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Review & Forecast
Vacation ownership sales grow 7% in 2013
Following last year's 10% jump, it appears that the top developers – who dominate the market – have found the right approach to succeed today and into the future.
By Scott Burlingame
Editor & Publisher

Vacation ownership sales, timeshare and fractional sales combined, expanded at 7% in 2013 vs. 2012 – which combined with a 10% rise in 2012 (over 2011) – are the biggest back-to-back sales growth years vacation ownership has experienced since prior to the economic downturn which set in hard in 2008. Timeshare sales alone increased 11%, again the largest jump since 2006 to 2007 (13.5%). Fractional/PRC[1]) volume decreased 1.2%.
The performance of the U.S. economy is as important to vacation ownership as it is to other industries. And the U.S. economy seems not only partitioned (with the rich and extremely rich doing very well and the rest struggling to a greater or lesser extent), but also a collection of plusses and minuses. For example, U.S. economic confidence rose in 2013, according to Gallup, but it's still in negative territory. Another example: on the whole, U.S. unemployment appears to be inching downward, but it's still around 7%. And a third: consumer spending has been increasing, but at a moderate pace at best. There are certainly positive indications: interest rates remain low, the stock market continues its upward trajectory, and home values are rising (in most markets). On the other hand, U.S. GDP fell to 1.9% in 2013 from 2.8% the previous year – and it was down sharply (to 0.1%) in the first quarter of 2014. Personal wealth – except for the rich and super rich – is stagnant. And so on.
Post-2008 changes noted in last year's Review & Forecast still apply: the developers that remain are in good financial shape, having made the necessary adjustments, and are profitable. They have access to capital, their sales and marketing efforts have been paired to the most efficient programs only (resulting in rising closing rates and vpgs[2]), and, they are producing a sustainable ratio of new owner sales to existing owner sales. Consumers are purchasing in smaller transactions: samplers, biennials, triennials, junior suites, etc. Owner relationships and contact are vital: here, social media is playing a larger and larger role. The timeshare business is a cash generator. It's not unusual to hear or read about developers who collect over 50% of the value of a sales contract up front. Just-in-time inventory management, such as Wyndham Vacation Ownership's, allow developers' to access inventory as needed versus carrying the cost of excess inventory on their books. Timeshare buyers are much more creditworthy now. Large developers have developed sophisticated and accurate models to predict a prospect's ability to pay. The overall result is improved cash flow and increased profitability.
The Sales Leader Survey. Before we discuss results, let's address participation (again, this year!). In 2007, just two years ago, over 60 timeshare and fractional developers both qualified ($20 million or above in annual sales) and participated in the Survey. Times were good – over $10 billion in vacation ownership (timeshare + PRC/fractional) sales volume was recorded. In 2008, vacation ownership developers felt the economy's pain. Still, just under 50 (47) developers both qualified and participated in the Survey. But in 2009 11 major developers who had participated in every Vacation Ownership WORLD Sales Leader Survey ever conducted that they qualified for – and in many cases this was every Survey conducted in the past 25 years – declined to do so. Times were suddenly not so good, and these developers did not want their sales results published. The most likely reason for this was a reluctance to disclose figures showing anywhere from a noteworthy to significant drop in sales volume.
The 2013 Sales Leader Survey includes developers who had attained $5 million or more in 2013 sales. This criterion is down from the previous standards of $20 million and above and $10 million and above. A total of 30 developers participated (27 participated in 2012; 24 in 2011). Just like every year since 2009, there were many PRC/fractional developers who reported no sales or one or two sales for multiple month periods. The 2008 Sales Leader Survey included almost 20 (19) PRC/fractional developers with over $20 million in volume; the 2009, 2010, and 2011 Sales Leader Surveys included seven (7). In 2012, there were nine (9). This year there are 12 with over $5 million in sales. A bit of good news: in 2013, as in 2012 and 2011, six fractional and/or private destination developers reported sales of over $10 million. In 2010, only four (4) fractional and/or private destination club developers did.
Now, the results: a total of 30 developers took part in and qualified for this year's Survey. Over $6.1 billion in total vacation ownership sales was recorded. For the second year in a row, vacation ownership sales exhibited vigorous growth (7% after 10% in 2012). Timeshare sales grew 8.3% following 2012's 11% jump. Fractional sales fell 1.2% (they rose 3.8% in 2012). There were many timeshare companies who had very good growth years, with Diamond Resorts International (58.7%), The Villa Group (25%), Bluegreen (20.8%), and Welk Resorts (18%) leading the way. Only Royal Resorts (33%) and Fairmont (27.8%) reported gains in fractional sales. Overall, fifteen (15) developers gained in sales, one stayed even, and eight (8) dropped in volume in 2013 vs. 2012[3]) (with most declining only slightly). This is about the same as last year: overall, sixteen (16) developers gained in sales, one stayed even, and seven (7) dropped in volume in 2012 vs. 2011. 2009 was the nadir: of 28 participants, three (3) showed significant increases in sales, three developers showed very modest increases in sales, another reported flat sales, with the remaining 21 (75%) all showing decreases – in some cases big decreases – in vacation ownership sales. Since 2009, vacation ownership has been on an upward path and this continued in 2013.
Top Ten. This year's Top Ten accounted for $5.36 billion out of total sales of $6.12 billion. That's 87.6%, up a bit from 2012 (86%), 2011 (86.7%) and 2010 (85%), but a significantly higher figure than the 70% market share Top Ten developers have occupied consistently for better than the past decade. The cast of characters is similar to recent Surveys with some notable exceptions. Gone are companies like Westgate and Disney, who chose not to participate. Bankruptcies and buy-outs have taken their toll. The Sales Leader Survey's Top Ten are (in order): Wyndham Vacation Ownership (WVO), Hilton Grand Vacations (HGV), Marriott Worldwide Vacations (MWV), Bluegreen, Diamond Resorts International (DRI), Starwood Vacation Ownership (SVO), Silverleaf, Holiday Inn Club Vacations (HICV), Exclusive Resorts, and the Villa Group. DRI moves even with Bluegreen as co-#4. SVO moves down to #6, from #4 a year ago. Club Meliá (#10 in 2012) drops out of the Top Ten, replaced by the Villa Group. WVO remains the lone billion-dollar company in the vacation ownership industry (although HGV is getting close). Its vacation ownership sales are better than double that of #2 Sales Leader Hilton Grand Vacations. The same three companies reached sales of over $500 million in 2013 as in 2012: WVO, HGV, and MWV. The Top Five companies alone account for over 70% (70.8%) of all vacation ownership volume in 2013. Vacation ownership volume amongst the Top Ten grew by a healthy 9.2%, following 16.4% growth in 2012.
Fractionals. 2013 fractional sales fell 1.2% compared to 2012. A total of thirteen developers reported fractional sales in 2013. A majority (7) experienced volume of less than $10 million. Three developers reported sales of close to $50 million or above: destination club Exclusive Resorts ($150 million), Timbers Resorts ($68 million), and The Residences at Little Nell ($48 million).
Ragatz Assciates estimated that total sales volume in the shared-ownership industry in 2013 was about $517 million. This amount includes new closed sales, presales, and in-house resales. When looking at the three individual components, sales volumes were $80 million for fractional interest projects (15%), $181 million for private residence clubs (35%), and $256 million for destination clubs (50%).
Sales volume in the shared-ownership industry increased in 2013 from 2012, from $497 million to $517 million (4%). Destination club sales increased by $26 million (11%), while fractional interest projects increased by $9 million (13%). Private residence clubs decreased by $15 million (-8%). Total shared-ownership sales volume was down by 78% (-$1.78 billion) since the peak year of 2007.
"In 2013, the average annual sales volume in the 75 active projects was $1.5 million for fractional interest projects and $8.6 million for private residence clubs," according to the Executive Summary of "The Shared-Ownership Real Estate Industry in North America: 2014" by Ragatz Associates. "However, if excluding the top four selling fractional interest projects, that average would decline to $1.1 million. If excluding the top four private residence clubs, that average would decline to $3.5 million. Of the total 75 active projects, five percent had sales over $10 million, while 39 percent had sales of less than $1 million. Several critical factors once again were in play in 2013 to cause stagnation in the sales performance of the shared-ownership industry. These same factors have negatively impacted the market since the last quarter of 2008. They include: uncertainty about the country's long-term economic stability; an almost complete lack of consumer financing; a decrease in primary home equity funds for purchasers who previously paid cash; a lack of marketing funds; an excess supply of whole-ownership vacation homes on the market, with decreasing prices, and; increasing competition from vacation home rentals and rental clubs."
2014. As has been noted, 2013's 7% increase in vacation ownership sales follows a 10% rise in 2013. Three Top Ten developers experienced a big jump in volume: DRI (58.7%), the Villa Group (25%), and Bluegreen (20.8%). HICV's 8.5% growth and WVO's 6.1% were both solid. The remaining Top Ten developers experienced moderate growth or sales approximately equal to 2012. The larger players now overwhelmingly dominate the timeshare business. Fortunately these are financially strong companies backed by adequate resources. Their ability to conduct targeted marketing to prospects with the means and propensity to pay has been established. They sell high-end product not under the threat of a huge oversupply of discounted rentals. Their buyers prefer the family-friendly timeshare experience and will pay a premium for it.
The past few years Vacation Ownership WORLD has identified the biggest threats to the industry as including: the financial health of many legacy resorts, the state of the resale market, the consistently bad publicity the timeshare industry is undergoing, the threat to vacation ownership's value proposition, cash-starved regulators, and timeshare rental inventory that is selling for less than the annual cost of maintenance dues.
In the 2013 State of the U.S. Timeshare Industry released by ARDA's AIF, a total of 1,551 timeshare resorts were identified. When interviewed here's how The Asset & Property Management Group founder and owner Scott MacGregor responded when asked how many timeshare legacy resorts (in financial difficulty) there might be: "There is no definitive count of the resorts that are in trouble. The 2011AIF Study of HOA Controlled-Resorts identified about 880 resorts in that definition of the legacy category. A review of other AIF study data makes me think the population we are talking about is somewhat larger. There are approximately 1,550 timeshare resorts in the US. More than 1,100 were developed prior to 1989 – so two thirds of the resorts by number are coming up on, or have passed their twenty-fifth birthday. The average resort size in 1989 was approximately 60 units, about 3,000 intervals, so by that measure we're talking about 3.3 million intervals. If a quarter of those (a low estimate) are owned or controlled by the associations, that's about 800,000 intervals that need to be sold or liquidated. The other 75% is about 2.5 million intervals. If the average owner owns 1.7 intervals, that's about 1.5 million individual owners within this population." Senior partner in the Orlando office of Baker & Hostetler and ARDA treasurer and Board member Rob Webb described the core problems of legacy resorts to include some or all of the following: a lack of professional management; a lack of adequate reserves; a resistance by the HOA board of directors to impose an adequate assessment for operating expenses; an underperforming or non-existent external exchange relationship; an aging owner base that no longer uses the resort or that wants to exit ownership but is generally unable to, and; diminishing resort maintenance standards. There are many hindrances to solving these problems. As ARDA president and CEO Howard Nusbaum put it: "The biggest problem of all is the legal documents for many legacy resorts as they were drafted when the timeshare industry was in its infancy, thus documents may require a very hard to reach threshold of a 100% vote by the owners to modify the resort structure, programs and services, thus putting these resorts at a disadvantage to make substantive changes that may be required for the long-term viability of the property." 
Vacation Ownership WORLD has consistently addressed the problems in the timeshare resale market. It's a mess; in some cases, it's a scandal. Suffice it to say that there is high quality timeshare inventory readily available on eBay (and elsewhere) for $1. How do you sell a $20,000 or $25,000 timeshare week as long as this is the case?
The Internet is still filled with timeshare stories having to do with some major timeshare resale scam or a consumer journalist and/or blogger talking about what a bad deal or downright rip-off buying timeshare is. The biggest complaints have to do with high (and rising) maintenance fees that the consumer is tied to for life. The consumer is tied to these 'exorbitant' fees for life because everyone knows that selling your timeshare is next to impossible (back to the resale problem). The vacation ownership industry worked long and hard to establish a good media and public reputation. It is a shame to see how that has basically totally disappeared the past four or five years.
Is timeshare a good value compared to hotel and condo rental inventory? The Internet abounds with low-priced hotel and rental offers. What does this mean for timesharing? What can be done about this? Here's what developers have told Vacation Ownership WORLD: Remind the customer that today's low hotel prices are not permanent; in fact they are historically out of whack. Creating a rich and engaging experience for timeshare guests and clearly demonstrating the advantages of ownership are also seen as key elements of timesharing's value proposition.
Regulators are still cash-starved. State and local municipalities are desperately seeking out new sources of revenue. Everything is game, including vacation ownership.
Lastly, it is difficult to imagine how timesharing can sell when there are readily available rental weeks costing less than the annual cost of maintenance dues. Some developers don't have to contend with this in a major way, but it's hard to see how those that do can stay in business.
Still, there are reasons to be hopeful about 2014. The economic crisis of 2008 is receding even if some of its devastation has not. The economy has been growing, albeit it moderately, for some time now. Unemployment is slowly being reduced. In timesharing, foreclosures and delinquencies are down for most developers. The developers that lead the industry are financially strong. Less capital intensive methods of operation have not only been discovered, they are developing a solid track record. Examples include WVO's WAAM[4]) and HGV's and Bluegreen's fee-for-services businesses. New products and services, like Ski & Sea's Inventory Smart Management (a web-based item inventory system) and Raintree's Hopscotch (a private online travel club) continue to emerge. And then there's the constant: timeshare owners show up and vacation (with occupancy rates averaging 80% at timeshare resorts) and they like what they've bought (with 85% of owners being either 'satisfied' or 'very satisfied' with their purchase). Hopefully, in 2014, the industry can build further upon the momentum it has gathered the past few years, and continue to record solid growth rates and profits.

[1] Private residence club.
[2] vpg = volume per guest.
[3] Two developers submitted only 2012 data, and Starwood Vacation Ownership did not divulge fractional sales for 2012 or 2011.
[4] Wyndham Asset Affiliation Model.

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