4 Welk Resorts gathers momentum

The industry’s forum for the trends and issues shaping our future
4
Welk Resorts
gathers momentum
July 2014
IN THIS ISSUE: CONTENTS AND SUMMARY
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Cover Story • Timeshare sales jump 18% to $105
million in 2013 at Welk Resorts; first half of 2014 is
shaping up strong
Timeshare volume exceeded $100 million ($105 million) at Welk
Resorts last year – representing 18% growth over 2012 ($89 million) –
and with the momentum the company has established, the success will
likely continue in 2014. In the first quarter of 2013, Welk Resorts made
a splash with three new prime West Coast property additions: the
(then) Northstar Lodge, A Hyatt Residence Club in Truckee, CA, near
Lake Tahoe; a 6.5 acre parcel of land on the Blue River in Breckenridge,
CO, and; 21.45 acres of land near Poipu Beach in Kauai. That’s adding
Lake Tahoe, Breckenridge, and Hawaii to your resort arsenal within
a 21 day period! In addition, concentrated organizational changes
aimed at unifying and motivating employees and establishing a more
‘flat line’ approach seem to be paying big dividends.
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ARDA’s Nusbaum is optimistic about vacation
ownership industry’s ability to embrace change and
succeed in the future
ARDA president and CEO Howard Nusbaum believes the vacation
ownership industry is on the upswing, citing over $8 billion in 2013
sales, the financial stability of the industry’s leading players, and the
fact that timesharing is successfully attracting a new generation of
buyers. In an interview with Vacation Ownership WORLD Nusbaum
identified both new initiatives (e.g. the Reputation Management
Council) and fighting seemingly perpetual battles (e.g. leveling the
regulatory playing field, taxation, etc.).
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2014 begins well: Hilton Grand Vacations first quarter
timeshare sales up 13% to $199 million with almost
60% of sales – and rising – capital-light.
First quarter Hilton Grand Vacation (HGV) timeshare sales were $199
million, up from $176 million (13.1%) during the same period in 2013.
First quarter timeshare revenues totaled $279 million, up from $246
million in 2013 (13.4%); timeshare EBITDA reached $85 million, up
from $59 million (44.1%) vs. the initial quarter of 2013. During the first
quarter of 2014, 57% of intervals sold were developed by third parties,
a 14 percentage point increase from the same period in the prior year.
Revenue from resort operations also increased $11 million compared to
the first quarter of 2013. In 2014, timeshare segment adjusted EBITDA
is projected to be between $315 million and $330 million.
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Industry Wrap • A briefing on recent news,
developments, and emerging trends in the vacation
ownership and related industries
Cover photo • Welk Resorts Cabo Sirena del Mar in Cabo San
Lucas, Mexico.
Address 3520 13th Ave. SW, Olympia, WA 98512
Phone (360) 866-5500 | Fax (360) 866-5540
E-Mail evacationownershipworld@comcast.net
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JULY 2014
3
2014 begins well: Hilton Grand Vacations first quarter
timeshare sales up 13% to $199 million
Almost 60% of sales – and rising – were capital-light.
First quarter Hilton Grand Vacation
(HGV) timeshare sales were $199
million, up from $176 million
(13.1%) during the same period
in 2013. First quarter timeshare
revenues totaled $279 million, up
from $246 million in 2013 (13.4%);
timeshare EBITDA reached $85
million, up from $59 million
(44.1%) vs. the initial quarter of
2013. During the first quarter of
2014, 57% of intervals sold were
developed by third parties, a 14
percentage point increase from
the same period in the prior year.
Revenue from resort operations also
increased $11 million compared to
the first quarter of 2013.
In 2014, timeshare segment
adjusted EBITDA is projected to
be between $315 million and $330
million.
First quarter financials and
Hilton Worldwide’s earnings call to
the analysts, occurred in mid-May.
Hilton Worldwide president and
CEO Chris Nassetta observed: “We
also continue to make great progress
on mining value enhancement
opportunities embedded in our own
portfolio, such as the new timeshare
tower at the Hilton Hawaiian Village
that we announced last quarter. At
the Hilton New York, we’re planning
a complete repositioning of the 6th
Avenue frontage of the property,
which will create a retail platform
with over 10,000 square feet of
prime, street-level space out of what
today is a portico share. We expect
construction of the retail platform to
commence by the end of the year for
completion in the first half of 2015.”
“We also plan to add additional
timeshare inventory to the property
including two floors plus some
unused penthouse space. Subject
to regulatory approvals, we expect
interval sales to begin in the second
half of the year with units complete
in the first half of 2015. We will
fund both projects within the
range of our CapEx guidance and
expect steady-state incremental $6
million in annual EBITDA from
the retail platform and a combined
incremental NPV [net present value]
of the retail and timeshare projects
of approximately $165 million.”
Hilton Worldwide executive vp
and CFO Kevin Jacobs added: “Our
timeshare segment first-quarter
adjusted EBITDA of $85 million
was 44% better than the prior year,
driven by transient rental, lower
corporate support costs, favorable
timing from the recognition of
revenue and favorable adjustments
and expected sale prices. Although
a portion of this performance
benefited from favorable timing, the
segment results this quarter speak
to the underlying strength of our
timeshare business.”
During the Q &A session of Hilton Worldwide’s first quarter earnings call, Nassetta was asked about
how much of sales volume was com-
ing from Hilton Grand Vacations’
(HGV) asset-light strategy. Nassetta replied: “In the first quarter, a
little less than 60% of our sales were
asset-light. If you look at all of 2013,
I think we’re were around 50%, so it
ticked up in the first quarter. It will
bounce around a little bit depending on what inventory is getting sold
when. If you just look at the trajectory, 80% of the existing inventory,
which is roughly five years of inventory that we have is capital light, so
over time, that number should be
growing. Just naturally as a result of
the majority of our inventory being
capital-light inventory.” He fielded
another question concerning the
possibility Hilton would spin off its
timeshare business as Marriott has
done. Would such a move increase
value to investors? “You’d have to
tell me or our investors would have
to tell me how they’re valuing it,”
Nassetta responded. “I don’t know
the answer in terms of whether
individually people are valuing it the
right way. We are very committed to
the business, Marriott spun theirs as
you point out, Hyatt sold there’s this
week. We really like the timeshare
business for, I think, some really
obvious reasons. Number one, it is
a great business. The customers in
our timeshare business are our most
loyal customers in the hotel side of
our business. The day after they buy
a time-share unit, they spend 40%
more with us in the hotel business.
JULY 2014
13
We like the ability to take care of
those customers that have become
so loyal.”
“We have a very focused strategy,
as you know, which has driven great
results, even through the downturn,
in terms of growing revenue,
growing margin, growing EBITDA.
On top of all of that, as we talked
about answering Steve’s question,
we’ve been converting the model to
be much like the hotel model where
now 80% of our inventory is for
third parties where the returns in the
business are going up astronomically
as we depend, not on our own
balance sheet, but on other’s balance
sheet. The combination of these
customers being so valuable, very
good margins, very good growth and
not demanding the kind of capital
that it has with other companies or
what we had been using historically,
we are committed to the business.”
“We think it’s a great business.
Ultimately, we think, as we continue
to tell the story and we transform
the business to being more and more
capital light, we certainly are hopeful
and believe that the markets will
reflect it in our value.”
Finally, Nassetta answered a
question about the consumer ap-
petite for timesharing today vs.
during pre-recession times, and
what, if anything has changed in the
industry since the 2000s in terms of
whose buying or where that demand
is coming from. “I think the story is
very simple,” Nassetta said. “Consumers may not want a lot of other
products, but they want timeshare
more than they did at the prior peak.
If you look at the best indication
that is where our sales are versus
prior peak and where it is versus our
competition for that matter, but we
see increasing velocity of demand in
timeshare. The product really resonates with the customer. Thus, the
strength of the results that you see.
It’s certainly not seeing any waning
appetite, to the contrary increasing
appetite for the product.”
In early June HGV announced
the official groundbreaking
ceremony at The Grand Islander
by Hilton Grand Vacations located
at the Hilton Hawaiian Village
Waikiki Beach Resort. Ultimately a
418-unit resort is envisioned, with
completion slated for early 2017.
Blackstone Real Estate Partners VI is
providing capital; HGV will provide
sales and marketing services,
resort operations, timeshare HOA
management and loan servicing.
“It is our privilege to continue
creating new ownership opportunities for our discerning clientele with
a spectacular new Hilton Grand
Vacations Club tower in Hilton Hawaiian Village,” said HGV president
and Hilton Worldwide president of
global sales Mark Wang. “This project
combines the industry-leading sales,
marketing and management expertise of Hilton Grand Vacations with
the established development strength
of Blackstone, and builds upon our
history of strategic collaboration.”
The Grand Islander will become
the fifth Hilton Grand Vacations Club
on the Island of Oahu and will bring
the brand’s total number of resorts
in Hawaii to eight. Interval sales of
The Grand Islander by Hilton Grand
Vacations Club are anticipated to
begin in fall 2014 and nightly rental
reservations may be requested in
early 2016 for stays in 2017.
The Grand Islander will feature
one-, two- and three-bedroom
suites and penthouses, each offering
“extensive amenities including
full kitchens, spacious living and
dining areas and private bedrooms,”
according to a Hilton Worldwide
press release.
Finance
Corporation and Silverleaf Resorts.
Bluegreen’s $50 million hypothecation
loan will be used to finance vacation
ownership interest (“VOI”) notes
receivable. The bank agreed to
provide Silverleaf a new $25 million
revolving inventory loan facility and
to renew their $50 million revolving
hypothecation loan facility.
“We have enjoyed working with
the team at Bluegreen since 2008,” says
Liberty Bank vp Denise Brewer. “They
are extremely capable and resourceful;
always willing to go that extra mile.
This has been a mutually satisfying
relationship and one that we look
forward to continuing.”
“On behalf of the team here at
Bluegreen, we are pleased to continue
working with Liberty Bank and their
servicing entity, Wellington Financial,”
said Bluegreen senior vp, CFO and
Liberty Bank renews financing
for Bluegreen Vacations and
Silverleaf Resorts Wellington Financial, the exclusive
resort finance lending correspondent
for Liberty Bank, announced the
bank has recently closed a financing
agreement with both Bluegreen
JULY 2014
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