Travel + Leisure Co (TNL) 2009 Q2 法說會逐字稿

Welcome and thank you for standing by. At this time, all participants are in a listen-only mode. (Operator Instructions). Today's conference is being recorded. If you have any objections you may disconnect at this time. I would now like to turn the meeting over to Margo Happer. You may now begin.

Good morning and thank you for joining us. With me today are Steve Holmes our CEO and Gina Wilson our CFO. Before we get started I want to remind you that our remarks today include forward-looking information that is subject to risk factors that may cause actual results to differ materially from those expressed or implied. These risk factors are discussed in detail in our Form 10-K filed May 7, 2009 with the SEC. We will also be refer to a number of non-GAAP measures. The reconciliation of these measures to comparable GAAP measure is provided in the table to the press release and is also available on the Investor Relations section of our Web site at Wyndhamworldwide.com. Steve.

Thanks, Margo. Good morning everyone and thanks for joining us today. We are approaching our third anniversary as a public company and we are pleased to report that the diversified resilient business model we described three years ago has performed as we expected despite difficult economic conditions. Wyndham Worldwide delivered second quarter adjusted EPS of $0.41 at the top of our guidance. These results were achieved despite $0.04 of unfavorable net foreign currency impact, and another $0.02 of higher interest expense resulting from our May 2009 debt issuances. A combination of operating efficiencies, technology enhancements, and focused cost savings delivered the strong performance in the second quarter, and contributed to the over 200 basis points lift in our adjusted margins. In addition, cash from operating activities was $249 million for the quarter, compared with $111 million in the second quarter of last year. Excluding any contingent liabilities, our 2010 target of $500 million of total cash flow or $2.70 per share remains in place.

Let me take you through the performance of the business units beginning with the hotel group. Revenues were down 13% and EBITDA was down 19%, primarily due to expected industry-wide RevPAR declines and lower other franchise fees. Given the environment, we believe our second quarter results were solid. Our worldwide and international RevPAR were down 15% and 18% respectively in constant currency. Domestic RevPAR decreased 14%, from a year ago compared to 20% decline industry-wide. These results reflect overall demand weakness offset by the strength of our portfolio distribution. With almost 75% of our domestic portfolio in the economy segment, which is out performing the industry as a whole right now, we have been able to mitigate a good bit of the industry's pricing pressure and capture a significant share of market demand. We believe we are also benefiting from the consumer taking shorter vacations more often at locations on an interstate or in small metro areas as opposed to fly to urban or resort locations. This travel pattern fits well with our domestic portfolio distribution, as more than half of our properties are located in these areas.

To help our franchisee and owners manage through this environment we have put several programs in place. We have implemented a new call transfer program where properties direct reservation calls are transferred to our professionally trained reservation agents at one of our call center. The program has shown strong reservation conversion rates as well as higher ADRs than what is typically achieved on property. We are offering third-party leasing options for property management system upgrades and critical FF&E items. We have also intensified negotiations with key suppliers to help drive savings to our franchisees and we have deployed a greater percentage of advertising dollar budget, advertising dollar budget online which is where we feel these dollars can make the largest impact for franchisees and owners in this environment.

In the second quarter, we opened 12,200 new rooms, down slightly from a year ago but strong in this environment. The increase in conversion from independent brands we experienced last quarter continued in the second quarter. Smith Travel Research reported a 20% RevPAR decline for independent hotels. So it is no surprise more operators are seeking a strong brand name with access to a full scale distribution platform. With the breadth of our brand portfolio, from up scale Wyndham Resorts to Budget Knights Inn we can easily find a solution for most hotel owners. We are also able to offer existing franchisees options when they are looking to trade flags.

We ended the quarter with over 590,000 hotel rooms. The development pipeline includes approximately 111,000 rooms of which 41% are international and approximately 20% are Wyndham branded reflecting strong traction in our commitment to these two important growth areas. Over 350 owners, managers and staff recently attended the Wyndham Hotels and Resort conference at the Rio Mar in Puerto Rico, where we announced that the brand's footprint would be expanded by affiliate it with the mid-scale extended stay Hawthorn Suites. The affiliation is designed to reach a broader consumer base and leverage marketing, sales and training creating a combined Wyndham brand that will encompass close to 350 hotels and over 150 vacation ownership resorts totaling 71,770 rooms and units.

We further solidified our leading position in China this quarter by surpassing 30,000 rooms and adding China Southern Airlines, the largest Asian Airline to our loyalty program. We are also very excited about opening our first managed hotel in China, the 588 room, Five Star Wyndham Xiamen Hotel. We have a solid pipeline of high quality assets and a number of new initiatives that we are getting off the ground which will continue to strengthen this brand.

Of course focusing on quality, customer service, and satisfaction is always important. Just this week, Microtel was ranked the highest in guest satisfaction among economy hotel chains by JD Powers for the eighth straight year. And much to our delight, the Wyndham Hotels and Resort brand moved into second place in the up scale hotels segment up from ninth place in 2008.

Now turning to vacation exchange and rentals. Group RCI delivered extremely strong second quarter results and continued to innovate on the technology front launching several new web-based invasions aimed at increasing webshare and reducing costs.

Excluding the net effect of foreign currency impacts, group RCI revenue was relatively flat while continued cost reduction efforts drove a 30% increase in adjusted EBITDA. On a reported basis, declines in the Euro and British pound relative to the dollar resulted in revenue declining 11% compared with the prior year, yet adjusted EBITDA was up 7% primarily due to these cost saving efforts.

In the vacation exchange business, second quarter revenue was relatively flat on a constant currency basis, and down 6% on a reported basis. Member growth was 3% reflecting the addition of the Disney Vacation Club early they are year. The average number of members excluding Disney was relatively consistent with the prior year and in line with expectations. As our member retention rate for the second quarter of 2009 was 97%, consistent with last year. Growth in average members was offset by a 4% reduction in annual dues and exchange revenue per member in constant currency. The reduction in revenue per member primarily reflects the impact of clubs where member also have the option to exchange within their club network. While those clubs reduce our revenue per member metric, RCI benefits from incremental subscription and other ancillary revenues earned from club members in our timeshare developer partners. The decline in revenue per member was partly offset by higher transaction fees as we increased pricing for call center transactions while holding web prices constant to encourage members to transact with us on the web.

RCI continues to add new developer affiliates to its network signing more than a dozen new affiliations since the end of the first quarter. RCI was very pleased to sign multiyear agreements with Country Heights Palace Vacation Club of Malaysia, whose resorts include the award winning luxurist Palace of the Golden Horses in Kuala Lumpur, with Fairmont Resort Properties of Canada signing up and with Sea Links Golf and Country Club one of Vietnam's leading luxury golf resorts which became RCI's first affiliation in Vietnam. These affiliations reflect our commitment to offer our members the best vacation options around the world.

Building on the first quarter launch of RCI TV and dramatically expanded digital photography, RCI took the search experience to a new level in the second quarter. RCI members can search exchange and rental options simultaneously. Affiliate and member feedback from the online experience with these invasions has been extremely positive. These efforts continue to increase webshare, with North America web rental and exchange transactions for the second quarter reaching 42% and 27% respectively, up 14 and 11 percentage points each compared with last year. This shift in transactions to the web reduced call center costs by approximately $2 million compared with the first, second quarter of last year.

In group RCI's rental business, second quarter revenues were up 5% on a constant currency basis and down 10% on a reported basis. Transactions volume, transaction volumes were up 2% reflecting the benefit of the Easter holiday occurring in the second quarter of this year compared with the first quarter of last year. With notable strength in our lodging, in our Landal Green Parks business. We also saw a significant increase in rental bookings in June focused on high season summer inventory as consumer who is had postponed vacation decisions finalized their plans. In constant currency, average net price per rental was up 3% in the second quarter of 2009. Online share for the European rental business has reached 53% of transactions, up four points compared with the second quarter of last year.

Our European rentals business continue to successfully add new rental properties. Of note in the second quarter, our Novasol Danish business signed an agreement to be the sole rental representative for a new 375 unit holiday park in Germany called Tropical Island. The park, which does not require any capital investment from Novasol or Wyndham Worldwide will feature a water theme central facility surrounded by holiday cottages that is will be available beginning in late 2010. Novasol was selected by the developer due to the strong marketing and brand presence in northern Europe. Looking forward, Group RCI is well positioned to deliver results within original guidance for the year. While we anticipate further benefits and cost efficiencies from our restructurings, we will begin to lap savings that started in Q3 of last year. In the upcoming months, we will continue to introduce new technology invasions to drive transactions to the web and reduce costs, increase efficiencies and improve customer experience.

Now let's turn to vacation ownership business which continued to perform well following significant changes to its business model at the beginning of 2009. Cash flow is tracking to plan and sales efficiencies have exceeded our expectations with volume per guests up 17%. Both closed rates and pricing are strong. A higher percentage of our tours are buying our product and we are not discounting. All the while we are increasing the FICO score of our buyers and requiring more cash down.

Consumers clearly understand the value proposition of our flexible point timeshare product especially in this environment as is evidenced by no softening in demand for timeshare among our targeted customers. When touring our properties, visitors witness hundreds of families enjoying vacations, and as our well seasoned sales professionals will tell you, purchasing a timeshare today is about protecting future vacations and this resonates strongly at the sales table.

Our points-based products provides greater flexibility than the traditional fixed week product as it enables our owners to take multiple shorter vacations at a variety of locations throughout the year. Visibility is well matched to current consumer behavior and our owners appear to be taking full advantage of our model with second quarter 2009 resort occupancy running about 80% slightly higher than the second quarter of 2008. Even with the addition of over 650 new units since that time. Our advanced reservations are also running at levels comparable to last year.

We continue to broaden our travel options and in late June we added the Wyndham Canterbury in San Francisco to our portfolio of more than 150 resorts. This 115 unit resort is located within walking distance to Historic Union Square, a robust urban portfolio now includes approximately 20 resorts in major metropolitan destinations throughout the United States, Canada and Australia, and is particularly well suited to the shorter stays enabled only through a points-based system.

As we continue to execute within this very challenging environment we seek to further leverage the strength and scale of our business by capitalizing on available real estate assets in the marketplace. After several months of careful analysis and development, we believe we are uniquely positioned to successfully launch a fee for service timeshare model with little or no capital deployment on our part.

Our new asset affiliation model is designed to provide a turnkey solution for developers and/or banks in possession of completed, unsold, unused condo or hotel inventory. WVO will use its existing sales and marketing distribution channels to sale already constructed inventory for a fee as points-based Wyndham timeshare. Consumer loan originations that occur in conjunction with these sales will be funded by the original developer or bank in possession of the inventory or another third party. The consumer becomes the new Wyndham timeshare owner and we obtain resort management contracts at these properties. With multiple deals in the pipeline we expect to announce our first application of this model later this year. If successful, we will aggressively pursue additional opportunistic deals afforded by the market environment.

Finally, you may recall that our Wyndham Vacation Resorts brand recently launched an enhanced club product called Club Wyndham Access. The launch has been very well received by our perspective customers. This new product has many enhancements including consistent maintenance, consistent maintenance fee, ease in deeding and inventory which was completed prior to deeding to the club and sale to consumers which effectively eliminates deferred revenue. We anticipate that this will result in less complexity and volatility as VOI revenue recognition and related earnings, especially as we fully transition our Wyndham Vacation Resort sales program to Club Wyndham Access.

In summary, we very are pleased with how this business has quickly and effectively responded to the challenges of this economy. We have a number of innovations underway which are designed to fine tune the business model and drive non-capital intensive growth. We remain confident in the ability of the VOI business to perform through the balance of the year and beyond.

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

As you saw from the Press Release this morning, we reported second quarter adjusted earnings per share of $0.41, reflecting particularly strong results in Group RCI and continued strength in vacation ownership efficiencies, against a backdrop of a difficult lodging environment. Second quarter revenues benefited from a $37 million roll in from deferred revenues under the percentage of completion method of accounting compared with the $5 million reduction in the second quarter of 2008. The net year-over-year impact was a benefit of about $20 million in EBITDA. We expect little if any impact from percent of completion deferred revenue 2010 which will be important for you to remember as you model next year and which will make 2010 revenue and EBITDA comparisons more difficult.

As Steve mentioned, overall margins were strong supported by our continued cost containment efforts which we expect will deliver savings of approximately $170 million in 2009. As I will elaborate in a moment, we are reiterating our guidance for 2009 revenue and adjusted EBITDA despite a volatile economic environment. Based on a significant increase in interest expense from our recent corporate borrowings we expect adjusted EPS will be in the lower half of that range.

Now let me walk you through the second quarter 2009 results in more detail.

Revenue and EBITDA in the hotel group reflected a difficult economic and operating environment although our RevPAR performance continued to out perform the overall industry average. Lodging margins were down from last year reflecting the impact of lower franchise fees, primarily driven by RevPAR declines as well as lower transfer and termination fees.

We are reducing our RevPAR guidance for 2009, down to 12% to 14% for the year, while we believe we are seeing signs of RevPAR stabilization, we are seeing continued international weakness and we now expect that it will take longer for the declines to moderate.

In addition, the second quarter benefited from the timing of almost $3 million in marketing expenses that we expect to reverse in the second half of the year. Room growth continues to reflect a slower start than we expected with opening taking longer to occur. Based on this trend we expect to be at the lower end of the room growth guidance range of 3% to 6%.

We are adjusting revenue and EBITDA guidance in lodging for the full year 2009 by $50 million and $10 million respectively to a new revenue range of $670 million to $710 million and an EBITDA range of $190 million to $220 million.

Now turning to vacation exchange and rentals. Group RCI reported results included $2 million pretax and restructuring charges. We are now finished with the restructuring activity we started in the third quarter of last year.

As Steve mentioned, excluding the net impact of foreign currency, Group RCI revenues for the quarter was relatively flat while adjusted EBITDA increased 30% compared to the second quarter of 2008. The net impact from foreign currency movements in Q2, 2009 reduced reported revenues by $31 million EBITDA by $12 million compared with the prior year. Adjusted margins improved approximately 350 basis points reflecting the restructure related savings, and continued cost control. RCI benefited in the second quarter from a full quarter of these cost containment efforts and we don't expect this trend of margin improvement to continue through the remainder of the year since we began to realize some of those savings related to cost containment in the third quarter of 2008. Additionally RCI's exchange revenue benefited from members transacting earlier in year than in prior years which was tied to the June launch of technology enhancements. We believe this pulled some transactions forward from Q3 into Q2 '09. RCI drivers are tracking to plan and there's no change to our guidance in this segment.

Now let's turn to our vacation ownership business. Sales and EBITDA were again ahead of plan. Excluding the impact of deferred revenue, margins improved approximately 200 basis points as Steve discussed, pricing and close rates remain strong with VPG up 17% this quarter. We expect this trend to continue and are increasing our VPG guidance to 10 to 15% for the year, up from our previous guidance of 5 to 10%. We are increasing WVO's revenue guidance by $50 million to a range of $1.75 billion to $2.05 billion, and EBITDA guidance by $10 million to a range of $335 million to $385 million.

On the consumer financing front, the provision for loan loss was $122 million consistent relative to gross sales plus the impact of deferred revenues since the first quarter of last year. Write offs in the second quarter were at 3.43% of the loan portfolio also relatively consistent and the securitization continue to perform within their expected tolerance. We continue to see some good trends in the portfolio as delinquencies and default rates have stabilized since the fourth quarter of last year and we will keep watching it closely.

We continue to make great progress in executing on our plan to generate additional cash flow within the vacation ownership business. During the second quarter we successfully increased our average down payment in North America to over 20% up from 12% a year ago. Cash generated at the time of sale increased 55%, and we financed 56% of VOI sales in the second quarter compared to 66% in the second quarter of last year. Additionally, the weighted average FICO of our 2009 second quarter borrowers was 735 points compared to 708 in Q2 of last year.

We closed a $225 million term securitization in May. The advance rate was 54% and the coupon was 9.79%. These terms are similar to the conduit and therefore earnings and cash flow neutral. In addition, we closed a $50 million term securitization in June with a coupon of 9%. We were pleased with the execution of both of these deals, providing further evidence that the term securitization market is improving. We also completed the renewal of our secured revolving credit facility in Australia used to support our vacation ownership operations in the south Pacific. This facility is appropriately sized for our current sales plan and the final advance rate and funding cost were within our expectations and reflected in our guidance.

Finally regarding new accounting rules that may affect asset-backed issuers including those in the timeshare industry. We have received a number of questions regarding the potential impact of FAS 166 and 167, which will require the consolidation of most securitizations on balance sheet. Wyndham Worldwide brought its securitizations on balance sheet in 2003 and we expect absolutely no impact to our earnings and no change in our financial reporting or operations related to the proposed rule.

On the corporate side, we issued $250 million of senior unsecured notes with a coupon of 9.875%, and $230 million of convertible notes with a coupon of 3.5% during the quarter. These offerings enhance our capital structure by shifting some short-term maturities to mid-term maturities. We used the net proceeds to reduce the principle balance outstanding on our revolving credit facility. The net incremental GAAP expense in 2009 is approximately $25 million which will bring full-year interest expense to approximately $105 million, and reduce our adjusted EPS for the year by approximately $0.09. The full year impact in 2010 will be approximately $45 million or $0.15. GAAP rules require us to recognize interest expense on the convertible securities at the effective interest rate of the senior unsecured notes, which is 11%, rather than the cash coupon rate. The incremental cash interest expense is approximately $15 million this year and $27 million next year.

We generated net cash from operating activities of approximately $249 million in the second quarter of 2009 compared with approximately $111 million in the prior year period. We had approximately $840 million of capacity on the corporate revolver at the end of the second quarter in 2009 compared with approximately $290 million as of 12/31/2008, reflecting the use of proceeds from the senior unsecured and convertible notes and a portion of the free cash flow to reduce the revolver balance.

We remain well within our debt covenants which require consolidated leverage ratio of less than 3.5, and an interest coverage ratio of more than three as defined in the debt agreements. At the end of the second quarter our consolidated leverage ratio was 2.1 and our interest coverage ratio was 25.3. So we have plenty of room on both covenants.

The tax rate for the quarter was, as expected, 44% reflecting a true up of a deferred tax asset related to our non-cash compensation from restricted stock units. We expect the full rate to be approximately 39% as the rate in the third and fourth quarter return to lower levels.

To increase transparency and give you a better understanding of the economics of our business we have added revenue details to Table 4 of the Press Release. I would like to take a minute to highlight one of the lines in the table, our Vacation Ownership Property Management Services, which provides on going management and reservation systems, resort operations, comprehensive financial services, quality assurance and more to 800,000 plus timeshare owners and more than 200 homeowner associations. This important component of Vacation Ownerships business which operates on a fee-for-service model is a stable and predictable source of income which will account for approximately 20% of total revenues, in '09 and -- margins in excess of 10% for WVO.

Again, we are reiterating our 2009 revenue, EBITDA, and EPS guidance ranges although based on the higher interest expense from the senior unsecured and convertible notes, weighted average shares of 181 million the economic environment we now expect to be in the lower half of the EPS range. We will post the full guidance to the website right after the call today. In the third quarter, we expect EPS of $0.53 to $0.57, assuming a $25 million to $35 million benefit from the roll in of deferred revenues in vacation ownership and a weighted average share count of 182 million shares. We expect the fourth quarter deferred revenue and vacation ownership to be $40 million to $50 million.

Before turning it back to Steve I want to tell you how proud I am of what Wyndham has accomplished during these last three years, especially this last year. I have enjoyed working with my colleagues here and all of our other constituents including those of you listening today. As you know, I will be at the company for a while longer but expect this will be my last earnings call at Wyndham Worldwide. I look forward to following the Company's progress as a shareholder and offer my best wishes to the entire Wyndham Worldwide family and to all of you. Now I will turn it back to Steve to wrap up.

Thanks, Gina and I really want to thank you for many contributions to Wyndham Worldwide. She was instrumental in many of our success during the past three years including our transition to public ownership and establishing robust financial and technology platforms to support our future growth. Now let me answer questions some of you may have as we have gotten this question before. We have retained Crist Kolder, a specialist in CFO recruitment and we are actively engaged in the search process.

Before we open the line for questions, I would like to make a few closing comments. Although there's some modest signs of improvement in the economy and the capital markets have stabilize a bit. Visibility for the economy and our business continues to be limited and there's a lot of debate about what the eventual economic recovery will look like. As a result, we are continuing to manage the business with a focus on efficiency, flexibility, and liquidity and always with an eye towards being in the best possible position for the recovery. I believe this approach is serving us well in all of our businesses and our hotel group, our value oriented hotel brand are allowing us to out perform peers in RevPAR. In our Group RCI business we continue to improve the customer experience and reduce transaction costs by driving more and more transactions to the web. In our Vacation Ownership business, we completed two receivable financing transactions this quarter, and are introducing innovations designed to fine tune the business model and drive noncapital intensive growth.

Our recent employee opinion survey results indicate that our associates with more engaged and motivated than ever. During this difficult economic climate our associates remain energized and proud to work for Wyndham Worldwide. Together we are focused on delivering shareholder value both in the near and long-term. With that, Carolyn, we will open the line for questions.

Thank you. (Operator Instructions). Our first question or comment comes from Joe Greff your line is open. Please state your company name.

Good morning, everyone. Joe Greff, JPMorgan. Looking back at the second quarter, Steve and seeing the nice result in volume per guest, can you help us understand that a little bit. Is that concentrated in a few markets? Geography a greater percentage of repeat buyers? Or is it just a mix shift in that you guys are going after higher quality, more credit worthy customers? My second question, if I can have a follow up on this question here. Regarding the fee for service vacation ownership business model, the asset affiliation model can you help us understand the economics to you broadly for the resort management contract associated with that business? Thank you.

Sure. Thanks very much, Joe. On the improved volume per guest, which just as a reminder we also saw in the first quarter of this year, I think there are a number of factors contributing to it. Remember, we took our sales volume down intentionally when the credit markets kind of seized up. And we decided to lower our sales pace. When we did that, we did have to shut down unfortunately some offices which frankly were possible offices but which in some cases didn't have the highest, the highest productivity. So I think we have benefited in part by removing some of the weaker offices. Now having said that, the fundamental results within same-store offices is also very impressive and it is up. And I think it is really a matter of, of very focused effort to make sure the consumers understanding this flexible point space product we have, and matching it up to exactly what they're looking for. So we did see close rate increase which is the number of tours coming in that end up buying and we saw an increase in that as well as increase in pricing. And in both of those I think are attributable to maybe a more focused effort from the sales organization and a continuation of our ability to show the consumer how this product meets their life styles. So that is really fundamentally it. It is a great execution. I think that there may be some lift due to as you said, pointed out, Joe that there's a, our FICO score increased but we are asking people to make larger down payments. Our down payments are in the range of 20% now, and that's a significant increase from where we were a year ago or even six months ago.

So I think it is a terrific execution in our, at the timeshare business. With respect to the fee-for-service model or asset affiliation model, the way the economics work is we will work with a bank or developer and become their sales and marketing arm and for that we will receive a sales and marketing fee that will cover our costs to market the tourist to come in and to execute in selling the product and paying our sales force. That will be basically our main profit center from this activity. So as opposed to having revenues for the total sale of the product and the cost of the product that we are selling, we will receive a sales and marketing commission. In addition, as you point out we will have the property management of the resort as they become Wyndham Vacation Resorts properties, and for that the economics are very attractive. We do make a profit on that. It is as we pointed out we are breaking that out now on Table 4 so people can see it clearly. That will be the kind of the profit that comes out of the property management side. In addition, just a third piece of it is, for the loans that are generated even if we are not holding those loans or doing the securitizations, it is anticipated that we will be the loan services. Those are owners who have bought our product. We want to make sure we maintain the relationship with them and we are set up with a world class loan servicing operation out of Las Vegas that we will lever to service those receivables as well. So that's kind of the third line of profit from this venture.

Great. Thank you.

Thanks very much, Joe.

Thank you. Our next question or comment comes from Steve Kent. Your line is open. Please state your company name. Steve your line is open. Please check your mute feature.

Are you there, Steve?

We can move on to our next question. Our next question comes from Will Truelove your line is open. Please state your company name.

UBS. Hi guys. My first question is regarding the GAAP franchise fees of 117 million in the second quarter. I appreciate the additional disclosure on the revenues, but I couldn't figure out by looking at the lodging or other break outs exactly how you get to 117 million from the various buckets. And my follow up question would be the club concept in selling vacation or timeshare. Basically will that standardize the sales process perhaps lower your marketing expenses going forward? Thanks.

Thank, Will, and on the did order you asked the question. We are happy to get back with you and reconcile any numbers you have specific. Off the top of my head, I think that the one piece that probably is not broken out separately, we have some other franchise fees, other fees that include the Wyndham reward fees we get when we issue Wyndham award points, we will come back with specifics but my guess is it is a other category or miscellaneous category, which would include the Wyndham award fees. With respect to the Club concept, the Club Wyndham Access does provide greater consistency in the sales process, by one of the things is it creates a constant or consistent maintenance fee across the entire club. This club concept is similar to what we've had (inaudible) for quite some time. It is the way that was designed years ago and makes it easier at the sales table to be selling something that always has the same maintenance fee regardless of where the product happens to be located. That's just one of the features. I don't know that it will necessarily reduce our marketing costs. We have a very, very focused concerted effort at driving down our marketing costs. It is one of the opportunities that we think we will capture and we know we have begun to capture by using the Wyndham brand as the umbrella brand for our timeshare business, so whether it is because we have a brand, product that is more consistent at the sales table or because the market is focused by using the Wyndham brand we would try to drive down those marketing cost and try to see some benefit I don't think I will be able to define for you which is which.

Okay. Thanks.

Thanks, Will.

Our next question comes from Patrick Scholes. Your line is open and please state your company name.

Good morning. I am with FBR capital marks. My question, with all of the restructuring and down sizing and the vacation, how should we begin to think about what 2010 EBITDA is going to look like for that segment?

We would expect to maintain the savings that we received through the restructuring so we would expect that our base cost of G&A and the other costs that were on sales and marketing will stay down at the lower level because it is anticipated that our sales pace will not go back up to $2 billion. We are assuming we will stay around the $1.2 billion, maybe grow it more moderately going forward. The one thing that won't be repeated that Gina mentioned in our comments was we do have deferred revenue we have recognized this year and for the full year it is in the neighborhood of $170 million to $190 million. That won't be repeated because we are moving to this non-deferred revenue model that we have developed. So, I think those are, that's probably the larger impact on 2010. We have not yet given guidance for 2010 because we are not there yet. We don't want to make that call right now.

Okay. Thank you.

Thanks.

Thank you. Our next question or comment comes from Chris Woronka. Your line is open.

Deutsche Bank. Good morning, everyone. Steve we have always talked about how you eventually planned for a recovery in the timeshare business, and I am just curious as to whether this new affiliation model may be kind of replaces some of the ground up development or the hard CapEx that you would have to put in, and if that is true I guess the other part of the question is how much do do you still have and maybe how much months or r years of supply do you think that? Just trying to get a sense of how this is going to balance out over a three to five year period.

Well, three to five years is a lifetime, Chris. So I will try to address it but I don't know that I can show that precision that far out. The, our plan which we are still holding to is that we will spend less than $100 million on inventory spend in 2010. That's what we stated before, we are still living, we are still living for that goal. With that spend, we have enough inventory to get us through 2010 and into 2011. The asset affiliation model which is really levering somebody else's assets and creating an environment where there are frozen assets on the books of developers and banks where they're having to pay the cost of carry right now by paying taxes and maintenance. We can move those assets for them and shift them from nonperforming hard assets into interest paying receivables for them. That process will not require capital on our part or if it does very little capital. There may be some amenities we feel need to be added to make the product really work for our customer. But it will be, it will be limited in it nature. So, depending on how much of our business can shift to the asset-like model will determine if 2011 through the future how much inventory we are going to need to develop. We in the past were developing inventory to move ourselves to Club Wyndham Access and to fuel a 20% plus growth rate as you know in 2007 and beginning in 2008. We won't be back there because we don't anticipate ramping this business back up to a $2 billion business any time soon. So our anticipation would be that we will continue to grow the business for efficiency, run the business for efficiency, definitely for cash flow, and we will decide what that spend looks like based on how the asset affiliation model works and what we see is the future growth beyond 2011 for that business.

Great. That's helpful. And my follow up is on the lodging side, we have talked about potential brand acquisition opportunities, and do you think, do you feel like the capital marks and your company's liquidity are at a point you might be comfortable looking at something if it looks really attractive?

Well, Chris our liquidity is terrific. As we have said, we, as Gina mentioned we did the senior note financings that gave us a little bit more of a midterm maturity to our debt so we are comfortable with our liquidity. With respect to, do acquisitions make sense at this time, the fact is, you can't really try to forecast opportunity. We don't know what will come available, when it will become available and at what price and how attractive it is. Could we do something now? Presumably we could. I don't think it would be a large transaction. If there was something that was of the right size for us, that we felt we can really deliver at a, at an attractive creation multiple for us, that would add to our portfolio, there would be nothing stopping us from doing that right now, but we are not out hunting and looking, we are basically in, as we always are, in the market evaluating opportunities and looking to see how we can grow our business.

Okay. Very good. Thanks.

Thank, Chris.

Thank you. Our next question or comment comes from Michael Millman your line is open and state your company name.

Millman Research Associates. I guess more questions on timeshare. Could you compare the profitability both with I guess up front and lifetime for new customers and new acquisitions compared with existing acquisitions and relate today that give us some idea of how much of the seams are now going to existing versus new and I guess the second question is when you look at some of the numbers, we are seeing that there is very substantial benefits from the current system it looks like even though sales are down financing is up 5%, income cost of VOI is down 60%, property management fees were up 12%, ancillary revenues were up 15%. Is this very short lived? Or can this continue? So two very big questions.

Yes, I will try to take them on. Let me get a little clarification on the first one. When you talk about new acquisitions versus existing are you talking about product that we are acquiring or building?

No I am talking about the customer.

Okay. So the customer acquisition. We had probably slightly more existing customer sales than new sales this quarter. We were just around 60%, I want to say last time it was 50 to 55%. It is up a little, not a whole lot. And the cost of selling to an existing customer, the profit on that is a higher profit because you don't incur as much marketing. You have marketing but it is not as high and frankly that may have been part of the question asked. In the first question I may not have gotten around to that part of the answer. To the second piece which is breaking the pieces of the various elements of growth, there are pieces in this, and it is part of the reason we created Table 4, that I am not sure everyone appreciated the very, very stable property management businesses that we have where we manage those 140 resorts around the country, around the world, that is profitable business for us. It is a very stable part of our portfolio and as the timeshare sales component shrinks from 2 billion down to 1.2 billion, that component did not shrink. So it becomes a larger portion of the overall profitable of the timeshare business , it is actually more stable it is not driven by revenue. It is driven by units, resorts you are managing.

With respect to consumer finance, I think the reason it was up is probably because the portfolio has been growing the last several quarters, and we continue to see the portfolio growing. We are adding to it. I would expect that to moderate over time as we level off our sales at the $1.2 billion range, but also as we take in more cash at the time of sale which obviously means we are financing less the sales

And our cost was down about 60%, is that simply you are taking in the deferred revenue?

Well, there's a couple of things in there. One it is impacted by the fact we aren't selling as much. So where we took our sales pace down which is a portion of it, it is also in part the, the product that has been put into it, the different developments that we have and the assets that we have put into it and also, we do, and I think we have walked through this before, we, when we have loan losses we have a recovery for the loan losses that run through our cost per sales which also impacts the overall cost of sales. There's a number of factors going into it. From a business perspective the way to look is we are maintaining a 25% or less cost of sales, when you look on a project by project basis which is been our target and we continue to execute on that, and in an environment where product cost and basically real estate is come and our cost, and our pricing hasn't gone down through the consumer I would expect that over time to go down if we got back in the market buying inventory. But we may not be buying as much inventory due to asset affiliation model.

Thank you.

All right. Thanks, Mike.

Thank you. (Operator Instructions). One moment, please. I am showing no questions at this time.

All right. Well, thank you very much and thank you all for joining us today. And we are looking forward to discussing our next quarter with you on the next quarterly call. Thank you very much.

Thank you. That concludes today's conference call. Thank you for your participation. You may disconnect at this time.