Ask RedWeek / March, 2015

Starwood spinning off their timeshare business - what does it mean for owners?

We heard on the news that the Starwood hotel chain is getting rid of its timeshare business. What does that mean for Starwood owners? What changes are ahead?

Shares of Starwood Hotels & Resorts Worldwide rose eight percent Feb. 10 on news that the company planned to spin off its timeshare business in order to increase financial returns for its hotel business.

One week later, the Starwood CEO who announced the spinoff — Fritz van Paasschen, saying it would be good for both companies — got his own spinoff notice from the Starwood Board. The company replaced him with an interim CEO, Adam Aron, who also promised to increase revenues for Starwood hotels. Starwood's stock rose another three percent on the day that van Paasschen resigned to become a consultant.

Welcome to the hospitality business!

The bounce in Starwood stock marked the company's largest single-day gains in many months. The returns for owners of Starwood Vacation Ownership (SVO) villas, meanwhile, are much less far certain.

Here's what owners need to know as the yet-to-be-named "new" Starwood timeshare company comes to life:

  1. There will be no immediate changes in any SVO programs, policies or reservations, including the right to convert timeshare points to hotel points.
  2. Owners will maintain all existing benefits and usage rights.
  3. The CEO of the new company is Matthew Avril, a longtime Starwood executive who retired as president of the Hotel Group in 2012.
  4. The new company will operate 22 timeshare resorts in some of the world's best destinations: Hawaii, Mexico, the Caribbean and Florida.
  5. The hotel company will transfer developable land to the spinoff along with five hotel properties that, over time, will be converted to timeshares. These resorts are the Westin Los Cabos, Westin Cancun, Westin Puerto Vallarta, Sheraton Kauai and Sheraton Steamboat (Colorado).
  6. One day after van Paasschen's exit, Starwood held a groundbreaking ceremony in Maui at one of the to-be-transferred vacant properties. Set along 26 oceanfront acres, the new Westin Nanea Ocean Villas will offer 390 luxury villas, a 10,000-square-foot lagoon-style pool, restaurants, and beach amenities. Set to open in 2017, the company's newest purpose-built resort will give Starwood three timeshares on the same pristine stretch of Kaanapali Beach, joining the Westin Kaanapali Ocean Resort Villas (phase one) and the Westin Kaanapali Ocean Resort Villas North (phase two). Nanea, which translates into a "state of relaxation and repose," is phase three.
  7. If you own Starwood stock as well as timeshare, you will receive a pro-rata share of the new company's stock. Starwood says this will be a tax-free transaction.
  8. The spin-off should be completed this year subject to regulatory approval. The new company will be headquartered in Orlando. Its name is TBD.
  9. The new SVO will sign a long-term licensing agreement with Starwood to maintain and retain the Westin and Sheraton brands for timeshares.
  10. One small change is already evident: SVO owners can no longer reach their home page at spg.com. All traces of Starwood Vacation Ownership have been removed from the main Starwood site. Owners must access their MyStarCentral accounts by visiting starwoodvacationetwork.com

Financially, the spinoff makes plenty of sense for Starwood and its shareholders. Timeshares are more expensive to build, market, and operate and, as a result, their return on investment runs a much longer course than the ROI for hotels. Starwood reported timeshare revenues of $640 million for 2014, but sales were generally flat compared to the more robust growth of hotel revenues. During its 30-year history, Starwood sold $6 billion of timeshare intervals to more than 220,000 owners.

Starwood is not the first — and probably not the last — hotel company to jettison its timeshare division. In the aftermath of the 2008 recession, the global hotel and timeshare industry sagged from a decline in travel business. Now, in contrast, the hotel business (particularly in the US) is picking up, but timeshare sales continue to lag. Marriott International spun off its timeshare company in 2011 and, if stock prices are the only measure of success, fared well as a result. Shares of Marriott Vacation Club stock have also steadily increased since the timeshare company started standing on its own. In November 2011, MVC stock sold for around $16 per share. On Feb. 2, 2015, MVC stock topped out at $76.91 per share.

In a fiscal year-end conference call with analysts and investors last week, Starwood executives touted the spinoff as a win-win for both entities. The hotel company is fast pursuing an "asset light" strategy where it sells as many hotels as possible to reduce operating expenses. At the same time, Starwood is negotiating management contracts at these properties to ensure that users — consumers — enjoy a consistent brand-name vacation experience.

Regardless of the rhetoric, these kinds of business changes all boil down to stock performance. Even though Starwood's stock rose upon news of the spinoff, its shares have stayed relatively flat during the past year. Shares for competitors such as Hilton and Marriott saw their share values increase 31 percent and 60 percent, respectively, according to marketwatch.com, during the same period.

During a conference call with investors last week, Starwood executives laid out all the numbers behind the spinoff. Year-to-date, SVO earnings decreased $115 million compared to 2013 while Starwood's overall earnings increased $561 million. The average price of an SVO timeshare was $14,000, down 3 percent from a year ago. Finally, 60 percent of all buyers are existing owners.

Starwood officially notified SVO owners of the upcoming changes in an email last week. Here is a copy of the announcement to owners:

Dear Owner,

As a valued Owner, we wanted to personally reach out to you and share some exciting news. Earlier today, Starwood Vacation Ownership's parent company, Starwood Hotels & Resorts Worldwide, Inc. (Starwood) announced its plan to spin off its vacation ownership business into a separate publicly traded company. Creating two separate companies will allow SVO opportunities to grow, while continuing to provide outstanding vacation experiences, and Starwood to continue to participate through its franchise and managed hotel business model. To view today's press release click here. For a list of questions and answers, click here, or visit starwoodvacationnetwork.com/news.

All of the benefits and features of ownership you have come to expect will continue through this transition. We will continue to provide you with the same valuable benefits, award winning Westin and Sheraton branded experiences and access to the industry-leading Starwood Preferred Guest(r) program that you've come to know and expect from us. As a new standalone company, we will be even more focused on developing resorts in new destinations and creating program enhancements to make your vacations even more memorable.

As an owner, you will continue enjoying your timeshare resorts as you always have. Current reservation guidelines and fees, exchange rules, reservation rights, and exchange privileges through Starwood Vacation Network, Interval International, and other current exchange options will all remain the same. In addition, you will continue to enjoy privileged access in the SPG Program. As part of the transaction, SVO will benefit from additional anticipated inventory at Westin Los Cabos, Westin Cancun, Westin Puerto Vallarta, Sheraton Kauai, and Sheraton Steamboat - owned properties Starwood expects to transfer to the new entity for future timeshare development. You can continue to access these hotel properties through the SPG program.

Thank you for your continued dedication and loyalty. This is just the start to a very exciting journey and we couldn't be happier to embark on it together!

Best Regards,

Stephen G. Williams
Chief Operating Officer
Starwood Vacation Ownership

About the author

This answer was provided by RedWeek's Chief Correspondent, Jeff Weir. Jeff is a California-based journalist who has covered California, Congress, and the White House. He also has roots in Silicon Valley, where he directed public relations and marketing programs for high-tech companies. He is also a timeshare owner and member of RedWeek.com.

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