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Marriott Vacations Worldwide (NYSE:VAC)
Q4 2019 Earnings Call
Feb 27, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Greetings, and welcome to the Marriott Vacations Worldwide fourth quarter and full year-end conference call. [Operator instructions] I would now like to turn the conference over to your host, Mr. Neal Goldner, vice president, investor relations. Please go ahead, sir.

Neal Goldner -- Vice President, Investor Relations

Thank you Hector. And welcome to the Marriott Vacations Worldwide fourth-quarter 2019 earnings call conference call. I am joined today by Steve Weisz, president and chief executive officer; and John Geller, executive vice president and chief financial and administrative officer. I do need to remind everyone that many of our comments today are not historical facts and are considered forward-looking statements under federal securities laws.

These statements are subject to numerous risks and uncertainties as described in our SEC filings which could cause future results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the press release that we issued last night, along with our comments on this call, are effective only at the time they are made and will not be updated as actual events unfold. Throughout the call, we will make references to non-GAAP financial information. You can find a reconciliation of non-GAAP financial measures referred to in our remarks in the schedules attached to our press release as well as the investor relations page and the Financial Information page on our website at ir.mvwc.com.

It is now my pleasure to turn the call over to Steve Weisz, president and chief executive officer of Marriott Vacations Worldwide.

Steve Weisz -- President and Chief Executive Officer

Thanks Neal. Good morning everyone. And thank you for joining our fourth-quarter earnings call. 2019 was certainly a year of change for our organization.

From harmonizing sales practices across the business, through implementing new human resource and accounting and financial systems, we accomplished a lot. It certainly wasn't easy. And as you might expect, when integrating two companies of similar sizes, everything didn't go exactly as planned. But looking at our full-year results, with contract sales increasing roughly six and a half percent to $1.5 billion, total company VPG expanding by 3% and adjusted EBITDA growing 14%.

I couldn't be more satisfied with how the year came together. We ended the year on a high note as well, growing contract sales by 10% in the fourth quarter driven by a 9% improvement in VPG and delivering 15% adjusted EBITDA growth, once again, illustrating the strength of our business model. So let's discuss how we achieved these results and our plans going forward, starting with our vacation ownership business. As we've discussed with you in the past, we spent a large portion of 2019 making changes in our sales and marketing programs and operations to capitalize on the long-term opportunities we envisioned when we acquired ILG, and I believe we started to hit our stride.

As I mentioned, we delivered 10% contract sales growth in the fourth quarter which is right in line with what we said we would do back in November. Looking at the components of that growth, we drove a 7% increase in sales at Legacy-MVW, with North America VPG improving to $3,727, with first-time buyers representing a larger mix of our tours and nearly a third of our sales. And sales growth at Legacy-ILG accelerated again, growing 16% in the quarter, with VPG improving double digits as we made further progress narrowing the gap with Legacy-MVW. Our tour package pipeline was also very strong in the fourth quarter, growing 13% year over year, giving us a good start for 2020.

While we made good progress in capturing some of the revenue synergies from the acquisition, I believe we still have opportunities ahead of us. For example, while VPG at Legacy-ILG expanded in the low double digits in the second half of 2019, it was still more than 15% lower than Legacy-MVW North America for the full year. I believe we have further opportunity to close the gap and will continue leveraging best practices across all of our brands to drive sales. We made good progress driving Encore trial packages at Legacy-ILG 2019, one of our higher VPG channels, increasing package sales there by more than 30% last year.

Yet with Encore penetration still below that of Legacy-MVW, we continue to have opportunity to drive more profitable tours through this channel. While we've made good progress improving the tour quality at Legacy-ILG, we can still further optimize our channel mix as well as continue to increase the income qualifications of those we tour. And we also kicked off some exciting new sales and marketing initiatives toward the end of last year, geared toward improving first-time buyer VPGs, and the results have been very encouraging. We look forward to continuing those efforts for all of 2020.

We're also working hard to develop new resorts for our owners to enjoy, while adding new flags on the map to grow sales. Following our announcement late last year of our intention to open a Marriott Vacation Club property in Costa Rica, just last week, we announced our plans to develop a Marriott-branded resort in Waikiki. Waikiki hosts almost 6 million visitors annually, and is a highly sought-after destination by our owners. Once constructed, the new 110-unit resort will include a mix of studio and 1-bedroom units and offer rooftop amenities, such as a pool, bar and fitness center and is a short walk to the beach.

The resort will also include a 10,000 square foot sales center which we expect to open in mid 2022. Consistent with our strategy, we anticipate developing the property in a capital-efficient manner with a phased takedown over time after the resort opens, allowing us to begin sales before acquiring the inventory. I'm also excited to announce that we recently finalized a long-term license agreement with Hyatt. Hyatt is a great brand with 22 million members in its World of Hyatt loyalty program, that we think offers tremendous growth opportunities for the Hyatt Residence Club.

We've already identified a number of key locations that we think makes sense to add a new Hyatt vacation ownership resort, and I look forward to sharing more with you in the future as our plans come together. Moving to our exchange and third-party management segment. Interval International membership declined 2% sequentially from the third quarter, while average revenue per member increased 3% year over year. Interval recently joined our vacation ownership brands in offering an online booking platform powered by PlacePass.

This new feature offers over 250,000 activities and experiences in more than 800 destinations around the world that can be booked digitally at the lowest-priced offer online. This will provide Interval members additional value for their membership fees. Looking ahead, I continue to be excited about the opportunity to transform all of our businesses, utilizing new digital tools to deliver an even more connected guest experience 2019 was an important year for our company as we made progress developing and delivering digital offerings. We showed early success in our vacation ownership business, growing online points transactions by 23% last year, enabling our owners to transact with us more easily when and where they wanted, while reducing our operating costs along the way.

We also expanded our agreement with Salesforce late last year, and are currently implementing new digital tools which will allow us to better automate our digital marketing campaigns. In addition, we also expanded our WiFi digital on-site program to more resorts last year, ending the year with this program in 35 locations. Since this program launched early last year, we have been able to deliver thousands of tours at a lower cost than some of our more traditional channels. This year we plan to deliver additional value-added features in areas of owner self-servicing and onboarding as well as on-property experience and education.

These will include improved online points reservation capabilities and greater digital offerings for our on-site activities management. And our Interval International business also continued to build upon its digital and mobile-first strategies last year as well. In 2019, more than 50% of all Interval confirmations were booked online, downloads of Interval's app increased over 175% and transactional revenue on the app more than doubled. This year, we'll see the introduction of more consumer-facing digital tools and capabilities across all of our businesses including a new Marriott Vacation Club mobile app providing benefits throughout the customer journey.

I'm looking forward to sharing our successes with you as the year progresses. Moving to synergies. We made excellent progress last year, enabling us to increase our synergy production compared to our estimate at the beginning of the year. We achieved roughly $65 million of run rate savings by the end of 2019, and we expect to achieve at least $95 million by the end of 2020.

This puts us well on our way toward achieving at least $125 million in run rate savings by the end of 2021. While these operating efficiencies are very important, we continue to view the transaction as a way to fundamentally transform how we do business, from repositioning our product offerings to modernizing systems, to employing new technologies in exciting ways. For example, we've already started employing intelligent automation to handle some of our more manual and repetitive tasks, and we're utilizing advanced analytics to drive higher-yielding tours. I believe we have numerous opportunities to use technology to lower cost and drive efficiencies in our business, and I look forward to discussing many of these with you on future calls.

Before moving to guidance, I wanted to address the coronavirus. The safety of our owners, visitors and associates is always paramount, and we have initiated precautionary measures to address this risk. To put things in perspective, Asia Pacific is a relatively small region for us, and Chinese residents represented only about 1% of our global contract sales last year. In Asia Pacific, we have seen a small percentage of our owners rescheduling their trips this year, and we've had a relatively small number of preview package customers cancel their upcoming arrival, with 97% of those customers indicating that they are only postponing their visits.

In addition, cancellations from upcoming rental guests have been minimal thus far. Given our limited exposure to the region, the overall numbers, at this point, aren't material to our results. Now, let's turn to our full-year outlook. As you saw in our press release that we issued yesterday, we expect to grow contract sales by 7% to 11% this year.

Full-year adjusted EBITDA is anticipated to grow between 8% and 13%, and adjusted earnings per share growing 15% to 24%. Adjusted free cash flow is expected to be between $425 million to $500 million this year, bringing our two year free cash flow generation to more than $900 million at the midpoint of the range. Our uses of free cash flow remain the same. First, we will focus on organic growth in our existing businesses.

Second, we will look for strategic acquisitions and investments that can accelerate our growth and provide an attractive return. After that, we anticipate any remaining free cash flow will be returned to shareholders in the form of dividends and share repurchases. In summary, we ended the year on a very positive note and look to build on that momentum in 2020. And with that, let me hand the call over to John.

John Geller -- Executive Vice President and Chief Financial and Administrative Officer

Thank you Steve. And good morning everyone. I too am very pleased with how 2019 ended as well as the progress we've continued to make on the integration and transformation of the two businesses. Adjusted EBITDA increased 15% in the fourth quarter driven by strong growth in our vacation ownership segment as well as benefits from our synergy efforts.

Looking first at our vacation ownership segment. Adjusted EBITDA increased 15% to $226 million, and margin expanded by 150 basis points. Consolidated contract sales increased over 10%, our best sales growth quarter of the year, and adjusted development margin which adjust for revenue reportability and other charges, increased 18%. Our adjusted development margin percentage increased 220 basis points to 25.6% driven by a higher percentage of lower-cost inventory being sold and more efficient marketing and sales spend.

In our financing business, after excluding the impact of purchase accounting adjustments, revenues increased 13% to $72 million and financing revenue, net of expenses and consumer financing interest expense, increased 18%. This growth primarily reflects the higher contract sales as well as strong financing propensity. Consumer financing interest expense increased due to a higher outstanding debt balance partially offset by lower interest rates on our securitizations. The average FICO score of buyers who financed with us in the quarter remained strong at 737.

We have seen slightly higher defaults in our portfolio, mostly attributable to loans that were originated under sales and underwriting standards used by ILG. As we have discussed previously, in order to drive sales prior to our acquisition, ILG reduced down payment requirements for buyers with sub-600 FICO scores and ramped up less efficient off-premise or OPC marketing channels, with little or no income qualifications for potential buyers. We have eliminated or substantially improved these practices to better align with those of Legacy-MVW. And as a result, we expect defaults to improve over time with these changes.

In our rental business, revenues increased 19% to $139 million and rental revenues, net of expenses, decreased $2 million. This was driven by higher plus point revenues and increases in transient keys rented, offset by higher inventory costs at Vistana. In our resort management and other services business, revenues increased 5%, while revenues net of expenses increased 14%. This growth reflects higher ancillary and exchange company activity as well as higher fees from managing our portfolio of resorts.

Turning to the exchange and third-party management segment. Adjusted EBITDA was down $5 million year over year, after adjusting the prior year to exclude the sale of VRI Europe. As we've discussed previously, the majority of the year-over-year decline was primarily due to the nonrenewal of certain corporate contracts last year. Our exchange business added new affiliations across the exchange network during the quarter.

We also continue to add clients outside the Timeshare Industry to use our products as we work to identify incremental revenue streams for this segment. As Steve mentioned, the integration of ILG continues to go well, and we realized $49 million in synergies in 2019 including $16 million of additional synergies in the fourth quarter. We expect to deliver an additional $25 million to $30 million of in-the-year savings in 2020, and remain on track to achieve at least $125 million of run rate synergies by the end of 2021. Moving to the balance sheet.

We ended the year with cash and cash equivalents of $287 million, and had roughly $567 million in available capacity under our $600 million revolving credit facility. Our total corporate debt outstanding at the end of the quarter was $2.2 billion. This excludes $1.9 billion associated with our nonrecourse securitized notes receivable. From a leverage perspective, and including $125 million of total synergy savings, our debt to adjusted EBITDA ratio at the end of the quarter was 2.4 times, in line with our longer-term target of two to two and a half times.

We replaced our warehouse facility during the quarter, increasing its capacity to $350 million. In addition to the higher capacity, the new facility also enables us to monetize our Sheraton, Westin and Hyatt branded loans which was precluded under the old facility. We also amended our existing term loan credit agreement, reducing the interest rate by 50 basis points, saving us more than $4 million annually. This brings our weighted average cost of our corporate debt to approximately 4.7% at the end of 2019.

Regarding our return of capital in the fourth quarter, we repurchased 1.1 million shares for $123 million at an average price of $115.48 per share, bringing our total capital returns for 2019 including dividends, to $546 million. We generated adjusted free cash flow of $464 million in 2019 as we continue to optimize development spending and manage our investments which we estimate benefited free cash flow by roughly $40 million to $50 million in total last year. This excludes the majority of proceeds we generated from the securitization of notes from our Asia Pacific region as well as more than $60 million we generated from the sale of excess parcels in Cancun and Colorado, both of which closed in the fourth quarter. In summary, our fourth-quarter results were strong, with contract sales growing 10%, while also continuing to integrate and transform our business.

We are excited about the changes we have already implemented and the results we are beginning to generate, particularly around technology and improved processes. Now let's turn to our 2020 guidance. As Steve mentioned, we are targeting contract sales growth of 7% to 11%, with growth coming from a combination of higher tours and continued improvement in VPG. While these higher volumes, continued low product costs and our ability to leverage fixed marketing and sales cost, we expect our adjusted development margin to remain strong in 2020.

And while contract sales will be the primary driver of growth in the vacation ownership segment, we expect to benefit from improvements in all parts of our vacation ownership business. For the exchange and third-party management segment, active members are projected to remain relatively stable, average revenue per member is projected to increase at slightly higher than inflationary levels and we have opportunities to further transform these businesses. Longer term, our strategy for these businesses continues to include diversifying beyond their traditional exchange business, increasing average revenue per member, identifying and expanding benefits to exchange members and of course, focusing on adding new resorts and properties to the network. For adjusted EBITDA, we are projecting $820 million to $860 million in 2020 or 11% growth at the midpoint of our guidance.

We estimate that nearly two-thirds of the growth will come from our core businesses, with the remainder coming from incremental synergy savings. We are targeting run rate synergy savings to approach $95 million by the end of 2020 as we progress toward our goal of at least $125 million of run rate synergy savings by the end of 2021. While we do not provide quarterly guidance, it's important to remember that our first and second quarters are typically negatively impacted by unfavorable revenue reportability. Given the normal growth in sales, as a reminder, our first-quarter results in 2019 were unfavorably impacted by $21 million, and I would expect a similar amount this year.

Again, this is only timing as the revenue will get reported as we go through the year, with most of the deferral being recovered in the fourth quarter. However, it does affect the cadence of our adjusted EBITDA growth resulting in -- is ramping up as we progress throughout the year. We expect our adjusted fully diluted earnings per share to increase nearly 20% at the midpoint of the range before factoring in any effect of this year's share repurchase activity. Lastly, with these projected financial results, we are targeting adjusted free cash flow of between $425 million and $500 million for 2020, highlighting the continued benefits of our capital-efficient development model, coupled with the attractive cash flow profile of our exchange and third-party management businesses.

This projection does assume more normalized levels of development and other capital spending as we look to achieve our 7% to 11% long-term sales growth targets we highlighted during our investor day. I should also note that this free cash flow guidance does not include proceeds we may generate from the nonstrategic asset dispositions we first talked about during our investor day. It also does not include the roughly $60 million to $80 million of cash we expect to invest this year to achieve further synergies from the ILG acquisition. As we've done in the past, we will continue to identify ways to enhance cash flow generation, while also ensuring our spending supports future sales growth.

With our pro forma leverage now in line with our longer-term target rate of two to two and a half times debt to adjusted EBITDA, our capital allocation strategy remains the same. We will look to use free cash flow to invest in growing the business both organically or through strategic acquisitions. In the absence of compelling acquisitions, our best use of excess free cash flow remains returning capital to shareholders through dividends and share repurchases. In summary, we finished the year strong, and we expect 2020 to be another strong year of growth for the company.

As always, we appreciate your interest in Marriott Vacations Worldwide. And with that, we will open the call up for Q&A. Hector?

Questions & Answers:


Operator

[Operator instructions] Your first question comes from the line of Jared Shojaian with Wolfe Research. Please proceed with your question.

Steve Weisz -- President and Chief Executive Officer

Hi Jared.

John Geller -- Executive Vice President and Chief Financial and Administrative Officer

Good morning.

Jared Shojaian -- Wolfe Research -- Analyst

Hi. Good morning. John, maybe just going back to the comments on the free cash flow that you just gave us. I'm hoping you can walk us through the potential capital return build for 2020? I guess, if we start with your adjusted free cash flow guide of $425 million to $500 million and work down, making all the adjustments on the one timers, any new debt you may take on, excess cash from I guess the land sales that you just did.

How are you thinking about how much I guess discretionary capital is going to be available for buybacks, dividends or any other outside activity? Thank you.

John Geller -- Executive Vice President and Chief Financial and Administrative Officer

Sure Jared. So yeah, if you start with the $425 million to $500 million, as you highlighted, given some of the sales we did late last year as well as the Asian note securitization which generated about $65 million of cash. We start the year actually with call it roughly an additional $100 million plus of cash that -- just given the timing of those. So you can add that, if you will, to the $425 million to $500 million.

The other thing we had was we probably had another call it $80 million of notes that are available for securitization within our trust -- or excuse me, our warehouse line at the beginning of the year. And then the opportunities are really around asset dispositions, additional ones this year, as well as on offset for the additional spending that we have on the integration and transformation costs which on an after-tax basis, that's probably roughly $50 million to $60 million. So when you kind of put it all together, you're talking roughly $500 million to close to $700 million of cash before dividends. Given our current dividend pace of call it roughly $90 million, you're in a similar scenario today where we bought back shares north of $470 million.

At a minimum, we should have somewhere in that vicinity, and then there's potential for some upside depending on the timing of some of the asset dispositions.

Jared Shojaian -- Wolfe Research -- Analyst

All right. That's very helpful. And then just I guess on coronavirus. Can you help us understand what percentage of your costs are fixed costs that are not tied to tour volumes? And how that might help you if coronavirus were to spiral out of control in the U.S.? And then if you could also give us the percentages of your EBITDA outside the U.S., I think you said Asia Pacific was immaterial impact.

But I guess, what percentage of your EBITDA is outside the U.S.? And maybe if you could break it up by geography that would be helpful. Thank you.

Steve Weisz -- President and Chief Executive Officer

Sure. I'll take a stab at it, probably do a better job of answering the second question than the first part of it. The -- just to give you a specific, Asia Pacific in 2019 was 2.6% of our adjusted EBITDA. So again, not all that material.

And of course, Asia Pacific is represented by not only sales to Chinese residents, but also the predominance of our sales are related to ex-pats that are based elsewhere in that part of the world. In terms of -- I can give you a sales volume, I haven't broken down the actual EBITDA number yet because in anticipation of your question, I can tell you, total North American sales volume from international customers was about 10.7%. Let me break that down for you. About $50 million of that was east bound from Japan to Hawaii, $30 million was Latin America and another $18 million was specific to resorts in Florida from both Latin America and from Europe.

So if you apply the call it $150 million of sales in North America from international customers, you take our development margin against that and -- 20 plus percent, that's call it $30 million of EBITDA if it all went away which certainly, we wouldn't anticipate. As far as the fixed cost versus the variable I guess we could try to swag it. 30% of it is fixed and 70% is variable roughly. So we'd be happy to come back to you with some more specifics if you'd like, but that kind of gives you at least a high-level view on it.

Jared Shojaian -- Wolfe Research -- Analyst

OK.

John Geller -- Executive Vice President and Chief Financial and Administrative Officer

And just from an adjusted EBITDA overall, if you look at our Europe and Asia operations, it's less than 5% of our -- and probably a little bit more than half of that 5% is Europe and a little bit less than the 5% is coming from Asia. And that's both our vacation ownership as well as our exchange EBITDA.

Jared Shojaian -- Wolfe Research -- Analyst

OK. Thank you very much.

Steve Weisz -- President and Chief Executive Officer

Thank you.

John Geller -- Executive Vice President and Chief Financial and Administrative Officer

Thank you.

Operator

Your next question comes from the line of Brian Dobson with Nomura Instinet. Please proceed with your question.

Steve Weisz -- President and Chief Executive Officer

Good morning Brian.

Brian Dobson -- Nomura Instinet -- Analyst

Hi. Good morning. Good morning. So you had mentioned intelligent automation and also advanced analytics, do you think that you could give us a little bit more color on how you're using that to drive tour flow? And perhaps give us an update on your online marketing efforts?

Steve Weisz -- President and Chief Executive Officer

Sure. So in terms of automation, sometimes called RPA, robotic process automation, much of that is back-of-the-house stuff, where we're using it to kind of leverage some of our cost structure. As you might imagine, they are anything from balance sheet validation through mechanical entries that today or before today, people were actually having to do it, and then you'd have some variability in terms of how much the cost was as well as the accuracy. With RPA, we have been able to do a number of things where we've taken some of those previously manual functions and automated them.

And as you might imagine, they're much more precise in terms of how they get executed, and they're also very helpful in reducing cost. In terms of artificial intelligence or automation on the tour side, so we've done some testing and the results have been very encouraging thus far, to look at tour flow and try to profile which tours are the most inclined to make a purchase versus those that are not. We now have been able to apply some of that same logic stream to looking at how we source tours out of channels, figuring out that there are certain channels which we have a deeper vein of those folks that are more inclined to purchase versus those that are not, and we are adjusting our channels accordingly. It's early on Brian.

I don't want to declare victory yet, except to say that what we have seen thus far has been very, very encouraging for us.

Brian Dobson -- Nomura Instinet -- Analyst

That's great. And then do you think you could also expand upon the new partnership agreements that you alluded to in the rental business as far as getting new users to test your product?

Steve Weisz -- President and Chief Executive Officer

I don't recall talking about that specifically. In the exchange business you mean?

Brian Dobson -- Nomura Instinet -- Analyst

Yes that's right, in the exchange business.

Steve Weisz -- President and Chief Executive Officer

OK. Well, this is simply a matter of the way you think about the exchange business, it kind of goes in a couple of different ways. Number one, trying to sign up new corporate affiliations. When I say corporate, that's the broader definition, not the specific Delaware corporation things, where we sign up a new developer to be affiliated with Interval International.

And they, in turn, pay a corporate membership fee to avail their owners, new members with the benefits of being affiliated through the exchange company. In turn, once a member decides they want to make an exchange, there is an exchange fee that comes along with that. So there's that part of it on the traditional kind of exchange stuff. We've talked before about the Planet Fitness affiliation, where we've realized that the growth of new timeshare developers and the affiliations has certainly not been at the pace that it has been historically.

So now we're looking to go outside of the traditional timeshare channel and make benefits available of the services that Interval provides in terms of travel, whether it be cruises, hotels, air, etc., as well as their -- obviously, their ability to use their inventory that they have available to them to those members. So as an example, Planet Fitness. Planet Fitness pays us a modest affiliation fee. And then we earn commissions for booking cruises or air or hotels.

We also sell them their getaway packages, and that is a benefit that they pass on obviously to their members. And in return, Interval members also get a bit of a benefit in terms of their membership in Planet Fitness. That's about one example, and we continue to have dialogue with a number of different organizations about trying to expand on those kind of relationships as a way of broadening Interval's footprint in the marketplace.

Brian Dobson -- Nomura Instinet -- Analyst

Great. Thank you very much.

Steve Weisz -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of David Katz with Jefferies. Please proceed with your question.

David Katz -- Jefferies -- Analyst

Hi. Good morning everyone. And thanks for taking my question. I appreciate it.

With respect to the synergies, I just want to make sure that I'm mapping and hearing correctly, we're at $95 million run rate through the end of the year, another $25 million to $30 million, was that something to come online this year? And -- or is that something -- because the stated goal is really by the end of '21 to get to around $125 million. Is there -- am I thinking about that wrong? Is there a deceleration there or are you -- quite frankly John, are you sandbagging us here?

John Geller -- Executive Vice President and Chief Financial and Administrative Officer

Let's go through the numbers. I don't think we're sandbagging you. But at the end of '19, we exited the year with 90 -- or excuse me, $65 million. So $65 million of run rate synergies in place.

So said another way, if we put nothing else in place during 2020, we would end the year with $65 million of synergy savings, if you will, in 2020. What we said was we expect to exit the year at a minimum of $95 million of run rate synergies at the end 2020. And given the timing of when those will come into place, we expect to get $25 million to $30 million of incremental in-the-year savings, OK? And then by the end of 2021, once again, that's the minimum of $125 million of run rate savings. As we've always said, we continue to look harder, we see additional opportunities and we're working through all that.

But yeah, we're going to do everything we can to get more synergy savings than what we've talked about.

David Katz -- Jefferies -- Analyst

Perfect. And my follow-up is -- apologies for dealing in some hypothetical statistics that we don't normally deal with. But do you happen to know what percentage of your owners or visitors are drivers rather than flyers?

Steve Weisz -- President and Chief Executive Officer

Well, I'm going to give you a cute answer, and then I'm going to try to get better. I believe everybody drives. Even if one flies to the airport and rents a car, they have to get to the resort in some way, shape or form. We don't have any resorts that are at airports.

With that said obviously Hawaii is 100% fly. There are -- as you get to some of the -- some resorts on Hilton Head, I would get -- I'm going to give you a swag. That's all I can give you, because we don't bother to ask people how they got there. I would say a greater preponderance of people drive to Hilton Head versus fly to Hilton Head.

Because quite frankly, the orientation of the ownership is basically east of the Mississippi, and most of those folks will simply drive to get there. As you go across the waterfront, if you go to Palm Desert, Palm Desert is almost 100% drive market. Those are mostly people coming out of Southern California. Again, I'm giving you some gross estimate, but that gives you the idea.

So depending on the location, that's driven -- I mean, we do not have a lot of resorts, save some of our Pulse properties that are in major metropolitan narratives which would lend themselves to be more of a fly market than a drive market. But again, we've never attempted to try to pull people to say, how did you get here? Because quite frankly, we're not sure exactly what we'd do with it, even if we got the information. But that should give you some sense of things.

David Katz -- Jefferies -- Analyst

So unofficially, quantitatively -- qualitatively rather, it does sound as though a majority, it's fair to classify it, our drivers?

Steve Weisz -- President and Chief Executive Officer

Yeah. I think that's probably right. And I think I know where you're going with this, so let me try to get there. If you think about because of COVID-19 and all that, to what degree people would be less inclined to take trips outside of the North America, so to speak? I think we are well positioned given the distribution of our product, about where we have property, etc.

So again, I think we're all hopeful that this won't rise to the occasion that some people are imagining it to. But I look back on the SARS stuff of 2003. And to be honest with you, in SARS, our sales grew in the same year that SARS came out, we checked with the audited numbers and we saw that they saw increased sales and timeshare in the United States. In 2003 of 8%, 9% in 2004.

So I think again we're doing everything that we know how to do to make sure to take precautions, not only for our guests, but also our associates. And we're well prepared if we need to continue to escalate what we do on the properties, etc. But I think we're dealing with it as best as we can.

David Katz -- Jefferies -- Analyst

Perfect. Thank you very much.

Steve Weisz -- President and Chief Executive Officer

Thank you.

John Geller -- Executive Vice President and Chief Financial and Administrative Officer

Thanks.

Operator

Your next question comes from the line of Patrick Scholes with SunTrust Robinson Humphrey. Please proceed with your question.

Patrick Scholes -- SunTrust Robinson Humphrey -- Analyst

Good morning Steve and John. Just one question here. I'm wondering if you can call out any particular properties or projects that are driving that acceleration in sales growth this year. Thank you.

Steve Weisz -- President and Chief Executive Officer

When you say this year...

Patrick Scholes -- SunTrust Robinson Humphrey -- Analyst

I'm sorry, disproportionately are driving that 7% to 11% growth.

Steve Weisz -- President and Chief Executive Officer

Yeah. I think -- let me -- without giving you specific properties, let me say that I think we will get an outsized proportion of that growth from the former Vistana properties. Just based on the kind of sequential growth that we've been able to see in terms of VPG growth, etc. I mean, just to give you kind of a sense of how all that worked.

We've got -- you may recall that in the first quarter, Vistana was actually down call it 5%, almost 6%. Q2 was up 4%. Q3 was up 9%. Q4 was up 12%.

And we believe and what we've seen thus far this year that we'll continue on that kind of cadence and growth. So -- and then I think we'll still see mid- to high single digits growth in the MVC business. But if I had to break it between the two I would say it'd be a higher percentage of growth on the former Vistana properties and everything else. Just looking at our results so far this year, it's -- that growth is pretty well distributed throughout the system.

We're not seeing any particular property or resort. Because keep in mind, we're not selling individual property resorts, we're selling the portfolio. And so you look at the sales distributions of that portfolio of product, and -- but it's breaking down basically as I described.

Patrick Scholes -- SunTrust Robinson Humphrey -- Analyst

OK. Thank you.

Steve Weisz -- President and Chief Executive Officer

Thank you.

Operator

[Operator instructions] Your next question comes from the line of Brandt Montour with JP Morgan. Please proceed with your question.

Brandt Montour -- J.P. Morgan -- Analyst

Hey. Good morning everyone. Thanks for taking my questions. So I was just wondering if you could maybe talk a little bit about close rates for new owners, sort of how that -- how that's tracked over the past few quarters? And then specifically with regards to ILG, maybe remind us of the major deficiencies that you've split in? But then how many are left to go? So any -- are we in that specific segment?

Steve Weisz -- President and Chief Executive Officer

Yeah. So let me back up a little bit. As you probably are well aware, closing rates of existing owners are higher than closing rates on first-time buyers stands to reason that the owner of the -- buy more of our product have higher propensity to close a contract than a first-time buyer. Where we have seen some very encouraging results, as I referenced in my remarks, is in first-time buyer VPGs.

And that's been driven by the close rate improvement. Now that's again we started it late third quarter into the fourth quarter. We've seen close rates, quite frankly, go up 1 point to 1.5 points which is very material when you get to the VPG calculation and the flow-through rate on the sales and marketing cost. Vistana has a higher percentage of first-time buyers than existing owners, although it's not overly dramatic, but it is something that you need to understand.

And so I gave a statistic in my remarks that about a third of our sales came from first-time buyers in -- for the full year. And if you break it down, the tour volume, about half of our tours came from first-time buyers. So as we make continued improvement in first-time buyer closing, you might imagine that unless we have a dramatic change in the shift of first-time buyers versus existing owner tours that you'll start to see the percentage of sales from first-time buyers go up somewhat materially. Does that help? I mean, we don't disclose closing rates, as I think you're well aware, but that should give you somewhat of a, at least, atmospheric backdrop to do what you need to do with it.

Brandt Montour -- J.P. Morgan -- Analyst

No, that was really good color. Thank you. And then just maybe you could expand on your sort of thoughts on M&A in the landscape and the industry as a whole? I guess, how can Marriott Vacations benefit from your position? And what would be sort of an ideal sort of ultimate outcome of the ongoing M&A?

Steve Weisz -- President and Chief Executive Officer

Well, as you might imagine, we don't really discuss a lot about M&A because obviously a lot of it's speculative and everything else. Let me just say this, as we have said all along, that there is a number of different things we look at in terms of any kind of acquisition candidate we might be reviewing, one of which is, is it a good strategic fit, would it give us a broader footprint in the marketplace that we don't enjoy today. Or we can't get there if we go through normal organic growth. Two, would there be a good cultural fit? Which means -- and one of the things I can report on the ILG acquisition is that's been the -- while we thought it was going to be a good cultural fit, I'm happy to report it's been a great cultural fit.

We have a long-term relationship with the exchange company of Interval, and we knew that that was a good fit. But it really has worked very, very well. And so we're very pleased with that. And then of course the third most important thing is, is it accretive? Given our various uses of cash, as we've talked about.

The organic growth of the business, if there is an M&A candidate out there that makes the screen and goes through those kind of three tests that we apply to them, then we certainly are interested. But I got to tell you, I think we've got a very nice stable of brands particularly in the vacation ownership business, that is hard to find a comparison elsewhere in the landscape. And -- but we'll always be on the lookout. And if we see something that makes sense for our shareholders, we'll certainly pursue it.

Brandt Montour -- J.P. Morgan -- Analyst

Great. Thanks a lot guys.

Steve Weisz -- President and Chief Executive Officer

Thank you.

John Geller -- Executive Vice President and Chief Financial and Administrative Officer

Thanks.

Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to Mr. Steve Weisz for closing remarks.

Steve Weisz -- President and Chief Executive Officer

Thanks Hector. Thank you for your time today. I hope today's call gave you the same sense of optimism that we have for our company. We are a leading player in a growing industry, and I believe our competitive position is second to none with the best collection of brands in the business.

We grew contract sales by 10% in the fourth quarter, and this year has started out strong. The integration of ILG is going well, and we see numerous growth opportunities ahead of us. And we expect to deliver another $25 million to $30 million of in-the-year synergy savings this year, putting us well on our way toward achieving a minimum of $125 million of run rate savings by the end of next year. With that, I want to thank you for your interest in Marriott Vacations Worldwide.

And finally, to everyone on the call and your families, enjoy your next vacation.

Operator

[Operator signoff]

Duration: 57 minutes

Call participants:

Neal Goldner -- Vice President, Investor Relations

Steve Weisz -- President and Chief Executive Officer

John Geller -- Executive Vice President and Chief Financial and Administrative Officer

Jared Shojaian -- Wolfe Research -- Analyst

Brian Dobson -- Nomura Instinet -- Analyst

David Katz -- Jefferies -- Analyst

Patrick Scholes -- SunTrust Robinson Humphrey -- Analyst

Brandt Montour -- J.P. Morgan -- Analyst

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