Must-know: Hilton gets revenue from its timeshare segment

Teresa Cederholm - Author

Oct. 7 2014, Updated 1:00 p.m. ET

What is timesharing?

Timesharing—also known as vacation ownership—is a method of getting the right to use a vacation property like a hotel or a resort. The buyer owns “timeshare interests” or intervals. A timeshare interval is the number of days or nights of annual use that the owners are entitled to—usually one or two weeks.

There is an advantage to buying timeshare interest. It allows buyers to purchase furnished resort accommodations at a fraction of the ownership costs. The owners only pay an annual maintenance fee. A management company—like Hilton—handles construction, maintenance, and improvement activities. The expenses are covered by funds from the owners. The funds are pooled by multiple owners who use the facility at different time intervals in a year.

Owners also have the flexibility to exchange the timeshare with other resorts in the company’s portfolio by paying an exchange fee.

Timeshare segment revenue

Hilton’s revenue from the timeshare segment is divided equally between the following three revenue sources:

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  • Timeshare sales – includes marketing and selling timeshare interests owned by Hilton and third parties. For properties owned by Hilton, all costs including construction, development, and operating costs have to be handled by the company. In the case of properties owned by third parties, Hilton only acts as a marketing and sales agent.
  • Resort operations – enrollment fees, annual dues, and transaction fees for exchanges for other vacation products are included as part of the management of the Hilton Grand Vacation (or HGV) club. Revenue is derived from retail and spa outlets.
  • Financing – Hilton generates interest income and revenue from servicing the loans provided to their customers. This is used to finance the purchase of their timeshare intervals.

In this segment, Hilton (HLT) competes with Marriott’s (MAR) Marriott Vacation Club, Starwood’s (or HOT) Starwood Vacation Ownership, Hyatt’s (H) Hyatt Residence, and Wyndham’s (WYN) Wyndham Vacations Resort.

Most of these companies are part of exchange-traded funds (or ETFs) including the PowerShares Dynamic Leisure and Entertainment Portfolio (or PEJ), the First Trust U.S. IPO Index Fund (or FPX), and the Consumer Discretionary Select Sector SPDR Fund (XLY).


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