marriott vacation worldwide transcript 10-28-11

7/31/2019 Marriott Vacation Worldwide Transcript 10-28-11

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Marriott Vacations Worldwide CorporationSecurity Analyst Meeting Transcript1

The New York Marriott Marquis

October 28, 2011

Jeff Hansen, Vice President Investor Relations, Marriott Vacations Worldwide Corporation

Good morning, everyone. Its a special pleasure for me to welcome you to our first Marriott

Vacations Worldwide Analyst Day.

Im Jeff Hansen and I have been named to lead the Investor Relations effort for the newMVW. I have been in the vacation ownership business for the last 10 years in Asset andProduct Management, the majority of that time with Marriott Vacations Worldwide, and Iam truly excited about this opportunity and the opportunities ahead for Marriott VacationsWorldwide, our new company.

Marriott has a longstanding commitment to the investment community. Trust that the newMarriott Vacations Worldwide will have the same commitment to you as well.

Before we begin today, let me first remind everyone that many of the comments are nothistorical facts and are considered to be forward-looking statements under federal securitieslaws.

1This transcript is not a verbatim reproduction and has been edited by the company.

FORWARD-LOOKING STATEMENTS AND NON-GAAP FINANCIAL MEASURES

This document contains forward-looking statements within the meaning of federal securities laws, including statements about futureproperties and their anticipated contributions to our operating results; the construction and sales pace for new properties, upcomingsales of timeshare mortgage notes, and similar statements concerning anticipated events that are not historical facts. We caution youthat these statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including volatility inthe economy and the credit markets; supply and demand changes for vacation ownership and residential products; competitiveconditions; the availability of capital to finance growth; and other matters referred to under the heading Risk Factors in our most recentRegistration Statement on Form 10 filed with the U.S Securities and Exchange Commission, any of which could cause actual results to

differ materially from those expressed in or implied in this presentation. These statements are made as of October 28, 2011 and weundertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, futureevents, or otherwise.

Throughout this document, and its associated presentation materials, we report certain financial measures, each identified with thesymbol "," that are not prescribed or authorized by United States generally accepted accounting principles (GAAP). We discuss ourreasons for reporting these non-GAAP measures and reconcile each to the most directly comparable GAAP measure on MarriottInternationals Reconciliations web page athttp://investor.shareholder.com/mar/reconciliations.cfm.
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These statements are subject to numerous risks and uncertainties as described in our SECfilings, which could cause future results to differ materially from those expressed or impliedby our comments. Forward-looking statements in our presentation today are effective onlytoday, October 28, 2011, and will be not be updated as actual events unfold. For those ofyou who are present with us, you can find a reconciliation of non-GAAP financial measures

referred to in our remarks in the back of your handbook. For those of you who are listeningin, you can find both the handbook and the reconciliations atwww.marriott.com/investor.

We recognize that in attending the meeting today you are using a substantial amount ofyour time to consider the prospects for our business. We appreciate you taking the time tocome and to hear our story.

So, lets begin

This morning, well discuss our business in detail to assist you in understanding how we

make money, our capital structure, our strategies, competitive advantages and how onemight model our business.

During the break, well have time to speak with you informally. As you visit with ourexecutives, I know youll be impressed with our management talent and depth.

Earlier this year, Marriott Internationals board of directors announced a preliminary plan tospin-off its timeshare business late in 2011.

Earlier this week, Marriotts board approved the spin-off, and the new timeshare companywill do business as Marriott Vacations Worldwide Corporation, trading under the ticker

symbol, VAC.

This is the structure of the transaction. The formation of MVW U.S. Holdings and the sale of$40 million of Preferred Stock of MVW Holdings, which is scheduled to close today, havebeen structured in a manner that is intended to result, for U.S. federal income tax purposes,in the recognition of significant built-in losses in properties used in our businesses. Theselosses will be available to Marriott International, not MVW.

With the spin-off, Marriott Vacations Worldwide will have exclusive rights to the Marriottand The Ritz-Carlton brand names as they pertain to the vacation ownership business.

For these exclusive, strategic and long-term rights, MVW will pay a royalty fee.

Our current timeline is similar to most spin-offs and is expected to be as follows: Whenissued trading should begin on November 8th. The record date would then be November10th with the dividend payment date of November 21st. We will also conduct a road showfrom November 7th through November 17th, and all of this is followed by regular way tradingbeginning on November 22nd. One important note for our shareholders, for every 10 shares
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of Marriott International owned, shareholders will receive 1 share of VAC, the new MarriottVacations Worldwide.

Well launch our new company with world class assets, admired brands, loyal customers andan attractive balance sheet.

This provides you a foundational understanding of the transaction. Throughout our timetogether today, our executives will provide you additional information, but before we moveinto their detailed presentations, its my personal pleasure to introduce Carl Berquist,Executive Vice President and Chief Financial Officer for Marriott International.

Welcome, Carl.


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Carl Berquist, Executive Vice President and Chief Financial Officer, Marriott International

Thanks Jeff. Thanks, too, for providing a great summary of the spin-off transaction.

Im really excited to be here this morning and to be at this point in the transaction. We feelconfident Marriott Vacations Worldwide is well positioned to be the premier timesharebusiness in the world, and today youre going to hear all the reasons why.

Ive answered a lot of questions about the spin-off since we announced it in February onecommon question has been whether this is an exit strategy from the timeshare industry forMarriott International. In fact, as you will learn today, this is not about exiting the timesharebusiness, but rather, about growing the timeshare business, and ultimately, about growing itfaster than it would have, had it been part of the combined company.

Marriott International has been committed to the growth of this business for more than 27years. We were the first significant lodging company to enter the timeshare business withthe acquisition of American Resorts in 1984. And it has proven to be one of the mostsuccessful M&A transactions weve ever done. Marriotts accumulated timeshare sales overthe past 27 years have just hit the $15 billion mark. Clearly, we have prospered in timeshare,and we want to continue growing the business.

The success of the business is a tribute to Steve Weisz and his leadership team as well as thevalue and integrity the Marriott brand has brought to the vacation ownership industry.

Early on, we created an exceptional value proposition for our owners. Together, the brandand this value proposition have attracted more than 400,000 owners worldwide.

Our owners and their families consider our timeshare resorts their home away fromhome. Their satisfaction measures, which you are going to hear about today, arephenomenal. As a result, our timeshare owners buy more product from us, and they refer usto their friends and family, who buy from us. These same owners also stay with ustheyare very loyal hotel guests at nearly 3,700 Marriott-branded hotels worldwide.

Weve been fortunate to have the best leaders in the business theyre smart, innovative,

focused and determined, and, have demonstrated in the recent downturn that they candeliver exceptional results in good times and rough times as well.

So, why would we divide Marriott International and Marriott Vacations Worldwide into twoseparate and independent companies?

First, we know spins can produce exceptional results. In 1993 we spun-off our hotel realestate assets to Host Marriott. And like this transaction today, it was a growth strategy. It


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enabled Marriott to focus on managing and franchising and Host to grow an admiredportfolio of high quality hotels. Today, Host Hotels and Resorts has annual revenuesapproaching $5 billion. Thats a pretty successful growth strategy.

Its been successful for shareholders, too. Three years after the split, the value of Host and

Marriott stock had both more than doubled. Each company has grown faster and moreprofitably, given the opportunity for improved, singular focus.

As independent companies, Marriott and MVW will each benefit from that same singularfocus on their core businesses. If you think about it, it leads to some fundamental changesin how the businesses are managed. Strategic decisions can be made based on individualmarket environments and growth opportunities. Capital can be allocated based onindividual capital structures and investment targets. Management decisions can be basedon individual operating modelseven their unique talent acquisition and retentionstrategies can be implemented.

Simply put, each company can make decisions and capitalize on new opportunities based onwhat will grow the value of their individual businesses. It also means we can make thesedecisions more quicklyaccelerating our speed to market and making us each more nimble,and more competitive.

The spin will also enhance investor understanding and choice. Every investor has differentinvestment objectives; likewise, the lodging and timeshare businesses have differentobjectives. The spin-off gives investors the ability to better align their goals with ourbusinesses.

I expect youll come away from todays meeting with a renewed appreciation for theopportunities in MVW. There will be opportunities for new product offerings, newmanagement affiliations, even new brand opportunities.

I also believe you will see the significant strength of MVW. It starts with product, and MVWhas exceptional product offerings. Last year we rolled out the new points program, MarriottVacation Destinations its been a hit with owners. MVW can develop it and sell it moreefficiently and drive revenue with greater flexibility at the same time. So MVW has a veryefficient product model, which customers love. MVW will have considerable inventory onhandwhich will give them significant revenue opportunities ahead with modest near term

capital requirements. MVW will have strong cash flows, ample liquidity and access tocapital. The capital structure will allow for long-term growth and sustainability. Thebusiness overhead has been right-sized providing tremendous operating leverage. Whenyou put all these together with an experienced, outstanding management team, this is acompany that, I believe, will successfully seize the many opportunities ahead.

And Marriott International will participate in that success as well. We expect MVW tocontinue to develop and operate resorts under the Marriott and The Ritz-Carlton flags and


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the Marriott royalty fee will increase with that growth. We are firmly committed to thesuccess of this business and are excited about the opportunities ahead.

Bill Marriott was unable to join us today, but he wished to share a personal message withyou, along with his thanks for your support and interest in our two companies, Marriott

International and Marriott Vacations Worldwide.

So its a pleasure for me to have this chance to introduce his message today.


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J.W. Marriott, Jr., Chief Executive Officer and Chairman of the Board, Marriott

International

Greetings. I couldnt be more bullish about the new Marriott Vacations Worldwide

Corporation. Thanks for joining us to learn more about this soon-to-be publicly tradedcompany.

In the early 1980s, we concluded there was an emerging group of customers who lovedowning their vacations. So in April of 1984, we were the first branded hotel company toenter the industry with the acquisition of three timeshare resorts on Hilton Head Island.

For nearly three decades we have led this competitive industry through customer-driveninnovations. We have revolutionized the industry, delivering integrity and value.

Our timeshare portfolio features the finest resorts in the worlds most desired vacationdestinations. Our amenities and services are award-winning. Our sales process is admiredand our associates are talented. As a result we offer the unique ability to deliver the bestvacation experiences.

Over the years, weve put just about every process under a microscope to find better,more efficient ways to run a global timeshare company.

Today, we have more then 400,000 extremely satisfied owners around the world and aprized portfolio of over 64 resorts. This latest chapter to our story will enable the newMarriott Vacations Worldwide to grow - through conventional timeshare, as well as new

businesses.

In just a short time, this new company will become the largest publicly traded pure-playtimeshare company in the world. As youll hear today, the team has enormous expertise,deep Marriott roots and a commitment to excellence unlike any others youll meet in thisbusiness.

Most of you also know that my family and I will have a substantial holding in MarriottVacations Worldwide Corporations, and we couldnt be more proud.

Again, thanks for joining us today as we share our storyanother Marriott first. And enjoythe day.


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Carl Berquist, Executive Vice President and Chief Financial Officer, Marriott International

And, I also would like to extend my thanks for coming today.

Its now my pleasure to introduce Steve Weisz, the President and Chief Executive Officer ofMarriott Vacations Worldwide.

Steve is a 39-year Marriott veteran and I cant think of anyone that could be better suited forthis role and to lead his great team. Steve?

Steve Weisz, President and Chief Executive Officer, Marriott Vacations Worldwide

Corporation

Thank you, Carl. Good morning everyone.

Were delighted to be with you to talk about our business and I want to once again thankyou for joining us and taking time out of your day to be with us.

This morning, youll hear what were all about well conceived strategies, from exceptionalcustomer experiences to revenue optimization, and our ability to skillfully execute againstthose strategies.

Today, youll come to know a number of our executives and Im confident youll beconvinced, just as I am, that our success really isall about this very talented team.

Our speakers today represent more than 100 years of Marriott and vacation ownershipexperience proof positive that were all very proud of our Marriott heritage and wellversed in the business.

Weve sought some of the brightest and most accomplished individuals to represent ourshareholders including strong independent directors.

Rip Gellein is one of the founders of the modern timeshare industry, and was previouslyPresident of the Global Development Group at Starwood Hotels and Resorts Worldwide and

Chairman and CEO of Starwood Vacation Ownership, Inc. He is Chairman of the Board ofStrategic Hotels and Resorts, and presently serves on the Board of Trustees for theAmerican Resort Development Association, which is the timeshare industrys tradeassociation.

Deborah Marriott Harrison is Senior Vice President of Government Affairs for MarriottInternational. Her strong public policy background will be particularly valuable to us in this


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highly regulated industry, and as Bill Marriotts daughter, she comes to our board with thedeepest Marriott roots imaginable.

From 2000 through 2007, Tom Hutchison served in a number of executive positions at CNLFinancial Group, including CEO. Presently, Tom is Chairman of Legacy Hotel Advisors, LLC

and Legacy Health Properties, LLC. Obviously, Toms strong background in hospitality,lodging and real estate development will be quite relevant to our business.

Mel Martinez is the former U.S. Senator from Florida and Secretary of Housing and UrbanDevelopment. He presently serves as the regional Chairman of JPMorgan Chase for Florida,Mexico, Central America, and the Caribbean. Mels vast legal experience will be extremelybeneficial to the new MVW.

Bill McCarten is Chairman of DiamondRock Hospitality Company. He brings extensiveexperience in hospitality and capital markets to our new company, and also brings deep and

successful spin-off experience as a two-time former spin-off CEO.

Finally, Bill Shaw will be our Chairman of the Board. Bill retired as Vice Chairman of MarriottInternational this past March and previously served as its President and Chief OperatingOfficer. He was on the senior management team at Marriott when the company decided toenter the timeshare industry in 1984. He has both great insight into, and passion for, ourbusiness. Hes a gifted leader, and great friend.

Bill is with us today, and Im especially pleased to have this chance to personally introducehim to you now. Bill, would you please stand?

[Applause]

Marriott Vacations Worldwide is a development business, a management and servicesbusiness, and a financing business, all wrapped up into one integrated enterprise.

Our expertise enables us to leverage all of these revenue streams to create a very profitablebusiness model.

Our mission is customer-driven and straightforward To Deliver Unforgettable Experiencesthat Make Vacation Dreams Come True. In our 27 years in the business weve proven it

works.

Last year, we earned just about $1.3 billion in revenue before reimbursed costs.

Just over half of our 2010 revenue came from development sales, while the balance largelycame from resort management and other services, financing and rentals.

We will go over each of these in much greater detail later in the presentation.


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There is a myth associated with our industry that once the sale is done, opportunities forfuture revenues and the customer relationship effectively cease.

The reality is that the initial sale, in relative measure, is quite small when compared to the

long-term customer value and associated revenue streams.

About 45 percent of our owners finance with us, and their credit quality is the highest in theindustry. As a result, our securitizations are typically oversubscribed at the most attractiveterms in the industry.

We also earn revenue by renting vacant, unsold inventory on the open market, to newcustomers who want to preview our product or to existing owners who want to enjoyadditional vacation experiences with us.

Owners often buy additional product from us as well. Their reasons to do so are varied more free time for vacations, a desire for longer vacations, or a desire to travel with kids andgrandkids. Whatever their motivations, were always thrilled when they expand theirMarriott Vacation Ownership portfolio. And, when they purchase, the oftentimes frequentlyrefinance with us once again.

You may have heard quite a bit about the referral business, and theres a very good reason.Referrals are one of our most effective and efficient channels for new customers. Theyrefamiliar with our product, portfolio and our service. Our owners endorse our product totheir friends and family. And you certainly cant beat that for great advertisement!

Our Points Owners pay club dues for a range of services, from exchange benefits to MarriottRewards trades. Its a single annual set fee thats convenient for them, and we expect it tobe a growing source of revenue over time.

Were known for exceptional property management throughout the industry, and enjoy asolid, recurring revenue stream from our resorts through management fee income which is aportion of the annual maintenance fee.

Finally, owners and guests enjoy our many onsite amenities, from our convenience markets,golf course and spas, to food and beverage outlets at our resorts. Over time, the long-term

revenue stream per buyer is substantial, and clearly well beyond the value of the initial sale.

For 27 years, our accomplishments have been impressive with consistent growth inowners, customer driven innovation in product forms, and entry into new markets.

Today, we have 64 resorts around the world, roughly 10,000 associates, more than 400,000very satisfied owners and the most flexible and strategic points-based product form in theindustry.


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The timeshare business is a significant industry with substantial future revenue opportunity.Today, fewer than 8 percent of American households own timeshare vacations so the upsideis great. And this is a vibrant industry. According to industry sources, more than 4 milliontimeshare intervals were sold from 2000 to 2010, and in 2010, timeshare revenues in North

America totaled nearly $6.5 billion.

As was mentioned, with the spin-off, Marriott Vacations Worldwide will be the leadingpublicly traded pure-play vacation ownership company in the world. As you can see fromthis map, our resorts are located in some of the most highly desired vacation destinations inthe world. Our broad portfolio makes our product more valuable to customers as well asinvestors.

But while our global distribution is already noteworthy, we continue to see excellent growthpotential in both North America and Asia, and we have strategies to pursue growth in both

of these regions.

Our brands and reputation for product and service excellence, and our extensivedistribution, clearly position us as the quality leader in the timeshare industry today.

As the leading public pure-play vacation ownership company in the world, we are wellpositioned for success, given our strong geographic diversification and significant businessgrowth opportunities. Given our size and distribution, we can provide owners with a widevariety of vacation experiences.

Our tenured and talented management team leads with insightful strategies and a deep

commitment to our values, the admired brands we represent and the well-being of ourassociates and our customers.

We believe the Marriott and Ritz-Carlton brands are the best in the business for reputation,quality and customer preference. Our long-term and exclusive rights to use the Marriott andRitz-Carlton brands in our business will continue to position us for growth. In addition, ourrelationship with Marriott will also enable us to leverage both the Marriott Rewardsprogram and the powerful Marriott.com website.

Our community of more than 400,000 owners is highly satisfied and loyal, as their

repurchase and referral trends confirm and their satisfaction ratings prove.

We enjoy diversified income streams that provide protection in volatile economic climates.

Given the high credit quality of our typical borrower, we have strong mortgage receivablesand access to capital at attractive pricing levels, even in challenging times. This should leadto continued strong profitability from financing.


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Our business model drives solid cash flow through development sales, as well as recurringmanagement fee revenue, service revenue and interest income.

We also have meaningful liquidity from our access to the ABS market, as well as access toour warehouse and bank revolver facilities. We believe that MVW is well positioned to

prosper during both strong and weak economic cycles. In fact today, John Geller, our CFO,will present a model for 2012 with three contract sales scenarios. I would remind you thatwe are not endorsing any of these scenarios; the economy is simply too uncertain. Rather,we provide them so you can see our resilience in times of economic stress, as well as ourstrength in periods of economic growth. Ill leave the numbers to John, but I think youll beimpressed.

Our 10,000 loyal associates share a deep commitment to one another, our customers, ourcommunities and our success. Our senior executives have extensive Marriott experienceand tenure, averaging more than 22 years per team member. And given our stellar

reputation as a top employer, we attract highly talented individuals who align with ourvalues and our culture. Our commitment to training ensures our future leaders are very wellprepared.

Our organization, from top to bottom, is grounded in a culture of hospitality. We learnedfrom the best Marriott -- and we understand the meaning, the value, and the standardsbehind great brands.

Annually, we assess our associates engagement and Im proud that we have scored wellabove the global best employer benchmark according to AonHewitts engagement surveyfor the past two years, most recently, scoring a full six points higher than the benchmark.

And the Gallup organization has also recognized us as one of the most engaged andproductive workforces in the world, and has presented us with the coveted Great WorkplaceAward on three separate occasions. And this past March, we were chosen by The AmericanBusiness Awards for Favorite Customer Service in the leisure and tourism category.

Looking ahead, we intend to seize upon opportunities to grow cash flow, improve return oninvested capital and increase shareholder value. We expect to do so by driving profitablesales growth, as we continue to target our existing customers. Their purchases of additionalproduct through our points program will add to their vacation experiences, and enable them

to enjoy greater vacation frequency and variety.

With the introduction of Points, our product is now even more affordable so we expect toadd more first time buyers to our loyal owner base, and in doing so, expect to realize bothan increase in volume per guest and growth in stable and recurring management fees. Wefurther expect to earn additional fees associated with the points program and related clubdues.


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We expect to continue to offer our customers attractive financing alternatives that will alsobe profitable to us.

As we change our product mix, our marketing and sales costs should decline andincremental sales should become even more profitable.

Since owners and guests are the most effective sales channel, we work hard to ensure theirlong term satisfaction with our products. We have found the best way to do this is to retaina strong spirit to serve culture combined with robust training for our associates. Weveproven that paired with outstanding products, excellent service drives repeat business.

We expect to opportunistically dispose of excess assets, largely undeveloped land, andselectively pursue an asset-light deal structure over the next few years, which will enableus to redeploy capital more efficiently. We do not intend to develop new resort projects inthe near term given our significant inventory already on our books. But as new inventory is

required, we will target high-quality inventory sources or new sales locations throughtransactions that are capital efficient. These may be turn-key developments with third partyowners, purchases of inventory just prior to sale, or fee for service arrangements.

We expect to pursue compelling new business opportunities as well. As an independentcompany, we are positioned to explore new opportunities, such as adding newmanagement affiliations, launching higher margin onsite ancillary businesses, expanding ourexchange business, or even adding new brands, some of which may not have been possibleas part of Marriott.

We have a solid cash flow model. Our investment needs for the near-term are modest and

our points program has been designed for capital efficiency. And, we have the right capitalstructure to provide for liquidity as needed. In all that we do, we will keep our focus onleveraging our existing competencies, generating higher cash flow and improving return oninvested capital.

In 2010, our worldwide contract sales totaled $705 millionthats just about $2 million a dayin vacation ownership, 365 days a year. Seventy-five percent of those sales came from ourNorth America segment.

Looking ahead, its our plan to market our existing inventory in North America as well as

complete phases now under construction. In time, well add new resort inventory or otherproducts consistent with our sales pace, with an eye on improving ROIC.

The launch of our North America points program in June of last year was a meaningfulimprovement to our product and our customers love it. We expect to continue to enhanceour points program by adding new partnerships and vacation experiences over time.


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Finally, we expect to monetize excess undeveloped land in North America over the next 18to 24 months.

At the risk of stating the obvious, Asia Pacific is a region of rapid economic growth and alarge affluent population.

We opened our first Asian resort in Phuket, Thailand in 2002. In 2006, we entered the regionwith our first points-based product form that continues to grow. Today, we have five salesoffices and three resorts.

We have plans to increase our Asian owner base by expanding sales galleries as we add newresort locations and the business grows.

Weve been in Europe since the mid-90s. With this increasingly difficult regulatoryenvironment, we have found few attractive development opportunities in recent years. We

plan to sell out our remaining European inventory by 2015, but will continue to provideexcellent resort management and customer service to the owners of our European resorts.

Of course, Europe will always be a popular destination for our owners worldwide, and ourexisting European inventory will continue to be an important element of our worldwidesystem of resorts.

As you might expect, the luxury segment has been especially challenging over the pastseveral years given the economic climate. As the luxury second home market declined, wefound ourselves long on inventory in this segment.

At the same time, our Ritz-Carlton Destination Club members remain highly engaged andcomprise a very valuable and loyal customer base for our portfolio as well as The Ritz-Carlton Hotel Company. Were committed to their continued satisfaction.

We expect to grow our luxury business over time through affiliations. Our enhanced pointsplatform should contribute to our marketing pipeline for this segment.

At the same time it is our plan to monetize excess luxury inventory and undeveloped land.In fact, just this week we closed on a sale of excess inventory and land in North Lake Tahoefor $17 million, consistent with our expectations.

So some have asked, why do a spin now? With the spin-off, investors will have an improvedunderstanding of the value of our business. We believe the more you know about us, themore impressed you will be with our future prospects. Our Form 10 has an enormousamount of disclosure which we hope you have found helpful.

We will have the endorsement of two of the strongest brands in the hospitality industry. Wewill continue to deliver high quality vacation experiences. Owners, members and guests will


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continue to enjoy unforgettable vacations. And our associates will continue to be front andcenter in our strategy and our culture.

We recently launched our North American points program with great success. This enablesus to better leverage our ample completed inventory. It also positions us well for future

growth and higher returns on capital. While not a reason for the spin-off, this certainlymakes the timing more attractive.

Our ample inventory on hand gives us a runway to meet our product needs for the nextseveral years. And our right-sized overhead positions us well to enjoy outsized benefits asrevenues improve, but also with the flexibility to address changing economic climates.

From a customer perspective, this transition will be seamless. Our owners and guests willcontinue to receive the uniquely satisfying vacation experiences they know and love. Andthe strong credit quality of our customers will allow us continued access to the ABS market.

But most important, we believe the transaction will open more doors for us. As anindependent public company, we now have the option to pursue new businessopportunities that would not have been possible for us in the past, creating even greaterfuture growth.

We have an enduring and powerful culture, unique depth and management talent, the finestvacation experiences in the world, extremely loyal customers, well managed inventory tosupport our many diverse revenue sources, an effective capital structure, and significantrevenues from our financing strategy.

That all sums to this ours is a business that can deliver exceptional shareholder value wellinto the long-term.

To discuss all of these matters further, we have a talented group of executives today whowill address these topics.

Well then open up the session to questions and answers.

Its now my pleasure to introduce Lee Cunningham, Executive Vice President and ChiefOperating Officer for our North American timeshare business and The Ritz-Carlton

Destination Club. Lee is a 28-year Marriott veteran, and joined our timeshare organization in1997.

During his tenure in the vacation ownership industry, he has led our revenue managementand customer service organization and was responsible for the successful points programlaunch last June. Lee?


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Lee Cunningham, Executive Vice President and Chief Operating Officer North America and

Caribbean, Marriott Vacations Worldwide Corporation

Thank you, Steve.

Today, youll hear about our owners and guests who are truly dedicated fans. Why? Theylove the experience we deliver, how we do it, and how we regularly enhance it, literallycreating customers for life.

Customers buy timeshare for a host of highly individual reasons. Some owners have foundthis is the very best way to ensure they take an annual family vacation. Its their special timeto kick back and reconnect.

Others love the vacation flexibility we provide through our points program and ourpartnerships. They have thousands of possible vacation experiences, and ownership with usenables them to travel the world.

They love our villas and resorts -- generous living space, typically about 3 times the size of ahotel room, beautiful accommodations and desirable amenities flat screen TVs, granitecounter tops, stainless steel appliances, spas, golf, new and exciting pool designs, great skiresorts, some with ski in and out access to the slopes.

Some value timeshare as an excellent second home alternative.

And, some simply just feel like theyre coming home when they stay with us. Many of ourowners have come to know our associates over the years. The experience for these ownersoften feels like family. Our associates have often watched owners children grow fromtoddlers to adults with children of their own. Its amazing to watch interactions like these.

I know. Im an owner and our family will never miss our annual vacation to Kauai. We haveour traditions, special moments and friendships weve made over the last 15 years. Wewouldnt trade it for the world.

And, I think youd all agree that great vacations are just plain fun!

Our resorts are simply beautiful. We feature great product consistency from one resort toanother, and well continue to offer high quality accommodations in the future in keepingwith our strategy as well as Marriotts exacting brand standards.

Dont be confused by the word consistency. Each resort has its own unique look and feel,but all share Marriotts commitment to product excellence in design, detail and amenities.


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Thats been our strategy from the very beginning - to develop resorts that expressly servethe needs of vacationers.

At most locations, we offer 1-, 2- and 3-bedroom layouts, full kitchens with spacious,separate dining areas, in-villa washers and dryers and high speed internet access.

Our resorts feature stylish architecture with great attention to themes, from beautiful skilodges to our Tuscan-inspired resort at Newport Coast. Each villa is refurbished regularly -typically every 5 years to ensure that its fresh and up to date.

Let me highlight some of our resorts:

One of our newest resorts, Oceana Palms, is located on Singer Island, Florida. Theaccommodations are modern and stylish, and showcase the beautiful Atlantic views.

One of our most popular resorts, Maui Ocean Club, is known for its spaciousaccommodations, magnificent views and its perfect Kaanapali Beach setting.

Kauai is a lush tropical paradise, and our Beach Club features magnificent architecturaldetails, beautiful accommodations as well as great hiking and snorkeling.

Our resort campuses are equally as stellar with amenities our owners and guests love swimming pools with specialty features, fitness centers, onsite convenience stores, kidsactivities programs, award-winning golf courses, spas, ski in/ski out slope access, and more.

Located in Heavenly Village in Lake Tahoe, California, our Timber Lodge resort offers access

to some of the highest elevations and longest runs in the region. We have activitiesthroughout the day, often arranged by age groups, to ensure every member of the familyhas an unforgettable vacation.

Marriotts Shadow Ridge resort in Palm Desert, California features a Nick Faldo golf schoolas well as a perfectly manicured 18-hole course, a great experience for beginners and expertgolfers alike.

In Mallorca, Spain, beautiful pools with traditional mosaics complement the Mediterraneanand Moorish themes of the region.

Youve heard that our culture is powerful and grounded in Marriotts longstandingcommitment to our associates. Our Resort Operations Associate Engagement survey scoresare among the highest of all companies that survey their employees. At 86 percent, weexceed the AonHewitt global best employer benchmark by a full 8 points.


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Satisfaction with the onsite experience we deliver is exceptionally high. It has continued togrow over the past 5 years, with 2011 at nearly 90 percent as a result of our focus on productinnovation and highly personalized and responsive customer service.

Our global owner services team assists owners with reservations, exchanges, trades for

Marriott Rewards points and bookings for our Explorer Collection packages, which youllhear more about in a few moments.

With the launch of the North American points program, weve begun to see a decided,positive difference in satisfaction levels between Weeks Owners and Points Owners.

Presently, 95 percent of our Points Owners give our service professionals top satisfactionratingsin our view, a noteworthy achievement.

As you have heard, early on we had a vision for what the timeshare business could be.

Since our entry into the business, weve regularly innovated product and service offerings, inkeeping with the needs and expectations of our owners and guests.

Our accommodations are designed expressly for vacationers. We serve the upper upscaleand the luxury segments, with product experience and service design for each segment thatbest align with their respective expectations.

In late 2008, we studied the changing needs among upper upscale vacationers in NorthAmerica, and it became readily apparent they desired significantly greater vacation flexibilityand variety, as well as new services that accommodate their busy lives.

In June 2010, we introduced the Marriott Vacation Club Destinations ownership program, aunique points-based solution which replaced our prior weeks-based sales offering in NorthAmerica.

The North America points inventory is held in a Florida-based land trust, and each PointsOwner receives beneficial Interests in the Trust, resulting in deeded ownership.

The points program offers owners thousands of vacation experiences that they maycustomize to meet their unique requirements, year in and year out, from vacations within

our Marriott Vacation Club system of resorts, to luxurious vacations at a Ritz-CarltonDestination Club resort.

As youll hear in a moment, the points program has high appeal among customers, andweve met the strategic business intent for this initiative.

Our points program also serves the business very well. Because consumers now purchaseour portfolio rather than a single location, it means we can sell the points throughout our


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North American sales distributionso our sales galleries continue to produce revenuedespite the sold-out status of their local resorts. What was once a destination sell hasbecome a system sell. Our sales executives now sell points which are usable throughout theentire North American resort portfolio.

As Lani will discuss later, points are also more efficient in development planning andinventory management. The points program enables us to better match supply withdemand, which generally enhances our capital efficiency.

We have just about 365,000 North American owners of our product, who, combined, ownabout 550,000 weeks.

Since the launch of the points program in June 2010, more than 83,000 Weeks Owners haveenrolled 153,000 weeks in the program, providing high value inventory for use within thepoints program. Weeks are being added to the exchange program at previously sold out

resorts, providing broader vacation opportunities for all owners.

As I mentioned, to enroll weeks into the program, owners pay a one-time fee for the right totrade their weeks for points in future years. To date, weve collected nearly $46 million fromthese enrollment fees.

We invite our vacationing Weeks Owners to take tours with us to catch up on the news, andto see our latest product enhancements, specifically our points program.

Among Weeks Owners who tour, nearly 50 percent enroll in the new program, and of these,34 percent purchase additional points, valued at just about $17,000 per repurchase

transaction.

When you combine the inventory in our Florida land trust with the inventory our weeksowners have contributed to our exchange program, participants have access to 53 of ourMarriott Vacation Club resorts in the U.S. and Caribbean.

Our Weeks Owners have the option to vacation at other Marriott Vacation Club resorts,trade their weeks for Marriott Rewards points or exchange their weeks for access to theInterval International system of more than 2,500 vacation ownership resorts around theworld.

As we just discussed, our Weeks Owners now have the option to enroll in the pointsprogram for a one-time fee. When doing so, they have the right to exchange their weeks forclub points every year.

Points Owners have many usage options, including the right to redeem points for anyproperty, any length of stay, any season and any villa type that is available in the Trust andexchange program.


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Among the new services that we provide, Points Owners may bank or borrow points,which better accommodates their need for more flexible vacation scheduling.

Points Owners have access to the system of Marriott Vacation Club resorts in the Trust or

through the Marriott Vacation Club Destinations Exchange Program, the ability to trade forMarriott Rewards points and also the option to access partner provided inventory at morethan 2,500 Interval International affiliated resorts. And, Points Owners have access to manynew and exciting global vacation opportunities, from cruises to safaris, from white waterrafting to guided tours of China.

With The Marriott Collection, owners have the opportunity to stay at more than 3,500 hotelsand resorts in Marriotts lodging portfolio, including Marriott Hotels and Resorts, The Ritz-Carlton, Renaissance and Marriotts other brands by trading their vacation ownership forMarriott Rewards points.

The Explorer Collection offers tours and travel packages enabling our owners to walk theGreat Wall of China, tour Rome and the Amalfi Coast, experience safaris, enjoy relaxingcruises even take wine vacation experiences in California and Tuscany. Since launch theuse of this exciting new option has continued to grow with more than five million pointsutilized in this fashion in August alone.

The World Traveler Collection provides owners access to more than 2,500 resorts in 75countries around the world.

The new points program offers our owners great vacation flexibility within our system of

Marriott Vacation Club resorts.

Here are just a few examples of what an owner may enjoy for 2,500 points, ranging from 3nights in Maui to 10 nights in Miami. To give you some context, today, you can purchase2,500 points for about $25,500.

The annual cost of ownership includes the daily operation of the resorts, reserves forrefurbishment, real estate taxes and our management fee. Using our 2,500 point example,at about 40 cents per point, the annual cost of ownership would be about $1,000 per year.

Our resorts and villas are located in the most desirable destinations, with spaciousaccommodations, fresh and up to date. Our resorts feature the finest amenities fromworld class golf to the best beaches in the world.

Our associates are highly engaged, and deeply committed to delivering exceptionalexperiences that delight our owners and guests.


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We regularly innovate to serve the needs of our valued customers, and to drive shareholdervalue, too.

With the debut of our North American points program, we determined to provide pointsprogram participants thousands of vacation experiences in the worlds most exciting and

fascinating destinations. Their 95 percent satisfaction rating and the growing number ofnew points buyers tells us we that have met our goal.

Its now my pleasure to introduce Brian Miller, Executive Vice President Sales, Marketing andService Operations, who is going to discuss how we engage those customers. Brian joinedour business in 1990. Hes been with us nearly from the start, and for the last 21 years he hasbeen a prominent leader in our sales organization. Brian?


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Brian Miller, Executive Vice President Sales, Marketing and Service Operations, Marriott

Vacations Worldwide Corporation

Thanks, Lee. Good morning, everybody.

The most important foundation you can have for a successful sales process is to have a greatproduct. And as Lee described, we certainly have that.

Just as in product design, in our Sales, Marketing and Service Operations, we are alsocustomer focused in all that we do. It starts with our people, as Steve mentioned earlier inhis remarks, and taking care of our associates is at the core of our culture. But we are alsofocused on constantly improving our results, using customer metrics to measure satisfactionwith the purchase and the use of our product. Our goal is to maximize performance acrossall of our customer touch points.

Our strong brands and sophisticated customer targeting are key to our sales and marketingeffort. We measure our effectiveness to ensure the strongest possible performance at thelowest possible cost. As Lee said earlier, our people make the difference. Our talented salesforce are the people who drive customer satisfaction in the sales process. And in the end,happy owners are our best sales people.

We take a highly integrated Direct Marketing and Direct Sales approach to generating salesfrom both new and existing customers. In this model, every dollar we spend has anexpected return. Our marketing is highly directed. We gauge response to our efforts,constantly adjusting our programs to maximize efficiency. On the Sales front, we only spend

commissions and customer incentives when a sale is made, and we relentlessly measure oureffectiveness.

It is important that we sell our product the right way, and we closely monitor customerperceptions after customers tour with us. If we do things right, and we provide greatservice after the sale, then owners will make additional purchases in the future. We callthese purchases Owner Reloads, which are highly profitable sales. Although this model isfairly prevalent in the industry, we will delve into what makes us an industry leader over thenext few minutes.

Our biggest competitive advantage in the marketplace is the strength and power of theMarriott and Ritz-Carlton brands. They provide a strong foundation of trust and representconsistent high quality to their respective customer segments, which makes thosecustomers more receptive to our product. Marriott.com is the 8th largest e-commerce site inthe world. It is not only responsible for generating over $150 million in annual rental revenuefor our resorts, but it also generates traffic to our MarriottVacationClub.com andRitzCarltonClub.com marketing sites.


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As Lee mentioned, owners who trade for Marriott Rewards points have access to over 3,500hotels worldwide. And, with 37 million members, the Marriott Rewards database alsoremains an important piece of our marketing platform. In the markets where we operate,we collaborate with local Marriott International hotels across all brands testing andimplementing marketing programs that benefit both the hotels and our business. We also

use various Marriott Rewards and hotel packages as incentives for our customers when theypurchase our products. It is a great way to ensure that their experience with us stays withinthe brand that brought them to us in the first place.

The power of these brands provides a great foundation for our Direct marketing model. Asprospects are responding to a known and trusted entity, we see higher response andconversion rates from Marriott brand related channels. But we dont just rely on onechannel. We use effective modeling to understand all of our customers very well. Thisallows us to create highly targeted direct response offers across all channels of ourmarketing mix. We then look to touch our customers several times, allowing us to serve the

customer well when they are vacationing at one of our properties and to pre-dispose themto the sales process in our galleries. Through the various touch points, we can sometimesgather additional information on the motivations of our prospects. In other cases, we aresimply providing services for their stay that will enhance their vacation experience and theirperception of us. We work to deliver a prospect to a sales tour in the right frame of mindabout our products and our company and with a personalized welcome into our salesgallery.

Our Target Marketing begins with a baseline demographic profile of our potentialcustomers. And although there are anecdotal examples of purchasers who fall outside ofthese basic parameters, these demographics have held true over a long period of time for

our core vacation ownership product. Since our product is a high ticket, discretionaryspend, it is sometimes likened to a second home, as Lee mentioned. It is only logical thenthat the buyers would be primary homeowners already and that they would be in the uppermiddle segment of the economic ladder. Additionally, since our products are typically twobedrooms or larger, married couples with children would have the biggest need for thatextra space while on vacation. Many buyers economically justify their purchase over aperiod of time against expected vacation rental expenditures, so the younger the client, themore they value a 10 to 20 year economic justification for purchasing. But whether young orold, there are a large numbers of our owners who use our product to create a lasting legacyof vacations with their extended families with the intent of passing it on for other

generations to enjoy.

We enhance our customer targeting efforts in several ways beyond the basic demographicprofile. Over the last decade or so, we have amassed a very robust database of U.S.households to understand their capability to purchase our product. We now have over 25million individual households in that database and that information is refreshed severaltimes per year for information updates, address changes, and other activities.


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We are also able to append our performance data against the database to allow us toconstantly update our prospect and owner models so that current and future campaigns areusing real time data for the selection of prospects. We have found 35 key attributes thatreveal a propensity to respond to our offers and to ultimately purchase our product. Basedon prospect scoring models, we can finely tune a campaign to either only address the

highest scores, or we can expand the program to include other customer segments, as longas we think the sales volume will still be profitable for us. We also have found successmatching prospects to likely sales center locations called geo-targeting, which we havefound increases response and sales.

Lastly, in cases where we have not had the opportunity to touch a customer or run themagainst our database for a profile prior to tour, we use the data that is available to us toprovide focus to our efforts. These guests might be arriving at one of Marriotts hotels orchecking into one of our resorts, but certain information about their stay such as room rate,their Marriott Rewards status and their length of stay can tell us a lot about how to target

them relative to other customers in that channel.

The net result of all of these marketing activities is a cost effective mix of tours and leads toour sales force. This slide shows our various marketing channels all the ways we identifymarketing prospects. The first column shows the percentage of contract sales from eachchannel and the second column shows the marketing cost as a percentage of that channelscontract sales. Our in-house channel is where we market to owners and guests staying inour vacation club resorts. Direct sales is primarily telephone marketing. As you can see,together, these make up close to 65 percent of our sales volume with variable marketingcosts averaging less than 10 percent of contract value.

During the recent recession, we eliminated or reduced less effective and more expensivechannels. Other costs, however, increased which means we still have more opportunities tofurther improve efficiency. The cost of our central marketing preview program at nearly 28percent is well above historic levels. With the introduction of our new points-based product,our sales force needed to spend a tremendous amount of time with our existing owners toget them comfortable with the new usage option. Consequently, we offered fewermarketing previews and those we did offer were less effective at driving sales. However,the trends have improved in the last quarter for these customers.

The way we use these channels can also impact efficiency. For example, we drive central

marketing preview tours to the shoulder seasons at our resorts, which will help us maintaina more steady year round tour flow for the sales force, which helps improve effectivenessand cost.

In 2012, we expect to see the central marketing preview channel cost come back to itsnormal 20 percent range and total marketing cost to decline to 10 to 12 percent. Worldwidesales and marketing costs are around 50 percent, which John will talk about later. Our NorthAmerican operation is running about a 47 percent cost of sale, year-to-date.


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Weve made considerable progress improving the efficiency and effectiveness of ourmarketing. But marketing represents only about 12 points, as Ive shown here, of our totalsales and marketing spend, and commission based expenses represent roughly 10 points ofoverall cost. We are committed to do more. We are actively exploring opportunities to

reduce overhead and variable sales costs and expect to show solid progress in 2012.

De-emphasizing our Luxury and European product lines is another step towards loweringcosts. So, with a more efficient marketing mix, reduction of fixed overhead and continuedincrease in sales efficiencies, we expect to drive worldwide sales and marketing costs intothe low to mid 40s.

Once the prospect is in the sales gallery our Sales Professionals take over. We operate ahighly disciplined direct sales force that uses a personalized, consultative sales approachthat is consistent across all of our sales channels. And with the launch of our new points-

based product, our ability to customize our product for our customers is greatly enhanced.We primarily distribute our product in sales galleries located at or near one of our resortlocations. These are the most effective locations for us as the customers are experiencingthe resort and this gives them the best perspective to consider a purchase with us. We alsohave a central telesales group that works leads primarily from our websites. We willconduct seminars and road shows in key source markets during slower seasons at the resortsites. Our Latin American sales force, conducts home and office presentations to potentialcustomers in those markets. But no matter where the sales occur, we measure all aspects ofthe interaction to ensure that we are both driving performance and ensuring that thecustomer has a positive experience with us.

As with any high performance organization, it starts with great talent. We work with ourhuman resource partners at AonHewitt to source highly qualified, licensed real estateprofessionals. We have Virtual Job Tryout. It is a web-based selection tool that helps usbetter understand their potential talent. It results in a hiring rate of about one salesexecutive for every 11 applicants. All of our sales executives learn the same multi-step salespresentation, which we call Salesmanship. This allows for streamlined delivery of trainingmaterials, electronic support and onsite coaching and leadership. Our training program isupdated every six months based on product development, performance and customerfeedback.

Great sales tools are important, too. Our Sales galleries are designed to support thesalesmanship sales process. We utilize digital displays in our galleries to encouragecustomer interaction and our desktop sales technology allows our Sales professionals totailor our new points-based product to the specific needs of the owner or prospect. Weprovide our sales executives with a profile of the customer they will see so that they canbegin to think about customizing the presentation even before they meet the guests. Ourtargeting work and our screening techniques for qualifications mean that almost all of our


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prospective purchasers will qualify for our consumer financing program. And our purchaseincentives can also be customized to the near term travel desires of the customer.

Customer satisfaction with our Sales and Marketing process is very important to us. Wedeliver an extensive 35 question survey to all guests who tour our galleries, and we hold all

levels of our sales organization to a high standard. Our performance has been veryconsistent over the years. Nine out of ten people who tour with us rate us an 8, 9 or 10 on ascale of 1 to 10 based on their sales experience with us.

These charts show our average sales contract value on the left, so the average amount thatpeople purchase from us, and Volume per Guest on the right for our North Americasegment. So if you look, our average contract price was around $27,000 in the secondquarter of 2010, right before we switched to our points-based product. Then the averagecontract ran about $17,000 in the third quarter of 2010 as customers were now able topurchase increments that were less than one week. In the third quarter this year, you can

see the average purchase has moved up to $24,000 as the sales force has become morecomfortable with the new product and our incentive programs are better aligned with ahigher level purchase.

Our Volume per Guest, or VPG, has also improved as we increased the average purchase.This metric is simply the total sales volume divided by the total number of tours taken togenerate that volume. It can be likened somewhat to RevPAR in the lodging business as it iskind of a net output of several other metrics. While we see a small dip in Q3 due to typicalseasonality at the slower period of the year, the trends are extremely favorable.

During the downturn, we focused more heavily than in the past on our in-house program

and on our owner base for sales. Since 2008, owner reloads as a percentage of overall saleshave increased from one third of our sales to over half of our sales volume. The good newshere is that those are our most cost effective sales, so we have been able to maintain aconsistent marketing cost percentage.

Over the last six years, this is the percentage of our owner base that purchases additionaltime, either weeks or points, with us every year. This percentage typically has been between4 and 5 percent. So, it isnt that reloads are up so much as it is that new customer sales havebeen relatively slower, in part due to the transition to points and the initial focus on existingcustomers. But the owner base penetration has remained consistent.

You may ask what will be our strategies for securing new cost effective customers into ourprogram? Well, Lee and Steve both talked about referrals, and in 2012 we expect to launch anew referral program with enhanced incentives to our owners and new desktop leadmanagement and communication tools for our sales force. We expect this will enable us togrow referrals over the next few years. The owner referral program is currently our numberone source of first time buyers in fact, year to date, one in three new buyers are referralsof our owners.


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Secondly, our new points product has opened up new marketing channels for our sites.Formerly, customers living in Orlando wouldnt have purchased a timeshare in Orlando.Now, we sell a broad system product that has no ties to a specific resort. So we have salessites in Southern Florida, Boston, and Orange County, California, just to name a few

locations that now have large target markets within one to two hours of their location. Weexpect such marketing programs will bring those local customers to those sites, and we willalso conduct road shows and seminars with our sales force during slower times at theresorts.

Lastly, we are having great success in select international markets, and are looking toexpand those efforts. The Latin American markets have proven to be very strong over thelast few years and we have a good foothold in Dubai to grow our Middle Eastern sales overthe next few years as well. And as Steve mentioned, we are encouraged by our trends in ourAsia Pacific markets. We also already have strong customer service operations in place for

all of these markets, so investment outside of sales expansion is minimal.

In closing, we have a highly engaged and talented workforce that is highly motivated tomaximize customer experiences in order to drive sales. We measure our sales andmarketing metrics across a wide array of customer touch points. We know who our targetcustomers are, we know how to find them cost effectively, and we know how to engagethem in a process that distributes our products in a cost effective manner and all the whilepays close attention to making sure that the customer has positive interactions with usalong the way. We have a very dynamic and very fluid model that allows for constantadjustment and constant improvement.

So, thank you for your time so far this morning. We will now take a 15 minutes break. All ofthe MVW executives will be wandering around if you have any questions about what youhave heard so far this morning. We look forward to talking with you and well plan to getback here in about 15 minutes.

[break]


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Jeff Hansen, Vice President Investor Relations, MVWC

Thank you, and welcome back to the second half of our presentation. Id like to nowwelcome Lani Kane-Hanan, Executive Vice President and Chief Growth and Inventory Officer

for Marriott Vacations Worldwide. Lani is an 11-year veteran of Marriott and a 25-yearveteran of the hospitality industry. She currently oversees the resort planning anddevelopment and product innovation department - critical components of our pointsplatform and our future success. Welcome, Lani.

Lani Kane-Hanan, Executive Vice President and Chief Growth and Inventory Officer, MVWC

Thank you, Jeff. Good morning, everyone.

I am going to speak today about how we carefully manage our development process to align

with sales and how we manage the use of our inventory to drive customer satisfaction,enable sales, and enhance profitability and growth. Im also going to talk about futuregrowth opportunities. While there are a lot of moving pieces, our philosophy is quite simple- we drive the highest possible overall value with the highest possible growth.

One of the critical components of managing our business is matching demand for inventorywith the availability of inventory whether its sales demand, owner usage or rentals wemanage our inventory in such a way that enables us to optimize revenue and capitalefficiency.

First, let me clarify that we define inventory as both inventory under construction and

completed inventory. The first component is product in the development process that willultimately yield a completed villa. We carefully manage new resort development, whetherthrough ground up construction, joint ventures, or acquisitions, to ensure inventory isavailable for sale at the right time. One of the benefits of the points product is the flexibilityit now gives us to better align inventory investment with sales pace.

Inventory is also comprised of finished villas that may already be sold or not. We continue tomanage inventory closely, even after its built and sold. We set aside inventory for tours andstays by prospective customers, and ensure the maximum usage of completed inventory byour owners our greatest source of sales leads.

Whats not used by our owners, we rent. And, just like a hotel company, we use revenueand yield management results to enhance our rental profits.

The first process we consider is inventory sequencing and management namely having theright amount and the right type of inventory available at the right time. In North America,we have several resorts under development and it makes sense for us to first completethese resorts.


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We may also find cost effective inventory elsewhere. For example, we can buy backinventory from our existing owners. From time to time, we may see desirable distressedinventory obtainable from independent developers and lenders. Or, over time, we may addprojects where it makes sense. Future inventory may be added through ground-up

development or asset-light strategies such as purchasing constructed inventory just beforewe need it for sale, fee-for-service arrangements, or securing inventory on a turnkey basis.

We expect to approach our future inventory needs with a focus on return on investedcapital. Given our existing inventory levels, we do not intend to develop new destinations inthe near term, but rather complete new phases at existing resorts.

So, lets look at North America. At year end 2011, we expect to have about $320 million offinished goods in our North America vacation ownership business. This represents justunder $850 million of future contract sales revenue, or roughly about 18 months of product

at our current sales pace.

We also expect to have about $230 million of inventory under development. Adding another$125 million to complete it, we can generate another $930 million of future revenues withonly $125 million incremental cash outlay. Combined with the finished goods, we will haveroughly three years of inventory at todays sales pace with very modest capital investment.

Finally, we will have invested roughly $275 million in land and infrastructure for futurephases at our existing resorts by year-end. Building out these phases would require another$1.3 billion to complete, but should yield over $4.2 billion of contract sales, and many years offuture development. This does not necessarily mean that we intend to spend the $1.3 billion,

but only that we have the land and the infrastructure platform if and when it makeseconomic sense to do so.

The completion of all this development would yield potential contract sales of roughly $6billion.

Now, lets look internationally. With tremendous economic growth and an emerging middleclass, we believe Asia Pacific is an attractive and growing vacation ownership market.

We have been in the market since 2002, and today we have five sales offices and three

resorts in the region. We expect to complete our existing ground-up projects, reacquireinventory where possible and enter into partnerships or turnkey relationships to fuelgrowth. When you consider the favorable development and operating costs in Asia Pacific,together with the growing number of Marriott hotels with co-location opportunities, webelieve there is significant potential for us in this region.

Our approach in Europe is to sell-out our remaining inventory by 2015. As Steve mentioned,we dont plan on adding inventory in Europe, but we will continue to recycle pre-owned


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inventory and to provide ongoing management, rentals and customer services. We have adiverse set of resorts in Europe, and these resorts are valued destinations among ourowners and our guests.

For our Luxury segment, we expect to sell the remaining inventory through our existing

sales channels, bulk-sale excess units over the next three years, and sell excess land over thenext 18 to 24 months.

In certain cases, we are also adding Luxury product to our Marriott Vacation ClubDestinations points program. Not only does this help reduce inventory balances, but it alsoprovides Marriott owners incentive to purchase additional points to access Ritz-Carltonexperiences.

We have no need to invest additional capital in the Luxury segment. In the future, we seegrowth opportunities through new affiliations and any development will be focused

towards more asset-light structures.

To maximize ROIC, we try to match our inventory spending to our sales levels. The blue barrepresents our investment while the red bar represents the inventory coming off the booksas sales are completed. As you can see from this slide, while our inventory spending wasquite high in 2008, we were able to respond to weaker market conditions and pull backinvestment while still completing our projects under construction. For 2010 and 2011, ourinvestment balances continued to decline and we expect further declines in 2012.

While we can adjust our spending levels to address changes in demand, we also have othertools to balance inventory levels. We have the option to provide sales incentives to enhance

sales pace as needed. These incentives include the use of Marriott Rewards points, awardsof our own points, price incentives, and promotional financing. The price and MarriottRewards incentives that we offered in 2009 and early 2010 were very successful. In 2011, weare offering incentives to existing owners who purchase additional points with us.

Any promotion should be designed to enhance the overall value proposition and not justbenefit development sales. We carefully follow demand trends and dial-up or dial-backincentives as we attempt to maximize the overall yield of each sale.

Once the product is complete, we turn our attention to the processes that will optimize its

use. At year-end 2010, we had about 10,800 villas flying the Marriott or Ritz-Carlton flag inNorth America. Of these, about 95 percent of these villas were sold.

As part of the points program, it is important that we accurately price the points value ofeach of our units in each of our resorts to insure the highest possible owner occupancy. Weestablish point values when completed inventory enters the program, and constantlymonitor trends to assess the need to re-balance point levels. Our goal is to assign point-based prices to spread occupancy across the system. As Lee showed, our guest satisfaction


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scores are very high, in part, due to the care and attention we provide in ensuring the bestpossible vacation experience for our existing owners.

Our 10,800 villas yielded 5.5 million available keys in 2010. Most of our units are used for 51weeks annually and many include features that allow a 2-bedroom unit to be locked-off

and rented or used as two separate keys.

Our first priority is always to get our owners on vacation. As a result, three-quarters of ouroccupancy in 2010 was generated from owners who use their time, 14 percent was rented totransient guests, 2 percent was used for marketing preview packages and only 7 percentremained unused. At any given point, about 2 percent of our inventory is undergoingrenovation. The unused portion at only 7 percent is pretty remarkable given the seasonalityat many of our resorts, and the breakage that we expect using points on a nightly basis.

Our occupancy rates tell us how were managing the available inventoryand you can see

very high occupancies, consistently over 90 percent even in difficult recessionary years.Satisfied owners generate high occupancy levels and drive repeat business, owner referralsand ancillary revenues, such as club fees or revenues from retail or food and beverageoutlets.

We use traditional revenue and yield management practices to rent available inventory withthe majority of our rentals being booked through the very cost effective channel,Marriott.com. Rental customers who experience our product are also very strong and lowcost prospects for our sales organization.

As we look ahead, we see considerable opportunity for growth, whether through growth in

recurring income streams, contract sales, or new brandswe have the ability to grow whileusing our capital efficiently. Our goal is to derive the greatest value possible, leveraging allof these processes and evaluating the highest and best use of all of the different streams ofavailable cash flow.

Looking forward, there are several ways we expect to add inventory while managing ourcapital efficiently. First, we expect to continue to offer new experiences to our owners.These experiences are not necessarily real estate focused or capital intensive. As Lee said,our owners are enjoying safaris and cruises today that dont involve any assets on ourbalance sheet. We will continue to add more unique experiences for our owners outside of

our system.

In addition, we designed our points product form to allow for the efficient development ofnew inventory and the efficient recycling of pre-owned inventory. When an owners lifestylechanges and they need to exit our program, we have a right of first refusal on weeks andpoints that they may wish to sell. This inventory can be sold just like any other but may be ata lower overall cost than new construction.


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Our current product form also gives us the opportunity to include and absorb inventoryacross all brands and segments within the points portfolio. This enhances not only capitalefficiency, but also sales and inventory management.

As I mentioned earlier, we can complete future phases of our resorts and develop new

resorts, either on-balance sheet or via capital efficient structures, such as turnkeydevelopments with third party owners or purchases of inventory just prior to when they areneeded for sale.

We also have opportunities to grow our recurring income streams. For example, we canenter into fee-for-service arrangements, management contracts and/or other affiliationswith developers or timeshare operators. We do an excellent job at running our resorts forour owners and we could do so for other project as well, within or outside the Marriottbrand.

With the introduction of our points product, we also expect revenue from exchangeactivities to increase. We believe there is an opportunity to develop this business further toincrease fee-based revenues. As we will continue to look for ways to enhance our share ofcustomers vacation spend as well, these are important recurring income streams.

As Brian mentioned, we continue to improve our sales processes and expect to openadditional sales distribution locations to drive incremental contract sales and generate newcustomers. We can also selectively pursue compelling strategic alliances and ventures,which could range from management or sales partnerships with other timeshare companies,to marketing alliances or promotional programs with travel partners.

Finally, while our Marriott and Ritz-Carlton brands will continue to create opportunities forus, we can also look outside the Marriott family of brands. While the Marriott brand isextremely valuable, we also recognize the opportunities in broadening our horizons.

We have the infrastructure, the systems and the expertise to grow over time. We believeour flexible product structure, coupled with our balanced approach to inventory planningand revenue management is a competitive advantage that should, over time, deliverearnings growth and higher return on invested capital.

Now it is my pleasure to introduce Joe Bramuchi, Vice President of Capital Markets and a 10-

year veteran of Marriott Vacations Worldwide to discuss our financing business and ourcapital structure. Welcome, Joe.


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Joe Bramuchi, Vice President, Capital Markets, Treasury and Financial Risk Management,

MVWC

Thank you, Lani, and thanks to all of you as well for being here today. Im going to talk a bit

about our financing business, our capitalization and our sources of liquidity that will beavailable to us as a new company.

As a new company, we will be well capitalized with ample liquidity from several sources togrow our business. First, with leading brands and high owner satisfaction, we expect thebusiness to generate meaningful cash flow. Secondly, we have negotiated a loanwarehouse facility, which will allow us to periodically package consumer loan receivables forsale into the warehouse, providing us with additional cash. We have also arranged a securedcorporate revolving credit facility, which will be available for general corporate purposes,working capital needs, letters of credit and so forth. Beyond this, at launch, we should have

roughly $700 million of nonrecourse debt, backed by sold loans in the asset backedsecurities market and also a $40 million issuance of preferred stock.

We have monetized consumer loan receivables for over 20 years and we expect to continueto securitize in the ABS markets, as we have successfully done for over 10 years. We see oursecuritizations as best-in-class as evidenced by the terms of our transactions. This marketallows us to place paper with longer term institutional investors such as insurancecompanies and pension funds that regularly seek the quality of our consumer financingproducts that match up well with the durations of their obligations.

This morning, Ill talk more about our profitable consumer financing business, including our

note sale program, as this is an integral part of our business and represents a meaningfulsource of income.

So, how does it work? How does consumer financing fit into our business? We offerfinancing as a convenience to our customers so that they can purchase and finance in onetransaction. Typically, between 40 and 50 percent of our buyers will take our financing atthe point of sale.

Periodically we expect to compile a pool of those loans and sell them to the warehousefacility, receiving an average advance rate of approximately 80 percent. So you sell $100

million of loans, you get an initial advance of $80 million. Then once a year we intend topackage those loans for issuance into the Term ABS market. At that time, the term issuancewould repay the warehouse facility releasing capacity for us to originate more loans that wecan then fund under the warehouse. Based on our prior experience, we expect we will alsoreceive a higher advance rate through the ABS market than the 80 percent on thewarehouse and thereby generate still more incremental cash. Even after the notes are sold,consistent with our past approach, we expect to continue to service the loans.


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The ABS loans are non-recourse to us and are sold to a bankruptcy remote entity, fullytransferring the risk to a third party. Our right to receive the excess spread is subordinatedto the payment of debt service on the bonds. And so this is structured as a residual equitycomponent in these deals and Ill talk a little bit more about this shortly.

So, lets review some consumer financing metrics to provide more clarity.

As I indicated earlier, almost half of our purchasers take our financing when they sign acontract. These loans are typically 10-year, fixed rate, fully amortizing loans. The averageloan coupon is between 12.5 percent and 13.5 percent. One of the primary selling points forour customers is the convenience of the process, and they have the ability to prepay theseloans at any time without penalty, and the reasonable average monthly payment is typicallybetween $300 and $350. The average credit or FICO score of a U.S. customer, on anorigination basis, is 737. And the loans are fairly vanilla with set monthly payments and fullyamortizing balances, which provides for stable and predictable cash flow streams.

When a purchaser decides to finance with us, they are required to put down a minimumdown payment based on their FICO score. A 10 percent down payment is the minimum. Andif you do not have a FICO score, as may be typical of an international buyer, we will require ahigher down payment and typically a higher coupon rate on the loan.

Based on all of these factors, we realize an attractive risk-adjusted rate of return on our loanportfolio. The strength of the portfolio from a customer credit perspective and therelatively high coupon also allows for favorable execution in the Term ABS market.

So lets talk a little bit about our servicing portfolio. Our historical financing propensity is

shown on the chart on the left. From 2004 to 2008, we encouraged financing by offeringincentives at the point of sale, such as offering additional Marriott Rewards points. At thistime the ABS market was robust, allowing us to securitize notes at 100 percent advancerates. And in addition, the coupon -- the cost of funds from an investor perspective wasbetween 4 and 6 percent. However, as the ABS market deteriorated in late 2008, we diddiscontinue these financing incentives and saw our financing propensity decline to between40 and 50 percent. Looking ahead, we expect financing propensity to remain at these levelsfor the foreseeable future.

The chart on the right shows notes receivable balances, net of reserves. The blue bars

represent notes on our balance sheet that have not been sold. These include notes that maynot be securitized -- they may not have enough payment history or seasoning, or they maybe related to our foreign businesses where we have not yet monetized paper.

The orange bars and the gold striped bars represent securitized notes. Securitized noteswere not on our balance sheet in 2008 and 2009, but went on-balance sheet with theadoption of the 2010 Consolidation Standard under GAAP. These notes are still non-recourseto us even though they are on our balance sheet today.


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As you can see, the total note receivable balances have been declining over time as our salespace has moderated and as propensity has declined. Balances are also declining due toamortization of the loans. We expect this note receivable balance to level off in the 2014 to2015 timeframe and increase thereafter, matching more the pace of our sales.

So lets take a look at some transactions over the past few years. We have monetized paperfor over 20 years and we have been in the Term ABS market for over 10 years. Weconducted our first tem issuance in 2000. From 2000 to 2007, we issued 12 transactions, allwith 100 percent advance rates and cost of funds between 4 and 6 percent. Those termsreflected favorable ABS market conditions, but also the consistency and the high-qualityoriginations of our paper. Beginning in 2008, while we were able to completesecuritizations, the structure of the deals did become less favorable.

So if you look at the 2008-1 transaction, the cost of funds reached over 7 percent, and again,

marriott vacation worldwide transcript 10-28-11

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