Travel + Leisure Co (TNL) 2014 Q2 法說會逐字稿

Welcome to the Wyndham Worldwide second-quarter earnings conference call. Your lines have been placed on listen-only until the question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Margo Happer, Senior Vice President of Investor Relations. You may begin.

Thank you, Shirley. 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 statements. These statements are subject to risk factors that may cause our actual results to materially differ from those expressed or implied. These risk factors are discussed in detail in our form 10-K filed February 14, 2014, with the SEC.

We will also be referring to a number of non-GAAP measures. The reconciliation of these measures to GAAP 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, and welcome to our second-quarter call. We had another great quarter, with adjusted EBITDA growth of 9%, and adjusted EPS growth of 19%, reflecting strong execution, operating momentum in our businesses, and continued benefit from share repurchase. Looking at each of the businesses, domestic RevPAR growth continue to accelerate in our Hotel Group, and Vacation Ownership net VOI sales increased 10%. In our Exchange and Rental business, we are seeing continued strong growth in rental transaction volume building for the summer.

Based on these results and the momentum across our businesses, we are increasing our full-year adjusted EBITDA and EPS guidance. I will spend a few minutes to provide you with a deeper look into our operations, and then I'll turn the call over to Tom for the financial details on the quarter, as well as our revised guidance.

We recently completed our annual business unit strategy reviews. While we remain focused on executing our overall strategies and long-term goals, we continue to innovate and improve. Let me highlight a few initiatives in each of our businesses that we expect will contribute to our momentum, and help us continue to enhance value in the future.

At the Hotel Group, we're focused on enriching the brands across our portfolio, creating value for our owners and franchisees, and building the Wyndham Rewards program. In Exchange and Rentals, we are focused on innovations to enhance the RCI customer experience, providing the best inventory at the right price for vacation rental consumers, and growing the professionally managed rental platform.

At Wyndham Vacation Ownership, we are focused on providing even more unique vacation experiences for our owners, expanding the base of our new timeshare owners, and finding new and capital-efficient sources of inventory. Of course, the goal underlying these initiatives is growth in a socially responsible manner, and strong results for shareholders.

Now let's take a deeper look into the operations of our businesses. In the Hotel Group, we launched our first umbrella advertising campaign for our 12 brands, and it is already showing strong results, with a goal of driving more consumers to WyndhamRewards.com. Growth in our loyalty program member base results in increased site visits, which generates higher bookings and revenue for our franchisees.

Since we launched the ad campaign in May, WyndhamRewards.com bookings have increased almost 20%. We also continue to update our 12 brands to enhance their appeal to guests. Last quarter I mentioned a new prototype for our Hawthorne Suites brand. Our work on Hawthorne is part of a larger effort to develop new prototypes across the hotel brands to drive new construction deals and conversions. Our teams developed these prototypes to revitalize the brand experience for guests, while reducing development costs for franchisees.

We analyzed many factors, including franchisee and hotel guest feedback, construction costs, and competitive set comparisons. Through this process we determined that the current Hawthorne Suites product might be in certain circumstances, too big and too expensive. The new prototype right-sizes the product and repositions the brand as a more limited service, extended-stay product, which will better meet the demands of its customers. It saves up to 40% for the developer, and sets the hotel up for success.

We also have new prototypes under way for Days Inn and Super 8. While both brands target similar demographics, their customers are actually quite different. Days Inn stays are often booked in advance for family vacations, usually for a week or more. New Days Inn properties will reflect the bright and optimistic essence of the brand, with a residential feel geared for families.

Super 8 is more of a trusted roadside place where you'll pull over for the night, often without a reservation. The new Super 8's are designed to make people feel welcome, with a high level of comfort. a sense of community, and some design flair. Because while you only may be staying one night, it should be an enjoyable experience that will make you want to repeat that at your next stop.

Buy more clearly differentiating these brands, we're working to avoid commoditization, and we're giving developers another reason to choose our brands over others. We're also rolling out new prototypes for Wingate, Baymont, and Microtel. Speaking of which, last week Microtel by Wyndham was once again ranked number one in guest satisfaction in the economy budget hotel segment by JD Power.

Our prototypes are designed for new construction, but have direct application for our many conversions and renovations. We work to apply key elements from these plans to existing product. Through these initiatives, Wyndham Hotel Group is continuing to enhance our brands' value proposition for both franchisees and consumers.

Now moving to Exchange and Rentals. When an investor asks us about our vacation rental business, there's often a comparison to the Internet listings in rent-by-owner sites such as Airbnb. We're the world's largest professional manager of vacation rentals, with a diverse portfolio to meet the needs of virtually every traveler. The key words are professionally managed.

Like many rental companies, we'll list our properties on the Internet, primarily through our own proprietary websites, and at times through some of the listing services. But what differentiates us is the high level of service we provide to our property owners and guests. We typically manage the entire process. We offer the homeowner a turn-key experience where we do all, from advertising, booking and billing, to home cleaning and maintenance. We manage all the interactions with the consumer.

We provide guests a professional experience from a trusted brand with a long history of strong service, delivered by on the ground local staff that not only handled the reservations and key transfer, but are available for any issues, whether air conditioning breaks on a hot summer night, or severe weather is on its way.

For example, on the July -- this recent July 4 weekend, Hurricane Arthur hit the Outer Banks of North Carolina, where we now manage 575 properties. Prior to the storm, our on-site staff prepared our rental homes to minimize damage. After the event, we immediately notified owners regarding any damage, and began making repairs. Our team worked into the night, and within six hours of the evacuation order being lifted, our properties were ready, and every guest was checked in.

The result, only 11 of our rental properties were damaged beyond our ability to immediately repair, and we were able to relocate those guests to alternative properties. Overall, only two parties who were offered alternative accommodations canceled their rentals. This is what we mean by professionally managed. The Wyndham Count On Me service commitment provides the peace of mind that we stand behind the rental experience from beginning to end.

Of course, we also have great product. Our unique -- one unique example is our largest European rental brand, Landal GreenParks. Based on a philosophy of bringing the outside in, Landal's parks are usually located within nature, frequently well off the main roads, in the woods or near mountains and lakes settings. Since opening their first park in 1954, Landal has grown to other 70 managed and franchise locations, with 12,000 rental units, generally bungalows with a living area, kitchen, bathroom, and up to six bedrooms.

Landal serves over 2 million visitors a year, primarily in the Netherlands and Germany. Our guests love the concept, and park occupancies average almost 80% during the peak season. With great products such as Landal GreenParks and a strong service commitment, we are confident that we will continue to expand our professionally managed rental business into the new markets, and grow the business overall.

Before we move on, I would like to take a moment to express our sympathies to those affected by the tragic loss of Malaysian Flight 17, including the many families in the Netherlands, where Landal is based. Our hearts are with them.

Now turning to Wyndham Vacation Ownership. We are always looking for the most efficient ways to attract new owners. New owners are coming from an increasingly wider range of cultural backgrounds and demographics, demonstrating the broad appeal of the timeshare product. About half of our new owner tours are sourced through our community marketing programs and alliances, which put the WVO product front and center in vacation locations.

We focus on partners whose customers match our timeshare owner demographics. These partners share a commitment to truly knowing their customers and providing great experiences for them. We set our teams up on site, where they engage and offer tours to potential customers who are already likely to have an interest.

One great partnership for us has been our long-term relationship with Caesars Entertainment, where we're currently at seven locations in Las Vegas. Another example is our alliance with Jimmy Buffett's Margaritaville, which resulted in Margaritaville Vacation Club by Wyndham. This alliance provides a large, loyal, fun-loving customer base, with a demographic profile that's great and strong and similar in many ways to timeshare owners.

In sales now, the first Margaritaville Resort will open next year in St. Thomas and Virgin Islands. We expect significant tours for Margaritaville channels through joint marketing activities, including tie-ins with Margaritaville restaurants. Of course we're constantly exploring new alliance opportunities as well, and we have some exciting new relationships in the works.

Other new owner marketing programs include our Discovery program, and our own referral program. Through our Discovery program, a potential owner is invited to enjoy owner benefits for a trial period before making their decision to become a long-term owner.

WVO's owner referral program provides current owners with incentives, such as bonus points or show tickets, to invite a friend or family member who may be interested in purchasing timeshare to visit our resorts. The power of word-of-mouth endorsements from a family member is maybe even more compelling when combined with an opportunity to experience the product first-hand.

Wyndham Vacation Ownership and Wyndham Hotel Group also continue to collaborate in marketing our timeshare product directly to our hotel customers. A great example is our call transfer program, where interested customers are transferred to a timeshare representative at the end of a call with the Hotel Group. These customers are predisposed to travel, and are already engaged with our Company through our hotel brands in Wyndham Rewards, making them great candidates for timeshare purchase with us.

We cast a wide net, but it's also efficient and informed. We target our marketing, and conduct credit pre-screening before every tour. The majority of our sales centers provide bilingual and multilingual representatives. For example, we have Japanese-speaking associates in Hawaii, a popular destination for Japanese tourists, and Portuguese-speaking associates in Orlando, which is popular among Brazilians. Now let me turn the call over to Tom for details on the quarter's results.

Thanks, Steve. Good morning, everyone. I'm happy to report another strong quarter, with revenues up 7%, adjusted EBITDA up 9%, and adjusted diluted EPS growth of 19% year over year. As Steve noted, results reflect continued strong execution and performance across all of our businesses. In the Hotel Group revenues were up 8%, reflecting higher RevPAR, and growth in the Wyndham Rewards program.

Adjusted EBITDA for the business increased 12%, largely due to the RevPAR increases. Domestic RevPAR increased 8.8%, led by the strength of our Days Inn and Wyndham brands. Systemwide RevPAR increased 5.6%, due to adverse currency impacts, and continued growth in the lower RevPAR markets outside of the US.

Specifically, international RevPAR was down 1.8%, primarily reflecting high growth in one of our lowest RevPAR markets, China. Now if we were to exclude China, international RevPAR increased almost 3%. Year over year, system size increase 2.4%, reflecting a 24% increase in global room openings, reflecting robust development efforts. We've also introduced our brands into new countries, including Howard Johnson's in India, and Ramada in Belize and Panama.

Our pipeline at quarter end stood at 970 properties and nearly 117,000 rooms, up 4.2% over last year. 67% of our pipeline is new construction, and [57%] (corrected by company after the call) is international development.

In our Exchange and Rental business, net revenues were up 7%, and adjusted EBITDA up 2% for the quarter. If we were to exclude foreign exchange and acquisitions, revenues were up 3% and adjusted EBITDA up 1%. Exchange revenues were flat in the second quarter, with an increase of 1.7% in average members, offset by a 1.8% decline in exchange revenue per member.

Member growth was driven by improved retention, and growth in new members in North America and Latin American regions. The revenue per member decrease was the result of the growth of club membership in North America, which have a lower propensity to transact, and also a decline in Latin American member rentals.

Now looking at vacation rentals, excluding the impact of foreign currency and acquisitions, revenues were up 6% for the quarter, reflecting a 4.9% increase in rental transactions, and a 1.2% increase in the average net price per vacation rental. Transactions were largely driven by growth at our Landal GreenParks business and our Novasol business, which is based in Denmark. Pricing benefited from the strength in higher-priced accommodations at Landal, and our UK-based James Villa holidays business.

Our Vacation Ownership business had another strong quarter, with revenues up 7% and adjusted EBITDA up 15%. Revenue increases were due to higher net vacation ownership interest sales. Gross VOI sales were up 3.1% year over year, reflecting a 1% increase in tours, and a 1% increase in VPG, plus higher telesales volume.

Net VOI sales were up 10%, reflecting higher gross VOI sales, and a lower provision for loan loss. The improved provision was supported by a 15% decline in defaults from the second quarter of 2013. Second-quarter sales to new owners were strong. Year to date, we've added almost 15,000 new owners to the system, a 7.4% increase over the same period last year.

On the ABS front, we completed our second-term securitization transaction of the year on July 16, with the issuance of $350 million of asset-backed notes. The Sierra Timeshare 2014-2 was comprised of $277 million of A-rated notes, and $73 million of BBB-rated notes. The notes had coupons of 2.05% and 2.4% respectively, for an overall weighted average coupon of 2.12%. The advance rate for this transaction was 91%. We continue to see great results on these securitizations.

Now moving to corporate, net interest expense was down for the quarter, primarily due to a $3 million benefit from a fixed floating interest rate swap, which we implemented in July of last year, and the reversal of a reserve for value-added taxes.

In the six months -- first six months of 2014, free cash flow was $695 million, or $5.39 per share, up $41 million from the first six months of last year. Now we ask that you don't get ahead of us on this. Our cash flow seasonality is more front-end loaded as the rental business continues to grow.

Remember that in this business, we generally collect cash from the consumer when the trip is booked, usually in the first and second quarters. We typically pay the homeowner at the time of the stay, usually in the third quarter. In addition, we expect higher payments of cash taxes, as well as higher CapEx and inventory spend in the second half of the year.

Our ongoing free cash flow target remains approximately $750 million. However, as you know, there can be variability in cash flow in any given quarter and in any given year, so we view this as a neighborhood target rather than a precise figure. Remember that we identified some head winds this year, including a higher cash tax rate and higher spending for timeshare development.

In the quarter we repurchased 2.3 million shares for a total of $170 million, a slightly higher pace than in the first quarter. As a reminder, our capital allocation strategy is to invest strategically in growing our business, coupled with returning capital to shareholders through share repurchase and dividends. Our current expectation, based on investment opportunity, is to repurchase at least $600 million of our shares this year. Our remaining share repurchase authorization as of the end of yesterday was $311 million, and we'll seek approval for additional repurchases from our Board when appropriate.

Finally, let's turn to guidance, which will be posted on the website after the call. As you saw from the press release, we are raising the bottom of our adjusted EBITDA range by $15 million, and the top by $5 million, to a new range of $1.23 billion to $1.245 billion. Adjusted earnings per share guidance goes up $0.11, with a new range of $4.34 to $4.44 per share. Average weighted shares for the year are expected to be 128 million shares, down from 130 million shares.

We've made some slight modifications as well to business unit and corporate EBITDA guidance. We've also tightened our ranges on DNA and interest expense, and we've brought our tax rate guidance for the full year down to 36.5%. Again, all of this will be posted to the website after the call.

For the third quarter, we expect adjusted earnings per share of $1.59 to $1.62, and a diluted share count of 127 million shares. Remember, our guidance assumes zero share repurchases going forward, while some analysts assume additional repurchases in their models. As a result, there are differences in first-year metrics between our outlook and some analysts expectations. With that, I'll turn the call back to Steve. Steve?

Thanks, Tom. Next week will mark our eight-year anniversary of listing on the New York Stock Exchange. Before opening the call to questions, I'd like to take a moment to comment on our performance since that time. Our strong operating results, execution, and growth have driven significant increases in revenue, EBITDA, EPS, and free cash flow.

Between dividends and share repurchases, we have returned nearly $4.2 billion to our shareholders. Our total shareholder return since listing, including dividends, is more than double that of the S&P 500. We still have a long way to go. We see great opportunities ahead to generate growth and value across all our businesses, and we remain keenly focused on capitalizing on those opportunities. With that, Shirley, we'll open the call for questions.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

One moment please for our first question. Our first question comes from Joe Greff with JPMorgan.

One of the things that stood out to us in the 2Q in the Vacation Ownership segment was the improvement in the loan-loss provision. Last three quarters it's been a net 15%-plus to 16% range. Can you talk about what your expectation is going forward in the back half of this year on that line?

Joe, our guidance or our outlook for loan loss is what we thought from New Year, which I think is around 16% to 18% of gross VOI. That isn't changing, although I have to say we're quite encouraged by the default trends that we see assigned at our folks in Orlando are really managing that aspect of the business nicely.

The business made a number of changes back 2009, 2010, to elevate the FICO score profile of our buyers. We're at the point now where I think where we were was before 2008, 2009, so we're in a good spot. We're hopeful that we'll continue to see improvement because of the fundamental changes that the business made a number of years ago. It's hard for us at this point to judge how much better things will get, but we're optimistic for sure.

Great. Then a second follow-up question. Steve, maybe you can just talk about your views on Wyndham potentially participating in large-scale M&A in the sector? Maybe I will ask it that way. I know historically you've been focused on more tuck-in acquisitions, but if you can give us your thoughts on that, that would be appreciated.

Sure, Joe. Actually we've been focused on tuck-in acquisitions because that's what's been available. We never really said that we would only do one size deal. We said we would continue to look at transactions. We commented that what we saw in the market place were basically tuck-in acquisitions that were available. That is -- you're absolutely right, that has been our focus because that's what's been available.

We look at just about everything. As you know, our DNA has a lot of M&A in it, because that's how we were built. Of all of our brands, there's only one that we actually started ourselves. The rest of them we've acquired. We started Wingate, but all the rest of them we've bought over time.

We would continue to look in particularly the hotel and the rental business for areas to make acquisitions. Size is only relevant in that it kind of determines how we structure a transaction. It really is just a matter of looking at what's available out there. We'll continue to look at big deals, small deals, any deals that make sense for the shareholders. We are all in this together.

Great that's all for me thanks that could appear

Steven Kent with Goldman Sachs.

Hi, good morning. Just a couple questions. First on the vacation rental business, can you just talk -- I know it's hard to do, but can you just talk about almost like same-store sales versus adding more units? Because it was very strong this quarter, and it's always difficult for me sitting where we're sitting to see whether it's Second, just following up on Joe's question on the reverse -- reserves and the reversals. I just think maybe you can just explain wholistically how you've looked at this? Because to me, you were over reserving and taking away essentially earnings a few years ago, and now it's coming back as that business is coming in better than expected, and I think I'd just like to understand that.

Finally, again similar to what Joe asked on consolidation opportunities, on the vacation rental side, in particular in the US, what's the strategy there? Can you consolidate the US vacation rental business and turn that into another big growth opportunity for yourself?

Okay. Well, you hit a lot of topic there, Steve. We'll try hit them maybe in the order that you asked them, starting with the vacation rental business. We do try to give information to give some direction, but you're absolutely right. It's tough for you to see all the detail and frankly the minutia that we look at. We do give you the vacation rentals transactions, and where we see it coming out, and that's -- we give guidance between 4% to 6%. That includes acquisitions, so it includes any activity that we've done last year or earlier this year to acquire businesses.

If you looked at it on a same-store sales basis, you would see an improvement in rental transactions, you'd seen improvement in pricing, as well. It's a little bit of both. I would probably say -- I'm just trying to think of the detail that I've looked at, it's probably right now more price than volume. I think I would characterize it that way. Price and volume, does that sound right?

They may be pretty equal. It's not like one is running way ahead of the other one. But both of them are contributing right now to our growth. We do show the numbers without acquisitions when we show EBITDA for that business unit, don't we? I believe we --

We did for the rentals business.

You can see, we give it to you so you can strip out the acquisitions, but it is both factors contributing to it. If you want more information we can probably talk through how we can get some of that for you.

On the reserve side, and Tom may want to add to this as well, you're absolutely right. There was a period of time when the reserve was running actually higher, and significantly higher. If you remember because I certainly remember saying at the time how I was frustrated that that wasn't turning around more quickly, because all the great things that that team had done down in Orlando and out in Las Vegas to improve our credit profile of the buyers wasn't reflecting in a better reserve, but we knew that it was coming. But the way that the accounting works is it takes some time for the reserve to turn.

At the same time, we were hit a one point with that cease and desist problem that we talked about, which kind of exacerbated the down-turn. Basically, we've wrestled that one to the ground and got that one put behind us.

As Tom said, the group down in Orlando and out in Vegas deserve real kudos for what they've done, which is basically changing the model that we sell timeshare with, by -- to a very forward-looking, intensive, understanding who the buyer is, whereas we used to just sell to almost anyone, because we knew we could take the timeshare property back and re-sell it if we needed to. But now we're doing a lot more work, which is improving it.

While we've recovered as Tom said to kind of a level of loan-loss provision that we had before the down-turn, in my opinion we should be better than that, because the way that we are credit scoring and credit testing our buyers is better than it was back then. The third one was on --

Was on North American rental strategy.

North American rental strategy. We will continue to look at deals in North America. We think there is an opportunity to roll it up and basically do what we've been doing. But also, very importantly is to expand in the markets where we already have a presence. Because just doing acquisitions, in my opinion, is not enough. We have to do acquisitions by doing that -- plant a flag in a market with a Wyndham branding on it, and then grow within that market.

I feel that we should be able to basically go into markets, plant a flag, and then get a lot of market share; because I don't think anybody else can do what we can do in a market place. That's our -- the direction that we're headed in. A lot has to get in place in order to make that happen. We're working on systems, we're working on bringing on the right people to make that all happen right now.

But that is our goal for that North American rental business, which is not dissimilar to what we did in Europe starting in 2003, and now we've got a very large terrific business over in Europe that is very predictable, extremely well-managed, and is delivering on all cylinders. There were a lot of questions there, Steve. Hopefully I hit most of them. Tom, do you have anything else?

No. I think you covered it all.

Okay. Thanks, guys.

Chris Agnew, MKM Partners.

Thanks very much. Good morning. The exchange business. I just wanted to ask. You're sort of seeing -- are you seeing any pressure from corporate accounts to reduce the fees on that side of business? Thanks.

Well, the simple answer is yes. The more evolved answers yes, we always have. Any customer that we have is going to ask us to provide our service at a lower cost. That's just natural. Of course, there's been that effort. The fact is, we have consistently added the added services that we provide to our corporate customers. We're not just saying pay us the same thing and we'll give you the same service. We're saying we think there's a good reason that you should be paying us the same or even more, because we're providing more.

That is really our goal at RCI, is to become not only the leader, which we already are in timeshare exchange, but also continue to be on the leading edge of innovation in providing more services to the consumer, as well as to the corporate customers.

At the end of the day, the corporate customers -- via the Wyndham Vacation Ownership or Disney or Hilton or any of the other big corporate customers, what they want is they want to service their consumers. Disney wants to have wildly happy customers that own Disney Vacation Club. It's our job to help them do that.

If we can do that, it's a win-win for both of us. They have happier customers, their customers buy more timeshare, bring friends in to buy more timeshare, and become loyal to the Disney brand or the Hilton brand, or whatever brand they may be servicing from. The answer is, yes they do. But we are providing more service we believe to be able to support that -- are looking to maintain or increase our revenue.

I will say that we are very mindful of our corporate relationships. We value them greatly, and spend a lot of time working on them. We also spend a lot of time looking at kind of the phasing of when relationships are coming up for renewal, and generally stay ahead of it so that we don't have a lot coming at any one time, because you're always in a negotiation, particularly with large customers. They have more power than the small customers do, quite frankly, which is natural. We're very mindful of that, and the team does a really terrific job.

Maybe a follow-up to that. Are these -- how often do these renew? Are the annual or multi-year? Any particular large corporate relationships that we should be mindful of renewing over the next 12 months?

They're multi-year. There are corporate customers coming due almost every year, probably. I would say I'm just thinking about the schedule I look at. I would say on average there's too corporate accounts coming do every year, some larger than others. Yes, there are ones coming due this year. We work to get ahead of it, and usually we're renewing before the year that they actually come due. We're staying well ahead of it. We have great relationships. As I said, we value those relationships dearly, and make sure that we're doing whatever we can to make our customers even better with their consumers.

Excellent. Thank you very much.

Patrick Scholes, SunTrust.

A couple questions here. First one concerns your lodging business. Certainly I'm sure you're well aware there has been a lot of speculation about possible acquisitions. On the flip side of that, would you ever consider spinning out your lodging business to a separate company? The reason I ask that, it appears to me that the valuation multiple that you're getting on your business, somewhere around a 10 to 11 times multiple of EBITDA, is significantly less than what I see as your closest competitor choice. Would that ever, in addition to acquisitions, any thoughts on possible spinning out of businesses?

Well, we look at everything, Patrick. We discuss all options with our Board, but I would not hold your breath waiting for us to break up the Company. As I've said in the past, I don't see a compelling argument. A banker can tell you that yes, you'll get this incredible value creation if you split up, but I'll also find 15 case studies that show that creation has not been -- more value has not been created by splitting a Company up. I don't see any compelling reason.

I think the most important thing would be that you take your multiple for our hotel business and you support their choices, because at the end of the day, that's -- you're kind of leading the charge out there, man, and you're telling people what you think the value is. I agree with you that we are undervalued, but there's not much that I can do about that. We set the E, we do not set the P. The street sets the P, and all we can do is continue to perform and continue to deliver the results. That's what we will continue to do. I don't think that the answer to that is either splitting up or selling off pieces of our business.

Okay, great. One other question concerning the hotel business. When you think about acquisitions, would purchasing a hotel management business be a priority in the scheme of things. Certainly you're very deep into franchising, but management side is really small right now. Would that be a priority in the acquisitions?

Yes. Again, Patrick, we look at everything that's in our world. We have acquired some property management businesses on the timeshare side, essentially Shell Vacations that we bought was a large property management company that we bought in, so we have resort management more on the timeshare side.

On hotel side, we have a very good property management group that manages several properties. It's not a ton. Could we be better in that area and larger. Yes. It would have to be a very unusual deal that would put us in a position of wanting to increase the size of that business. Bear in mind, people aren't going to come to us to manage a Marriott property. They're going to come to us to manage a Wyndham property, and we generally want to manage in the upscale sector.

You're talking about managing one brand, which is the Wyndham brand. We manage quite a few of those already. Could we do more, yes. We need to grow more on the Wyndham side, and we will continue to push into that. I don't think the answer to that is M&A, but we will continue to look at any transaction that's out there that make sense.

Okay. One last question here. Correct me if I'm wrong, I believe you still own the Wyndham Bonnet Creek. Do you see that as a long-term holding? Certainly the transaction market has bounced back, and it seems much more liquid than when you first built it a couple years ago. Thoughts on that?

Yes, that is something -- again, we look at that on a frequent basis. That property is performing very well for us right now, and yet it has not yet reached what we feel in the market is the appropriate level of stabilization, to kind of achieve the kind of value that we think we should be getting for that asset. It's a very unique asset. Again, and Patrick you've been to it, I believe? It's situated within 2,000 units of timeshare. It's a very unique asset.

Would we sell it if we got the right price? If somebody knocked on the door and said here's the price and the price meets our expectations, we'd be willing to sell the property. But we are not actively marketing it now. I don't think we will be actively marketing it in the near term.

But we'll continue to look at values. We'll continue to look at the performance of that property. Once we think it's the right -- that we can achieve the right price, we may consider selling it. But if we sold it we would continue to manage it. It will continue to be in our portfolio of managed properties for the foreseeable future -- for more than the foreseeable future, because I don't see us, with the uniqueness of that location, ever removing it from our management control.

Is there a rough book value of that asset that you can disclose?

We never disclosed the number.

I think it's north of $100 million. I'm not sure the exact number.

Okay. Ball park $100 million, that's fine. Okay, thank you very much. That's all.

Nikki Bah, FBR.

Good morning, everyone. Steve, just when I look at the tour flow in WI segment, that seems to have been at the lowest pace in last several quarters. It was up only about 1%. What may be behind that? Is there a seasonality issue? Is there something else going on? If you can provide some color on that? Thank you.

I don't think there's much there, frankly. I don't view it as being anything unusual. We are pushing for new owners to come into the program, so we did increase our new owner tour flow. We have in fact increased the number of new owners we brought in this year versus last year. I don't think there's anything else unusual in that. We're managing for -- again, We manage for EBITDA in that business and EBIT production. Sometimes tour flow can be up or down, BP can be up or down. But the bottom line is what is that business unit producing? We're thrilled with how that business unit is producing.

I don't think there's anything to be read into a 1% increase versus a 3% increase. We still have for the full year a 2% to 5% tour flow increase. That is high, frankly. The top end of that is very high. We don't give up on the hope of getting up into that range or in the high end of that range. I think it's unlikely, based on what we've seen for the first six months of this year. But we continue to strive for performance there.

Okay. Touching a little bit upon the new versus the upgrade sales in the VOI segment. I think you recently mentioned something about that 35% of sales today are to new owners, 65% are to -- are basically upgrades. How do you see that ratio turning over time? What do you think it could get to, maybe one, two, three years from now?

I think if anything, it probably will continue to move towards a little larger percent of new owners over time, if I looked out a couple of years. We need to continue to bring in new owners so that we have a pool of people to sell upgrades to. As I've explained before, that's kind of the way we build our sales plan at WVO. We look at what we want to achieve overall for the enterprise, and then we look at what do we need to bring in, in order to be adding new members to the owner base that will provide growth for the future. That's the starting point.

After we figure out the new owner members that we need, we then look at okay now, how much do we need in the way of upgrade sales in order to reach our sales targets and our EBIT goals for the year. We really start it all with the number of new members that we need. I think that will continue to be the goal that will continue to be the push, doing things like Margaritaville by Wyndham.

That program, which I don't know if we've ever talked about it, that program only sells new members. We will continue to add new members through programs like that. If you're a current owner and you want to get into the Margaritaville by Wyndham area, you're going to have to buy new. You can't just upgrade what you have. You have to buy new owner position within Margaritaville by Wyndham. The same thing is true if you are obviously a new owner coming in, you buy new as Margaritaville Club by Wyndham. We do things to focus on that new owner base, and that is an important element of their strategic planning.

Over the next couple of years do you see this ratio going 50-50?

No, I don't think so. I think that would be a very large move, and probably unlikely. Remember, we are a -- we have a very large base of owners. It's over 900,000 owners now. Those owners are more profitable for us to sell to them, than to sell to new owners. Selling new owners is most costly. We need to do it because we need to keep building our base, but it is a more expensive sale for us, lower margin sale. No, I don't see it going to 50-50. If we're at 70-30 or 65-35 right now it could move up a little bit, but it's not going to be all the way up to 50-50.

Got it. Thank you very much.

Harry Curtis, Nomura.

Good morning. Just a follow-up on a couple of things. First on the provision, I'm just wondering what you've built in to your guidance for the rest of 2014? Do you think that it stabilizes at this lower rate, or are you probably looking at somewhere back in the 16% to 18% range. I'm just trying to get a sense of what you expect the stabilized level to be?

Yes, we're holding to our full-year provision guidance of around 16% to 18% -- more likely to be closer to 16% than the 18%.

All right. I'm not sure what you can say about how compelling a potential transaction might be, as far as using your balance sheet, your strong balance sheet. Where do you think you -- Steve, where are you and the Board vis a vis on how much leverage you will take on, if there were a truly compelling, accretive, and strategic opportunity out there?

Harry, as I've said in the past, our goal is to remain investment grade, and actually on the bottom end of investment grade. That is our targeted credit metric. As you know, we've taken on more debt over the years to buy back stock and do other -- make acquisitions, and have kept ourselves at the bottom end of investment grade. If there was something that was incredibly strategic and a terrific opportunity would we ever consider moving off of that, and doing something that would take us below investment grade? The answer is yes, because we never say never to anything.

But having said that, we would only do it if we saw line of sight to get ourselves back to investment grade, because I think that having flexibility in this industry, as I've said before, I think gives us a great advantage. As you said, we have a really strong balance sheet. We can do just about anything we want right now. I think that's an important strategic advantage to have in the market place. I think we will continue to try to strive to maintain that level of investment grade.

But we don't need to build up our balance sheet with a bunch of cash. We don't need to pay down debt and move up from BBB-minus. We can sit right where we are. To go below would require something that is really we think very unique and is kind of a strategic game-changer for our business.

Just as a quick follow-up on that, you used the term line of sight. Does that imply maybe a 1 one- to three-year time frame to get back to investment grade, or might you consider sort of three to five?

You know me Harry, my vision isn't really good. I wear glasses. My line of sight is probably a little bit shorter than other people, so one to three is probably more like what I would think about as line of sight. Again, we're not talking about anything specific. This is just kind of theoretical.

To your point, Harry, it's a very -- you phrased the question well -- have we and the Board talked about it. I have a very active Board with some terrifically bright people who are constantly questioning and pushing what we're doing, and how we're going to achieve continued growth over the next five to 10 years. Obviously M&A is part of who we are. They constantly want to be updated and involved, and make sure that we're looking at everything. We have a great, engaged group.

Okay, that's terrific. Thank you very much.

Thank you Shirley, was that it?

At this time, I'll turn the call back over to the speakers.

Well, thank you all very much for your time and attention today. I just have one other reminder, and that is to remember to tune into the Wyndham Championship August 14 through 17, broadcast from Greensboro, North Carolina. We look forward to seeing you there, but also enjoy the rest of your summer. Thank you.

Thank you, and this does conclude today's conference. We thank you for your participation. At this time you may disconnect your line.