Q4 2020 Hilton Grand Vacations Inc Earnings Call
[music].
Good morning, and welcome to the Hilton Grand Vacations fourth quarter 2020 earnings Conference call.
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I would now like to turn the call over to Mark Melnyk, Vice President of Investor Relations. Please go ahead Sir.
Thank you operator, and welcome to the Hilton Grand Vacations fourth quarter 2020 earnings call before we get started please note that we've prepared slides are available to download from a link on our webcast and also on the main page of our website at investors day at HGV Dotcom, we may refer to these slides during the course of our call or question and answer session.
As a reminder, our discussion. This morning will include forward looking statements actual results could differ materially from those indicated by those forward looking statements. These statements are effective only as of today.
We undertake no obligation to publicly update or revise these statements.
For a discussion of some other factors that could cause actual results to differ.
Please see the risk factors section of our 10-K, which we expect to file after the conclusion of this call and in any other applicable SEC filings.
Also be referring to certain non-GAAP financial measures you can find definitions and components of such non-GAAP numbers as well as reconciliations of non-GAAP and GAAP financial measures discussed today in our earnings release and on our website at investors studies TV Dot com.
As a reminder, our reported results for both periods in 2020 in 2019 reflect accounting rules under ASC 606, which we adopted in 2018 under ASC 606, we are required to defer certain revenues and expenses related to sales made in the period. When a project is under construction and then hold off on recognizing those revenues and expenses until the period when.
<unk> completed.
To help you make more meaningful period to period comparisons you can find details of current and historical deferrals and recognitions in table T. One of our earnings release free.
He's a comparability and to simplify our discussion today our comments on adjusted EBITDA in our real estate results were further was results excluding the net impact of construction related deferrals and recognitions for all reporting periods. Finally, unless otherwise noted results discussed today refer to fourth quarter 2020, and all comparisons are accordingly against the <unk>.
<unk> fourth quarter of 2019.
In a moment Mark Wang our President and Chief Executive Officer will provide highlights from the quarter. In addition to an update of our current operations and company strategy. After Mark's comments, our Chief Financial Officer, Dan Mathews will go through the financial details for the quarter.
Dan will then make themselves available for your questions with that let me turn the call over to our president and CEO Mark way Mark.
Good morning, everyone today, I'm pleased to share that our fourth quarter results improved sequentially for the second consecutive quarter.
And I'm incredibly proud of the way our team members responded to create a safe environment for our owners and guests and protect the health of our business throughout 2020.
Over the past year, we took decisive action to strengthen our balance sheet and position <unk> for the future.
We controlled our costs and increased our financial flexibility to achieve positive adjusted free cash flow for the year.
And our efforts highlighted the strong execution of our team and the value proposition of HCV ownership, resulting in higher closing rates positive net owner growth and strong member retention.
Various markets again saw differing levels of impact from the Covid Spike.
But there are some clear positive indicators that leave us optimistic that we're moving in the right direction.
Our owners and guests are better informed about what to expect from their travel experience and protocols have become more standardized and consistent.
The rollout of vaccine should be a positive for sentiment as they become more widely available over time.
Taken together these developments make me optimistic that we're on the path to recovery zone.
So our view remains that the improvements will be more second half weighted.
Now let me take a few minutes to talk about what we're seeing in our different markets and customer segments.
Overall contract sales were 36% of prior year's levels versus 32% last quarter.
In markets, where we were open for the full quarter.
We recovered to 50% of the level that we saw in 2019.
Our tour flow in those markets also grew sequentially in Q4 with strong performance in October.
Both of them, although we saw trends slow in November and December due to the Covid pickup.
This late quarter slowdown wasn't caused by an increase in cancellation, but rather was due to lower intra quarter bookings than we typically see at this time of year.
The impacts continue to vary by market and.
In California for instance, a new stay at home order that moved to a full locked down in December impacted our occupancy in tour flow.
But in Orlando, we saw occupancy rates increased sequentially in every month of the quarter and December produced its highest tour volumes since the pandemic began back in March.
Overall occupancy levels for Q4 near 50%.
And on a year over year basis, we're down slightly less than what we saw in the third quarter.
BTG in open markets was up 21% versus last year to nearly $4300 driven by stronger close rates.
So those who did come to our sales centers actually showed a higher propensity to purchase than what we saw in Q3.
Additionally, our close rates on vacation package sales for future tours was also up year over year in each months of the quarter.
Meaning there were yielding our Hilton leads more effectively to build a pipeline for future tours.
We're optimistic that the positive trends of more vacation packages, improving occupancy lower cancellations and improved close rates should lead to better realization of contract sales.
Which ultimately should support continued sequential growth as we move through this year.
Japan had another strong quarter.
And has recovered to 80% of 2019 to levels.
Our network of off site sales centers has been key to maintaining interaction with our owners and new buyers.
We also launched sales of our newest project in Oklahoma during the quarter.
This is a capital efficient just in time project that we're pre selling today, but won't make any payments on until we take delivery of the first phase when we opened for occupancy later this year.
Okay, now as a top leisure destination for Japanese and surrounding regions and we believe it will allow HCV to further penetrate this robust regional leisure market.
We're excited about the project and we think it'll be an attractive vacation options for both owners and new buyers alike.
While our recovery has been strong in Japan.
The government has recently elevated its state of emergency Lockdown protocols through March.
We believe that the government will aggressively work to manage the spread of the pandemic as they seek to host the Olympics. This summer.
Which could be a headwind to further recovery in the region in the short term.
In Hawaii, we reopen our resorts and sales centers in mid December.
Initial occupancy levels ahead of what we had seen in the mainland this past summer.
And our forward bookings show improvements and projected occupancy levels as we enter this summer months, which we expect to continue as airlift to the islands in Peru.
Hawaii products still made up nearly a third of the inventory sold during the quarter without any material contribution from our onsite sales centers. So clearly people are excited to return to the islands and they continue to purchase Hawaii inventory from our other markets.
Domestic inbound visitation to Hawaii has improved since the state reopened in mid October.
However, strict return protocols by the Japanese government have continued to limit the number of Japanese tourists visiting the islands.
So with fewer Japanese arrivals anticipated in the first half of the year, our Hawaii onsite sales center performance will be led by U S. GAAP.
We continue to expect that will ramp back up in Hawaii over the next several quarters.
Setting this up for a stronger second half and a solid run rate exiting this year.
Yeah.
Moving to our customer segments we.
We saw sequential improvements from both owners and new buyers during the quarter.
Close rates drove an improvement in <unk> in each month of the quarter with a particularly strong December.
We believe the value proposition of timeshare is resonating now more than ever.
Our owners have always appreciated the extra space full kitchen and room laundry and a census safety provided by the enhanced care initiatives that gives them a second home feel during their stay.
But we've also seen an increased depreciation of these unique timeshare attributes from new buyers.
In fact.
Our new buyer close rate was the strongest we've seen in well over a decade and that trend has continued through January.
So I'm, particularly proud of our teams who did such a great job on execution. This quarter and remained focus on growing our NOG, which was up just under 1%.
Our financing business was relatively steady this quarter and should return to growth as sales trends normalize and we add more receivables back into the portfolio.
Our club business Didnt see the typical seasonal pickups and revenue this quarter as we allowed our owners to preserve the value of their club points ended 2021 and no additional costs.
That said, our strong cost controls offset this impact and drove a solid improvement in margins during the quarter.
These businesses have been a stable source of recurring income throughout 2020, producing solid EBITDA and cash flow to demonstrate their resilience during this otherwise challenging period.
Turning to our strategic priorities, we took further steps in Q4 to streamline and protect our business and our owners.
We secured additional financial flexibility in our credit facility as Dan will speak to.
And we now have 35 months of available liquidity.
We took a number of proactive steps over the course of this year to provide flexibility for our owners to push their point to vacation usage forward.
And ensure no loss in value.
Which has been well received by our members.
To that end, we're really pleased that through January we collected $418 million of annual dues and management fees versus $415 million last year before Covid took hold.
We think that's a testament to the actions we've taken throughout the pandemic to protect our other safety and the value of their ownership.
And it also underscores the quality of our owner base and their commitment to the HCV brand.
So when you look at what's happening now versus six months ago. It feels like there is some light at the end of the tunnel.
We've seen more consistent positive signs in our business close rate gains strong new buyer trends the continued decline in cancellation rates and solid summer bookings.
We've restarted our operations in Hawaii.
And we're positioning ourselves for a return to growth by opening four new markets Maui.
Okay, Noah and a fee for service property in Charleston.
While there is still a ways to go we remain cautiously optimistic that the recovery is in sight.
Yeah.
We've all been shouldering the burden of this disruption for a long time now some of us more than others like our frontline workers.
And it's caused people to examine the things in life that they really appreciate and Miss.
And I truly believe that travel is one of the top things people are missing.
We believe there is strong pent up demand for leisure travel that will begin to materialize in earnest in the latter half of the year.
And our priorities in 2021 will be focused on ramping Hawaii, and our new locations along with opening our remaining markets in New York and Chicago.
Before I turn it over to Dan.
I'd like to thank our teams who work every day with our customers and our resorts and sales centers around the globe as we bring memorable vacation experiences to our owners and guests.
With that.
Dan will walk you through our financial details Dan.
Thank you Mark and good morning, everyone as mountain had mentioned in his introduction to our call. Our results for the quarter included $21 million sales deferrals impacting reported revenue and net deferrals of $11 million impacting both adjusted EBITDA and net income.
All references to consolidated net income adjusted EBITDA and real estate segment results on this call for current and prior periods will exclude the impact of deferrals and recognitions.
The complete accounting of our historical deferral and recognition activity can be found in excel format from the financial reporting section of our Investor Relations website.
Let's review the results for the quarter.
Total fourth quarter revenue was $233 million up 5% sequentially from the third quarter, we saw sequential improvements in our real estate club and resort management and rental and ancillary segment revenues, partially offset by lower financing revenue due to a smaller receivable portfolio balance.
Q4 reported adjusted EBITDA was $35 million, reflecting sequential top line improvement coupled with the benefits of our ongoing cost savings efforts.
As we noted in our press release. However, there was also $3 million in Covid benefit in the quarter related to employee retention credit granted under the cares Act that was included in adjusted EBITDA.
We are moving this benefit would put your comparable adjusted EBITDA for the quarter at $32 million.
Despite the solid progress on revenue and EBITDA during the quarter net income was a loss of $143 million due to a 209 million noncash impairment charge on unused land that we took during the fourth quarter.
Let me take a moment to go into a little bit more detail on the write down.
As part of our efforts to streamline our business we looked at several unused plots of land that have been on our books for a number of years. These plots are adjacent to existing HCV developments and were originally acquired as part of the master planning process for associated projects.
As we've Florida pipeline and development plans during our strategic review process, we determined that we would not use these parcels for development and have never included them in our pipeline of future opportunities. Therefore, we've elected to put the land parcels up for sales.
While we can't be sure we will ultimately be able to monetize these unused assets. The active beginning the sale process and associated price discovery triggered the reevaluation of the carrying value on our books again, it's important to note. There is no cash impact associated with the impairment and that Theyre sale has no impact on our current or future development plans.
Within real estate Q4 contract sales were $132 million or 36% of prior year.
As Mark mentioned, we started operations at all all of our Hawaii properties in mid December given the timing of their opening our onsite sale operations in Hawaii were not material contributor to the quarter, but we expect that they will begin to ramp up this quarter and through the first half of this year as travel to the islands recovers.
We expect to open our final two regions, New York and Chicago in the first half of this year.
Our tour flow in the fourth quarter was up 13% sequentially and our <unk> was up 3% sequentially.
Owners continue to show signs of faster recovery than new buyers and our mix of contract sales to owners remained at approximately two thirds of the total.
We started the quarter off with strong tour flow in October although we did see trends decelerate as we move through the quarter saw additional lockdowns associated with the recent Covid spike.
While we did not see a pickup in booking cancellation activity. We nevertheless saw tour flow decelerate as we move through the quarter.
Offsetting this however, our BTG improved each month, driven by strengthening close rates in both owners and new buyers and marked by a particularly strong December.
So we're continuing to do an excellent job closing on the tours that are coming into our sales centers I'll reiterate that we do anticipate that our <unk> will continue to slowly decelerate as we as our close rates begins to normalize but will remain elevated versus historical levels due to a higher mix of owner tours than we've seen historically.
Our fee for service mix for the quarter was 45%.
On the consumer lending side, our provision for bad debt was $18 million and overall allowance on the balance sheet was $211 million or 17, 8% of gross financing receivables.
Real estate <unk> was $70 million for the quarter and real estate profit was a loss of $1 million.
In our financing business fourth quarter segment profit was 24 million with a margin of 63, 2% versus a profit of $29 million and a margin of 67, 4% last year.
Profit was lower based on declining receivables balance versus last year limiting portfolio income along with higher interest expense associated with the securitization completed in Q2.
Our gross receivables balance was $1 2 billion.
Our average cash down payment year to date is 11, 3% and our portfolio average interest rate increased to 12, 6% from 12, 5% last year.
Over the past three months, we've seen improvement in net delinquency rate to 3% of our receivables portfolio versus two 5% at the end of 2019, continuing the trend of sequential improvement.
Our annualized default rate was six 3% versus five 1% at the end of 2019.
Still believe we are adequately reserved at this time, we will continue to monitor our portfolio of trends closely.
Turning to our resort and club business non for the 12 trailing months was positive 7% non member base was nearly 328000 revenue of $44 million was down 27, 9% from the prior year driven by lower member of transaction activity as well as a waiver fees associated with members banking their points into 2010.
One.
Segment profit for Q4 was $35 million with margins of 80%.
Versus a profit of $49 million and margins of 80% last year.
Rental and ancillary revenues were $20 million and expenses were $22 million per our segment loss of $2 million, which was an.
<unk> from the $4 million loss, we showed in the third quarter.
Rental expenses in the fourth quarter were down $2 million sequentially and ran counter to the normal seasonal increase we see in these expenses in Q4. This.
This was largely due to our cost reduction initiatives along with the reduced developer maintenance fees on the unsold units were carrying as a result of the temporary suspension of operations. During the year. It is important to note that this credit was an unusual item and in the first quarter of those maintenance fees will revert to normal to normal expenses.
We're still in a lower seasonal rental environment and Theyre still seeing the impact of the COVID-19. The normalization of this expense will cause our rental and ancillary segment loss to be sequentially higher in Q1.
As we move through the year and see improvements in rental revenue and increased sales of new units. However, we expect to return to a profit in this segment.
Bridging the gap between segment adjusted EBITDA and total adjusted EBITDA fourth quarter, corporate G&A was $19 million down $5 million or 21% versus the prior year, reflecting the benefits of our cost savings programs license fees were $12 million.
Our adjusted free cash flow in the quarter was a net use of $88 million, which included inventory spending of $47 million for.
For the year, our adjusted free cash flow was $68 million after inventory spend of $155 million.
Compared to our inventory budget entering this year of approximately $400 million.
As of December 31, our liquidity position consisted of $428 million of unrestricted cash $139 million of availability under our revolving credit facility and $450 million of capacity in the warehouse. We currently have $135 $7 million in timeshare receivables available for Collateralization.
On the debt front, we had corporate debt of $1 2 billion and nonrecourse debt balance of $766 million.
Turning to our credit metrics at the end of Q4, our net leverage and first lien net leverage for covenant compliance purposes.
So that three four times and 196 times, respectively. Our interest coverage ratio from a covenant compliance purposes at the end of the quarter was $5 one three times.
As a part of our efforts to maintain the maximum flexibility during the pandemic, we amended our credit facility in December.
The amendment provides a temporary waiver of our leverage covenants and each of the first three quarters of 2021, which.
Which we can choose to opt out of at any period.
<unk> and the waiver subject us to quarterly liquidity tests that sit well below our current liquidity levels.
Also modestly raises the interest rate spreads on the credit facility during that period.
Given that we've already aim to maintain a higher level of liquidity during the ongoing pandemic. We saw this as a low cost way to provide ourselves with the option of additional financial flexibility.
Given the ongoing local market volatility and associated travel restrictions, we've opted not to provide formal annual guidance for 2021 at this point in time, but it is a market restrictions ease and trends begin to normalize we hope to be in a better position to provide more detailed topline and EBITDA guidance.
We do expect to continue to see measured sequential growth each quarter as we progress through the year.
With respect to the first quarter. However, the continued effects of Covid, along with the normalization of our development maintenance fee expenses means that our Q1, EBITDA will likely be flat to slightly lower than what we produced in Q4 for.
For the year, we expect to spend approximately $250 million on inventory.
And we also anticipate returning more to a more normal third quarter timing of our annual securitization.
We will now turn the call over to the operator, and we look forward to your questions operator.
Thank you well now be conducting a question and answer session.
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Our first question comes from the line of Patrick Scholes with true Securities. Please proceed with your questions.
Hi.
Morning.
Couple of questions for you, but right at the end there you noted that <unk>.
<unk> <unk> will be slightly lower a flat to slightly lower can you just rattle off again, the reasons why that may be occurring.
Yes sure Patrick this is mark.
Yeah, I think quarter, one really have some of the same challenges that we were faced in Q4, which the restrictions in COVID-19.
Couple of months and despite Q1 being seasonally lower from a travel standpoint in Q4.
And the elevator restrictions in Japan that we talked about Q1 is really looking very similar to slightly ahead of last quarter.
And I think what's important to note, though is that we're seeing significant improvements in forward bookings for the next three quarters.
Net reservations are up 100 per set in January and February versus November and December.
And and on an absolute basis net reservations in January February are almost on par with what we saw in 2019.
We're at 90% of what we saw at 19 so.
So really positive buyer behavior.
As we started off this year is continues to be very strong with.
Strong closing percentages in <unk>, we saw in Q4 for from <unk>.
Both owners and new buyers.
I think as we mentioned in prepared remarks, our hunters are paying which I think is a great indicator.
You know that our debt.
They're going to continue traveling and.
And also we're starting to see some really good improvement in Activations from new buyer packages going forward as our owners have recovered quicker than our new buyers. So all in all.
Some of the same challenges.
In Q4.
With Covid and the restrictions, it's just going to be bumpy right now, but the positive.
So as all forward metrics look very.
We are a very strong going forward and Patrick Hi, It's Dan just to add to that point.
I think I had some of this in my commentary, but from a rental perspective, we did benefit from the cost side just from suspended operations. So Q4 had lower development maintenance fees as well.
So some of those are going to kick back in as properties opened back up so theres a little cost pressure on that front and then on the financing side just keep in mind that we're still ramping back sales. So the portfolio is still in the process of building, but until we get to more normalized levels, you have that balance still decelerating rather than a decelerating and debt.
Puts pressure just from.
I fixed cost business on the interest income that's coming across.
Great. Thank you Mark you actually answered my second question I was going to ask you about airline and hotel bookings over the last two or three weeks for Hawaii, certainly I've seen in my Oh, what day. It I'd say, it's very noticeable uptick in that it sounds like certainly you have to look at them.
Just the last several weeks I'm going to shift gears then.
You had an expense of certain expense of 209 million per RV used parcels of excess land could you just tell us where those are in.
Thank you.
Yeah, no absolutely. So Patrick there are really three pieces of land one in Orlando and one in Las Vegas, and one on the Big Island of Hawaii, and I think what's important to note. Other these tranches of land had been on our books since pre 2008, so they've been on there for in excess of a decade.
And since we've gone since we spun from Hilton back in 2017 day. These tranches of land, although they are developable they've never been in our pipeline. So the combination of them being there the impact that COVID-19 had on our sales.
Allowed us to take a step back and look at what's the best use for these land for this land so whereas investigating a sale of those properties. We will see if we actually realize itself. We're not by any stretch of imagination trying to do anything from a fire sales type perspective, we still want to maximize value here, but just entering that progress that process excuse me.
Lee led to the impairment charge that you saw and so it's really an impairment of land and some embedded infrastructure, but that's you're at 209 million between those three pizza.
Affectively.
Evenly split Hawaii slightly less but its order of magnitude there theyre very similar just a just a little bit more color on that.
As Dan said these were.
These are pieces of land.
That was part of the Master plan and they were pre financial crisis, but post financial crisis. There were a number of opportunities that came about that were much more capital efficient for us in Vegas, we picked up 200 rooms.
It was part of a foreclosure et cetera bridge picked up so we did a fee for service deal.
Orlando, we ended up working with Goldman on it on a condo hotel that they took back.
And then when we spun from Hilton.
Hilton provided us the Ocean tower, which was built.
600 room built hotel debt, all we have reduced converts so.
At the end of the day, we just ended up with better capital strategies to a more efficient capital strategies to execute in those markets and Patrick just a quick clarification I think I said it backwards those impairments they range from parcel of the parcel between 60 and $80 million of Hawaii was actually the largest west la.
Vegas being smallest just to give you okay.
Non adopt producing land correct, that's correct yeah cash.
Takeaway on EBITDA, Okay. Thank you.
Thank you.
Our next question is from the line of Ben Chaiken with Credit Suisse. Please proceed with your questions.
Hey, How's it going thanks for taking my questions.
You know I think Waikiki is pause right now not to get ahead of ourselves, but just curious on your thought process concerning the decision too.
Restart that property if ever I guess I ask that just because it seems like Hawaii in particular is likely or hopefully have some outsized pent up demand not only because it's a great destination, but also because some of the more stringent travel restrictions felt there. So just curious how you think about that development.
Yes, so yes.
We paused.
We pause that development in Waikiki never one because.
With the slowdown in activity due to Covid, we had plenty of inventory debt.
Allow us to continue to meet.
Meeting the demands for that market. So at this point, it's a pause we haven't made a decision of whether we're going to win.
When we're going to restart.
But I can tell you that we're very bullish on Hawaii, we think that.
The market is coming back, particularly looking strong in the back half of the year. We've got some really good assets in that market. So.
And then I think on top of debt.
Addition of Soco Oh.
Okay now a property allows us to move some of that demand over that property from the from the Japanese that are had been volume Hawaii over the years. So so we're in a good position right now and will we.
We started to make some decisions from a timing standpoint, when we need to bring that property back on line.
Gotcha. That's helpful. I appreciate it and then I think a few months ago, we talked about some potential opportunity to efficiently acquire from.
From hotels, who may have a different view of corporate convention moving forward I think maybe you were referencing oh, eight or nine and basically surmised that a.
Similar or that could occur I'm, just curious how many conversations have gone there and if that view still holds.
<unk>.
Yeah look we are as we talked.
We've talked about in the past we've benefited.
Significantly on the back.
Back half of the financial crisis, and it allowed us to really.
Develop our fee for service and our Justin just in time JV programs.
And.
We're always looking for investments.
Looking for investments that have the highest and best use clearly theres going to be some opportunities. We've had a lot of conversations but at this point.
We have we're in a really good position from an inventory standpoint, we feel really good where we sit today, we've got four new markets that we're opening this year, which is a record for us so.
We're in a good place.
I think over time, we'll continue to evaluate the opportunities out there but as.
As you know these these opportunities to take some time to kind of make their way through the process.
But you know opportunities around right sizing hotels going forward.
Could be a really good place in space for us, but at this point, we don't have anything that we're.
Prepared to talk about.
And just to add a little bit of color to that.
Definitely agree with Mark, but when you take a step back and you look at our inventory pipeline. Obviously, we have some large capital commitments over the next couple of years for 2021.
A little bit north of $225 million and just a firm commitment. It starts to ratchet down 2022 is about $115 million into net drops to.
$60 40 in the next two years.
So what I would say is just to echo Mark's comments, if there are opportunities with existing hotels. It would not be unless there's obviously dramatic increases in demand it would not be something that would be incremental to what we see spending on inventory in the next few years it would be more of a substitution that makes sense.
And ultimately benefits us from a cash flow basis.
Gotcha totally makes sense I appreciate it thank you.
Our next question is from the line of David Katz with Jefferies. Please proceed with your question.
Hi.
Morning, gentlemen.
I just wanted to maybe go in another direction with respect to allocating capital and you know talk about more operating avenues, such as you know digital investments and other kinds of.
Is that over the long term you might be able to drive some efficiencies and margin growth.
That way, what what thoughts do you have to that end.
Yeah, No David Mark.
Look digital is up.
We've been investing in digital really.
Over the last four or five years, and we're incorporating digital channels and engagements.
Across many parts of our business and when you look at.
Some of the <unk>.
Some of the things we're doing today will continue to use.
Our digital channels to promote our vacation package offerings and we're heavily aligned with Hilton as they continue to build out their digital capabilities.
And.
While its still small it's an increasing percentage of the tours that debt, we're looking at and performance.
It continues to improve it's a it's a low cost channel for us so.
Obviously, that's important in.
Net from a sales standpoint, our sales teams increasingly are interacting virtually with our owners.
In a more meaningful way for example, with owners, who can't travel or cancel orders.
For some reason don't want to take a physical tour.
We've added.
Digital presentations and we have a more centralized digital sales group.
Adding remote sales executives.
That are allowing us to do a really good job at around a.
Reaching those customers so.
All of these things are important for us, especially as we go forward and well again.
Still make up a small percentage of what we're doing day they.
They make up a growing percentage of what we're doing it and we expect over time, they will be a more meaningful source of revenue for us at high margin.
Got it and if I can just follow up I know that there's been quite a bit of discussion and we've heard from peers and you know lots of other leisure endeavored companies and it would seem that the obvious.
Takeaway is that there is just so much pent up demand for leisure activities and travel in the back half of the year you know is there.
You know what.
Talk me off the ledge right. What's the is there. Some you know on the obvious counter argument to any of that or is this just going to be a back half of the year.
To remember are in a positive way as much as in the past year or so has been negative what are we missing is there anything we're missing or we should be mindful of well you know I don't think any of US can go for 100 per sat.
How the you know how the pandemic is going to finally play out but it sure does feel like you know the.
<unk> has become the stimulus here and as we see the vaccine continue to rollout on a more broader.
Manner.
We believe that there are significant pent up demand we are seeing it in our numbers I just.
And answering Patrick's question Yep last 60 days or reservations have gone up 100 per cent compared to November and December right. So we've seen significant uplift and if you kind of look at the full year when you get to the fourth quarter, where were talking up against historical highs.
So you know that.
The trends are really really promising and the fact that we have made an investment back into our owners last year and allowed them to carry their points over to ensure they didn't lose anything in their value proposition.
Yes. It is.
Play out well, because we've got more orders with more to us than we've ever had in our system and then I think when you look at within leisure timeshare owners I believe are going to be the one of the first ones that breakout based on their high propensity to travel.
We've shared this data before but our owners on average traveled 2006 days a year for leisure right they've made that upfront investment and prepaying their vacations as we said in our prepared remarks, we're just collecting more of our annual dues. This year than we did last year.
And I think with our brand and our customers are really confident that we're going to provide a safe environment for them to enjoy there.
Sales when they win.
They go out and so look I think on a more macro level.
While people have been felt the breadth of this pandemic. We've also heard many consumers in a really great price with historic levels of savings. So I think all of this when you take all of that and then you take our direct to consumer model.
It allows us to leverage this relationship with Hilton.
We feel pretty darn good debt.
It's going to play out very well as we get to the back half of this year into 'twenty two.
Sounds good good luck, thank you very much.
Our next question comes from the line of French Mine tour with J P. Morgan. Please proceed with your questions.
Good morning, everyone. Thanks for taking my questions I actually wanted to follow up on that discussion.
That's helpful positive data mark on the bookings into the fourth quarter I'm just curious.
The lead time with respect to the package sales pipeline and anything else debt.
Specific to timeshare that maybe would be an impediment to getting to.
Something close to what you might call normal that that early on is there anything else or is that and anything else that we should be thinking about that sort of just takes a little bit longer.
Before you can get back to normal tour rates, Yeah I know.
Good question, so what I would say, France is that clear.
Clearly, we're seeing our owners.
Return.
And recover quicker.
So we're seeing a really good response towards the back half of the year for <unk>, where there is some lag.
For us it's not rental rentals also performing very well and I think it has something to do with the fact that day HGTV brand within the Hilton system has become known as a product that has multiple bedrooms kitchens and provides a really good space, where the real lag or is right now.
As our.
New buyer.
Customers, it's not it doesn't have anything to do with our pipeline. Our pipeline is built really well and we've never turned it off and so it's fresh we continued it.
To activate it but the activation levels right now are 50% of what where they were but if you look back in December at our Activations compared to February Activations have improved 30%. So we're seeing a trend in new buyer activation move forward, but there is still lagging behind both.
Our owners and renters.
Okay. That's helpful. Thanks for that and then I wanted to maybe dig into this.
No your existing inventory as.
As well as the inventory that's on.
Finished that you guys mentioned in your release you have $4 billion of contract sales for finished inventory of $6 billion of contract sales worth of unfinished inventory in the pipeline and then you talked about your capital can they mentioned there and there and they are decelerating in terms of what's what's firm.
I guess the question is just reconciling those two numbers how much do you need to spend on an annual basis, it's still that $6 billion and how long would it take I'm not trying to squeeze a longer term capex guidance out of you guys. I just wanted to sort of understand it's a very large number and I want to understand how how much capital.
And your party it would take to.
Bring that to fruition.
Yeah, I know are completely understand and it really varies by project because some of the projects as you can amount I imagine are multi multiyear in Maui is a great example of that right now is it.
Maui Bay village is a series of low rise buildings, which we can.
Which we have in which we can continue to spend.
And a very.
Moderate sequential way to make sure that we match demand with actual cash outflows right that particular project spans well.
Well beyond 2025, even and then you have projects that are firm commitments like the central or so soco and those projects from a contractual basis are spent over the next few years. When you take a step back and you look at the projects that we have.
Being built right now.
And.
The remaining amount of spend which goes through above and beyond even 2024, you're talking about the remaining spend of close to $1 billion.
Across all of those projects now that includes projects like <unk>, which are not contractual in kaheaku in upon itself is north of $225 million between $2 25, and $2 40 at this point.
That is obviously pause, but that also includes <unk>.
Contractual obligations such as to Selco.
And the central in New York.
So it all meaningful projects and it's very multi year. If you look from a normalized inventory spend assuming we get back to a normalized level, you're talking about inventory spend that's probably going to be in the range of 200 to 250.
Probably ebbs and flows a little bit higher a little bit lower given on the year, but that's probably your steady state. If you will again, assuming that we get back to 2019 levels. If we don't obviously, we'll make the appropriate actions.
Very helpful. Thanks, guys.
Our next question is from the line of Stephen Grambling with Goldman Sachs. Please proceed with your questions.
Hey, good morning.
Good morning.
One other things I guess, we keep hearing from folks across the leisure space is also that this using up of the promotional environment.
Whether that's in the regional casinos or amusement parks.
Think about timeshare I guess, how much do you usually spend on marketing that isn't directly tied to a tour and separately as you look at the promotions that you were offering specific to mature how is your pricing behavior in the overall promotional environment.
Over the past few months.
Yes, Steve and Mark.
You know I don't know that we spent a lot.
It's not related to a tour.
Think about our rental.
It's really promoted through Hilton Dot com right, we do somehow otas. So I guess you would say we've got some costs, but the majority well over the majority of our rental is really driven.
Through our activities through Hilton Dot Com, which is another big benefit of the license agreement that we have with Hilton.
As far as promotional are for.
Tour flow.
Really haven't done anything outside of the ordinary.
From a standpoint of.
Attracting.
Both our owners and new customers now we are doing some promotions.
With our owners around.
Discounting some points.
For certain times of the year to drive some demand but.
Debt in itself is not a cash outlay.
So yeah.
Yeah, So I'd say that a very I guess very little at this point Stephen.
Stephen I think the only thing I'd add to that is from a promotional standpoint, we do.
When you take a step back and you look at the timeshare inventory we have.
Very durable right. If we don't sell today, we believe moving South Tomorrow said theres not.
A ton of discounting going on but it's not unusual for us to run promotions to either drive owners to low cost of product inventory or for various different reasons.
As you know we do have net.
Some property in Vegas.
That Trump is associated with as you can imagine recently, that's had more promotions than it probably did five years ago.
But those are normal course of business and nothing out of the ordinary.
In recent months or even during the past year to be perfectly honest and Stephen I think.
Unlike pure logic.
We're not we're not impacted by the price down so we're not discounting to create demand around selling our intervals.
Our business model has always had some type of subsidy for vacations for those who want to experience one of our properties.
So the base demand for our owners really serves and allows us to yield with a smaller rental room count so.
We really haven't had to take a lot of a.
A lot of discounting to even move our rental.
And then on the some of the new.
Product that is hitting the market I guess, what's the underlying assumption along around how long it will take to sell those through and what what are the initial sales tell you.
Could transpire relative to that debt assumption or is it maybe it's too early.
Yeah look.
First of all I'd say, we're in a really good place with inventory and that's something I Couldnt have said a few years ago and.
And the good thing is we've got really good assets in proven markets and so.
You know.
And as Dan alluded to.
A significant portion of those are just in time deals. So they are capital efficient.
And we've gotten a lot done in the last three years.
Now I'll be gone to sell those that inventory and importantly, we are opening up sales centers with him. So sales right now the initial sales from Maui.
For Okinawa.
For Cabo have all been really really well received and so we're really excited about debt.
You know the slowing during the pandemic.
As.
You know obviously impacted.
Overall sales and overall initial sales.
But.
We continue to.
I believe that we've got the.
The right product in the right markets and and very very very.
Very pleased with where we sit today versus a couple of years ago.
Just to tack onto that when it comes to the new projects to Mark's point.
We're very pleased with how those sales kicked off.
Clearly, it's not the environment, we expect it to be in Windows kicked off so underlying returns while it's directionally in the right direction.
It's still a little early to tell if it's going to be driven like everything else on how the recovery plays out.
Awesome. Thanks, so much I'll jump in the queue.
Thank you.
For me and I will turn the call back over to Mark Wang for any closing remarks, Mr. Wang.
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We look forward to speaking with you over the coming weeks and updating you on our next call have a great day.
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