Good morning. Welcome everyone to our 2015 MVW Investor Day. I am Jeff Hansen, Vice President of Investor Relations at Marriott Vacations Worldwide, and it's my pleasure today to provide you with the forward looking statement. Please remember today, members of our management team will be making forward looking statements concerning future events that are not historical facts. These comments are subject to numerous risks and uncertainties and are effective only today May 15, 2015.
Any reference to non GAAP information will be reconciled at the back of the printed package you have been provided and is also available on our website at ir.mvwc.com. And one final comment before we begin to provide context to what you will hear today. Discussion of future performance beyond 2015 is intended only to present potential growth scenarios. To assist you with your longer term modeling and is not intended as guidance. Let me first point out that in a perfect world, would love to host an event like this at one of our world class resorts.
However, given the potential distance for many of you to travel and considering your time during earning season, we felt that we should hold our 1st Investor Day since becoming public closer to the majority of our audience, and we're better than this iconic destination at the New York Stock Exchange. With that being said, I would like to personally thank the NYSE for their wonderful hospitality and support for this event. We have been in the planning stages of an Investor Day for some time. And as part of that planning, in fourth quarter of last year, we also asked Ipreo, to conduct a perception study of several of our key shareholders and buy side analysts to get feedback on where we could provide more clarity. At a high level, the initial summary indicated that a little less than 1 third of all respondents felt the MVW story was clear.
And they had what they needed to be comfortable. That means about 2 thirds of you would like more clarity in at least one, but I would guess multiple areas of our business. Thankfully, Ipreo didn't stop there and ask you where you would like to have us provide more detail and longer range goals. So while our goal had always been to have an investor day, to provide more insight into our longer term strategies, this study provided direct feedback from you our analysts, shareholders, and we hope potential shareholders as to what you felt required more clarity. And this is what you said.
First and not unexpected, you wanna know how we define asset light and what does an asset light transaction look like? Second and somewhat related is our overall inventory strategy, which involves much more than just asset light transactions. Included in that, we believe is a more of a focus on how we manage inventory once it is acquired and even sold. For example, inventory utilized for rentals as well as how as how it is managed for the owners associations. Next is our development strategy.
So at this point, we started sensing a theme. We needed to discuss our inventory in all of its permutations. In addition, some wanted a better understanding of our sales strategy. Or better said, can we answer the questions? Why does anyone buy time share?
And what is the value proposition? So today, we will provide a deeper dive into why our customers choose to purchase multiple times a day at our sales centers around the globe. And with capital allocation being last, there's really no need to get into that, right? It's possible that we will address it, but you'll have to stay to the end to find out. Lastly, while not on this list, I know 100% of the room agrees no one wants to hear any more from me.
So with that, let's enjoy a brief video to set the stage and then we will continue with Steve Weis, President and CEO of Marriott Vacations Worldwide.
We all have a few great moments in life that stand out. Moments that may have changed us are find who we are and who we wanna be. These moments are often accompanied by a sense of clarity or self reflection. Time spent with family and friends, exploring another side of ourselves, expanding our inner circle, and engaging with life. Experiences that we long to recreate over and over again.
To many, the best of these moments are simply called vacation, To us, it is the business of fun. At Marriott Vacations Worldwide, we pride ourselves creating moments unlike any other company in the industry. A task requiring a dedication to our mission, delivering unforgettable experiences that make vacation creams come true. Each day, a dedicated team of nearly 10,000 associates immerse themselves into creating the very best vacation product possible at our collection of distinctive resort Experiences and services delivered one at a time, person to person. For more than 30 years, Marriott Vacation Club has expired to reach a higher level of customer satisfaction, now attaining the highest scores in our history with recent guest satisfaction survey.
As a global leader in the vacation ownership industry, we continually evolve our assets and focus on the most minute detail of the customer experience. With 3 unique brands, we offer unmatched you in terms of quality, service, and experience.
And we
do it with a passion and commitment that makes us leaders in our industry. As the Marriott Vacation Club destination's points based program, our owners are offered true flexibility to customize their moments. For travel around the world, to stay in world class lodging, take exotic cruises, exchanging points through our carefully selected partners has never been so easy. Our owners, members, and guest needs are our top priority. We realized the team delivering these experiences service must be encouraged and guided.
With hands on training and professional development programs and courses, our award winning associates truly exemplify our culture and define who we are as a company. We believe in the importance of giving back to the communities in which we live and work which we call the spirit to serve. Our passionate and engaged associates dedicate literally tens of thousands of hours annually through community involvement and activities and volunteerism. Not only do we invest our time, but we also focus our efforts on corporate giving and fundraising and it's our inception, we have enthusiastically supported the multitude of community organizations, such as Children's Miracle Network hospitals. Clean the world and on course foundation.
In all that we do, we endeavor to create partnerships with and give back the communities in which we live and work. Confident in our each day with pride, joy, and responsibility. With talented passionate associates and resourceful engaged management, Mary Vacations Worldwide has and will continue to set innovative new standards for the industry and adapt to the ever changing vacation needs of our owners member some guests. We look forward to the next chapter in our history as we strengthen our partnerships, inspire our associates, and deliver the one of a kind experiences we're known for. We will build on our success and continue to look for We're excited about the future.
Wait till you see what's next. At Marriott Vacations Worldwide, we are the business of fun.
Good
morning. I'll make sure you're awake. First of all, I'd like to extend a very warm welcome to all of you, and I wanna thank you very much for spending part of your day with us as we have an opportunity to share with you, what we think we're all about and where we're trying to go. So, Again, we'll look forward to our dialogue together. The last time our executive came and I were here at the New York Stock Exchange, We rang the opening bell on November 13 2012 in celebration of our first anniversary as a public company.
But remember, even though we are relatively new to the public markets, we've been in business for over 30 years with a senior management team with an average of over 20 years of Marriott Experience. Since the time of our spin off in 2011, you've shown thoughtful interest in married vacations worldwide. You've been generous with your time and your insights as we shared our vision, goals, and accomplishments with you. We especially appreciate the confidence you have shown in us. Throughout this morning, you'll hear about our accomplishments, strategies, competitive strengths that we believe will position us very well for the future and will deliver great benefit to our investors.
So let's begin. This first slide is foundational, so I'll try to keep it brief. We're especially proud of the wreck mission we have earned as a global public company whose business is focused almost entirely on vacation ownership. Thanks to our single-minded focus, we can tailor our strategies to address our leadership and the vacation ownership industry without distraction. As you're here today, the past 4 years have been especially rewarding as we've gone about the business of building Marriott Vacations worldwide.
Our licensing agreements with Marriott International provide our company exclusive rights to develop, market, and sell products under the Marriott Vacation Club Grand Residences by Marriott and the Ritz Carlton Destination Club brands. I can't overemphasize the value that is created by our relationship. As it also provides access to over 50,000,000 Merry rewards members across the globe, providing a great source of brand loyal and qualified customers. And no less important is our ability to rent our inner inventory through marriott.com, one of the world's top retail websites providing us with enable ability to monetize our inventory and truly allowing our explorer program to thrive. Of course, the brand itself cannot be overlooked as one of the most recognized and respected brands across the globe.
These licensing agreements with Marriott International have a contract expiration date of 2 1090 with 2 30 year renewable terms at our option. Our relationship is one of our best assets, and it is not fleeting. Today, we have over 400,000 owners very satisfied owners as you hear later this morning, and they own the equivalent over half a 1,000,000 weeks. Our resort portfolio includes 59 properties in the US and 7 additional countries, and we firmly believe that our properties are without peer in design, quality, amenities, and service. In my statements seem to live on posters that are placed if they're out of business, but over time, their impact phase just as the posters do.
Our experience has been very different. We formalized the philosophy that inspired us in our earliest days when we authored our mission statement 14 years ago. And it is as vibrant and motivating to all of our associates today as it was when we first introduced it in 2001. We manage every aspect of our business in keeping with our dedication to our mission. That being, deliver unforgettable experiences that make vacation dreams come true.
Our mission statement is both simple and elegant. It's easily understood by all of our associates at every level, in and every discipline, and it is compelling. Our associates throughout the company see the contributions they make in support of our mission every day. During my visits to our resorts and our regional offices, our associates typically tell me of their objectives, initiatives, and results, all in the context of our mission that they readily and easily express. And our mission is as relevant to our executive team as it is to our owner services professionals sales executives, groundskeepers, and housekeepers.
Everyone gets it, and everyone cares about it. So how do we make money? Our sources of revenue are quite diverse and include a sale of vacation ownership products, rental of rent vacation ownership villas, financing, resort management fees, and additional services for our owners, members and guests. Including our recurring resort management fees and exchange club dues, today, nearly half of our revenues come from lines of business other than the sales of vacation ownership products. You'll find our resorts and properties in the most sought after vacation destinations in the world.
From Hawaii, Florida, and the Caribbean to London, Spain, France, and Thailand. And with the announcement of our new property in San Diego, and 2 new planned destinations in Miami Beach in Waikaloa and Hawaii, plus another new opportunity that Lainie will discuss shortly. Our global portfolio continues to grow. We've been in the vacation ownership business for more than 3 decades. In 1984, Marriott International acquired 4 resorts on Hilton Head Island, knowing that vacation ownership met an important need among families and that Marriott's uncompromising standards, practices, and brand reputation would be key differentiators at a fast growing and highly fragmented industry.
At the time of the acquisition in 1984, We had about 6000 owners and our contract sales totaled just over $14,000,000 that year. We put significant focus on the competitive opportunity available to us. Our owner base grew rapidly, and our portfolio did as well with the addition of new vacation properties in the US, the Caribbean, and Europe. In 2001, we opened our 1st resort in Asia, Marriott's Phuket Beach Club in Thailand. Today, we have properties in Thailand, and we expect to grow in selected market in Asia, selected markets in Asia in the near future.
Innovation has been our watch word as we frequently updated our product form in response to changing owner needs, but none compares to the significant change we launched June of 2010, with a rollout of a points based offering that allows our enormous owner's enormous flexibility. Today, our owners have access to more than 5000 vacation experiences ranging from vacations in our resorts and more than 38100 Marriott properties, to cruises, safaris, and adventure travel experiences. Our points based product form, given its flexibility and breadth of options, especially responsive to the changing vacation needs and preferences of families and leisure travelers. Today, you'll hear just how very satisfied our owners are and how they vacation. And you'll hear too that vacationing today looks very different the vacationing 3 decades ago.
We became an independent public company in November of 2011. And last month, we celebrated our 31st anniversary in the vacation ownership industry. Marriott was the 1st and throughout the past 3 decades, we have been dedicated to families and leisure travelers who know the vacation owner ship with Marriott's admired standards and services is right for them. Let's set the groundwork for today's discussion by looking at our accomplishments following the spin off in late 2011. The spin required a substantial body of work during 2012 2013, and all told involved 100 of contractual arrangements with Marriott International in order to complete our spin.
We approach all of our separation activities as a valuable opportunity to rethink how we run the business and how we could do so more efficiently in the future without compromise to our effectiveness. We established numerous new systems to support our finance, human resources, and IT functions To do so, we define business requirements that were more complimentary to a company's our company's unique needs, and we contracted with respected suppliers that could and the responsibilities of some existing departments like our law department. And we established new departments and processes, including treasury, tax, SEC Reporting And Investor Relations. Simultaneously, we optimize our existing overhead through new systems and processes designed for a public company our size. In 2011, as we prepared for the spin off, We set aggressive goals, and we've delivered well against them.
For instance, in 2011, Our company adjusted development margin was 7.4%. This improved threefold to 22% in 2014. Of note 2, our North America adjusted development margin in 2014 was 24.3%, an improvement of 16 percentage points over 2011. We put significant focus on EBITDA growth, and we've more than doubled adjusted EBITDA from 2011 to 20 and 14. In 2014, our total adjusted EBITDA was $200,000,000, and we are on pace to deliver 2 $22,000,000 to $232,000,000 in 20.15 in keeping with the guidance we provided to you last month.
Since 2011, we've reduced our inventory balances by nearly $200,000,000 And today, we have approximately 2 years of inventory on hand that is made up of finished goods. We originally worked to get to 2 years, and we got there. But we're now looking for ways to reduce this even further to up and optimize our financial performance. You'll hear much more about our approaches to strategic inventory management later this morning. Today, with the recent of our sale of our remaining $20,000,000 parcel at Kawaya Lagoon.
We have disposed of approximately $120,000,000 of excess inventory including completed land, completing units, land, and amenities. Majority of our remaining excess inventory is represented by oceanfront parcel in Cancun and also unfinished units in our Ritz Carlton Club and Residences property in San Francisco. While a sale of the land remains a viable option, we have a team at work on the best use of our Cancun parcel, which could be a third party development opportunity. We look forward to updating you Our management team is guided by a very thoughtful balance in all that we do. We have a number of accomplishments we don't typically you don't typically hear about during our quarterly calls or our visits.
Yet I believe they are especially important as you think about our entire company and are unique and enduring strengths. We believe that carefully balancing managing balanced objectives produces the best results. So we manage the company through 4 overarching objectives. Our financial performance, our innovations and processes, our customer satisfaction and our associates well-being, all in equal measure. No one objective is subordinate to the other.
Like to share with you just how faithful we are to our associate objective, that being to build associate capability necessary to enable and sustain an engaged high performance culture. Expertise and engagement at every level of the company. We rely on nearly 10,000 associates to drive our results and our reputation. Evidence suggests that companies with high scores on the drivers of associate engagement, traditionally achieve superior from a nice and respected company in the human resources space, we measure our associates engagement each year across multiple drivers of commitment and loyalty. In 2014, 96 percent of our associates participated in our engagement survey.
Results showed 84% of our associates are engaged, which means this. Our associates intend to stay with us. Our valued assets, are aligned with the company's goals, strive to deliver exceptional effort above and beyond the normal course of work, and are proud to say they work for our company. Our 2014 engagement score was a full 5 percentage points higher than AAON Hewitt's benchmark for world class associate engagement. And we have outperformed their world class employer benchmark every year as a public company.
They also named Mary Vacations Worldwide as one of the 2014 AAON Hewitt Best Employers in the United States, France, Spain, Thailand, and the United Arab Emirates. At Mary Vacations Worldwide, all of our associates are passionate about a ma about making a lasting and meaningful difference in the communities where we live and work. We have supported Children's Miracle Network Hospitals, an organization that raises money for 170 children's hospitals in North America. Raising over $10,000,000 31 years through fundraising initiatives, all of which are associated, organized, and managed. We are proud supporters of the OnCourse Foundation, which provides socialization, rehabilitation, and vocational golf programs for wounded service members.
In 2014, our associates collected more than 5 tons of non perishable food items in support of Feeding America's partner agencies. We also became the 1st time share company to enter into a relationship with Clean the World in 2012. And through recycling programs at our resorts, we have contributed more than 25 tons of soap for cleansing and recycling. And last, but not least, we have an ongoing relationship with Audubon International through which we learn and apply the very best practice to support environmental stewardship. I am proud to report that all of our make verification club resorts in North America and the Caribbean have been certified as Audubon International Green Resorts.
Our associates are generous in all they do. From serving our owners and guests to caring for those less fortunate today. I hope it's evident to you today just how distinctive and powerful our culture is. It is a special source of pride for us, and it's been so for 31 years now. The very best testimonials often come in the form of a third party recognition.
So I'm very pleased to let you know about a number of awards we've recently received. Given by the American Business Awards, the Stevia Awards, no relation, are regarded as the world's premier business awards. They honor and provide public recognition for the achievements and positive contributions of organizations and professionals around the world. Companies like AT And T, Citi, Apple, Ford, Marriott International, and Cisco among many, many others. Regularly submit entries for award consideration.
During the past year and a half, we have received a total of 24 Stevia Awards, 192015 alone, including company of the year for hospitality and leisure and corporate social responsibility program of the year, which I should note for those of you that are in attendance here in the room, our corporate social spotsibility booklet is included in your PADD 4 at folios. We've also won for sales operations team of the year. Sales training program over the year, human resources department of the year, and customer service team of the year, just to highlight a few. Our sales, marketing, and service team also took home a grand Stevie this past February, as as one of the winningest teams in the global sales and service competition. Today, our vice president of global sales operations, John Rubel, will update you on our award winning sales training program.
During our discussion. Over the past 4 years, our owner services organization has been recognized with the People's Choice Award for favorite customer service, another competitive and coveted Stevie recognition. Additionally, we've renamed 1 of the 10 best travel companies to work for by Forbes 2014. Last year as well, 4 of our resorts, Marriott Harbor Lakes in Orlando, Marriott's Pukette Beach Club, and Marriott Michow Beach Resort in Thailand, and Marriott's Velage, Ildefrance in Paris. We're named top 25 resorts for families by TripAdvisor's Travelers Choice Awards.
While we will never rest on our laurels. We are more than happy to have such distinguished recognition. I hope this provides you insight into parts of the business we don't typically discuss. But felt valuable to share with you today so that you understand both the mind and the heart of Marriott Vacations worldwide. Long ago, Bill Mariet Junior said that Marriott's business was all about people helping people.
Life Marriott International. We will not waiver from this belief. From our mission and our care of our associates, or our philanthropic commitments, we too are dedicated to helping people. We know, without question, it is foundational to our success. Now let me take a moment to introduce our very special guest today, Howard Nussbaum.
I've had the pleasure to work with Howard since 2001, when he assumed leadership of the American Resort Development Association, commonly known as ARDA, the Trade Association for the Vacation Ownership Industry. Since becoming the association's president and chief executive officer, he has been an exceptional leader and spokesperson for our industry. Today, I believe you'll be especially interested in Howard's insights and knowledge as we discuss the industry why consumers buy timeshare. And how we see is the industry's growth and direction in the coming years. Howard?
Thank you, Steve. Thank you.
Good morning, everyone. What a pleasure it is to be here. A lot more fun than it was a month ago to when we were having Arta World which is a little bit of work for me. But, 25100 timeshare stakeholders from around the globe came to Orlando to celebrate our industry. Our Our theme was timeshare in real time, the idea that today, transparency, the digital world, how we have to do business differently.
And I'm so excited for our industry. We also had a piece of business that was kind of exciting. And this is a picture of our CEO panel, by the way. And, Steve, was elected chairman of ARDA. So for the next 2 years, he will be chairing our organization, which I think is quite the tribute to the organization and the to the person.
So we look very forward to your leadership, continued leadership. So I wanna talk, first of all, what I think is the big news in timeshare, and that we are not just a baby boomer product. We've been taking a look at the demographics of our owners who purchased over the last 3 years, and we're seeing some very exciting differences. We find that they're about 10 years younger than all time share owners. In fact, today, nearly 4 and 10 are Generation X, and we are actually beginning to touch the millennials with 3 in 10 of our new purchasers being millennials.
4 in 10 are either African American or Hispanic. I'd like to jokingly say we've gone from leave it to Bieber to modern family, where we have more than half of our owners have children at home, which is a real sweet spot for our industry because we are such a great product for families. And 8 and 10 are married or in a committed relationship. They're highly educated. We're talking about three quarters of the people being employed full time.
And by the way, the other quarter are not unemployed. They're retired. The average income, $94,800, 72%, more than 7.10, our college graduates, with about 23%, I believe, actually having graduate degrees. These are savvy consumers, 310, 3 I'm sorry, 75%, three quarters of them have actually toured a property or had some type of interaction before purchasing. Nearly half had actually stayed at the resort in which they purchased as a gift of another owner.
So timeshare owners buy, so do their friends and family. And we found that 35% actually had attended multiple, sales presentations before they bought. So these are savvy consumers And they are the sweet spot of what a lender would want. The fact that they are well educated, well healed, employed and know what they wanna buy and are the kind of people that are very credit worthy. And I think that is another great compliment to our product.
A third of them say they value saving money on vacation, but they also, almost an equal number, say they value flexibility on their vacations. Time share owners know how flexible this product really is. 47% made a single payment for the purchase, and I have a breakdown here for you to read, and it's in your packet of what what percentages bought at different levels. Now I'd like to talk about the foundation of our year. It was a banner year 4 timeshare.
8,500,000 intervals sold. Our sales volume between 2012 2013. We've not released our fourteen numbers yet, was up 11% double digit growth, which was something we were used to for nearly 2 decades. And then we had a little interruption with a credit freeze. But fortunately, the lessons learned from that have served us really well as we've come out of that into sustainable growth.
With 1540 timeshare resorts domestically. These are domestic numbers I'm sharing with you. The average resort has a 125 units. About a 192,000 units domestically. And as you can see, our sales for 2013 was $7,600,000,000.
Number of intervals was up 1%. So it was a good year for us. The average sales price was up 9% now at 20,400. And, we have more new resorts planned. We're actually beginning to see bricks and sticks and growth again, and that is really exciting with 20% planning.
And here's just a a little headline for you. It in Nevada, we have the largest sized resorts. In Florida, we have the most resorts, but I think Hawaii gets the big kahuna. Because they have the most expensive intervals, and they also have the highest occupancy. So we're really excited about the kind of year we've had.
And we're also proud of how we contribute to the economy, which is why so many destinations are actually seeking ARDA to come in and help them develop time They realized that we even out the Peaks And Valleys of an economy, with $23,600,000,000 in economic impact nearly a half a million jobs domestically. Our economic impact, as I, is a total impact of 68,700,000,000. Spending of 10,000,000,000. And our our spending is unique in the sense that in the hotel industry, much of the spending is done on property. But for Our owners because of the prepaid nature of their product, a lot of their spending is done off campus, which is really important to those communities.
Talk to Orlando after September 11th when the hotel industry, which is very sensitive to the Peaks And Valleys of the economy, and yet the time shown is still coming. It would really buoy the economy. We saw the same thing in Hawaii during the dark times. And then government even likes us. With $8,500,000,000 in taxes.
So those are pretty impressive numbers for an industry of our size. The other thing that Art has been doing aside from our legislative and and research is we've been doing a little bit of listening in the marketplace to to better understand what people value and we saw a lot of noise on Facebook and Twitter about kitchens, at timeshare Resorts, especially Resorts. And and and this is really specific to non urban resorts because I I think for the urban purchaser, they have a world of restaurants and commissions. Kitchens are a little less important. But why were the kitchen so important?
Well, we found that 9 out of 10 people said they were. And for some people, it's because they love they still love to cook but really for those with young families, it was really the idea that you didn't have to eat 21 meals out in a 7 day period. The other thing it allowed for adult dining if if you have small children to be able to put them to bed and then open a bottle of wine. So it's really wonderful with all of the pleasures of being at home, and that isn't a way the secret sauce of time share. The other side is that we've been listing is people value the space in the privacy.
You know, going on vacation, staying in one hotel room with mom and dad, grandma, and grandpa on 3 kids, well, it's not exactly exciting. This is your, sleeping arrangements on vacation. You need to get a timeshare. And, most consumers know that. And and it's, you know, and it's not only for romance.
It's also the idea that you can put the kids to bed and you're not sitting in the room twiddling your thumbs with the lights out. That you can actually have an evening with your spouse, but not worried about leaving your kids with a random babysitter. It is a better way for intergenerational travel but also for larger families. You know, sometimes somebody, your kids get a little bit older. They don't wanna travel with mom and dad.
They can bring a friend on a timeshare resort. Or maybe that brother-in-law that you wanna invite to come along, but you don't necessarily wanna make him uncomfortable to say I'm gonna pay for your vacation. Hey. We have a time share. Come along.
We have plenty of room. This is the way that we like to travel together, and it's, I also think, part of the secret sauce of timeshare. So just to share with you a couple insights that we have that there's a little bit of why people buy and then why they continued to own. Now it's not thing that the number one reason people say they want to buy is to save money on vacations. But when you looked at after they own, that drops down to number 3.
They also care deeply about resort location, overall flexibility, makes vacations a certainty, and the quality of accommodation the certainty of that. You know, too often vacations become the forgotten thing. The thing you didn't care of. All of a sudden, it's Memorial Day. And what are we gonna do this summer?
And everything's sold out and the stress of planning. Time share owners have the discipline to always take that vacation matter what's going on in the geopolitical world, in the economy, in your family. That prepaid nature makes them go, and it's more fun to plan. There's a lot less stress in it. These are the reasons they continue to buy also, wonderless.
As you'll see exchange then reaches, into that top 5 because once they own, they wanna see more. And that's why whether they're using external exchange or or within a club as large as marriott's where they can exchange within their own system. So I'm gonna leave you with a a couple final thoughts that, owners attitude about timeshare because I think you do really wanna understand why they buy. Well, first of all, it's their home away from home. That idea of I can go see the world, but enjoy, the comforts that I value the most, a place to spend time with the people that are important in my life.
The way, if I come and look at your scrapbooks or digital collections of photography, I promise you it's not burgers on Tuesday night. It's life cycle events and it's vacation. This is the foundation of the family life. It helps them look forward to vacations. It's more space for family and friends, and it makes the planning a lot easier.
So thank you for allowing me to share my passion for time share, and, I look forward to taking questions later. Thank you very much.
Thanks.
Thank you. Pardon me for calling me for the,
bridge.
I'm sure the gentleman in the back is listening to all this. He's got busted air drones right now. Are we okay? Great. Thanks.
All right. Thanks again, Howard. We appreciate that, you're sharing those thoughts with us, and I'm sure people were able to take some good insights away from, what you had to share. Essentially, There are 6 areas of focus for us as we execute our growth strategy over the next several years. And these will drive our discussions today.
To ensure we are as informative as possible, members of our executive team, and a number of our very senior leaders will join us this morning so that they may firsthand provide you with a much more comprehensive understanding. Of how we run the business and where we're headed. I'd now like to provide you with a quick overview of today's discussions. Going forward, we will continue to innovate our points based product form just as we as we have done since our launch in North America into 1010. Our fee based revenue streams are very important to our financial results and resort management fees are especially valuable.
During today's discussion, you'll hear much more about how we maintain extraordinarily high customer satisfaction with our owners and guests. And no less important is our rental program, which has grown over the last several years with solid rental results contributing to the overall bottom line. This morning, you will hear more about where our rental inventory comes from and how we manage the complexities that lie within that business to continue generating solid results into the future. A number of years ago, Thomas Watson Senior of IBM said nothing happens until a sale is made. We'd like to take that a step further, believing nothing happens until a sale is made that is customer focused, friendly, and brand sensitive.
We are particularly proud of our strong sales and marketing, disciplined approach, which you will hear much more about later this morning. Many have said we brought integrity to a once tarnished industry, and we will strive to continue to showcase our leadership in this arena. Our sales growth is especially is expected to come from several sources, including new sales distributions and key destinations, new marketing programs that expressly target first time buyers as well as traditional price increases. As we have previously shared with you, we know that new destinations with strong sales distributions are critically important to our growth. This morning, you will learn much more about our customer insights and the analytical processes that are that we employ to identify important markets for growth.
We'll share more details about our plan and due to estimations, and we'll update you on our first capital efficient deal structure that we finalized earlier this year. We are committed to a balanced investment strategy to support our growth objectives as well as the overall financial well-being of the company. As you'll hear, our balanced investment strategy relies on a well planned mix of deal structures to fund our new sales distributions. From more capital efficient asset light projects to those we carry on our balance sheet. Estutely managing these varied opportunities will enable us to produce a strong bottom line and balance sheet, along with continuing solid cash flow.
So Let me now exit the stage by introducing Lee Cunningham, our chief operating officer, who will discuss our diverse businesses and provide further insights into how we make money. Me. Thanks, Steve. Good morning, everyone. As you probably know, our business is driven by 4 primary revenue streams.
The sale of vacation ownership products, financing revenues that result from those sales, rentals, and recurring revenue streams found in our resort management and other services line. Revenues from our management fees, exchange company activity, and on-site ancillary businesses. Everything in our business starts with the sale of vacation ownership product. And Brian Miller will be provide a deeper dive into that topic shortly. However, I think it is important that we ground you in what our product is and how what we hear from our owners and customers and guests about the product that they have purchased from us.
Once we have covered the product, I will turn the discussion to our rental business as well as several of our other recurring revenue streams. To do so, I will ask 3 key leaders from our team to join me on stage to provide their expert perspective into our rental program, the importance of our brands and ex phone site experience to the success of our business and our important recurring revenue streams. The Marriott Vacation Club Destinations program, our points based ownership product in North America, represents the lion's share of the sale of vacation ownership products. However, we also generate a stable volume of sales in Europe and Asia. Given the impact of the North America segment on our business, Much of what I will discuss today is focused there.
So let's start with a brief discussion about the key components and advantages of our product. As well as how our owners and potential purchasers have embraced it. We believe that our points product in North America is unique in the industry. Underlying ownership in our Marriott Vacation Club Destinations program is ownership and perpetuity of beneficial interest in a Florida based land trust. Each beneficial interest owned entitled its owner to a specific number of Marriott Vacation Club points to use on an annual basis.
This structure gives purchasers all the flexibilities of a point space product with the security of real estate ownership and all of the benefits that go along with it. As we designed our point space product, our primary focus was on flexibility. The Marriott Vacation Club Destination Program not only provides multiple ways to take advantage of your ownership, It also provides focuses on flexibility when using your ownership to stay at one of our resorts in our worldwide network of properties. Based on the number of point phone and availability, our owners can use their points to stay any time of the year at any of our resorts worldwide for any number of nights in any size unit. The flex flexibility that we have built into our product is evidenced by how frequently our owners are able to reserve their first choice vacation at one of our resorts.
The First Choice Index measures how frequently our owners are able to receive their first choice when making a reservation to stay at one of our resorts or are satisfied with the alternatives that are offered if their first choice is not available. As you can see, our owners tell us they receive their first choice or are satisfied with the alternative an astounding 94% of the time. Up 5 percentage points since the launch of our points product. While it's not shown on the chart, I can tell you that over the last 4 years, an average of 84% of our owners received their first choice when re reserving a stay at one of our resorts. By default, that means that another 10% of our owners were satisfied with the alternatives that were pro provided.
There were several other key flexible flexible options built into our points program, such as the ability trade your vacation club points for Marriott rewards points to bank your points and use them next year, or even to borrow points from next year, to use this year. But probably the most impactful of our new flexible options is the ability of our owners to use their vacation club points through our Explorer collection. The Explorer collection provides access to most major international cruise lines, guided tours in 31 countries on across all seven continents. The ability to book special packages at select hotels throughout the US and around the world. And last but not least, owners have the ability to use their vacation club points to gain access to very special events throughout the year.
As a matter of fact, we have had a number of our owners take advantage of these special event offerings, including several who spent a weekend in Augusta, Georgia last month watching the best golfers in the world battle for 1 of golf's most coveted titles. When we launched the Points product almost 5 years ago, we knew the Explorer Collection would be a popular feature of the program. But the interest in the pro this component of the product has continued to grow, and therefore, the program has grown with it. Within the Explorer collection, we have dramatically expanded our offerings with a continued focus on more flexible, owner oriented, and even owner exclusive offerings. As an example, in 2011, we started with 8 guided tour offerings but now offer over 60 different tours, including 32, 32 that are created for and offered exclusively to our Marriott Vacation Club owners.
In City Explorer, special packages at Select Hotels, We started with 8 hotel packages in key US Cities in 2011, but now offer 6 5 different hotels around the world with destinations as unique as Hong Kong, Bali, and Budapest. We have also expanded our offerings to deliver a broad range of vacation experiences, such as antarctic expeditions, Amazon river cruises, NASCAR racing experiences, hiking trips to Machu Picchu, and yacht char private yacht charters through the Greekiles. Our latest innovation in the Explorer collection has us offering in market activities ranging from spa services to theme park tickets from golf rounds to family dinners, all that can be purchased at our resorts using vacation club points. And last year, responding to feedback from our owners, we added the ability for to use your vacation club points to purchase airline tickets. And in 2014, more than 5000 of our owners did just that.
That's result of our product's flexibility, we have broadened its appeal with our existing owners as well as our prospective customers. Our existing owners have consistently expanded their ownership since the launch of our Points product, and we have seen nearly 40% of our legacy week founders enroll into our Points based exchange program, giving them access to greater flexibility, while maintaining all of the benefits of their week's ownership. New purchasers have also responded well to the flexibility of our points product, We have continued to see increased sales to first time buyers as a result of this increased flexibility. As you can see, even after the initial wave of interest in our new points program had passed, our legacy week's owners have continued to enroll in the program at a steady rate. Even more importantly, we have seen many of these legacy week's owners increase their ownership by purchasing points to go along with their week's based ownership.
These are the hybrid owners depicted in this chart. And as expected, the growth in Pura Point's ownership provides evidence that our product is appealing to new purchasers as well. Put it all together, and we have seen participation in our points program grow by more than a 100,000 owners over the last 3 years. The flexibility that we build into our points product extends beyond the flexibility for our owners. While our Points Pro product provides great, a great number of benefits to our owners, it also provides tangible business benefits even beyond those provided in our sales process.
1 of the significant changes to our product is now purchasers by an interest in a portfolio of resorts rather than a single location. By selling a portfolio product, we are able to sell the same product at all of our sales locations throughout North America. This provides great leverage for
us in
training, pricing, and the speed at which we can implement program enhancements. 1 of the most impactful business benefits of the points product is our ability to continue to sell from any of our existing and future sales gallery locations well beyond the sellout of inventory at that specific location. In other words, as long as we continue to provide inventory to the portfolio, we will be able to continue to generate sales at a steady and predictable rate from our existing sales galleries. Also, by selling a portfolio product we are able to better plan and time the delivery of the right amount of inventory to allow us to reduce our completed inventory carry. At this point, I would like to ask Nick Rossi, John Albert, and Tony Terry to join me on stage for a further discussion about how our rental business works, the importance of our brands, and the on-site experience to the success of our business as a whole, and the recurring revenue streams that consistently flow from our business.
By way of introduction, Nick joined Marriott 33 years ago, and it's been part of our timeshare business for over 20 years. Over the past 15 plus years, Nick has led our efforts to optimize the use of our inventory and maximize our rental results. John, is a 35 year veteran with Marriott, with extensive experience on the hospitality operation side of the business. John had spent the last 15 plus years leading our operation support discipline with particular expertise in the association governance, project planning, and refurbishment activities for Marriott Vacation Club Worldwide. And last but not least, Tony is a new kid on the block with a mere 18 years of experience with Marriott Vacation Club.
Tony has led new numerous efforts in several parts of the business from brand management to inventory management and revenue management as well as finance and accounting. Gentlemen, welcome to the stage. Nick, why don't we, why don't we start with the inventory management and rental business. Could you tell the the audience how our inventory breaks down at a high level? Surely, Across the entire system, our combined weeks and points owners occupy on average about 70% of our resort capacity.
That means the remaining 30% makes up our annual rental availability. I think it's important to remember also that we have a legal obligation to first ensure that our owners have access to the resort inventory associated
with their purchase.
That is an important reminder we can clearly see the impact of putting our owners first in the First Choice Satisfaction Index that I discussed earlier. Why don't you tell us a little bit more about the rental availability? Well, as you'd started, all of our, everything starts with the sale of a vacation ownership our rental availability is also directly related to the way our owners use their timeshare resorts, as well as how we build and sell our timeshare product. And as you mentioned, our week based product, of course, is flexible, but the new points based product has added even greater flexibility This flexibility creates rental inventory when our owners choose to do something other than occupy at our resorts. Once we've looked at, that, use options, there are 2 primarily that generate our rental inventory, merit rewards inventory for those weeks based owners who exchange for the merit rewards points and the destination points owners exchanging into the Explorer program.
Additionally, we have rental inventory that comes from the unsold developer inventory that results in the timing of the new resort delivery. Okay. So now that we understand the sources of the inventory, can you speak to, how these sources of inventory affect the rental business? Ah, yes. While these flexible use options enhance the value proposition for our owners, we take on the risk of the cost to cover these options.
Inventory for merit rewards comes with the cost of the merit rewards points and inventory from the points owners using Explorer Collection comes with the cost of the cruise, the tour, or any of those other offerings that we have. Rental availability from unsold developer inventory, all carries a cost until that unit is sold, we have that carrying cost or maintenance fee. K. So now we know where the rental inventory comes from and it comes with a cost. Can you touch on the next steps in the inventory management process?
Well, a
key to our inventory process is the ability to forecast and predict our owner behavior. And obviously, the more stable the patterns and, use options, the better our modeling and forecast. Today, the majority of our system is comprised of our legacy week's owners whose longevity and use of their product is very stable. And 5 years now after launch of our Boyd's product, we're seeing more stability and more predictability in points owner patterns. Once we've got that initial view of owner use, which then creates our rental availability, we have that built up by resort, by season, and by inventory type, We then work with our marketing and sales teams to provide them access to this rental inventory to help support future sales.
And then everything else, it becomes available into the open market, and it's distributed much like a hotel through all of the Marriott distribution channels, marriott dot some online travel agents, etcetera. And finally, the inventory that we have in the open market, we adjust rental pricing and our yield management strategies based upon market demands. We probably the biggest part of the process is to make sure that we're constantly monitoring owner activity And we have, always looking at the optimal balance of inventory for owners to use as well as optimal rental inventory across the system. Okay. So I heard you say much like a hotel.
So is it fair to say our rental business is the same as the hotel business? No. I don't think that's fair to say. Well, there are some similarities. Our lodging, with lodging, our rental product is unique in many ways.
You know, we've already talked about how our rental business is very dependent upon how our owners use the inventory. The 70% of our resort capacity that I spoke about is really the strongest at our resorts in the seasons of high demand. That means that across the system, most of our rental availability has an inverse relation to owner demand. Of course, our system of resorts and destinations are greatly impacted by seasonality in each market, And unlike a hotel, we don't have any special corporate business to build a base, nor do we have facilities to do group business to augment our low season demand? We are really a leisure transient driven business.
K. Well, given the complexities and nuances of our rental business, can you provide a little perspective on where you see our rental business today? Well, despite the differences to lodging and, of course, the complexities of our rental business, rental margin has improved greatly over the past few years. And I believe we are very well positioned for the future. I think it's important to remember, though, that while the rental business has such a high dependency on owner behavior.
Additions of new resorts and also product form enhancements are going to impact owner use patterns. But I wouldn't expect, that we would see any great flexibility or, excuse me, fluctuations in their use patterns that we saw early on in the points, points launch. Think once stabilized, these new resort destinations will also, give us the opportunity to enhance our rental performance. Correct? A little bit later, John Geller will be providing some more specifics around our, rental margin.
Super. Thanks, Nick. Now let's turn to the on-site operation side of the business. John, I spoke earlier about how spot our owners are with the points product. Can you discuss their level of satisfaction with the physical product and how our brands are part are part of what we deliver?
Sure. Be glad to. And welcome, everyone. Thank you for coming. Our owners and guests expect unforgettable vacation experiences.
Yesterday, for me, and today is an unforgettable experience. Being here, being on the market floor, being part of the ceremony to close the the bell or ring the bell was unforgettable. That's what our brand is about. Delivering time and time again Year after year, those unforgettable experiences. We measure this with something we call our guest satisfaction survey.
It allows us continuous improvement in our process and our experiences that we deliver. Last year alone, we had about a 100,000 responses to the survey. So a lot of people respond. It gives us great feedback. And that survey response was a remarkable 91 percent, up two points in the last couple of years.
And as compared to other hotels and and lodging industries, that's about 10 to 15 points higher. We're very proud of that score. Well, specifically, what is it about our brand that creates these high satisfaction scores? I think there's 3 factors, Lee. The first is our product.
Our beautiful system of Resorts. The process the standard operating procedures, the quality assurance tools, and the systems that we use to deliver that. But most important, it's about our people. Our associates, they're really the ones that deliver the unforgettable experience We would not be successful without these individuals. We believe the key is in the hiring.
You have to find an individual who's gonna have fun at their job, enjoy it, and care about the guests. If you do, then the rest seems to fall into place. Once you hire them, of course, ongoing training is important. We want to ensure that we anticipate the needs of our owners and guests. We do this through a pre arrival phone call, and through continuous on-site contact.
In our guest satisfaction survey, we have a index. We call service index. That service index is up significantly to 93%. Another remarkable measurement tool that we have to tell us how we're Thanks, Sean. So that covers the people aspect.
What is it about our product that drives guest satisfaction? To us, it's all about consistency in product and in service. But with the product, It starts in the development process with rigorous design and performance specifications. So that what we build is what our owners expect and achieves our brand standards. Next, once built, We have to maintain it and clean it.
So we have very, very detailed housekeeping and maintenance standards. And of course, to be successful long term, we need a very strategic plan to management of our associations' capital. All of this can be summed up and measured in the product index. Another component of our guest satisfaction survey and it's at 90%, again, a great score and up a point in the last couple years. K.
So you mentioned processes, the 3rd component in delivering unforgettable experiences. What is it about our processes that adds value to our brands and our own site experience. Our entire focus on-site is continuous delivery of world class experiences that delight our owners and guests. As I mentioned, associate training is the key. How do you have the individual How do you train them that anticipates the needs and fulfills their desires and wants?
Sometimes even before they even express it, We have to learn from our guests as well. We listen to them through multiple channels and then we increase experiences that are resonating with our guests. A great example of this is we heard from our guest that they wanted more on-site activities. As a result, we created Club Thrive. Club Thrive is our branded activities program that delivers multiple levels of activities throughout the resorts.
Many with healthy options, things like exercise programs and yoga. Again, Our guest satisfaction survey gives us a great measurement in what we call the experience index, which is at 86%, up three points in the last couple of years. Okay, John. So do we, depend solely on our owners and guests to, tell us where we need to focus? That's great input, but we're not a rye reliant on that alone.
Regular and detailed inspections of the properties what we call a quality assurance program, ensures that our product is always at standard, and our service is always at standard. This quality assurance program also has all the tools in place to track the required actions that if we are off standard, we quickly get back to standard. Of course, all of this must always be balanced with cost. That's a great point, John. Our owners pay an annual maintenance fee as part of their ownership.
Can you tell us what makes up that maintenance fee? 1st and foremost, we take our fiduciary responsibility to the associations we manage as keen and very, very important. Any increases beyond inflation must be fair. They have to be measurable and they have to be value added, or they shouldn't be added at all. After all, our maintenance fee is a key discussion at the sales table.
What's my ongoing cost gonna be if I buy this product? So it's our job to manage the resorts and ensure an efficient delivery of the expected vacation experience. As you can see in the slide, about 60 percent of the funds that we collect in this maintenance fee are used for delivery of that vacation experience. About 20%, we have less control over things like property tax, utilities, insurance, And then the last 20% is what we call reserves. It's money set aside for these long term capital replacements.
K. So you mentioned the reserve account. Can you give some examples of how our owner associations use these reserve funds? Surely, we have a very, very rigorous program to manage this capital, what we call reserves. To ensure asset protection.
The replacement of assets when their useful life is up and maintenance of the ever evolving brand standards. Also, we wanna avoid special assessments. We intend to plan appropriately so funds are available when needed and avoid special assessments. This year 2015 alone, our associations are funding projects worth about a $130,000,000 in renovations to the existing resorts. And of this, $20,000,000 is in technology upgrades alone.
We also have a very, very detailed replacement strategy. In fact, we have a renovations department to ensure that our resorts are renovated timely to our standard and in a cost efficient way. This renovation team ensures that soft goods in the units, those are fabric items are replaced every 5 years. Case goods, more hard pieces of furniture are replaced every 10 years, and hard surfaces, things like things like tile are replaced every 15 years, but done in a program to ensure that you maximize the value when you replace these assets and you maintain some design integrity, or ideally, every 5 years, we change the design to allow for a new fresh look. To our returning owners and guests.
And last but not least, our management fee is approximately 10% of all these funds, operating, reserve, and taxes. Thanks, John. That's a great segue to some of our recurring fees that come from our business. Tony, can you give some insight into the recurring revenue streams from that our owner from from our owners that you consider important.
Thanks, Lee. I'd be happy to. Based on our high resort occupancy, which routinely runs over 90% The most obvious consistent revenue stream comes from our owners, spending money at our resorts. We generally own the ancillary activities on-site, Therefore, as our owners and guests enjoy our resorts, including the restaurants, pool bars, spas, golf, and other activities, it generates a solid ongoing stream for the company.
Okay. So ancillary revenues sound pretty straightforward. Are there other less obvious recurring fees?
Surely. 2 other significant recurring revenue streams that we follow closely are the management fee stream and also the fee we get for our exchange company services also known to our owners as club dues or exchange company dues. Can you provide a little more color on those? Well, the management fee as John spoke about is based on the percent of It's recurring annually and billed annually each year and increases each year in direct proportion to the increase in the underlying operating costs of the resort. Therefore, we see this as possible for managing the reservation and use periods of all trust members or any other affiliated programs.
This would include such services as owner education, reservation services, or owner communication. For these services, we collect a fee annually in the form of club dues. Now club dues are billed along with the maintenance fee. They're not actually part of the maintenance fee, and they're assessed on a per owner basis. So you're only getting 1 fee per owner it runs about $200 per year per owner.
These two fees taken together with the results of our ancillary activities added nearly $100,000,000 to the bottom line of the company last year.
Okay. Can you speak to the sustainability of management fee revenue and club dues?
Yes. If only I had some sort of visual aid that could put this in perspective for me. Oh, there it is. I bring this to, any fireside chat I go to. So there's two main factors that we look at, and it comes into play with an addressing sustainability.
I think it's easiest to think about in a grid format in the slide that you see. Now let me warn you We took the eightytwenty rule with the slide and oversimplified it a little bit to describe the complex relationship between profit and sources of sales.
Now, Tony, I noticed you threw development margin into the mix. Yeah.
I did sneak development margin in because whenever you're talking about sustainability of management fees and club dues, you also have to consider the impact on development margin. Now it's not new to anybody in the room that every time we make a sale, we get a development margin on that sale. But the amount of that development margin is gonna depend on 2 factors. The first thing is the source of the inventory sold Whether we're talking about developer inventory or pre owned inventory with pre owned inventory having a higher margin because of the lower product costs associated with that inventory, And then second, you have to consider the source of the purchaser. Whether you're talking a first time buyer or owner reload, with, of course, our owner business having a higher margin because there's a lower marketing cost to acquire that business.
Okay. And so you're saying those same two factors are relevant to management fees and club dues? Yes.
They are. It's probably easiest to go through the grid quadrant by quadrant at point. If you start from the bottom left, selling pre owned inventory to existing owners may have a higher development margin due to the lower market and sales cost and lower product costs, but it doesn't really generate any incremental recurring revenue streams to the company because effectively you're just switching out one owner for another. Now if you move to the bottom right, we take that same piece of pre owned inventory and we sell it to a first time buyer and we generate a club due in perpetuity from that new owner. If you look at the top 2 quadrants, every time we sell developer inventory, we generate an incremental management fee for the company.
But selling developer inventory to an existing owner isn't necessarily going to generate incremental club dues because many of our owners have already enrolled with our internal points program. However, selling developer inventory to a first time buyer generates the best scenario in terms of immediate recurring revenue streams because you generate both a management fee and club dues, but you do so at a lower development margin due to the higher marketing sales costs and slightly higher product costs with that inventory.
So where do we want to be on this grid?
Well, as you can imagine, there's quite a balancing act in generating these recurring streams of revenue. One thing I'd like to point out is that the importance of that last quadrant I went over really can't be overstated. Even though you take a slight hit to your development margin, you're getting, additional first time buyers into the mix with restocks upon for future low cost owner reload sales and generate additional management fees for the company into the future. But in general, we believe that pursuing our current goal of 50% first time buyer mix, along with maintaining our current pace of pre owned inventory acquisition, we'll continue to produce great results for today as well as into our future.
Thank you, Tony, and thank you, Nick, and John as well. As you know, there are a number of moving pieces that make up Marriott Vacations Worldwide's business model. Hopefully, the last 25 minutes have given you a little more visibility into a couple pieces of the puzzle. As I said in the beginning, everything in our business starts with the sale of vacation ownership product. Both come to turn to that aspect of our business.
But before we do that, we're gonna take a short when we return from the break, Brian Miller, executive vice president and chief sales and marketing officer, will take over and provide some insight into our approach to sales and marketing. All we ask is that you have your credit cards out and ready when you return from the break. We'll see you back here in 10 minutes.
Minute. Hi. Ask Rosette. Gonna get started in about 1 minute if everyone can grab their seats. Thank you.
Okay.
Didn't know if I was gonna get the background music or not. Good morning, everybody. I'm gonna spend a little time this morning talking about how sell and market our vacation ownership products and also provide some further insight as to why people buy our product. It all starts with our world class brands. The Marriott and Ritz Carlton brands are iconic in the hospitality industry, and they not only deliver a strong brand promise to our potential customers.
But they also provide a high level of trust both in the product itself itself as well as the way the customer perceives they will be treated in the sales process. With that foundation, we run a highly targeted direct marketing operation that focuses focuses mostly on those who already have a positive affiliation with one of our tour survey process where 90% of our sales prospects who respond say they are very satisfied with the entire process. Our direct sales model is very efficient and highly measurable, allowing for constant analysis and improvement, and our leadership team is second to none in the industry. Our core team has hundreds of years of industry experience, mostly with the Marriott brand. As you can see, This model has yielded a nearly 20% increase in sales over the last 3 years for our North American business without adding any new resorts or significant marketing channels during that period.
As you heard earlier today, we launched our Points based system in June of 2010. So the primary source of this growth has come from improvement in volume per guest as our customers and our Salesforce have become more and more comfortable with the new product. This next slide is the BPG growth trajectory, which clearly shows our improvement since our launch of the Points based product. I mentioned the Salesforce's increased comfort level with the points product, but there are other factors at play here too. Our owners are finding the use of the new product to be easier and more flexible.
Lee touched on our customer satisfaction rates. And in our business, happy customers generally add to their vacation portfolio. Secondly, our training and support materials have substantially improved over this 3 year period. And lastly, we have continued to focus on product development. We are listening to our customers and making changes to experiences in our system and the structure of our ownership levels to make the product more appealing in the sales process and to work better when they go to use it.
Points owners returning for subsequent tour tours are our highest efficiency tours, which I think says it all. As a result of the volume growth and the BPG improvement, Our cost of sale has dropped nicely over this period as well, which has contributed to our overall development margin improvement over the last few years. The efficiency of our model has allowed us to fine tune our performance in many areas and create Let's talk a little about whom we market our product to and how we go about it. These statistics are nice to know, but they don't provide a lot of value in the targeting process. Vacation ownership has historically been a life stage product that work best for married couples with children.
Historically, we have marketed and sold 2 and 3 bedroom accommodations in family oriented locations. Our Points based product is altering that paradigm. Our Points product due to its flexibility in unit size and length of stay has appealed to both younger buyers and to empty nesters who seek shorter getaways and alternative locations. The merit rewards program has always provided that outlet for our owners but now with our own currency, we can create those opportunities within our system. It was not an accident that 2 of the three new locations we just announced are urban locations.
Expanding our ability to deliver those experiences. Our marketing strategy strategy will continue to evolve with our product opening new channels and allowing marketing strategy is the utilization of our existing resorts in the process. We sell a high ticket item, and one of the first orders of business is to make sure the customer can experience the product prior, prior to to a sales presentation. Whether they're an owner on vacation, a prospect using our trial product, simply someone renting a vacation at one of our resorts, they are in a relaxed state of mind and in an environment where we can enhance their experience. We know who is arriving, and we target our efforts and our level of pre arrival service to those prospects.
We have found that highly personalized service is not only the right thing to do, but it is good for business. It increases our resort satisfaction scores, and it increases our sales and marketing efficiencies. This slide shows our current marketing channel mix as well as the marketing cost of sale for each of those channels. The 70% number I referenced on the previous slide is made up of our in house channel that roughly 50% of our business, and our central marketing preview and trial membership channels, which together make up another 22% of our business. As you can see, our in house trial membership programs are not only our largest channels, but also some of our most cost effective as well.
Our channel mix is now yielding an overall cost of sale of around 11 percent, which is excellent in this business. That number will increase slightly over the next few years as we attract more first time buyers into these and other channels. But we expect that the additional volume will help to mitigate And while our owners come to us through several of the channels discussed on the previous slide, I think it's important to show you our trends in owner reload penetration overall. There is often a question as to whether the current rate of owner sales is sustainable over time. I think these numbers show that we are on a very sustainable rate of owners purchasing more product each year.
As you can see, with the exception of 2009, which we'll call a tough year overall, about 5% of our owners have purchased either more weeks or now points from us each year. This trend actually goes back several years prior to 2006. And while the percentage has crept up slightly in the last few years since our points launch, the average purchase has actually fallen a little bit over that same period. So now that they can buy less than 1 week, they are more selectively adding to their portfolios at a slightly higher rate. We expect to main maintain this penetration rate as we increase our mix of first time buyers.
So let's switch over to our sales model and talk about how we sell and why people buy. I'm going to have our vice president of global sales operations. John Rubel walked through the why section. But let me first touch on the key elements of our sales success. We've spent over 30 years designing and improving our sales process to best represent our product to the customer and properly represent the Marriott brand in the marketplace.
When we introduce points, We had the opportunity to revamp the entire process to a system sell from a site based sale in the week's world. We also had the opportunity to centralize our training now that everybody was selling the same products. With the help of several outside resources, coupled with our own experiences, we're able to create a world class process for communicate communicating our product to our clients. I now get to speak to every training class that comes through Orlando once a month, and I always hear from them that it's the best sales training that they've ever been through. We have been and continue to be focused on the environments in which we sell and the tools that we provide to the Salesforce to enhance the presentation.
Our galleries are designed to create a wow factor as it relates to the experiences within our system, communicate the breadth of the Marriott family of brands, and leave the customer wanting to learn more about our products. But since the product is complex, requires customization for use and as a high ticket item, We do the remainder of the presentation in private offices. Our proprietary technology tool is a critical component of the sale. It allows our sales professionals to showcase the elements of our product that are important to that customer, conduct the financial logic portion of the tour and to create a 5 year vacation plan for that prospect, ultimately providing a recommendation for their level of ownership. And lastly, we structure our product with different levels of ownership and varying benefits attached to each level so that if you are a first time buyer or an existing owner, there is an ownership level that is attainable for the equivalent purchase of another week in the system.
With that, let me show you some quick testimonials, testimonials from a couple of our and then I'll let John talk about why people buy our products.
Hello. I'm Alan McGregor.
And I'm Jane McGregor.
And we've been owners for 7 years. And I think it speaks for itself.
Extremely good value. You know, if
I had not bought into the Marriott Vacation Club, we probably just wouldn't have holidays as much to be on We've got the inventory and we jolly will make sure that we use it, use it to its best advantage. And we do it in a way that isn't extremely, extremely luxurious. Mhmm. And I think overall, if you look at it, great value per month.
Hello. I'm Larry Katz Meyer. We're from Pennsylvania.
I'm Peggy Katz Meyer, and we have been Marriott owners since 1992. Very happy that I might add.
Saw the value of it for future vacations, family oriented. And that's what sold us. And we have been extremely happy and have added 4 more weeks since, plus the Destination Program. We saw, of the opportunity to have vacations in our future, we would not even dream about and value was tremendous. We get so much value out of it.
We own 6 weeks I've managed to be able to make that into a 12 week vacation. You know, that's, pretty interesting. So everybody out there listening Go to the destination's program. You'll save money, man. No brainer.
Yeah. It's on the cat's Meyer setting.
Thank you, Brian, and good morning, everyone. Now for the fun part, I'm gonna give you a little deeper dive into how we go actually go about selling the product. Is this logo of our recent award winning training? Suggests there are two sides of the brain involved with making a purchase decision. The left side is the logical side and the right side is the emotional.
I'll show you how both play a critical role in selling any luxury product I think all of you that will recognize in the that in order for someone to make a purchase decision, it must make logical sense. Here you can see that our presentation is designed to help customers say yes to the practical concepts of our product. Now let's shift to the right side. The emotional side. Here, you can see some of the real drivers of why people actually purchase our product.
These themes represent the diverse collection of the real drivers of making a purchase. Our owners share with us that things like time with family help adventure to get away and recharge or maybe a long weekend for just the two of us. So the real reasons or the why they made their purchase decision. Let me share with you now a quick video that I think will make this a little bit clearer.
So what is the balanced approach? Don't all great minds make decisions based on logic and reason In truth, logic alone often causes decision paralysis as we become confused by either too much or too little information. The result is answers like I need to think about it, which we all know is the same thing as no. But most people are largely motivated by what makes them feel good positive emotions, especially with purchasing decisions. Our emotional side says yes because it feels right.
This isn't just conjecture. This is science, neuroscience. The left part of your brain that handles logic is complex. It takes time to process. However, the limbic system, the right half where emotions are processed, is actually where the decisions are made.
And therefore responds much faster than the logic system. This is why we experience a gut reaction. Our emotional response is triggering first, and it's usually right. But logic is the stronger force in decision making. Right?
Without emotional bias, wouldn't all decisions be perfect? Well, as it turns out, when someone has had severe damage to the living system, they can't make any decisions at all. They can't decide what to wear, what food to order, they can't even decide if they should turn left or right. Without the emotional without being able to imagine the possibilities we simply revert to I need to think about it. Analysis paralysis.
People's first reaction will always is natural. It's how we're built. Thank goodness for the emotional part of the brain because that is where decisions are made. The balanced approach reminds us that if decision are in fact made based on emotion, we need to focus in on it and back it up with logic. If you want more yeses, simply speak to the heart.
So I think that makes it a little clearer. I love this video, and it always reminds me of the quote. The mind will justify what the heart desires. 1 of the main tenets of our presentation in justifying price is a simple set we call renting versus owning. Here, you can see the benefits in comparison to a typical hotel room.
In fact, if you spend an average of 250 a night, which I know you can't do here in New York City, for 14 nights a year, for just 20 years, including tax, and a modest inflation rate, the average family would spend over a $100,000 in just 20 years. We call these any way dollars as they are already spending the money, and we're simply showing them a better way. To redirect the money into a deeded vacation ownership product with verification club. So The rent versus own comparison supports the logic of buying. But as you saw in the video, the true path to a purchase decision is understanding the customers why.
There's specific emotional reason or reasons for taking a vacation. 1 of our top sales executives, Sandy Wall, often shares an emotional story with many of his guests. We have captured this story in another video that I think will show you the power of emotion in storytelling.
Sitting at his daughter's wedding rehearsal watching her celebrate the start of a new life, Myron felt an unsettling rush of joy and guilt. Joy, because seeing Ginny so happy, the life of the party brought back a 1000 perfect memories of the moments that lead to here, killed because he kept wishing there were time for just a few more. It reminded him of the time he came home to Jenny, then just eight crying in her room. A girl in class was throwing a huge birthday party, but Jenny wasn't invited. Myron hugged her and said, forget about them.
What would you like to do? Ginny said, let's go to Disneyland, just you and me. Myron realized that he had made plans with his friends to play golf. He felt torn, the guilt of both tugging at him, but quickly said, sure. Let's go.
And they did. An entire day spent laughing, cheering, and creaming as they explored every corner of Disneyland. As the sound of a spoon hitting glass ring across the room, Myron was brought back to the president. He gazed at Ginny as she prepared to give her toast. He noticed all the smiling faces staring up at her and realized she had lots of people in her life.
Lots of love she wouldn't always need him or have time for him, and that's okay. To my father, she said because the best day We all have things tugging at us. And as a result, we often feel guilty that we don't spend enough time with our children. And yet, to them, those are the very best moments of their life.
Pretty powerful story. After Sandy tells this story, he shares with them that he's actually myron. Whom the story is about. It's a really powerful way to remind people that spending quality time with our family is one of the most important things in life. Now I think it's important to share with you a few examples of how others show value in selling their luxury products.
We're not the only ones. Mercedes is known for their legendary engineering, safety, and luxury, but you won't find any of those things mentioned here in this ad. In fact, if you could read the small print, it would say the following. I'm the left brain. I am scientist, a mathematician.
I am order and logic. I know exactly who I am. I am the right brain. I am passion, creativity, a free spirit. I am the feeling of sand beneath fair feet.
I am everything that I wanted to be. Anyone here wearing a Pitek Filipe watch? As you can see, there's quite a difference in price from the Timex. From 75,000 to the $28 Timex. They've positioned the watch with a tagline.
You actually never own a Patek Philippe Watch. You simply care for it for the next generation. Here's another example of value. As you know, there's quite a difference in coach in 1st class when you fly. In fact, here, there's a $3603 difference for only 10 feet of location on the plane.
Sure. You get to board first. You get to enjoy a meal, drinks, slightly larger seat, and some nice leg room, but is it worth it? The answer is value is a personal equation. Simply put, it depends on the person.
We're constantly doing research to validate the many things including how we sell. This includes customer research in the market as well as online panels. This particular research was conducted to ask customers how they wanna buy. So let me share with you some of the results. Here's what they told us.
In summary, do a great discovery and listen. Then personalize the presentation specifically to fit those needs. So just how do we do this? Here's a great example of how we do
it in our sales presentations.
This is a sample 5 year vacation plan. That was planned for one of our guests recently based on their specific needs and wants. Our technology allows us to not only customize this, but to print it or email it to the customer so that they can look at this and begin to plan their next dream vacation. As you look at this, you can see they plan a summer trip to Maui, a fall vacation in Hilton Head, a Caribbean cruise, another summer vacation in Newport Beach, California, and then a European vacation in the 5th year on the Costa Del Sol at our Marveya Beach Club Resort. All of this with an average ownership of 35100 points showing the flexibility and usage.
With that, I'm gonna turn it back over to Brian. Thank you.
Thanks, John. Okay. Thanks, John.
That was great. Now let's look ahead some
and talk about where growth can come from in the next few years. While John and I are always focused on how we can keep VPGs moving up on an annual basis, We know that there are other opportunities to grow the top line as well. The announcement of 3 new resort locations is also the announcement of 3 new planned sales locations. Those operations typically stabilize over about a 3 year period from startup and provide us an operation that mirrors our overall North American performance from a cost and a margin standpoint. We're also focused on increasing the mix of first time buyers in our tour and sales mix.
We are expanding marketing into additional Marriott Hotels, increasing our call center and trial product programs and we are working to fully implement some more scalable programs margin. These tours are typically more expensive, and the sales efficiencies are slightly lower. So we will need to do this on a measured basis and not just chase top line growth. The new sales locations I mentioned on the previous slide are in South Beach, the Big Island of Hawaii and San Diego. We believe each of these markets will provide great access to our target clientele and upon stabilization over the next 3 years will generate an additional 75 to $100,000,000 in contract sales on an annual basis.
I wanna thank you all for your time today. Now I will turn the podium over to Lainie Caine Hannon, our executive vice president, and chief growth and inventory officer.
Thank you,
Brian. Good morning, everyone. It is my pleasure to have the opportunity to discuss with this audience such an important topic for our company, especially in such an iconic location. Our growth strategy is straightforward, and it's reflective of the transformation of our industry and our company. We're focused on acquiring new customers and growing our sales volumes.
How will we do that? Or by adding new profitable sales distributions and resorts in highly sought after destinations. We will continue to focus on migrating and efficient balance sheet. Well, how did we get here? When we launched our points product in June of 2010.
We found ourselves in what was a pretty enviable position. We had come out of the economic downturn as part of Marriott with a couple dozen properties under some stage of development. The announcement of the spin off soon followed, and those developments added up to roughly $1,000,000,000 of inventory at the time of spin off, the vast majority of which was either completed or near completion. That was a pretty nice graduation gift from our former parents as we became our own independent company. So for the last several years, we've been reducing our balance sheet by completing phases and infrastructure at inventories.
Last quarter, we announced several new locations, which we have acquired or we expect to acquire this year. And those locations will aid us in achieving our objectives. How? Well, as Brian pointed out a moment ago, these destinations like the one we announced will enable profitable and incremental sales growth by providing a new sales center location in a place where we're not currently selling. An additional benefit of new locations is the excitement it generates, within our current owner base.
We provide a new destination in our system for our owners to use and it gives our owners a reason to engage with our sales and marketing teams. In today's environment and with our points based product, achieving this growth must be done with balance sheet in mind. And maintaining and improving our balance sheet efficiency is always top of mind. This means we must minimize the development spending required to achieve not only our incremental growth, but our CapEx needs in total. And last, we must always be mindful of the balance required in how we source our inventory to achieve optimized product cost while minimizing completion risk.
But we can't satisfy those objectives without ensuring we start and end with one simple understanding. And that If we found a cheap piece of dirt in the most favorable global construction environment, but our owners don't want to spend their hard earned vacation time there, Well, that opportunity would just be meaningless. So how do we tie this critical piece of the puzzle into our growth objectives to meet our overall strategy? We begin by setting our target markets based on where our customers wanna go and where we don't have a flag on the map. Those of you who remember how we operated when we sold a weak space product know our development strategy used to be very heavily tied to SQL markets.
SQL markets are repeat locations where you buy and bank parcels of land with the expectation of building and selling over many years. This ensured we could continue selling in a particular destination as long as possible. Now with our more capital efficient points model, we have the to decouple our inventory from locations in which they it is sold. Thereby sourcing new flags, we can provide on-site sales centers in perpetuity. So how do we learn about where should we put our new flags?
Well, our customers talk to us. They tell us what they like, what they don't like, the experiences they want, and where they want a vacation. But we also know how they're vacationing. We know where they're using Marriott reward points, and we also know where they're using our Explorer collection, and we know where they're going outside of our system through interval international. We also talked to our prospects who toured but did not buy from us to find out if it was destination related.
For example, we know that our owners occupy more than a hundred room nights per night in New York City alone through Marriott reward redemptions. New York is a highly demanded destination where we currently do not have a resort, and we've been transparent that it's a priority market. We continually study our target markets. In these markets, we analyze not only customer demand, but also the legal environment, labor supply, the rental market, real estate trends, construction costs, marketing linkage, opportunities, etcetera. And continue to refine our list to those markets that have the most viability.
So where does it leave us today? Well, we know that our owners are seeking city centric leisure destinations that have a variety of experiences from cultural offerings and attractions to dining and nightlife. That type of offering is more limited in our current portfolio because the historically, these locations were less feasible under our week space timeshare model. So what markets might these be? Well, obviously, San Diego and South Beach fit this model and our latest planned city resort offering.
We are also looking at other destination cities such as New York And Washington, DC. Just to name a few. In addition to urban Resorts, our owners are continually requesting an experience on the Big Island of Hawaii. The Big Island appears to our Asia Pacific as well as our North American owners. Our Florida and Caribbean beach properties run at near capacity, and Miami Beach is an obvious opportunity to fill a gap in our offerings.
Mexico is always top of mind on our timeshare owners list. And if you look at interval international exchanges, Mexico is the number one location where our owners go outside of our own system. Locations like Los Cabos, Porta of Iara, and, of course, Cancun. And as Steve noted, and as shown on the slide here, We still own this beachfront prime beachfront parcel in Cancun. We are considering various capital efficient structures for that parcels development that would allow us to source our destination for our owners.
Outside of the Americas, the Asia Pacific Region is where we're seeking inventory and distribution to fuel to fuel growth. We're looking at key destinations in, resort areas in Japan, as Okinawa, in destinations like Sonya in China, in Bali and Indonesia and throughout Australia. We know that you will agree. This is a very exciting list of markets and provides us quite a bit of opportunity for future growth. In many cases, co located or within Marriott Hotels.
So now that we've our target markets, our development strategy is being implemented under the objectives I just laid out. So now Now let me spend a few moments providing some details about our new offerings. We'll be closed earlier this year on our first asset light transaction at our resort on Marco Island, Florida. A third party purchased our remaining land adjacent to our existing completed oceanfront tower on which they will complete the remaining 2 towers of inventory for us or a 152 units. We have committed to take down these units over time, allowing us to more efficiently layer in this inventory, closer to the time we need it, for sales.
And that would allow us provide our owners with additional pool fitness, food and beverage options, and, obviously, a broader opportunity to stay in this wonderful and highly desirable destination on the West Coast of Florida. Additionally, this transaction allows us to significantly expand our on-site sales center with a fully operational and completed resort. After Marco, we turned our attention to San Diego, and we closed on our planned new location in that market the 264 Unit Deckland Suites Hotel. This property is strategically located within walking distance of the gas lamp district and the San Diego Zoo. The transaction should provide incremental sales volumes next year and will be operated as a hotel throughout the conversion process to timeshare.
And we're targeting 2017 for the complete of the construction activities. And while not asset light, we'll see incremental EBITDA as we continue to the hotel during construction. Now let me walk you through our announced projects, which while not closed and no guarantee they'll come to fruition should be fantastic additions to our portfolio and bottom line. Well, in Miami, we have a commitment to purchase property in South Beach and have it redeveloped to our brand standards. This unique art deco seemed campus style property will offer 182 units, a pool bar, on-site restaurant, and easy access to all that South Beach has offer.
Assuming it meets the current timeline and specifications, we expect to close on this property in the fall of this year and are continuing to work with but take down this inventory over time. And much like South Beach, we have a commitment to acquire a 246 Unit Tower at the Waikalua Marriott on the Big Island of Hawaii, right on the beautiful Kona coast. Again, assuming the contract terms are met, we expect to close sometime in the second half of this year on the transaction. The plan includes having these rooms converted into 112 timeshare units, providing incremental sales volume beginning next year. We're continuing to work on a capital efficient arrangement with the hopes of completing those discussions prior to closing on the tower.
And finally, as Steve alluded to earlier, I am very pleased to announce that we have very recently signed a commitment to purchase the 329 Unit Marriott Surfer's Paradise Resort on the Gold Coast of Australia. We expect to close on the asset this summer and bifurcate the hotel to create 88 units of vacation ownership while working over the next year or so to sell the remaining two hundred plus room operating hotel to a third party. Now this would be the 1st new destination in our Asia Pacific region in many years. And if completed, should provide a beautiful new destination for our owners and strong on-site sales distribution starting mid next year. Okay.
Well, we announced quite a bit of activity over the last several months, and I have a few new gray hairs, but we're here to include a summary of what you might expect. We'll be closed on Declan's Suites in San Diego with the plans to convert the units to our specifications and begin sales next year. We signed an asset light arrangement with a third party to complete our resort in Markle Island with the ability to take down those units over time. And now we have 3 planned destinations, South Beach, Waikaloa, and surface paradise. If all of these are completed, these new destinations will bring in over $100,000,000 of incremental contract sales to our North America segment and generate incremental contract sales and renewed energy to our Asia Pacific team.
Now let me tie this into the higher level discussion of how you might think about our inventory from a balance sheet perspective. Logically speaking, additional distributions generating incremental sales volumes consume more inventory. The more we sell, the more we need inventory to back those sales. So while resourcing inventory today, it won't be absorbed until sometime in the future. So let's talk about why we need to be sourcing tomorrow's inventory today and the required lead time.
1st, regardless of how we fund the transaction through asset lighter on our balance sheet, The inventory must be constructed or converted to our standards, and that takes time. Let's say about 18 months. Then since timeshare is a regulated product, in North America, for example, we must put this inventory into our Florida land trust and register it for sales in Florida, as well as every single state in which we intend to sell. This typically takes another 6 to 9 months to complete. So a normal cycle for us for inventory to be completed and prepared for sales is on average about 2 years.
So while the the more capital efficient deal structures are intended to reduce the project's capital outlay as time on our balance sheet, the registration time share time frame for that inventory doesn't change. Therefore, the minimum hold time of inventory when completed is the 6 to 9 month time frame required for registration. You can do the math. Today, we are at just under 2 years of inventory either completed or in process. We expect to be able to reduce that time as we grow our top line sales and continue to focus on new capital efficient inventory in new destinations.
However, as you will see in a few minutes, balancing the sources of that inventory is critical to our sustainable growth strategy. So let's talk about the balance, specifically balancing risks. As we focus on less capital intensive inventory sources, we also have less control of inventory timing or if the deal will close at all. Without completed inventory, our sales centers would have nothing to sell. So let me walk you through how we balance our inventory acquisition strategy to mitigate completion risk while driving development margin.
First, we expect to continue our asset light inventory repurchases, approximately $50,000,000 to $60,000,000 worth per year. This inventory is quicker to market because it simply needs to be put into our points program and can be recycled fairly easily. As part of our balanced growth strategy, it's faster to market and carries with it a very low product cost. However, this inventory only supports about a third of our total sales volume and does not drive growth in the other areas of our business. In the end, it's only replacing one owner for another and, therefore, does not carry with it incremental management fees, rental profits, etcetera, as Tony walked you through earlier.
2nd, we plan to continue to as we have done in but without the transaction costs and higher risk associated with asset light structures. Lastly, we can continue to acquire inventory and assuming we're able to work out all the arrangements in Hawaii and in South Beach as well. While caring with it the higher cost associated with third party transactions such structures provide a more efficient use of our balance sheet and capital and allow us the flexibility to do multiple projects in any given year. This target mix of inventory results in a blended product cost of about 3rd percent and years on hand of inventory inventory sources, but as I mentioned, that can also increase risk and in the case of repurchases does
not provide an
incremental owner or fee growth. So again, this balance allows us to optimize all areas of our business and minimize the risk under a sustainable model. So how does our CapEx translate into sales volume? We're slowly growing inventory organically at existing low case as you've seen us do over the last several years at our current resorts, only supported some moderate, but steady growth. To grow at the more robust pace we expect to achieve going forward, we're gonna need to add new distributions.
By adding new resorts today, we can open up new sales distributions and reach new buyers, adding incremental sales growth once the sales centers are open and fully established. And this will start next year. The takeaway here and how you should think about our CapEx is that it is in reality distribution spending, essentially CapEx to back current sales, and more importantly, to drive future sales and profit through balancing our inventory sources. Okay. Let's sum it up.
Why the balanced approach? Because we have many things to consider when it comes to our inventory sourcing. We wanna lighten our balance sheet by completing remaining phases at our existing resorts. At the same time, we need to grow our top line which means adding new destinations with new distributions. We will do this with an increased focus, but not sole reliance on capital efficient structures, while we utilize inventory repurchases to round out our strategy and optimize our product cost.
Well, I hope I've left you with a good understanding of how we are growing, but more importantly, why we are growing. With that, let's take a short break and then bring John up to wrap up the discussion regarding performance under our 2 growth scenarios. We will begin again in 10 minutes.
We're gonna start in about 1 minute if everyone can take their seats. Thank you.
Good morning, everyone. Welcome back. Oh, I think I'm in I'm the home stretch here to right before Q And A. So, I'll take you through the financial side of it. I'm sure no one's looked ahead in their book yet.
Okay. As Steve mentioned earlier, we've executed very well against our key strategies that we established a little over 3 years ago. We've driven and stabilized development margins above 20%. And along with efficiencies across our other lines of business, we've generated strong adjusted EBITDA more than doubling from $96,000,000 in 20.11 to $200,000,000 in 2014. A compounded annual growth rate of
20
dollars and lowering the average years of inventory on hand from roughly 3 years to 2 years on hand by more efficiently managing our inventory spend. Along with contributions from higher adjusted EBITDA, these efforts help generate over $480,000,000 of adjusted free cash flow proceeds to date from the disposition by $300,000,000 since 2011. And finally, we've established a balanced capital allocation approach that allows us to grow the business and quarterly dividends. We're proud of what we've accomplished to date, but more importantly, we believe we're poised for more success going forward. And looking at our overall business, you can see that we have a diverse composition of revenue streams.
Let me take a moment to ensure that everyone's familiar with our 4 primary businesses. Our largest business from both the revenue and margin standpoint relates to the sales of our vacation ownership products, which we refer to as our development business. After reduction for a provision for loan losses, contract sales ultimately translate into development revenues, And after deducting the cost of the timeshare product we are selling, as well as associated marketing and sales costs, it results in what we call development margin. The business comprised roughly 50% of our revenues and 40 percent of margins growing from a little over 7% in 2011 to 22% in 2014. Our next largest business is Resort Management.
Here's where we report the results of our management and our exchange company businesses, both of which include recurring and stable fee streams. In addition, this is also where results for our ancillary business and customer service operations reside. From a margin standpoint, this represented nearly 30% of our business in 2014. Next is our financing business where we finance vacation ownership purchases. We typically originate notes that carry a coupon rate of roughly 12 a half percent.
And even after taking into account the cost to securitize the associated notes receivable It provides a nice flow through to the bottom line. In 2014, nearly 25% of our margin came from our financing business. And last but not least, is our rental business, which as you've heard, is similar to, but not exactly like, and business given our changing room inventory mix and its associated inventory costs. Much like we've done with development margins we've made significant progress in improving rental results since the spin off. With margins improving from a negative $8,000,000 in 2011, to a positive $26,000,000 in 2014.
This represented 8% of our results last year. With that as a backdrop, let me translate what you've heard from our executive team into what we're targeting for 2015 and how you could think about our business by 2018 based upon various growth assumptions. So what should you expect from today? Actually, there are 2 key points both focused around growth, which are important for you to understand and which we will in which we'll be woven throughout my present 1st. You with 2 contract sales growth scenarios throughout my presentation.
These are not intended as guidance, but as growth scenarios to demonstrate how our entire to consider for our business, the 2 growth scenarios we will be using today are annualized contract sales growth of 5% 10% with a development margin percentage of 21%. We will demonstrate not only the impact of these We will demonstrate not only the impact that these scenarios might have on our development business, but also on the rest of the businesses. Ultimately, showing the impact to adjusted EBITDA, return on invested capital, and free cash flow. 2nd, it's important for us to maintain a balance among all of our businesses with the ultimate goal of driving growth and improving shareholder returns. I just walked you through the diversity is do not operate in isolation, but rather are interdependent.
As a result, in evaluating decisions made in one operation, we must ensure that those decisions do not unfavorably impact financial results in another part of the company. Maintaining an appropriate overall balance is a key focus to our executive team to ensure we are fully optimizing our EBITDA and cash flows. We watch you through the value of the customer and the many ways we make money on each sale. As you would expect, most of the money we make starts with our with our primary driver, which is the sale of our vacation ownership products or what we call contract sales. However, back to my comment about how all of our operations are interrelated, not only do contracts, sales drive development growth margin, they provide additional revenues as well.
For example, when those contract sales are financed, we are recurring interest income on those loans. And to the extent those sales are backed by new inventory and not from repurchased inventory, it also provides us with incremental management fees. Since becoming a public company in 2011, our timeshare contract sales have grown a little over 2% annually through 2004 team, driven by significant increases in VPG, partially offset by a decline in our tour flow. For 2015, timeshare contract sales are projected to increase 5% to 8% to a range of 7.35 to $755,000,000, driven not only by continued growth in VPG, but also the benefit of increased tour flow. The VPG growth is expected to come from inflationary price increases as well as higher point volumes purchased, the latter of which should occur naturally as we migrate toward a greater proportion of sales to first time buyers.
Regarding tour growth, as we've stated, longer term, we would like to see a more balanced mix of tours coming from both existing owners and first time buyers. Working towards that goal, we will continue to develop programs focused on both of these groups. In the first quarter of 2015, for example, We saw tour flow increases come primarily from our existing owner base given enhancements we announced related to owner recognition levels. We also saw increases in our first time buyer tours in first quarter as we continued working on programs that will attract even more first time buyers, and we expect to see even more growth here later this year. By 2018, we expect to continue seeing growth in sales at our existing locations, but but additional growth also be coming from contract sales growth scenarios, contract sales would be between $850,000,000 to slightly over $1,000,000,000 in 2018.
Recognize that these amounts simply represent scenarios of potential results for discussion purposes today. Of course, we will continue to grow the business as quickly and efficiently as possible, particularly in light of new sales distributions that we are able to deliver. We are proud of what we've accomplished with development margins over the last several years. Our plan at the time of the spin off to improve those margins above the 20% level. We are now onto the next chapter as we prepare for future growth.
Our plan now is to maintain the appropriate balance between investing in top line growth and optimizing those margins, all with the goal of maximizing total returns for the business. From a product cost perspective, as Lanny mentioned, we are targeting a balanced mix of inventory that will cause 30% or less. We will continue to manage this mix of inventory in a way that balances both cost and overall inventory levels while providing new resort locations to enhance we will continue to optimize our spending and leverage fixed costs as we have done over the last few years. As we pivot our focus to more first time buyers and expand our resort locations for the foreseeable future, we anticipate reinvesting any optimization in new bar in new marketing programs to help drive incremental tour flow as well as to fund startup costs associated with the new sales distributions. As it relates to our development margin percentage, For discussion purposes today, we are assuming it approximates 21% over the next few years, given our balanced mix of inventory and investment required in support of new distributions and first time buyer tour growth.
However, as we've done in the past, we will continue to manage our spending to push margins higher when possible. For 2015, with annualized contract sales growth of 5% to 8% and development margin percentages between 21 22 percent, we're expecting development margin dollars could be between a $148,000,000 a significant improvement over 2014. Longer term, with 5% 10% contract sales scenarios. And with development margin percentage at 21%, development margin could be between 164 a $193,000,000 by 2018. Moving to Resort Management.
Let me walk you through a few of the major contributors to this business. Let's first let's look first at management fees. Unlike lodging fee streams where a component is dependent on the profitability of the hotel, our fees are dependent on the cost to run the resorts, which typically experience inflationary growth as well as growth associated with the development of new resorts and phases. It's for that reason, our visa proven resilient even during recessionary times. As a result, these are our most stable recurring fee streams, the mo majority of which flow through to the bottom line.
We earn these fees for managing our resorts whereby we're paid a fee that typically equates to roughly 10% of the cost to run the resorts. When the owners associations hire us, they trust we will provide our world class service and resort experience. And here's where the balance comes in. As our owners ultimately pay for our services through their maintenance fees, we have a responsibility to provide this world class service at affordable cost, maintaining the value proposition inherent in their in their original purchase. With annualized contract sales growth scenarios of 5 10 percent, this recurring fee stream could grow to between 90 $92,000,000 in 2018.
Exchange company fees include fees from annual club dues earned in connection with our North America Points program, roughly $200 per owner per year, as well as fees from our external exchange service provider. Similar to our management fees, this revenue stream is very stable and will grow as we continue to increase contract sales and bring new owners into the system. With annualized contract sales growth scenarios of 1,000,000 is our ancillary operations, which include results associated with providing certain amenities to our owners and guests, including food and beverage, retail, golf and spa offerings at our resorts. Please note that the financial results from this business prior to 2015 included operating losses associated with a few of our golf course operations. With the disposition of those underperforming assets over the last 18 months and with continued efforts dollars.
Bringing all the parts together for resort management for 2015, we're expecting resort management margin to be between $111,000,000 to $113,000,000, driven by growth in our stable recurring fee streams as well as improved ancillary margins. Looking ahead to 2018 with annualized contract sales growth scenarios of 5 10% and with improved cancellary results, resort management margin could grow to between a $131,137,000,000. Moving to our financing business, before I get to the financial results, I wanna I wanna first take a few minutes and provide a little background on how this business works and how we make money. As you know, we offer financing to the purchasers of our vacation ownership products. The business provides us with recurring revenue streams in the form of not only interest income, but also fees we earn from servicing the vacation ownership notes portfolio.
After these notes have seasoned the bid, we take advantage of the ABS market and securitize the notes at turn that historically been very favorable to us. These transactions provide a strong cash flows that we can utilize to support our ongoing operation the
successful securitizations
even during difficult economic times. Given current contract sales volumes, we currently perform just one utilization transaction in the ABS market each year. However, we also have the ability to leverage our corporate warehouse facility to securitize eligible notes at other times throughout the year. This slide highlights a few characteristics of our notes receivable portfolio. Our typical North American loan carries a coupon rate of roughly 12 a half percent is usually 10 years in duration, represents a note between $20,025,000 after an average down payment ranging between 10% 15% Altogether, these factors result in a monthly payment of $300 to $400, a convenient and manageable monthly payment amount for our target market.
For 2014, our financing propensity were the percentage of buyers who financed with us was 42% in North America. Although propensity has remained relatively consistent over the last few years, we would like to see financing propensity higher given the profitability of this business. While we continue to evaluate various programs to help drive higher, we do expect propensity to increase naturally over the next few years with the migration of sales to more first time buyers. Since 2000, we have securitized over $4,000,000,000 of loans and various structures providing significant cash flow to us. Our overall notes receivable portfolio performs extremely well in terms of low default activity, which is currently historic low levels and compares extremely favorable to others in the industry as well as most other asset classes.
While we would love to say that the strength of our portfolio comes solely from our rigorous underwriting standards, it also reflects the quality of the market we target for vacation owner of purchases. You can see on the chart that nearly half of our buyers that financed with us have credit scores over 749, and the average credit score for 2014 of approximately 7 30. In 2014, our securitization in the ABS market provided us with gross proceeds of $240,000,000 and carried an advance rate of 96% and an all in cost of funds of 2.29%. Given our weighted average coupon rate of roughly 12 a half percent, you can see how profitable these securitizations are to our business. Our 2014 transaction carried historically high excess spreads exceeding a 1000 basis points.
While the excess spread on the 2014 securitization was at record levels, over the next few years, we could expect that performance to moderate slightly. Probably closer to 900 basis points on new transactions to the extent the cost of funds begins to increase. Of course, we will do all that we can to maximize us spreads. One option in an escalating rate environment would be to increase the average coupon rate for newly originated notes. However, as you might expect, it's important to maintain a good balance as raising the coupon rate to maintain existing spreads could actually lower financing pre propensity or negatively impact sales volumes given the higher cost to the consumer.
This is something we monitor dollars of margin in 2014. For those of you familiar with our recent history, financing results have declined over the past few years as our vacation ownership notes receivable has declined faster than we have been originating new notes. We have seen this trend continue into 2015. However, we do expect it to begin to stabilize later this year as the declining portfolio begins to be offset by growing contract sales volume. For 2015, we expect financing margin could be between 75 and $76,000,000.
On a longer term basis, the growth of this business is predicated on top line contract sales growth, higher financing propensity levels and ability to execute successful securitization transactions. Assuming 45 percent financing propensity and modestly lower excess spreads, financing margin could be between $79,185,000,000 using the same 5 10% annualized contract sales growth areas.
Excuse me.
Moving on to our rental business. As you've heard, our business is a bit different from lodging given the changing inventory of available rooms. Both from a number of rooms perspective as well as from how they are dispersed geographically. In addition, we also have to absorb the annual cost acquiring that inventory with which changes each year. Rental margin has been a growing contributor to our bottom line and we strive to optimize the results of this business.
However, we can't focus simply on driving unit growth and continue to push top line metrics. But rather, we must work to balance the profitability from monetizing the inventory while ensuring a reasonable value proposition for our owners. For unsold inventory, our goal at a minimum is to offset the carrying costs or the maintenance fees associated with the inventory until it is sold. But we also receive inventory back from a from our owners as they take advantage of the flexible usage options of our points program, such as through Marriott rewards or the EXPLORER program exchanges. These programs enhance the value proposition for our owners.
However, when we take third party costs through future rentals of that inventory. It's important for us to effectively price these programs through the number of points needed by the owners to paid in a way that ensures a reasonable value proposition for our owners, but also ensures our profitability from this business. And, again, this is there is a balance to here to maintain. Of course, we could attempt to increase our rental bottom line in the short term by increasing the number of points required to take advantage of these programs. However, that could have unintended consequences in the longer term through lower owner utilization of these programs, lower perception of the value proposition for strike the right balances when evaluating these decisions.
As we look ahead, we will continue to identify ways to optimize the rental bottom line. While we do not believe the rate of growth that we've seen in the past will continue and to the same extent, we've enjoyed the last few years. We do expect continued growth from this business. And higher transient rates as well as from lower unsold maintenance fees over the next few years, rental margin could grow to between $48,550,000,000 by 2018. And these levels at or excuse me, I hand at these levels rental margins could approach the mid teens.
I've talked to you about our 4 primary businesses. The last piece of the pie includes mainly our corporate, general, and administrative expenses, as well as the royalty fees we pay to Marriott International We are projecting these costs to grow roughly 3 to 4 percent annually over the next several years, all in all, growing basically at inflation we expect to leverage these costs on our growing see how everything fits together. For 2015, we are targeting adjusted EBITDA of 222 to $232,000,000. A $22,000,000 to $32,000,000 increase from 2014. And given the information I shared with you shared with you as it relates to the different components of our business.
Adjusted EBITDA could be between $270,310,000,000 in 2018 under the 2 growth scenarios presented. Return on invested capital or or ROIC is another area where we have made company should be viewed a bit differently than the traditional or more textbook calculation for ROIC, which utilizes earnings before interest in taxes or EBIT divided by average net assets. Rather, a more appropriate view is to look at ROI C net of our non recourse securitized debt. In our calculation, we make adjustments to reduce net assets by the non recourse debt associated with the securitized notes receivable and reduce EBIT for the related consumer financing interest expense. This calculation is and intent and reflects the fact that these notes are sold non recourse to non recourse to us.
We can't repay this debt even if we wanted to as this debt is paid down with the collections 11 to nearly 15% in 2014. While our earnings growth since 2011 has been significant driver of higher ROIC, it it has also improved as we have optimized our inventory spend and disposed of underperforming and non strategic assets, including Abaco and land at Guaylagoons most recently. In fact, in 2014, our adjusted EBITDA had decreased twofold and total assets declined over $300,000,000 since 20 11. With the growth scenarios presented as well as ongoing focus on balance sheet efficiency through asset light transaction structures for new development, ROIC could range between 26 30% by 2018 under the 2 growth scenarios. However, even with that performance, there are additional opportunities to lower our asset base.
To the extent we can further reduce years of completed inventory on hand, as well as build out our existing projects thereby reducing overall land and infrastructure investments on our balance sheet. So what does all this mean in terms of cash flow generation over the next few years? Well, as you know, we have worked diligently to generate significant amounts of free cash flow and as a result, have been able to earn nearly $300,000,000 of that cash back to our shareholders since we began returning capital to shareholders in the fourth quarter of 2013. To the extent we are able to grow the business, as I've highlighted today, we expect the cumulative free cash 15 to 2018 could be between $70775,000,000. Now let me take a moment to provide some additional color.
We've included a traditional cash flow view in the appendix by I want to walk you through this view because it highlights the gross cash we could generate from operations and securitization activities before we invest in inventory 1.7 $2,000,000,000 of gross cash over the 4 years. From there, we've layered in roughly 900,000,000 to a $1,000,000,000 of both identified and to be identified inventory spend, including sales center, capital expenditures, all of which will be needed to support our contract sales growth in North America And Asia Pacific and inventory levels required for roughly 2 years of completed inventory from there. Next, there is investments of $66,000,000 to $100,000,000 and corporate capital expenditures to support technology and ancillary operations and roughly $90,000,000 for the final payment associated with pre spin Marriott rewards liability. Turning for a moment to our 2015 free cash flow guidance of $145,000,000 to $170,000,000. I would like to go through our current assumptions around inventory spend in 2015 given all the acquisitions that we have Gust.
In North America, our acquisition of San Diego was done on balance sheet with spending on renovations expected to occur primarily in 2016. For South Beach, our guidance assumes we acquire this inventory asset light with a portion of that inventory spend later this year and the remaining spend occurring over the next few years. For Waikaloa, our guidance assumes that this inventory will be asset light also with the renovated inventory being acquired in 2017. In Asia Pacific, given our limited supply of completed inventory, Our 2015 cash flow guidance included a placeholder for inventory spending, which is in line with the timeshare component of the surfer Paradise Hotel acquisition, Laney mentioned. Our goal is to sell the remaining downsized hotel before the end of the year.
However, there is risk this could slide into 2016. With that being said, from a cumulative free cash flow perspective, our goal is to continue to reduce our investment in inventory, and our 700 to 775,000,000 of cumulative free cash flow projections would not be impacted. However, beyond this amount of free cash flow, we also have other items that could enhance our total cash flow potential even further First, as you are aware, we have additional debt capacity given the current leverage of the business. Assuming excess capacity of 1 to 1a half times adjusted EBITDA on the gross scenarios discussed today, this could provide incremental cash flow of raw fleet 270 to 5 to $465,000,000. 2nd, Lainie talked about our completed inventory years on hand being roughly two times.
To the extent we can further reduce our years on hand closer to one and a half years, cash flows could be 125 to a $150,000,000 higher. 3rd, as you know, we have not completed the disposition of our non strategic assets. To the extent those are completed by 2018, it could provide incremental cash flows of $50,000,000 to $80,000,000. So prior to any returns to our shareholders, toe total cumulative cash generated over this period could be roughly 1.1 to nearly $1,500,000,000. So where does this leave us?
You'll have to agree that it leaves us in a very strong financial position. We will continue to grow the top line through new zorts and sales distributions that in turn will drive higher adjusted EBITDA and more importantly additional free cash flow. Beyond that, we are opportunistically evaluating new business opportunities that will enhance or expand our current business model. And lastly, we will continue to evaluate the best way to return capital to shareholders through dividends and share repurchases. So where does this leave you?
I hope in a much better position in terms of understanding our business model. I believe that we can grow the business generate significant cash flows 3 typically trades at a discounted multiple when compared to the lodging industry. We assume this could be from the perceived greater earnings volatility, the capital intensity of the industry or a combination of both. I trust that with your greater understanding of the industry and specifically our business model, you will recognize that we have significant amount of stable recurring revenue streams and an ability to generate cash flows and efficiently manage our balance sheet through leveraging asset light transactions for new inventory. Looking ahead, we've outlined detailed plans to continue to drive financial growth in this business, given our track record to date as well as our confidence in our plans for the future, we believe this company remains a tremendous value to investors.
And with that, thank you for your time and attention today, and I'll turn it back to Steve.
Thank you, John. I'd like to ask, Lee, Brian, and Laney to come up and, join us. And we're gonna turn it to your questions. If we could, please. The way this is gonna work, Jeff Hansen has a microphone.
If you have a question, we'd appreciate if you'd raise your hand simply for those on the webcast if you identify yourself so that they know who's asking the question. And then, you can either direct the question to any one of us individually or just get it out there and we'll figure out who's going to answer it. Okay?
Thanks guys. Oh, sorry. Peter Lewis, Castle Ridge Investments. What are the key differences in strategy between you and your largest competitors, and and how might they reflect different views of the future demographics or structure of the industry?
We had a little I don't know.
We had a little difficult time hearing you. Was it one of the key differences in our strategies between that between ourselves and that of our competitors. Is that correct?
That's correct. Yes.
Yeah. I think In in some respects, they're they're not dissimilar to what some of the other quality tier competitors do in terms of selling product, etcetera. I think one of the primary differences with us is, really, there's a couple things. Number 1, we really focus since the very early days of this business about having a very diversified portfolio of product. If you look at some of the other people in the same kind of tier, which we find ourselves, you'll find that they have much more limited distribution than we have.
Secondly, obviously, we believe that our points program is materially different than what some other people provide. And we've heard a lot about that today in terms of flexibility, not only for the customer and the owner, but also what it does for us in terms of a capital standpoint. It's a very, it's a very different approach. Obviously, the Marriott affiliation is not dissimilar to what Starwood has with their their their vacation owner ship business or Hilton has with theirs. But, we certainly believe that it's a very strong affiliation for us.
I I'd invite anyone else to add anything here that they'd like?
Well, the only thing
I would add is, you know, we we have had a lot of people over the years work with us and other people as well. And everybody that, has crossed over to the even the quality tier brands say, we by far have the best culture. So we get we're we're the preferred employer in the business.
Just in terms of more concrete, like, I'll give you an example. Is there a trade off between credit scores, credit underwriting standards, and how you can access younger buyers Are there sort of things like that where you guys differ seem to have different views on on where the industry is going? Obviously, you all are bullish on the industry, but
Can you
take that
one? Well,
you saw average numbers up there that the average buyer in the industry is around 40. And they're buying an average about 18, $20,000 worth. The higher average buyer, which all is around 50, 51, buying about a 50% higher, average purchase on our first time buyer. So you know, we we we market to a slightly more affluent, slightly older clientele, than the rest of the industry, sell a higher priced product and operate at a higher quality tier. That just happens to generate higher credit scores and everything else.
They're just more fluent.
Hey. Yeah. Hi. It's Steve Kent of of Goldman Sachs. I had a question for Lee first on his slide, page 46, which was the matrix of development margin and management revenue exchange revenue and sort of looking through that.
I guess I'm still struggling with what the development margin for owner reload or pre owned. What kind of percentages are we talking about the sort of the deltas between that versus the development margin for the pre owned first time buyer. Just trying to understand how profitable those channels are depending on, who's, you know, who's who's buying and sort of where the source is.
Right. Yep. Basically, the pre owned inventory comes at a at a lower call of, acquisition of that inventory, by a couple points. And then if you look at our owner business from a sales and marketing calls versus our first time buyers. There's probably a couple points in there as well.
So It depends on the combination of how that works, as to what the swing in the margin is. But overall, it's probably 2, 3 points difference between those two scenarios. The the trade off as indicated in the slide is a focus on how do you, drive some of the recurring revenue streams, that are important to the overall profitability of the business as well as, you know, continue to, replenish the owner supply so that you can continue to penetrate those owners and sell at the 5% rate that, Brian mentioned earlier. I think the other thing that wasn't reflected on that slide in retrospect we probably should have is that first time buyers, have a much higher propensity to finance their purchase too. You actually get financing revenue from a first time buyer that you may not get from an owner reload.
Okay. And then I had a question for Lanny on her slide, page 86, which, it's the the chart that shows new asset light inventory, asset light per repurchases. Can you give us a sense as to what percentage of the inventory is coming from asset light repurchases we've sometimes had 50%. That's been what our calculation is, but we'd love to know sort of what your is. And I guess, because I was looking at the, chart, I was wondering if size of the blob is indicative.
Called bubbles, Steve. Oh, oh, bubbles. Not a problem. Yeah. Okay.
So the bubble, whether the bubble is indicative, because it would suggest that asset light repurchases are are much smaller in the new asset light inventory. And I just wanted to understand that. And since I've got the mic and probably won't give it up, the the idea just on the asset light side, you didn't mention who you're working with on asset light. To do that for the financing. And also whether when you go asset light, will you control financing?
So will you still provide financing to that consumer, whether it's asset light or not.
Alright. So let me take a stab. I there is half a dozen questions, they in there, I think. So let me take a stab. And then if I miss something, you know, let me know, or John, if you want to add something, but, I'll kind of start back words, yes, in all the cases, we are controlling the consumer financing piece of those equations, and I think that was your last question.
And then when you look at the, blob, I believe, right, you can also notice that You need to the projects we have built in some flexibility and feasibility of the inventory so that while the inventory can be available. We can take it down over trenches over time so that that might help smooth out the block. Inventory repurchases that you talked about, those we target you know, at the $50,000,000 to $60,000,000, of product, each year. So that is for us, you know, fairly sustainable, and will be part of our blended growth source of inventory going forward. So help me out?
What else do we miss?
Yeah. So the that, you know, 50,000,000 or so since it is a much lower product, cost
that actually supports closer to a third of our sales
in any given year. So, that gives you a little bit of flavor, in terms of the the size.
And and if I could add, there's really I mean, given its low product cost, you you'd like to get as much of that as you can. There isn't that it's not available to us. They're the good news about our owners is they like our product. So generally, what gets gifted or comes comes back to us is you know, it's people that have owned the product for a lot of years. There's a lifestyle change or they can't travel anymore or, you know, divorce or death or all sorts of other things that come along with that.
And that's when they, when they say that they'd like to, release their ownership, we make an offer for it, and we buy it from Yeah. The difference between default default rate on the maintenance fees and default rates on a loan. A maintenance fee is 1%. Yeah.
It's less than 1% a year, of the defaults. Our, our current default rates on the loans are slightly higher than that, but, not not that much higher, really. I delinquencies are running, you know, mid 3 per actually, I think in North America, we we this past month, we were under 3% in terms of the the delinquent loans in our North America portfolio, which, is about as low as we've seen it.
That's just in delinquency. Right.
And we also have a a relationship with all of our owners associations on the defaults on the maintenance fees where we will buy that inventory back from and, prevent them from having to worry about selling the inventory to recoup their, their default.
I'm Anto Sabrina Rajan, Goldman Sachs. Two questions. One is Can you talk about going downstream in terms of the clientele that you're targeting that is a big delta between the average household income that ARDA looks at for the U. S. Versus your product.
What is the longer term view on that. And second, if you could also talk about some of the puts and takes in the 21% margin for target, let's say, or the average target for 2018, understand that you're bringing in newer, tour flow or newer members but what are the sensitivities? How can that vary?
Yeah, I'll talk about the, I'll talk about the first part of that. As you as you've certainly indicated in his Howard showed in his slide, I mean, the the the timeshare business is is is cut a fairly large footprint. We play in the upper quality tier and with our rich quality product, obviously, in the luxury tier of that space. We have looked over time about, the,
the opportunity to expand our
foot print in the space by looking something below where we are today. And, you know, we we actually try to an effort there. I think timing in life is a lot of things, but, we actually had a horizons product, which was a more moderate tier product. I'll I will also say to you, it was probably not our finest hour, as a business. We probably didn't adapt some of our sales and marketing techniques whenever else to deal with a consumer that had a a lower average household income and the like.
So, we exited that space, a number of years ago. But having said that, it's not something that we would rule out. Typically speaking, if you'd like to get in that space, there's 2 different to do it. Obviously, you can go out and do a deep greenfield start up, or you could do through some sort of M and A. And, you know, if the right kind of acquisition opportunity were to come along that could be a good strategic fit and and be accretive to our shareholders, we'd certainly look at it.
And Howard, correct me if I'm wrong. That's that 41 years was just in the last couple of years, what the consumer is, right, So if you looked at the overall average of who owns timeshare in ARDA, why it wouldn't look that. It would look in very similar to ours as you want. That's just who's been buying the last 18 months. So we're tracking this generation of consumers.
And if you looked at who's bought for us in the last several years, it will skew, especially with the points program, allows us to offer smaller packages, which we can tailor to, someone first in entering the industry, and then they re we reload them and let them grow with us as their vacation needs to grow.
And then development margin? Yeah. I'm sorry. I didn't pick up the last part. On the 21%.
I made a, like I said in my remarks, by no means, is that a a ceiling, by any means of what we think we can do. However, you know, as we talked about given the marketing and sales programs as well as the first time through costs that hit the P and L before you actually get into sales when you open up a new sales distribution, There's gonna be some headwinds on the marketing and sales side. And the other piece is the product cost side a little bit. We don't know, you know, over the next 3 years, like I said, though we have call it a $1,000,000,000 of inventory spent. We haven't even identified all of that yet.
Right? So to the extent that we can source things more cheaply or the there's a, you know, different mix in terms of how we're doing asset light, I think there's opportunity. Once again, just for ease of going through numbers today, we had to pick a number just to to do the math. So that's what we used on the 21%. By no means, you know, are we gonna stop or or or or set that as a, you know, a reasonable target.
We're going to continue to work on on improving that margin and growing the business and making the investments that need to be made to, for the long term health of the company.
And I'd add to that, our assumptions on, cost per point growth are, roughly inflation. So they're they're pretty conservative in my perspective as the portfolio continues to grow and attractiveness and everything else. There may be some, additional opportunity there, which would help drive your development margin. Any other questions?
David. There we go.
We can
go over a
little bit about the, impact of, of David Baron Capital, the Airbnb impact and what we've seen so far and how we're adapting to that. And what we think about that.
Which yeah. Hi. Lainie, why don't you go?
Sure. You know, rentals of vacation homes and individual rentals, is not new to the industry. Obviously, it's been, more available with the advent of technology, but our, our model to rent to that market has, always been rentals is a is a has been a sustainable and growing part of our business. So for us attention in the space of renting a larger product in the vacation home product is is one that's good. There is some changes that we see that may happen on the for that business model in general as today it's not quite as regulated as the lodging industry.
So there's lots of discussion as to whether or not Airbnb renters will need to pay occupancy taxes in certain cities. And if they'll have to comply with Fair House using fire life safety standards, American with Disabilities Act. And so we see all of that kind of catching up with that business model as well. But, you know, it certainly brought some attention to the industry. Obviously, you've seen from our growing numbers, hasn't impacted our top line rentals.
And it's not affecting us on the sales side. I mean, customers are not using that family, aren't using that for vacations. And what we are seeing a lot of is our as the, vacation home rental business is getting aggregated. Online, that, a lot of our customers, existing owners, and and tour no sales are renting homes more regularly now than they used to. So it's probably not seeing everything we've added to our product to date.
It's probably not that much of a stretch to think we might be looking at something like that. For our product as well. So, we're aware of it and working on it. No. Any other questions?
We've worn you out. Alright. Thank you very much.
Before Steve gives closing remarks here, he indulged me here a second. I I do wanna thank our hope our gracious hosts here at the NYSE, for, putting on a great day and and the team that's helped us out here. Also as you might expect, This isn't something Jeff and I can do on our own. And there's a lot of folks that did a lot of work behind the scenes. And so I do wanna recognize a few folks on my team that helped pull this all together.
Tim, Crapo, Carolyn Young, Kim Freight Smaselli, and Chris Anopa. And, and, of course, Jeff for really taking the lead on this. It's an incredible amount of work as you probably can appreciate. So, but thank you, everyone.
Okay. Thank you, Angela. Oh, yeah. That's it.
Before I turn it to who just go to go through some housekeeping details here at the end. Let me just close with the following comments. Our company's leadership went about the hard, but, mentally rewarding work to create Marriott Vacations Worldwide. The industry leader that it is today and I believe we have delivered very well against the objectives we set in 2011. Throughout a period of enormous change from the time of our spin off up to today, We've never lost sight of what matters most to all of us.
Our mission, our balanced objectives, our dedicated to serve others and our responsibility to our investors. Hopefully, you've heard that we are excited about the future and what it holds for us. We have a plan to grow in markets that make sense for our customers, the business, and our investors. We believe we have a winning formula. Vision, talent, and passion.
Vacation business is hard work, yet it's also especially rewarding. We are dedicated to delivering unforgettable experiences that make vacation dreams come true, and we will not waiver from our mission. Thanks for the opportunity to share the next chapter of our accomplishments, strategies, and plans with you. We believe it will be our best chapter yet. As Mary Vacations worldwide continues to lead and grow.
And in closing, I hope that wherever your travels to you that you encounter unforgettable experiences for you and your families that make your vacation dreams come true. Trust me. It matters immensely. Thanks very much for joining us today, and enjoy your next vacation. Thank
you. Thank you very much. One last, comment, as you could tell from one of our earlier conversations, we like surveys, and, you will be no different. So we've given you a survey on your, portfolio. We would love it if you could give us some feedback as to how today went for you.
And if you turn that in in the back, there's a flash drive that will have today's, slides already loaded on that. Thank you very much.