Wyndham Worldwide (WYN) develops and acquires properties in order to sell timeshare units. The company also sells inventory acquired by loan defaults and individual owners who want to sell their VOI (vacation ownership interest). However, Wyndham’s business is capital-intensive, and it’s time-consuming to develop your own inventory. So Wyndham is resorting to WAAM (Wyndham Asset Affiliation Model), or just-in-time sourcing, wherein it acquires nearly completed or completely built properties, reducing the time between capital employed and returns on investment at the time of selling the units.
Wyndham’s consumer financing
Wyndham offers consumer financing on its VOI units in order to help it attract higher numbers of customers. Wyndham Consumer Finance, a wholly owned subsidiary of Wyndham, provides financing to the various VOI segment brands. Wyndham requires a minimum down payment of at least 10% of the value of the VOI and the rest is financed by the company. Receivables from the sales of VOIs are securitized.
However, in an adverse economic situation, the company may not be able to securitize the receivables. Moreover, certain securitized portfolios have future cash flows to the company that may get affected by higher numbers of loan defaults in the portfolio.
Investors can gain exposure to hotel companies such as Hilton Worldwide Holdings (HLT), Hyatt Hotels Corporation (H), Starwood Hotels & Resorts Worldwide (HOT), and Marriott International (MAR) by investing in the iShares Russell 1000 Growth (IWF), which invests approximately 3% in the hotel sector.
By comparison, the Consumer Discretionary Select Sector SPDR Fund (XLY) invests 14.3% in the hotel sector and has approximately 0.6% of its portfolio in Marriott (MAR), 0.5% in Starwood (HOT), approximately 0.4% in WYN, and about 0.2% in Wynn Resorts (WYNN).
Now let’s look at some key revenue drivers of Wyndham’s Vacation Ownership segment.