Timeshare Market Update - Western Reserve Partners

Transcription

Western Reserve Partners LLC
200 Public Square
Suite 3750
Cleveland, OH 44114
Phone: 216.589.0900
www.wesrespartners.com
Market Overview
Inside this issue:
Timeshare Market Update
 As the timeshare market continues to recover from the dramatic contraction of the tourism industry
2
and overall decline in consumer discretionary spending, Western Reserve believes a “dose of equity”
is needed to aid this recovery and recapitalize this highly leveraged industry
 Improvement in Securitization
Issuances
 Significant consolidation is expected among smaller private operators, which do not possess critical
 2011 Brings an Increase in Activity to
the Timeshare Capital Markets
mass to pursue public equity and are too small and complex for most institutional investors;
however, the current market environment bodes well for strategic buyers seeking to execute roll-up
acquisition strategies, thereby growing their operating platform
 Timeshare Consumer and Operator
Outlook
 Many timeshare operators are seeking additional capital, but most are pursuing alternatives to
 Larger Operators are Capitalizing on
Current Capital Markets Conditions
 The timeshare industry is notoriously complex due to the nature of the relationships among
Capital Markets Overview
traditional industry-specific debt financing
timeshare developers, resort managers, customers, lenders and shareholders; however, this
situation represents a unique investment opportunity to those who understand such intricacies
4
 Select M&A Transaction Activity
 Currently, there are several institutional investors working to develop an understanding of the
 Relevant Public Comparable Metrics
Transaction In Focus
industry, but there is room for only a handful of sponsors due to its size and complexity
Public Market Performance
5
 The timeshare industry declined precipitously during the most recent recession due to excess
 Company Overview
leverage, collateral deterioration and a weakening in resort real estate valuations; however, the
industry has recovered from its 2009 lows and is continuing its recovery in-line with the broader
market
 Transaction Overview
 Marriott International, Inc. (NYSE: MAR) announced in February 2011 that it will spin off its
timeshare operations and development business to provide investors with a “pure play” timeshare
firm while refocusing Marriott International’s strategy toward traditional hospitality management
functions
 MAR’s decision to spin off its timeshare business as an independent, NYSE-listed firm will improve
Western Reserve Partners delivers
customized investment banking
solutions
for
middle-market
companies. The firm’s Managing
Directors average more than 15
years of experience and have
directly executed more than 550
transactions. Western Reserve is a
member of M&A International Inc.,
the world’s leading alliance of
investment banking firms, with 47
members and more than 500
professionals across 41 countries.
investor awareness and understanding of the industry, as many analysts who currently cover MAR
are expected to continue coverage of Marriott’s timeshare segment following the spin off
 MAR’s spin off will add transparency to an industry often overlooked by Wall Street
 MAR is 3.0 to 5.0 times larger than many of its smaller public counterparts and if the MAR offering
performs well, this may allow for the possibility of other timeshare related equity offerings
Timeshare Index[1] Performance Versus Broader Market Indices
Indexed at 100 - 06/13/2006
160
140
120
100
80
60
40
20
0
Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 Jan-11 Jun-11
Timeshare Index
DJIA
S&P 500
Nasdaq
[1] Timeshare Index includes Silverleaf, Bluegreen, Wyndham, Marriott, Starwood; Silverleaf was acquired in May 2011Source: Capital IQ
Mergers & Acquisitions
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Restructuring & Bankruptcy
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Valuation Services
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Improvement in Securitization Issuances
Wyndham’s Historical Securitizations
 Timeshare developers typically provide financing options for their
(% Yield)
(% Advance Rate)
customers, charging average interest rates between 12% and 16%
 Following sales of timeshare interests, developers often pool and
securitize balances due from customers; these securities are
issued to the public and typically are guaranteed by the
developers. Larger, diversified developers (e.g., Wyndham) enjoy
higher advance rates and lower yields
 Before the economic downturn, timeshare companies issued
collateralized debt securities at advance rates between 80% and
90% and with yields between 6% and 8%; however, beginning in
2008 advances on customer receivables plummeted to rates
below 60% with yields soaring above 10%
12%
100%
10%
90%
8%
80%
6%
70%
4%
60%
2%
50%
0%
40%
 In 2008, timeshare companies began collecting and publishing the
credit quality of customers’ securitized accounts receivable, as
measured by purchasers’ average FICO scores; as a result of this
additional disclosure, the yields on many classes of timeshare ABS
rose significantly
Yield
Advance Rate
 Currently, timeshare companies are completing receivable securitizations of receivables backed by customers with average FICOs between
700 and 725 and expect advance rates of approximately 75% to 90%; these receivable securitizations are yielding between 5% and 8%, many
ABS classes backed by purchasers with undisclosed FICO scores typically yield 12%
 In the past, timeshare companies derived significant cash flow from the interest rate spread on financed purchases and ABS yields; however,
due to the perilous combination of rising customer defaults, declining advance rates and escalating yields, this source of cash has been
limited
2011 Brings an Increase in Activity to the Timeshare Capital Markets
 May-2011: Chapter 11 Bankruptcy Estate of Island One Resorts, a large private operator of nine resort properties is recapitalized and
reorganized by Timeshare Acquisitions LLC
 May-2011: Cerberus Capital Management closes its $94m acquisition of Silverleaf Resorts (announced on February 3, 2011), a 75% premium
over Silverleaf’s pre-announcement market capitalization.
 Apr-2011: Chapter 11 Bankruptcy Estate of Tempus Resorts, assets are acquired by Tempus Resort Acquisitions LLC, an affiliate of Diamond
Resort Holdings and Guggenheim Partners
 Feb-2011: Marriott International announced the spin off of its timeshare business, Marriott Vacation Club International. Many analysts
expect the offering to be priced between 7.0x – 10.0x Enterprise Value to 2012P EBITDA (“EV/EBITDA”)
Recent Public Timeshare Operators’[1] Performance
Indexed at 100 - 06/14/2010
Silverleaf
acquisition
announced at
$2.50 a share
210
190
170
150
130
110
90
70
50
Jun-10
Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11
SVLF
BXG
WYN
MAR
HOT
[1] Operators: SVLF – Silverleaf Resorts, BXG – Bluegreen Corporation, WYN – Wyndham Worldwide, MAR – Marriott International, HOT – Starwood Hotels & Resorts
Sources: ARDA AIF Foundation; Company Filings; Capital IQ
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Valuation Services
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Timeshare Consumer and Operator Outlook


Buyers now perceive timeshare purchases almost solely as a
lifestyle investment

Timeshare owners continue to fall behind on timeshare loans;
however, default rates as of December 2010 were at 8.5%, down
from their peak in January 2010 when 10.0% of timeshare owners
were in default



Timeshare Secondary Market Sale Prices
Net timeshare originations plunged 35% to $6.3 billion in 2009
and are down over 40% from the 2007 peak. Total revenues for
many of the larger public operators increased in 2010 due to
stabilization in receivables portfolios and stronger interest income
0%



15%
20%
25%
30%
20.0%
$1,000 - $5,000
17.0%
$5,000 - $10,000
14.0%
Median: $9,000
$10,000 - $25,000
25.0%
$25,000 - $50,000
8.0%
$50,000 - $100,000
The resale market for timeshare owners has been difficult to
navigate, with a 2010 median resale price of $9,000 and some
resales selling as low as 10% of the original purchase price
7.0%
$100,000 +
9.0%
Resale Price (% of Resale Purchasers)
In some instances, cash-strapped timeshare owners are trying to
give their units back to developers, but most developers already
have excess inventory
Major Public Operators’ Timeshare Related Revenue
($ in millions)
Timeshare operators have been under pressure to trim HOA fees;
however, this may lessen as hotel and condominium occupancy
and rental rates rise
Larger Operators are Capitalizing on Current
Capital Markets Conditions

10%
$0 - $1,000
$7,799
$255
$8,000
$684
$6,000

5%
The industry is currently in need of a “reset” period where pricing
needs to adjust to reflect perceived value. This reset period has
been delayed as pricing adjustments have been limited by lenders,
who are unwilling to take discounts on developer debt balances
Larger timeshare operators such as Marriott, Wyndham,
Starwood, Hilton, Disney, Bluegreen and Silverleaf have shored up
balance sheets and have effectively navigated the recent
recession. These operators have been successfully issuing
securitizations, with five of these major operators issuing
securitizations totaling approximately $2.5b in 2010 and 2011YTD
The timeshare securitization market is recovering with
securitization issuance totaling $1.5b, $1.8b and over $2.5b, in
2008, 2009 and 2010 respectively
Note restructuring has produced credit enhancements, helping
larger operators mitigate and absorb the recent increase
in membership defaults. Credit enhancements including
overcollateralization, additional reserves and excess spread have
been implemented by larger timeshare operators
There is a current dislocation in the timeshare capital markets as
larger operators are able to access capital while smaller,
distressed operators are in need of and currently seeking capital
$7,040
$264
$595
$5,814
$1,750
$2,065
$1,153
$4,000
$2,000
$237
$367
$5,997
$226
$365
$6,099
$232
$380
$1,439
$1,546
$1,544
$674
$688
$709
$3,097
$3,172
$894
$3,643
$3,537
2007
2008
WYN
$3,234
$0
HOT
2009
MAR
BXG
2010
LTM 2011
SVLF
Public Operators’ 2010 & 2011YTD Securitizations
($ in millions)
$1,800
$1,500
$1,535
Total
Securitization
Issuance ~$2.5b
$1,200
$900
$600
$300
$304
$300
$229
$135
$0
WYN
SVLF
HOT
MAR
BXG
Sources: ARDA AIF Foundation; Company Filings; Capital IQ
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Valuation Services
Capital Markets Overview
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Select M&A Transaction Activity


Timeshare lenders are looking for long-term solutions when dealing with distressed assets. They prefer “fee for service” or other mortgage
portfolio work-outs over upfront discounts on their debt
Select Transactions
Select distressed recapitalizations and acquisitions include:
–
May-2011: Island One Resorts, a large private operator of nine resort properties
consisting of a customer base of over 50,000 owners is recapitalized and
reorganized by Timeshare Acquisitions LLC
–
Apr-2011: Tempus Resorts is acquired by Tempus Resort Acquisitions LLC, an
affiliate of the Diamond Resort Holdings and Guggenheim Partners
–
Mar-2011: Bluegreen announces that it is exploring strategic alternatives for
the Company's Bluegreen Communities business segment
–
Sep-2010: Centerbridge Partners acquired the resort finance business from
GMAC Commercial Finance, which primarily consists of a $1.0b portfolio of
loans related to timeshare resorts throughout North America
–
Sep-2010: Diamond Resorts Corporation acquired the majority of the assets of
ILX Resorts through a stalking horse bid. ILX Resorts filed for Chapter 11
bankruptcy in March 2009. Diamond purchased the assets for $29.7m, which
was composed of $5.9m in cash and the assumption of the debtors’ obligations
under Textron Financial’s loans
–
Jan-2010: Shell Vacations is recapitalized by York Capital Management. York
acquired an equity interest in the company and provided working capital,
partially replacing its existing senior term loan
Date
May-11
Apr-11
May-11
Mar-11
Feb-11
Jan-11
Dec-10
Sep-10
Sep-10
Sep-10
Jul-10
Feb-10
Jan-10
Jul-08
Jun-07
Apr-07
Jul-06
Aug-06
Apr-02
Feb-02
Apr-01
Target
Island One Resorts (Bankruptcy) [1]
Acquiror
Timeshare Acquisitions LLC
EV/EBITDA
ND
Tempus Acquisitions LLC
EV/Revenue
ND
NA
NA
Cerberus Capital Management
To Be Determined
Marriott Vacation Clubs [3]
Smugglers Notch
James Villa Holidays
Resort Quest International
ILX Resorts (Bankruptcy)
GMAC
Consolidated Resorts
Hoseasons
Shell Vacations
Bluegreen (Cancelled)
Consolidated Resorts
Sunterra
11.3x
NA
8.0x
2.2x
NA
NA
Wyndham (Fee for Service)
Diamond Resort Holdings
Centerbridge Capital Partners
The Arthur Spector Companies
York Capital Management
Whitehall - Goldman Sachs
Cendant - Wyndham[4]
Intrawest
Trendwest
Equivest
Fairfield
NA
NA
NA
7.8x
NA
NA
NA
NA
10.0x
NA
9.5x
11.4x
NA
NA
NA
0.9x
NA
NA
NA
NA
1.4x
NA
2.2x
2.4x
Fortress Investment Group
Cendant
Cendant
Cendant
10.4x
10.5x
8.3x
7.1x
1.6x
1.9x
2.5x
1.4x
9.4x
9.8x
1.8x
1.9x
Tempus Resorts (Bankruptcy) [2]
Silverleaf
Bluegreen Communities
Average
Median
[1] Bankruptcy sale confirmed May 4, 2011; Enterprise value multiples not disclosed
[2] Bankruptcy confirmed April 2011
[3] Proposed spin off of Marriott Vacation Clubs; EV/EBITDA multiple is based on 2012P
[4] Cendant spin off of Wyndham Worldwide
Relevant Public Comparable Metrics

Timeshare resort valuation multiples have recovered from the 2009 lows and are in line with 2007 valuations, signaling that future revenue
and EBITDA growth may be priced into current public market valuations

Analysts are currently valuing public timeshare operating assets between 7.0x – 10.0x 2011P EBITDA, while traditional hotel assets are
trading at 12.0x – 14.0x 2011P EBITDA. This difference is evident in the multiples below, as larger diversified hotel operators (i.e. Marriott
and Starwood) are trading at 3.0x – 6.0x EV/EBITDA premiums over other timeshare focused businesses
Median Enterprise Value to Revenue
EV/Revenue
3.0x
Median Enterprise Value to EBITDA
EV/EBITDA
15.0x
Median
Historical Average
2.5x
12.5x
Historical
Average: 1.8x
2.0x
10.0x
1.5x
7.5x
1.0x
5.0x
0.5x
2.5x
0.0x
Median
Historical Average
Historical
Average: 10.0x
0.0x
Dec-06
Sep-07
Jun-08
Mar-09
Dec-09
($ in millions, except per share data)
Company
Ticker
Bluegreen Corporation [2]
Interval Leisure Group, Inc.
Marriott International, Inc.
Starwood Hotels & Resorts Worldwide, Inc.
Wyndham Worldwide Corporation
BXG
IILG
MAR
HOT
WYN
Present
Sep-10
Dec-06
Price
Equity
Enterprise
06/13/11
Value
Value [1]
$2.97
12.71
33.84
54.98
31.50
Mean
Median
$96.5
730.3
12,161.1
10,726.1
5,354.4
$802.3
879.6
14,874.1
13,377.1
8,987.4
$5,813.7
$5,354.4
$7,784.1
$8,987.4
Sep-07
Jun-08
Mar-09
Enterprise Value to 2011LTM
Revenue
2.1x
2.1x
1.3x
2.6x
2.3x
2.1x
2.1x
Dec-09
Sep-10
Present
Enterprise Value to 2011P
EBITDA
Revenue
9.2x
6.3x
15.2x
16.7x
9.6x
EBITDA
NA
2.1x
1.2x
2.4x
2.1x
11.4x
9.6x
NA
6.3x
12.1x
13.1x
9.2x
1.9x
2.1x
10.2x
10.7x
[1] Enterprise Value equals market capitalization plus the book value of preferred stock, minority interests and long and short term debt, less cash and cash equivalents
[2] Enterprise Value and corresponding EBITDA multiple have been adjusted for restricted cash, non-cash inventory write-downs and non-cash stock compensation
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Source: Capital IQ
Valuation Services
Transaction In Focus
The Ready-Mix Assets and Eastern
Cement Corporation of
The Assets of
Schwab Materials, Inc.
has sold its
Construction and
Engineering
Services Division to
have been acquired by
Recapitalization
have been acquired by
Financial
Advisory Services
5
a division of
CRH plc
Refinancing
John A. Martell
and
Bonnie M. Martell
Fairness opinion to the
Board of Directors
a division of
has been acquired by
Harpoon Joint
Venture Equity
Financial
Advisory Services
a portfolio company
of Marlin
Equit
a portfolio
company
of Marlin Equity Partner
a portfolio company of
has been ac quired by
Land-O-Sun Dairies, LLC
an affiliate of Dean Foods
Fairness Opinion
Series A Preferred Stock
has been recapitalized by
Series C Redeemable
Convertible Participating
Preferred Stock
The David J. Joseph Company
a wholly owned subsidiary of
has sold its coupon
redemption operations
Financial
Advisory Services
Bankruptcy Estate of
Driggs Farms of Indiana,
Inc.
May 2011
Financial Advisory
Services
Valuation Advisory
Services
has been reorganized by
BC Investment
Partners LLC
Has acquired and merged with
a portfolio company of
Senior Credit Facility
and
Members of Management
McCormack Advisors
International, LLC
a division of
The undersigned acted as exclusive financial advisors
to Island One Resorts, Inc. in this transaction
has been acquired b
has been
acquired by
Financ ial
Adv is ory Serv ic es
A portfolio company of
&
has been reorganized by
Fairness Opinion
Financial
Advisory Services
have formed an Equity
Joint Venture
and
Members of Management
Partners in Plastics, Inc.
has sold certain assets to
has sold its Large Aerospace Turbine
Engine Component Repair Business
to
and
Members of Manageme
Bill Burke
an Affiliate of
has been recapitalized a
merged with
SR Technics Airfoil
Services Limited
Financial Advisory
Services
Company Overview
a wholly-owned subsidiary of
and
Valuation Advisory
Services
Island One, Inc., based in Orlando, Florida, is one of the largest privately‐held timeshare developers in the United States. Founded in 1981, the
Company has grown from a single site to an organization that has successfully acquired, developed and re‐developed nine properties in Florida
and the U.S. Virgin Islands. Island One’s affiliate, Club Navigo allows customers to gain access to a larger network of 29 affiliate resorts.
Transaction Overview
Western Reserve represented Island One in its reorganization by Timeshare Acquisitions LLC. Island One filed a Chapter 11 bankruptcy case in
September 2010, and its plan of reorganization was confirmed and became effective in May 2011. The reorganized company will retain operation
of its eight resorts in Florida and divest of certain other inventory and assets. The Company’s executive team remains intact, with Deborah Linden,
Board Co-Chair, focusing on business development and strategic planning and Sterling Stoudenmire IV assuming the role of Chief Executive Officer.
“Western Reserve is happy to have helped provide a solution that has produced a stronger, more viable entity going forward. Working with Island
One has been a gratifying experience, and after 20 months, it is nice to structure a transaction that keeps the organization intact and satisfies all
parties involved,” said Western Reserve Managing Director, Victor F. Faris.
Contacts
Linden said, “Western Reserve was instrumental in finding and maintaining the interest of a capital partner that understands the industry and can
integrate and implement our growth strategy. For the past 20 months, Vic and his team have provided great service and advice, helping our
Company to arrive at the best possible outcome for all vested parties. We are now financially and structurally well-positioned to capitalize upon a
Maindeliberate
Phone: strategy for growth.”
very
216.589.0900
Victor F. Faris
Matthew J. Reus
Main Phone: 216.589.0900
Main Phone: 216.589.0900
Managing Director
Associate
Direct: 216.589.9531
Direct: 216.574.2119
[email protected] Cell: 216.272.7071
[email protected] Cell: 206.465.7038
This newsletter is published solely for the general information of clients and friends of Western Reserve Partners LLC. Information contained in this publication is based on data obtained
from sources we deem to be reliable; however, we do not guarantee or represent that it is accurate or complete, and it should not be relied upon as such. Opinions expressed are our
current opinions as of the date appearing on this material only. This material should not be read as advice or recommendations, and we are not soliciting any action based upon receipt
of this information. Nothing in this publication is intended to be an offer to buy or sell or the solicitation of an offer to buy or sell any specific security or company.
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Valuation Services

Timeshare Market Update - Western Reserve Partners

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