Review & Forecast
Vacation ownership sales jump 10% in 2012
Better times for the developers who survived the crash of 2008
By Scott Burlingame
Editor & Publisher
Vacation ownership sales, timeshare and fractional sales combined, grew at 10% – the biggest year-to-year growth spurt since 2006 to 2007 (11.4%). Timeshare sales alone increased 11%, again the largest jump since 2006 to 2007 (13.5%). This is very good news for the industry after a three year period (2008-2010) of extreme challenge both for vacation ownership and the U.S. (and European) economy as a whole. The two biggest factors are probably the improved U.S. economy and the financial strength of most of the timeshare developers that remain, especially the large ones.
Signs that the U.S. economy has bounced back abound. The stock market is at a record high. U.S. home prices were up 8.1% in January, the fastest annual rate since the housing boom in the summer of 2006. Some very hard hit markets, like Phoenix (23.2%) and Las Vegas (15.3%) led the way. Demand for longer-lasting factory goods increased 5.7% in February. Consumer spending increased again in February; retail sales expanded 1.1% in January. National unemployment hit a five-year low in March. Interest rates remain low, fueling housing and automobile sales. Total U.S. household net worth was up by $16.6 trillion to a record high at the end of February.
This is not to say we are out of the woods completely. Consumer confidence dropped sharply in March in the wake over continued bickering over government finances. And aside from political dysfunction, the United States faces some very serious looming economic challenges: an infrastructure in disrepair, tax reform, educational investment and reform, and the spiraling cost of health care, among them.
The developers that remain and are in good shape have made the necessary adjustments and are profitable. They have access to capital, most not at pre-recession levels but enough to continue operations. Sales and marketing are still on ‘low’ compared to pre-2008 levels. Most sales being made today are in-house, especially to existing owners. When consumers do buy, they are purchasing in smaller transactions: samplers, biennials, triennials, junior suites, etc. Owner contact is a vital consideration; here, social media is playing a larger and larger role. The timeshare business is much more of a cash business than before. It’s not unusual to hear or read about developers who collect over 50% of the value of a sales contract up front. Some larger developers are, however, obtaining inexpensive financing on the ABS1 market, and profiting handsomely on consumer finance. Timeshare buyers are much more creditworthy now. Large developers have developed sophisticated and accurate models to predict a prospect’s ability to pay. Sales have not recovered to pre-crisis heights, but the good news is – as a result of many of the factors just discussed – that sales and marketing costs are down but efficiencies are up considerably, as evidenced by rising closing rates and vpgs2. So there’s not only improved cash flow, there’s also increased profitability. This seems like a good place to be as the economy turns the corner. No one is predicting that U.S. consumers are suddenly going to suddenly spend profusely, but there are already indications that they have begun to spend more.
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, in fact they had turned pretty terrible, 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 2012 Sales Leader Survey this year only includes developers who had attained $10 million or more in 2012 sales. A total of 27 developers participated (24 participated in 201; 27 in 2011). Just like 2009, 2010, and 2011 there were many, 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). A bit of good news: in 2012 as in 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 27 developers took part in and qualified for this year’s Survey. Almost $5.7 billion in total vacation ownership sales was recorded. For the second year in a row, vacation ownership sales exhibited growth (10% vs. 3.9% in 2009: a healthy rise). Timeshare sales grew 11% (vs.3.3% in 2011) and fractional sales rose 3.8% (vs. 8.4%3 in 2011). There were many timeshare companies who had a very good growth year: Diamond Resorts International (41.7%), Bluegreen (24.6%), Holiday Inn Vacation Club (22.7%), Hilton Grand Vacations (15.9%), Wyndham Vacation Ownership (11.3%), the Villa Group (10.3%), and Welk Resorts (7.2%). Fractional sales at Club La Costa surged to $56 million from $16 million in 2011 (350%!). Fractional volume at Timbers Resorts climbed 30.3%. Overall, sixteen (16) developers gained in sales, one stayed even, and seven (7) dropped in volume in 2012 vs. 20114 (and most declined only slightly). This is an improvement: overall, eleven (11) developers gained in sales, four stayed even, and nine (9) dropped in volume in 2011 vs. 2010. And this is a marked improvement over 2009’s results: 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. The discernible improvement over 2011 and 2010 and the dramatic improvement over 2009, are, once again, a positive sign.
Top Ten. This year’s Top Ten accounted for $4.91 billion out of total sales of $5.67 billion. That’s about 86%, approximately the same percentage as in 2011 (86.7%) and 85% in 2010, 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, Starwood Vacation Ownership (SVO), Diamond Resorts International (DRI), Silverleaf, Holiday Inn Club Vacations (HICV), Exclusive Resorts, and Club Meliá. DRI is new to the Top Ten, Bluegreen supplants SVO as #4, but nine of the ten companies have been there before. 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. Three companies reached sales of over $500 million: WVO, HGV, and MWV. These three companies alone account for a healthy majority (56.3%) of all vacation ownership volume in 2012. Vacation ownership volume amongst the Top Ten grew by 16.4% – a noticeable bump over the 10% achieved by survey participants as a whole.
Fractionals. If one removes the Timbers Resorts effect from the picture, 2012 fractional sales fell 3.1% compared to 2011. But we are only talking about less than ten developers in all.
Ragatz Associates estimates that total sales volume in the fractional, private residence club (PRC), and private destination club (PDC) industry was about $497 million in 2012. This amount includes new closed sales, presales, and in-house resales. When looking at the three individual components, sales volumes were $71 million in fractional interest projects (14%), $196 million in private residence clubs (40%), and $230 million in destination clubs (46%). The overall sales volume in the shared-ownership industry decreased 10% in 2012 vs. 2010, to $497 million from $552 million. Fractional sales fell 31% to $71 million from $103 million the prior year. PRC volume dipped 11.8% to $196 million from $228 million in 2011. PDC sales rose 4.1% to $230 million from $221 in 2011. Overall sales volume in 2012 is down 78.4% compared to the peak year of 2007, according to a slide show presentation, “The Shared-Ownership Resort Real Estate Industry in North America: 2013,” a Webinar presented by Ragatz Associates in mid-March.
In its “Summary of 2012 Performance,” Ragatz Associates concludes: last year was a continuation of the past 4½ years – only worse; there were fewer projects in sales in 2012 (80) than 2011 (98); overall sales are down 10% with PRCs performing better than fractionals; prices per square foot continue to decline and are down 28% since 2007; the shared ownership industry is under increasing competition from rentals, and; trends towards smaller shares and units, and mixed use remain. In fact, a trend towards more PRCs becoming fractional projects is discernable.
2013. Last year was the most successful year in timesharing since 2006. Over half the Top Ten developers experienced double digit sales growth, and this success was not just confined to the very biggest. But its 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.
But there are still some big threats. They are not going to go away by ignoring them or not talking about them. They include: the state of the resale market, the financial health of HOAs, 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. This is the same list as last year.
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?
This February issue of Vacation Ownership WORLD reported on a recently updated Averett Warmus Durkee study on the financial health of Florida HOAs. While some improvement was noted, for example, in contrast to 2009 and 2010, some of the most pressing difficulties timeshare HOAs confront – like adequate budgeting – are beginning to be addressed, and some of the most worrisome trends – like deficits in the operating fund and liabilities to the replacement fund – have abated, the general picture is not a pretty one: too many HOAs are dipping into next year’s funds to pay this year’s bills, there has been a dramatic rise in the allowance for doubtful accounts, and study concludes: “Associations have made improvements in budgeting for bad debt. The increase in actual bad debt has slowed; however, associations are still struggling to collect assessments and collections are holding steady.”
This point has been made before, but it is worth mentioning until it goes away. Google ‘timeshare’ in Google News and the majority of stories accessible in the first five, ten pages (and probably beyond) have 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 three or four 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 2013. Provided the economy continues to improve, this will boost timesharing both in terms of more people being able to buy the product and more people being inclined to do so. An improved economy will also reduce foreclosures and delinquencies. The economic crisis has hastened the consolidation process in the vacation ownership industry, a process that was already evident before the crunch. The developers that have emerged to 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 WAAM5, HGV’s deal with LV Tower 52 LLC to market and sell Elara (the former Westgate property), and Bluegreen’s fee-for-services business; these all appear to be working very well. 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 2013, the industry can sustain the momentum it gathered in 2012, and record a second straight year of solid growth.