owner base, you'll see we have industry-leading per-owner yields.

While the real estate top line metrics were positive, the new accounting rules make it difficult to see in our reported results. Jim will go through more of these -- details on this in a few minutes, but we expect the accounting effects will reverse themselves in the future quarters during 2018.

We also continue to invest in future growth with increased package sales in our all-important first-time buyer channels. And consistent with our increasing investment in expanded distribution, we're also spending more on due diligence and analysis in all these new markets we're working on.

As I mentioned in my opening, our resort operations and club management segment had a great quarter. This segment produced over 40% of our segment EBITDA at a margin over 60%, demonstrating that HGV has the industry's most efficient resort and club businesses. Growth in this business comes from leveraging our track record of sustained net owner growth. By adding new club members, we're able to consistently increase dues, transaction volume and management fees.

In our rental business, we continue to effectively yield-manage our inventory. In the quarter, our properties ran occupancies in the mid-80s and increased ADR by 7%.

Shifting gears. I'd like to spend the balance of my time talking about our new projects in our pipeline. As I said earlier, we just announced our new project in Charleston, which is our fifth project with the Strand group in South Carolina. Our first 4 deals with Strand were traditional fee-for-service deals, but this deal is the first time we've invested alongside of them on the development. Under this hybrid structure, we earn fee-for-service commissions and a share of the real estate and financing profits. We anticipate construction beginning by year-end, followed by sales starting early next year, with a planned opening by mid-2020.

With the announcement of Odawara and Charleston, we're at the beginning of what will be a string of project announcements this year. As you recall, we're accelerating our inventory spending to $510 million to $530 million this year. By increasing our level of owned inventory, we should be able to yield more real estate financing revenue from each dollar of contract sales, accelerate our earnings growth and still generate attractive returns on invested capital.

Of the projects in our 2018 spending plan, half of them are in new markets and half are in existing markets. The takeaway here is that we are prudently allocating our investment and risk between existing markets and new markets. While new markets are critical to our strategic priority of strengthening and expanding our brand presence, we're going to take a more measured investment approach in new markets or work with fee-for-service partners who really understand the local market.

In closing, we are pleased with our strong top line results and operating metrics. The consumer is in a good place, and our product continues to resonate. We've got great momentum in our resort and club and rental business, and our financing business remains steady.

There's some timing issues to get through in the real estate, but the underlying trends are solid. We announced projects in Japan and Charleston so far this year, and we still have an exciting pipeline of projects as we invest into the future. All of these positive trends will enable us to continue creating meaningful value for our team members, owners and shareholders.

And with that, I'll turn things over to Jim.

Thank you, Mark, and good morning, everyone. Before we get into the details on the quarter, as Mark mentioned, we adopted an accounting standards update regarding revenue recognition or ASC 606 at the beginning of the first quarter. The most important change resulting from these new accounting rules is that we are now deferring all sales revenue and direct expenses for inventory under construction until that project is complete.

Previously, we had recognized these revenues and expenses under the percentage-of-completion method. However, we have provided additional schedules in the release which reconcile the current period between both approaches. All that said, the key takeaway is that day-to-day operations and economics of our business are unchanged, and given our strong start and how we see the rest of the year unfolding relative to expectations, we are increasing our annual guidance.

As Mark highlighted, first quarter operating results were very strong, with increased volumes and metrics in our real estate business and excellent growth in margins in our recurring finance, resort, club and rental business. First quarter revenue decreased 8% to $367 million. Without the impact of 606, first quarter revenues increased 8% to $430 million. The primary variance was $59 million of deferred VOI sales related to 2 projects which are both under construction in the quarter. A schedule that reconciles our first quarter results between the old and new accounting rules is in the press release.

First quarter net income decreased 40%. However, without the impact of 606, net income increased by 8% as a lower tax rate offset revenue reportability and expense timing in our real estate business that should normalize over the balance of the year.

When we defer revenue, then direct expenses for projects under construction, under both the current and previous accounting rules, we don't defer indirect costs, and this causes a timing mismatch that recognizes costs ahead of revenues. Under the new rule, the effect is more pronounced, so first quarter total segment adjusted EBITDA declined 23% and margins contracted 570 basis points. Without 606, total segment adjusted EBITDA increased 2% and margins declined 230 basis points.

Now let's move to the individual business lines. Real estate is our only business significantly affected by 606, so I'll walk you through how these reporting changes affect us and also discuss some of the factors that impacted flow-through this quarter and how that plays out for the rest of the year.

As Mark indicated, we experienced growth in tours, VPG, pricing and close rates. Contract sales increased 14.6%. And the strength was broad-based across our markets, and we saw it from both new buyers and existing owners. Driven by a successful launch of Ocean Tower, owned contract sales were up 40% while fee-for-service contract sales declined 2%. And our fee-for-service mix in the quarter was 52% compared to 60% last year.

Real estate revenues decreased 19% in the quarter. This reflects $66 million of revenue deferrals from projects in Hawaii and New York that are still under construction. It also reflects flat fee-for-service commissions and some timing items affecting revenue reportability outside of 606. And without the impact of 606, real estate revenue increased 9%.

Real estate margin declined 56% in the quarter. This reflects the revenue items just discussed, higher sales and marketing costs and a modest reduction in product cost percentage. Sales and marketing costs increased due to the launch of Ocean Tower and investments that we're making in expanded distribution and new markets. Without the impact of 606, real estate margin declined 10%, which still reflects some revenue reportability, increased investment and the timing of indirect selling and marketing expense recognition.

To wrap up real estate, I'll point out a few schedules in the press release. In the New Accounting Standards section, you'll find schedules related to revenue and expense deferrals and expected recognitions under 606. We currently plan to complete Residences in New York City in the second quarter and Ocean Tower in Hawaii in the fourth quarter. Toward the end of the release, there's also a table that bridges our real estate margin calculation.

Turning to our financing business. Margin increased 8% as modestly higher costs offset some of the revenue gains from growth in the receivables portfolio, a higher weighted average interest rate and higher servicing fees. The size of the consumer finance portfolio remained steady in the quarter while our average interest rate increased a few basis points. Our long-term allowance was also unchanged from year-end. In the past 3 months, our percentage of loans over 30 days past due and our annualized default rate have both modestly improved.

Let's move on to our resort, club and rental business, which, as Mark discussed, had a great quarter. Resort and club revenues increased 8%, driven by 7.1% NOG and management fees from recently opened properties. Margins were very strong at 71.8%. Rental and ancillary revenues also increased 11% on higher ADRs at our owned inventory and more rental availability at fee-for-service properties. Costs remained in line, and margin increased 21%.

When combining these 2 business lines into our resort operations and club management segment, the segment adjusted EBITDA margin increased 220 basis points to 60.2%. Bridging the gap between the segments and adjusted EBITDA, license fees increased $3 million to $23 million. G&A expenses were flat, and the Elara joint venture contributed $2 million. Total adjusted EBITDA declined 34% to $62 million. And without 606, total adjusted EBITDA increased 1% to $95 million.

Before I get to the balance sheet, I'm sure most of you recognize that HNA fully divested their 25% HGV stake in mid-March. As part of the transaction, we repurchased 2.5 million shares for a net cost of $109 million. Our effective price was approximately 7% below the closing price at the day of the deal, and we purchased 10% of the offering or 2.5% of the float. This transaction removed an overhang, neutralized costs to HGV and allowed for a discounted repurchase while still preserving the ability to partner on potential business opportunities in the future.

Turning to the balance sheet. Our leverage moves up in the quarter. Our corporate leverage is 1.4x on a trailing basis or 1.2x on a net basis. Without deferrals, those ratios are 1.2 and 1, respectively.

In April, we borrowed $100 million on our $200 million bank revolver. In addition to the $100 million of capacity we have remaining on the revolver, we have over $320 million of undrawn capacity on our timeshare facility. I would also note that we expect to be in the market shortly raising additional capital. And currently, we're looking to upsize and extend our maturities with a new term loan and revolver. While this could change, we think we could get favorable pricing to our existing terms given the current rate environment. Additionally, we are still planning to access the ABS market in the third quarter.

Turning to cash flow. First quarter free cash flow was $7 million compared to $125 million last year. This reflects the timing issues we discussed throughout last year, including license fees and deferred tax payments from Hurricane Irma. First quarter adjusted free cash flow is negative $32 million compared to a positive $131 million last year. And we generated modest positive cash from our ABS deal and warehouse refinancing last year, and this year, we had only outflows from nonrecourse debt.

Given the strong start to the year, we're revising our contract sales growth guidance to 8% to 10% from 6% to 8%. Along with that, we are also increasing our 2018 adjusted EBITDA guidance range to $485 million to $505 million. This includes an estimated positive net deferral impact of $68 million that was previously recognized in 2016 and '17 under the percentage-of-completion accounting that under the new rules will be recognized when we finish the construction of The Residences in New York City later this year.

If you compare our current 2018 guidance to 2017 results, you can subtract $68 million from our guidance range and get a reasonable approximation of what our guidance would look like under the previous accounting rules. There are some other minor changes to the line items in our guidance, which are outlined in the guidance schedule in the earnings release.

This completes our prepared remarks. And we'll now turn the call over to the operator, and we look forward to your questions. Operator?

(Operator Instructions) And we'll take our first question from Stephen Grambling with Goldman Sachs.

So lots of noise, I guess, with the rev rec rules. But I guess, even excluding these, it looks like the margin flow-through maybe was a little bit light of recent history. Can you just elaborate maybe on what the puts and takes are excluding rev rec?

Yes. Again -- operationally, again, the business performed really well, and as you said, there's a lot of noise in the quarter that really impacts the flow-through and it's mainly reportability. When you -- that's the reason we don't guide on a quarterly basis. But the biggest impact, again, is that rev rec, $66 million. But aside from the 606, we had some other reportability impacts, the biggest one being rescission reserve. And Jim, I think you've got -- you could finish off this answer.

Yes. Stephen, the -- it really was revenue recognition and reportability. If you listen to the remarks I just made, we do not defer, even under the old accounting rules, indirect expenses and license fees. So if you think about almost 45% on a sale -- on average, of our sales and marketing plus license, maybe a little north of that, there is only a small portion even under the percentage of completion that we would defer with the revenue. And those are the direct selling costs, which are more in the neighborhood of 12%, out of the 45%, to 15%. So we really -- when we had such a big quarter in deferred projects, $66 million, which -- a big portion of that being Ocean Tower, it's a great start, but it does have a disproportionate mismatch in terms of the expenses being recognized in the quarter on the indirect side versus revenue that will flow through during the remainder of the year. When we complete the project and when you match that off also with the rescission, we had a lot of sales, with Easter falling where it did, towards the back half of March, just had big volumes there. And you piece those 2 together and you look at it on an old POC basis, we really had a quarter-over-quarter that had high single-digit year-over-year gain to maybe even low double-digit gain. So we're very pleased with the quarter. We know that the accounting has caused some difficulties, but that's why we're reasserting our guidance and actually bumped it up some given how we know the rest of the year should flow through.

That's helpful. And then on the projects that are embedded in your spending guidance but not yet announced, I guess, what is the expected time line of these projects and the potential impact to the P&L, especially as we think about the new rev rec rules?

Yes. Well, I don't think I've got the details here to talk about the impact from a rev rec standpoint. But we've got a wide range of structures and locations here, but the majority are conversions. We've got one greenfield site, so -- and a number of just-in-time. There's a -- the timing is really dependent on a number of factors: first, when we get the deal completed this year; the extent of work required on a conversion; and then the jurisdiction really dictates securing construction permits and sales registrations. But with all that said, we should see the benefit of the investment kick in as early as next year, but most of the benefit will start flowing through in 2020 and beyond. So the good thing is most of the deals we're looking at are conversions and have relatively short time frames compared to ground-up.

Great. And one last one, if I can sneak it in. Just on the consolidation that has been announced in the space, I guess, any thoughts on how you think about how important scale is to the business? And any kind of competitive impacts that could occur if the proposed transaction is consummated?

Yes. No, look -- first of all, I'd say that we already have scale. And when you look at our platform today, the value proposition that we have today provides over 5,000 really Hilton-branded vacation options for owners today. So from a scale standpoint, we believe we have scale. And from an M&A standpoint, we believe we've got a great path for opportunity for organic growth. And we've talked about the multiple markets and distribution expansion that we've got planned out and the accelerated spend. That's it. We wouldn't rule out any -- an opportunity if we find the right fit that allows us to accelerate our growth. But for us, I think the #1 criteria has to be sustainable revenue growth. It needs to come with some type of additional source of customers. And of course, from a brand standpoint, it's got to be able to fit either our current brand now or potentially another brand that we could put in place, either using a Hilton name or under Hilton's other brands.

Great. Looking forward to when you lap over these rev rec changes.

So are we.

We'll take our next question from Patrick Scholes with SunTrust.

Just a quick question here on customer demand. Certainly, on the -- more of the pure hotel side, we started to see a bit of uptick starting early in the year on the leisure transient demand. Does it -- are you seeing -- on the last 2 or 3 months, have you noticed anything -- improvement along that lines, maybe not as far as sales but as far as responses to initial promotions and advertising?

Yes. If you're talking just strictly leisure, I think we had a great quarter. In rental, I think we mentioned our ADRs went up 7%. We're in a mid-80% occupancy rate. So I think leisure is this whole movement toward spending your discretionary income. And putting your discretionary income to work around experiences, I think, is really playing out well, and it's really benefiting us. As you saw, our sales were up 14.5% for the quarter. And importantly, our VPGs are up at $4,000, really top, top of the sector. And when you consider that we're selling to -- we're skewed higher to new buyers than our competitors. The gap to our peers is really understated. But anyways, I think leisure travel is performing very well, and it's helping show up in our numbers.

Okay. And then just a follow-up question, and this is similar to a question I asked to one of your peers this morning. Any uptick in international demand, especially given some more favorable exchange rates to come to visit United States?

Patrick, I'm not really sure on that. I don't really have an answer. I can tell you though that our business in Japan continues to perform very, very well, and I'm very, very excited about the new projects that we're going to -- that we just opened up for our owners to start using. We'll start sales here in the next -- within the next couple of months in Japan. I can tell you the inbound travel into Hawaii has been very strong this year with the Japanese, and I know that information because that's a market we depend on in the international travel front. So that's all very positive for us. But as it relates to other markets, I -- we don't have that information for you.

For our next question, we'll go to Brandt Montour with JPMorgan.

So on VPG, I wanted to touch on this quickly. It came in really strong. It appears that close rate came in strong for you guys this quarter and was behind the VPG. And I was wondering if you did -- you've done anything differently on the sales model. Did you tweak anything? Or what was behind that?

Yes. I think, Brandt, this is kind of a culmination of a lot of work that we've been putting into our sales and marketing organization. For us, the broader factor was really around conversion. If you think about the theme for us this last quarter, we converted higher across all of our channels with new buyers, and we continue to see an upward trend in repurchase rates for our existing owners. And we think that is really driven by this consistent positive NOG. I think -- if you think about what we've done, I think there's a number of factors in play. I think the quality of the customer continues to improve as our marketing teams work more upstream to understand the customers prior to suggesting any type of offer. And I think you've seen that even in our FICO scores. On the sales side, I think our investment into training and technology is starting to pay off, and it's really allowing us to educate our customers quicker and break through the clutter faster. This is a 90-minute presentation. There's a lot of complexity. And because of all the flexibility we provide in our product -- and we've been upgrading our sales centers, making investments in our sales centers over the last couple of years, and, I think, that combined with just the great work that our training teams are doing. I was just listening to some of the training sales pods that we have available now. It's -- so all in all, I think it's just a culmination of a lot of hard work, and I think the consumers seem to be in a pretty good place right now.

Got it. That's helpful. And then turning to your guidance. So you guys raised contract sales guidance for the year -- contract sales growth guidance for the year by 200 basis points, which is worth roughly kind of $25 million or so in terms of the incremental. And I was just curious how you -- EBITDA guidance goes up for about -- by about $5 million, right? So that assumes real estate margins somewhat below the company average. Am I thinking about that correctly? And I just wanted to kind of understand how you guys get from kind of contract sales growth to EBITDA?

Yes. There's some investment in there. We're definitely continuing to invest in tours, new markets. Mark mentioned we're really -- we're looking harder at everything we're doing around this development spend to make sure it goes to the right places. So real estate does absorb that new market spending on the development side as we try to put that $500 million to work that we've mentioned a few times now. So I think you're really seeing the investment coming through and kind of dropping about 20% of the additional contract sales on the top line to the bottom line. There's always a little bit of reportability noise that goes into there. But I think the main message was that we got off to a great start. We're really thrilled with how the new project in Hawaii, Ocean Tower, is coming online, which really propelled our APAC sales momentum. And we wanted to let people know, despite some recognition process on the revenue side and some reportability, this year is going to unfold the way we thought it would; in fact, given the strong start, we think even a little better. And then we've got some additional capital we're looking to raise. So as you get down to the net income line, that additional capital could come with some interest expense, and we do still have some -- a little bit of bouncing around on the tax rates as a result of all the tax reform.

Okay. If I could sneak one last one in here. On Charleston, could you potentially give us an early read on maybe the incremental kind of contract sales growth you might expect from a project like that up and -- above and beyond your kind of same-store sales run rate?

Yes. We don't provide that level of insight, Brandt. But we're very, very excited about Charleston. It's a smaller but cosmopolitan world-class city, and it's really become more and more popular. We've had a great -- we've had great results with the same developer in Myrtle Beach and Hilton Head. So -- and the location is really superior. We're right there where all the main attractions are in the heart of the city. It's going to be brand-new, ground-up build. Now the structure, as we talked about, is that hybrid structure. And I don't know if Jim wants to elaborate a little bit on that.

Yes. So we would expect, I think, the returns on our joint venture to have some similarities to Elara. So we think kind of high-teens to 20% is not out of the realm of what we would expect pushing through on a project like that on the joint venture side. And then the fee-for-service economics, obviously, would follow through. A typical fee project and we're looking at about 100 units there. So I think, from a modeling standpoint, that's how you'd look to piece that together.

We'll go, for our next question, to Brian Dobson with Nomura Instinet.

So given the recent investments that you've made in new markets, what are you doing to secure new customer sourcing and to build a pipeline of future demand for the business?

Yes. No, that's a great question. It's -- I can tell you, every single day, we're focused on generating new customers. I think one of the things you can see from -- over the last 10 years, we've been able to win and secure new customers at a faster rate than the whole industry out there. And really, when you look at that, a lot of it is our relationship with Hilton. We were just up there a couple of weeks ago meeting with Chris Nassetta and his executive team, and we're very, very focused on our relationship there. The fact that we have this variable rate agreement really aligned us well with Hilton. And we continue to work with them on a daily basis, working on new channel development, and we've started the investment in digital and working very closely with them on that. We were the first one to roll out call transfer years ago, and that continues to yield very strong for us. In fact, I think our package pipeline for the first quarter was up 11% for new customers coming through Hilton. So all in all, it's very focused around our relationship with Hilton. And then, as it relates to our APAC region, we've got a lot of work being done through partnership development and relationships there. So this is -- for us, is priority right at the top of all of our priorities, sourcing new customers, because we know these new customers, they -- a new customer -- the revenue for our business follows a new customer.

Yes. Brian, I'd just add to that too. That's a piece of the puzzle, that new customer, and you've seen us at consistently high single-digit net owner growth, which consists of new owners. And then you get that flywheel start -- you get the -- our owners then buying back in at $1.10 for every dollar they put in initially. And we had invest -- we continue to invest in that frontline to make sure the new owners are coming in. But that's why you then see all the recurring revenue and earnings streams are following really nicely off of the back of that. And there's a lot of embedded value after multiple years of new owner sales that we have built up in the system that give us that additional sale out 3, 4, 5, 6 years. And you see the financing book generating really nice growth, and then really the club and resort had incredible growth, all really built off of the back of the new properties and the new owners that we're putting into the system.

(Operator Instructions) We'll take our next question from Edward Engel with Macquarie.

It appears your pipeline of fee-for-service inventory actually increased sequentially from last quarter. Were you signing fee-for-service deals during the 1Q?

Nothing specific on -- not sure what number you're referring to. But other than the Charleston deal that we have coming online, which is the smaller deal just given where it's located, nothing specific that we've been adding on the fee side. We have -- we do have several projects in the queue in addition to Charleston that we're looking at from a fee-for-service standpoint. And actually, we see our fee-for-service inventory balance staying pretty consistent through 2020, 2021 and that mix on the sales side being sort of in that low 50% range just given the 2 largest projects we have, which is Elara in Las Vegas and Grand Islander in Hawaii. As those start to roll off, we are looking to replenish behind them. But our near-term goal, as Mark mentioned, was to put the balance sheet to work a little bit more, get some additional owned inventory on the books to drive greater flow-through in absolute earnings dollars and cash flow longer term. And -- but we're not going to go away from just-in-time and fee-for-service. We're going to remain capital efficient and thoughtful on that. But with such a low leverage rate, we'd want to put some of that money to work, which will probably skew us a little more towards owned pipeline in the near future.

Okay, that's really helpful. And then, I think you noted in the past that the hotel conversions that you're working on were opportunistic. Could you maybe just talk about the IRRs and the product margins of hotel conversions relative to maybe a just-in-time inventory deal?

Well, I think when you look at conversions and just-in-time, and we have a number of just-in-time conversions, we're still targeting that mid-teen IRRs to maybe low 20s. So it's right around that range, Ed.

Okay. And then do you think you would be able to keep on finding opportunities such as these? Or are they a little bit more rare and a bit harder to come by?

I actually think these opportunities are going to be pretty abundant going forward. The fact that we've proven out the model, we've got -- we're talking about the spend this year. We've got another slate of projects that we're looking at for next year. We think it's a very, very interesting model. We think it's very efficient for us. It helps the hotel owner side as they're -- in some cases, they're reducing rooms, which is helping their yield. And then when you look at the overall cost structure as far as operating one of these properties, it really makes it more efficient from a maintenance fee standpoint, and we can pass that on to our customers. So we think these are very attractive deals, and we're going to continue looking at those.

Ladies and gentlemen, at this time, we will conclude the question-and-answer session. I would now like to turn the call back to Mr. Mark Wang for any additional comments and closing remarks.

Well, thanks again, everyone, for joining us this morning. 2018 is off to a great start, and we look forward to sharing several more new projects with you as the year unfolds.

We appreciate your continued interest in HGV and look forward to speaking to you next quarter. Thank you.

And this concludes today's call. Thank you for your participation. You may now disconnect.