Travel + Leisure Co. (TNL) Earnings Call Transcript & Summary

Well, good morning, everybody, that's joining from the U.S., good afternoon anyone that's on my side of the pond over in Europe listened here. We're delighted to have Michael Brown, CEO of Wyndham Destinations; and Mike Hug, the CFO of Wyndham Destinations, joining us for the first virtual SDC that we've had at Bernstein. A small amount of instruction to begin with, if I may. If you've got any questions, we've got an excellent service, Pigeonhole. And hopefully, you'll be seeing the link to this on the left-hand side of your screen, the Pigeonhole link will enable you to submit any questions, and I'll try and put it into my prepared questions. And we're also partnering with Procensus to do some polling on this today. So if you could, please, at any point during or after, please click on the Procensus link as well to submit your polling requests. If you're having any technical issues, so you can see screens, but you can't hear us or anything like that, please contact either the Corporate Access team or your sales representative and they should be able to help. I'm hoping there are no technical issues. But if there are, there will be replays available if it isn't working for you. But hopefully, everything is going okay. So with that, I will hand it over to Michael Brown, CEO of Wyndham Destinations. He is just going to say a few introductory remarks, and then we'll get into our Q&A session.

Well, good morning or good afternoon, depending on wherever you are in the world, just to give a 2- to 3-minute overview of the company and how the response to COVID-19 has been progressing. Wyndham Destinations is the world's largest Vacation Ownership and Vacation Exchange company in the world. Our Vacation Ownership business is led by Wyndham Vacation Clubs where we sell, market, operate and finance the sale of timeshare intervals. That business represents about 70% of our company's EBITDA in 2019, and we have 220 resorts as well as 880,000 owners around the world. The second side of our business is our Vacation Exchange business, which is RCI. Their core business is facilitating the exchange between different timeshare companies. For example, many of their affiliates are companies you may know, such as Hilton Grand Vacations, Holiday Inn, Disney Vacation Clubs -- Vacation Club as well as a number of companies around the world, for instance, Anantara in Asia. They facilitate exchanges between those companies and earn the company about 30% of the company's EBITDA through annual memberships and individual timeshare exchange transactions. That's how we went into COVID-19, and we continue to progress along those 2 fundamental business lines. It's been a dramatic last 60 days for us. At the end of March, we began shutting our resorts as well as our sales operations in preparation for what was to be a U.S. national shutdown in the month of April and May, where 42 states had stay-at-home orders. Given that 90% of our company's EBITDA comes from North America, with stay-at-home orders, it really shut down the Vacation Ownership sales and the RCI exchanges that typically occur. Now that did leave 50% of our EBITDA through our hospitality business, through our RCI memberships and through our portfolio interest income that is both recurring and predictable that remained as part of our EBITDA generation for both the second quarter and for the second half of this year. We are beginning to see a return to normalcy with now all 50 United -- all 50 states in the U.S.A. being in some form of reopening plan. We began yesterday to open resorts in Florida as well as South Carolina. And in the course of June, we would expect to open 90 -- between 80% and 90% of our resorts, along with their associated sales locations as we're seeing a pretty robust demand. Leisure travel demand never really went away. It's just that they couldn't activate that demand. In the last 2 weeks, we've really seen that demand get activated in the form of new bookings, which has really given us visibility that the second half of this year is going to look a lot like 2019, assuming no relapse in the COVID-19 pandemic. With that, Richard, maybe I can hand it back to you for Q&A.

Absolutely. Those words preempted a few of my opening questions there. But maybe we can just talk a little bit about -- maybe just more specifically about what we've seen in terms of the shutdown. Have any of your properties managed to stay open throughout this process? You talked a bit about sort of how different, but you've got different cash flow themes and some of them are recurring and some of them aren't, so maybe you can just again break down on that point and saying, your different cash flow items that are coming through, which ones of those have been altered and which one of those have stayed exactly the same as we've gone through this crisis?

Okay. Well, why don't I hit the shutdown, and then I'll hand it over to our CFO, Mike Hug, and he'll talk about the recurring EBITDA streams that we have and revenue streams. Very simply, as we got to the third week of March, we were looking at each of the states' landscapes, keep in mind that we have about 180 resorts in North America. So we're not simply watching one location. We're almost watching every single municipality. And as the sports teams began to close down, we realized that we were going to be shutting down right along with it. And Disney closed down here. I believe it was sometime around March 14 or they announced on March 14 that it would be the following week. The next day at our Orlando Resorts, all those people were staying on the resorts. And we realized that although there was no mandate from that -- the state municipality, just like in many of the other states where the stay-at-home orders came a little later. We knew, like Disney, we needed to do our part in the controlling of the pandemic and not be part of the proliferation of it. So we stopped taking reservations. And as a result, occupancy went from 80%, 90% at most of our resorts down to the single digits over the following few weeks. We've stayed not accepting new reservations until very recently. And as I mentioned in the opening remarks, we began to welcome our first guests back yesterday in both Central and North Florida as well as South Carolina. So with that, I'll hand it to Mike, and he can talk through the recurring revenue and EBITDA streams.

Great. Thank you, Michael. When we look at our revenue streams, we do have about 50% to 55% of our annual revenues that are recurring to us even in this period of time where our resorts and sales operations might not be operational. The 3 revenue streams that I'll talk about are the hospitality revenue stream, the RCI membership fees and the interest income on the portfolio. Starting with the hospitality revenue streams. We continue to manage our properties. Obviously, getting ready for the reopening that's occurring right now of those properties. And as we manage those properties, we continue to collect the maintenance fees from our owners, which funds the management fee that we earn and collect even during this time where the resorts aren't open. On the RCI side of the business, the Exchange side of the business, about 1/3 of their revenues represent the annual membership fee that our 3.9 million members pay. So we continue to earn that annual membership fee despite the fact that currently exchange transactions are down. And then finally, we have a $3.8 billion portfolio where we finance the sales of Vacation Ownership interest to our customers. That portfolio earns about 17.5% interest. So our owners continue to make their payments on their loans. The great majority of our owners don't have a loan obviously contributes to the health of the membership and the health of the HOAs. But for those that do have a loan, we do continue to collect the interest on the portfolio. So about half of the revenues continue to come into us, which, for this year, we're projecting will allow us to be cash flow positive to the tune of $100 million to $150 million, assuming things start to come back in the second half of the year, which we're actually seeing as our resorts, as Mike mentioned, are starting to reopen as of today.

So maybe just a follow-up -- but maybe just a follow-up on the demand point there. Obviously, you've kind of set out that you're seeing some robust demand. Maybe just statistically, what would actually be your system-wide breakeven occupancy level? What would you need to get to above the floor to be profitable again? And then you took a revenue provision, I think, at Q1. Can you maybe talk about that? Is that looking like the realistic scenario? Or is that just reflective of the shutdown? Or are you expecting some weakness through the rest of the year as well by taking that charge?

So Mike, why don't you take the provision first and then I'll address the breakeven?

Sure. So you are correct. We did take a charge of about $225 million for the $3.8 billion portfolio and the losses that we expect to incur on that over the next 18 to 24 months. In arriving at that amount, we looked at the last downturn, 2008, 2009, how the portfolio performed at that time and compared that to unemployment at that time. We then took current unemployment projections through the end of 2021, and using that algorithm projected what we expect the losses to be. Time will tell as far as the sufficiency of that reserve and whether it's a reserve that was too high. Obviously, it's going to be dependent on -- to large bit on unemployment, but most importantly, will be dependent on how the portfolio performs when we get to the next evaluation period, which will be at the end of second quarter, obviously, we'll have 2 or 3 months of performance to look at, which we really didn't have because there wasn't much impact on the portfolio in March. But when you look at that reserve provision that we took of $125 million, definitely on the high end of what most companies have taken when you look at the reserve as a percentage of the portfolio, but want to make sure we went in and put an accurate reserve in place or adequate reserve in place so we don't expect to have additional charges down the road.

So as it relates to the breakeven question, the way we're looking at breakeven is really -- this is a year about cash flow. And as we've projected, we expect to be over about a $100 million of free cash flow for the year. If you look at Slide 12 of the investor deck, you'll see a cash burn rate of $44 million a month and what we would view as a draconian scenario, and what that draconian scenario assumes is that no resorts are open, and we have no sales underway. You've already heard us say that our resorts are going to be reopened -- have reopened this week and will throughout the month of June. So we don't anticipate, first of all, the draconian scenario of $44 million negative burn per month to be a reality. So it does come back to that breakeven. We've projected for the second half of this year that our tour flow will be down roughly 30%, which is generating that cash flow positivity. We would estimate that in order for that positivity to go to a cash flow breakeven, you're looking at somewhere around 25% to 35% of your expected tour flow to be roughly the breakeven. There's a lot of puts and takes to that as well as the mix of those tours. But we're projecting a 30% decline, and we have to go down somewhere around 2/3 to 3/4 to get to that cash flow breakeven.

So I think maybe just a question on the financial sort of impact of this. Obviously, you've covered a little bit of there. But knowing coming into this as a very cash-generative business, very liquid business, in the process of going through buying -- deleveraging, buying back stock, a good dividend payer. What did you had to do to preserve liquidity if you've had to do anything to preserve liquidity? And we've had a couple of questions coming in on the decision to pay the dividend rather than maybe preserve liquidity to the maximum amount through this. So maybe you can just talk about dividend decision-making and then what else maybe you've had to do to preserve your liquidity?

Absolutely. And it's one of the exciting parts about this business. And candidly, one of the most misunderstood aspects of the business. So let's just talk about our going-in position. As you mentioned, our free cash flow yield in 2019 was double digits around 12% to 13%. We had worked since becoming public in June of 2018 to really get our balance sheet in order. So as soon as we started to see COVID-19 really come into play, as Mike mentioned, we already knew that 50% of our EBITDA would be recurring and predictable. So between our cash flow generation and recurring revenue, our going-in position was very strong. We immediately suspended our share buybacks. And as a precautionary measure, we drew down $1 billion of cash from the revolver to put on our balance sheet. And since that time, in the month of April, Mike's access to the ABS market, a $325 million transaction at sub-4% rates and an 85% advance rate, a real strong transaction and speaks to volumes to the performance of our paper. We also did the other corporate actions you would expect. We stopped -- we reduced greatly our capital expenditures by about $100 million, and we began to reduce our operating expenditures, whether it's discretionary spend, initiatives that could wait or personnel. And when all that was said and done and we had taken all the actions we felt were appropriate, we were still looking at a very good cash position and cash flow projection and feel that there's a lot of value in returning capital to shareholders, especially given this industry is relatively small and often misunderstood, we think we have a highly resilient and cash flow-generative business. And we wanted to make a statement that was warranted, but also expressed our confidence in the cash flow nature of our business. And that's why we paid our second quarter dividend. I fully recognize that we were one of the few consumer discretionary companies to do it. But I'm hopeful and actually confident that when this is -- when this crisis has passed, people will look back and said, there's a company that people have often perceived as not resilient and highly volatile in a recessionary period, yet they performed, they continue to pay their dividend and continue to return cash to shareholders. And also, just keep in mind that 3 months from now, we'll be faced with the same decision. We haven't had to amend any of our debt covenants, and we'll do the right thing, depending on where the pandemic is and how our cash flow projections pay out in the third quarter or our cash flow looks in the third quarter.

Okay. Maybe just shifting on to the operational challenges. I mean you're talking about reopening resorts and expecting to have quite a lot open, obviously, over the next month or so. What did you actually had to change operationally, maybe in terms of the sales process and in terms of the resorts? Is there things you have had to do? And maybe just a thought about what has that done to your cost structure now required? Is there anything that changes in your operational cost structure in a sort of post-COVID world? Maybe thinking in terms of employees, in terms of customers, how has this impacted the way you operate and your cost of doing so?

Let me just take that one really quick, so I can put a pin in it. We've taken over $200 million of cost out during COVID-19. And we believe that about $60 million of that will stick for the long term. So those are real numbers, and we share those on our first quarter earnings call. For us to meet -- to me, what's more important is in recessions, especially after an 11-year bull run is, there's just a lot that builds up over time. And although we all wanted a short and shallow recession, there have actually been advantages to how deep this pullback has been because when you're forced to shut resorts and shut sales, you make dramatic changes. And candidly, you can really accelerate both innovation and changes that you needed to make. And our team has been super aggressive in the sense of we're not going to sit around for 60 or 90 days waiting for resorts to reopen, we're going to reinvent our business, and we've done that in a lot of different areas. We've accelerated our mobile-first approach from a digital standpoint and from a web standpoint. We've completely reinvented the check-in and on-site experience and resort operations. And these are things that are not going to just go back to the way they were pre-COVID-19. They are going to be operational changes that are customer-centric that we've been able to implement and will keep going forward post reopening and hopefully, once we have a post-COVID-19 phase. And to your question about the sales, absolutely, a lot has changed. One of the big challenges in a direct sales environment is the length of time of the sales presentation. And we've got a goal to reduce that time of sales presentation by roughly 20% and automate a large component of it to be more technologically savvy and more customer-centric in the entire sales process. So that's an hour session on to itself. But needless to say, we feel like we've used this time to innovate in a much more accelerated way than we would have been able to in even a short and shallow recession.

So maybe just to follow-up. I know you wanted to put a pin on it, but is there any additional operational cost that comes in to facilitate things like social distancing and maybe some more stringent sanitation or anything like that? Or is that all absorbable within your sort of current projections?

First of all, it is in our current projections. But keep in mind that our resort operations, although we run them, they're governed by HOAs, and they're funded by HOAs, and we receive a management fee in addition to that. But people pay us to be very responsible. And while the resorts have been shuttered, although we've kept staff on board, we've moved them to skeleton, and we've built up a little bit of a buffer. But the enhanced cleaning, the enhanced social distancing, all the work that we have put in and will put in for the remainder of this year, we believe we can absolutely cover it within the existing 2020 HOA dues that our owners pay and feel like when the owners do come back to our resorts, they're going to see a big difference and be very pleased with how we've put their money to use in 2020.

And maybe that sort of leads on, getting a couple of questions about sort of interactions with owners, financial health of owners. I mean I think you -- I mean when we had this conversation back in November, you talked about how the sort of FICO scores have improved quite a lot since the last recession. Owner leverage is down. But maybe you can -- just anything you can comment on owner health. Conversations you're having with owners, have those been difficult conversations as you've had to shut your resorts?

Well, it's sort of pillar to post as far as the feedback we've gotten. We have owners who are saying you shouldn't open for the remainder of the year to owners who are saying, you should open March 23. It's -- we're a little bit of everything at the moment. But when you look at the overall health of our consumer, let me share with you one of the changes, which relates to your last question is, we are going to be tightening our marketing underwriting. The expectation that we have for the business going forward is, we're not in a rush to get back to our top line, we're in a rush to get back to our bottom line. And we think the most efficient way to do that is to tighten our marketing standards even further than where they were. We'll be raising FICO scores. And what you should see from that is a drive toward slightly better margins as well as better provisions. And the net effect of that is -- whereas we just talked about the provision. The health of that consumer is going to be stronger post-COVID-19 because we're targeting a stronger quality of individual marketing tour going forward. As it relates to how owners are performing today, Mike and his team has been very accommodating on an individual basis on deferments. And maybe I can hand it to him and he can talk about the behavior in early April and how it's progressed since early April related to deferments.

Sure. On the portfolio side, when we saw COVID hit and we started closing the resorts in late March, we decided to offer a program for owners, where if they contacted us and needed some financial help, we would offer a deferral of 2 to 3 loan payments. We rolled that out in late March. We saw the highest level activity in the first week in April. And since that time, the number of requests have continued to come down. Right now, we sit at about 6% of the portfolio that have been provided with loan deferrals, which we actually were quite happy with. We were actually excited that our owners would call and ask for deferral rather than they should leave the product. We think it's an indication of the fact that they do enjoy the product and want to continue to use it. So we have offered about 6% of the portfolio, like I said, the deferrals. And what that means is that 2 or 3 of their loan payments will go on the back end of their loan. So it's not like when they get to July, they'll have to make 3 loan payments at one time. They'll continue when they start to make payments again and just make one payment. And the 2 or 3 loans that were deferred will be added back on to the -- into the loans. So we would expect that the portfolio continues to perform well. We've put up the large provision to make sure that we are adequately reserved for those that can't afford to continue their ownership, but do have programs out there that we've offered to people to give them a little bit of relief during these difficult times.

So maybe we just shift on a little bit more to maybe some of the longer-term impacts and thoughts about sort of your business over the longer term. I mean any thoughts on how you might need to change the business as we think over sort of multiple years? Would you -- do you think the footprint is right as it stands today? Do you expect maybe demand to move towards more rural locations? You have been growing in urban locations. Does that have to maybe be reversed? Anything you could sort of see that might sort of change the strategic direction over a kind of multiyear approach?

Well, there's a lot of areas to hit there. I'll toggle between tactical and strategic there. But I mentioned the change in our marketing approach, and I think that's going to be very beneficial for the long haul. As it relates to development, our footprint in the United States is very broad, by far, the broadest in the space. I don't anticipate any fundamental changes to our U.S. approach. We pre-COVID-19 we were using our development dollars to find incremental new owners, I don't think that's going to change. What I do think is a very real possibility in 2021 as we reactivate our development pipeline. If the Great Recession was any indication, there should be some real estate opportunities on the back end of this that will secure margins for the next 3 to 5 years by acquiring real estate at hopefully distressed values, but we'll see. That will play out. Pre-COVID-19 as well, we were looking to change our business in the South Pacific. We've been in that market for a long time. It's a relatively small market, and we were looking to move up into Asia. I would anticipate that will be on pause very briefly, but we'll start to look up -- look to get up into Asia in 2021. And that's really the Vacation Club side of the business. But if you go to the RCI, this time last year, well, not even a year, we bought a company that we felt would be -- provide us the opportunity and the platform to start looking a little more broadly from the Vacation Exchange-only narrow lane. The travel and tourism space is very broad. And this company we acquired with a pretty robust technology platform, we believe will allow us to do 2 things: not only provide more optionality to our core Vacation Ownership business, Exchanges that is, more inventory, more ability to do transactions, but it's also going to provide us a platform to get beyond simply timeshare and get into a more broad travel and tourism space. It's all I probably want to say for today because our intention is to, at some point in the third quarter, get out into the marketplace and be a little more broad as to what our plans are. So I don't want to get ahead of myself. But I do think strategically that acquisition and the fact that we've been able to really focus on it the last 60 days, we'll make sure that we're out with some new ideas, new products and a strengthened RCI business here in quarter 3.

So I mean, maybe there's a few hints to that in this -- in your response there. But in terms of your priorities, as we kind of come beyond the pandemic and how maybe those have shifted by this. Do you expect this will mean more focus on investment, maybe a little bit less focus on cost and more focus on that sort of the growth opportunities that comes out of it?

Well, I think we see -- as the short-term reality is our attempt to drive margin and bottom line, we think the $60 million that we've taken out of the business, we think the adjustment to the marketing approach and ultimately, what we're looking at on the development side really gives us an opportunity to move more rapidly to bottom line growth as opposed to in relative comparison to top line growth. And that's going to be our approach on the Wyndham Vacation Clubs business. The RCI business, Vacation Exchange has traditionally been a no to slow growth business, and it was exciting because it was a great cash generator, required almost no new investment. But if we can start to look strategically at both of those businesses with relatively equitable growth profiles, strategically, I think that's going to be very attractive. And I think people will start to look at our multiple in our business a little bit differently because with 30% of our EBITDA today coming from a business that's highly recurring and no capital requirement, if that becomes a little higher profile, and then you look at Wyndham Vacation Clubs, which has always been questioned about its resiliency in a downturn and has transitioned itself to either just-in-time or asset-light, I think there's a real opportunity for people to relook at how they rate our business and move it closer to, not at, but closer to your hotel multiples as opposed to closer to homebuilding multiples.

Very clear. And then maybe we -- you mentioned the Exchange business there as an area of focus, is there anything more you need to do within that Exchange business to sort of vet to verify the properties you'll be exchanging into that maybe comes out of the COVID situation? Will you need to rate properties on a sort of hygiene scale? Or do you think everything in there is trustworthy as it stands?

Well, it's one of the elements that definitely the RCI business is in the process of doing at the moment because we have nearly 4,000 properties worldwide, we're not the operator of them. They're actually in active conversations with the developers to determine what the right either pre-notification or validation is, keep in mind that still, to this day, over 60% of those resorts are closed. So companies are still working through their individual plans, just like we are. We've developed our vacation-ready plan, and we're a big company. So we're a big hospitality company. So it's in our DNA. And I would argue, we were one of, if not the first companies, to be ready for this reopening. The RCI team is going to have to work with everyone from the big brands, which they think will be -- are doing great work, to be ready to the individual independent operator. And at this stage, it's not defined because, again, many of those are still closed, and they're still working with it.

And then maybe we think about sort of some of your sort of demand trajectories kind of longer term and opportunities to come out of this. I mean I think when we met last year, I asked a question about do millennials find the kind of timeshare product attractive. How do you compete up against the kind of Airbnbs of this world? Do you think this is -- this actually shifts demand towards a more branded product? Or are there other points at play there?

Well, just to put into context the whole conversation is, there's still a misperception out there that owning a timeshare is owning a specific week of the year at the same location and you're always going to open up the same door to go on your vacation. And the reality is the last decade has moved to a highly flexible product where you, Richard, could, from London, get up for 2 days on the South Coast, in a studio just to get to the beach or go up to up North into Scotland for an entire week of hiking in a 2-bedroom with a group of people. And that flexibility is fundamentally how the industry has changed. And it's changed more toward a millennial approach or 60% now of our owners are either millennials or Gen Xers. And I think that has fundamentally changed the approach. And sorry, the second part of your question, Richard?

I guess just -- would you see this as actually help as a branded provider? Would you expect that actually, there may be some demand shift towards a branded product rather than a slightly sort of faceless private rental or other possibilities that might be out there?

Well, you had mentioned Airbnb originally. And I think Airbnbs, the HomeAways, VRBOs, we also love home swap as part of our RCI portfolio. All of those are accommodating to the macro trend of people wanting to vacation with more space. I do think the nature of this downturn, which is all about health and hygiene, you want to put your trust, and this is going to be true, whether it's hotels, timeshare or any rental, you want a brand behind it that has in its DNA both hospitality and cleaning standards. I think you can just ask yourself, yes, there's going to be plenty of people that still want to go back to Airbnb or HomeAway. But I absolutely believe for our demographic and more broadly -- and you can see it in surveys that people are ready to travel, but almost every single person that's ready to travel also wants some assurance about what hygiene protocols have been modified and enhanced during this downturn. So that's a long-winded way of saying, yes, I absolutely think branded hospitality companies will benefit. I think we uniquely have the branded component. We have the space component. Our units are around 100 square meters, 1,000 square feet. And in the U.S., the vast majority of our resorts can be reached in a car versus requiring flights or even long haul. And I think that's going to be, for the next year, a very positive characteristic of our portfolio.

Actually, that leads us just on a couple of nice follow-ups we've got in the -- got from the audience. One is actually asking specifically what percentage of your business is fly to versus drive to. And I assume there are a few other possibilities in there as well. But if you've got that information? I'll just ask that one first, then I'll move on to the second one.

Sure. So we're uniquely positioned in -- on the mainland U.S. We have a very small number of our resorts that are in Hawaii, which obviously requires a flight, and we have very low reliance, I think it's 5 resorts in the Caribbean. So out of a portfolio of 230 resorts, I won't say none, but almost an immaterial amount of them require fly-to destinations in order for occupancy. And the vast majority being in North America, clearly, that's going to benefit from us. I think the stat is 95% of our owner base are within 300 miles or 500 kilometers from a resort.

Okay. And then the other follow-up was, if we accept that sort of the branded product, the space, et cetera, is going to become a popular product going forward, which is something I would agree with, does this give you an opportunity to break more into alternative markets? Could this be the time when Wyndham Destinations can start selling its product to Europeans who wants to travel domestically and want that type of holiday?

I would love to say, absolutely yes. Candidly, I spent 9 years in this industry in Europe. And the challenge is not that people don't love the product. They do. They love the space. They love the [ hostel and so ], they love the mountains in Austria and Switzerland, where there are a lot of resorts. The challenge is regulation, where the U.S. is a highly regulated, very accepted product with great -- unfortunately, American hospitality brands, Marriott, Holiday Inn, Wyndham, Hilton, Disney, Hyatt. So it is part of the American DNA. There are 10 million households that own timeshare. Whereas in Europe, you have this very fragmented set of legislations. Candidly, some really bad history with independent operators that have stayed in the market. So just being perfectly candid, I don't think Europe is our first priority. I do see a lot of opportunity in Asia. We recently purchased a small resort portfolio in Japan and think there's a good opportunity there. We've been in China now for several years and have had good acceptance. So I would expect our international expansion will be primarily Asia as opposed to other areas of the world.

And to be clear, that is selling the product to Japanese, Chinese consumers, not for Americans to travel over to Japan and China? Or is it both?

That's -- I mean, technically, it's both, but no, it's in Japan for Japan. The real crossover comes from Japan to Hawaii. There's a great crossover there. But no, we are focusing on Asia for Asia, just like we focus on the South Pacific for the South Pacific. So that's the approach.

Okay. Very clear. And you talked about wanting to sort of make some changes as a result of this -- taking advantage of this situation. Obviously, you've got a large portfolio of brands. Is this an opportunity to consolidate that portfolio of brands? Or do you not see any dyssynergy in sort of shepherding such a large portfolio?

Well, over the past 3 years, we have spent a lot of time trying to define our brands much better. We redefined, we've got the WorldMark brand, the Club Wyndham brand and the Margaritaville brand that are clearly defined and our consumers understand each of those. We also purchased, about a decade ago, the Shell Vacation Club and has always been on the tangential part of our business. And we do see the opportunity this year to be able to provide those owners with more optionality and better define that brand. But -- and the same could be true with -- on the RCI side of the equation. There are a ton of brands. We've sold some, we bought some. But yes, I think the bigger opportunity is we want to have clearly defined few brands on the WBC side, Wyndham Vacation Clubs, and then we want to clean up the whole brand portfolio on the RCI side. And you'll see that happen over the next 12 months.

Fantastic. And then maybe just to talk about if this product is going to become sort of the popular product going forward. What are the barriers to entry for another player to get into this space? I know that you sort of have a niche that sits a little bit below in terms of income level, Marriott and Hilton. What is the risk of them maybe kind of coming into your wheelhouse if they see opportunities there? You're the scale provider, but maybe you can talk to how to scale manifest itself as a protection from competitive forces?

Well, to be perfectly frank, I -- Hilton or Marriott could definitely enter the mid-tier space, that -- sort of that $100,000 household income, no different than we could go up to the upper upscale. When you look at the nature of this industry, it's extremely unique in the fact that most companies, including the ones you mentioned, we all market 50% to 60% to our existing owners. They're loyal. They love their product, and they just -- they buy more because they're very satisfied as owners. And the remainder of the marketing, and we stand out as unique in this, really markets to their affinity base. So a Marriott, if they decided to go more toward our market share, they would probably market just to use the terms, a Residence Inn guest or a SpringHill Suites guest and Hilton might market to a Hilton Garden Inn or Hampton Inn, but more than likely, they would stay within their wheelhouse and their affinity base. And they've -- more or less at it, doesn't prevent them from going into our space or trying something different. But our history has been not only to take advantage of our affinity base, which we hadn't -- we've grown it from, I think, $14 million in 2016 of sales to Wyndham Rewards guests to we were going to be over $100 million. So we have a lot of growth in our affinity base that we've yet to tap into. But we have experience because we didn't start as Wyndham, we started as a company called Fairfield of open marketing and marketing to people that are in the general population. And I think that's distinctive with us. And more so that scale, it just allows us the ability if we wanted to move within the scale or the demographic space, we would have the ability to do so. So I wouldn't rule it out for us.

And what about any new entrants? Are there any new entrants that particularly keep you awake at night? And maybe tied to that something we see in the hotel space as companies maybe pushing a stronger ESG angle? Are you seeing companies finding that as a way into? How much is ESG a consideration for you when you think about growth going forward?

Well, what definitely keeps me up at night these days is COVID-19 more than anything. This is where having the industry's best and an extremely scaled sales and marketing or distribution platform makes barriers to entry very high. You have to be willing to make that investment. I think it's necessary nowadays to get to any scale to have a brand behind you. And I think the barriers to entry are very, very high. What more relevant keeps me up at night is, consumer demand and trends are changing so fast. We cannot be satisfied that what worked in timeshare, even before the Great Recession, is relevant anymore, it feels like every 24 months, demands are changing. You're likely to see a shorter-term product come into the market, you're likely to see the attachment of broader benefits beyond simply accommodation come into the market. So I think there are some trends that are less specific to a competitor and more specific to just consumer behavior that are relevant and the ones that we have to be mindful of. As it relates to ESG, look, I think COVID-19 has been a great example of where companies have really stepped up and showed their commitment to ESG. Whether it's a competitive component or not, I fundamentally believe that corporations need to be more than slaved to the shareholders. Shareholders are super important, and you need to do all the right things to return capital to shareholders and move your stock. But that's not mutually exclusive from being good corporate citizens. And Wyndham Destinations, we're proud of our participation in the community and our giveback to it. It's probably nothing that's maybe more proud over my 3 years as CEO than how our organization has responded to it. And often you hear the debate about ESG and return. And look, I think our behavior in COVID-19 has been super ESG focused. And at the same time, as we talked about at the very beginning here, we're one of the few companies that return capital to shareholders in the form of a dividend in the midst of it all. So we're absolutely committed to the maximum shareholder return. But we're also equally committed to being good corporate citizens and being involved in the community as opposed to being a loop from it.

I'm just going to finish with a couple of questions we got from the audience. Where do you think the new versus existing owner mix goes in the near term?

Well, we've been very public that we think it's -- the owner mix is going to be much more heavily weighted in the latter half of 2020. I don't have a specific number, but it wouldn't surprise me if it moved sort of 75%, 80% of sales for the remainder of '20 would be owner-based, not because we're overly focused on it is -- but because we're coming out of COVID -- the reopening phase in the height of our new owner season. So we're going to go through June as a transition month, where normally we would have started to ramp up in April for June -- for Memorial Day in June. And we're only beginning to ramp up now. So we're going to miss our prime new owner mix. And we're going to prioritize getting our owners back on vacation. So that's just going to be a natural outcome of the reopening plan. And then we'll start to rebuild our new owner base as the storm clouds begin to dissipate and we look into 2021.

And then could you quantify the difference in provision you would take under the new credit standards? I guess that's a question for Mike. Potentially, anything you can comment on how that might change?

Sure. As those of you who are familiar with the company now over the last couple of years, our provision has been right around 20%, 20.5%. What we'd expect in the second half of this year and going into 2021 is we see that provision move back down in the high teens with the better quality consumer will be marketing to in the second half of this year and next year, I would expect somewhere in that 18.5% to 19%, basically high-teen range for the provision.

Great. That's fantastic. Well, I think we're out of time. So thanks, Mike. Thanks, Mike. That's been extremely excellent chat. I remind everybody, if they've got -- if they can fill in the Procensus poll, there should be a link on the left-hand side of your screen. I should hope. If you can't see it, please email me, [email protected], and I'll make sure one gets over to you. But with that, thanks, Mike, thanks, Michael. Any closing words you'd like to leave us with?

No, we definitely appreciate our time with you today, Richard. Obviously, our Investor Relations team is available for any follow-up questions. And appreciate your thoroughness in both getting into our business and questioning our cash flow decisions as we think that was one of the most important decisions we've made in the last 60 days beyond the reopening plan that we've put together. And we feel confident about the second half of the year. Leisure demand is, in my opinion, showing more than green shoots. It's -- there's also -- there's some blossoming going on in the last few weeks now that reopening is going. So I appreciate the time to share that and share a little bit more about Wyndham Destinations.

Wonderful. Well, thanks very much. Enjoy the rest of your day. And thanks, everyone, for listening in. Great.

Thank you.

Thank you.