Mr. Stephen Magrill

GLG News by Mr. Stephen Magrill, Adjunct Professor

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Wyndham – Hotel, Timeshare & Vacation Ownership Competitors Face Challenging 2008

January 16, 2008

Analysis of:Wyndham shares tumble on profit outlook | www.reuters.com

Despite this mid December 2007 change in guidance; Wyndham should continue its leadership as the largest vacation ownership (VO) operator in 2008. Its more bargain hotel brands are likely to be more stable than its pricier competitors during any possible downturn.   Many of the lodging stocks have already been slashed as Marriott and Starwood delivered reduced 3rd QTR 2007 earnings. Analysts discounted the impact of reduced business travel, the concern is how will the VO divisions of Wyndham, Marriott, Starwood, Bluegreen, perform in ‘08.   Historically, (VO) is highly resilient during major economic recessions, but this slowdown is deeper and could impact upscale timeshare developers like Marriott, Starwood, Hilton, etc.     The WYN Group and Bluegreen should be less vulnerable in ’08 as they offer better price/value and/or sell VO in more drive to and mid market locations. Overall, VO operators should be less impacted in ‘08 than the overall hotel sector.

Sunterra – Is there Light at the End of the Tunnel?

March 30, 2007

Analysis of:Diamond Resorts to Acquire Sunterra for $16.00 per Share in Cash Creating Leading Vacation Ownership Company | biz.yahoo.com

The big conversation piece at this years ARDA convention which took place in Orlando, March 25-29 was the acquisition of Sunterra by Diamond resorts which was announced on March 12, 2007. The industry remains strong, but can Sunterra succeed with its new leadership in an intensely competitive field.

Few pure timeshare companies will remain once Sunterra goes private. Many analysts benchmarked Sunterra’s financial data to help evaluate other timeshare operators. The only public timeshare players left in the industry are: Bluegreen (BXG) 80% timeshare, 20% land sales and two small niche operators, Silverleaf (SVLF) and ILX Resorts, Inc. (ILX). They are not large enough to provide meaningful trend line information.

From a public information standpoint we can only rely on the minimal disclosure from the major hotel brands and vacation exchange companies. On an annual basis PricewaterhouseCoopers provides an excellent timeshare financial benchmark study.
Can Cloobeck who has had somewhat of a litigious past (I’m sure he justified these legal actions for this deal) and essentially ran a family owned timeshare operation rise to the challenge in rebuilding Sunterra? An interesting fact is that Cloobeck apparently has an $8 million buyout clause if his leadership is no longer warranted.

 

The University of Phoenix – On the Right Track Again Toward Graduation

March 26, 2007

Analysis of:Apollo Group, Inc. Reports Fiscal 2007 First Quarter Unaudited Financial Results | phx.corporate-ir.net

This fiscal first-quarter report issued on Feb. 7, 2007 from Apollo Group. Inc., the for profit educational provider that runs the University of Phoenix (UOP) appears to represent a key turning point for an improved outlook with most analysts. The University of Phoenix, with more than 300,000 students at some 160 learning centers and 100 campuses (including an online campus) is the US’s largest private university. With fears subsiding regarding competition, earnings restatements and an investigation into options backdating, Apollo Group (APOL) is up a healthy 17% year to date through March 22.

Once a glamour stock in the for profit educational sector, peaking at $94 a share in 2004, Apollo has faced a seemingly endless list of challenges in the past few years including the strength of its senior management team, accounting irregularities, the options back dating, changing demographics of adult students, the law of big numbers (can it continue to grow at its strong historical growth rates), questions relating to its strategic direction, federal financial aid issues, and even calculations of its graduation rates, etc.

Analysts seemed mostly impressed with this quarterly report and senior management statements about its future despite the fact that the report itself was unaudited. Apollo was upgraded by Thomson Financial – Gradient, and; Columbine Capital Services; Argus (Buy), Morningstar (Buy), Morgan Stanley (“we remain bullish”), S&P (Sell). Apollo expects to file the audited statement for the first quarter of 2007, third quarter of 2006, and its report for the 2006 fiscal years by April 30. See commentary section below for short and long term outlook; key positives and challenges.

Las Vegas High Rise Market – Boom or Bust?

October 12, 2006

Analysis of:Development: A high and tight market | www.reviewjournal.com

With the overall housing slowdown, the explosive move to vertical high rise projects in Las Vegas has become downright risky; greater future potential may now exist for innovative mid-rise and mixed use projects that are more compatible with the Vegas demographics and lifestyle.

High rise construction costs have increased 30-50% in the past two years and too many inexperienced developers often on unremarkable sites misjudged costs, availability of quality contractors, sales prices and prospects. Further, the extremely high cost to build high rises per square foot has placed most of these projects out of the availability reach of a large segment of the potential target market.

Celebrities with minimal real estate experience like Ivana Trump, Michael Jordan, George Clooney have also tried to capitalize on the allure of the Las Vegas new virtual trend, but their projects, Ivana Las Vegas, Aqua Blue Las Ramblas have all dropped out; yet select developers with a solid brand and credibility including Donald Trump, Turnberry Place, and MGM’s Residences have so far been very successful in a difficult and highly competitive Las Vegas market.

Even some developers with a long track record have struggled here, such as Icon Towers, developer Related Las Vegas. The project, which would have included two towers with 48 stories each, was scrapped before construction could begin. The developers, a joint venture of East Coast real estate tycoons Stephen M. Ross and Jorge Perez, are returning deposits to about 350 buyers; the buyers are suing the developer for breaking the purchase agreement.

Timeshare Industry – Continues Steady Growth

October 9, 2006

Analysis of:Timeshare Industry Continues Strong Growth with 2005 Sales of 8.6 Billion, According to Ernst & Young Study | www.arda.org

The timeshare industry continues to grow with 2005 U.S. sales of $8.6 billion, but at a more steady pace with 9.3% growth in 2005 vs. 2004 versus the 14-15% CAGR of the past 15-20 years

More importantly, timeshare continues to represent an increasingly important segment of the overall hospitality industry as most major hotel brands including Marriott, Hyatt, Marriott, Hilton, Disney, Starwood, and Four Seasons all have burgeoning timeshare divisions. There are many key reasons for this interest:

1. occupancy at U.S. timeshare resorts averaged 82% in 2005 compared to 67% occupancy for U.S. hotels

2. the pre-sell, pre-paid feature of timeshare sales and emphasis on the leisure market is more resilient to economic declines than traditional hotel products, thereby providing a lower beta or risk tolerance to the companies overall portfolio mix. Timeshare consumers are also less sensitive to interest rates. According to the latest PricewaterhouseCoopers study on the timeshare industry, consumers financed 72% of their purchases in 2005 at an average interest rate of 13.9%.

3. the major timeshare hotel brands in the past have had a major structural advantage versus independents in such areas as sales and marketing costs, higher closing rates, and lower default rates, etc.

4. The number of timeshare owners grew 5.9% in 2005 vs. 2005 while the average price of a timeshare increased 3.1% during the same period

Despite a rosy picture of increased credibility, great demographics, there are still some concerns: several timeshare developers in 2006 have experienced financial declines due to supply issues, the industry still lacks a viable resale market and has relatively high sales and marketing costs.

Destination Clubs – Need for Uniform Disclosure and Transparency

September 28, 2006

Analysis of:Helium Report Interviews Howard Nusbaum, CEO of American Resort Development Association (ARDA) | www.heliumreport.com

When Tanner & Halley, the second largest destination club next to industry leader, Exclusive Resorts filed for chapter 11 in July 2006 and left some 874 buyers with refundable deposits in doubt, it created enormous speculation and a tidal wave of scrutiny. Questions naturally arose as to why did this happen; how can the business practices become more transparent and how can this industry be regulated.

The destination club industry has grown rapidly without having to adhere to the type of regulatory requirements which govern the timeshare and real estate industries.

The Tanner Haley chapter 11 has led to a spirited debate for regulations from numerous sources including the Helium Report, and the American Resort Development association which has been making the case to get the destination clubs regulated under laws which govern the timeshare and more upscale fractional industry. Future regulations could take the form of uniform disclosure, protection to the large upfront fees via a bond, insurance, or escrow to ensure membership deposits can be refunded, guidelines as to the percentage of the portfolio that should be owned vs. leased, etc. Founding executives within the destination club industry started to meet this summer and created the Destination Club Association. The goal is develop their own best practices, guidelines and address key industry issues.

There are enormous opportunities and risks and significant due diligence is required to examine each clubs program, how it compares and the controls it has in place to address potential issues and risks.

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