PRINCIPLES OF TIMESHARE I

Transcription

1 PRINCIPLES OF TIMESHARE I Building Blocks of the Industry Harry McCoy, Esq., RRP, Moderator John C. Farrow, Planning and Design John Liner, Sales and Marketing Kathryn B. Plouff, Feasibility Michael J. Smith, Finance

2 An early timeshare conversion!

3 DEFINITIONS ARE IMPORTANT! Timeshare ( Vacation Ownership ) Fractional Ownership Interests Private Residence Clubs ( PRC ) Destination Clubs Condominium Hotels Hotel Condominiums

4 TIMESHARING IN ITS SIMPLEST FORM IS EITHER DEEDED REAL ESTATE OR A NON-DEEDED EQUIVALENT INTEREST WHOSE OWNER GETS A RECURRING ONE WEEK USE OF A RESORT PROJECT AND ITS AMENITIES. DEEDED PROJECTS ARE USUALLY A 1/52 UNDIVIDED INTEREST IN A CONDOMINIUM. BUYERS PAY THE PURCHASE PRICE, OFTEN FINANCED BY THE DEVELOPER, AND AN ANNUAL MAINTENANCE FEE COVERING ACTUAL COSTS OF OPERATION. EXCHANGE PROGRAMS, BOTH EXTERNAL AND INTERNAL.

5 FRACTIONAL INTERESTS: GREATER USE RIGHTS THAN TIMESHARING: 1/8 TO 1/4 OWNERSHIP, 6-13 WEEKS OF USE ANNUALLY. ACQUISITION COSTS AND MAINTENANCE FEES SIGNIFICANTLY HIGHER THAN TIMESHARE. MANY HAVE ROTATING USE CALENDARS. EXCHANGE VERY IMPORTANT PART OF FRACTIONALS.

6 PRIVATE RESIDENCE CLUBS: HIGHEST END FRACTIONALS. SMALLER FRACTIONS, SUCH AS 1/7 TO 1/17. HIGH LEVEL OF SERVICE. UNLIMITED USE, FIRST COME, FIRST SERVED. DESTINATION CLUBS: MEMBERSHIP-BASED, SIMILAR TO COUNTRY CLUBS, BUT WITH LODGING COMPONENT. CAN INCLUDE PRIVATE HOMES, CONDOMIINIUMS, TRADITIONAL RESORT LODGING. NO REAL ESATATE OWNERSHIP BUT CAN RESIGN YOUR MEMBERSHIP AND GET A SUBSTANTIAL REFUND OF INITIAL PURCHASE PRICE FROM THE CLUB. CONDOMINIUM HOTELS: USE IS SECONDARY TO RENTAL AND HOPED FOR INCOME. NOT REALLY A CURRENT ITEM.

7 Principles of Timeshare I: Building Blocks of the Industry Construction & Development Brought to you by:

8 Nuts & Bolts Construction and Development Choices 1. Refurbishment/Remodeling 2. Conversion/Reposition 3. New build/ground up

9 Refurbishment/Remodeling It might be time for new Paint Flooring Mattresses Furnishings Electronics Be Eco-friendly & Go Green!

10 Conversion/Reposition Take advantage of a great location with a hotel or motel conversion!

11 New Build/Ground Up Be the biggest, best or coolest new kid on the block with new construction.

12 Owner Expectations Amenities Interiors FF&E I planned all year for a fun filled and relaxing week at My Timeshare!

13 Amenities Activities & Entertainment Or Just Relaxing

14 Interiors Modern and Inviting Interiors

15 FF&E (Fixtures, Furnishings and Equipment) All the comforts of home And then Some!

16 Potential Issues ADA Compliance Climate Considerations New Build Refurbishments

17 ADA Compliance The goal of the Americans with disabilities act, is to ensure full and equal access for all.

18 Hidden Costs in Refurbishments Older refurbishments may come with a few surprises Mold Asbestos Lead Paint

19 New Build Development Soil Conditions Geography Permit Mitigation Environmental Impacts Green Building Entitlements

20 Climate Considerations Every climate faces unique challenges

21 Thank you for your time and attention Please feel free to call on me with questions. Don t forget to fill out the EVALUATION FORM

22 Principles of Timeshare 1 Building Blocks of the Industry Sales and Marketing John D. Liner Director of In House Sales Breckenridge Grand Vacations

23 Sales and Marketing What is the beginning to end lifecycle of a $ of sales and marketing revenue generated or invested at a timeshare resort? From lead generation through developer profit, what is left from that $ after sales and marketing bring in a guest and sell them a timeshare interest? What secret sales and marketing techniques have evolved into today s most successful practices?

24 Ever heard this objection about timeshare? Client So, you are selling these weeks for $40k EACH? Salesperson Yes we are and lots of them! Client If I multiply that by 52 weeks, you are selling each condo and making $2,080,000 on each one. How can you sleep at night? Salesperson Quite comfortably!

25 Where the $s Journey Begins and Ends! -$ Create Product -$ G & A and Cost of Business -$ Generate leads +$ Down Payments & Receivables -$ Marketing converts Lead to Tour -$ Tour is converted to a Sale -$ Sales Team Presents Product

26 WHAT PERCENTAGE OF YOUR $ GOES WHERE?

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28 Product Cost The genesis of all timeshare revenue is the initial investment of a Developer s $ into creating a product. This product is either purchased from another source or constructed.

29 Lead Generation Following product creation, the $ invested has been reduced. What is left is then further cut to pay for the acquisition of qualified consumer leads for your product.

30 Marketing The $ s next step is to pay for those leads to be given to a marketing team where they are converted from a qualified lead into a scheduled sales tour. The efficiency of this conversion is where some of your $ s heaviest cuts are made!

31 Sales One of the ways your $ is also most impacted is through the efficiency or inefficiency of your conversions of a tour on a sales presentation into a buyer/owner. When successful, a contract is then generated to provide your company s products and services.

32 Sales revenue from down payments and debt servicing Now your initial investment $ is mixed with those $s collected as down payment and from the debt servicing created from your sales. These $s together will then pay all commissions, business costs, and other liabilities for your company.

33 General Accounting In step 7, your $ is cut up in it s final way to pay for all the general accounting and operations within your company that service your clients and employees. What is left now is what everyone goes into business for!!

34 Profit Finally your $ has gone through it s complete life cycle and what is left is all that profit for your Developer(s)! What did that guest think? 2 Million/Condo???

35 What secret sales and marketing techniques have evolved into today s most successful practices? There are no secrets to success! Success in the timeshare business, now more than ever, is about integrity, hard work, and a hyper-ethical treatment of all those who come in contact with your company! It is an absolute that employees must have fun and live the lifestyle they are preaching to consumers! Marketing must respect what sales is doing, and sales must absolutely trust and respect what marketing is doing! Competition and recognition will never fail you as a motivator that works on your employees while you are not! Use your best employees to teach the rest!

36 Principles of Timeshare Feasibility Analysis April 2, 2012 Kathryn Plouff Plouff Consulting Company

37 BENEFITS Determine if the project should be developed Guidance on the appropriate product type - i.e. timeshare or fractional Guidance on the best product components Assistance with financing Determine potential pitfalls Becomes the blueprint for development

38 Market analysis COMPONENTS Development Marketing Financial

39 MARKET ANALYSIS Tourism statistics Demographics and vacation patterns Competition Determine possible marketing channels

40 Unit mix Unit size Lock off or not Amenities DEVELOPMENT Timing of zoning approval and registration Construction costs

41 DEVELOPMENT To phase or not to phase Site layout Amenities Type Timing

42 Use plans MARKETING Pricing Marketing programs Major component of success or failure Use knowledgeable people and proven programs Contingency marketing plans

43 FINANCIAL Must include all costs Lender requirement Cash flow and income statement projections Sales pace and price Costs of marketing programs Contingency

44 CONCLUSION Feasibility analysis is necessary Whether internally or with outside assistance Develop a plan and use it If changes are necessary, redo the analysis Get a good team on board and listen to them

45 Principles of Timeshare Part 1: Building Blocks of the Industry Finance Michael J. Smith, RRP Senior Vice President Wells Fargo Capital Finance

46 Project Economics Cash Flow Model Objectives Financing Structures Current Lending Environment

47 Timeshare Business Model Revenues Primary Revenue Source Timeshare Interval Sales Total Unit 130 Intervals per Unit 51 Total Intervals 6,630 Sales Price per Interval Total Sell-Out Other Revenue Sources Interest Income Resort Management Fees Unit Rental Income $20,000 $132.6 Million

48 Timeshare Business Model Cost Product Cost Structure Marketing Cost Sales Cost General & Administrative HOA Subsidies / Maintenance Fees

49 Income Statement of a Timeshare Sale Sales Price 100% $20,000 Product Cost 25% $5,000 Marketing Cost 30% $6,000 Sales Cost 15% $3,000 G&A 8% $1,600 HOA Subsidies 2% $ 400 Total Cost 80% $16,000 Net Profit 20% $4,000

50 Product Cost Typical Real Estate Project Land Cost Horizontal Construction Costs Vertical Construction Costs Soft Costs Financing Costs

51 Product Cost Timeshare Resort Specific FF&E Amenities Sales / Preview Center

52 Acquisition & Development Financing Loan-to-Cost / Loan-to-Value Equity Requirements Funding Period / Loan Term Interest Rates / Loan Fees Completion Guarantee Principal Repayment

53 Cash Flow Versus Income Statement Not All Consumers Pay Cash Some Form of Consumer Financing is Needed Developer Becomes Lender Cash Flow Impacted

54 Cash Flow of a Timeshare Sale Down Payment $3,000 Product Cost Amortization $5,000 Marketing Cost $6,000 Sales Cost $3,000 G&A $1,600 HOA Subsidies $ 400 Total Cost $16,000 Cash Flow (Deficit) ($13,000)

55 Developer as Lender Consumer Financing Terms Consumer Notes Receivable Must Be Monetized Hypothecation Financing as a Solution Cash Flow Improves

56 Hypothecation Financing Advance Rates Funding Period / Loan Term Interest Rates & Loan Fees Replacement Guarantee A&D Loan Repayment / Working Capital

57 Hypothecation Financing Eligibility Criteria Minimum Down Payment Maximum Term Minimum Interest Rate Minimum Credit Score Denomination Demographics Delinquency

58 Net Cash Flow $600 ARDA World 2012, Annual Convention Cash Flow of a Sale with Hypothecation Financing Down Payment $3,000 Product Cost Amortization $5,000 Marketing Cost $6,000 Sales Cost $3,000 G&A $1,600 HOA Subsidies $ 400 Total Cost $16,000 Cash Flow (Deficit) ($13,000) Hypothecation Funding (80%) $13,600

59 Current Lending Environment Promising Signs Receivables vs. Real Estate Pricing & Financing Terms Securitization Market Future

60 Thank You! Please fill out the evaluation form and return it in the back of the room. Download presentations on the mobile app at or on our website at

61 PRINCIPLES OF TIMESHARE II Putting the Pieces Together for Today and Tomorrow Thomas Bennett, Esq., Moderator Paul Goodrich, Resort Management William Guthrie, Esq., Legal Kris Jamtaas, Exchange Donald Harrill, ARDA Chairman, [Invited]: David Callaghan, Industry Statistics A Look to the Future

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63 CHALLENGES FOR THE FUTURE Changing Focus of Buyer Expectations: Can the Promises be Kept? Long Term Ownership In A Short-term World Aging Gracefully? Class Action Litigation Owner Defaults and Resales Appealing to the Next Generation(s) of Buyers Technology and the Sales Process

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65 Principals of Timesharing Resort Management Paul D. Goodrich VP of Operations SPM Resorts.

66 Overview Key Responsibilities Financial Accounting and Reporting Customer Service Property Upkeep Future Planning

67 Financial Accounting and Reporting Maintenance Fee Billing and Collection Rental Accounting Other Revenue Sources All Expenses

68 Customer Service Great them like an Owner. Listen to their concerns. Do the little things! Remember you work for the Owners and Answer to the Board.

69 Property Upkeep Maintenance and Repair Appearance of property No rusted, torn or broken. Modernize Be Proactive

70 Future Planning Reserve Study Updates and improvements Usage Options

71 Principles of Timeshare II: Putting the Pieces Together for Today and Tomorrow Legal Panel Member: Bill Guthrie Foley & Lardner LLP 111 North Orange Avenue Suite 1800 Orlando, Florida

72 Legal Considerations - Today Goals Accounting Public Companies Tax Financing Regulatory Support Mixed Use Project Sales & Marketing; System Sale vs. Site Sale Inventory Management

73 Legal Considerations - Today Applicable Zoning and Land Use Entitlements: Is Timeshare a Permissible Use? Rental Permitted? Density Parking Requirements

74 Legal Considerations - Today Underlying Documents Part of a condo or master planned community?

75 Legal Considerations - Today Property Itself Fee interest or leasehold? US State, US Territory, International, Indian Reservation? Conversion or New Build?

76 Legal Considerations - Today Existing Loan Covenants Permitted Uses Releases? Obligations in Company Organizational Documents How are your purchasers going to finance their purchases? Receivables loan

77 Legal Considerations - Today Exchange Company Affiliation Brand Fee for Services Agreement Tour Generation Agreements Sales & Marketing Activities State, County, City Real Estate Licensing, Off Premises Contact Permitted?

78 Legal Considerations - Today Who is your consumer? Design use plan accordingly Where is your consumer? Out of state? Get a qualified marketing group with a realistic marketing plan.

79 Legal Considerations - Tomorrow Association Relations Developer Control/Owner Input/Management Transfer of Control Commercial Units Reserved Easements Licensing / Branding Construction Warranties

80 Legal Considerations - Funding Major Repairs Reserves Special Assessment Tomorrow Association loans collateral: operating, receivables, pledge of reserves, authority in documents

81 Legal Considerations - Tomorrow Document Re-drafting Change sizes of fractions Rentals Exchange Branding Fee for Service

82 Legal Considerations - Tomorrow Conversion to Points Why? increased cash flow liquidate and monetize existing inventory more competitive product incremental sales to existing owners (add-on points) additional fee streams improved owner satisfaction Legal Review Zoning and Documents Design of the Correct Legal Structure

83 Principles of Timeshare The Role of Exchange Mr. Kris Jamtaas, SVP Business Development North America, RCI - Speaker

84 The Role of Exchange Evolution of Exchange The Timeshare Triangle How Exchange Works Product Evolution Supporting In-House Sales How Exchange Benefits Everyone Additional Exchange Company Services The Ultimate Resource

85 Evolution of Exchange

86 Purchase Motivation Why Consumers Buy Timeshare Flexibility Opportunity to exchange into other resort locations Certainty of quality accommodations Credibility of timeshare company

87 The Timeshare Triangle

88 How Exchange Works Members deposit their vacation time An inventory pool is created Members request comparable vacation time Confirmation is provided or ongoing search is entered

89 Product Evolution Emergence of branded hospitality companies, multi-site developers, & points based exchange Provides additional flexibility & product differentiation! Points Home Resort Club Resort Network External Exchange Leisure Partners Travel Partners

90 Supporting In-House Sales Research suggests about 25% of recent buyers are interested in purchasing additional timeshares In fact, many owners own more than one interval (or points equivalent) at multiple resort locations

91 How Exchange Benefits Everyone Prospects / Owners Today s sophisticated buyers desire variety & flexibility they want value for their money Demand increasing transparency Exchange provides the ultimate lifestyle purchase Developer Exchange increases your value proposition, removes objections from the sales table, and provides ongoing satisfaction with purchase Exchange also provides tour generation for incremental in-house sales Leisure Real Estate Industry Variety and flexibility provided by exchange gives the industry the additional appeal it needs to increase worldwide market penetration

92 Exchange is More than Just External Exchange Below is a partial and known list of North American companies offering internal exchange options to their owners: Club Intrawest Diamond Festiva GEO HGVC Holiday Inn Club Hyatt InnSeason Island One Marriott Shell Silverleaf VI VRI Westgate

93 Additional Services Member Developer HOA / Mgmt Company Exchange Services Advisory Services Quality Assurance Publications & Regular Communications Sales & Marketing Support / Lead Generation Annual Owner Meetings Support Value Added Benefits (Travel & Lifestyle) Call Center & Back Office Solutions Online Tools Technology Solutions Inventory Distribution

94 The Ultimate Resource Exchange Companies are continually investing in new systems and benefits, and have positioned their services and support to assist established timeshare operators and new entrants in the timeshare industry Ultimately, the programs, services and solutions exchange provides are about satisfied member families enjoying the best vacation experiences possible and feeling great about their purchase in your product offering while enhancing your sales & profits The recession has proven the value of external exchange as a benefit to vacation owners (utility), HOA s (keeping consumers engaged) and vacation developers (adding value at POS)

95 Principles of Timeshare The Role of Exchange Questions? Thank you, Kris Jamtaas SVP Business Development, RCI