Travel + Leisure Co (TNL) 2008 Q4 法說會逐字稿

Welcome and thank you for standing by. All participants are will be on listen-only, until the question-and-answer session of today's conference. I would like to remind participants that the conference is being recorded. (Operator Instructions).

I would now like to introduce Ms. Margo Happer, Senior Vice President of Investor Relations. Ma'am, you may begin.

Thank you, Tonya. Good morning, thank you for joining us. With me 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-Q filed November 10th, 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 measure is provided in the table to the press release, and is available on the Investor Relations section of our website at wyndhamworldwide.com.

Steve?

Thanks, Margo. Good morning everyone, and thanks for joining us today. Difficult years such as 2008 test the Company's business model and strategy, as well as the capabilities and adaptability of it's employees and management team. Overall I believe Wyndham Worldwide handled this test quite well.

For the year, revenues were up in our hotel and vacation exchange and rental businesses, and down modestly in vacation ownership as we expected, which reflects our reduction efforts in that business. We have rebalanced our business mix, reduced our need to access the ABS market, and made meaningful expense reductions. In a year when so many companies across a variety of industries are facing doubts about the viability of their business models, we think Wyndham Worldwide's 2008 performance stands out.

During the fourth quarter, we continued to restructure our operations to reflect the realities of the current marketplace, and incurred restructuring charges of $73 million. When we complete our previously announced restructuring work in the first quarter of 2009. We will have incurred $110 million to $125 million of restructuring charges, that will save us approximately $160 million to $180 million annually.

In addition, as we mentioned in our last quarterly call, in the fourth quarter, we were required to write-down our time share goodwill, and various other assets, that resulted in non-cash charges of approximately $1.4 billion. In the process of freeing up liquidity in our foreign operations, we incurred $24 million of currency conversion losses, related to the transfer of cash from Venezuela. And finally, we recognized the net benefit from $14 million of legacy adjustments. Excluding these special charges the strength of our operating results shows through.

Adjusted fourth quarter EBITDA and EPS increased 5 and 2% respectively over 2007. Our operating results increased over prior year, despite our decision to decrease the sales pace at our time share business, an increase in the loan-loss provision for our consumer finance portfolio, which Gina will discuss in a few minutes, and an extremely difficult economic environment, with clear pressure on RevPAR in the hotel industry. These impressive results would not have been possible without the proactive efforts, controlled costs, and drive this efficiency by our team and the strength of our fee-for-service business models.

Despite these positive results, the outlook for the hospitality industry remains challenged as we enter 2009. We have issued revised guidance that reflects continued pressure on some of our revenue drivers, the implementation of our decision to reduce the size of our timeshare business, and significant pressure from the strengthening of the US dollar on our international earnings. These pressures resulted in less than a 5% reduction from our previously adjusted adjusted EBITDA guidance range, again a testament to the resiliency of our business models.

Before I run through the performance of the business units, I would like to take a moment to address another announcement we issued this morning. We announced the intention to commence an equity draw-down program of up to $200 million. While the credit markets have shown some signs of life, we feel it is prudent to strengthen our balance sheet, and free up some additional availability under our credit lines. We certainly would prefer not to issue equity at these low prices, but the volatility in the credit markets is not comforting ,and we want to retain the strength to take advantage of opportunities, as they will undoubtedly become available during this dramatic downturn for our industry.

Now I will turn to the performance of the business units, beginning with the Hotel group, which delivered both revenue and adjusted EBITDA growth for the full year 2008. Full year revenues were up 4%, and adjusted EBITDA was up 7%. Worldwide RevPAR was down slightly, helped by a larger contribution from international RevPAR, which held up well for most of the year. We delivered on the EBITDA guidance we provided back in December 2007, despite declining RevPARs, because we grew our system size. We were able to implement revenue-generating initiatives, both on and off property, as well as cost containment efforts. This drove a nice increase in our adjusted franchising margin to about 80%.

Fourth quarter revenue declined 3%, while adjusted EBITDA was up 10% from the fourth quarter of 2007. Given the deteriorating economic environment in 2008, I am pleased with these results. Nevertheless, 2009 will be a challenging year. Some industry experts are now predicting RevPAR declines in excess of 10% domestically. While our current guidance reflects these most recent predictions, we will continue to adjust our business to accommodate the uncertain global economic environment, while prudently maintaining the infrastructure and business engine needed, to take advantage of growth opportunities when they present themselves later this year and next, particularly for our management company and our flagship Wyndham Hotels and Resorts brand.

We have made significant strides that have helped fortify margins in this environment, and will support increased growth when the economy begins to recover.

For example, we have ramped up our development efforts despite the downturn, we executed 185 new contracts in the fourth quarter. Our pipeline remains strong with almost 111,000 rooms, up 5% from a year ago. Over 42% of our pipeline is international. That is up from about 39% a year ago.

Last quarter, I said we were going to provide our properties with enhanced revenue management services, to ensure they are well-positioned to maximize their fair market share.

To date we have rolled out this service out to over 1,100 hotels, and expect to roll it out to another 1,700 hotels by the end of 2009. Results to date of those properties using these services has been very positive, with measurable increases in RevPAR.

Additionally our e-commerce channels grow year-over-year, and we continued to implement important enhancements that are driven by consumer usage and insights. Customers who come to one of our websites will enjoy an even better customer experience. We believe that even these tough times, we need to invest in this important distribution channel.

And finally, our loyalty program, Wyndham Rewards, it continues to expand in North America and internationally, where we recently launched Wyndham Rewards in 18 new countries across Europe. We have the largest loyalty program in the industry with over 6,000 participating hotels, our members can now redeem their points across all of our businesses, so they can stay in hotels, vacation rentals, and even use points to pay timeshare maintenance fees. This is another significant competitive advantage, as we leverage our scale and product diversity with our customers.

Let me give you a little bit more color on our development activities. In the fourth quarter of 2008 we opened over 19,000 rooms, including our first two Wyndham Garden Hotels in New York City, one is the newly constructed 224 room Wyndham Garden Hotel Mid-town Convention Center, that is on 36th Street, and the other is the all new 124 room Wyndham Garden Hotel Manhattan Chelsea West on 24th Street. These are two exceptional hotels that have received rave reviews from guests and media alike. Super 8 also opened it's 2,100th property in an all-new construction hotel in Monterey, Tennessee. And we opened 16 hotels in China, bringing our total number of properties up to 171 open, with another 105 in the pipeline. Further cementing our position as the US hotel company with the most properties in China.

Overall system size reached 593,000 rooms, up 8% compared to a year ago. We exceeded 7,000 properties for the first time. This reflects both the 19,000 rooms we opened, and an improved retention rate on expiring franchisee contracts. We grew the international portfolio 15% in 2008, an important component of our growth strategy that we have spoken about.

Before I move on to vacation exchange and rental business, I would like to take a moment to welcome the Hotel Group's new President and CEO, Eric Danziger. Eric who started on December 1st, has more than 30 years of experience in the hotel industry, including previous roles with Wyndham, Doubletree, Starwood, Carlson Hotels, and many others. He has a proven track record of growth and success in key management roles. With his strong track record of successfully managing hotels and growing brands domestically and internationally, along with his palpable passion for the business, I couldn't be more pleased to have Eric at the helm of our Hotel Group.

Now turning to vacation exchange and rentals. Group RCI continues to deliver to plan, despite a tough operating environment. For the full year, revenues grew 3% to $1.3 billion. After adjusting for restructuring charges, asset impairments, and the currency conversion losses to get the money out of Venezuela that I spoke about before, full year EBITDA was up 8%, and within our December 2007 guidance range. Fourth quarter revenues and adjusted EBITDA were down 11% and up 13% respectively, reflecting great cost controls, and favorable impacts in hedging activities.

In the vacation exchange business, fourth quarter revenue per member was lower driven by a slowdown in exchange transactions. We believe that member transactions reflect reduced vacation travel, members postponing bookings of longer-range vacations, and members returning to their home resort, where an RCI exchange is not required. While member growth held up in 2008, we expect a slowdown in organic member growth in 2009, as timeshare developers reduce their sales and marketing programs. To offset this trend, RCI continues to add upscale and quality affiliations around the globe. RCI was proud to announce that the Disney Vacation Club, one of the world's most innovative and fastest-growing brands in the vacation ownership industry, entered into an exclusive multi-year affiliation relationship with RCI. The addition of Disney Vacation Club adds more than 135,000 member families, and nine high-quality resorts to RCI's global exchange network.

RCI has enhanced it's marketing messages in response to the current environment, and launched renewal campaigns and promotions to drive transactions. 2009 marks the 35th anniversary of the RCI exchange business, and we are rolling out a series of sales and marketing celebrations around the event, including a deposit and exchange campaign, and the first-ever RCI webcam TV programming, that will be showcased next month at ARDA, which is the industry's largest annual conference.

RCI also continues to expand and leverage technology in the fourth quarter, to improve member experience, and move more transaction processing to the web. To drive more transactions online, RCI rolled out a price increase for call-center exchange transactions, while holding prices constant on the web. The new search technology and pricing initiatives have already resulted in increased web transactions. For instance in our North American region, web transactions reached 25% in January, up from 17% last year.

In group RCI's rental business, fourth quarter revenues were down 10%, reflecting declines in both transactions and currency impacts on average net price per vacation rental. The decline in transaction was driven by softness in the US member rental market, which was impacted by lower member interest in additional vacations. In addition, our Danish and UK cottage rental businesses also experienced weakness, due to reduced bookings of 2009 vacations.

Landal, our Dutch park business, showed continued strength, and grew transactions during the quarter. Given the fourth quarter softness of advanced bookings for 2009 vacations, our European rental teams have launched targeted promotional campaigns, around Easter, school breaks, and the summer.

Now let's turn to our vacation ownership business. In early December we announced a plan to reduce our need to access the term securitization markets, by significantly reducing the size and scope of our vacation ownership business. We are well into executing our plans to reduce our development spend, eliminating our most costly marketing platforms, and closing our selected sales offices around the country. As a result of these measures, this business is expected to reduce its annual gross VOI sales by roughly 40% from 2008 levels, to approximately $1.2 billion in 2009.

For the year, WVO revenues were down 6% to $2.3 billion, and adjusted EBITDA was down 5% to $366 million. Fourth quarter revenue and adjusted EBITDA were down 15 and 8% respectively. Reported EBITDA for this business for the fourth quarter and full year reflects a $1.3 billion non-cash goodwill impairment charge.

Resizing our vacation ownership business will significantly reduce costs and capital needs while enhancing cash flow. It is important to point out that although the credit markets should eventually return to a more normalized condition, and while we will continue to pursue additional term securitizations, we will not return to growing the timeshare business at the rapid double-digit rates we have seen in recent years. Rather the future growth of this business will be tempered by our focus on cash flow generation and margin improvement.

We will focus an even greater effort on prospective buyers already within our reach, namely our industry-leading base of more than 830,000 existing owners, who represent our lowest cost and highest efficiency tour prospects. Our points-based product has long helped fuel our success in owner upgrades, and we are confident in our ability to optimize the sales channels in 2009 and well beyond.

So in summary, we feel very good about the strategic shift we made in our vacation ownership business. These past few months have been difficult for many of our associates at WVO, but our people have remained focused and committed through these changes, and our results for the quarter demonstrate the extraordinary ability of this team to adapt and evolve, to meet the challenges of this environment.

As you may recall, we actually initiated the resizing of our vacation ownership business at the beginning of the fourth quarter, by closing 12 sales offices and implementing higher tour qualification standards. This resulted in a year-over-year decline in tour flow and related gross VOI sales revenues of 10% and 12% respectively for the quarter. Fourth quarter sales efficiencies were also slightly lower than last year, and we attribute this mainly to the disruptive working environment, resulting from our restructuring activities, and as Gina will tell you, we saw improved efficiencies in January.

Despite the pressure on consumers in the economy, our resort occupancy and advance reservation remain strong, and in-line with last year's levels. Consumers are still buying timeshare products, and owners are actively using their timeshare vacations.

Now let me turn the call over to Gina, our CFO.

Thanks, Steve. As you saw from the release today, excluding special items we ended the quarter and the year ahead of our expectations. In fact we ended the year less than 5% below our original EBITDA and EPS guidance range issued in October 2007. We are very pleased with that performance, given the challenges the industry has faced this year, particularly in the fourth quarter.

Now let me walk you through our 2008 results in a little more detail, give you a look at what we are seeing so far this year, and detail our 2009 full-year guidance. As Steve mentioned the Hotel Group delivered both revenue and adjusted EBITDA growth over 2007. For the full year, revenues increased 4% to $753 million, excluding $16 million in impairment charges, and $4 million in restructuring, full-year 2008 adjusted EBITDA increased 7% from 2007. Fourth quarter adjusted EBITDA was $54 million, excluding the $16 million in impairment charges, up 10% from 2007. These are remarkable achievements, considering the impact the economy is having on the entire hotel industry. These results include our July acquisition of Microtel and Hawthorn, more importantly these results demonstrate both the resilience of our fee-driven business model, and the proactive and strategic financial business management that is at the core of our Company's DNA.

Worldwide RevPAR for the fourth quarter of 2008 was down 6.4% in constant currency, or [9.2%](corrected by company after the call) including currency. Domestic RevPAR decreased 9.3%. While international RevPAR decreased 1.6% in constant dollars.

Franchising margin for 2008 improved over 500 basis points to 80%, and while we don't expect to continue operating our business at 80% plus margins for the long term, these results reflect the flexibility of our cost structure in very tough economic times, and our ability to take meaningful and timely action that flows through to the bottom line.

As Steve mentioned the pipeline is strong with almost 111,000 rooms, 55% of that total pipeline is new construction, with almost 20% of the new construction pipeline already in the ground.

The Wyndham brand makes up close to 19% of the total pipeline, with over 70% being new construction deals, of which 60% of the scheduled openings in the next 12 months already have secured financing, and almost a quarter are already in the ground. And with 45% of our pipeline being conversions, it generally takes minimal franchisee capital to bring those properties from the pipeline into open and operating status.

Moving to 2009, January RevPAR comparisons versus the prior year were consistent with December. Taking that information into account, as well as industry projections, and our expected mix of domestic and international properties for the full year, we expect our RevPAR to decline 6 to 10% worldwide, system size to increase 3 to 6%, revenues to be $720 million to $760 million, and adjusted EBITDA of $200 million to $230 million.

Now turning to vacation exchange and rentals.

Excluding special items and the net impact of foreign currency, group RCI full-year revenue grew by $25 million, or 2%, with adjusted EBITDA of $10 million, or 3% compared to 2007. For the fourth quarter, excluding special items, revenue was $250 million, down 11%, and adjusted EBITDA was $63 million, up 13% compared to the fourth quarter 2007.

The special items for the quarter, totaled $67 million pre-tax, and included a restructuring expense of $7 million, related to our previously announced plans to reduce costs, primarily in the international exchange businesses. Asset impairments of $36 million related to businesses in the EMEA region, where Group RCI reassessed it's strategic direction resulted in upgraded business evaluations, and currency conversion losses of $24 million related to the transfer of cash from our Venezuela business for access by our broader international operations.

The strength of the US dollar in the fourth quarter of 2008 reduced revenue by $22 million, however, EBITDA benefited by $10 million, primarily due to gains related to our hedging contracts.

January trends continue to be below prior year, but are in-line with our expect a decisions. In exchange we are seeing stable trends in North America behind enhanced marketing.

Some of our rental businesses in Europe are seeing resiliency and performing well, in January revenue for our holiday cottages group in the UK is running ahead of the prior year. Holiday cottages have also made significant progress in driving consumers to our online channels, with the number of online bookings in January increased from 50% to 65% of all bookings compared to the prior year.

Looking to 2009, we expect average numbers of members to grow between 1 and 4%. Annual dues and exchange revenue per member to be down 6 to 10%, based on lower expected transactions, and a stronger dollar. Flat revenue or vacation rental transactions, and average net price per vacation rental down 4 to 7%, reflecting that stronger dollar. We expect vacation exchange and rental revenues of $1.05 billion to $1.15 billion, and adjusted EBITDA of $260 million to $290 million.

Note that the RCI guidance ranges include a significant negative impact from the strengthening of the US dollar, as measured on January 31st, 2009, compared to 2008 levels. As you know, RCI operates in about 100 countries with many currencies. One thing that is unusual about the current environment is the magnitude and extent of the strengthening of the dollar against nearly every foreign currency, for example, a 10% change in the dollar would result in an $8 million impact on RCI's full year 2009 EBITDA. If RCI guidance was presented on a constant currency basis compared to 2008 results, the revenue range would be increased by approximately $135 million, and EBITDA would be increased by approximately $55 million.

Now let's turn to the vacation ownership business.

As Steve said, the vacation ownership team is doing a great job implementing the December plan, and the business is tracking to our expectations. We have adjusted our marketing programs and closed over 50 sales offices, which will reduce our 2009 tour flow 40 to 50% compared to 2008 levels. We are finishing our existing construction projects, which combined with our completed inventory, will give us enough product to meet our reduced sales expectations, as we look out in to 2009 and 2010.

We have tightened credit standards to increase average FICO scores, and have aligned our commission programs to drive higher down payments, which over time will continue to improve the overall strength of the consumer finance portfolio.

The business is responding well to these changes. Booking rates and occupancy levels at our properties are consistent with last year, which is particularly impressive, when you consider that the number of units has increased 9%, January '08 to January '09. On the sales front, January volume per guest, which is a blend of close rates and price was up 14%, compared to the prior year, and tour flow is tracking to plan.

Despite our intentional slowdown in late 2008, we maintained gross VOI, tour flow, and volume for guests in 2008, at levels close to those achieved in 2007. Our January sales are tracking to plan, and we continue to believe that the timeshare product is a good fit for a broad portion of the American public, who continue to plan vacations with their family and friends.

In the near terms those vacations may be closer to home, or fewer days, or less extravagant. Our product which is truly points based, rather than fixed weeks, provides customers flexibility in this environment, to match price to their budget. And our top-notch sales force can sell this product remotely or from the actual resort locations, giving us a broad distribution network, which enables us to connect with consumers, in the many places where Americans continue to travel.

In the fourth quarter, we increased the provision for loan loss to $136 million, up from $84 million in the prior year. Write-offs in the fourth quarter were about 3.27% of the loan portfolio, which was up from third quarter, and we felt it was prudent to increase the provision and boost that reserve. For 2009, we expect that full year write-offs and the provision will be consistent with 2008 levels. We expect the efforts that we have made and continue to make to improve the portfolio, will partially offset continued pressure in this general credit environment.

Also remember that we take back the points associated with defaulted loans, and sell them at current prices, so the underlying asset in not lost to us. At year end we had eight term securitizations with total debt outstanding of $1.3 billion, plus our old and new conduits, with combined debt outstanding of $558 million. These securitizations continue to perform within their expected tolerances.

With regard to 2009 vacation ownership outlook, we expect growth VOI sales to be down 40%, tours down 40 to 50%, and volume per guest to increase 5 to 10%. This is down slightly from what we told you in December, due to increasing down payment requirements. GAAP revenues should be between 1.7 billion to $2 billion, down about $200 million from what we told you in December, again reflecting higher provision for loan loss, and somewhat lower volume per guest, as I just mentioned. We expect adjusted EBITDA of $325 million to $375 million.

On the corporate side, our teams continue to be focused on controlling G&A expenses across the board. These corporate associates along where their colleagues in the operating businesses, have maintained an intense focus on costs and cash mobilization, which enabled us to end the year with $291 million of capacity on our corporate revolver. Some of this favorability was due to timing differences in payments, we remain well within our debt covenants, which require a consolidated leverage ration of less than 3.5, and an interest coverage ratio of more than three, as defined in the debt agreements. At year end the leverage ratio was 2.2, and our interest coverage ratio was just over 20 times.

You will notice as you analyze fourth quarter reported results, that we have a small tax provision despite the pre-tax loss, due to differences in the tax treatment for some of the special items in the quarter, the most significant being, minimal or no tax benefit for the goodwill and other impairment charges, and the currency conversion losses.

Our corporate guidance for 2009 includes revenue of $3.5 billion to $3.9 billion, corporate costs of $55 million to $65 million, adjusted EBITDA of $760 million to $810 million, depreciation and amortization of $185 million to $195 million, net interest expense of $80 million to $90 million, slightly lower than our original guidance, based on lower benchmarks and updated projections of the timing of our spending.

We expect a tax rate of approximately 39%, which brings us to an EPS range of $1.61 to $1.85 per share, based on a share count of 179 million shares. And again, just to give you a sense of the foreign exchange impact, assuming constant currency at RCI versus 2008, that EPS range would have been $1.80 to $2.04.

2009 guidance assumes a benefit from the roll-in of deferred vacation ownership revenues of [$150 million] (corrected by company after the call) to $200 million, and we expect to spend $130 million to $150 million in CapEx, plus $175 million to $225 million in timeshare development. We expect EPS of $0.35 to $0.40 in the first quarter, assuming a $65 million to $75 million benefit from the roll-in of deferred revenue. Excluded from that guidance is between $30 million and $45 million of restructuring costs, of which about $25 million to $35 million is cash.

Now I will turn it back to Steve to wrap it up.

Thanks, Gina. We have put a lot of numbers throughout. Let me just hit a couple of them, that I think we may have misspoke on. The RevPAR for the fourth quarter on a constant currency basis was down 6.4%. It was actually 9.2% including the currency impact, and our interest coverage ratio is about [21 times] (corrected by company after the call).

Before we go to and open to some questions, I would like to close with a few other key points. First, considering the severity of the economic environment and it's impact on our industry, I think Wyndham Worldwide's 2008 performance held up quite well. Second, we have a flexible business model, and a highly adaptable management team. You saw this in the significant actions we took last year to rebalance our business portfolio, reduce our reliance on the securitization market, and lower costs.

Third, as we look at our economic environment that continues to weaken in 2009, our concentration in mid-scale and economy hotel brands, position us well with both hotel owners and customers. Finally, given the steps we have taken and continue to take, we are positioned to generate significant long term shareholder value.

With that, I will turn it over for some questions. Tonya?

Thank you. At this time we are ready for the question-and-answer session. (Operator instructions). One moment. Our first question, Joe Greff, JPMorgan, you may ask your question.

Good morning, everyone. I joined the call slightly late, so hopefully I am not asking a question or topic you already discussed, but the 8-K filing after the earnings release this morning of the $200 million equity sales program, can you just talk a little bit, I guess potential use of proceeds, and I guess, bigger questions, like why now?

Thanks for the question, Joe, and I thought that might be the first question out of the blocks. Why now is a great question. We would prefer not to issue equity at these prices obviously. This is not what we think is a very good value on the stock right now. It should be quite a bit higher.

Having said that, the markets are very unpredictable as we all know, and we don't know what the movement will look like in the next quarter, in the next week, in the next month, and for us to not inform you that this was our intent, and then just pop out with something later when we didn't have a chance to get on the phone and talk about it, didn't seem to be very prudent. We think, as you know we are on negative outlook from the agencies. We are on the bottom of investment grade. We would like to retain that liquidity if we can.

We think there are going to be enormous opportunities in our industry during 2009, and we just frankly want to be positioned to take advantage of those opportunities. There is not a lot of offense going on right now within any business, and we are not being offensive in our efforts, but we think there will be openings in 2009 to be a little bit more offensive, and we want to be positioned to take advantage of that. So why now? Well, we just want to make sure that we are clear with what our intent is. We would prefer not to do it now, but we also can't predict what the ABS markets, what the credit markets in general will look like in the coming weeks, months, and the rest of the year.

Okay. Good enough. If we exclude the equity sales program, by the end of this year, where do you see gross debt, net debt being?

Well, we think our revolver will be about the same as it was at the end of 2007, and so it is roughly equivalent.

A lot of that has to do, Joe --

Joe.

With what actually happens with securitizations between now and the end of the year. Depending on which of the different models we look at, we could have less availability on the line, by maybe $100 million, but again, it depends very much on how the ABS markets perform.

Okay. Great, and you mentioned that January volumes per guest were up 14% in VOI. Can you talk about that specifically? Is that geography? Is that a certain price point or product? Can you just give us, I guess, some amplification on that? That seems like a good way to start this year.

Yes, it wis. And we are pleased that the performance has been as good as it was at the sales offices. We don't report monthly VPG trending, Joe, as you know. We report it quarterly. The fact is that you can have swings on months, depending on travel patterns, depending on where holidays fall. So it is a very encouraging sign.

We are not suggesting that that is going to continue throughout the year, but it goes to the fact, frankly, and the reason that we brought it up on the call, that the timeshare business is not dead. The timeshare business is not on the canvas. People still want to buy timeshares. They are coming in. They are interested in the product, and the fact is our sales force does a phenomenal job matching our product with the needs and the wants of the consumer. We really just wanted to show that there is still a lot of strength in that market. But it was broad, Joe, it was anywhere from Branson to Williamsburg to any of our locations.

Our next question, Steve Kent of Goldman Sachs. You may ask your question.

Hi. Good morning. First just a couple of questions. First could you talk about Venezuela. I didn't even know you really had operations there. I want to understand what was going on there. Also to Joe's question about the $200 million offering, I mean, yesterday, Marriott talked about their securitization market issues and at one point Arne Sorenson said he might be willing to even sell these at a lower rate. Why not go there, rather than hitting the equity market?

Okay. First the Venezuela question, Steve, and thanks for the question. We have been in the Venezuela market for almost as long as we have owned RCI. Or for as long as we have owned RCI. And we used to have a relatively large processing operation in Venezuela. So over the years we had accumulated cash in the market.

We have been looking to find a way to redomicile the cash back to the rest of our international operations, bring it in to our system. Unfortunately getting cash, and this isn't just unique to us, it is a matter of anybody who is doing business in Venezuela I believe, getting cash out has a fairly high conversion cost, has a fairly high tax, for lack of a better word, to repatriate the cash. We had not done it, because we were hoping the situation would improve.

However, when you look at the environment right now, liquidity is king. We said, if we want to access that cash and use it in our operations, we are going to have to pay the tax it looks like, things have not improved in the last couple of years, and there is no line of vision that sells us it is going to improve, so we decided to go ahead and move the cash out, and take the hit for it. It is cash that has accumulated there over the years for quite a while.

With respect to the offering, and Arne's comments on his call about the securitization market, we think that there will be some life to the securitization market, similar to what I am told Arne mentioned yesterday, about being in the midst of discussions on transactions. Likewise we are in the midst of discussions on transactions to do securitizations. However, we don't want to just bet on that happening, and we also don't yet know what those terms will be. I can tell you this much, they are not going to be as good as they were in 2007, or the beginning of 2008. So again, we are just being cautious, I think we are being prudent. We are trying to communicate completely as to what we are doing.

We have said continually that we are going to run this business for the long term, and we want to position ourselves to grow the business. I think 2009, as I said before, will present itself with numerous opportunities for us. I don't want to be sitting here not able to take advantage of those opportunities, and that is really, that is simply the rationale for doing it.

How should we handle the share count? Is it in your own EPS forecast or?

No, just like the buyback programs, we didn't build them in to the forecasting, and it really will depend on timing and pricing at the time that we, if and when we decide to pull the trigger. And we will update people quarterly on what our activity has been, obviously.

Our next question William Truelove of UBS, you may ask your question.

Hi, good morning everybody. Can you talk about the growth of your portfolio of your lodging portfolios from a domestic versus international perspective?

I think it said in the script, our international grew, I am trying to remember what this number was, that I just mentioned in the script, but both markets grew, I mean at the bottom line, both markets grew.

International as a percentage increase grew more, because it is off of a lower base, obviously. I am just looking to see if we have the breakdown in number of rooms for that. I will come back to you with the answer on specifics, but both of the markets grew. International and domestic.

What is the environment like, though? I mean, given the deterioration in lodging globally, not just regionally, is the pace that you are seeing on the margin changing internationally versus domestically? I assume nobody wants to build a new hotel in the US. How about Asia, and what not?

Well, actually Will, I will take exception that last comment. It is not necessarily true that people don't want to build new hotels in the US. We every week are celebrating groundbreakings of new hotels that are being built in the US, now they are not 900 room hotels in major markets. It may be a 58 room hotel in Texas, a Super 8 in Texas, but remember our market is quite different, we deal with a number of hotels that are smaller in size, that still qualify for SBA loans, and that take advantage of local and regional lending capacities, so we do still see new construction going on. As I said, every week we see new construction.

I think that you will see a slowdown at the end of 2009 and 2010 on the big projects, if things don't get better clearly, but we will still continue to do conversions, which is a large portion of our growth, and we will continue to see the new construction, I believe, on these smaller projects.

Our next question comes from Chris Woronka of Wyndham [Deutsche Bank]. You may ask your question. You may ask your question.

Hi, good morning, everyone.

Chris, I didn't know you worked for us.

I didn't either. (laughter). If you could just talk a little bit about how, if at all, how the consumer financing behavior has changed, given your kind of resizing of the business? Are you seeing fewer folks finance with you, because of the tighter terms, or any kind of color on how you expect that to change? Thanks.

Sure. Well a couple of things. One is we are forcing some change by requiring more in the way of down payments, so as a percentage of a sale that is financed, you are going to see a lower percentage of that sale financed.

With respect to what we have seen so far through the fourth quarter and into January, we haven't seen a real difference in the percentage of people who finance with us, so we haven't seen a real significant change at all of the percentage of people who finance. However, you are going to see more cash coming in on the sales because we are requiring more down payment. That is really as much our doing, I think, as frankly people coming in and wanting to put down more. Obviously our movement towards requiring more down payment is impacting that.

Okay. Great. Thank you.

And going back to, I think it was Will's point on growth, I just had something handed to me. We are now at international room, kind of about 19% of our total versus 17 a year ago, 17%, so obviously there is a shift more to the international market on a proportional basis.

Our next question Patrick Scholes of Friedman Billings Ramsey. You may ask your question.

Hi, good morning. Question for you on the $112 million earned in the fourth quarter in consumer finance, how much of that was, or what was your EBITDA number on consumer finance?

I think we have said in the past, Patrick, we don't take EBITDA all the way down to the consumer finance part of the business, any more than we do for the property management, and I think we have said in the past, that you can think about the consumer finance being 20 to 30% of the profitability of that segment.

Okay. Additionally, I didn't see in the press release any section on cash flow from operation or free cash flow. What was cash flow from operations in the fourth quarter?

Cash flow from operations. Well, we will be filing the K shortly, and you will see all of the details, and I think we will ask you to wait until then to get the details.

Okay. Thank you.

Thanks, Patrick.

Our next question Michael Millman of Millman Research Associates. Your line is open.

Thank you. I have some hotel questions, and I have some on timeshare. On the hotel, could you explain what seems to be an anomaly, I think fourth quarter RevPAR down 9% or so, and yet the EBITDA was up about, I think you said 10%, or $10 million, and secondly, on the hotel, are international hotels, do they generate the same profitability, the same fees, as the domestic, and then I have some timeshare?

Okay. Thanks, Mike. We will get through all of the questions. Hitting the last one on international operations, the dynamic in the international operations is that RevPAR is generally a little bit higher than it is with our US operations, and royalty is generally a little bit lower, the percentage of royalty rate that we charge, so net/net it works out to about the same per hotel that we bring on, or per room that we bring on. So the dynamic is somewhat similar.

In the past we have gone more for master licensing internationally, which had a lower production per room, we are moving more towards the direct franchising, and even the managed model, so we should be able to move that up internationally, but it is roughly the same. And what was the first question? Oh, the first question on the hotel.

It really was a matter of two things. One, our cost containment efforts, and again, I applaud the management team for the steps they took to prepare. We went through this process, really throughout 2008 of containing costs, hiring freezes, and others, to try to hold down our costs, and we also were cautious on our spend of marketing, so there may be some marketing timing spend that goes in to that, but that is just another element of cost containment.

Any you had a question on timeshare, Mike?

Yes, on the timeshare, I guess two questions. One is, can you give us some idea of what the reoccurring revenue and earnings are from timeshare? And secondly, yesterday Marriott said that they were bringing down their percentage to 50% of consumer financing. Can you talk about why you are not trying to do some of those same things?

Well taking the last one first on consumer finance. We probably will see, as I said, we will see a decline. We haven't declared a target of what we are trying to get to right now, because we are going through a pretty dramatic shift, to drive down the amount of cash that we bring in. Right now, we are probably, we were about 65% last year. We are probably closer to 60 now. Are we going to get down to 50? I don't want to handicap whether or not that is a target for us, but clearly we have put a higher focus on getting more cash upfront.

As for the question about the reoccurring revenues, we have a series of reoccurring revenue streams. One being the management fees that we receive in. Another one being the interest that we receive on our consumer portfolio. So those pieces together, I can come back to you with detail on, but it is--

A couple hundred million dollars.

Yes. A couple hundred million dollars. We will get back to you with more specifics.

And also how does that $200 million translate to the bottom line?

Well, the management fee does not contribute a huge amount to our bottom line. The consumer finance income, it is a question of really what our spread is. As we answered to the question before. I think that Patrick asked, we don't break down the consumer finance or the property management pieces separately, but in total, it is probably between the two of them, about $800 million, rather than a couple hundred million dollars, probably $800 million in total, probably 400 million on each. So you can assume various costs associated with consumer finance, based on where interest rates are at the time, but hopefully that gets you kind of where you are asking.

(Operator instructions). Our next question, Lee Cooperman of Omega Advisors. You may ask your question.

Good morning. I have got to been very calm and be very careful. I happen to like you guys, and you are very available, and do a good job of investor communications. I think this potential equity offering is about as dumb as anything I have ever seen. I am sitting in Boca Raton, quasi vacation. I think in 2006 and 2007, and for part of 2008, we spent over $800 million buying back stock, starting I think at prices around $30. And we thought it was an attractive decision for the shareholders, because we thought the business value was in excess of $30. I would guess, right? That is why we bought it at $30.

And here we are sitting here giving earnings guidance, I missed part of the call, I apologize, but basically I think we said something about guidance being around $1.60 or something like that, so we have a stock that is up $6, and you take off the underwriting discount, so we are prepared to sell stock at 15% of where we bought it back at 3.5 or 4 times earnings. That is ridiculous.

My recommendation is since you have a collection of fine assets that you are very positive on, and there are other people in this business, that we should investigate the sale of the Company, because we will get a much higher price for the shareholders, and create more value for the shareholders than engaging in equity issuance. If it is not feasible in this environment to sell the Company to a stronger financial partner, then we should basically sell off assets at 60 or 70% of what they are worth, to basically get ourselves in a financial position, but we don't have to sell equity at 20% of what it is worth.

So I would really implore you to reconsider what you are saying here, because you are portraying yourself as a distressed credit. And I don't think we are a distressed credit. Who goes out in a good business and sells stock at 3.5 times earnings, or 4 times earnings? So I am at a loss to understand what you are doing here?

All right. Well, Lee, we always enjoy the dialogue, and obviously we enjoy your point of view as well. The fact is that we are not a distressed credit. We are sitting here at an investment grade rating. We feel that we have got strong business models.

However, we know that the strength to take advantage of opportunity in 2009, will be driven by liquidity and access to capital, and we do not feel sitting here right now, that we can predict well enough where the credit markets will be, or what our access to credit markets will be, to assume that we will be able to get adequate access, if we wanted to take advantage of opportunities. So again, we are doing this, as I said, you probably missed the beginning,

I would prefer not to do this, I would prefer not to issue equity at these prices. I totally agree with you that it is a ridiculously cheap price that we are looking at right now, but I also have to balance where we stand with our ratings, and where we see ourselves in 2009 with our potential for liquidity. We have said a number of times that we are basically cash flow neutral for 2009, as we ramp down the timeshare business, and then we become more cash flow generative in 2010. But I think 2009 will be a year that presents a lot of opportunities, so I think --

Sorry to interrupt you, but you cannot earn the return, relative to the cost of capital that you are accepting by selling stock at 3 times earnings. It just doesn't work, so--?

Did you finish that question, Lee? Lee? Okay.

One moment, please.

Okay. I think I got the gist of Lee's question. It is a question of, are you there, Lee? I guess not. It's really a question --

Mr. Cooperman?

Yes.

Sorry, Lee, you got cut off there.

Steve, can you hear me?

Yes, I can hear you now.

We will do this offline, but in all honesty, it is not mathematically plausible that you could sell stock at 25% cost of capital, or thereabouts, and make a good rate of return on the money. Okay. And a better alternative it seems to me would be, to consider a more dramatic cutback in capital expansion in this difficult environment, selling off assets for 80% of what they are worth, as opposed to selling equity for a quarter of what it is worth.

And the question you have to ask yourself is, did the business value decline as much as the stock prices declined? Because at the end of the day, you don't want to look a year from now having bought back stock at 30, and issued stock at 5 or 6, and then see business stabilize and improve in 2010. It is ridiculous. I would actually investigate the sale of the entire company as an alternative to selling $200 million of stock at ridiculous prices. I don't want to monopolize the call. That is just a view. I will take this up with you offline.

I appreciate your point of view, Lee.

Our last question comes [Matt Mekel of Eva Evans] Investors. Your line is open.

Good morning, thanks for taking my question. I just had a question regarding how to think about cash flow going forward? In the past, particularly working capital, obviously that has been a big use of cash, as you guys have developed your timeshares, as you start scaling back the development. How can we start looking at working capital, could that potentially be a source of cash going forward maybe in 2010?

Exactly, in 2010 and beyond, as we ramp down the investment in some of our timeshare developments, we will start to generate more cash flow, and it's just 2009 is kind of a cross-over period, and 2010 and beyond is where you will start seeing some more cash flow generation.

So I guess that was our last question. I guess we have run out of time here. Tonya, thank you very much for hosting the call, and thank you all for joining us. We look forward to these calls, and we look forward to all of your feedback, and we will speak to you next quarter. Thanks very much.

Thank you, that concludes today's conference call. All lines may disconnect. Once again that concludes today's conference call. All lines may disconnect.