MARRIOTT VACATIONS WORLDWIDE Corp

19. VARIABLE INTEREST ENTITIES

Variable Interest Entities Related to Our Vacation Ownership Notes Receivable Securitizations

We periodically securitize, without recourse, through bankruptcy remote special purpose entities, notes receivable originated in connection with the sale of vacation ownership products. These vacation ownership notes receivable securitizations provide funding for general corporate purposes. In a vacation ownership notes receivable securitization, several classes of debt securities issued by a special purpose entity are generally collateralized by a single pool of transferred assets, which consist of vacation ownership notes receivable. With each vacation ownership notes receivable securitization, we may retain all or a portion of the securities that are issued, and certain residual interests.

We created these bankruptcy remote special purpose entities to serve as a mechanism for holding assets and related liabilities, and the entities have no equity investment at risk, making them VIEs. We continue to service the vacation ownership notes receivable, transfer all proceeds collected to these special purpose entities, and retain rights to receive benefits that are potentially significant to the entities. Accordingly, we concluded that we are the entities’ primary beneficiary and, therefore, consolidate them. There isno noncontrolling interest balance related to these entities and the creditors of these entities do not have general recourse to us.

The following table shows consolidated assets, which are collateral for the obligations of these VIEs, and consolidated liabilities included on our Balance Sheet at December 31, 2023:

The following table shows the interest income and expense recognized as a result of our involvement with these VIEs during 2023:

The following table shows cash flows between us and the vacation ownership notes receivable securitization VIEs:

The following table shows cash flows between us and the Warehouse Credit Facility VIE:

Under the terms of our vacation ownership notes receivable securitizations, we have the right to substitute loans for, or repurchase, defaulted loans at our option, subject to certain limitations. We made voluntary repurchases of defaulted vacation ownership notes receivable, net of substitutions, of $123 million during 2023, $94 million during 2022 and $99 million during 2021. We also made voluntary repurchases of $774 million, $338 million and $200 million of other non-defaulted vacation ownership notes receivable during 2023, 2022 and 2021, respectively, to retire previous vacation ownership notes receivable securitizations. Our maximum exposure to potential loss relating to the special purpose entities that purchase, sell, and own these vacation ownership notes receivable is the overcollateralization amount (the difference between the loan collateral balance and the balance of the outstanding vacation ownership notes receivable), plus cash reserves and any residual interest in future cash flows from collateral.

Other Variable Interest Entities

We have a commitment to purchase a property located in Waikiki, Hawaii. The property is held by a VIE for which we are not the primary beneficiary. We do not control the decisions that most significantly impact the economic performance of the entity during construction. Further, our purchase commitment is generally contingent upon the property being redeveloped to our brand standards. Accordingly, we have not consolidated the VIE. We expect to acquire the property over time and as of December 31, 2023, we expect to make payments for the property as follows: $112 million in 2024, $82 million in 2025, and $41 million in 2026. As of December 31, 2023, our Balance Sheet reflected $2 million in Accounts and contracts receivable, including a note receivable of less than $1 million, $4 million in Property and equipment, net and $1 million in Accrued liabilities. We believe that our maximum exposure to loss as a result of our involvement with this VIE is approximately $5 million as of December 31, 2023. Subsequent to the end of 2023, we fulfilled our outstanding commitment to purchase retail space for $48 million. We have an agreement to sell the retail space to a third party, at cost, upon completion of construction, which we expect to occur in the second half of 2024.