Travel + Leisure Co (TNL) 2008 Q2 法說會逐字稿

Good morning and thank you all for holding. At this time, I would like to inform all participants that your lines have been placed on listen-only until the question and answer portion of today's conference. (OPERATOR INSTRUCTIONS). Also, today's call is being recorded.

I would like to turn the call over to Margo Happer. Thank you ma'am, you may begin

Thank you, Melissa. Thank you and good morning and welcome to the second quarter 2008 Wyndham Worldwide earnings conference call. Joining us today are Steve Holmes, our CEO, and Gina Wilson, our CFO.

Before we get started, I just want to remind you that our remarks today contain forward-looking information that is subject to a number of risk factors that may cause our actual results to differ materially from those expressed or implied. These risk factors are discussed in detail in our Form 10(K) filed February 29, 2008, with the SEC.

We will also be referring to a number of non-GAAP measures. The reconciliation of these measures to the comparable GAAP results is provided in the tables to the press release, and is available on our Investor Relations web site at www.wyndhamworldwide.com.

Steve?

Thanks, Margo. Good morning and thank you for joining us today. Despite a very tough macroeconomic environment, the resilient Wyndham Worldwide business model continues to perform well.

Our earnings for the second quarter of 2008 showed growth over the second quarter of 2007, and even excluding the impact of less deferred revenue than we forecast in our timeshare business, our results were ahead of expectation. No travel business is immune to the current pressures on the U.S. and global economies. However, our business model is very flexible, and we have worked hard to anticipate the challenges and cut costs while driving for greater efficiency in order to achieve our goals.

We believe our brands, geographic distribution and diverse product offerings, combine to produce a stable and resilient business model. Just consider our results. Each one of our business units delivered EBITDA growth in the second quarter of 2008 over the same period in 2007, and our second quarter adjusted EPS, increased 8% year over year.

As you saw from the press release, we are adjusting our 2008 guidance to reflect our best views of current trends. The current economic environment creates real challenges for forecasting results, as there are more variables in play than we have seen in prior slow downs, financial market instability, record oil prices, airline lift reductions, an unstable housing market and rising unemployment just to name a few.

As we went through the risk process of risk adjusting our forecast for the remainder of 2008, we felt the bottom end of our previous range may still be achievable but we felt it was appropriate to slide our range down to reflect the volatility we are seeing. In light of the pressured economy, we lowered our revenue projection by 5.5% but we are comfortable with only at a 2.5% reduction in EPS. This reflects the flexibility of our business model and the dedication of our associates to strive for our goals. Gina will walk you through the changes to our drivers and guidance in a few minutes.

Now let me review second quarter results in each of our three businesses.

Results in our lodging group are in line with our plan, with revenue of $200 million and EBITDA of $62 million.

Worldwide RevPAR for the second quarter of 2008 was up 1.4% over last year. Year to date, worldwide RevPAR was up 2%. International RevPAR was particularly strong, up 15.2%, but domestic RevPAR declined 3.7%.

Even though we saw RevPAR growth in the first half of the year, RevPAR is running below our expectations and in June we began to see further softening. Therefore we are revising our 2008 worldwide RevPAR guidance to a growth rate of 0% to 2%, that's down from our prior 3% to 5% range.

Our fee based model inflates us somewhat in difficult times, so even in a market with domestic RevPARs declining, we expect to continue to grow and be within our previous 2008 lodging EBITDA guidance. Largely due to our international pipeline, our ability to contain costs while maintaining quality service to franchisees and the modest impact of our recent acquisition.

We have implemented business building initiatives throughout the year designed to optimize our franchisees' RevPAR performance. For example, we put in place additional programs to ensure rate and inventory information is correctly loaded into property management systems of 900 properties, which has resulted in higher RevPAR performance compared to a control group of properties. We expect to enroll another 1,500 properties by year end.

As I mentioned, international RevPAR was strong at just over 15%, or 8% in constant currency, offsetting declining domestic RevPAR. Performance was particularly strong in Canada, Germany, Switzerland, Asia Pacific and the Middle East. We also continue to expand our management business in Asia Pacific, and expect to manage two hotels in China by year end.

With regard to our name sake brand, Wyndham Hotels and Resorts, results were up by every measure, rooms, hotels and RevPAR, driven by both ADR and occupancy increases. This is primarily due to international properties added in the past 12 months. We said we were firmly behind the Wyndham brand and will be support its growth, while revitalizing and building the sub scale brand and we are doing just that.

Turning to development across our portfolio of brands, in the second quarter we opened over 12,000 rooms and executed over 200 contracts representing 25,000 rooms. Since this time last year, overall system size is up 2%, and the total international portfolio is up 15%. International markets provide some of the best opportunities for growth but they are also somewhat more difficult to predict and forecast than the U.S. when it comes to timing of property conversions or openings. Our pipeline is strong with almost 109,000 rooms, a 9% increase from a year ago and a 2% increase from last quarter. Over 40% of our pipeline is international, up from over 30% a year ago. The Wyndham brand now makes up 21% of our total pipeline. Of our entire pipeline, 50% represents new construction.

And with respect to that new construction, over 80% of the new construction pipeline is scheduled to open in the next 18 months -- that which is expected to open over the next 18 months has already secured financing.

Earlier this month we completed the acquisition of two brands from Global Hyatt. Microtel Inns and Suites, a chain of 298 all new construction economy hotels, and Hawthorne Suites, a chain of 91 all suites extended stay hotels. This acquisition expands the Wyndham Hotel Group system to 12 brands encompassing 7,000 hotels on six continents. These new brands are an excellent fit with our existing portfolio, and also provide an entry into the extended stay market. We have great experience in integrating this type of business and leveraging our existing infrastructure to reduce expenses, and we expect the acquisition to be slightly accretive this year. We have already met with the franchisee advisory counsel's for both brands a couple of times, and we are looking forward to working together as we continue to grow the brands.

Now turning to vacation exchange and rentals.

For the quarter, group RCI did a great job managing costs in the face of slowing economies in some key markets, including Denmark, the UK and the US. Revenue growth was 9% and EBITDA growth was 10%, reflecting a focus on cost reductions and management across the entire business, as well as the effect of a $6 million adjustment related to consulting activities in 2007 -- in the second quarter of 2007.

In the vacation exchange business, the average number of exchange members continued a steady growth at 5% for the period. But annual dues and exchange revenue per member was down 3% for the quarter, reflecting tighter booking windows of longer range vacations. Fewer higher priced international exchange requests, and, we believe, some customers choosing to return to their home resorts where an RCI exchange is not required.

In the face of economic uncertainty, higher gas prices and airfares, group RCI has aggressively stepped up it's regional, drive to, direct marketing efforts, highlighting vacations closer to home for fall and winter, and featuring select vacations that are only a "short drive away".

Turning to group RCIs rental business, revenue growth of 12%, 3% adjusted for currency, was driven by our Landal GreenParks business. Overall average net price per vacation rental increased 15%, or 5% in constant currency, reflecting a more favorable pricing mix in the Landal property conversion of a franchise to a managed park. This double-digit increase in price was partially offset by a lower number of rental transactions, which were down 2% primarily due to softness in our holiday cottages brand in the UK rental market, our US member rentals and our Novasol business in Denmark. To support the US member rental business we are emphasizing our value proposition by promoting lower priced inventory and increasing the frequency of closer in travel campaigns. While the trend towards shorter booking windows is expected to support growth, we are taking a more conservative stance for the second quarter of the year and we are reducing our drivers, yet we are maintaining our revenue and EBITDA guidance ranges for the full year.

Let's now turn to our vacation ownership business.

Interest in our vacation ownership product is holding up well, particularly when compared to well publicized demand declines in other consumer discretionary purchases such as boats, RVs and second homes. Tour flow and gross VOI sales for Q2 experienced modest year over year increases of 3% and 2% respectively, and our selling efficiency remains stable with our volume per guest essentially flat year over year. Similar to others in the hospitality industry, we are seeing some challenges in Hawaii and Las Vegas, which together contributed 18% of our revenue last year, and our sales plan assumed continued growth in both markets this year. Sales to new customers declined at both sites, driven by reduced tour flow in Hawaii and lower volume per guest in Las Vegas. While sales in the rest of the country are holding up and sales to existing owners remain strong, we are lowering our revenue and EBITDA guidance, which Gina will detail in a minute.

We continue to be pleased with the performance of this business and remain confident in its long-term growth prospects for several reasons.

First, timeshare is a sold, not a sought good. Our sales and marketing strategies address this with incentive based offers to drive consumer behavior.

Second, unlike traditional real estate, timeshare is purchased with a singular intent to use it year after year for great vacations. Our value proposition is not built on any expectation of profit from rental or gain from future sale, and thus there are fewer hurdles to overcome during the purchase process. In fact our value proposition is actually enhanced in difficult economic times, as consumers previously in the market for a vacation home now look for more affordable alternatives.

Third, our customers keep using what they've already purchased. Occupancy for the second quarter in our timeshare resorts is roughly 80%, and that's consistent with last year. Not surprisingly, some of our customers will be visiting resorts closer to their home this year but our extensive network of drive-to locations accomodates these shifting travel patterns, and our points program gives our owners the flexibility to use their timeshare asset as their leisure time permits. Our owners are taking their vacations, enjoying the flexibility of the timeshare product and buying even more points while staying at our resorts. Third quarter advance reservations are up 14% over the same period last year, reflecting some great additions to our resort network. During Q2 we added more than 700 (corrected by company after the call) units with a successful new resort opening in New Orleans, as well as additional development at existing projects in Orlando, Las Vegas and Wisconsin Dell's. We also commenced sales for new projects in San Francisco and Washington, DCs National Harbor.

Clearly the remainder of 2008 is expected to be challenging and most economists believe the weakness will carry into and possibly through 2009. We are taking proactive steps to position ourselves to face these economic headwinds by leveraging our flexible business model.

For example, in our timeshare business, we remain firmly committed to our strategy of increasing our margin while maintaining double-digit growth on the bottom line. A major component of this strategy is to refine and refocus our tour generations efforts to our most efficient marketing programs such as those associated with our new Wyndham branding, while eliminating more costly, lower performing tour sources. As a result, our revenue growth in 2009 will now shift to the single-digit range as we begin to tour fewer prospective buyers. Yet our margins will improve as we increasingly focus on buyers with a higher propensity to purchase our product and a greater ability to pay on time and in full. The end result for the WBO business will be solid single-digit revenue growth and improved margins that will drive double-digit EBITDA growth. The added benefit of this approach is that it will allow to us free up capital for other uses like allocating more resources to growing our hotel business, supporting our goal to increase the relative contribution of the hotel business unit.

Before I turn the call over to Gina, let me end up by thanking all of our associates around the world for their dedication to deliver on our goals, and for their effective efforts to reduce expenses, and adjust marketing and sales promotions to fit the current environment. We continue to prove that our brands, geographic distribution and diverse product offerings combine to produce a stable, flexible and resilient business model.

Gina?

Thank you, Steve, and good morning, everyone. This quarter demonstrated not only the resilience of the business model but our team's ability to execute within that model by applying disciplined action to control costs. I'm pleased with our ability to grow the bottom line despite top line pressures across the business, which reflect the difficult economic conditions we are in.

Adjusted earnings per share were $0.05 ahead of our guidance range, due primarily to lower than expected percent of completion, or POC, deferred revenues. This acceleration of income in our vacation ownership business into Q2 from Q4 was a result of shifts in the timing and mix of completed and partially constructed inventory sold during the quarter.

Since Steve spent a fair amount of time on the macroenvironment and second quarter revenues and EBITDA results for the businesses, I'll cover our thinking about business drivers and how that impacts full year revenue and EBITDA guidance by business unit.

In lodging, we are expecting full year RevPAR growth of 0% to 2%, down from our earlier guidance of 3% to 5%. This assumes 7% to 9% international RevPAR growth and a domestic RevPAR decline of 1% to 3%.

System size guidance absent the acquisition that we recently completed, would have been adjusted down from our May expectations of 4% to 6% due principally to delays in timing of international hotels.

As Steve discussed, the pipeline is strong and we expect the openings to occur, just later than originally anticipated. So our updated system size guidance is 7% to 9% room growth for 2008, including about 5% related to the rooms that came with the Microtel and Hawthorne acquisition.

As you know, we completed this acquisition of the Microtel Inns and Hawthorne Suites brands two weeks ago. The purchase price was $131 million and we financed that using the corporate revolver. We expect a modest contribution to EBITDA for 2008 and an EBITDA contribution of up to $15 million next year. We will be posting some historical operating statistics for these brands in the next couple of days on the web site for your reference.

We now expect 2008 lodging revenues to be $770 to $800 million, bringing both ends of our prior range down $70 million, primarily due to the timing of managed property additions and no change to EBITDA of $235 to $245 million.

As Steve mentioned, vacation exchange and rental revenues and EBITDA improve 9% and 10% respectively for the quarter. However, after considering the 2007 adjustments we made related to Asia Pacific consulting contracts, which resulted in a $5 million revenue reduction and a $6 million EBITDA reduction, and the impact of foreign currency, revenue improved by 2% while EBITDA declined 2%, driven primarily by the timing of marketing expenses, the mix of product and investment in our important online strategy partially offset by good cost control.

Average number of members continues to track to our expectations, and we expect growth of 4% to 6% this year.

Based on lower than expected exchange transactions through the first half of the year, we now expect annual dues and exchange revenue per member to decline 2% to 4% this year compared to our earlier expectation that they would be flat compared to '07. Given the current economic challenges in some of our key rental markets, our best estimate is that vacation rental transactions will be down to flat -- flat to down 2% versus our earlier guidance of 2% to 4% growth. However, we expect favorable pricing due to the mix of transactions, as well as favorable currency effects to drive full year average net price per vacation rentals to 12% to 14% growth over last year, up from our May guidance of 8% to 10%.

Based on these mixed trends and our ability to manage costs, we are making no changes to RCI's 2008 revenues at $1.3 to $1.35 billion or EBITDA at $315 to $335 million.

Vacation ownership growth VOI sales as Steve discussed, reflected some weaknesses in Las Vegas and Hawaii but overall the business is demonstrating solid performance in a challenging environment. However, given the current economic trends we are adjusting full year VPG growth to 1% to 3%, down from 4% to 6 %, primarily to reflect lower close rates to new customers. And we're lowering our tour flow growth for the year to a range of 4% to 6%, which is down from 6% to 8%.

The consumer finance portfolio continues to grow with our increase in VOI sales, with modest increases in weighted-average coupon and borrower equity in their loans compared to 2007. The consistency of the portfolio's quality and performance has supported our completion of two securitizations during the second quarter totaling $650 million, and all our securitizations are performing within their predetermined tolerances.

Given the unsettled nature of the credit markets since last year, we were pleased to be able to complete these two term securitizations at a cost of 7.37% excluding transaction fees and at a combined leverage rate of about 76%. That compares to a blended cost of 5.7% and a combined advanced rate of 87% for the three securitizations that we did in 2007. We are already working on renewing the conduit and are confident in our ability to get that deal done.

As we discussed for several quarters, the strains in the economy are showing in the performance of the weaker borrowers in our portfolio, and this quarters performance continues that trend. write-offs as a percent of the quarter end growth loan balances were close to 2.5% for the second quarter, consistent with the first quarter and last quarter of last year.

Remember that we increased the provision for loan loss in the first quarter based on what we had been seeing since late last year. The provision for loan loss is in the second quarter, which reduces reported GAAP revenues, was $113 million as you can see in table four. This amount is higher than the prior year amount as a result of recent portfolio performance and growth in the portfolio.

We've told you in the past that we look at the quality of the portfolio and loss exposure a number of different ways. For simplicity, you might want to look at the portfolio in two ways. First, comparing the provision for loan losses for the period to the percentage of growth VOI sales less deferred POC revenues, and second, the loan loss reserve as a percent of the gross outstanding loan balances. By both of those measures, the second quarter provision and reserve are consistent with Q1 levels. For the remainder of the year, we are assuming that there will be continued stress within the portfolio. We now expect the effect of deferred POC revenue this year to be between $70 and $100 million due to the sales mix and construction time that we've seen to date and expect to see for the remainder of the year. We believe that the impact from deferred POC revenue for the third quarter could be recognition of $5 million to deferral of $10 million. Remember that construction schedules are variable and subject to change, especially the further out we are forecasting.

Now, taking on revised thinking about deferred revenue, tour flow, VPG and credit risk into consideration, we are adjusting vacation ownerships revenue range down to $2.45 to $2.55 billion, or $200 million lower at both the top and bottom ends of that range. And EBITDA down to a range of $390 to $410 million, compared to the former range of $405 to $425 million.

Moving on to some corporate matters at the end of the quarter, our adjusted debt to EBITDA ratio was 2.8, right in the middle of our target range. The balance sheet is strong and we remain focused on preserving liquidity to leverage investment opportunities such as our recent brand acquisitions.

There's no change to our interest or D&A guidance. We expect our full year tax rate to remain relatively consistent at about 38.25%. Our guidance for third quarter diluted EPS is $0.80 to $0.82. And $2.18 to $2.32 for the full year on an adjusted diluted basis, down from our former guidance of $2.23 to $2.38.

As Steve said, while we are not immune to economic strains that others in our industry are facing, we have a number of complementary levers at hand to navigate what we see ahead. And now I will turn it back to Steve before we go to Q&A.

Thanks, Gina. In summary, our businesses have deep and experienced management teams that can and do actively manage them. To grow revenue, shift marketing tactics, contain costs and provide value in our millions of customer interactions we have, whether they are franchisees, hotel guests, developer affiliates, exchange member, tour guests or long-term timeshare owners.

With that I will ask Melissa to line up any questions that we may have. Melissa?

Thank you. (OPERATOR INSTRUCTIONS). Our first question comes from Joe Greff with JP Morgan. Please go ahead.

Good morning, everyone.

Good morning, Joe.

I was hoping you could just give us an expected timing on renewing the conduit?

It's scheduled to expire in the fourth quarter, so we are looking to get all of that detailed work done well before then.

And I was hoping you could also just update us if there is any change in terms of your capital investment CapEx spend for '08?

No change in CapEx to speak of.

And as you look at timeshare and you see certain markets like Hawaii and Las Vegas being softer than other timeshare markets, are you looking at altering your investment in timeshare, looking beyond this year?

Well, it's a great question, Joe. We do see a little bit of softness in tour flow in Hawaii -- actually Las Vegas tour flow was up a little bit. But, so it really wasn't a question of demand, a question of how many we can close.

With respect to kind of the spend, as I said we are looking at a single-digit revenue growth in 2009. That will allow us to spend less on product in order to fulfill that need. We've given guidance before that our property purchase was a range for this year of $650 to $750 million. We revised it down to $600 to $700 million in the second quarter. That's probably still pretty good guidance for 2008. In 2009, that number will look down further, it will be down another $100 million or so.

Great. And I think today or effective tomorrow, should you choose you can be more aggressive with the buy back. I was hoping you could update us with your view on buy back in light of your capital structure and in light of the stock price that's implying 5 or 4.5 times EBITDA. Thanks.

Well, I mean to say our stock is cheap in my view would be an understatement. As you said, it's really a question of capital allocation and where do we stand in the current credit markets and what do we see as our opportunities going forward. I've always said that the most important thing for us to do is invest in our businesses and being able to do a deal like the acquisition of USFS from global Hyatt is a perfect example of the kind of flexibility we have when we have a good rating and we have good liquidity.

We still feel that there are opportunities out there for us. We think that there will be probably an acceleration of opportunities over the next 18 months, and we want to keep that flexibility to take advantage of deals as they become available.

With respect to the buy back, we still have room in our buy back program that's been approved by the Board. We have never said that August 1 is a trigger date for us to change our mode of managing the Company. We are all frustrated by the share price but unfortunately it's a broad problem across the entire industry and the market as opposed to just specifically us and I don't know that we can by our way out of it.

Thank you, our next question comes from Steve Kent with Goldman Sachs. Please limit yourself to one question.

Sure. Steve, Gina, can you just, I guess I'm trying to understand this more broadly, to me it looks like revenue guidance lowered by $275 million, EBITDA guidance only lowered $20 to $25 million. I know you've tried to explain this a couple times but I still don't really get it.

And just to follow on Joe's question, if the stock is trading at 4.5, 5 times, I understand why you want to build the Company and get it bigger and find all these opportunities but I haven't seen that many hotel deals at 4.5 to 5 times, so why not buy yourself rather than by another company.

Okay. Well, thanks for the question, Steve, we will take them in the order that you gave them. First on the revenue growth, there's a few things playing into it. The first I should point out is we have a great business model. We managed to drive more EBITDA out of our revenue and therefore revenue doesn't drop -- EBITDA doesn't drop as much as revenue does.

There are a few factors weighing into it, though, the first is the timing of hotel management contracts. Hotel management contracts bring with them a lot of revenue, not a lot of EBITDA. And there are some management contracts that we had in our planning to occur earlier than they'll occur. They are still in the pipeline. They are still going to come on board. But they are just coming on board a little bit later, which means there's a reduction in revenue.

The second thing is, Gina talked about the loan loss reserve and the impact in our, the impact on our provision and what we see in the consumer finance portfolio. The loan loss offsets against revenue, okay? So there's a direct drop of revenue related to the loan loss provision, and it does drop down through but that is what is in part taking down part of the revenue side.

In addition, we were thinking there might be a little bit more deferred revenue. That's why we tightened the range up from $40 to $100, to $70 to $100. That would likewise have an impact on the revenue overall.

So really it's kind of those factors, a few others, and then as we've been saying, we put in place a lot of cost saving programs, efficiency programs and we've been managing the business to try to retain our guidance that we gave all of you. We can't manage the macroenvironment so we are going to be hit on the revenue side. But we can become more efficient and try to drive more margin.

The fact is, it's a pretty good result and we wish we could have kept our guidance for EBITDA and EPS, and we did keep -- we did kind of just overlap our range by moving it down because we are not really giving up on the bottom end of the range, of our old range by any stretch of the imagination. We are just trying to be more conservative and show what we are seeing and we want to be realistic about where we think the range now is starting to look.

With respect to buy back, I agree that it's incredibly attractive at these prices and we can't do many deals to buy our Company at these prices. But the difference is that when we by our Company at these prices, we may increase our earnings per share but we don't increase our cash flow to our leverage. Where when we by companies, we are adding earnings. That's building long-term value. And we think that there will be great opportunities out there in the marketplace.

Now we've never said that we won't do more buybacks. We never said that we won't do more buybacks, we never said that we will do more buybacks. We are just looking at the environment as we see it right now, and feel that the right thing to do is to continue to try to grow the business, continue to take advantage of opportunities that we see presenting themselves and we'll continue to evaluate the marketplace as we go forward.

Thank you. Our next question comes from William Truelove with UBS. Please go ahead.

Hi, it's actually Michele Ko. I was wondering if you could give us a sense directionally for the deferred revenues for next year, Marriott has said there will be powerfully positive forces next year. We understand you might not be able to give us an amount but if you can tell us if the deferred revenues may be similar to this year or to $70 to $100 million or like last year, about $20 million or will they actually turn positive?

And also if you could tells how much deferred revenues are on the balance sheet. Our estimate for cumulative net deferred revenues, deferral of revenues is minus $130 million. We just wanted to know if that was roughly in the ballpark.

I'm sorry, Michelle, can you say that last part again?

We also wanted to know how much deferred revenues are on the balance sheet, our estimate for cumulative net deferral of revenues is minus $130 million, and we just wanted to see if that was in the ballpark.

Okay. Steve, you want to take the first one, I'll take the second one?

Sure. What's the first one? Sorry.

First one was a view into deferred revenue.

For 2009, we have not yet given guidance, Michelle, I don't know that we are going to be able to give you much guidance. This year was, had more volatility than we've seen in the past, and I would not expect to see the same kind of volatility going forward.

But some of it evolves around the fact of our investment in product that is going into our Club Wyndham access business and part of it is the timing of projects as they come on board. And the mix of products that are sold. So I can't give you a specific. We will obviously give you something before, when we give you the forecast, our guidance for 2009, we will give you more specifics.

But if you're trying to look at it on a quarterly basis, I would not expect the same volatility that we saw this year. And if you are trying to look at it on an annual basis, I can't say that it's going to be a lot different than this year from a beginning of year to end of year standpoint. Is that accurate or is it more going to be flattish? It will probably be flattish. We are sitting here looking at each other trying to decide how best to answer that question.

And on your question about what's on the balance sheet at this point, I just want to remind everybody who hasn't delved into it as much as you might have, we have a number of different kinds of deferred revenue so I am just going to talk about the percentage of completion revenue. We have about $200 million at the end of June.

Thank you. Our next question comes from Michael Millman with Soleil Securities. Please go ahead.

Could you give us a breakdown between what the VPG for existing and new buyers was and what you expect it to be? And can you also give us some indication related to that as to the effect on marketing expense of focusing more on existing, and do you expect in '09 to be slowing production down or building down and that might effect the deferred revenue as well.

Mike, we are having a hard time hearing you but I think your first question was VPG?

Yes.

Okay. VPG is, as we said, it was basically flat in the second quarter. What we are seeing impacting VPG is, in essence a slightly lower close rate than we've seen in the past. There's pressure on our close rate. And our price is holding up.

Most of that is occurring on the front line. Which means, front line is new buyers versus selling to our existing owners. So part of the confidence we have for the rest of the year is the fact that we have a lot, our resorts run very full during the summer and into the fall, and we tend to have a lift in VPG going into the fourth quarter. So that's, hopefully that gives you a sense of VPG.

You also asked about marketing spend and our marketing spend is pretty consistent year over year with respect to cost per tour and general percentage of marketing spend versus revenue.

And then I recollect the last part of the question was about '09 and what the impact of the slowing down of sales growth might mean to inventory build, Mike?

Do we still have you Mike? Okay. Well, I will keep talking and then we will go to the next question. The inventory build as I said, will probably decline by $100 million or so going into 2009. However, this is a planned reduction in spend that will still maintain a solid single-digit growth and we will drop it down to a double-digit growth in EBITDA. So revenue single-digit growth, double-digit growth in EBITDA as we go after more efficient marketing programs, and as the Wyndham brand kicks in. This is consistent with what we have been saying in the past. The only difference with what we have said in the past is, we are going to take our spending down which will reduce the top line growth when we feel that we can still get to the bottom line growth we've been talking about.

Thank you, our next question comes from Chris Woronka with Deutsche Bank. Please go ahead.

Hi, good morning, everyone. Steve, did the USFS acquisition at all impact your ability to buy back stock in the second quarter? And then, corporate expenses were significantly below where we had modeled them. Can you give us any color on that and what you're thinking for the rest of the year on corporate?

Sure. I'll let Gina handle the corporate side. I'll address the credit capacity side, Chris.

When we announced the USFS deal, is pretty close to the same time that S&P put us on negative watch and subsequently downgraded us. Normally, in a normal environment, normal being anything that I've seen before this environment, doing an acquisition that's accretive, that that in cash flow is generally viewed pretty positively. So I would say based on anything historical that I've ever seen, doing an acquisition like the USFS deal would not have stressed us any more on the credit side. From a credit capacity side.

This deal, I can only respond to what I've seen happen now from S&P with their action. Now obviously view that as part of the mix in their decision process. So I think it probably did put some pressure on our credit standing. But again, it was a relatively small deal. It was only $130 million.

Gina, you want to take the second part of it.

Chris, I want to make sure that we are talking about the right number. So on a reported basis, you have to remember that there's some legacy cost in both periods that are substantially different between '07 and '08. We had corporate expenses without the legacy impact of about $15 million this year, which is roughly in line with what we had been anticipating for the full year. How that matches up against your model, I don't have that in front of me.

Thank you, our next question comes from Jake Fuller with Weisel. Please go ahead.

Hi guys, wanted to delve into the deferral issue a little bit. If I am working the math right here, your change in annual deferral revenue guidance implies that the back half deferred revenue went from being a positive to the tune of $70 to $90 million, to now being negative $9 to positive $20. What's the big change there?

There are a couple of things going on. Obviously we had less deferred revenue in the second quarter than we anticipated just based on mix and construction progress. So you can think of that as being pulled forward from the second half.

And then the other thing that we now have better visibility into, which we obviously did not last quarter, is we have a good sense of kind of where the sales plans look like they are going to be for the remainder of the year and the construction progress on some pretty big projects.

Is this a function of the change in the pace of building or a function of a change in the pace of sales?

It's both. We are more clear about exactly what progress is going to be made on the individual projects. And I think essentially, the way you can think about changing the range from $40 to $100 million is really about tightening up the range based on our best estimate at this point, which was less precise last time we talked about it.

And if I could, Jake, let me give you an example in the second quarter of what happened. We have a project called National Harbor outside Washington, DC in the state of Maryland where, which we were planning on getting into our sales process the beginning of the second quarter. Unfortunately, and Maryland has always been a difficult state to get regulatory approval, that approval did not come through until the very end of the second quarter.

So, instead of selling what we thought we would be selling for the quarter, we had to shift to other product. And we know the product did sell, it just happened to be product in different parts of the country that was completed, so we recorded more revenue that was reportable and we had less deferred revenue. We're still going to sell the National Harbor product, which has now been approved, it is in the sales cycle, it's under construction, the project is up out of the ground, but it just shifted a little bit quarter to quarter.

Now as we move forward in the upcoming years, we will be shifting to a new product called Club Wyndham Access, which is going to give us much better ability to control this deferred revenue number. Deferred revenue was not as big of an issue for us years ago because we were building very small projects. Now as you build these larger projects, you have the ability to have a little bit larger volatility on the deferred revenue.

So as an example, just to flesh that out a little bit, I don't know if that was helpful, that's what happened in the second quarter.

Thank you, our last question comes from Patrick Scholes with Friedman Billings Ramsey. Please go ahead.

Good morning, what are your expectations for the timing of upcoming securitizations. And my second question is, I think it was in the December timeshare investor day you had the average credit score of your timeshare customers was approximately 660. Have you seen that change in the last several months?

We haven't really talked about when we think we will go back to the market to do another term transaction. We are really pleased with where we are through June 30 with the $650 million in issuances so far.

FICO is up slightly at the end of June compared to 12/31. But it's in basis points.

Thank you.

Melissa, anything else teed up for us?

No one else has queued up at this time.

Okay. Well, thank you all very much for attending the call. Go out and take your vacations, it's good for your health, and we will talk to you next quarter.

Thank you. This does conclude your conference call. You may disconnect at this time.