Transformative Timeshare Market
Mergers, Acquisitions Alter Landscape Of Thriving Industry
Friday, May 27, 2016
The merger and acquisition activity taking place in the lodging sector isn’t just confined to hotels. Within the past several months, a handful of large-scale deals involving timeshare companies figures to dramatically alter the landscape of that business.
For example, Starwood has sold its timeshare business, Vistana Signature Experiences, to publicly traded timeshare and vacation exchange business Interval Leisure Group for $1.5 billion. “The merger of ILG and Vistana Signature Experiences positions us at the forefront of the evolving industry,” said Craig Nash, chairman, president, and CEO of ILG. “The combined company has a portfolio that includes the worldwide exclusive rights in vacation ownership to the Sheraton, Westin, and Hyatt brands, with the scale, global reach, and inventory, as well as the sales and marketing infrastructure, to support increased growth.”
The deal –expected to create value for ILG shareholders by enhancing the financial profile, balance sheet, cash flow from recurring fee-for-service revenues—closed earlier this month and marked the second largest acquisition completed in the timeshare industry this year. In January, Diamond Resorts International finalized its previously announced, $85 million purchase of Intrawest Resort Club Group from Intrawest Resort Holdings and a month later, Hilton announced plans to spin-off its timeshare business, Hilton Grand Vacations, into a separate, publicly-traded company in order to take advantage of capital market and tax efficiencies.
Yet, it isn’t just major business deals that are on the rise in the timeshare industry. According to the American Resort Development Association’s (ARDA) State of the Vacation Timeshare Industry: United States Study 2015 Edition, published last September, the U.S. timeshare industry enjoyed solid growth in 2014. Total sales volume increased more than 4% from 7.6 billion in 2013 to $7.9 billion in 2014. Sales volume increased by almost 25% since 2010—an average of 6% annually. 2014 also marked the fifth consecutive year of increases in sales volume. “The timeshare industry is thriving as evidenced by the solid year-over-year growth recently reported by ARDA, and we feel very good about the prospects for the future. We are seeing a number of new entrants, such as Tropicana Entertainment and Yunnan Cloudreams Hotel Management Company in China,” says David Gilbert, president of Interval International, an operating business of ILG. “In addition, a significant number of our existing clients, such as Breckenridge Grand Vacations, Marriott Vacation Club, Grupo Vidanta and Welk Resorts, are adding new properties. Another positive indicator is the capital available for new development and consumer financing.”
More good news is on the horizon too as ARDA is soon to release its 2015 industry stats, which President and CEO Howard Nusbaum reports are up over 2014 when year-over-year membership growth increased, reported sales grew by 4% to $7.9 billion in total sales in North America and occupancy rates averaged just over 78%. In fact, 2014 marked the fifth straight year of increases in sales volume for the industry. Currently, the industry’s market penetration is hovering between 8 and 9 percent. “We’re excited because the numbers are up over the year prior so business is good,” he says.
Some of that success could potentially be attributed to the industry’s growing reach into urban markets. In late April, Marriott Vacation Club announced an extension of its brand with Pulse, a collection of urban timeshare properties that kicked off with five locations: New York City; San Diego; Washington DC; South Beach; and Boston. “Today’s traveler is looking for urban experiences and we know our customers [when traveling to urban markets] are looking for shorter stays, more experiential offerings and city-centric vacations where everything outside of the building is their amenity as opposed to the traditional timeshare property,” says Ed Kinney, global vice president, corporate affairs and communications. “It’s adapting our products to cater to the evolution of the traveler.”
While Kinney says that nearly 50% of MVC’s business comes from existing customers buying additional time or referring friends and family, another benefit to expanding into urban markets for Marriott Vacation Club (MVC) is the opportunity it offers to grow its customer base as the new locations also serve as sales and distribution offices for the company. “The ability to have more sales distribution points in new markets that we’re not already in is extremely important in order to reach new customers and to reach them in a way that’s convenient for them and efficient for us,” says Kinney. “This gives us greater exposure, more destinations and new channels from which to sell and market and that will help accelerate our growth because it’s new found business.”
Offering clients new and diversified experiences has become a cornerstone of the timeshare industry, where the average age of owners who purchased a timeshare during the last three years is 39 with an average annual salary is $90,000. So vacation exchange companies like RCI allow timeshare owners to trade with other owners outside of their property’s brand network in order to visit new destinations or even to trade for other experiences like cruises or safaris, typically using a point system. So it’s unsurprising that earlier this month, RCI announced a new alliance with Cuba Travel Services that provides RCI Platinum members in the U.S. with the opportunity to book five- and seven-night educational tours to Cuba, with departures beginning this summer. “As Cuba has become more open for American travel, we’ve been very interested in trying to provide that experience to our customers because part of what we do is help timeshare owners have new experiences. So I went to Cuba and saw some of the product that’s included in the tours and it matches very nicely to some of the traditional timeshare properties that you would find in Mexico or Florida,” says RCI President Gordon Gurnik.
MVC, however, does not currently have plans to enter Cuba as Kinney says, “there’s an infrastructure that needs to be established for the type of client that we have.” But he also points out that generally MVC finds sharing a campus with a Marriott branded hotel is advantageous to both businesses as well as to MVC owners. “Our products are very complimentary and I think that anytime Marriott International is looking at new markets –whether Cuba or Asia—we’re in sync with them to see if it’s a good fit for us too,” he adds.
But despite the industry’s myriad growth factors, potential regulation became a concern for the industry in March when the Consumer Financial Protection Bureau (CFPB) requested sales and financial documents from Westgate Resorts. The probe is still in its initial phases.
Timeshare Markets
