Travel + Leisure Co (TNL) 2010 Q3 法說會逐字稿

Welcome to the Wyndham Worldwide second quarter earnings conference call. All participants will be 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 will now turn the call over to Margo Happer, Senior Vice President of Investor Relations.

Good morning. Thank you for joining us. With me today are Steve Holmes, our CEO; and Tom Conforti, our CFO. Before we get started, I 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 July 20th -- July 30, 2010 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 tables 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 thank you for joining us. As you saw from the press release, we had another terrific quarter. Revenues were up close to 5%, and EBITDA increased over 27%, or 36% excluding the positive impact of deferred revenue in the third quarter of last year. We delivered adjusted EPS of $0.68. These results reflect continued superior execution across all of our businesses.

The third quarter is an important one for us because it includes the heavy summer travel months. We saw great traction across our product offerings around the world. We're encouraged to see a rebound in lodging REVPAR, particularly in the US economy segments, which comprise two-thirds of our hotel portfolio. This contributed to overall REVPAR growth of approximately 7% led by broad based occupancy gains. As importantly we're starting to see average daily rate stabilization.

Sales of vacation ownership continued to show strong momentum. As you know, the satisfaction with our time share product was widely demonstrated during the downturn as evidenced by consistent occupancy. We continue to see great traction in sales to new owners as well, bringing 17,000 first-time buyers into the Wyndham family in the first nine months of this year.

In the European rentals business, Post Seasons, which we acquired in March of this year added capacity to its 2010 program to address demand for last-minute UK holidays during the summer and delivered great results.

And travel industry growth in Asia continues to be promising. Our team recently returned from High Cap, a regional investment conference that's held in Hong Kong. The mood in Asia is bullish. REVPAR increases in China are among those leading the world and the development pace is consistent. China outbound travel is increasingly important to the arrivals in other parts of the region, and our leading market presence there should help our awareness and growth in other Asian markets.

Against the backdrop of improving economic conditions, we have continued our focus on superior execution, which has translated to strong financial performance. As a result, we have once again raised our 2010 EBITDA and EPS guidance, which Tom will detail later on the call. Our preliminary guidance for 2011, points to revenue growth of approximately 5% to 7% and EBITDA growth of 8% to 10% with continued strong free cash flow generation.

On our last call, we outlined the framework for how over time disciplined deployment of cash through share repurchases, additional investment in our core businesses, and acquisitions of fee-for-service businesses could even double our growth rate. We will continue to pursue these growth initiatives.

We remain keenly focused on cash generation. We expect to generate approximately $600 million in free cash flow this year excluding the legacy IRS payment that we made, and are firmly on track to deliver sustainable annual free cash flow of $600 million to $700 million again next year and beyond.

We intend to use a large portion of that cash to support dividends and share buybacks. We believe our shares represent a great value and offer significant return potential. We acted on this belief in the third quarter committing $120 million to repurchase 4.8 million shares, a significant step-up in our program activity. We also reduced significant future dilution by repurchasing approximately 40% of our convertible bonds in the open market and retiring the call options and warrants tied to those bonds. Tom will walk you through the details a little bit later.

We are also deploying cash to achieve an important strategic imperative, rebalancing our portfolio to emphasize fee-for-service businesses. We have completed three acquisitions this year toward this goal. Post Seasons, which added meaningful inventory to our highly successful UK vacation rental business, the Tryp brand, a tuck-in opportunity for the Wyndham hotel group that significantly enhanced our international presence. And in the third quarter, ResortQuest, a leading provider of full-service vacation rentals in the US with a portfolio of approximately 6,000 rental properties. We will leverage ResortQuest sales organization, market relationships, and geographic reach with best practices from our rental operations in Europe to build a meaningful US vacation rentals business.

The US full-service rental market is a highly fragmented $10 billion industry with 5,000 companies representing about 550,000 homes and condos and represents a major growth opportunity for us. We welcome the ResortQuest employees to the Wyndham family.

An important component of rebalancing the portfolio is our commitment to moderate spending and growth in the vacation ownership business. We are emphasizing investment in our fee for service businesses but we remain committed to the vacation ownership business which we expect to generate significant free cash flow in mid single-digit EBITDA growth going forward. The business today is stronger and better than it's ever been, and the team continues to meet or exceed expectations on every measure. Tom will share some additional insights on this business in a moment.

One of the important insights he will share will address an improving returns profile for the business as we streamline our balance sheet and evolve our alternative business model WAAM, our Wyndham Asset Affiliation Model. We're making good progress in developing WAAM with sales in Myrtle Beach, our first WAAM project, ahead of scheduleand sales in Orlando, which we launched in July, tracking to plan. These successes serve to guide our multi-project structuring discussions with financial partners.

We have a strategic imperative to grow market share, which will achieve by continuing to offer great brands and great service. For almost two years now we have shared with you the great progress RCI is making on driving transactions on line. Continued technology enhancements are improving customer service and satisfaction while driving transactions, margin, and ultimately market share. In November, we will release the most significant series of technology enhancements to our members yet.

These include improving online search capabilities for our more than one million RCI points members that will allow them to see more vacation options using additional search criteria.And this new technology will include significant program enhancements for our RCI Weeks members that will provide complete trading power transparency allowing members to better understand the trading power value of the time share interval dates deposited with RCI and the time share interval they want to exchange into. Members will have the ability to combine time share intervals they have deposited with RCI to increase trading power and get change back if the trading power value of their deposited interval is greater than the interval they are trading into.

We believe that as our members become comfortable with these new trading capabilities we will generate more exchange transactions and also create opportunities for our affiliates and developers to sell more time share to owners looking to trade up to higher valued vacations.

At the hotel group, we continue to leverage the scale of the largest hotel franchise system in the world to offer consumers a wide range of iconic brands. We recently added one such brand to our offering when we signed an agreement to license the Planet Hollywood hotel brand. This 20-year master franchise agreement will add an upscale flag for our asset owners looking for a more unique hotel experience that's young, trendy, and hip. Another iconic brand, Days Inn, recently expanded its UK portfolio with the opening of 15 hotels bringing the total number of Days Inn in the UK to nearly 60 and establishing a clear presence for us in the UK budget hotel sector.

And of course we remain sharply focused on building the Wyndham hotel and resorts brand. A central strategy since our formation as an independent public company has been to leverage synergies between our business units, particularly between the hotel group and vacation ownership. In May 2006, we announced development of a Wyndham Grand Hotel to be built add joint to our Bonnet Creek vacation ownership resort, a unique opportunity to establish a world-class Wyndham hotel just outside the gates of Disney World. We broke ground on that project in April 2008, but decided soon thereafter to slow development. Like everyone else in the world, we were unsure as to how long the downturn would last and what profile the recovery would take. We have now decided to resume our original plans and will finish the project, which is half complete; and we'll make it an owned and managed Wyndham Grand Hotel, which we expect to open late next year. We believe the benefit of having a flagship Wyndham hotel at this location and the expected returns justify the commitment of capital in this case, a rare but appropriate exception to our asset-light business model.

We continue to gain traction in Asia, most notably with the Wyndham brand. We recently signed three new luxury hotels in China, strengthening our position as the largest US based hotel company in China with 270 hotels representing over 40,000 rooms. With these new signings, there are now 12 Wyndham branded hotels currently open or under development in China. Great brands and great service are the cumulative result of day to day actions by our highly engaged employees. In September, we had an opportunity to celebrate our success in building great brands and providing great service.

We held our first ever Wyndham Hotel Group global conference in Las Vegas bringing together all of our owners and general managers as well as employees and over 150 suppliers. We had over 5,000 attendees, far above our expectation, and the atmosphere was absolutely energized. There was heavy emphasis on Apollo strategies, which are designed to enhance each of our 12 brands value propositions and to help our owners run their businesses more effectively and profitably. Our franchisees benefited from 40 unique educational sessions with a focus on revenue generation, customer experience, and leadership. All told, we delivered over 8,000 training impressions. It was a great celebration of our brands and the value we bring to our franchisees as well as to consumers.

Before turning the call over to Tom, I want to discuss another celebration that included our customers, employees, and our communities. The restoration of our Wyndham time share resort in Nashville, which was seriously impact by regional flooding in early May was the embodiment of our count on me service philosophy. As flooding began, Wyndham associates responded to the crisis putting the -- putting their safety and well being behind those of nearly 500 owners and guests. Some waded through four feet of water to help move those affected to higher level units while others worked with electrical equipment in wet conditions to minimize potential injury or damage to the resort. All this before knowing what impact the flooding had on their own homes and families. Throughout the renovation, we made every effort to use local businesses, aiding the local economy and employing many residents who may otherwise have been without a job. We also recognize the need to support Nashville's long-term recovery and through Wishes by Wyndham made a donation to the community foundation of middle Tennessee. The reopening of our 252-unit resort came earlier than expected; and on September 30th, we celebrated with a grand reopening event with nearly 90% occupancy, delivering a great experience to the many owners who were delighted to return to the resort. We are very proud of our response and accomplishments during this challenge, and know that we lived up to our core values.

I now turn the call over to Tom, who will provide with you additional perspective and details on our results and outlook. Tom?

Thank you, Steve. As you saw from the press release this morning and as Steve noted, we posted another strong quarter. Adjusted earnings per share increased 17% reflecting strength in our hotel and vacation ownership businesses, a lower tax rate, and higher REVPAR. We beat our earnings expectations coming in $0.04 above the top end of the range. Adjusted EPS excludes a $38 million after-tax gain related to the settlement of the contingent tax liability, which we discussed last quarter, partially offset by a $6 million after-tax loss associated with the repurchase of 40% of our convertible notes and related warrants.

Now turning to our capital markets activity in quarter three. As you know, our convertible bond structure generates increasing share dilution for share prices above $20. In the quarter we purchased 40% of the notes and related warrants for $167 million net, eliminating what could be significant future dilution. In addition, this effort led to a direct reduction in diluted shares outstanding of 1.4 million shares of which we will see the full effect in the fourth quarter. Now beyond the accounting benefits, we believe this process will also enable us to create true economic value, as we believe our share price will exceed the total cost of buying these warrants.

We also issued $250 million of senior notes in September capitalizing on historically low rates, and primarily used the proceeds to pay down the balance of our corporate revolver. Our overall debt balance at quarter end was essentially unchanged from year end 2009 and well within our targeted investment grade range.

Turning to the ABS capital markets. Last week we announced an ABS deal with advance rates and cost characteristics in line with those of deals we did prior to the economic downturn. We issued $300 million in time share receivable notes at an advanced rate of 88% and an all-in yield of 3.7%. The transaction was oversubscribed, and we couldn't be happier with the execution.

In addition, earlier in the month we renewed our $600 million ABS conduit facility. The spread tightened by 200 basis points compared to the 2009 facility, and the advance rate improved slightly to 51.5%.

Net cash from operations was approximately $528 million for the first nine months of 2010, a 7% decrease compared with the prior year period reflecting the $145 million net payment to the IRS for legacy tax issues. Now free cash flow, which we define as net cash from operating activities, less CapEx, equity investments, and development advances, and excluding cash payments related to contingent IRS tax liabilities increased over 24% to $564 million for the first nine months, compared with $454 million for the same period in 2009.

As you know, we believe that cash is the great enabler for many of our Company's goals and will help to accelerate our EPS growth with share buybacks and tuck-in acquisitions. As a reminder, we now expect our free cash flow in 2010 to be at the upper end of the $500 million to $600 million range excluding the payment related to the contingent IRS tax liability. And we're projecting sustainable free cash flow of $600 million to $700 million in 2011 and beyond.

As Steve said, we remain committed to returning cash to shareholders. And as you saw from the press release, we continue to repurchase shares, buying 8.3 million shares since we reinstated the program in February through yesterday at an average price of $25.06. We have $285 million remaining on our current share repurchase authorization.

Now moving to operating performance for the quarter, let's begin the segment review starting with Wyndham vacation ownership. We have recently embarked upon an effort to help educate investors about our vacation ownership business. We've posted a presentation on our website, which we encourage you to review. It makes some very important points about this business.

Our first point is that the Wyndham vacation ownership business has higher than perceived business qualities and an improving return profile, specifically the business will enjoy improving returns as the Company streamlines its balance sheet, the business will generate significant amounts of recurring free cash flow, recurring income associated with property management fees, recurring interest income associated with our large pool of receivables, and recurring sales driven by upgrades from a deeply loyal customer base. Our second point is while this business is strong, we are taking steps to further strengthen the financial profile of this business through the development of our asset-light business model, WAAM; and the right-sizing of our business, which has led to a superior buyer profile.

Third, improvements in the financial markets will further support and enhance business profitability. Fourth, from an accounting perspective, our vacation ownership business has been simplified and is transparent. Fifth, we believe we have the best management team in the industry. And finally, we understand the vacation ownership buyer and believe that the demand profile for this business will be strong for many years to come. Now we're going to be aggressively rolling this message out at conferences and meetings in the coming months, and we look forward to engaging many of you in the dialog about these very important points.

In the meantime, this business once again delivered excellent results in the quarter. Revenues were up 5% despite the benefit of $36 million in deferred revenue in 2009. The revenue increase reflects a $32 million reduction in the provision for loan losses and $12 million in WAAM commissions.

EBITDA increased 41% from the third quarter of 2009, excluding the prior year EBITDA benefit associated with the deferred revenue roll-in. The increase reflected exceptionally strong execution in the business and the lower provision for loan loss. Our key performance business driver, volume per guest, was up 7% from third quarter 2009, reflecting continued strong pricing and close rates. Tours in the third quarter increased 8% from the same period last year, reflecting better penetration into the existing owner base and stronger outreach to new owners. These achievements resulted in a 260 basis point improvement in margin for this business unit.

It's our goal to continue to build our new ownership base to develop a larger pool of lifetime buyers of vacation ownership. We expect to acquire over 20,000 new owners this year, which is the targeted level we need to replenish our group of potential future upgrades.

Property management revenues increased 8% primarily reflecting an increase in managed units. Consumer finance revenues were relatively flat while interest expense declined 23% reflecting lower interest rates on our securitized debt.

On the consumer financing front, delinquency and default rates in the portfolio continue to improve. Write-offs during the third quarter declined to 2.3% of the overall portfolio, from 3.4% in the third quarter of 2009. The provision for loan losses was $85 million, or 22% of gross VOI sales, net of WAAM sales, down from 32% in the third quarter of 2009.

Now moving to the Wyndham hotel group. Revenues were up 11%, EBITDA increased 16%, and margin improved 130 basis points reflecting a REVPAR rebound, increased transfer and termination fees, and some benefit from expense timing. Systemwide REVPAR increased 6.7%. Our domestic economy segment was up 6% with Days Inn, Super 8, Microtel and our other economy brands seeing positive REVPAR comparisons for the first time since 2007. Internationally we're seeing pockets of dramatic improvement.

Compared with the third quarter of last year, REVPAR in constant currency increased 11% and 22% respectively in the UK and Germany, and in China REVPAR was up 23%, reflecting occupancy gains of 15% and rate gains of 7%. Gross room openings, excluding the Tryp acquisition are up close to 20% for the year, but are being offset by terminations, which are up 28% year to date, reflecting financial difficulties for our franchisees consistent with our earlier signals on bad debt. These terminations could push us to the lower end of our room guidance despite our strong room openings.

The franchise sales team did a great job of replenishing the pipeline despite the strong opening, resulting in a pipeline of close to 108,000 rooms, flat sequentially. Year to date, contract signings are up 7% compared with last year; and we have executed 254 conversion deals compared with 206 during the first nine months of 2009, a 23% increase.

Integration of the Tryp acquisition is progressing well. Last week we signed an agreement for our first Tryp by Wyndham property in North America, a 173 room hotel in midtown Manhattan that we will manage. The hotel is under construction now, and is expected to be completed by the second quarter of 2011.

Moving on to Wyndham Exchange and Rentals. This business once again delivered solid results in spite of $4 million in higher value-added taxes in response to recent legislation. Excluding the net effect of foreign currency, revenues were up 5% and adjusted EBITDA was flat in the third quarter 2010 compared with the same period in 2009.

Hoseasons contributed $9 million to revenues, and we're very pleased with the integration and performance of this business. As Steve mentioned, the business performed very well through the summer. The Hoseasons Group, which includes all of our UK rental brands and is the biggest operator of UK holidays, added nearly 1,500 extra units of accommodation to its 2010 holiday parks and lodges program to address burgeoning demand for summer holidays at home. The Company experienced a 21% lift in sales of UK park and lodge holidays in August compared with the same period in 2009. Wyndham Exchange and Rentals performance drivers were consistent with our expectations, demonstrating again the stability of this business. Average number of exchange members and exchange revenue per member were flat. Vacation rental transactions were up and average net price per vacation rental was down reflecting the whole Seasons acquisition.

Now, Steve spoke of the great progress we're making on technology initiatives at RCI, and I'm pleased to report that RCI on line web share was 30% in the third quarter 2010 compared to 23% in the third quarter 2009. North America on line web share for the Weeks exchange program has reached 42% in the third quarter 2010, doubling our on-line share of 21% for the same period in 2008 when we began our initiative to enhance RCI.com and increase on line transactions. Now moving to corporate. Our effective tax rate was 33.6%, reflecting the tax credits that we discussed last quarter. Excluding legacy related items, corporate expenses were up by $10 million, primarily reflecting increased data security and IT expenses and tax consulting charges.

Turning to guidance. As you saw from the press release, we are increasing our full-year adjusted EBITDA guidance to $855 million to $865 million, which reflects an increase in vacation ownership EBITDA to $425 million to $445 million, partially offset by higher corporate costs. We now expect adjusted earnings per share of $1.94 to $1.98. We are increasing vacation ownership tour guidance to 2% to 4% versus last year as we seek to reach our new ownership target. We expect fourth quarter earnings per share of $0.40 to $0.44, assuming our quarter three diluted shore count of 184 million shares. And an approximate tax rate of 24%.

Now two notes on the fourth quarter. First, included in our guidance, exchange and rentals results will include approximately $6 million in EBITDA losses associated with ResortQuest, as the fourth quarter is a seasonally low revenue high expense in the US rentals business. Second, there may be some additional movement in the tax rate as we work through the review of foreign tax credits we discussed on our last call. Our current best view is that full year tax rate to be approximately 33% in 2010, about 38% next year, and then approach a more normalized rate of 39% beginning in 2012. As Steve mentioned and as you saw from the press release, we're giving you our first look at our 2011 outlook with revenue guidance of $4 billion to $4.2 billion, up approximately 5% to 7% from 2010; and EBITDA guidance of $925 million to $955 million, up 8% to 10% from 2010.

Also, we expect free cash flow of $600 million to 700 million in 2011 and beyond, and remember the compounding effect of that cash properly deployed could double our base line EBITDA and earnings growth on a per share basis through 2014. Finally, we'll share P&L and business unit guidance with you in February. And with that, I'd like to turn the call back to Steve.

Thanks, Tom. Before we open the lines to questions, I would like to make a few concluding comments. We delivered another strong quarter, and we feel good about our momentum heading into 2011. We also continue to deliver on our objective of generating strong free cash flow and deploy net cash in a disciplined fashion to drive shareholder value. You have seen clear evidence of this over the past several quarters with the balance of increased dividends, bolt-on acquisitions in fee-for service businesses, and share repurchases. We believe we are on the correct path to maximizing long-term shareholder value. With that let's open the line for questions. Carolyn?

Thank you. We will now begun the question-and-answer session. (Operator Instructions) Our first question comes from Chris Woronka from Deutsche Bank. Your line is open.

Good morning, guys.

Hey, Chris.

Steve, maybe an update on kind of how you're looking at your core time share customer and if that mix of repeat business changed at all during the quarter and how you're thinking about that for next year?

Sure, Chris. The profile of the time share customer from a demographic standpoint hasn't changed much. The FICO score is a bit higher for who we're selling to now because of our marketing and our the tightening of our credit statistics. So that kind of gives you the demographic layout of the customer. From a mix of new customers versus upgrade sales, clearly over the last 18 months we've seen an increase in the upgrade sales to our existing customers, but we've never lost focus on bringing in new customers. As Tom mentioned, we have a goal of 20,000 new customers to be brought in this year.

We brought in 17,000 in the first nine months, so we're right on track to meet or exceed that goal. And if you talk to the folks down in Orlando managing the business, they would say their own internal numbers are actually above what we've given them as a goal. So we will continue to focus on bringing in new customers. We need that new, fresh ownership base to be adding to our 820,000 customers that we have in our portfolio right now. Did that get to your question, Chris?

Yes, that's great. Then also, thinking about your initial 2011 EBITDA guidance is there any meaningful shift in the mix of that guidance between the segments? Is lodging--would you expect lodging grows a little faster in 2011 than it did in '10, or is it roughly kind of the same?

Our fastest growing segment will be the lodging group in 2011. The other businesses will be a little bit below them, but they'll be in that single digit range. So in the mid to high single digit range. So I'd expect a little bit more out of the hotel group.

Okay. Great. Finally, as you think about maybe some tuck-in acquisitions is there kind of a concerted effort to have these be international in scope or outside the US? I know most of your acquisitions this year have been. Is that kind of a concerted effort, or are you willing to do more in the US as well?

Yes, you're right, two out of three of our deals this year have been outside of the US. The most recent one, ResortQuest is obviously US-centric. The fact is you can't model opportunity in the M&A world. You kind of keep looking around to find the right deals at the right price that fit our profile and what we're trying to do to advance our fee-for-service businesses. So I wouldn't say that we have been kind of overly focused on the international market.

As you know, these deals always take time, and so we had been focused internationally and domestically over the last several years. We just brought two out of three of the deals this year that came to fruition in the international market. I would say we'll continue to look internationally but we're also focused domestically.

Okay. Very good. Thanks.

Thank you. Our next question or comment comes from Joe Greff from JPMorgan. Your line is open.

Good morning, guys.

Hey, Joe.

With respect to your 2011 outlook, what are your assumptions for CapEx, and what are your assumptions for WAAM contributions to vacation ownership?

It's a little early, Joe, to give those types of details, but directionally we expect CapEx to be around 150 to 2, and we would hope that the WAAM contribution be around 10% of our vacation ownership business, but we're still working through all the details but those are directional approximations.

Great. Then on the vacation exchange and rentals, the margin showed nice improvement relative to what we were in print at. I know you talked a little bit about these technology initiatives, and I'm sure there's mix from acquisitions. But are these margin levels, are these sustainable going forward?

The margin levels, you're saying specifically for the quarter, Joe?

Right.

So, there are a couple of factors at work. As you know, Joe, that on the exchange side, this movement to the web over time will get us another couple hundred basis points improvement. But our thought is that in this segment that there's going to be a mix shift towards the rental business, and the rental business has lower margins than the exchange business. So I would characterize our expectations on margin for this segment, combining exchange and rentals, to be relatively -- to be growing positively, steadily, but not substantially. There won't be substantial changes because of that mix shift to vacation rental.

Got you. My final question, again going back to your 2011 guidance, what do you have contemplated roughly for corporate expenses? Do you still see them at the levels that you were talking about for the third and fourth quarter?

Again, a little more detail than we're prepared to give at this time, but I would characterize our budget process as looking for every dollar that we can on the corporate side. We would hope that some of the expenses were one-time expenses. In 2010, that those one-time expenses would be eliminated going to 2011, but we would have modest growth if anything on corporate expenses.

Great. Thanks, guys. Good job.

Thank you. Our next question or comment is from Patrick Scholes from FBR Capital Markets. Your line is open.

Good morning. Two questions here. First is where do you stand on your loan loss provision as a percentage? And then how should we think about that going forward into 2011? What is baked into your EBITDA as far as loan loss percentage? That's the first question. The second is what's fair way to think about a run rate on your corporate costs going into 2011?

Our loan loss as a percentage of gross VOI was around 22% for the quarter. As you know in the fourth quarter that number has a tendency historically to go up a little bit as we get closer to the holidays. So we would hope that with continued improvement we'd see -- continued improvement in the economy we'd see continued migration down -- we're not coming out -- when we give you more specifics on our numbers, we're not coming out with a specific number yet, but we're hopeful that that will continue to move down next year. I'm not prepared to specify. As we said, on corporate expenses, our objective is very modest, if any growth at all, because we have had some one-time expenses on that for 2010.

Great, thank you for the color.

Thank you. Our next question or comment comes from Steve Kent from Goldman Sachs. Your line is open.

Good morning.

Hey, Steve.

Just a couple questions on the securitization. Tom, you mentioned how compelling the securitization market seems, so I was wondering if you are interested in doing more financing there, and could you just talk about how you think about financing maybe some of the WAAM sales? Could you start to do more of that? Finally, I don't know if you mentioned, on Bonnet Creek, the hotel, I'm sorry, near Bonnet Creek, what kind of CapEx will that be?

Okay, we'll tag-team the answers here. On the last one, the CapEx in 2011 will probably be in the $40 million to 50 million neighborhood, but it's included in the CapEx number that Tom quoted before of 150 to 200 overall.

And our free cash flow guidance as well, Steve.

Free cash flow guidance. So with respect to the financing, the market was very attractive for us in the ABS side. We would anticipate doing more deals in the future. We'll obviously hit the market as necessary. We upsized this deal, in fact, because the market was so receptive.

As to doing financing of WAAM deals, I think from the beginning we've said that it will probably be a hybrid approach where in some cases people will bring product and financing to the table. In other cases we'll participate in one or the other portion of that. So clearly the environment right now is very attractive for us to hit the ABS market, but we're building this business model, WAAM, to take down our balance sheet to provide a greater ROIC on that time share business. So we'll probably have a little bit of both, Steve, going forward.

Okay, thanks.

Thank you.

Thank you. (Operator Instructions) Our next question or comment comes from Michael Millman from Millman Research Associates. Your line is open.

Thank you. I think, at least seemed to me that last quarter you down played the fee-for-services business, and today it seems to be reappearing as important. Maybe you can give us some statistics. For example, on the fee-for-services versus owned ROIC and cash flow and earnings, then I have -- and maybe other, then I have another question.

Okay. We've never, Mike, I think, downplayed our fee-for-service businesses. Obviously that's been our focal point from day one, but I think what you may be referring to is we kind of put a parameter about how large our WAAM business, our asset affiliation model and time share might be, and we did that because we were trying to respond to a lot of questions we had gotten about how big will that business be, how much of our business will be the pure WAAM model going forward. So we weren't trying to down play it as much as we were trying to just give people a sense of what we thought it could be over the next few years. And we gave a parameter of 20% to 25% --

15% to 20%.

-- 15% to 20%, excuse me, as our parameter. We think it will be probably 10% to 15% in 2011, then it will grow in the out years. So the return profile, just going to that part of the question of that business versus our more asset heavy business where we actually have product that we've built and we're selling on the time share side is really quite different.

In the asset affiliation model, we have no capital at work in the pure model so our return like our franchise business is pretty much infinite. With respect to our asset model, where we actually are building product and selling it, our returns are what we've talked about in the past, 40% plus IRRs on those deals that we're doing, but it requires obviously the capital be tied up in order to do those deals. So your question was a little broad so I tried to address a couple of different facets. Did I get it?

Yes. Also, and I thank you, I was looking for cash flow and earnings, particularly earnings for those different businesses.

We've given you an EBITDA guidance range for the year I think in my comments, it was for the full year -- the EBITDA for our vacation ownership business is $4.25 to $4.45. And you really should go to our website, Mike, to take a look at this vacation ownership presence -- presentation. We've talked about as we go forward, the free cash flow that that particular business will generate is between $450 million to $550 million over the next few years. But we don't -- we haven't given historically what the free cash flow is for each business unit, and I'm not sure we plan on doing that going forward either.

I was really looking for the breakdown between the fee-for-service and the owned in some of those statistics that you just referred to.

We've used a gross figure in the past that said around two-thirds of our EBITDA comes from fee-for-service businesses. Because don't forget in the vacation ownership business there is the property management piece of the business, so that's the purest form of fee-for-service , because that's the way we're compensated based on cost plus. So we've said two-thirds/one-third as our EBITDA breakout grossly. That's not with accounting precision, but in the ballpark two-thirds of it is coming from our fee-for-service

Two-thirds --

Of the total Company's EBITDA comes from fee-for-service businesses.

I was looking -- maybe we have to do this off, but I was looking for the time share business part. Only the time share. Sorry I threw you off.

Okay. Yes. So $4.25 to $4.345 is total EBITDA and we earn around $50 million a year in our property management business.

And then we have recurring revenue coming from our interest income; and so, Mike, why don't we take it off-line, and we'll walk you through our asset affiliation model so you can see what that is and how large that will be of our overall business.

Thank you. And our last question comes from Ryan Meliker from Morgan Stanley. Your line is open.

Thanks, guys. Just a quick question on the lodging side. Obviously we're starting or kind of in the middle of corporate negotiations for 2011. I'm just wondering if you can give us some color on two things. One, what your expectations for those negotiations are going to be in terms of rate growth for your Wyndham brand, and if you're meeting a great deal of resistance or not.

And two, if you're seeing any trade-down from maybe your full-service Wyndham brand down to some of your more limited service brands like Wyngate, as a measure of corporations cutting costs. Any color on that would be appreciated, thanks.

Okay. Well, the group business, or the corporate business is not a huge part of our overall portfolio, Ryan. Since we're an economy midscale player, most of our business, business is the entrepreneur traveling and staying at a Days Inn or Super 8 along the road so it's not kind of the traditional group business far in advance. We do have some group business within the Wyndham brand, and we have definitely seen improvement this year over what we saw last year.

But again, it's such a small portion of our overall business that I think we're probably not the best litmus test to make on what the group business would look like. If Morgan Stanley is looking to book all their business with Wyndham, you can have somebody give me a call. We'll make sure that we give them a good rate, but it's not a huge part of our business just because of the distribution of our product and the size of the Wyndham brand versus the rest of our business. Was there another part to your question?

Trade-down.

Oh, the trade-down. Obviously the economy midscale didn't see the same type of a drop-off in occupancy and rate as the upper up-scale and luxury did during the downturn, and some people attribute that just to less business travelers, and -- but I think there is a factor that people do trade down during difficult times, but we don't track. We don't ask people when they check into our hotel, did you really want to stay at a luxury hotel and now you're staying at a Super 8? We take every customer that comes in and put them in a room. So I don't think it's a big factor, this trade-down. There's really no way to monitor it. But generally the economy midscale sector doesn't have the same kind of volatility during downturns, and we saw that again during this past downturn.

Thanks a lot.

Thank you.

Thank you. And I'm current showing no further questions.

Okay. Great. Carolyn, thank you very much. And thank you all for joining us today, and have a great Thanksgiving.

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