ILG's (ILG) CEO Craig Nash on Q4 2016 Results - Earnings Call Transcript

| About: ILG, Inc (ILG)
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ILG, Inc. (NASDAQ:ILG) Q4 2016 Earnings Conference Call February 28, 2017 4:30 PM ET


Lily Arteaga - Vice President, Investor Relations

Craig Nash - Chairman, President and Chief Executive Officer

William Harvey - Chief Financial Officer


Patrick Scholes - SunTrust Robinson Humphrey

Ian Zaffino - Oppenheimer & Co. Inc.

Christopher Agnew - MKM Partners


Good afternoon. At this time, I would like to welcome everyone to ILG’s Fourth Quarter and Full Year Earnings Conference Call. Please be advised that this call is being recorded on February 28, 2017. My name is Carmen and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

I would now like to turn the call over to Ms. Lily Arteaga, VP Investor Relations for ILG. Ma’am, you may begin your conference.

Lily Arteaga

Thank you, operator. Welcome to everyone joining us for ILG’s fourth quarter and full year 2016 earnings conference call. I want to remind you that on our call today we will discuss our outlook for future performance and other items that are not historical facts.

These forward-looking statements typically are preceded by words such as we expect, we believe, we anticipate or similar statements. These forward-looking statements are subject to risks, assumptions, and uncertainty. Our actual results may differ materially from these forward-looking statements in the views expressed today. Some of these risks have been set forth in our fourth quarter and full year 2016 press release issued earlier today and in our Form 10-K and in other periodic reports filed with the SEC.

In addition, ILG disclaims any intent or obligations to update these forward-looking statements except as expressly required by law. We will also discuss certain non-GAAP measures in connection with ILG’s performance. I refer you to the press release posted on our website at for comparable GAAP measures and full reconciliations.

Now, I would like to turn the call over to Craig Nash, our Chairman, President and CEO. Craig?

Craig Nash

Thanks, Lily, and good afternoon, everyone. Thank you for joining ILG’s fourth quarter and full year 2016 earnings call. 2016 was a transformational year at ILG. Through successful execution of our strategy, we have become a leading integrated shared ownership company with the scale, financial strength and product portfolio to excel and drive sustainable long-term value for shareholders and customers alike.

With an even more diverse offering of leading properties, broader geographic reach, and as the exclusive global licensee of the Hyatt, Westin and Sheraton brands vacation ownership, ILG is stronger than ever, both financially and in our ability to thrive in a rapidly evolving industry.

For the year, we delivered strong financial and operating results, reflecting the contribution of Vistana and investments in the business. Revenue and adjusted EBITDA were $1.4 billion and $302 million respectively. In addition, we returned a total of $153 million to shareholders through dividends and buybacks.

Our branded VO sales platform delivered strong results in the year. Assuming we had owned Vistana since the beginning of 2015 consolidated timeshare contract sales were $432 million, up 15% year-over-year, VPG and average transaction price for the year were each up 6%. This robust growth was driven primarily by 8% higher consolidated timeshare tour flow across the portfolio.

This reflects the contribution of the sales centers opened in the last quarter of 2015, which are providing additional distribution as well as expanded marketing programs across our branded properties.

On the exchange side, in 2016, Interval International continued to strengthen its portfolio of resorts. During the year, 60% of our new affiliations were international, representing resorts located in 14 countries including Brazil, Mexico, Argentina, China, Jordan, Thailand and Panama. In recent years, interest by developers in entering the shared ownership space has been greatest outside the United States, particularly in Latin America and in Asia.

Following our transformational acquisition last May, I want to highlight the strengths of the new ILG, which we believe uniquely position us for profitable, long-term growth. Firstly, we derive a meaningful amount of our revenues from contractual and recurring revenue streams, which primarily include membership and related transaction fees, Vacation Ownership and Rental management agreements, plus consumer financing revenue.

These represented over 40% of total revenues excluding cost reimbursements in the second half of 2016, which included Vistana. Secondly, we have significant available inventory as well as identified growth projects encompassing hotel conversions and additional phases at existing resorts.

Thirdly, the combination of our contractual and recurring revenues with organic high-growth opportunities embedded in our Vacation Ownership sales and marketing infrastructure results in a well-diversified and balanced portfolio with proven resilience through economic cycles.

Finally, we have long-term exclusive global rights in vacation ownership for Hyatt, Westin and Sheraton, three of the leading upper upscale hospitality brands. We have an unparalleled collection of resorts across the Vistana and Hyatt Vacation Ownership portfolios.

With these unique advantages and a leadership team with decades of experience in the shared ownership and hospitality industries, we are confident we have assembled the robust foundation to execute on long-term growth.

While on the subject of our foundation, the inclusion of Vistana in our global corporate infrastructure is advancing as planned. In December, we completed the integration of our global telecom platform at Vistana’s Orlando operations center. The next step is to cross-train agents on our proprietary systems across different locations. This will allow them to handle a wider variety of transactions, leading to greater efficiencies.

Earlier this year, Vistana and HVO migrated to ILG’s financial systems, a key step in enabling us to execute on further synergies. Integration of processes and functions across treasury, risk management, tax, legal, and payroll are also well underway.

With Vistana and HVO now reporting to a common dedicated VO segment leader, teams are collaborating more closely, we are beginning to leverage expertise and best practices across the businesses. For example, Vistana’s team, which is built over 5,000 Vacation Ownership units across the U.S. and Mexico, is now providing development oversight at all HVO projects including the expansions of the San Antonio and Bonita Springs Hyatt Residence Club properties.

The businesses are also sharing training and recruiting programs in time to support HVO’s plan to add two sales galleries and roll out Pure Points program this year. In addition, in 2017 we expect to enhance the trial program offered to our HVO customers. This program offers guests to do not make a purchase during our initial tour, the opportunity to return to the resort and apply the value of that stay to the purchase of a Vacation Ownership Interest, referred to as a VOI.

In Vistana’s experience, guests visiting under this program are typically twice as likely to purchase a VOI as a first-time visitor. HVO is also benefiting from Vistana’s scale and capabilities in terms of customer analytics and other processes to optimize customer engagement and lead generation.

We are still in the early stages of the integration of these businesses. However, we expect meaningful benefits from the combination over the next 12 to 24 months. We continue to make important progress in improving inventory utilization across the system by distributing excess VSN and HRC inventories through the Interval Network.

In 2015, we had a 73% increase in the number of Vistana weeks deposited in the Interval Network for occupancy the following year. These high-end branded resorts are strongly demanded in the network. Interval is also benefiting from increased penetration of membership programs to HRC and VSN customers.

In terms of our strategy going forward, our principle objective is to grow our Vacation Ownership sales as well as related club, rental, management and consumer financing revenue. This growth will be fueled through a combination of inventory we have on hand or under construction, plus capital efficient monetization of the assets on our balance sheet.

The additional phases at existing resorts will continue to be built on entitled land we own. And the hotel conversions currently underway or planned are properties which Starwood contributed to Vistana as part of the transaction. This self-sourced just-in-time inventory model gives us total control of the development and sales sets, enables us to match inventory levels to expected sales velocity and allows us to retain the attractive development margin as well as all the fee-for-service club, rental and management revenues, and high-margin consumer financing business.

We will also continue to consider third party just in time and fee-for-service structures as strategic complements to our plan. Bill will discuss in more details our project pipeline, but I would like to expand on the expected progression of our financials and returns given the overall strategy. As you all know, while under Starwood’s ownership, Vistana was not managed for growth since the beginning of the great recession and has not been adding much new inventory.

In preparation for the planned spend they developed a detailed strategic growth plan which we are executing. The plan is front-end loaded in order to provide the necessary inventory and new distribution points to reset the foundation that will fuel long-term growth of VOI sales and related revenue. The significant investment in the early years is primarily attributable to the build-out of the 390-unit Westin Nanea and the reconstruction of the Westin Los Cabos Resort as a VO property.

Feasibility in permitting consideration specific to these properties caused them to be built out all at once. All other expansions and most conversions contemplated in the plan are expected to be built on a more capital efficient just in time basis. In addition, we have assets whose current contribution is not reflective of their optimal earnings and free cash flow generation potential.

Beyond entitled land for development, we have four more hotels, which we plan to convert to VO resorts over time. These hotels are currently managed by Starwood, thus resulting in a modest contribution to our results. On conversion to VO resorts, however, the expected sales value of the inventory from those hotels as well as from the Westin Los Cabos Resort Villas & Spa is $1.4 billion.

Financing, club, and management revenues will also benefit from these conversions. As we convert the hotels to timeshare resorts, build out the new units at existing resorts in a phased manner, and the new sales centers gain momentum, we expect our profits and return on capital to significantly increase. In terms of our independent exchange business we are focused on increasing our wallet, share of wallet from Interval’s 1.8 million members by enhancing the value proposition through continued expansion of our vacation experience offerings.

The team is also working on growing our resort affiliations, particularly internationally, and further leveraging operational efficiencies. Notwithstanding the headwinds from continued consolidation of the U.S. market and resulting corporate accounts decompression we are encouraged from recent comments from developers, expressing a focus on increasing the percentage of sales to new owners.

Our great destinations JV is also successfully recycling inventory at legacy resorts, benefiting our HOA clients and furthering another conduit for Interval International’s new member flow. Although we are still in the early stages of realizing this potential, we have made great strides in the integration of trading place with our Miami operations center. While the business is still relatively small, we are optimistic about the possibilities for brand extension and increasing direct to consumer transactions.

As you can tell, we have a number of meaningful initiatives in place designed to fortify our diversified complementary platform which will create long-term shareholder value. Now I’ll turn the call over to Bill to take us through the financials and guidance. Then I’ll return for closing comments. Bill?

William Harvey

Thank you, Craig. Good afternoon, everyone. I’ll begin by providing a brief overview of the full year and quarterly results. Revenue and adjusted EBITDA for the year were $1.4 billion and $302 million respectively. Our legacy business was relatively consistent with 2015, and the acquisition of Vistana drove the strong year-over-year performance.

The accounting for the acquisition, however, generated significant noise in the results, primarily associated with a sizable non-taxable gain on the purchase, as well as adjustments from the application of purchase accounting, which affected comparability of revenues, operating expenses and interest income.

In connection with the transaction, in the second quarter we recorded a provisional gain on bargain purchase. As a result of the ongoing reassessment of assets acquired and liabilities assumed, the gain was decreased in the third and the fourth quarters. The result for 2016 was a non-taxable gain on the purchase of $163 million, which led to an effective tax rate of 17.7% for 2016.

For 2017, we expect our tax rate to be around 38%. Consolidated revenue for the year increased $659 million to $1.4 billion primarily due to Vistana, including a $39 million dollar benefit from percentage of completion or POC in Vacation Ownership sales. Upon receipt in the fourth quarter of the certificates of occupancy for buildings 1 and 2 at the Westin Nanea and for expansions at the Westin St. John Resort Villas, under a POC we were able to recognize the previously deferred portion of sales of these projects.

When we last updated guidance we had a high degree of confidence in the receipt of the certificates of occupancy for the Westin St. John and building 1 at the Westin Nanea, but the timing of the second building was more uncertain. Our team worked diligently to complete building 2, enabling us to open the resort two-and-a-half months ahead of schedule and to accelerate sales recognition from Q1 2017 into Q4 2016, resulting in a $6 million benefit to pretax earnings and adjusted EBITDA. Results for the year also reflect a $24 million negative impact to revenue associated with purchase accounting.

In the quarter, consolidated revenue increased $290 million to $455 million due to Vistana, including a POC benefit of $46 million. Consolidated timeshare contract sales in the quarter were $110 million, up 3% year-over-year, assuming we owned Vistana in 2015. We estimate Hurricane Matthew adversely impacted these sales by approximately $2 million. Excluding this effect, contract sales would have increased approximately 5%. These results also reflect a tough comp to the same period in 2015, which benefited from strong demand associated with the start of sales of the Westin Nanea.

In addition, purchase accounting adversely impacted revenues in the quarter by $9 million. Adjusted EBITDA for the year increased by $117 million to $302 million due to Vistana, including a $26 million net POC related benefit reflecting the impact on VO sales and associated costs. In the quarter, adjusted EBITDA increased $64 million to $105 million, and the net POC related benefit was $24 million.

Free cash flow for the year was $180 million, primarily reflecting net cash receipts from our operation, and net proceeds from our $375 million securitization, partly offset by significant investments in the business, including in the Westin Nanea and Westin Los Cabos Resorts, and repayments on securitizations.

At year-end our total debt excluding securitizations was $590 million and net leverage was 1.5 times compared to 1.8 times at the end of 2015. Between securitizations, we plan to continue to drive down on our revolver to fund our development program. We expect net leverage to remain around these levels throughout 2017. In general, we have been comfortable up to two times or so, a level which gives us flexibility to take advantage of a range of opportunities.

In 2016, we repurchased 6.5 million shares, approximately 5% of the outstanding stock at an average price of $15.53. At year-end, we had $49 million available under our current authorization. In terms of future buybacks, as you know, the RMT transaction restricts buybacks or share issuances to approximately 10% of outstanding shares for two years following the acquisition.

I will now walk you through the guidance for 2017. We expect that consolidated revenue will be between $1.73 billion and $1.855 billion, which includes approximately $340 million to $365 million in cost reimbursements. We expect adjusted EBITDA should fall in the range of $345 million to $365 million.

The guidance reflects the full-year impact of the acquisition as well as the following expectations for the business. Consolidated timeshare sales growth of 10% to 15% for the year, assuming we owned Vistana since the beginning of 2016. We expect growth in the first quarter to be in the low single digits reflecting continued tough comps from the start of sales at Westin Nanea at the end of 2015.

We are forecasting a strong increase in sales beginning in the second quarter, reflecting the ramp-up of new distribution points throughout 2017. This year, we plan to open galleries at the Westin Nanea and Westin Los Cabos in the second quarter. We are also adding a standalone HVO gallery in Key West, where we have three VO properties. And we’ll reopen the sales center at the Hyatt Coconut Plantation in Bonita Springs, both of which will support the launch of our Pure Points program.

We are forecasting tour flow to increase between 6% and 8% resulting from the continued ramp of the sales centers opened late in 2015 as well as from the new galleries and properties. Our guidance for the year also takes into account a decrease of approximately 335 rooms at the Sheraton Steamboat, the Westin Cancun and the Sheraton Kauai garden wing this year, as we begin conversion of hotel rooms into VO units.

There will also be a temporary reduction in keys due to renovations at the Westin Puerto Vallarta and the Sheraton Kauai ocean wing, which will negatively affect same-store operation and VO sales distribution. These property improvement projects are designed to ensure a consistent delivery of branded experiences as required by our agreements with Starwood.

The majority of the keys associated with conversions into renovations are planned to be taken out in the second quarter. As we discussed, our development program is front-end loaded and the number of rooms we expect to take out of service to convert in the next three years disproportionately impacts 2017.

Resort operations earnings will also be reduced by the carry cost on developer-owned inventory necessary to cover HOA fees at the Westin Nanea and Westin Los Cabos properties upon opening. The total adverse impact to earnings is estimated at approximately $12 million in 2017. However, we expect 2018 and 2019 will greatly benefit from VOI sales and related revenues from these very desirable new properties.

We expect our independent exchange and third party management businesses on an aggregate basis to remain relatively consistent with last year.

When analyzing reported adjusted EBITDA in 2016 relative to 2017 guidance, it is important to consider the following items. 2016 benefited from $26 million of percentage of completion accounting, including $6 million associated with the second building at the Westin Nanea, which was accelerated into Q4. By contrast, when comparing the full year of Vistana operations, 2017 will be negatively affected $7 million full-year impact of securitization interest, $2 million in additional property taxes at the Westin Nanea as well as a $12 million impact to resort operations I just mentioned.

We believe free cash flow will be in the range of $110 million to $140 million. The guidance assumes a $325 million securitization. Our expectations for 2017 reflect a full year of Vistana, lower net proceeds from securitizations, increased construction and CapEx spend, as well as higher securitization repayments compared to 2016.

In 2017, we expect inventory spend to be in the range of $215 million to $230 million, reflecting ongoing investments in our Nanea, Desert Willow, St. John and Los Cabos Westin Resorts as well as the San Antonio and Bonita Springs Hyatt Residence Club resorts.

Also included are conversion projects at the Sheraton Steamboat, Westin Cancun and Sheraton Kauai properties. We estimate capital expenditures will be in the range of $120 million to $125 million, reflecting investments in sales galleries and other resort operation assets, including renovations at Sheraton Kauai and Westin Puerto Vallarta as well as investments in IT.

While we do not intend to provide quarterly guidance, we will be updating this annual guidance on an as needed basis. In general, there is less seasonality in the earnings of our combined platform, but we still expect the first quarter to be the strongest and the second quarter to be lighter than the third and fourth quarters.

Looking forward, into 2018 and 2019, we expect our free cash flow to increase as earnings grow, reflecting the investments which started in 2015, reduced construction spend and CapEx, as well as the greater benefits of the integration. Following the completion of the Westin Nanea and Westin Los Cabos by the end of the year, our current expectation is that development spend will consist of phased capital-efficient projects.

In 2018 and 2019, our plan contemplates expansions at our Hyatt Coconut Plantation and Wild Oak Ranch properties, at the Westin Desert Willow, as well as further conversions at Sheraton Kauai.

We expect free cash flow in 2018 and 2019 to increase year-over-year and average in the neighborhood of $240 million. Over the two years, we anticipate average inventory spend around $105 million and average CapEx around $80 million as well as annual securitizations of approximately $325 million.

With that, I’ll now hand the call back over to Craig for some closing remarks.

Craig Nash

Thanks, Bill. I’m extremely proud of what our team has accomplished in 2016. We have tremendous growth opportunities ahead of us, which will deliver significant value over the long-term to shareholders, customers and employees. While our scale creates greater efficiencies, the added resorts will translate into hundreds of new jobs across our properties and sales centers.

With respect to our branded platforms, we are working closely with Marriott and Hyatt to continue to leverage their brands in Vacation Ownership. We have a long history with both companies dating back 25 years, including a period between 1997 and 2002, when they were shareholders in our company.

Since the merger, Marriott has been very supportive of our initiatives and diligent in the approval process for new marketing programs and product offerings. We continue to work with Hyatt to grow the HVO offerings and expand our portfolio of resorts.

As a reminder, we have exclusive global licenses to the Hyatt, Westin and Sheraton brands of Vacation Ownership. An important aspect to these licenses is our access to the loyalty programs associated with each brand. Hyatt recently announced a new loyalty program, World of Hyatt, which will soon replace Hyatt Gold Passport. Our rights follow to this successive program.

Similarly, our exclusive license to the Westin and Sheraton brands in Vacation Ownership includes the rights to SPG and any other successor or replacement program used by the Westin and Sheraton brands.

In terms of capital allocation, our objective is to maximize long-term value creation. As we discussed today, we have an aggressive plan to invest in the growth of the company. And that is our first priority. We also continue to look at strategic and accretive M&A and joint venture opportunities as well as capital light structures, particularly to enter into new markets.

We expect to pay down our credit facility between securitizations and ensure we have the necessary flexibility to meet our operating needs and growth initiatives. We always seek to balance investment in future growth with returning excess capital to shareholders.

Since establishing our dividend in 2012, we have increased our dividend rate periodically and opportunistically engaged in buybacks. This year, however, given the confidence in the future earnings and cash flow of the business, resulting from our robust platform for long-term growth, our board has determined to increase our dividend by 25%. This equates to $75 million in annual returns to shareholders via dividends.

Let me close by saying that we are very pleased with the business enterprise we built, and particularly excited about ILG’s prospects as a leading player in the shared ownership industry. We realize that the company underwent a significant transformation in the last year. And by providing even more detail on our long-term strategy and expectations for the future would be greatly beneficial.

To that end, I am pleased to announce that we will be hosting an Investor Day on May 25 in New York City. We hope that you will be able to join us for an in-depth review of ILG’s business strategy as well as the opportunity to meet senior members of our leadership team.

That’s the end of my prepared remarks. Operator, please open the call for questions.

Question-and-Answer Session


Thank you. [Operator Instructions] And our first question is from the line of Patrick Scholes with SunTrust.

Patrick Scholes

Hi, good evening.

Craig Nash

Hi, Patrick.

Patrick Scholes

On the inventory spend for this year - I think you’ve touched upon this - but when are you expecting some of the - for these larger projects the first sales dates?

Craig Nash

I couldn’t hear the - when are we expecting - I couldn’t hear you, Patrick.

Patrick Scholes

Let me speak a little louder. For the inventory spend that you have guided to for this year - I imagine most of it is the five big projects. When are you expecting to open that up to sales?

Craig Nash

Well, the two properties in Cabo, and the first part of Nanea in second quarter in terms of when they’re opening.

Patrick Scholes


Craig Nash

Yes. The Nanea is already in sales.

Patrick Scholes

Okay. I’m talking about the - okay, the bulk of the remaining - besides Nanea, sort of the timeframe on opening that up to sales?

Craig Nash

Yes, in terms of the conversions, I don’t have that right here, right now. We can get back with you on that. Nanea itself, we have planned to finish construction of the entire property in 2017 that was originally going to be a 2018 completion. So that is a significant part of sales, as is Cabo. And Los Cabos will begin sales, we believe in Q2.

Patrick Scholes

Okay. Thank you. Shifting gears here, kind of just walk me through your thought process on the cash flow allocation, certainly a big jump up in dividend after it having been stable or unchanged for many years. What are your - what went into that decision? And it looks like, additionally, you’re about halfway, a little more to that 10%. Would you expect a year from May that you will be pretty close to that 10% of the buyback?

Craig Nash

So investing in the platform - as you can see, we’ve got a very aggressive growth platform and investment this year. You’re right we are about halfway through the - in terms of through that period in buybacks. Our thought behind the dividend is a long-term plan. We believe in building the growth of the business, investing in the business, and our excess free cash flow, providing that to our shareholders.

As you know, in the year we had over $150 million that we paid back in buybacks and in dividends. We want to also provide ourselves with the flexibility on our balance sheet to be able to take advantage of opportunities in the marketplace. So we’ll continue to look at the stock buybacks as well as our dividend and other uses of cash. But I think, we’re looking at the long-term cash generation and building that over time in returns to shareholders.

Patrick Scholes

Okay. Thank you. And then just one last question perhaps for Bill, just a point of clarification. When I look at your guidance for the cash flow, a big jump up in repayment of securitizations, is that just reflecting a full year of having the securitization out there? Is there anything else going into that?

William Harvey

Well, it’s a combination of - don’t forget we’ve got a full year, so that’s one piece. Then we have the securitization that we did last September. So you’ve had repayments that have come in on that. So those are the two big changes that drive it. And then the [Sky will be the third next piece] [ph] we did about $375 million in 2016 and we’re guiding to $325 million for 2017.

Patrick Scholes

Okay. All right. That should do it for now. Thank you.

William Harvey

Thanks, Patrick.

Craig Nash

Thanks, Patrick.


Thank you. [Operator Instructions] And our next question is from the line of Ian Zaffino with Oppenheimer. Please go ahead.

Ian Zaffino

Hi, guys. Thanks very much.

Craig Nash

Good afternoon.

Ian Zaffino

Very good quarter. Question would be, Bill, you gave some longer term free cash flow guidance. Can you also maybe walk us through what the EBITDA margins would look like at some of those higher quality inventory comes on line, and you I guess anniversary some of the headwinds that you had mentioned as far as the conversion of some of those SPG properties? Thanks.

William Harvey

Thanks, Ian. As you know, this is front-loading. There’s a lot of construction, a lot of dollars, and a lot of noise, as you can tell, in all the numbers with purchase accounting and everything else. The purpose of having the Investor Day is to provide a greater look into these kinds of things. So while we’re not going to provide those metrics today, we look forward to seeing you in May.

Ian Zaffino

Okay. And then giving kind of the 2018 and 2019 guidance, I thought it was kind of interesting because - by then maybe we’ll get a little bit more clarity on the loyalty program, and how those leads kind of feed across the different timeshare companies. Given that, does it make sense to contemplate some type of change in your business or addition into your business…

Craig Nash

You’re breaking up, Ian.

Ian Zaffino

I basically was saying, does it make sense to basically put your company together with another company to avoid some of the overhang as relates to the lead sources for the loyalty programs?

Craig Nash

I hardly think that our access to the loyalty programs is any - there’s any need to combine our companies. We have access to whatever rewards program, loyalty program that is offered to Sheraton and Westin. We have a robust platform with another brand called Hyatt as well. We’ve got a variety of lead generation sources outside of the loyalty programs that both companies have and will continue to develop. So we think we’re in real strong shape. We’ve got the assets, the financial wherewithal, and the brands to be able to excel in this space.

Ian Zaffino

Okay. Thank you very much.

Craig Nash

Thank you, Ian.


Thank you. And our next question comes from the line of Chris Agnew with MKM Partners.

Christopher Agnew

Thanks very much. Good afternoon. I apologize for the background noise. Just to clarify on that last point, and I’m sorry to press on that, the rights to the - all successor programs that just gives you access to rewards members through Westin and Sheraton but would not - the successor program would not be all Marriott rewards members, if Marriott was to merge their programs together? Starts doing…

Craig Nash

All I can tell you is, we have the rights to the loyalty program that is offered to Westin and Sheraton.

Christopher Agnew


Craig Nash

One of the things that it is important that - they’re not exactly - Marriott is not exactly sure what they’re going to do about merging the programs. If you listen to Arne, they have technology platform they need to work through. They said it’s possible they could have one platform with two different programs sitting on top of that platform. So I don’t think it’s prudent to speculate at this point.

Christopher Agnew

Okay. That’s clear. Thank you. And then I’m sorry, I know you mentioned on the call, but you mentioned there were a lot of numbers you went through. I think you cited there were three headwinds to 2017 EBITDA. There was some EBITDA that was pulled forward into the fourth quarter. There was, I think, some increased infrastructure spending. Can you run through those? I think there were three things that created by headwinds at EBITDA? Thanks

Craig Nash

Well, the second building in Nanea was about $6 million that was brought into Q4 from Q1. We also with the opening of Nanea, we have an additional amount of $2 million in real estate taxes associated with assets, corporate assets, like the check-in facility, retail, and there was something else in that group. And then there was the $7 million…

William Harvey

$7 million of additional or full year impact of the securitization interest. And then, I had also talked about the keys that were coming out of service in resort ops - in resort operations.

Craig Nash

So that was $12 million. Of converting these properties to timeshare and bringing them down where they don’t have transient occupancy. In addition, we have property improvement plans on the brand standards for the ocean wing of Kauai, and the Puerto Vallarta Westin that is being run as a hotel.

Christopher Agnew

Got it. Thank you. That’s it for me. Thanks very much.

Craig Nash

Thank you.


Thank you. And at this time, I am not showing any further questions in the queue. I would like to turn the call back over to Craig Nash for closing remarks.

Craig Nash

Thanks, operator. I want to thank everyone for participating on today’s call and for your continued interest in ILG. Operator, please conclude the call.


Thank you, ladies and gentlemen, for participating in today’s program. This concludes the conference and you may all disconnect. Have a wonderful day.

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