Recent Destination Club News

[Buon Viaggio]

The ER deferred deposit plan doesn't seem like a scheme at all - more like a strategy. It is helping to sell new memberships but most members are joining under the traditional plans. The anonymous member quote is inflated.

 

[Kagehitokiri2]

i was referring to Desties' comments on real estate.

the "model" of DCs has come up before.

should also clarify nonequity/equity isnt as clear as i might have made it sound.

 

[Desties]

It is easy, the investor pays for the debt interest, the members dues pay for running the club.

FYI, it seems as if UE would be cash flow positive under the same scenario.

It's not pretty, but UE did post positive EBITDA this past quarter. The operating loss was $1.4 million, but back out $2 million in depreciation and amortization, another $0.3 million in the loss on property sales, and you're more than there.

Plus, if the $3 million in annual savings on the closing of Fort Collins is accurate, we're talking about another $0.75 million every quarter.

The cash flow dagger is the $3 million forked over to CapSource in interest expense every quarter. The liquidity dagger is that UE began with so little cash when it went public last year. So -- sans debt -- the UE model would appear to be more than sustainable, unless I'm missing something.

 

[wilkes591]

Desties,

Do not forget about the amount of executive compensation two CEO, a voluminous amount of VP's, and the broad of directors pulling down $60k with a free elite membership. Management was not even trying to make the club work. UE had limited cash on hand and was not making payments then management comes up with the idea of 27 additional leased properties for peak season. I honestly do not see how UE will not file, most likely chapter 11. It will get rid of the equity interest, it would eliminate executive compensations contracts, A/P has been allowed to balloon and would be eliminated, other unsecured debt is eliminated, the membership deposits are toast, and the former T&H membership agreements are eliminated. Capsource takes a haircut and provides DIP. The club would be much more attractive to a potential buyer or viable on it own. It would take six to eight month to settle the unsecured debts for pennies on the dollar. Then most likely it is sold to another club before exiting chapter 11. We will find out on Friday, most likely Chapter 11 is file on 09/10/2010 or 09/13/2010.

 

[Jack1234]

While UE has a "low" number of members on the resignation list, that (IMHO) is solely because the T&H and PE folks can't resign yet. There was another "misunderstanding" with the PE folks who signed a contract stating clearly that they could resign 18 months after the date of execution of that contract. Well....after the 18 months were up and some number opted to resign they were told there had been "some confusion" and it was really 18 months post merger or Feb 2011. I can assure you that there would be a larger resignation list if that "confusion" had not occurred. Yes, they could have sued but there was nothing to recover so I think most just opted to continue to travel.

It seems that the most likely scenario is to allow the club to go into BK, wipe out all of the obligations, and then have another club come in and offer to cherry pick the properties at a good price and grab the dues paying members. Way too valuable to another club to let us all walk. While I think most or all of us are unwilling to pay another deposit, there are enough clubs with excess capacity or who want to grow and would love even 30-50% of us to pay dues to shore up their cash flow. Just glad I have no tickets purchased for any of my upcoming trips as I wouldn't bet on them occurring as planned.

 

[SciFrog]

Which clubs you think has overcapacity?

 

[Jack1234]

I am purely guessing but remember that AKRC was said to have had overcapacity in the not too distant past (could be on target now). UE wants to sell home due to having too many so they still do. ER is looking to sell homes so perhaps them. I know little about Q so would defer to your knowledge there but remember they wanted the Lusso folks and seemed to be able to handle them nicely. Of course at fire-sale prices for RE, any club could add on properties for cheap $$ while gaining members with little marketing costs. Anybody still paying dues and traveling with UE is likely to be a valuable asset to a club that is looking to grow. They also have some excellent properties that would be a great investment at the right price. I continue to hope for the best and figure I'll still be traveling in the future, though which "DC's name" I will be traveling with could easily change after next week.

 

[NeilGoBlue]

I don't know the exact numbers, but AK overcapacity is either eliminated or almost eliminated with the new members (both equity and trial)

 

[Buon Viaggio]

ER is very close to normal occupancy right now and is even increasing units for upcoming summer seasons. There are units for sale but new properties have been added this year so a balancing of inventory is really what's happening.

 

[Kagehitokiri2]

capacity doesnt matter. the cash flow is valued.

* ER and Q are nonequity.

* UE and oyster are takeover targets.

what we will really see is whether ER and Q are really breakeven. (both with dues increases, Q with investor)

and whether there are going to be more DC startups soon. (not exchange companies)

equity (varying) >
- AK
- m private residences
- hideaways club
- EE
- luxus vacation properties
- rocksure (third fund - euro capitals - is larger than first two)

* what about equity mergers??

 

[Jack1234]

capacity doesnt matter. the cash flow is valued.

That is the bottom line. Too many people at UE willing to pay dues for another DC to ignore.

 

[Desties]

capacity vs. scalability

It's not about capacity, because only ER has a shot to absorb a club with 1200+ members without substantially tacking on real estate.

This is really about the opportunity to scale. UR spent roughly $100 million to buy T&H's 650 members and most of its properties. It became a major league DC overnight. Along comes UE now, with nearly twice as many members (even if 100-200 decide not to follow) with only a bit more debt on its books than T&H sold for.

The UE model may be too leveraged, and that has created the cash crunch we see today that finds UE behind on its CapSource payments and making desperate decisions that sacrifice the long-term for near-term liquidity (like the small loan collateralized by future new member deposits or the rebalancing of the calendar, etc.). This doesn't mean that the UE model itself is broken. It is EBITDA positive (at least this past quarter) and that's with high salaries and the Fort Collins office that is now closed.

I have no idea what UE will do this month, but I do have confidence in my 1200+ fellow members as jaded vacationers and our value to either a UE investor or a potential buyer.

 

[SciFrog]

Well I am going to repeat myself, but with no clubs with overcapacity right now, most if not all clubs in survival mode, UE is on it's own unless it comes out of a chapter 11 with little debt.

As a Q member, I would be shocked if we do another Lusso deal and would likely resign as this would weaken the club beyond repair. Deffered deals? No problem. But new members without some sort of deposit? No thank you.

 

[Desties]

UE is on it's own unless it comes out of a chapter 11 with little debt.

We'll see.

This isn't just about Quintess and ER. Why can't this be an opportunity for Ritz-Carlton or any of the timeshare heavies to make a splash in the DC space. It's awfully tempting to refuse 1,200+ dues-paying members who generate more annual revenue than tens of thousands of timeshare members (in this otherwise bone-dry lead climate).

Did Quintess go too far for Lusso? Sure. It offered them no deposit memberships, with promises of getting their Lusso deposits back in a few years (similar to T&H and UE) -- and even went one step further by kicking back a bounty to Lusso per member, if I recall. However, even that wasn't enough to win everybody over.

I don't know who will step up with the sweetheart deals for UE members, but I would be surprised if Quintess wasn't one of them. Think about it. Lusso was a good way for Q to tack on to its base, but UE is the ticket to challenging ER. Any deal that requires any form of deposit -- now or deferred -- is toast. Even the equity clubs may only get a handful of new members that way. Any deal that doesn't dangle deposits returned after 5 years or so is just asking for churn to inch higher as folks have no reason to stick with the club if dues have to go up or an assessment is imposed.

I'm hoping that it won't come to that, and someone bails UE out first, but I guess we'll all know a lot more a week from now.

 

[Jack1234]

Desties-
I agree with you 100%. No way can any of the other clubs not at least take a look at this and it will require some sort of sweetheart deal. Will it take a BK filing first to wipe out current obligations, perhaps, but none of the members really have any assets to lose so let's strap in for the ride and hope it's quick so we can get back to fun rather than spending too much time here.

Thanks all for posting info in almost real time. We learn more here than anywhere.

 

[Kagehitokiri2]

indeed i posted the confirmation that RC is simply reselling unsold fractional inventory as "DC" so marriott should be happy to pick up people to exchange time for money and a "contract"... whole question with RC model is what happens as they grow... although when fractional owners exchange in, thats more time for the DC..

 

[wilkes591]

Well I am going to repeat myself, but with no clubs with overcapacity right now, most if not all clubs in survival mode, UE is on it's own unless it comes out of a chapter 11 with little debt.

As a Q member, I would be shocked if we do another Lusso deal and would likely resign as this would weaken the club beyond repair. Deffered deals? No problem. But new members without some sort of deposit? No thank you.

Scifrog,

Why wouldn't Q look at the membership base? There are very few rules now that Capsource has taken over with equity and minority debt holders blessing at UE. Capsource could sell anything or everything. Read the 8-k. Capsource could sell a selected membership base(Elite and Signature) and selected properties then file chapter 7. I think all option are on the table for any DC or group to pick and choose. I do doubt that anything will get done before Friday. However, Chapter 11 and continued operations is most likely come Friday. That is the perfect situation for ER, Q, and any other group or DC to pick and choose the most beneficial options with no debt. I doubt very much that Q is not in the "mix" already with Capsource. I doubt additional members will weaken any DC in this environment. Do not worry, Q's sugar daddy will be in the mix as well as Mr. Case for ER. Bigger is better especially when BIG Ego's are involved.

The 1200 membership base is just to valuable, of course it would most likely be 1000 with attrition.

 

[willmyclubmakeit]

Q

I heard rumors Q has been looking at UE for months. However will they show up at the altar this time? With cleaining of the balance sheet and possibility the ability to cheery pick assets/leases, I would be shocked if they were not a contender. If you can eliminate/reduce the G&A per member/home much further and significantly increase occupancy percentages , this could be the way Q could compete and survive over the long haul. The biggest question for the succeful bidder is how do they avoid alientating the membership base with bookings in place and promised leases so that the members are retained at historical 95%+ levels.

 

[SciFrog]

No doubt they are looking. However there are several big problems:

UE homes are not up to Q homes standard IMHO

Capsourse as senior debt holder will rather liquidate homes than simply forgive debt, and no club can acquire members and their deposit liability without getting the homes for free

 

[NeilGoBlue]

Seems to me it really simple in today's market scenario. Either the members what are being acquired have to put up equity (free and clear homes, etc), or they have to pay enough in dues to give the investor (Q, ER, etc) a return on their investment.

It seems unlikely that UE members will put in money or that capsource will cut the debt enough to create equity AND it seems unlikely that UE members pay increased dues to give the 'investors' a return on their money.

The only way it makes sense is if there is a club that has excess capacity, and just getting dues make sense.

I don't see it.

 

[3DH]

And, on another note...

M Private Residences has one of it's Las Estrellas units at Punta Ballena (Cabo) listed for sale... guess they, too, are trimming inventory.
LAS ESTRELLAS 201 (M website)
Real Estate listing

Similarly, ER has two of their Villas listed in the same area...

 

[wilkes591]

No doubt they are looking. However there are several big problems:

UE homes are not up to Q homes standard IMHO

Capsourse as senior debt holder will rather liquidate homes than simply forgive debt, and no club can acquire members and their deposit liability without getting the homes for free

Yeah, Capsource is going to get 100% of it debt back by liquidating homes. What planet have you been living on? The Vacation Real Estate Market is BOOMING! Right! Capsource would be lucky getting 50 cent to a dollar on forced sales of vacation homes in this market. Take a look around when your on vacation, for sale signs everywhere. Either way Capsource is the biggest loser in UE's current situation.

Capsource is in a very difficult position and the real estate and members bundled could be worth more then just vacation homes in a second home market.

I stayed in a Q home in Los Cabo, not much better then UE's signature homes in Cabo Del Sol and Pamilla and I would even say UE's Elite ocean front Villa Paraiso is superior to the Q home I was a guest in.

Either way no need to get your panties in an uproar. This is going to play out and you will not be effected by the outcome. The only ones that lose are the UE members(like me), Capsource, a number of vendors who UE owes money, and some employees at UE.

FYI - I could become a Q member for a minimal deferred deposit no where near the published deposits and dues below the published rate on Tuesday if I wanted. The minimal deposit is only required after two years, if I want to continue and become a "member". Everything is negotiable per contract per DC. Only fools order from the menu. And if Perry were here he would say only fools join DCs.

 

[ClubsRDead]

It makes absolutely no sense that any club with "extra capacity," if there is such a thing - or any club in general "pick up" us members. Who would it be? I can't see Q or ER bringing us in for dues only. Why would they? What would their existing members say? I further can't see our homes being of any value to them as they are typically standalone and not the same at their model, ie like units in clustered locations. And why would any of them combine our overpaid mgmt team into theirs? Its evident that UE has no intention, nor ability, to pay redemptions and this is just a repeat of the TH scenario. The only difference here is 3x the debt and another 400+ members, with less owned assets / members. So the problem got worse, not better. Best thing for us all may be a filing so someone can hopefully swoon in and try to pick up the pieces. I'm just sick that they collected so many of our dollars in upgrades and assessments and did very little other than pay themselves high salaries. Why in the world didnt they reserve for debt and even worse, why tell us the rosey stories in the member newsletters and conference calls? Jim and co lied to us all, said they had a "full pipeline" and things were better. Then the next month, and since, they have missed debt payments. As a public company this has to be some sort of fraud or misrepresentation.

 

[wilkes591]

I further can't see our homes being of any value to them as they are typically standalone and not the same at their model, ie like units in clustered locations. And why would any of them combine our overpaid mgmt team into theirs? Its evident that UE has no intention, nor ability, to pay redemptions and this is just a repeat of the TH scenario. The only difference here is 3x the debt and another 400+ members, with less owned assets / members. So the problem got worse, not better. Best thing for us all may be a filing so someone can hopefully swoon in and try to pick up the pieces. I'm just sick that they collected so many of our dollars in upgrades and assessments and did very little other than pay themselves high salaries. Why in the world didnt they reserve for debt and even worse, why tell us the rosey stories in the member newsletters and conference calls? Jim and co lied to us all, said they had a "full pipeline" and things were better. Then the next month, and since, they have missed debt payments. As a public company this has to be some sort of fraud or misrepresentation.

Everything I am posting about is after a chapter 11 filing, this upcoming Friday. No deposits, No debt, and No Equity holders. Read the 8-K, Capsource is running things now. Anyone can come in today and cherry pick the assets and members. What do you think the members would not get a new "contract" that benefits the new DC. It is going to be sign the new contract or stay with UE. No deposit liability is going to any new club. This is a FIRE SALE in a down market. Someone is going to make out with the choice assets for pennies on the dollar.

As for fraud good luck, A public company that did not trade any stock. JT and RK were living on a different planet.

 

[Desties]

As a public company this has to be some sort of fraud or misrepresentation.

As long as the SEC filings are accurate -- and it's the only reason we know that UE hasn't paid CapSource since June -- it's a legitimate crisis. The last time the club had a member call it was still paying its debts and the pipeline may have been healthier (there was after all, net growth during the first half of the year).

And SciFrog, you're missing the mark here. This isn't a game of "we're too good for UE properties" -- though I'll argue that the Elite UE beach houses in Delray and Indian River Beach are way more marketable than Q's Miami Beach property. No, the point here is that Q would grow in size by 3x-4x if it can pull this off. It can roll Elite into its own portfolio, and then offer a mid-level Signature and an entry level Premiere -- with reciprocity between the clubs at the appropriate rates.

No matter what happens to UE, there will always be a market for entry-level DCs -- and not just a matter of 7-night a year plans at some clubs. There's a reason why HCC and PE were the fastest growing ORGANIC clubs. HCC was perhaps too entry-level (and with many other problems, naturally), but you don't think a club will step up to fill the void if UE does in fact go kaput?

I remember on DC4MS when one of the folks from the growing Q resignation list posted about financial hardship. Don't you think some of the Q's resignation list members would reconsider if they can trade down (at least for a bit of time). I also wouldn't put it past ER, though Steve Case seems to be oblivious when it comes to any DC that isn't ER.

I'm braced for the worst, but still optimistic that our collective value as members will have real worth.