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Wyndham Worldwide (NYSE:WYN)

Q4 2013 Earnings Call

February 07, 2014 8:30 am ET

Executives

Margo C. Happer - Senior Vice President of Investor Relations

Stephen P. Holmes - Chairman, Chief Executive Officer and Chairman of Executive Committee

Thomas G. Conforti - Chief Financial Officer and Executive Vice President

Analysts

Joseph Greff - JP Morgan Chase & Co, Research Division

Steven E. Kent - Goldman Sachs Group Inc., Research Division

Charles Patrick Scholes - SunTrust Robinson Humphrey, Inc., Research Division

Nikhil Bhalla - FBR Capital Markets & Co., Research Division

Michael Millman - Millman Research Associates

Antoine Chiche

Robert A. LaFleur - JMP Securities LLC, Research Division

Operator

Welcome to the Wyndham Worldwide Fourth Quarter Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. [Operator Instructions] I would now like to turn the call over to Margo Happer, Senior Vice President of Investor Relations. You may begin.

Margo C. Happer

Thank you. Good morning. Thank you for joining us. With me today are Steve Holmes, our CEO; and Tom Conforti, our CFO.

Before we get started, I want to remind you that our remarks today contain forward-looking statements. These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied. These risk factors are discussed in detail in our Form 10-K filed with the SEC.

We will also we be referring to a number of non-GAAP measures. The reconciliation of these measures to GAAP is provided in the tables to the press release. It is also available on the Investor Relations section of our website at wyndhamworldwide.com.

Steve?

Stephen P. Holmes

Thanks, Margo. Good morning, and welcome to our 2013 year-end call. It was another great year for Wyndham Worldwide. We had a strong finish with fourth quarter adjusted EBITDA growing 10% and adjusted earnings per share growing 16%. For the full year, we grew adjusted EBITDA over 9% and adjusted earnings per share 19%. These results demonstrate that the combination of superior business execution and disciplined capital allocation produces exceptional performance. I'm happy with what we have accomplished. But as you know, our focus is on future growth and 2014 promises to be another great year.

Let me take a few minutes to tell you about this exciting opportunities that lie ahead. In the Hotel Group, we are redirecting resources to enable us to launch our first-ever umbrella marketing program with a national advertising campaign to begin this spring. Our goal is to maximize the effectiveness of our marketing spend to drive more direct bookings in incremental revenue to all of our brands. The creative concept is to produce a high-impact, multi-brand national television campaign that also reflects the unique essence of each brand.

We are also redirecting resources to strengthen our Wyndham Rewards loyalty program. Loyalty programs are a key factor in driving hotel contribution. Across the industry, 68% of loyalty program members will stay within their frequent guest program network, even if their preferred brand is unavailable. Our experience is that a significant number of Wyndham Reward members stay at more than one of our brands.

Our Wyndham Rewards efforts are focused on strengthening franchisee participation and member reward levels. We're increasing incentives for franchisees to hit enrollment hurdles and providing better redemption options for members, making it easier and more advantageous than ever to use our program. In 2013, we saw new enrollments up close to 40% and active members up over 20%. We expect to double our program contribution in the next 5 years.

Now turning to Wyndham Exchange & Rentals. This business unit had a great year despite continued economic softness in Europe. Great products, strong management and ongoing innovation have enabled us to achieve these positive results. Nowhere is this more evident than in our European Rental businesses, where we are leveraging proven and highly sophisticated RCI yield management capabilities to increase Rental earnings.

We introduced dynamic pricing last year in our U.K. Cottage and Dutch part businesses. In both cases, properties with dynamic pricing in place outperformed properties with traditional pricing protocols. We plan to expand the use of advanced yield management capabilities to all of our Rental brands, and dynamic pricing is an important aspect of our strategy.

Historically, the vacation rental industry priced holiday homes about 18 months in advance. In addition, promotional discount campaigns required lengthy owner solicitations and approvals, which hindered the necessary speed to market to optimally capture consumer demand and drive volume.

Dynamic pricing is the pricing model used in airline, rental car and hotel booking systems. Rather than trying to predict demand and formulate prices many months in advance, an intelligent system evaluates a range of data, such as past booking information, customer web search trends and other demand factors, continually calculating the best prices to optimize rates and occupancy. This is basic in many industries but new to the Vacation Rental business in Europe.

Regarding the macro environment in Europe, economies in our key markets appear to be on the upswing. For example, the Netherlands, which is home to our largest European Rentals business, has been dealing with the recessionary environment since 2009. This market is expected to grow modestly this year while the U.K. economy is expected to grow over 2%. There are some encouraging signs. Through January, bookings at each of our European brands were ahead of last year.

We also continue to build out the U.S. rentals market. We've added or expanded our presence in 6 markets since we acquired ResortQuest in the fall of 2010, most recently adding the Outer Banks in North Carolina to our great getaway locations. We now -- we have also integrated over 9 -- over 60 websites financial and operational systems. That said, there is tremendous room for growth in the U.S. vacation rental market, which is estimated to be over $20 billion.

On the Exchange side of the business, RCI, which celebrated its 40th anniversary this week, continues to be the innovator in the timeshare exchange industry with great results. We're expanding the services we provide to developers, enhancing the consumer experience, increasing revenues and improving margins. We added over 90 new affiliates and 175 new resorts to the portfolio in 2013, as well as the renewals of significant brands, such as Disney and Fairmount Heritage Place.

We ended the year with online transactions at 48% of the total, up from 45% in 2012 and 13% when we launched the rci.com initiative in 2008. Innovations, through technology and new products, are driving revenue growth and higher member retention rates. Almost $45 million or 7% of RCI revenues in 2013 came from sources that didn't exist 5 years ago, and member retention rates are close to 90%.

At Wyndham Vacation Ownership, we continue to innovate to drive cash flow, improve the sales process and enhance the consumer experience. Even with our long history of industry changing innovations, the Wyndham Asset Affiliation Model, also known as WAAM, is a standout. Since its launch in 2010, we have modified the program and continue to find creative ways to reduce or eliminate the capital needed for product development. These WAAM models are -- were established to improve overall cash flow and returns and have proven to be a great success. Since March 2010, we have signed 14 WAAM contracts with 8 already contributing to sales. More importantly, our current pipeline is sufficient to support 50% of our development spend by 2015.

On the sales front, we have solid momentum moving into 2014. We're excited about our new urban sales offices in New York, which opened in August, and Chicago, which opened in November. Results so far are strong, with VPGs more than double our norm at those -- in those markets. We also recently opened -- began sales in Margaritaville Vacation Club by Wyndham, with our pilot program running ahead of plan.

Finally, as you saw in our release this morning, we are raising our dividend, consistent with our policy to grow dividend at least at the rate of growth of our company. This reflects the board's confidence in the growth and momentum of the business, and I've never been more optimistic about our prospects and ability to leverage the many opportunities ahead.

Now I'll turn the call over to Tom to walk through the numbers.

Thomas G. Conforti

Thank you, Steve. As Steve noted, we're very pleased with our fourth quarter results, which topped off another year of solid adjusted EBITDA and earnings per share growth.

Let me start my comments by reviewing the financial performance of each of our business units in the fourth quarter. In the Hotel Group, revenues were up 10%, reflecting higher RevPAR and increase in system size and increased hotel management reimbursable fees.

Adjusted EBITDA for the quarter increased 3%, aided by RevPAR gains and an increase in system size, partially offset by nearly $7 million of higher expenses associated with marketing. As we discussed on last quarter's call, the higher spending reflects the timing adjustment as we catch up from lower spend in the previous quarters. Adjusted EBITDA excludes a $9 million charge as we put in place the restructuring of our Hotel team, which will support funding for the umbrella program that Steve discussed earlier. Adjusted EBITDA also excludes $8 million in noncash charges, primarily related to our Hawthorn brand.

Domestic RevPAR grew 4.7% in the fourth quarter on the strength of our upscale Wyndham brand, which grew 10.5% for the quarter and 12.4% for the full year, featuring both strong same-store performance and a mix benefit from recent hotel additions. International RevPAR continues to run at lower rates due to expansion of our lower RevPAR brands in China. Overall, RevPAR increased 3.8%.

System size for the year increased close to 3%, including the opening of 8 Wyndham hotels in Germany and the opening of our 500 Super 8 property in China, which put the total number of Wyndham family properties in China to nearly 700.

Our Exchange & Rentals segment generated solid operating results in what is seasonably their toughest quarter of the year. Excluding the impact of foreign currency, revenues increased 3%. On the same basis, adjusted EBITDA for the quarter was down $4 million, primarily reflecting increased losses due to Rental acquisitions.

On the Exchange side of the business, revenues were relatively flat on a constant currency basis. Average number of members increased 1.6%, reflecting member growth in the Americas attributable to higher retention rates and new affiliations, while Exchange revenue per member decreased 1.8% due to the absence of revenues related to a product discontinued during the fourth quarter of 2012.

Excluding the impact of foreign currency and acquisitions, Vacation Rental revenues were up $5 million or 4% for the quarter, reflecting a 4.4% increase in average net price per rental as our yield management strategies continue to produce benefits, particularly at our Landal GreenParks business in Holland. Transaction volume was flat.

Our Vacation Ownership business had a great quarter with revenues up 12% and adjusted EBITDA up 19%. Gross VOI sales were up $53 million or 12%, reflecting over a 6% increase in both tour flow and VPG. We're really pleased with the progress we've made on VPG. And as Steve said, we're starting the year with solid momentum.

Write-offs of consumer finance receivables in the quarter were $68 million, down over 12% from the fourth quarter of last year. The provision for loan loss was $73 million, down from $89 million a year ago. We're pleased with the progress that we've made in this area. We'll continue making refinements to our credit standards this year and expect further improvements in the provision.

Now when we look at overall company EBITDA performance from 2013, we see growth of over 9%. You might remember that foreign exchange trends went against our guidance assumptions to the amount of $14 million company-wide. Now if we were to add this amount to our final EBITDA number of $1,152,000,000, we would've exceeded the top end of our full year EBITDA guidance range.

Free cash flow for the year was $770 million or $5.70 per share, slightly ahead of our expectation. As you know, cash flow movements can be fluid on a day-to-day or week-to-week basis. Therefore, we are focused on a target area of approximately $750 million rather than any specific number. Cash from operations were just over $1 billion while CapEx was $238 million, higher than 2012, largely due to renovations at our owned Rio Mar hotel in Puerto Rico and Wyndham Exchange & Rentals moved to a new building.

We repurchased 9.7 million shares during the year for $590 million, decreasing our weighted average diluted share count by 7% year-over-year. Including the $156 million that we paid in dividends, we returned about $750 million directly to shareholders. As it turned out, acquisitions accounted for only a small portion of our spend last year. Now please remember that an important capital allocation priority for our company is to prudently invest in the business, including M&A, seeking out the highest returns for your capital.

Now let's turn to 2014's outlook and guidance. We're going to post full guidance details to our Investor Relations website following the call, and our guidance assumptions are based on foreign exchange as of December 31, 2013. Our revenue and adjusted EBITDA guidance ranges are unchanged at $5.25 billion to $53.5 billion (sic) [$5.35 billion] for revenue and $1.22 billion and $1.24 billion for adjusted EBITDA.

Adjusted earnings per share guidance for 2014 moves to $4.18 to $4.28 per share, reflecting the share repurchases in the fourth quarter of 2013. We expect the diluted share count of approximately 131 million shares, which, per our standard guidance practice, assumes no share buybacks in 2014. That translates to approximately 9% to 12% adjusted EPS growth in 2014 before any share repurchase in 2014.

Now let's take a quick look at guidance for each of our business units. Starting with the Wyndham Hotel Group, we expect another strong year. At the guidance midpoint, we expect revenue growth of approximately 5% and adjusted EBITDA growth of approximately 10%. Regarding Hotel drivers, we expect RevPAR growth of 4% to 6% and room growth of 2% to 4%. Recall that we are operating primarily in the economy and mid-scale areas, which usually have lower RevPAR growth than the overall industry at this stage in the recovery cycle.

We expect Wyndham Exchange & Rentals revenues at the midpoint of guidance to increase 7% and adjusted EBITDA to increase 8%. We expect average number of members in our Exchange business to grow from 0% to 2% and Exchange revenue per member to be flat. We also expect Rental transactions to grow 4% to 6% while average net price per rental would grow 5% to 7%.

For Wyndham Vacation Ownership, we expect total segment revenue growth of 4% and adjusted EBITDA growth of 5% at the midpoint of the guidance ranges. We expect tour growth of 2% to 5% and VPG to be flat to 2%. We expect the provision for loan losses to decline to approximately 18% of gross VOI sales, down from 20.2% in 2013.

Company-wide, we expect depreciation and amortization to be $230 million to $235 million. We expect to spend between $235 million to $245 million in CapEx. Keep in mind that our maintenance CapEx level is roughly $100 million. We expect to spend $165 million to $175 million in timeshare development in 2014, up from $129 million in 2013.

As we've mentioned over the past few years, our goal has been to manage inventory spend to $150 million as our 5-year average starting in 2011. Our free cash flow guidance remains at a target of $750 million, as stronger business performance will be offset by higher inventory spend and the $40 million increase in cash taxes that we've talked about on last quarter's call.

For the first quarter, we expect adjusted earnings per share to be up $0.72 to $0.75. We would note that there are some differences between our outlook and some analysts' models with regard to share repurchase. We don't budget share repurchases, and some analysts build that assumption into their models.

In addition, on a business unit level, WVO will have a challenging year-over-year comparison in the first quarter. While key drivers for the business are expected to perform strongly, we expect adjusted EBITDA to be flat or down slightly in the first quarter, reflecting the absence of an $11 million benefit from a previously disclosed legal settlement in quarter one of last year, as well as a $6 million EBITDA hit from deferred revenue associated with Margaritaville sales, which we'll just recognize later in the year as construction is completed.

I'd like to finish by reiterating our strategy to deploy cash flow to increase shareholder value by investing in the business and by returning capital to you. Our focus now and always is to maximize shareholder return.

And so we're looking forward to another terrific year. And with that, I'll turn the call over to Steve. Steve?

Stephen P. Holmes

Thanks, Tom. Thanks, Tom. Before we open the line for questions, let me sum up.

At the end of each year, I'd like to be in a position to tell you that we've delivered a combination of more of the same and something new. By more of the same, I mean consistent execution of a sound business plan and disciplined capital allocation that enables us to invest in the business and return a significant amount of capital to investors. By something new, I mean innovating to drive growth and a superior customer experience, leveraging the size of the Wyndham Hotel Group to achieve greater marketing impact, implementing dynamic pricing in the Rental businesses and, as in WAAM, continuing to find new ways to improve cash flow in Wyndham Vacation Ownership. I hope the more of the same component gives you a high degree of comfort in your investment in Wyndham while the something new component gets you excited about the significant runway we have to create value for you in the future.

With that, Shirley, let's open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Joe Greff with JPMC.

Joseph Greff - JP Morgan Chase & Co, Research Division

Steve, Tom, the questions we're getting from investors this morning is on the level of buyback activity in the fourth quarter and in the 1Q, and I know you haven't given any explicit sort of targets in absolute dollars. So maybe the specific question that you can answer is has your view or strategy on the level of buyback activity -- has that changed relative to the last couple of years? And was there anything more recently that would have precluded you from being more active in the quarter or year-to-date?

Stephen P. Holmes

Sure. Thanks, Joe. No, our view has not changed. The fact is we did purchases of around $600 million this year. We did $630 million last year, a little bit more. And that's consistent with what our expectations were. We also managed though -- you asked is there anything that influences it. We have said in the past that we do manage to a leverage ratio. And so if cash comes in or out during a period of time, it could impact the amount of purchases we do for a particular month or particular quarter. But the fact is, we purchased $30 million more in the third quarter of this year than we did in the third quarter of last year. And in the fourth quarter, we purchased a little bit less. So it's not -- I don't think there's anything to read into that at all.

Joseph Greff - JP Morgan Chase & Co, Research Division

So $24 million quarter-to-date times 3, times 4 would be a lot less than sort of the $600 million of annual buyback activity. You're not signaling to us that perhaps the buyback signal is different than in the past.

Stephen P. Holmes

Absolutely not. No. And it's -- if you were to look at it on a day-by-day basis, you'd probably get even a different interpretation. So no, we have not changed our policy and our thought on that. And in fact, I think in Tom's comments it's pretty clear that our capital allocation policy remains the same. We'd love to invest in the business if we can. If there aren't good deals for us, we're going to buy back stock and we increase our dividends.

Joseph Greff - JP Morgan Chase & Co, Research Division

Well that comment is a great segue into my next question. Is there much out there? I know in the past, some of these acquisitions, you could argue, have been more of a -- coming from a distressed area or a distressed seller. Is there much out there that would fit what you kind of talk about as being sort of tuck-in acquisitions?

Stephen P. Holmes

Well, there's always things out there, and we're pretty active in looking at everything that's out there in our zone. So we -- I don't think that the pipeline is much different than it's been in the last couple of years. We don't know if we'll close any of the deals we're looking at currently, because you just can't predict what the other side will do or whether we'll be able to get ourselves comfortable in the price metrics. But nothing really has changed, Joe, in that regard. We'd love to find more opportunities to grow, and we'll continue to look. But if the deals don't make sense, we're not going to be doing them.

Operator

Our next question comes from Steven Kent with Goldman Sachs.

Steven E. Kent - Goldman Sachs Group Inc., Research Division

Could we talk a little bit more about the timeshare business broadly? I guess I'm struggling with the VPG business. The volume per guest was just so terrific. I still didn't completely understand why it wouldn't moderate as we get into 2014, especially given nice growth expectations for tours. And then staying on timeshare, the loan loss provision changes for Q4, can you just give us a little bit more color on that? And how you're thinking about it for -- I'm sorry, for the fourth quarter and then for the balance of '14, how are you thinking about loan loss provision? And then finally, Tom, what are your -- did you mention what your free cash flow growth expectations were for '14 and beyond?

Stephen P. Holmes

Okay. Well, I'll let Tom take loan loss and the question you addressed to him about the cash flow projections. I'll address the first question, which was VPG. And we saw a nice VPG lift in the fourth quarter. You're right, Steve, we did. We also had a relatively easy comparison. And we had said that before to 2013, to -- excuse me, 2012 when we discontinued a program that we've talked about before. That lifted us in 2012. It ended and then was not present at the end of 2013 -- excuse me, 2012. So the 2013 comparison is easier. I don't think that, that's necessarily indicative of what the upcoming year will look like. And again, we don't run the business to try to hit a VPG growth number. That's not the way that we run the business. We run it for EBITDA and cash flow. And the fact is we are constantly looking at new marketing channels, new ways to add partners to our marketing program, like Margaritaville and others. And we build our program and plan around what we see as our marketing channels and our ability to drive tours from different channels. And what we're giving you as the guidance is based on the best information we have available. This is what we think the VPG will look like for the year. As I said for the projects in the urban markets in Chicago and New York, they've been terrific. They're running ahead of our plan, and they're significantly above the average VPG. But then in and of itself will not lift the overall VPG. That's just 2 markets that are doing very, very well. So we're trying to give you the best guidance we can based on what we're looking at throughout our marketing channels. And we'd love to overperform. But then again, we're going to give you what we think is our best look at what the year will look like. And I don't know what else I can add to that, Steve. But I'll let -- Tom, do you have anything to add?

Thomas G. Conforti

Steve, just finishing up on that. Did you note the sales towards existing versus new? I'm sorry, if maybe you could give us some color on that, too. I didn't -- if I heard that or even speak to that.

Stephen P. Holmes

We didn't speak to it. We think our marketing channels this year will be driving a few more new tours than we saw last year, but it's not a massive shift. We look at that because we want to make sure we're adding new members. And as the system grows, obviously, we need to add more new members in order to keep that same ability to grow in the future on upgrade sales. So this year, we were around 28,000, 29,000. We'll probably break 30,000 next year. But no major shift.

Steven E. Kent - Goldman Sachs Group Inc., Research Division

Sorry, Tom, go ahead.

Thomas G. Conforti

Okay, Steve. I'll answer your third question first, which is did I talk about free cash flow for next year. Yes, we're targeting $750 million. And the reason we pointed out that the we're targeting $750 million, first off, we're targeting around $750 million because of the fact that while the business will be growing and producing more cash from the business, there are 2 extraordinary factors. One is as we've been talking about now for a number of years, we expect our cash tax rate to increase, and next year, it'll be notable. And that's going to be probably around a $40 million impact alone. And then as we've been managing to this inventory spending target over $150 million over a 5-year period of time, we expect to spend a little more in inventory next year 2014, this year, rather, than we did last year. So those are the 2 factors in why we're targeting around $750 million. So to your second question, which I'll now answer second, is the question about provision. If you recall, we identified cease and desist probably a year and change ago that we have noticed a tick-up in that type of activity, which led to higher defaults. And we indicated at that point in time that we thought that was something that we could deal with. And I think our team down in Orlando worked on it pretty aggressively this year with our legal team, and I think we've made good progress on cease and desist. So I'd cite that as a factor. But I would cite sort of just overall improvements that we're making in our consumer finance group in Las Vegas and working with people who have loans to try to improve what we can to try to improve the default trends. If you look at our actual defaults, our actual defaults have not been growing. And so that's an encouraging sign and a sign that gives us optimism that next year that, that number will come down. And you and I may have had a conversation along the way. If you remember, our provision for loan loss at its peak was around 30%. If I recall correctly, 29% to 30%. And we were often asked, "Well, you've strengthened the quality of your buyer. When will it get to the good old days?" And the good old days, I think, before I arrived. But I think 2007, the number was around 17% or 18%. And so we never promised anything because it's really hard to predict. But we're really encouraged that, next year, we'll be getting close to an 18% number. So we feel good about our progress, but there's more work to do. There's never -- we never stop working to improve that measure.

Operator

Our next question comes from Patrick Scholes with SunTrust.

Charles Patrick Scholes - SunTrust Robinson Humphrey, Inc., Research Division

I have 2 questions. The first is I just want to be clear -- just clear something on the previous question. In your EBITDA guidance assumptions, does that assume that your loan loss provision will be going down in 2014 to make that guided range?

Thomas G. Conforti

Yes. From about 20% to about 18%.

Charles Patrick Scholes - SunTrust Robinson Humphrey, Inc., Research Division

okay. And the rule of thumb, each percentage point was roughly $8 million. Is that -- as I recall, correct?

Thomas G. Conforti

Patrick, the number -- we said that a couple of years ago. I wouldn't want to quote it right now. So let us get back to you on that. We haven't revisited that metric for some time.

Charles Patrick Scholes - SunTrust Robinson Humphrey, Inc., Research Division

Okay, fair enough. That was the first question. The second, and to dig a little bit deeper into the results, the Vacation Exchange & Rental. In the press release, you talked about weakness from seasonality, from acquisitions and, obviously, foreign currency. But -- and in the conference call, the prepared remarks, you talked about increased losses from acquisitions. Did I hear that correctly? And if you could talk a little bit more what -- about the seasonality and what exactly are these increased losses from acquisitions.

Stephen P. Holmes

Sure, Patrick. And the -- and I appreciate the question. If there's any confusion around that, we should be really clear. So the Vacation Rental business is a seasonal business because of the way that the bookings and the cash comes in is definitely tilted towards the summer months. And because of that, you saw the infrastructures. So you could actually buy a business that has a loss in the fourth quarter but has a profit in the second and third quarters. And that is not unusual in the Rentals business. We did a couple of deals this year that brought in businesses and brought in, therefore, their losses in the fourth quarter that skewed it a little bit. We're really pleased with the deals that we've done and the performance that we're seeing, so we don't want to give any signal that there's anything wrong there. We're very happy with the performance that we've seen, and we've done deals both in the U.S., as well as in Europe. So no, it's just -- we're trying to describe why you don't see as much growth as you might think you would see given the performance and the drivers that we're reporting out on. That's really the only thing that we're trying to signal to. Do you have anything to add to that, Tom?

Thomas G. Conforti

No, that's perfect. No.

Charles Patrick Scholes - SunTrust Robinson Humphrey, Inc., Research Division

Okay. I've got one more question here. You talked in the earnings release about higher capital expenditures in 2013 versus 2012. Just give me a little more color on what were those higher expenditures. Was it more just in the timeshare developments, or where else was that?

Thomas G. Conforti

What we cited, there were 2 reasons. One is that we are in construction in our hotel at Rio Mar, the hotel that we purchased in Puerto Rico. And so that's coming through CapEx, that -- the hotel improvements. When we start to develop timeshare, that will be done not through CapEx, of course. And then the second reason is we built a new building or had a new building built for our Exchange & Rentals team, and that was the other extraordinary factor.

Operator

[Operator Instructions] Our next question comes from Nikhil Bhalla with FBR.

Nikhil Bhalla - FBR Capital Markets & Co., Research Division

Tom, this question is for you. Would you just kind of give us some color on where the default rates actually stood at the end of 2013 compared to 2012?

Thomas G. Conforti

If -- we can give you that. We're going to get you that information. But I assume you recall that we were down in the quarter, for sure, which I cited on -- in my comments. But for the full year, my guess is we were down. But I can have someone do a quick calculation, and we can someone -- we'll get you the percentage. You're asking, Nikhil, for the full year change in defaults, 1 year to the other, or are you just looking for the quarterly number?

Nikhil Bhalla - FBR Capital Markets & Co., Research Division

No, that's -- even the full year is good enough. I'm just trying to ascertain where we are right now or where we stood for the year. And then just going back to where that number was at its worst, possibly in 2009, if you could just -- I don't know if you remember that number.

Thomas G. Conforti

Okay. We're going to scramble and get you that data. But let me give you 2 data points. For the full year 2013, there were $280 million in defaults as compared to 2012, $305 million in defaults. And the peak number in 2009 was $462 million in defaults, so a material improvement in what were quite difficult times, of course, for everyone.

Operator

Our next question comes from Michael Millman with Millman Research Associates.

Michael Millman - Millman Research Associates

Regarding the rental industry, I was wondering if you have any associations with some of the OTAs. For example, the HomeAway seems to have some association. And so to the second question I wanted to ask regards mobile devices. Again, big discussions upon mobile devices for reservations. I was wondering -- and it would seem particularly that you want more to be done in-house. Where do you stand on using -- getting into mobile devices and away from some of the Expedia-type companies, for example?

Stephen P. Holmes

Okay. And, Mike, I assume the second question was more directed to the hotel industry than rentals. Your first one was rentals, correct?

Michael Millman - Millman Research Associates

First one was rentals, correct. And -- it's correct.

Stephen P. Holmes

Okay. On the Rental side, and I know you've ask this question before about the connectivity to OTAs, we do use -- for example, you raised HomeAway. We use HomeAway for some of our product distribution, but that's not our main channel. But we do use it at times when we're -- when we have inventory that we're trying to place out in the market. So we do use all the different distribution channels that we have available to us. We view them as partners. We don't view them as anything other than that. So we feel that our model of the full service managed rental is different than other models, but the other distribution models are great complements to what we have. With respect to the mobile devices, I encourage you to go on your mobile device and pull up our apps. They're very good. You can book either directly on your mobile app or what we offer as our first choices. After you do a search, you can push a button and get connected to our call center because it'd be better if people were talking on the phone than trying to do their iPhones while they're driving. So you can do it either way on our mobile apps. They're very good. They're very easy to use, and we think they're user-friendly.

Michael Millman - Millman Research Associates

Could you kind of quantify to what extent reservations are coming through your own mobile devices? What kind of growth you're seeing?

Stephen P. Holmes

The growth is significant. I don't know the exact numbers. But overall, it's still a small piece. But that -- if I gave you a growth number, it would look really big. But it's off a small base of what it contributes to the overall.

Operator

And we do have one more question. Next question comes from Antoine Chiche with KKR.

Antoine Chiche

Just wanted to ask regarding the 2014 guidance in the prepared remarks you mentioned that...

Thomas G. Conforti

Antoine, you got to speak up.

Stephen P. Holmes

We can't hear you.

Antoine Chiche

All right, sorry. You mentioned that the fourth quarter was affected by $14 million in foreign exchange. I was wondering if foreign exchange had affected your 2014 guidance at all. And if pro forma, it had actually increased from last quarter.

Thomas G. Conforti

Yes. Antoine, number -- what we said specifically is when we set guidance at the end of 2012 for 2013, we made certain assumptions in our guidance, right, because it's a target that you have to establish with some fixed assumptions. And so we used foreign exchange at the end of 2012 for guidance. And then throughout the year, particularly early in the year, those guidance assumptions created a deficit of around $14 million for the company.

Operator

We do have a question from Whitney Stevenson with JMP Securities.

Robert A. LaFleur - JMP Securities LLC, Research Division

Somehow, I came through as Whitney, but it's Bob LaFleur. A quick question on the Hawthorn charge. If you could just give us the details behind that and what was involved there.

Stephen P. Holmes

Well, that was -- Hawthorn's a brand that we bought when we acquired the USFS business from Hyatt. We bought Hawthorn and Microtel. And when you do the acquisition, you have a set of projections of what the growth rate will be and where you'll be in a certain period of time. And that drives the value that you allocate to the brand and to your franchise agreements and everything else. In the case of Hawthorn, the growth has not been what we originally had projected. What we found was we had to terminate more properties than we thought once we got in there. And so we took down the number. Subsequent to that, it's been growing well. We -- in fact, we just added a whole bunch of Hawthorns. So I think in the long run, we -- what we'll define -- it's just a point in time when we had to compare to what we had originally projected. There was little shortfall. Not the case with Microtel, which is doing fantastic. Just the case of that particular brand.

Thomas G. Conforti

Bobby, we didn't write-off the total asset of the brand. We just shored off a portion of it.

Robert A. LaFleur - JMP Securities LLC, Research Division

Is Hawthorn primarily a new-build brand, or are you doing conversions with that?

Stephen P. Holmes

We're doing conversions as well as new build. We actually just created a new prototype for Hawthorn that is seeming to be very popular. We think we'll get some good traction on that on the new construction side. But we also do quite a few conversions. And it's -- as you probably know, it's Hawthorn's Suite. It's actually an extended stay brand for us.

Robert A. LaFleur - JMP Securities LLC, Research Division

Okay. And one quick last one on timeshare. With the increase in tours and the increase in VPG, is the increase in VPG being driven primarily by better close rates, or is it better sort of average transaction price? Could you maybe talk about some of the composition of that improvement?

Stephen P. Holmes

Bob, it's a little bit of both. I don't -- I wouldn't want to be -- I wouldn't want to say that it's just one that's contributing to it. Again, we don't manage the business to VPG as one factor. And if we saw close rates shoot up and the volume go down a little bit, we wouldn't be heartbroken. The price per transaction go down. It's like RevPAR. Occupancy up, ADR down a little bit. Do you live and die by that? No. So I don't want to be telling you that it's going to be just one or the other factor. It's going to be a little bit of both.

Operator

Our next question comes from Joe Greff with JPMC.

Joseph Greff - JP Morgan Chase & Co, Research Division

Just a quick follow-up here. Of the $235 million to $245 million of CapEx for '14, how much of that would you identify as sort of onetime in nature or things that would not necessarily recur beyond '14?

Thomas G. Conforti

Yes. So we're going to finish construction on Rio Mar, and that's going to be probably another $30 million or $35 million. So it's probably around $200 million, Joe, with about $30 million being extraordinary-type spending.

Stephen P. Holmes

Joe, maybe more to the point of the question. Our maintenance CapEx is around $100 million. And so everything above $100 million, you can kind of assume is something that we're doing to improve the business that is not required just to keep the lights on. And so that -- there will be flex in that above. But to Tom's specific answer, that's the 2014 impact.

Joseph Greff - JP Morgan Chase & Co, Research Division

Great. And can you remind us last year in the 1Q, the settlement gain last year, what was that exact amount?

Thomas G. Conforti

It's $11 million. It was in WVO.

Operator

At this time, I'll turn the call back over to the speakers.

Stephen P. Holmes

Thank you, Shirley. I appreciate you all joining us and look forward to talking to you later on in the year. Thanks.

Operator

And this does conclude today's call. We thank you for your participation. At this time, you may disconnect your lines.

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