Is the DVC business for sale?

[LuvtheGoof]

My initial thought was that Disney would sell off the hotels (but not the land under them), and perhaps the contracts? And then someone(?) would run the hotels on a day-to-day basis.

Wow! Can you imagine how that would affect DVC owners? Every single time Disney has either sold or outsourced something, the benefits either go down or disappear altogether, since the third party company wants to bleed even more money than Disney does on a contract. No more after hours, discounts would probably disappear, higher costs for everything.

Look at what happened just with outsourcing the valet parking. DVC owners no longer received it for free, and the price has gone up. Yup, real win for us. Just think what will happen when the entirety of DVC is in third party hands???

 

[LuvtheGoof]

Disney loves to be the landlord - Maximum income with minimum costs.

Theme parks next?

Sure, because let's screw over some of the most loyal customers that Disney has.

 

[SpaceMountain77]

After reading the initial and subsequent posts, I had three immediate reactions.

First, Animal Kingdom Villas - Jambo House and the Villas at Disney's Grand Californian are not freestanding structures. The villas are housed within the sole, main building. To me, it seems odd that a third party would operate two floors at Jambo House and a wing at the Grand Californian.

Second, the original points for most DVC resorts have already been sold. If someone were to buy Disney's Beach Club Villas, for example, money could be made through resale, however, with 20 years left on the contract, it would seem as though the buyer would largely be responsible for operations (e.g., maintenance, taxes).

Finally, anyone who is familiar with DVC is aware that resorts that are built outside the parks sell slowly and are less popular. Aulani opened in 2011 and, 10 years later, is still being marketed as an active resort because all original points have yet to sell through. In 2019, DVC sold off 26 acres of the Vero Beach property that was originally intended for a second phase of the resort. If any resorts were to be sold outright, it would be Aulani, Hilton Head Island, and Vero Beach. Regarding the latter two properties, I do not believe any DVC owners who are fully aware of the DVC system anticipate an extension at either resort past the 2042 expiry. I certainly do not anticipate one with my points at Vero Beach.

 

[Wrigleyville]

There are 3 financial firms involved in the discussions. Based on who those are, and who they've worked with in the past, I don't think the conversation is coming from inside Disney. I think it's another company with lots of real estate holdings that's interested in the DVC business.

I'm not sure how a deal would be structured. I think that in Last Vegas, MGM has sold off a lot of its physical properties and is just going to run the operations (here's a recent article about the Cosmopolitan).

My initial thought was that Disney would sell off the hotels (but not the land under them), and perhaps the contracts? And then someone(?) would run the hotels on a day-to-day basis.

Len, I have been thinking about this since you first raised it on the podcast last week. In my opinion, multiple signs seem to give the idea of a sale some legitimacy:

1. The aforementioned financial stress placed upon TWDC and Bob Chapek's need to improve the balance sheet and free up cash for opportunistic investment (e.g., ESPN gaming, Disney+ content, etc.)
2. The appointment of Bill Diercksen as GM of DVC. He has spent his entire career on the finance side of Disney and other businesses.
3. The unprecedented increase in ROFR activity on the 2042 Old Key West contracts and the unsolicited buyback offers to DVC members of that property. If they are going to sell the portfolio, they will want to clean up the issue of dual expiration dates for that resort to allow for a more favorable valuation.
4. Chapek's comments about expanding into sports betting at the recent investor conference. They clearly see this as a growth area and NBC's investment in PointsBet is an indication of how networks see opportunities in synergy with the gaming side around pro sports broadcasting.

DVC revenues are recognized as a one-time benefit when title transfers to the owner, so existing DVC contracts don't directly drive revenues in subsequent years, creating a need to continually build (and sell) new resorts to generate YOY revenue growth (or parity.) So, unlike the hotel properties, TWDC isn't seeing DVC operations as a profit center...it is a cost center (excepting transfers to inventory of unused DVC rooms that they rent out to generate incremental revenue.)

So, I can see a scenario where it makes strategic sense for Disney to sell the DVC portfolio with lease rights to Blackstone or another investment company, which would generate billions in revenue (much of the value having already been depreciated on the books) plus an ongoing annuity in the form of lease revenues. Disney already leases land/buildings to 9 hotels on property including the Swan & Dolphin and has managed to weave them into its amenity offerings (extra magic hours, transportation, etc.) to make them more attractive than off-property options.

At the end of the day, the decision may be to focus on what they are best at (booking rooms and vacation packages) and enter into performance agreements with resort operators like MGM that can manage the properties at agreed-upon service levels for the guests. The financial impact is clear: TWDC gets a one-time windfall for selling the resort properties and annual lease payments and commissions for selling unused inventory while removing the headache of operations management and risk of increased labor costs in future years. The investors get a portfolio of properties with annually-increasing dues revenues and predictable lease costs. The only folks with significant downside are the owners, who start to look a lot like traditional timeshare owners with ever-increasing dues and poorly maintained and operated properties.

I hope this isn't the path we are on, but it does not seem entirely crazy to me.

 

[correcaminos]

Len, I have been thinking about this since you first raised it on the podcast last week. In my opinion, multiple signs seem to give the idea of a sale some legitimacy:

1. The aforementioned financial stress placed upon TWDC and Bob Chapek's need to improve the balance sheet and free up cash for opportunistic investment (e.g., ESPN gaming, Disney+ content, etc.)
2. The appointment of Bill Diercksen as GM of DVC. He has spent his entire career on the finance side of Disney and other businesses.
3. The unprecedented increase in ROFR activity on the 2042 Old Key West contracts and the unsolicited buyback offers to DVC members of that property. If they are going to sell the portfolio, they will want to clean up the issue of dual expiration dates for that resort to allow for a more favorable valuation.
4. Chapek's comments about expanding into sports betting at the recent investor conference. They clearly see this as a growth area and NBC's investment in PointsBet is an indication of how networks see opportunities in synergy with the gaming side around pro sports broadcasting.

DVC revenues are recognized as a one-time benefit when title transfers to the owner, so existing DVC contracts don't directly drive revenues in subsequent years, creating a need to continually build (and sell) new resorts to generate YOY revenue growth (or parity.) So, unlike the hotel properties, TWDC isn't seeing DVC operations as a profit center...it is a cost center (excepting transfers to inventory of unused DVC rooms that they rent out to generate incremental revenue.)

So, I can see a scenario where it makes strategic sense for Disney to sell the DVC portfolio with lease rights to Blackstone or another investment company, which would generate billions in revenue (much of the value having already been depreciated on the books) plus an ongoing annuity in the form of lease revenues. Disney already leases land/buildings to 9 hotels on property including the Swan & Dolphin and has managed to weave them into its amenity offerings (extra magic hours, transportation, etc.) to make them more attractive than off-property options.

At the end of the day, the decision may be to focus on what they are best at (booking rooms and vacation packages) and enter into performance agreements with resort operators like MGM that can manage the properties at agreed-upon service levels for the guests. The financial impact is clear: TWDC gets a one-time windfall for selling the resort properties and annual lease payments and commissions for selling unused inventory while removing the headache of operations management and risk of increased labor costs in future years. The investors get a portfolio of properties with annually-increasing dues revenues and predictable lease costs. The only folks with significant downside are the owners, who start to look a lot like traditional timeshare owners with ever-increasing dues and poorly maintained and operated properties.

I hope this isn't the path we are on, but it does not seem entirely crazy to me.

#4 isn't unprecedented nor unexpected. Do you really expect them to have no MF for contracts in 2043? They want to buy back and resell.

Also why on earth would Disney split up their resorts the way they are knowing they want to sell off? Sorry, but none of it makes any sense. DVC are their cash cow for rooms.

 

[Wrigleyville]

#4 isn't unprecedented nor unexpected. Do you really expect them to have no MF for contracts in 2043? They want to buy back and resell.

Also why on earth would Disney split up their resorts the way they are knowing they want to sell off? Sorry, but none of it makes any sense. DVC are their cash cow for rooms.

I was referring to recent posts and podcast reports on ROFR activity that stated abnormally high buyback activity in the past few months for OKW and proactive action by Disney to buy back contracts such as this from the DVC Resale Market report: “Disney is currently emailing some DVC Members, which observationally has been mostly Old Key West owners with an option to sell their contracts directly back to Disney. This has been the first proactive marketing buyback approach we have ever observed.”
Not sure what is meant by your “cash cow for rooms” comment…as I stated previously, Disney books the revenue form the DVC purchase at time of deed. After that, for the next 50 years, Disney does not recognize any revenue from a DVC booking. They only get revenue from unused rooms they resell.

 

[CaptainAmerica]

You guys are VASTLY overestimating the cost of "investing in sports betting."

It's not that expensive. Disney doesn't need to sell off an entire line of business to pay for it.

 

[nickys]

The unprecedented increase in ROFR activity on the 2042 Old Key West contracts and the unsolicited buyback offers to DVC members of that property. If they are going to sell the portfolio, they will want to clean up the issue of dual expiration dates for that resort to allow for a more favorable valuation.

I think this is an attempt to solve the problem of the dual expiration dates at OKW.

At the moment once the 2042 contracts expire, they have a problem. They have a significant, probably majority, of contracts on their hands at a resort which has 15 years to go until they can do anything drastic.

Do they try and sell contracts with 15 years left? They’d probably need to some kind of refurb first, but they have far less coming in via maintenance fees.

They can’t start razing buildings to the ground, because each deed is a part ownership in a specific building. And so each building will still have owners with current contracts.

It’s a mess of their own making. And no easy solution. (And I’m only going to mention in passing the issue of owners who didn’t sign a quit claim and didn’t pay to extend. Or where paperwork got lost for any reason).

The more contracts they can buy back now and flip with 37 years left on the contract, the better.

Selling the land when resorts start expiring could be an option, but that isn’t for another 20 years.

 

[CaptainAmerica]

I think this is an attempt to solve the problem of the dual expiration dates at OKW.

At the moment once the 2042 contracts expire, they have a problem. They have a significant, probably majority, of contracts on their hands at a resort which has 15 years to go until they can do anything drastic.

Do they try and sell contracts with 15 years left? They’d probably need to some kind of refurb first, but they have far less coming in via maintenance fees.

They can’t start razing buildings to the ground, because each deed is a part ownership in a specific building. And so each building will still have owners with current contracts.

It’s a mess of their own making. And no easy solution. (And I’m only going to mention in passing the issue of owners who didn’t sign a quit claim and didn’t pay to extend. Or where paperwork got lost for any reason).

The more contracts they can buy back now and flip with 37 years left on the contract, the better.

Selling the land when resorts start expiring could be an option, but that isn’t for another 20 years.

I generally agree with what you're saying here but I don't think the 2042 scenario is as apocalyptic as everyone makes it seem. I see a lot of people floating things like "raze the resort to the ground and rebuild." They didn't raze the Contemporary to the ground in 2021, why would they raze the Beach Club and Old Key West to the ground in 2042?

 

[nickys]

I generally agree with what you're saying here but I don't think the 2042 scenario is as apocalyptic as everyone makes it seem. I see a lot of people floating things like "raze the resort to the ground and rebuild." They didn't raze the Contemporary to the ground in 2021, why would they raze the Beach Club and Old Key West to the ground in 2042?

I think people have this feeling that the resort would need completely rebuilt in order to bring it up to the standards expected if they want to continue with a resort of any kind by then. Timeshare or not.

And if they were going to sell it to a 3rd party the new owners might well want to start again from scratch.

 

[CaptainAmerica]

I think people have this feeling that the resort would need completely rebuilt in order to bring it up to the standards expected if they want to continue with a resort of any kind by then. Timeshare or not.

I don't see any reason to think that's the case. These buildings are refurbed every 7 years and completely gutted every 14. There should never be a need for a total tear-down of any of these properties.

And if they were going to sell it to a 3rd party the new owners might well want to start again from scratch.

Which they're not... so...

 

[nickys]

Also, OKW will still be a timeshare resort for another 15 years. Disney could just decide to sell the rooms they will then own as normal cash rooms. That would however require a complete overhaul of how costs are determined according to what proportion of the resort Disney now own and run.

 

[nickys]

I don't see any reason to think that's the case. These buildings are refurbed every 7 years and completely gutted every 14. There should never be a need for a total tear-down of any of these properties.


Which they're not... so...

The buildings are not gutted every 14 years.

Yes, they could do a complete refurb, but it would cost Disney a lot of money since there would be far less money coming in via maintenance fees. I believe normally Disney don’t pay m/f s in return for that guarantee about the cap on actual costs. But a refurb would definitely exceed the income so they’d be on the hook for the extra cost.

 

[CaptainAmerica]

The buildings are not gutted every 14 years.

Since when?

Yes, they could do a complete refurb, but it would cost Disney a lot of money since there would be far less money coming in via maintenance fees. I believe normally Disney don’t pay m/f s in return for that guarantee about the cap on actual costs. But a refurb would definitely exceed the income so they’d be on the hook for the extra cost.

They wouldn't need the maintenance fees because, starting in 2042, they can sell all those rooms for cash. Cash room rates are a lot more than maintenance fees.

 

[nickys]

Since when?


They wouldn't need the maintenance fees because, starting in 2042, they can sell all those rooms for cash. Cash room rates are a lot more than maintenance fees.

Gutted implies the whole place ripped out, rewiring and so on.

To me, gutted means, for example, elevators being installed to make the buildings accessible. Maybe I’m defining gutted as something different. I thought the furniture in the rooms was simply replaced and the rooms painted.

 

[correcaminos]

Also, OKW will still be a timeshare resort for another 15 years. Disney could just decide to sell the rooms they will then own as normal cash rooms. That would however require a complete overhaul of how costs are determined according to what proportion of the resort Disney now own and run.

Not sure they can from what I've been told. Deeds have specific percentages of units. You cannot just sell off part of the resort.

Since when?


They wouldn't need the maintenance fees because, starting in 2042, they can sell all those rooms for cash. Cash room rates are a lot more than maintenance fees.

No Disney will be on the hook for the MFs. They will be able to pay them with rooms they rent out. It's in their best interest to sell vs making sure all get booked. Let's be real here. The reason why Disney is converting so many deluxe rooms to DVC is because it's guaranteed income. Worrying about booking rooms is something they are wanting to avoid it seems.

If DVC weren't in their best interest, they wouldn't gut all the buildings or torn down the ones they have.

As for rerubs, full refurbs are every 14 years, but it's not the same as entirely gutting. They gutted for PVB and CCV. They replace a lot of tiles and floors but rarely entirely gut something - even the new DVC at GF doesn't sound like they're gutting.

 

[nickys]

Not sure they can from what I've been told. Deeds have specific percentages of units. You cannot just sell off part of the resort.

Sorry, didn’t mean sell to a 3rd party. I meant book them as cash rooms to guests. So instead of owning 3% of the points they’d own 53% instead.

 

[correcaminos]

Sorry, didn’t mean sell to a 3rd party. I meant book them as cash rooms to guests. So instead of owning 3% of the points they’d own 53% instead.

Ah sorry, I was thinking sell-sell, not rent-sell. Yes, they would have to book rooms to cover. Which they could do. I think being responsible for booking rooms at a not so popular location would be harder than trying to gain contracts to resell.

DVD and DVC are complex beasts. I do know they are more reliable with bookings than deluxes as a whole or we wouldn't see removal of hotel side for new DVC. I think this rumor should be taken with a boulder of salt. JMO though.

 

[freediverdude]

I could see all the CRO resorts plus DVC being sold to a third party hotel group, like Marriott. That would make more sense. Then it would possibly be a plus for DVC owners if they were suddenly part of Marriott's timeshare program. Hilton would be another good choice. And Disney could still own the land, like they do with the Swan and Dolphin.

 

[nickys]

I could see all the CRO resorts plus DVC being sold to a third party hotel group, like Marriott. That would make more sense. Then it would possibly be a plus for DVC owners if they were suddenly part of Marriott's timeshare program. Hilton would be another good choice. And Disney could still own the land, like they do with the Swan and Dolphin.

DVC have just switched from RCI to II for their trade programme, which means we can use points now for Marriott resorts.

I doubt any such move would be good for DVC members. People joined DVC because it was Disney’s timeshare. I don’t want to be competing for booking WDW resorts with Marriott owners, for example. If DVC members want to join another timeshare company they can do so.