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Wyndham Worldwide, Corp. (NYSE:WYN)

Q3 2007 Earnings Call

October 31, 2007, 09:00 AM ET

Executives

Stephen P. Holmes - Chairman and CEO

Virginia M. Wilson - EVP and CFO

Analysts

William Truelove - UBS Research

Joseph Greff - Bear Stearns

Steven Kent - Goldman Sachs

Michael Millman - Soleil Securities

Jake Fuller - Thomas Weisel Partners

Presentation

Operator

Good morning and welcome the Wyndham Worldwide Third Quarter 2007 Earnings Call. Throughout today's presentation, all lines will remain in a listen-only mode. Following today's presentation, there will be a question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time.

I would now like to introduce today's conference host, Mr. Steve Holmes, Chairman and Chief Executive Officer of Wyndham Worldwide. Sir, you may begin.

Stephen P. Holmes - Chairman and Chief Executive Officer

Thank you Rosie, and good morning and welcome to the third quarter 2007 Wyndham Worldwide conference call. With me today are Gina Wilson, our Chief Financial Officer and Margo Happer, our Investors Relations Officer. Thanks for joining us.

Before we started, I'd just wanted to remind you there our remarks contain forward-looking information that is subject to a number of risk factors that may cause our actual results to differ materially from those expressed or implied in the forward-looking information. These risk factors are discussed in detail in our Form 10-K, filed March 7, 2007, with the SEC.

We'll also be referring to a number of non-GAAP measures which are discussed in the press release, and which Gina will touch on, in her comments. The reconciliation of these measures to the comparable GAAP measures is provided in the tables to the press release, which is available on the Investor Relations section of our website, at wyndhamworldwide.com.

As you saw it in the press release, we had another strong quarter. We delivered our fifth straight quarter of solid results as an independent company, with reported earnings per share of $0.65 and adjusted EPS of $0.75. We continued to successfully execute our growth strategy, leveraging the Wyndham brand, expanding internationally and acquiring new customers.

Let me review our results. The Hotel Group continues to strengthen its position as an integrated international franchise and management company with a platform for sustainable growth, based on a full spectrum of well-defined brands. Results in lodging were right in line with our plan, with revenues of $211 million and EBITDA of $70 million. We continue to make good progress on our strategic initiatives, which includes building our strength in the economy in mid-scale segments, leveraging the upscale Wyndham brand, and expanding our international presence.

We continue to drive value to our franchisees through strong brand management and enhanced marketing programs, as evidenced by RevPAR gains that consistently outperformed our peer set. System-wide RevPAR for the third quarter of 2007 increased 5.6% from last year, and comparable RevPAR was up 6.2%. Overall system growth is steady and we are on-track for net room growth around 2% this year. That said, we are below our target for weighted average rooms, principally due to timing issues. It's taking us a little longer than we had anticipated to complete permitting, QA [Quality Assurance] and other issues in international regions, and as a result we are experiencing some shifting versus our prior expectations, as to when these properties will come into the system. However, we are confident in our ability to reach our long-term goals. These properties will open just a little later than we had originally expected.

Deal flow in the quarter continue to be solid, with a 174 contracts signed and the pipeline is strong, with over 104,000 rooms, of which 45% are new construction. Interest in our brands continues to grow, as evidenced by a 22% increase in our pipeline, since this time last year.

We continue to grow the Wyndham Hotel and Resorts brand. We had a number of recent Wyndham openings, most notably in Panama City, Panama where we now have a 300 room five star luxury hotel in the heart of Panama's financial district; In Cozumel, Mexico where the 400 room Wyndham Cozumel Resort and Spa became the first Wyndham on the Island; and in Princeton, New Jersey, where we opened the Wyndham Princeton Forrestal Hotel & Conference Center, with 360 guest rooms and 60 meeting rooms.

We have also lead the Hotel Resort portfolio, adding 11 new properties for a total of 23 resorts in some great locations like Acapulco, Cozumel, Puerto Rico, St. Thomas, St. Maarten, Puerto Earache [ph] and the Bahamas. Our resort portfolio now offers significant variety to effectively compete in this segment and remains a key focus of the Wyndham brand strategy. We recently held a conference for Wyndham owners, managers and prospective clients, where we outlined a three-pronged strategy to continue our expansion efforts, to improve guest satisfaction and to enhance brand value through a new marketing plan targeting GenX customers. We saw a dramatic increase in attendance since our last conference, which was late in 2005, shortly after we acquire the Wyndham brands.

The conference was held at the Wyndham Rio Mar; the crown jewel of our development efforts this year, which now includes a recently opened Timeshare's sale office as well. The Wyndham brand pipeline continues to strengthen, more than doubling in the past year and now represents close to 25% of our total pipeline. We believe that we are in excellent position to increase the global footprint of this brand. We are also making progress on the hotel management front.

RevPAR increased 14.3% at company managed hotels, demonstrating our ability to bring value to the system and drive better performance for the property owners. Despite the delays in openings that I mentioned earlier, our international expansion remains firmly on-track. International deals represent 30% of the pipeline. We continued to enjoy rapid expansion in China, a market that the World Travel and Tourism Council has predicted will become, the second largest travel in tourism economy in the world by 2016, and where we already have more hotels than any other U.S. hotel company.

One indication of the value of Super 8 brand in China, is Aetos Capital announce in late August that it would invest up to $50 million in Tian Rui Hotel Investment Corporation, the master franchise of Super 8, to accelerate hotel development in China. This will give Tian Rui and us, the ability to expand and accelerate the growth of the Super 8 brand in this important market from a very strong base of 54 hotels open right now, and 40 under development.

Now, turning to the vacation exchange and rentals; Revenues and EBITDA at Group RCI were $336 million and $103 million, slightly below our expectations. While we are pleased with growth in the number of new exchange members, annual bills and exchange revenue per member was dampened by the timing of mix of exchange deposits versus last year, primarily reflecting the lapping effect of some marketing programs, which resulted in high interval deposits in the third quarter of 2006. While there are no fundamental changes in the trends of this part of the business, we believe, we have some opportunities to improve the business by further leveraging our growing membership base, improving inventory management and better utilizing customer service, to boost exchange transactions.

As we reported earlier this year, we launched an enhanced version of our Points product which is showing early positive results. Many of the enhancements are Web based. We're actively working on the best use of technology and the Internet across the business, as a means to increase inventory utilization, enhanced customer satisfaction and ultimately improved margin. We're in the process of testing a new member rental platform that will rollout in November, and it's a significant improvement for the current site. We expect it will help us manage inventory more effectively and help members understand the breadth of what RCI has to offer.

Another exchange area that's been expanding is in luxury exchange product. Our registry collection leverages the global growth trends in fractionals and private residence clubs. The registry collection exchange program is the industry's first and largest global exchange network of luxury vacation accommodation. It includes high-end vacation ownership resorts, fractional ownership resorts and condo hotels around the world. We now have more than 120 affiliates, 9 of which were signed in the third quarter, at which our beats [ph] are more than 24,000 registry collection members can exchange. Today the pipeline consists of over 200 projects throughout all regions.

In the rental business, overall performance was strong driven by higher net price per vacation rental up 14%, which was supported by mix and favorable currency translations. We booked approximately 360,000 transactions up 1% from last year. The Novasol and Landal brands continued their strong performance, while the UK business saw some softness from the unusually severe summer rains in the UK.

As we told you on our last call, expanding our rental capability is a core Group RCI strategy. We have a strong and growing base in Europe where rentals account for close to 25% of the vacation accommodations and we are looking to grow the rental business in the Americas region as well. To maintain growth and bringing leadership to the rentals category in the U.S, we need to further invest in and expand our rental capabilities. To that end, we recently formed a strategic alliance with LeisureLink, a premier provider of online distribution for vacation rental properties. The agreement with LeisureLink will increase the online presence of our global condominium and vacation rental inventory via new channels, including online travel agents such as Travelocity, Orbitz and Expedia. The relationships help lays a strong foundation to build a U.S. rental platform.

As you saw in the press release today, Ken May, the President of Group RCI is leaving the business to pursue personal interest. Ken's vision has been instrumental in shaping RCI, I want to personally thank him and wish him well in his future endeavors.

Finally moving on to vacation ownership; revenues and adjusted EBITDA at Wyndham vacation ownership were strong at $671 million and $117 million respectively. Gross VOI sales were up an impressive 15% from last year's third quarter, reflecting solid gains in both sales efficiencies and tour flow. This business remained strong and we continue to be pleased with its performance. As we've been saying, for quite some time now, we like the Timeshare segment for two reasons, growth and resiliency, and we've seen and continue experience growth throughout 2007 as evidenced by strong results in all three quarters.

Moreover, our customers continue to value their ownership, as evidenced by increased occupancy rates in 2007 versus the prior year. Our owners are out there, they are traveling and they are traveling to our locations. This business continues to meet our expectations of delivering solid results and growth.

A big part of our success is the Points system. As we told you in previous calls, Points are an important sales tool. But they also play an important role in our inventory management and development. Because we sale Points-based products, we believe we are well equipped to match sales demand through available inventory. The locations where we develop our Timeshare product are based on owners' preferences, but sold through sales offices throughout the country. Sales are largely independent of physical inventory locations. We can sell our Points-based products from more than 100 offices worldwide, enabling us to better meet customer demand.

Another part of our success is due to our scale and flexible product offerings, which enable us to understand the market as defined by our owners and to anticipate their travel aspirations. For example, many of you may have seen recent press coverage about the popularity of water parks. We saw this trend emerging several years ago and began planning. Nowhere is this trend more apparent than at Glacier Canyon in Wisconsin Dells, which welcomes more than 300 million visitors per year and now supports nearly 1 billion in traveler spending. We recently opened a 102 unit Wyndham Vacation Resort there, the only vacation ownership property located within the complex. The Wisconsin Dells Resort is a one of a kind property that features access to three indoor water parks with more than 200,000 square feet of water activity, as well as several outdoor water parks and other year around activities. Driven by high owner interest for the area, we have already planned for a 99 unit expansion at that resort.

Another hot area for vacation ownership is urban resorts. We entered the urban market in 2000, when we opened our 88 unit property in Alexandria, Virginia. We are now a leader, the leader in this market, with an established portfolio of urban resorts located in San Francisco, Seattle, San Antonio and New Orleans. We have additional projects underway in San Francisco and Prince George's County, Maryland and others are in the planning stages. Urban locations have become popular with our owners as the model fits new travel trends with shorter visits made possible with our Points-based product. This allows owners to split a traditional week of Timeshare in the multiple smaller increments. Not surprisingly, these resorts have some of the highest occupancy rates and some of our most efficient sales offices in our system.

Of course, our destination markets continue to perform well, and we saw particular success in Orlando, Myrtle Beach and Atlantic City. We are constantly seeking to leverage our portfolio and we have the skill to opportunistically build the portfolio. For example, we recently acquired 100 finished vacation ownership units at the Emerald Beach Resort in Panama City Beach, Florida and entered into an agreement to purchase 156 additional units. The new location complements four existing Wyndham Vacation Resorts properties in nearby Destin, Florida, which have always been extremely popular among our owner base and this will provide them with even more vacation options along the Emerald Coast.

On the consumer finance side of the business, the portfolio continues to perform well, and as you saw for the press release today, we have priced a $455 million term securitization, as well as renewed an upside to conduit to $1.2 billion from a $1 billion. Gina will tell you the details of these financings.

Before turning the presentation over to Gina, I wanted to reiterate our optimism about the opportunities ahead. With almost half of our revenue generated from franchise fees, property management fees, membership fees and exchange fees, combined with our international diversity, Wyndham Worldwide is a well diversified and financially stable hospitality company. We made significant progress once again this quarter against our fundamental growth strategies. In branding, we are leveraging the Wyndham brand to grow in the high-end hotel segment and improve vacation ownership sales and marketing efficiency, as well as looking for more ways to leverage our marketing dollars.

In geographic expansion, we are developing and expanding in new destinations, as well as adding inventory to strong existing growth areas in all three businesses. And with customer acquisition, we continue to strengthen and diversify marketing channels through innovative partnerships and across business unit synergies.

Overall I am pleased with our execution, particularly on the domestic front against the macroeconomic backdrop that obviously has been unsettled for several months now. We are closely watching the potential impact of any ripples from the credit crunch or of the slowing economy on our businesses. However, Wyndham's fundamentals are intact. We have a resilient business model and we remain optimistic. Our focus on the leisure traveler along with the diversity of our businesses and our global footprint are key differentiators that I believe position us well against our peers, even in the difficult economic environment.

I am proud of our global team, confident in our strategy and the soundness of our business model for the long-term. Now let me turn it over to Virginia to go through the financials.

Virginia M. Wilson - Executive Vice President and Chief Financial Officer

Thank you Steve. Let me take a few minutes to go through our results, and then we will take your questions. First in lodging business as Steve mentioned and as you saw from press release, RevPAR growth was in line with our plans. Our largest brands, Super 8, Days Inn and Ramada, which together make up 70% of our portfolio on the domestic side, continue to post domestic RevPAR gains above their competitive sets.

Domestic RevPAR growth in our economy brands, Days Inn and Super 8 increased 6.1% and 5% compared to industry segment growth of just 3.1%. Worldwide, Days Inn's RevPAR was up 7.2% and Super 8's RevPAR was up 6.1%. Ramada increased domestic RevPAR by 8.4% well ahead of its competitive set, and Ramada worldwide RevPAR growth was equally impressive at 11.5%. Performance is pretty solid across all domestic regions with Days Inn particularly strong this quarter in the Midwest and Pacific and Mountain regions, with RevPAR gains in excess of 8%. Super 8 too showed strong growth in the Pacific and Mountain regions as well as in the Northwest with RevPAR gains over 7%. And Ramada grew its RevPAR in the Northwest region in excess of 10%.

These three brands also enjoyed occupancy gains in excess of their competitor sets, particularly Ramada, where occupancy grew 130 basis points versus a 20-basis point reduction in mid-scale with Food & Beverage segment, and in Super 8 where occupancy grew 120 basis points, versus a 20-basis point increase across the economy segment.

Out top five international markets, Canada, Great Britain, China, Germany and Mexico, accounts for over 80% of our international portfolio. We saw strong growth in these key markets with Canadian RevPAR up 10%, Great Britain up 13%, China up 7%, Germany up 15%, and Mexico RevPAR nearly doubled. We've added some disclosure to the release and tables to help you track franchising margins. If you exclude margin neutral items from revenue; specifically property management reimbursable, and marketing and reservation revenues including trip rewards, the franchising margins for the third quarter is about 70%, inline with the year ago, as we continue to invest in the business internationally and in building the Wyndham brand.

So looking at the full year plans in lodging business, as Steve mentioned, system size is growing in line with our expectations. Terminations are according to plan, but openings are a little bit behind schedule. So we would expect to end the year below our estimates on weighted average rooms. Nonetheless, we continue to expect system size to increase by about 2% for 2007. Revenues, EBITDA, margins and RevPAR are all tracking to plan for the year.

Now moving on to vacation exchange in rentals; Steve covered the highlights, so I just like to add a few additional points. This quarter reflected a slight reduction in ancillary revenues versus 2006, consistent with repositioning some of our international consulting services. As you saw from the press release, EBITDA also included marginally higher costs consistent with increased rental and incremental investment in IT infrastructure. Also included is about $4 million in severance expanse. Our CR remains on-track regarding our margin expectations for the year.

Now let's turn to vacation ownership; we were pleased to be able to announce a $455 million term securitization, as well as the renewal and upsizing of the conduit facility to $1.2 billion, which closed yesterday. Hopefully these new financings will moderate any concerns in the market about our ability to effectively monetize the receivables generated by our timeshare organization. On the term deal, here at 2007-2, our weighted average spread over LIBOR was higher than our May, 2007 transaction. However due to reductions in the related benchmarks the all-in cost at 5.85% was less than 30 basis points over the previous transaction. This translates into a P&L impact of approximately $1 million in 2008.

We are pleased with our ability to continue to secure favorable financing terms in this environment. Despite the recent instability in financial markets, particularly in the ADS and conduit markets, we were able to renew and upsize our conduit. We believe that this a testament to the performance of our program over time, and the underlined loan quality, as well as the confidence of the members of our banking group. We were able to add an additional $200 million of capacity in this facility in the most difficult market for these product types in recent memory. Like the term deal, this renewal priced wider than last year's facility, very much in line with current market conditions. Assuming that we use about half of the conduit over the course of its term, the average cost of funds would increase about 10 basis points. We have considered this pricing on both the term deal and the conduit in the 2008 guidance reflected in the press release today.

Our portfolio remains healthy and all indicators are stable. We don't see any early warning signs among the many metrics that we track on a regular basis. Gross VOI sales, tours and volume for guests were strong again this quarter and we expect the business will end the year very well. As we've previously discussed, our Points system in our sales model, provide us with flexibility to sell inventory from multiple locations, and 2007 timeshare sales have been terrific. However we need the inventory to be at various levels of completion to recognize earnings for GAAP purposes. Remember from last quarter's call that we stated that increasing deferred revenue in the second half was expected to reduce GAAP revenues. We expect to see that in the fourth quarter, which will reduce GAAP revenues by about $25 million and EBITDA by $13 million, which equates to almost $0.04 per share.

We expect to see increased deferred revenues in 2008, based on the projected pace of sales in construction and a number of our developments, which is also reflected in our 2008 guidance. Please remember that for Q4 '07, and 2008 you'll be able to see the strength of our timeshare sales and marketing programs in the gross VOI sales metric, that is again before the GAAP accounting deferral calculations, as shown in our drivers table.

Continued growth in contract receivable portfolio over the last 12 months contributed an additional $16 million in consumer finance revenues, which contributed in additional $7 million in spreads in the third quarter of 2007 compared to prior year. This improvement is despite slightly higher average cost of funds and higher average securitized debt balances, as we continue to improve our leverage rates. Remember that increases in securitized debt shifts interest expense above the EBITDA line.

Now moving on to some corporate matters; adjusted corporate EBITDA excluding separation of related costs as well as legacy matters, was $40 million, slightly lower than expected, due to slow hiring of employees principally. We expect to continue ramping up corporate expenses in the fourth quarter and estimate that our normalized run rate will be about $17 million to $19 million reported ahead into 2008.

Our cash and borrowing levels at quarter end reflect the growth in our business and the modest level of share repurchases made during the third quarter. Capital spending and cash flows are tracking to plan. Separation and related expenses are tapering off as expected. Contingent liabilities related to the separation from pendent along with the previously disclosed Q3 increase in the litigation reserve now stand at approximately $391 million, with related assets of $65 million at September 30, 2007.

Now turning to guidance; there is no change in the overall company guidance for the year. While revenues and EBITDA for Group RCI are trending below our expectations this year, the balance and diversity of our business model, mainly continuing performance form both lodging and vacation ownership as well as lower than expected corporate costs, put us in a position to reaffirm overall guidance for 2007.

We reaffirm revenues of $4.34 billion to $4.48 billion, adjusted EBITDA of $845 million to $860 million, and adjusted earnings per share guidance of $2.02 to $2.13 excluding separation-related costs as well as legacy matters, assuming of full year diluted share count of approximately $184 million.

Fourth quarter adjusted EPS guidance is $0.44 to $0.46 per share, excluding separation-related costs as well as legacy matters, based on approximately a 180 million diluted shares. For 2008, we expect revenues of $4.8 billion to $4.9 billion and adjusted EBITDA of $920 million and $945 million excluding legacy items.

And now, I'll turn it back to Steve to wrap up.

Stephen P. Holmes - Chairman and Chief Executive Officer

Thanks Gina. So in summary, we reported another strong quarter of performance and we continue to see tremendous opportunity in our businesses. We are very focused on executing against our strategies, and we look forward to providing you with additional details at our Investor Day in New York City on December 11th. This concludes our prepared remarks. So Rosie, we can open the lines for questions.

Question And Answer

Operator

At this time we'll take questions. [Operator Instructions]. Our first question comes from Mr. William Truelove of UBS.

William Truelove - UBS Research

Hi guys, good quarter. I have a... I want some clarification on just a couple of things. First on the deferral of revenues; every year you have... given the way timeshare accounting works, do you have some deferral revenues? Is this an unusual amount of deferral revenues, so the $0.04... how much, given that you going to have deferred revenues again next year, how much that $0.04 that happens in the fourth quarter this year really needs to be added to the 2008, given that this continues? And second one, can you give a little more details about the all-in additional costs to --

Stephen P. Holmes - Chairman and Chief Executive Officer

I am sorry the additional cost to what? Will?

Virginia M. Wilson - Executive Vice President and Chief Financial Officer

I think we've lost you.

Stephen P. Holmes - Chairman and Chief Executive Officer

I think we lost Will. But to his first question on the deferred revenue in general, adding here as well as, if I miss anything, we always do have deferred revenue. That's the nature of a product that's so that is in the development pipeline. So you've got percentage of completion accounting. At the end of 2006, we had about $25 million of deferred revenue. At the end of 2007, we'll have about $50 million, we think of deferred revenue, which means that we build about $25 million of deferred revenue this year and we think most of that... we now see, most of that will be in the fourth quarter. That is a very small number compared to $2 billion of overall sales. We do expect to have some VOI deferred revenue in 2008. We're working through all of our modeling right now, of what we think that will look like in our Investor Day. We will spend some time walking through our development program, what's coming on when so that you will have a better visibility of it for each quarter of 2008 and where we think the year will end up.

William Truelove - UBS Research

Great thanks. Can you hear me now?

Stephen P. Holmes - Chairman and Chief Executive Officer

Was there a second part for that question Will?

William Truelove - UBS Research

Yes can you hear me now?

Virginia M. Wilson - Executive Vice President and Chief Financial Officer

We heard only the part of that all-in, and then you got cut off. So I am not sure I heard the rest of it.

William Truelove - UBS Research

Can you hear me now?

Virginia M. Wilson - Executive Vice President and Chief Financial Officer

Yes.

Stephen P. Holmes - Chairman and Chief Executive Officer

Yes.

William Truelove - UBS Research

Okay, great. Yes, I was talking about the term facility, the additional $1 million of all-in cost of 2008, and the 10 basis points is far lower than what I think many people are anticipating given the current credit market. Can you talk about a little more color, the underlying benchmark changes and why is only million dollars for next year given all the different current credit market? Thanks.

Virginia M. Wilson - Executive Vice President and Chief Financial Officer

I think the easiest way to sort of understand it is the underlying benchmarks both on fixed and loading [ph] have gone down. The cost to hedge has not been nearly as high as we might otherwise have expected. So even though the spreads have increased, the baseline has gone down and the all-in cost for the term facility, as I said, was 5.85%. Little bit higher than the last one we did in May but certainly within what we think is reasonable cost to continue to access that market. On the conduit, I really think what we have been able to accomplish is to demonstrate to a wide variety of banks over an extended period of time, how reliably our performance in the receivables is. Not to say that each of the banks didn't have a significant sort of credit decision to make, given all of the other commitments that they are being has to make in the market, but we think that we have done a real good job in sort of making sure that people understand what they are committing to.

William Truelove - UBS Research

Great. Thank you so much.

Stephen P. Holmes - Chairman and Chief Executive Officer

Sure.

Operator

Our next question comes from Mr. Joe Greff of Bear Stearns.

Joseph Greff - Bear Stearns

Good morning everyone. Steve, you talked about net growth coming in a little bit less or I guess coming a little bit less within a couple of quarters due to some issues, can you just tell about where sustainable net growth rate is and sort of what's incorporated at this point for 2008?

Stephen P. Holmes - Chairman and Chief Executive Officer

Well, just to be clear on the delays, because sometimes it is a little confusing. Our system size is going to come in around 2% we think, growth year-over-year. The problem is when you're looking at this average... weighted average number of rooms, as we open something in December versus November that has an impact on our weighted average number of rooms. So actually it's more just a weighted average number that's kind of toppled in the peg based on the timing of the openings. We think that the growth overall, Joe, go to your second part of the question, is above the rate that we've been growing in 2007 and again, our plan is toward the Investor Day is going to layout where we see that coming out for 2008 specifically. We haven't given specific guidance on that yet, but we will give guidance on our room growth expectations for 2008. And if I can ask you to hold off to that and get specific on it as we want to give everybody the same information.

Joseph Greff - Bear Stearns

Great, thank you.

Operator

Our next question comes from Steve Kent of Goldman Sachs.

Steven Kent - Goldman Sachs

Hi Steven Kent. May be just again on sort of Joe's question about sort of the unit growth potential; one thing that I'm struck by is that, it seems that some of the unit growth is coming from some of the higher RevPAR performing brands. And could you just give a little bit of some discussion on that, and how you see that laying out over the next 12 to 24 months, that's my first question?

Stephen P. Holmes - Chairman and Chief Executive Officer

Okay, well we see a lot of a lot of enthusiasm for the Wyndham brand. As I mentioned in my comments, the meeting we have done in Puerto Rico at the Wyndham Rio Mar, was a very, very well attended and 300 people versus a 100 people a couple of years ago when we had a meeting and there is a high level of enthusiasm for that brand. So clearly we gone through this transitional period with Wyndham, where we knew we are going to loose a lot of properties, resolve kind of within our modeling is what we thought would be in place after we bought the brand from Blackstone, and we are stabilizing now. And I think you are right, you will see growth in some of the higher RevPAR areas, such as Wyndham and Wingate and I think Days Inn will also be big grower for us going forward. Having said that, we are still adding product to Super 8 and Days Inn, which are just terrific strong brands in economy sector and we are adding products in some of our other brands as well. So it's a mix but, I think you are right, you will see a little bit higher RevPAR product waiting, coming in over the next couple of years.

Steven Kent - Goldman Sachs

And then separately on just timeshare trends; I think Gina said that when you look at some of the metrics, things look still very, very good. Was that Gina, were you referring more to the flow of people coming in to buy timeshare or were you also referring to the quality of the timeshare loans, meaning default rates, account receivables etcetera are inline with your expectations?

Virginia M. Wilson - Executive Vice President and Chief Financial Officer

I think it's both and when I... metrics that we follow on a regular basis, we have an extensive volume of things that we watch both on new loan creation as well as the performance that we loans that we've granted over an extended period of time. And I would say stable performance in the existing portfolio, good trends and new loans being created.

Steven Kent - Goldman Sachs

Okay. Thank you.

Operator

our next question comes from Mr. Patrick Thourot [ph] of J.P Morgan.

Unidentified Analyst

Hi, good morning. Just one more follow up on timeshare tour. When I look at year-over-year road of timeshare tour flow growth, it looks like it's been decelerating from the first half of the year. How are things looking so far for you in the fourth quarter, specifically in October with timeshare tour flow?

Stephen P. Holmes - Chairman and Chief Executive Officer

They are looking strong and it's a small sample. We're used to looking at a couple of weeks of activity or few weeks of activity but it's looking strong. I think one thing you have to consider Patrick is that the third quarter is our largest quarter for tour flow and tour flow somewhat dependent upon the number of sales people you have at the location to run the sales operation. So I think what you see is the fact that we've the ability to push the growth through both existing sites as well as new sales offices that we've opened, that we're driving the first and second quarter to the degree as we've talked about. The other thing is that we did establish within our roadmap by Wyndham in-house sales offices that have collected more tours. Those in-house sales offices are the ones that are after resorts which previously the world markets that was known or trend less in world markets by Wyndham, did not have those sales offices. So we have that ability. Those are some of the new sales offices that we've opened. So we opened them towards the second half of last year and you're seeing some of... a little bit of that lapping going on. But some of it is just a sheer volume that we do and the size of the sales force.

Unidentified Analyst

Great, great. One or two more questions here; one thing that I noticed that you sold, you had a $7 million gain on sale of [ph] vacation ownership properties and because you have changed your development plans. Now since you have bought those properties, what have you seen that's changed that would make you want to sell them? It's kind of interesting because some competitors, who are looking for properties or in need of properties whereas Wyndham is actually selling some of them.

Stephen P. Holmes - Chairman and Chief Executive Officer

Well those properties are properties that were purchased during our purchase of Aquabest back in 2005 I think or 2002 excuse me 2002 and we tried to integrate as many as we could of those properties into our system based on a variety of factors, locations, quality, the general demand for the product and we determined that some of them which had available inventory were no longer a good fit with our with where our sales plans were focused on and where our demand indicators were. It doesn't mean that they are not very valuable for somebody else in the market, who is focused on a particular market, but it didn't fit into our overall plans. So we preferred to kind of reallocate that capital in the areas that we thought better fit our program.

Unidentified Analyst

Great my last question, just quickly on Ken May's departure. Were there any charges or any impact on your fourth quarter EPS from, any severance charges?

Stephen P. Holmes - Chairman and Chief Executive Officer

No we took that hit in the third quarter.

Unidentified Analyst

Okay, thank you. That's all.

Stephen P. Holmes - Chairman and Chief Executive Officer

Thanks

Operator

Our next question comes from Mr. Michael Millman of Soleil Securities.

Michael Millman - Soleil Securities

Thank you. Can you talk about timeshare availability and break that down between completed construction, underconstruction, and planned?

Stephen P. Holmes - Chairman and Chief Executive Officer

Let's see. We break down land and the various components if we do in the...

Virginia M. Wilson - Executive Vice President and Chief Financial Officer

The components will be in a footnote to the 10-Q when we file it. Mike, it will be the same as what you had for prior quarters.

Stephen P. Holmes - Chairman and Chief Executive Officer

Yes, I don't think you will see that it has shifted significantly from where we were before. From the beginning of the year, you did have the fact that we did buy some land that we've reported previously. So our land number will be up a little bit, but I think you will see that the other factors are pretty much in line with where we were before.

Michael Millman - Soleil Securities

Actually, I am looking for not what those were, but what they will support in sales?

Stephen P. Holmes - Chairman and Chief Executive Officer

I am sorry didn't hear that question Mike, could you repeat that?

Michael Millman - Soleil Securities

For example, in your completed buildings, what's the sales potential existing sales potential in the completed buildings and the buildings under construction and in the non-constructed?

Stephen P. Holmes - Chairman and Chief Executive Officer

Well from a very simplistic basis if we have a $1 million of completed inventory that's complete and sitting ready for sale that should produce roughly $4 million of VOI revenue, because we wanted the cost of sales that's around 25%. So I guess simplistically if you want to look at our finished products sitting on the shelf, you would see it... it would have the earnings... the revenue potential about four times what's sitting on the shelf. Obviously, the land and the uncompleted still has work to do in order to get it to a firm and a completed state, but that's the way to look at the completed piece.

Michael Millman - Soleil Securities

When we look at the completed piece do we know how much has already been spoken for, and what I am really looking for is the potential?

Stephen P. Holmes - Chairman and Chief Executive Officer

Well, anything that is sold then flows through the P&L as cost of sales. So if it's, as you say, spoken for, it would already have flowed through the P&L.

Michael Millman - Soleil Securities

I will have to follow this up later. Second question, is there some mix change in the volume per guest sequentially was down. So again I was wondering if there is just the sales mix change that is resulting in the numbers looking like they are down?

Stephen P. Holmes - Chairman and Chief Executive Officer

No, we had a strong BPG. I think I don't have the numbers at hand but I think that we generally have highest quarter a little lower BPG and we did in the prior quarter. It's just the nature of the gist when you're selling more and more product through your pipeline, the busiest seasons tend to be down a little bit. And looking at last year, it was flat last year.

Michael Millman - Soleil Securities

Yes it's been up in the last three years and was down this year.

Stephen P. Holmes - Chairman and Chief Executive Officer

Yes, I just I would take no significance from that. I think it's a balancing act with BPG because you look at the, tour flow that you're coming in, your close rate, there's a lot of factors that go in to that but, I would not put any significance on that trend.

Michael Millman - Soleil Securities

Right thank you.

Operator

[Operator Instructions]. Our next question comes from Mr. Jake Fuller of Thomas Weisel.

Jake Fuller - Thomas Weisel Partners

Hey, guys it's very helpful to get the sensitivity to changes in the underlying costs on the receivables. How about the sensitivity to any changes in the underlying deep operates of the portfolio? What would... can you give us a sense of quantification how that might impact if you see changes there?

Virginia M. Wilson - Executive Vice President and Chief Financial Officer

Jake we haven't got the number are at our finger tips here, and I think what we have seen over many, many years is the default curves really haven't changed much even as the economy has cycled up and down. We concernedly look into that and see whatever we want to provide a little bit of that sensitivity information at Investor Day.

Jake Fuller - Thomas Weisel Partners

Then I guess this is from a broader standpoint and it sounds like accounting is the answer but the so would myriad for the last couple of quarter have really throttled back. Their earnings guidance were actually driven by changes in their country outlook. What are you doing differently how are you managing your business differently to avoid the same issues?

Stephen P. Holmes - Chairman and Chief Executive Officer

It's really kind of a fundamental difference that we have been trying to articulate since we spun off, which is our timeshare business is a true Points-based product, it's a real travel currency. And we can sell that product from multiple locations. We don't have to be sitting at the resort where the product is in order to sell it and we can be building product not where necessarily our sales offices are, but where we have high demand from our owner base. It is an extraordinarily flexible product that has allowed us to perform as we performed this year and we maintain our outlook in the 2008. The other thing that I will say is when we spun off and we went around meeting with investors, I took some flak, we took some flak for the investment that we were making in timeshare and at the time I was saying this is a high growth business, we need to be fueling this and in fact we had frankly not been putting enough inventory into the pipeline previously, so we did spend to build this pipeline. We are now harvesting the benefit of that we made over the last several quarters to make sure that we have adequate inventory, and that is why we locked up parcels of land in places like Las Vegas and Puerto Rico and Orlando to make sure that we have that growth prospect in the planning phase.

Jake Fuller - Thomas Weisel Partners

Great, thank you.

Operator

Our last question comes from Mr. Bob Thomson [ph] of Advantage Capital.

Unidentified Analyst

Hi guys, thank you. Just a couple quick questions; in terms of the securitization in the conduit, is that process giving easier going forward? I mean like right now versus a month ago or six weeks ago?

Virginia M. Wilson - Executive Vice President and Chief Financial Officer

I would say it's a little spotty. As the news for the third quarter is coming out on the financial performances, some of the financial institutions who are most active in this market, we tell you each of the individual institutions need to make its own decision about where its going to deploy its capital and we just feel as if the ability to issue in this market and get commitments from very strong financial partners is part of what we've been able to demonstrate about the quality of the program that we run.

Unidentified Analyst

Okay. And is there a level of pricing or liquidity in terms of what would be your backup plan if we ran out period as a market where we basically can't get financing for four to six weeks? What's the backup plan?

Stephen P. Holmes - Chairman and Chief Executive Officer

Four to six weeks will not be a problem. We have this conduit facility which is now been upsized to $1.2 billion. That's pretty sizeable considering that we do one or two financing, term financings a year to take it out. So, some years we've only done 1 term financing. This year we happen to do, actually did three but two large ones. And so I don't think that that question of the disrupted market for a period of time of four to six weeks would create any issue. Fortunately and this is an important factor, fortunately the way we report our earnings related to our portfolio is we report it as we receive it, as we get the cash in from the interest income we report the interest income, and we report the interest expense as we pay it out. We do not a report a gain on the sale, when we do the securitization. So we are not wed to doing it at one particular time and telling you of we didn't get securitization done, therefore our forecast for the fourth quarter is off or whatever it might be in the planning stage. We do it when we see the market is right for it. And to you third question, we would be talking on August 4th about this, because that's when the crunch was probably the most severe. It would have been a lot more difficult to get it done, just because everybody's attention was directed in other locations. The fact is that we still had a great dialogue going on with our lenders and the banks who helped us through this during that time and so we maintained a high level of confidence that we will be able to get this financing done as well as the expansion of the conduit.

Unidentified Analyst

Okay and another question on RCI, do you have a good management depth there? Do you have a prospect in mind for taking over?

Stephen P. Holmes - Chairman and Chief Executive Officer

We have a great team and I actually spent the last month or so traveling around to Middle East and up to London to meet some of our team. We have E-gon [ph] vendor to do the search for us and we will be looking for a really high quality in vigil obviously to take the helm there

Unidentified Analyst

Okay and any thoughts on digesting or doing something different with the Knight Inn properties?

Stephen P. Holmes - Chairman and Chief Executive Officer

Well Knight Inn is a great brand. It's a hard budget brand. We don't comment on M&A activity or decision that were making other than the say that we saw there's a whole lot of support behind Knights Inn and we think it's a great brand

Unidentified Analyst

Okay, and I will one more last question any other... what are some more of them the main metrics you watch for possible slowdown and what actions if we do get into recession next year, what other... what things do you differently?

Stephen P. Holmes - Chairman and Chief Executive Officer

Yes, there is obviously... you go in to our cost cutting mode if you see the revenues starting to lag out in the to the future and you might change some of your short term planning on projects that you working on. Having said that if you look at timeshare which the largest contributor to our earnings, and timeshare has done well during ups and downs in the market and has shown resilience, which is again why we like that business so much. The other businesses I'll remind you are 60% of our earnings are driven by fee-based free for service businesses. So we're much less much less impacted by downturn than if we were the owner of the hard assets and we were subjected to risk of those lower margin-type businesses. So we've shown in the past that we grown earnings during difficult time, during the Persian Gulf War in 1990 and we performed very well. And I think, we feel confident that we have got the attributes within our business model to weather any storm if one should occur.

Unidentified Analyst

Okay, nice quarter.

Stephen P. Holmes - Chairman and Chief Executive Officer

Thank you very much and I think Rosie you said that was the last question,

Operator

Sir, we have one more question

Stephen P. Holmes - Chairman and Chief Executive Officer

Okay, I think we have time for one more

Operator

Mr. Michael Millman, of Soleil Securities.

Michael Millman - Soleil Securities

Thank you. Wanted to just follow-up on the securitization, the 455, what you are aiming for when you started the negotiations and have a course of question.

Virginia M. Wilson - Executive Vice President and Chief Financial Officer

Mike we had gone out with a smaller size, but we're always prepared given the access that we have to a pretty big portfolio to upsize if market demand is there.

Michael Millman - Soleil Securities

So, basically you're saying that the market in fact liked your paper?

Stephen P. Holmes - Chairman and Chief Executive Officer

They love our paper.

Michael Millman - Soleil Securities

Can you tell us what... how much was the increase relative to what you went with?

Stephen P. Holmes - Chairman and Chief Executive Officer

I think the original talk was 300 or 350, and we are up at 455.

Michael Millman - Soleil Securities

That was very good. And secondly just to clarify the all-in cost for the... it was 585 and that was how much compared with May?

Virginia M. Wilson - Executive Vice President and Chief Financial Officer

Its less than 30 basis points higher.

Michael Millman - Soleil Securities

And the $1 million impact of that taking in to account the securitization and the conduit and not, and assuming no increase in what you charge borrowers?

Virginia M. Wilson - Executive Vice President and Chief Financial Officer

That is just a term facility Mike, and the conduit it's going to depend a little bit on what our average usage is going to be and we have some more color on sort of the financing income picture when we get to Investor Day in December.

Michael Millman - Soleil Securities

Or there is no plans right now to increase your finance charges in line with the market?

Virginia M. Wilson - Executive Vice President and Chief Financial Officer

We always look at what we charge our customers, and we use a number of different market oriented kind of benchmarks which is credit cards, auto loans and we look to sort of make sure that we're in line with market on that front.

Michael Millman - Soleil Securities

Okay, but again this $1 million assumes no change.

Stephen P. Holmes - Chairman and Chief Executive Officer

1 million assumes this...

Michael Millman - Soleil Securities

The P&L impact from the securitization assumes no change in your finance charges?

Virginia M. Wilson - Executive Vice President and Chief Financial Officer

Just to be clear, the notes that were put under the securitization already have coupons on them. Those don't change.

Michael Millman - Soleil Securities

Okay, great. Thank you.

Stephen P. Holmes - Chairman and Chief Executive Officer

Alright and thank you all very much. Have a happy Halloween and remember to driver around safely tonight with all the trucker traders down on the road. Thanks very much.

Operator

Thanks you for participating in today's conference. Have a good day and you may disconnect at this time.

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