The 2003 Financial Performance Study of Timeshare Companies, the latest industry research released by the American Resort Development Association (ARDA) and conducted by PricewaterhouseCoopers LLP (PwC), provides perspective on the resort timeshare industry’s financial climate. While developing in a growth sector such as timesharing clearly has its rewards, with success comes growing pains. Certain lessons learned in the 1990s are outdated, and as many industry participants are aware, keeping tabs on the latest indicators of financial performance is critical.
Study Background
The Financial Performance Study is an ongoing effort that focuses on the financial aspects of the timeshare development business, and is designed as a reference tool for tracking trends and a resource for potential entrants to the industry. Most importantly, the study aims to provide timely information that permits companies to compare operations to industry benchmarks.
Study results are based on an extensive annual survey of timeshare companies. The survey requires significant effort on the part of respondents, and, although it is not possible to publish a list with the respondents’ names, they deserve due credit. This year, 46 companies responded by providing high-level, confidential information on their financial performance, encompassing 263 resorts in active sales. Of the 46 survey respondents, 12 companies were publicly traded and 34 were privately owned. A majority were headquartered in the United States.
According to Scott D. Berman, a principal in PricewaterhouseCoopers’ Global Hospitality & Leisure Practice and U.S., Latin American & Caribbean practice leader, “To put the response base in perspective, we can compare it with the estimated size of the industry. The 46 respondents to the study reported net sales [gross sales less rescissions]of $4.1 billion in 2002, of which about 89% occurred in the United States. Comparing this figure with the US$5.5 billion of sales of U.S. timeshare inventory in 2002 (reported in ARDA’s 2003 State of the Vacation Ownership Industry report) shows that the response base to the Financial Performance Study represents a large share of the U.S. timeshare industry.”
To allow users to track the evolution of the sector with a stable set of respondents, the survey also presents information on a core group of 29 companies that have consistently responded to the Financial Performance Survey over the past three years. Information from this group provides year-in and year-out results that yield a stable perspective on industry trends. In other words, this is practical information.
Selected Highlights
Net sales reported by the respondents increased by 7.6% from $3.9 billion in 2001 to $4.1 billion in 2002. The average rescission rate among respondents was 15.3% in 2002.
The average price of a timeshare week, or its equivalent in the case of fractionals and points-based operations, increased in 2002. The weighted average price per week sold in the U.S. during 2002 was $16,003, an increase of 9% from 2001.
The product cost of units sold by companies with more upscale offerings accounted for a greater share of sales prices than it did for companies selling mid-scale weeks. The above table shows product costs as a percentage of net timeshare sales. The companies that reported the highest average price per timeshare week in 2002 also reported the highest product cost as a percentage of net sales. Berman commented further that “conversations with industry participants indicate that some of the increase in product costs may be tied to the rising cost of attractive land parcels in resort areas, while other companies indicate a growing importance of higher quality and higher priced timeshare products.”
Given the higher sales and marketing costs synonymous with the timeshare industry, we have found that people not involved directly with the industry often have questions about this topic— and may be surprised by the answers. Fifty-four percent of companies reported total sales and marketing costs above 50% of net sales. Companies that reported selling lower priced weeks experienced the highest total sales and marketing costs in 2002 as a percentage of net sales.
Key results related to companies’ access to capital include statistics on hypothecations, portfolio sales, and securitizations. Hypothecated receivables represent the installment sales contracts that are pledged as collateral for debt. Companies reported paying an average interest rate of 7.1% on funds borrowed through hypothecations in 2002. Eight companies, mostly public, reported a total of 28 separate sale or securitization transactions in 2001 and 23 in 2002, with total values of US$1 billion and $1.2 billion, respectively. The average amount per transaction in 2002 was $52.5 million.
Consumer financing is also an important topic covered by the study. Companies reported financing more than 65% of net sales in 2002. The study provides information on the average term, interest rates, and average down payments of new consumer loans.
“These kinds of comprehensive annual studies shed light on trends and provide critical information about the industry,” said David C. Gilbert, executive vp, Resort Sales and Marketing for Interval International – a global leader in vacation exchange. “The periodic updating of the Financial Performance Study and the quality of the information reported by timeshare developers make this publication a powerful analysis tool.”
The future refinement of this study will allow ARDA to provide more accurate and relevant information in the future. As the timeshare industry expands and new products and programs are created, the Financial Performance Study will be modified accordingly.