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

Hello, everybody. Welcome back. I hope everyone had a good lunch. So Brandt Montour, Barclays Gaming & Lodging and Leisure here. Happy to be here with Travel + Leisure Co.'s CFO, Michael Hug. Welcome, Michael. CEO Mike Brown is not here. He goes by Mike now, you're at Michael. We haven't switched back, right? Okay.

So maybe we'll just start high level. I would love, Michael, if you could just give us the 2-minute overview of T+L, the business lines. We'll get into the general trends next. But just for people in the audience that don't know the company at all, let's just give them a quick overview.

Happy to do it, and thanks for hosting us today. It's been a great conference so far. So always good to spend the day up here with you all. When we think about the Travel and Membership or the Travel + Leisure business, there's really 2 big components to it. First of all, the Vacation Ownership side, which is [indiscernible] the destinations, represents about 70% of our revenue and our EBITDA. Made up of 3 primary revenue streams: the sales of Vacation Ownership, the financing income we get from the sale of that Vacation Ownership, and then for the properties we develop, we get a management fee for managing those properties on an ongoing basis. The other side of the business which represents about 30% is the Travel and Membership side, which is primarily made of an exchange company called RCI, largest exchange company in the industry. The 2 big revenue streams there are the annual membership fee that 3.5 million members pay to be a member in RCI. And then when they decide to make an exchange transaction to go to one of the 4,000 properties we have within the system, they pay a transaction fee for that.

Before we go into timeshare-specific trends and exchange [indiscernible] trends, maybe just again, staying high level, about the -- thinking about the consumer environment and the consumer travel demand environment, what sort of things are you seeing out there now? We're coming off of this massive COVID revenge travel normalization period. So is there anything you want to talk about in terms of how we should think about what you're seeing sort of core health of the traveling consumer in the U.S.?

I think we continue to see strong travel, obviously, as we came out of COVID. There was a lot of revenge travel we've seen over the last couple of years. We saw a lot of that travel this year move internationally. But still, for us, we were able to see great travel into the markets that we're in, and we're in all the large markets that you think we would be in. Orlando, Las Vegas, all the beaches, a lot of urban products. So for us, our consumers, both our owners and the nonowners that we market to, we're still seeing good arrivals into our resorts and into our properties. When we look at our owners, they're booking at rates that they booked at back in 2019, back in 2022. So the owner arrivals still remains strong, and overall across the industry domestically, I think there still remains good owner travel or good consumer travel.

Okay. And when you look out across your businesses and you think about just bookings, where is there strength? Where is the weakness? Are there certain markets or pockets that you would highlight that are sort of better or worse in the portfolio?

No, I think overall, we've seen good occupancies across all our properties. When I look back over time, and I've been with the company for 23 years, we've always run kind of 75% to 78% occupancy on an annual basis. Obviously, that dropped during COVID. But our properties were still open during COVID where we're allowed to be, and we still got occupancy there. And when we look this year, we're kind of back to that 75% to 78% occupancy. So Orlando remains strong. Beaches and mountains are huge. Las Vegas has come back. Obviously, had a big weekend with the F1, and they got the Super Bowl coming up out there. Maybe a couple of urban markets that are a little bit slower. But when you look at our portfolio, no single market makes up more than 10% of our business. So the great thing about our portfolio and really paid off during COVID is our owners are able to get on vacation even if, in the case of COVID, right, they aren't able to get to San Francisco because it's closed down or Las Vegas or New York, they can still drive to get to the mountains. So with the diverse portfolio we have, even though we aren't seeing any pockets get slow, if one does get slow, it's really not material in terms of the revenue we're able to generate.

Okay. And Orlando, you highlighted, seems to be -- sounds strong. One of your peers recently highlighted their Orlando was one of their softer markets sequentially. Is that a market that has some idiosyncrasies where you would -- could outperform others? Or what's -- maybe what's going on with that market?

I mean, for us, when we look at our arrivals and the tour flow we're generating in Orlando and all our markets, we really aren't seeing much softness. And that's -- I think when we look across the business in the 20-plus years I've been with the company, we've always been able to generate the tour flow, right? People are taking vacations. Even if Orlando sees 60 million people rather than 70 million people, that's still a lot of people coming in the market, and we have the ability to generate the tour flow, right? So I think for us, the thing we watch most closely in terms of how is the consumer feeling and how are results going to be driven is that close rate in that VPG. That's what we have to watch most. But like I said, travel looks like it remains strong, and our tour flow, when we look at it, not seeing any big misses in any particular market.

So taking consumer finance aside and just focusing on core timeshare sales trends, tours, contract sales, close rates, close rates and contract sales in that order, I guess, you were the only timeshare company to not have an implied guide down in the back half in terms of core timeshare EBITDA. What do you think is going on with your competitors, again, taking Hawaii exposure out? And I'm not talking about [indiscernible]. What do you think you're doing better than them in terms of the core business?

Well, I think we've been able to really focus on the business, right? We haven't been involved in the M&A markets. We didn't see that made strategic sense for us. For us, it just allows us to really drill in on making sure, right, that we're generating the tour flow, that we're able to continually train and develop our sales team to keep those close rates where they're at. And when we think about kind of the progression throughout the year, right? We came out with full year guidance, then we also give quarterly guidance. And when we gave our VPG guidance for the full year, we did talk about the fact that it considered several economic scenarios, right? And I think what's happened here in the first 9 months is you had a consumer that was very confident, feel comfortable about where they're at, and therefore, the VPGs, which drives a large part of our profitability, ended up at the higher end of the range, right? So I think what we're having to watch now as we head into the fourth quarter and the variability that you see as far as consumer confidence when you hear about all the consumer reports and things like that, does that mean that as we go into the fourth quarter, maybe the VPG is not at the top of the range like it has been for the full year? So that's really what we're watching. But I think in terms of why we performed so well, we've just been able to stay dialed in on what we do, and that's selling time share, and not having to worry about anything else as far as integrations or changes in products or anything like that.

Okay. Maybe to dig a layer deeper on that contract sales number, is repeat versus new owners, is that behaving any differently versus each other? Do you think -- is there any regional aspects or sort of the level of consumer demographic, is there any sort of bifurcation or dislocation at all? Or is everything very consistent?

No, I think we're not seeing any big differences in terms of the way they perform compared to how they historically performed. I think once again, everything we're hearing and we're seeing out there, right, whether you see it on the news with other consumer and retail companies is the consumer is not as confident today as I would say they were 3 months ago. And I think what that means for us is, is there more uncertainty as far as that demand? Does that mean that the VPG doesn't end up at the high end of the range like it was for the first 3 quarters? And once again, in -- when we put our guidance, we said there is a number of scenarios, and for the first 9 months, that scenario was a strong economy and strong consumer. Right now, it seems that maybe that consumer isn't feeling as confident. Does that mean that VPG doesn't come out the high and it maybe comes out at the low end of the range? Still great results in a strong business, but that's what we'll have to watch as we really close out the year for the next 5 weeks.

Okay. And so that's where we're at right now. But this is a high or a large upfront purchase. A lot of people will look at this business and say, okay, well, this is the first thing to get soft. What do you say to those people? How do you sort of combat that narrative?

So a couple of things. First of all, history has shown that even when times are tough, people take vacations, right? People took vacations during the great financial crisis. People took vacations during COVID, right? So history has shown that people take vacations. And while people think it's a $23,000 purchase, keep in mind, we finance 75% of the transactions that we do. And so what you're committing to as a consumer is that $350 monthly payment for that loan that you take out. And you're going to take that vacation in 2024, and you can take that vacation in a 2-bedroom condo much more economically than you're going to be able to get a hotel room for in 2024, right? So it's just about how you as a consumer decide to spend your vacation dollars. And if you want an economical way to do it and do it on a monthly basis, and you don't get home from your vacation, it had that $6,000 hotel bill on a credit card at 18% interest, that's what we provide to the consumer. And that's really, when you think about our owners, that's the way they live, and that's the way they vacation. So if your family is growing and the 2 kids you have can't share a couch and more in that one bedroom, and you're vacationing in December, and you're going to take a vacation next summer and you need that 2-bedroom unit, you'd probably go ahead and buy it. You don't have to worry about us taking prices up, plus, you've locked in what you're going to pay and you don't have to worry about what happened with hotel rates. And even hotel rates come down a little bit compared to where they're at now, the value proposition compared to our product is still incredible when you look at what our consumer pays for their maintenance fee. And so it's really how you're spending that vacation budget, and if you put it into a monthly payment, it's very affordable and you're at $23,000 at the point of sale.

What can you tell us about your average consumer? Where does it sit? What's the average sort of household income or net worth or anything like that to give us a sense for where they sit on that spectrum?

Average household income's $100,000 to $110,000. When we look at our new owner sales, and this is really important because over the last several years, people always ask me, is your product going to be attractive to the younger consumer? Well, when we look at new owner sales for the first 9 months of this year, over 60% were the millennials, Gen Zs and Gen Ys. And what we find is even though they're waiting a little bit longer maybe to have those families, when you have those families, that's when this product becomes attractive to you. You need more space, right? That one hotel room or those 2 hotel rooms don't get the job done. Those 2 hotel rooms go cost of $6,000 compared to a $1,500 maintenance fee. And the economy is there, you're more concerned about the economy of taking a vacation when you have a family of 4 or 5 or 6 as you do when it's just you and your spouse, right? You're probably happy in the hotel room because you're going to go out for all your meals and everything else. You need that space, you need that at economy more than ever when you start to have families. And that's what we've seen as these generations have started to have families, we see them buying the product at all-time highs.

Okay. CPI is back to 3%, okay, or something around there. There was a time last year where we could say, okay, CPI is, again, a risk, a boogie man in the consumer's sort of things that they think about, and that actually helped timeshare because you're buying timeshare in today's dollars, you're getting -- you're sort of derisking inflation for your families location. Is it bad that inflation is coming in at the sales table for close rate? Or is it actually probably just net good because the consumer is not as worried about their own finances?

Well, I think from a consumer perspective, even if inflation stops, that value proposition is still incredible, right? I mean those 2 hotel rooms, if you think about -- and then we did -- we looked at it back in -- for our first quarter call, right? If you were going to book 2 hotel rooms in Orlando in May, you were looking like $6,000 compared to our 2-bedroom condo where your maintenance fee was $1,500. And you can't compare 2 hotel rooms with a family of 4 or 5, to a 2-bedroom condo where it's got a full kitchen, a living area, washer, dryer. And so even if inflation stops, the value proposition is still very, very strong to the consumer. And then if you look at the other part of the business, the consumer finance part of the business, which I know I was supposed to leave it out, we'll get to that amount. But when we get to -- when we talk about inflation, right? Inflation is what's driving interest rates up, and so hopefully, right, inflation start to moderate, interest rates settle or maybe even go down a bit, spreads tighten a little bit. So we don't have that headwind going forward that we currently have on the interest side of it. But overall, for us, those high hotel rates is really what creates the value proposition for the consumer. And I don't see them -- once again, even if they come down some, there's no way that the value proposition disappears.

I wouldn't bet on them coming down. Great segue into consumer finance. So you told us the propensity to finance 75%. Can you level set where the portfolio is now, where it finished the third quarter in terms of delinquencies and default rates? Is it versus '19, peak '19, that you think about that? And is that the right comp, because we could argue that things are going to get a little bit worse than we're in than '19 the consumer was in? And then how comfortable are you in the current reserve? How do you feel about that?

So portfolio currently sits at about $2.9 billion. Average loan payments is about $350. Average loans balance is a little over $20,000. So not a huge financial commitment from the consumer, especially when you think about they're going to spend money on vacations anyway. So we see a consumer, the average FICO of our new originations is 738, so it's a good quality consumer. We don't even market to anybody if they got below 640 FICO. So as we came out of COVID and reopened our sales and marketing offices, we moved the minimum FICO from 600 up to 640. What that means, once again, the originations are at 738. When we look at delinquencies at the end of September, they're as good as they've been since 2016. So very happy with the way the portfolio is performing. We've held along. If you look at a lot of other industries, right, once we came out of COVID, they might have, for a short period of time, had some credit restrictions in place, but they've opened those up. We didn't ever do that, right? So that's why when we look at the reserve that's on our balance sheet, when we look at the delinquencies, I'm very happy with where the portfolio is at. No comparison to really to the end of 2019. We were at $3.8 billion. At that time, our minimum FICO was 600, so we had a larger portion of our portfolio in the sub-640 category. So -- and I think the reason people keep paying for it is just in the value, right? They're taking vacations, they're seeing the value, and why would you walk -- the worst thing you're going to be able to have to say to your family is we're not going on vacation next year, right? Nobody wants to say that, and we're providing an economical way for them to do that.

So can I say this is another way and you tell me where maybe I'm wrong? You're reserving 18% or so of run rate revenues for loan losses. And that's not altogether that different than what you were reserving in '19, yet the portfolio is doing better. And so is it a kind of situation where your, let's say, borrower cohorts from pre-COVID, right? That consumers may be doing a little bit worse, but over the last 3 years, you've only been letting in people with a higher FICO from better channels, and that's offsetting those -- that worse cohort. Is that maybe one way to think about it?

Yes, that's definitely one way to think about it. I mean we were actually doing parts of '19 over 20%, right? And the only reason that we're even up at that 18% to 19% is we've made a conscious decision, after we moved that minimum FICO up to 640 and we saw the average FICO coming at 738, to finance more. And obviously, the more you finance, the greater the provision you have to provide for future losses, even if it's an 805 FICO, right? At some level, the 800 FICOs, even if it's 1%, is going to default, right? So you've got to put that on the books at the point of sale. If you're measuring that provision as a percent of sales, the more you finance, even if it's great quality paper, the higher your provision goes up. So when you look at that provision, you really got to understand, to your point, the components of it and what's driving it. And we're growing our portfolio again. As I mentioned, our portfolio at the end of 2019 was $3.9 billion. It naturally pays down by about $700 million, then we have roughly $300 million default. So naturally, it goes down by $1 billion a year. In 2020 and 2021, because VOI sales were depressed, we weren't originating $1 billion in the paper. So that's no reason it went down. It wasn't because we had a huge default issue. In fact, incremental defaults in 2020 and '21 on our $3.9 billion portfolio were only $85 million. Really not a very big fluctuation on a $3.9 billion portfolio. And as I mentioned, the portfolio is even bigger now. But that's the other thing. Our portfolio is starting to grow again, and when you have a younger portfolio, you have to have a higher reserve because you still have more losses in the portfolio. But overall, a very, very strong portfolio.

So with the new normal for TNL, so that's with the lower-quality channels cut out of the system during COVID, what's the right provisioning in a normal world? I'm assuming it's below 18%. How late -- how long until you can get to that? And what are of the factors? I imagine a headwind would be, again, more lending to the lower -- the younger people, like you mentioned.

Yes. So I think for us, it's a matter of judging the consumer, and I'm not sure below 18% is the right number, because to your point, if I'm out there and I've got a bunch of 800 FICOs that want to borrow from me, I might as well lend to them. Even if it drives that provision as a percent of revenues up a little bit, I'm still getting a lot of interest income. And 800 FICO, 95% is going to pay you and only 5% aren't, so why wouldn't you take that paper? The other thing people need to understand is back in '19, when we were running a 20%, 20-plus percent provision, that got a lot of discussion and people are asking, how can you run a business with a 20% loss rate? Well, for us, keep in mind, right, we're managing that property, a great revenue stream for us, cost plus 10%. So we don't have any exposure to rising labor costs because they're paid by the HOA. But because we're managing that property, and in that maintenance fee that I pay as an owner is a reserve component. And our goal is for every 5 to 6 years for every unit in our system to be refurbished. So we've got 25,000 units. Every year, we have 5,000 units that are going through refurbishment. So in those cases where the company does have to default, I've got a great asset that I'm managing, that I'm keeping fresh, that I may sell for more today than I might have sold to that consumer that defaulted 3 years ago. So for me, unlike if you think about an auto lender, when they get that car back, who knows what kind of shape it's going to be? Because they haven't seen the car in 3 years, right? And if the consumer doesn't have to make the monthly payment, they're probably not changing the tires. They're probably not changing oil. Who knows what kind of value is there? In our case, this business model runs perfectly fine with the 20% provision because I get a great asset back, and that's less cash out the door for new inventory. So it's really important to understand the dynamics of that provision, both what drives it, and understand how this model can work with the provision at that level.

Okay. Before I move on to another topic, does anybody in the audience have any questions? Brad, in the back? Okay, maybe later. Sports Illustrated. Very exciting. I think we're calling it Sports Illustrated Resorts. Is that what it's called? Okay. So new brand announcement, Sports Illustrated, it's going to be a timeshare brand. I'll let you talk about it, but just a preamble, it's basically timeshare for sports fanatics, right? It seems like you guys are very excited about it. Can you share some anecdotes or studies or sort of how confident are you that this experience or brand vertical will work with timeshare? And why do you think that?

So when we acquired the Travel + Leisure brand back in January of '21, one of the things we talked about we wanted to do is go partner with other brands and develop basically private label vacation or ship clubs. So now we have the Sports Illustrated Resorts Vacation Club that we'll have out there. And what drives this business is tour flow, right? That's what you got to do, is you've got to get people that you can present the product to, and then you develop the product to meet that demand. And so what an organization and a brand like Sports Illustrated does for us is allows us to market to all those people that are on Sports Illustrated's social media. Plus, if we go into college town, we've already announced that we're -- our first deal is going to be in Tuscaloosa, Alabama, [ coming ] with the University of Alabama. They've had 41 people on the cover of Sports Illustrated, so more than any other college. So it's a great place to start. They are fanatics, and we've actually acquired a piece of land there. But what we expect that's going to be able to allow us to do is 80,000 people plus that come to the University of Alabama for football games, right? There's going to be a Sports Illustrated Hotel there, which we won't develop. Our partners will develop that. We'll develop the timeshare. We can market to everybody. There's going to be a Sports Illustrated [ museum there ] around the University of Alabama, obviously. We market to all those people. We market to all the people staying in the hotel. And then naturally, you would think that the alumni of the University of Alabama might be interested in this product. And I don't know what their alumni association is, but I'm sure it's several hundred thousand. So if you think about doing that, and then you add on one in Athens, Georgia; Columbus, Ohio; Auburn, Alabama; and Arbor, Michigan, they just start to pile up, right? And you just had that continued new tour flow stream coming into that basically is going to drive long-term BOI growth. And it's an exciting one because there's a great deal of excitement, a lot of inbound calls coming to us about people wanting to partner with us in these markets. But secondly, it's a great proof point of how this works. And if you get 2 or 3 of these private label Vacation Ownership clubs and if they all become a $200 million to $300 million realized sales business annually, you're talking about $600 million to $1 billion in revenue in the long term. And so that's why we're excited. We're excited about the current opportunity, but we're also excited about the fact that people probably understand it better than they did when we were just talking about it conceptually. And that means that we have more conversations and start to stack these one on top of another.

Okay. Maybe shifting gears to Travel and Membership. That business continues to be a little bit softer than timeshare over the last couple of quarters. I think maybe that's how you would describe it, but I don't want to put words in your mouth. Maybe you could walk through different businesses within this segment and talk about where you're meeting your previously set goals, where you're not meeting your previously set goals and where you're falling short? And then we'll get into sort of how to think about that with your longer-term targets.

So you're right, the Travel and Membership business composed of 2 pieces. RCI, the exchange company, which is about 90% of EBITDA of that segment, and then you've got about 10% that comes from the Travel + Leisure Clubs. The challenge we've had with the exchange company -- first of all, let's step back, it's a great model. It's fee-based and membership-based. So low capital intensity, high margins, great free cash flow conversion. What's happened across the industry in the timeshare space over the last several years is you've seen consolidation, right? Hilton bought Diamond, Marriott bought Welk, Hilton bought Bluegreen. And so what that means is back in 2019, if you were a Hilton owner and you want to go outside the Hilton system, let's say. Hilton had 40 properties, and you want to go somewhere else, you had to go through RCI to get there, and RCI got a $115 transaction fee for booking that transaction for you. Well, now, Hilton buys Diamond. Their portfolio is much bigger, so the need for that Hilton member to exchange has gone down. So that's what we're seeing across the industry as you see that consolidation. So while our RCI member count is growing again, that propensity to travel, or the propensity, not to travel, because they're all traveling, but to need the exchange, has gone down. So that's really the headwind we faced as we kind of got in the fourth quarter and as we think about next year, for that business. So 3.5 million members, that member count is growing. So that means subscription -- or membership revenue is going to be growing. We've just got to find a better way to monetize the travel dollars from those 3.5 million members. That's 90% of that EBITDA. The other 10% comes from what's called our Travel Clubs, Travel + Leisure GO. And what that is, is it's a subscription-based product where you, as a consumer, and I'll just use the National Association of Realtors, we have an arrangement with them where if you're a realtor and you're a member of the NAR, you now have access to our platform, which provides you great value on 600,000 hotels around the world and the gold areas. I mean we've done a great job getting a lot of relationships like the National Association of Realtors. Where we've missed is we haven't created the right functionality and the right search capability and presentation of the product to the consumer to be able to transact at the level we need. So that's what we're doing right now. Within the minimal capital that's needed for this business, we're just going in there and tweaking that website so that we present the product properly and start to see the transactions start to increase. The other thing on that business, we did lose a customer early in 2023 this year that was doing about 100,000 transactions, so we have that from a year-over-year comp, 2022. Obviously, we won't have that headwind as we head to '24 compared to '23.

Okay. So putting that all together, Travel and Membership plus timeshare, where are you growing next year? Where is going to -- what's the good guy? What's the bad guy? How do you think about next year?

Well, I think the growth is going to depend on a couple of things. First of all, we said on our third quarter call that now that we understand better the dynamics of where the exchange business is going to settle out. While we need to drive more revenue out of the Travel + Leisure Clubs, we're taking a hard look at that business and taking literally millions of dollars in costs out of it to rightsize the organization for what we see, which should help drive growth year-over-year in 2024 and give us time to also drive more transactions through improvements to the website. But when we think about the Vacation Ownership business year-over-year, I talked about interest rates. As we all know, they're going up. And for us, they present about a $30 million headwind next year compared to this year. So that's the first thing we have to overcome. And then we've got to see where VPG settle out, right? That's really when we think about how you drive growth -- we'll get through a flow growth, right? We always do, and I'm confident in our level 2 flow growth. But VPG's -- the first 9 months have been run at the high end of the range. When you look at our long-term guidance that you briefly mentioned, our VPG range for 2025 that we talked about at our Investor Day in September '21 was $2,700 to $3,000. So $2,850 midpoint. So we're still above that, right? So it's been great for the first 9 months. We'll see how the consumer performs this quarter, with the uneven demand we're seeing and all we're hearing about the consumer, but that's really is what's going to drive the growth level as far as where that VPG settles and how we model that into 2024.

Okay. And then the -- if we're going to -- we can't refresh it, but if we can talk about your '25 long-term guidance, do you need VPG to stay above the range to offset Travel and Membership in order to hit that guide?

Yes. We -- so when we think about really the 3 things, to your point, the vacation in our ship business, which is performing above expectations, with VPGs above the high end of the range; the Travel and Membership business, which is performing behind; and then the execution on Sports Illustrated and what we believe will be more of those deals, there will be a shift in terms of where the EBITDA comes from. Less will come from travel membership. More will come from Vacation Ownership. And the bigger challenge as it relates to hitting the numbers that we put out for 2025 is really the interest rates, right? I mean when we came out in September '21, no one would have projected the headwinds we're going to face. And you think about facing the $30 million headwind this year, '22 compared to '23, and then another $30 million '23 to '24, that's a $60 million headwind compared to what we talked about in September '21. So a lot of moving parts there. Great performance by the business on the Wyndham Destinations and Vacation Ownership side, some work we have to do on the membership side, and then really need these interest rates to flatten out a little bit and not continue to provide us a headwind on a year-over-year basis.

Okay. Maybe we should talk about capital. Fun topic. You guys like this topic, right?

Love this topic. Cash flow machine.

Exactly. Can you talk about where current leverage, long-term target leverage range, and then how do you think about capital allocation priorities into next year?

So as I mentioned, this company is -- we've really changed the model since the great financial process to really drive free cash flow. And if you look at 2018, 2019, our EBITDA to free cash flow conversion was about 60%. In the long term, we think we can get back to that 60%. We were at 51% last year. And what do we do with that capital? We've got a dividend that we even paid during COVID. Our cash flow is so strong, not only do we believe in it, but our bankers agreed to allow us to keep paying a dividend during COVID even when we had to restructure our corporate revolver temporarily. So a strong dividend that will grow as we grow the business. We'll look at M&A, and absent M&A, excess cash is going for share repurchases. When you look at our average share count back in 2018 when we spun off the hotel group, it was almost 100 million shares. Average share count through the end of this quarter was 75 million shares. So we repurchased, since the spin-off, 25% of our shares. Last year, we repurchased 10%. This year, we're on track to repurchase 10%. So excess cash has gone to dividend growth, share repurchases. Leverage rate currently sits at about 3.6. Target range is 2.8 to 3x. Pre-COVID, we were operating at about 2.9, 3x, and our goal would be to delever through growing EBITDA. Basically, what happened during COVID, right? Like a lot of people, we took on some additional debt. Our EBITDA is down because of the drop in the portfolio. So as we grow our EBITDA in the future, we expect that leverage rate to come down and get it back to that 3x range.

Okay. It was recently announced that one of your peers is intent to buy one of your other peers, Bluegreen Vacations. Bluegreen Vacations is a company's portfolio, isn't dissimilar -- or maybe you disagree. Dissimilar from your customer, right? It almost seems like a similar customer. And so is that an asset that you had ever been interested in? And then a follow-up question would be that makes HGV, Diamond, Bluegreen, whatever you want to call them together, the largest, by far, timeshare company. Is that a competitive threat? And how do you think about the competitive landscape post that transaction?

Yes. So as it relates to M&A, I mean, I really can't comment, right, on M&A. I think what we've said historically and what is true now, when opportunities come and we get a chance to look at opportunity, we'll look at an opportunity, and we'll decide on whether or not we want to execute it based on the value we think it brings to us compared to what we have to pay for it. In terms of the competitive landscape, when you really look at the 3 big players out there now, us, Hilton and Marriott, everybody markets really in their own space, right? Hilton markets basically through the Hilton Owners program. Marriott markets through the Bonvoy program. Of the big 3, we're the own ones out there that have that loyalty program with Wyndham, as well as has open marketing. Open marketing means a booth in SeaWorld, a booth on a casino out in Las Vegas, things like that. So I don't know, and we'll have to see what they do, but if you look at, in the past, when Marriott and Hilton have done transactions, for the most part, if the company they bought did open marketing, they've gotten out of those open marketing channels and just continued to focus on their loyalty programs. So I don't know what Hilton's plans are as it relates to Bluegreen. But I don't know that it significantly changes the dynamic. Because even if they don't exit the open marketing channels, Bluegreen was already out there, right? So it's not a negative force. We'll still compete in them with them just like we are today. If they decide to exit those, then maybe that some additional marketing opportunities for us. But we'll just have to see what they do as far as their marketing programs and if they take basically what they have with it Hilton Owners and apply that to the Bluegreen portfolio.

Okay. And one more question. Does anybody in the audience want to take a shot? Last chance. Okay. So back to Sports Illustrated. We didn't really talk about the capital side. It's a two-parter. What does the development time line look like? Will you actually put some of your own dollars in this? I mean, I know we talked about it. It's not in Tuscaloosa. It will be third party. But if it's going so well, is there a point in which you want to put some of your dollars as good returns into speeding that along, getting more scale in that brand? And then again, in big picture, 5 to 10 years, if everything goes as gangbusters, what could Sports Illustrated look like as a percentage of total contract sales?

So we've been pretty consistent when it comes to acquiring inventory that we want to do it on a just-in-time basis because we led that great free cash flow conversion. And I would say that's especially true, unfortunately, when your stock is sitting where it's at today, right? So I would be surprised if we changed our just-in-time model, because we think there's better returns we can get on the cash doing other things. And we're still able -- even with that just-in-time model, we're still able to keep the portfolio from when we sell the product, and that's really where some of the tremendous return [indiscernible]. So we did spend a little bit of money in the third quarter to make sure we got to hold of some land in Tuscaloosa that we didn't want to lose after the announcement, but we will find a partner to do the development there. So I think we stick with the just-in-time inventory model and start getting back to targeting that 55% to 60% free cash flow conversion. As it relates to what Sports Illustrated be, I mean, we've talked about the Blue Thread relationship with Wyndham Hotels being a $200 million to $300 million business with us on an annual basis long term, right? We'll be $110 million plus this year.

Contract sales or EBITDA?

Contract sales. Contract sales. I wish it was EBITDA, but contract sales. Maybe eventually. But let's say -- so let's say it gets to $300 million. The way we view these private label relationships that we plan there similar to Sports Illustrated is over time, they become $200 million to $300 million annually, right? But if you do 4 of them, that's $800 million to over $1 billion in incremental VOI sales on top of the $2 billion plus we're going to do now. So that's kind of how we view it as. I don't see Sports Illustrated becoming $1 billion behemoth. I see them becoming a good solid growth engine, starting in 2025, is when we plan to open the first billion, and then start selling it, but a good solid growth engine into the future selling in somewhere in that range and then stacking other private label clubs on top of it. But there's -- you don't know how many costs are going to join in. So you never know, but right now, we're looking at it from that perspective.

Well, as soon as you open the Ann Arbor property, you should do it. Please invite us over. We'll be the first ones there.

All right. Well, I have your credit card ready. Okay. And we'll finance you.

I'll buy [indiscernible]. I'll finance the upfront purchase.

Sounds great.

Michael Hug, thanks for being here.

Sure. Thank you.

Thanks, everybody.