Timeshare Financial Statements

[A.Win]

I know that almost nobody reads them, but for those of you that do read them, what are you looking for? Here is what caught my eye when reading mine:

1. Assets of $10 million are much more than liabilities of $4 million.
2. Bad debts was $2.4 million out of 12.6 million, or nearly 20%. The estimated operating budget showed an improvement though, so that is a promising sign.
3. Fund balances increased from $5.4 million to $6.1 million.
4. Reserve fund is over $4 million. There was a note about this fund, but it was unclear whether this is considered to be a lot or not enough.
5. Management fee was 15%.
6. The HOA invests in CDs.

Seems fine to me, but the problem is that I'd like to compare this with the average timeshare. Is there a way to do so? What else do you look for when reading these?

I estimate that at this resort, 50% of the weeks rent for more than MFs, 25% rent at MF, and 25% probably rents for a little under MF.

So overall, does this seem like a healthy resort? Ebay tells me that good weeks here can be bought for under $1,000 and sometimes for free. Bad weeks are almost always unsold.

 

[Saintsfanfl]

It doesn't sound healthy at all. The bad debt is way too high but not abnormal for many worthless timeshares. A decent timeshare will have less than 10% bad debt, and many much better. I own at one that is around 1% and another that is an independent that earns 3 times more in rental revenue than the bad debt expense.

I own some with high bad debt but I can't say those are the ones I am happy I purchased.

The assets to liabilities is generally not relevant because it is usually a reflection of the moving operations rather than real accumulated assets and liabilities. The liabilities are usually unearned maintenance fees and accrued expenses. The fund balance just means assets less liabilities.

My guess is that if 75% of the weeks rented for the fees or better, there wouldn't be 20% bad debt.

In my opinion a healthy resort really boils down to whether the weeks are worth more than the maintenance fees and I think bad debt is a general reflection of this. If it's not a proper reflection then the resort is poorly managed.

 

[A.Win]

Hi, Thanks for responding. I agree that the bad debt seems to be on the high side. Can you explain what you mean about assets and liabilities not being important? I thought the high value of assets was a big positive. What am I missing?

I own at a 2nd resort where bad debt is lower. But at this resort, I think more than 50% of the rented weeks are CHEAPER than MFs. So I would expect bad debts to be higher here.

 

[tugnut]

It is difficult to draw any conclusions from a few select facts although interesting.
I generally look at Operating expenses and operating income. It should be close. As an owner I look at the MF's vs off the street rental rate. If not less than 50% rental rate I would say owners being gouged.
High bad debt may mean a lot of things. If delinquencies are not being tracked diligently as bad debt it may make it easier to redeem the Unit. i.e. if no debt is showed it may be redeemed for very little whereas if debt is tracked they may have a larger burden to redeem. I believe HOA can rent the delinquent unit but the rental may have to be credited to the delinquent owner. So the more bad debt is shown the more the Management Co can pocket. You basically have to study the whole thing to follow the money. Many management companies will purposely make the statements obscure and hard to cipher.
Also has it been audited? If not red flag.
I find that financial statements are generally impossible to find if you're interested in resort. They are purposely unobtainable. If readily available they are generally honest.

 

[Joe33426]

I know that almost nobody reads them, but for those of you that do read them, what are you looking for? Here is what caught my eye when reading mine:

1. Assets of $10 million are much more than liabilities of $4 million.
2. Bad debts was $2.4 million out of 12.6 million, or nearly 20%. The estimated operating budget showed an improvement though, so that is a promising sign.
3. Fund balances increased from $5.4 million to $6.1 million.
4. Reserve fund is over $4 million. There was a note about this fund, but it was unclear whether this is considered to be a lot or not enough.
5. Management fee was 15%.
6. The HOA invests in CDs.

Seems fine to me, but the problem is that I'd like to compare this with the average timeshare. Is there a way to do so? What else do you look for when reading these?

I don't think that there is an "average" timeshare benchmark for you to compare since every association has it's unique characteristics (e.g. # of units, # of intervals, part of master association, special taxing districts, etc).

Saying that an Association having $10 million in assets as being "better" than an Association with $1 million depends on the Association. A small timeshare with 20 units then $1 million in assets might be a huge deal, For Bonnet Creek $10 million might not be a huge deal... Also remember that since many timeshares bill annually in advance, that assets and liabilities are generally overstated. Assessments receivable generally reflect the next years fees due and a liability called "deferred assessments" is reflected for these future assessments billed in advance. Assets can also be overstated because developers generally record some of the Association owned assets on the financial statements (e.g. furniture, fixtures, etc.) rather than expensing these items immediately.

If you want to benchmark your association, I recommend you look for similar type of Associations and look at those association's financial statements. Timeshare financial statements are easy to find on the Internet.

As far as what I typically look for in an Association is a health reserve fund and the reserve disclosures. In the attached financial statement for Winner's Circle, I would look at the disclosures on page 14. That page says that they should have $5 million in reserves and they only have about $3 million, so they are short about $2 million. These shortages may result in special assessments. I also look at the operating fund balance to see if it's at least 1 or 2 months of the Association's normal operating expenses. The operating fund balance for Winner's Circle of $189,000 is not too bad for this sized Association. The Association's annual operating revenue is $2.3 million or about $190,000 per month. My experience has been that Association's with operating fund balances equal to 1 to 2 months of operating revenues generally don't have problems paying the day-to-day operating expenses. If operating fund balance is negative, not so good.

Finally, the notes are very important things to read and are very informative.

 

[Saintsfanfl]

Hi, Thanks for responding. I agree that the bad debt seems to be on the high side. Can you explain what you mean about assets and liabilities not being important? I thought the high value of assets was a big positive. What am I missing?

I own at a 2nd resort where bad debt is lower. But at this resort, I think more than 50% of the rented weeks are CHEAPER than MFs. So I would expect bad debts to be higher here.

Assets don't matter so much because the HOA doesn't really "own" anything. The real assets are owned by the owners and are not on the HOA's balance sheet. These HOA assets are just a reflection of the timing of billed and collected fees and the payment of expenses. It's all relative but obviously as stated above we wouldn't want to see the fund balance negative.

Like joe stated reserves is also a good one to look at but it's rare to find a timeshare that fully funds reserves. Low bad debt with a fully funded reserve makes a pretty good resort to buy into resale as long as there is something else to be gained like personal use or renting out. On the flip side high bad debt with abonormally low reserves will certainly lead to large fee increases or special assessments down the road.