Western Reserve Partners LLC 200 Public Square Suite 3750 Cleveland, OH 44114 Phone: 216.589.0900 www.wesrespartners.com

Market Overview

Inside this issue: Timeshare Market Update

Timeshare Market Update

 As the timeshare market continues to recover from the dramatic contraction of the tourism industry

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and overall decline in consumer discretionary spending, Western Reserve believes a “dose of equity” is needed to aid this recovery and recapitalize this highly leveraged industry

 Improvement in Securitization Issuances

 Significant consolidation is expected among smaller private operators, which do not possess critical

 2011 Brings an Increase in Activity to the Timeshare Capital Markets

mass to pursue public equity and are too small and complex for most institutional investors; however, the current market environment bodes well for strategic buyers seeking to execute roll-up acquisition strategies, thereby growing their operating platform

 Timeshare Consumer and Operator Outlook

 Many timeshare operators are seeking additional capital, but most are pursuing alternatives to

 Larger Operators are Capitalizing on Current Capital Markets Conditions

 The timeshare industry is notoriously complex due to the nature of the relationships among

Capital Markets Overview

traditional industry-specific debt financing timeshare developers, resort managers, customers, lenders and shareholders; however, this situation represents a unique investment opportunity to those who understand such intricacies

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 Select M&A Transaction Activity

 Currently, there are several institutional investors working to develop an understanding of the

 Relevant Public Comparable Metrics

Transaction In Focus

industry, but there is room for only a handful of sponsors due to its size and complexity

Public Market Performance

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 The timeshare industry declined precipitously during the most recent recession due to excess

 Company Overview

leverage, collateral deterioration and a weakening in resort real estate valuations; however, the industry has recovered from its 2009 lows and is continuing its recovery in-line with the broader market

 Transaction Overview

 Marriott International, Inc. (NYSE: MAR) announced in February 2011 that it will spin off its timeshare operations and development business to provide investors with a “pure play” timeshare firm while refocusing Marriott International’s strategy toward traditional hospitality management functions

 MAR’s decision to spin off its timeshare business as an independent, NYSE-listed firm will improve Western Reserve Partners delivers customized investment banking solutions for middle-market companies. The firm’s Managing Directors average more than 15 years of experience and have directly executed more than 550 transactions. Western Reserve is a member of M&A International Inc., the world’s leading alliance of investment banking firms, with 47 members and more than 500 professionals across 41 countries.

investor awareness and understanding of the industry, as many analysts who currently cover MAR are expected to continue coverage of Marriott’s timeshare segment following the spin off

 MAR’s spin off will add transparency to an industry often overlooked by Wall Street  MAR is 3.0 to 5.0 times larger than many of its smaller public counterparts and if the MAR offering performs well, this may allow for the possibility of other timeshare related equity offerings

Timeshare Index[1] Performance Versus Broader Market Indices Indexed at 100 - 06/13/2006 160 140 120 100 80 60 40 20 0

Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 Jan-11 Jun-11 Timeshare Index

DJIA

S&P 500

Nasdaq

[1] Timeshare Index includes Silverleaf, Bluegreen, Wyndham, Marriott, Starwood; Silverleaf was acquired in May 2011Source: Capital IQ

Mergers & Acquisitions

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Capital Raising

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Real Estate

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Restructuring & Bankruptcy

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Valuation Services

Timeshare Market Update

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Improvement in Securitization Issuances

Wyndham’s Historical Securitizations

 Timeshare developers typically provide financing options for their

(% Yield)

(% Advance Rate)

customers, charging average interest rates between 12% and 16%

 Following sales of timeshare interests, developers often pool and securitize balances due from customers; these securities are issued to the public and typically are guaranteed by the developers. Larger, diversified developers (e.g., Wyndham) enjoy higher advance rates and lower yields

 Before the economic downturn, timeshare companies issued collateralized debt securities at advance rates between 80% and 90% and with yields between 6% and 8%; however, beginning in 2008 advances on customer receivables plummeted to rates below 60% with yields soaring above 10%

12%

100%

10%

90%

8%

80%

6%

70%

4%

60%

2%

50%

0%

40%

 In 2008, timeshare companies began collecting and publishing the credit quality of customers’ securitized accounts receivable, as measured by purchasers’ average FICO scores; as a result of this additional disclosure, the yields on many classes of timeshare ABS rose significantly

Yield

Advance Rate

 Currently, timeshare companies are completing receivable securitizations of receivables backed by customers with average FICOs between 700 and 725 and expect advance rates of approximately 75% to 90%; these receivable securitizations are yielding between 5% and 8%, many ABS classes backed by purchasers with undisclosed FICO scores typically yield 12%

 In the past, timeshare companies derived significant cash flow from the interest rate spread on financed purchases and ABS yields; however, due to the perilous combination of rising customer defaults, declining advance rates and escalating yields, this source of cash has been limited

2011 Brings an Increase in Activity to the Timeshare Capital Markets  May-2011: Chapter 11 Bankruptcy Estate of Island One Resorts, a large private operator of nine resort properties is recapitalized and reorganized by Timeshare Acquisitions LLC

 May-2011: Cerberus Capital Management closes its $94m acquisition of Silverleaf Resorts (announced on February 3, 2011), a 75% premium over Silverleaf’s pre-announcement market capitalization.

 Apr-2011: Chapter 11 Bankruptcy Estate of Tempus Resorts, assets are acquired by Tempus Resort Acquisitions LLC, an affiliate of Diamond Resort Holdings and Guggenheim Partners

 Feb-2011: Marriott International announced the spin off of its timeshare business, Marriott Vacation Club International. Many analysts expect the offering to be priced between 7.0x – 10.0x Enterprise Value to 2012P EBITDA (“EV/EBITDA”)

Recent Public Timeshare Operators’[1] Performance Indexed at 100 - 06/14/2010

Silverleaf acquisition announced at $2.50 a share

210

190 170 150

130 110 90 70 50 Jun-10

Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 SVLF

BXG

WYN

MAR

HOT

[1] Operators: SVLF – Silverleaf Resorts, BXG – Bluegreen Corporation, WYN – Wyndham Worldwide, MAR – Marriott International, HOT – Starwood Hotels & Resorts Sources: ARDA AIF Foundation; Company Filings; Capital IQ

Mergers & Acquisitions

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Capital Raising

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Real Estate

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Restructuring & Bankruptcy

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Valuation Services

Timeshare Market Update

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Timeshare Consumer and Operator Outlook 



Buyers now perceive timeshare purchases almost solely as a lifestyle investment



Timeshare owners continue to fall behind on timeshare loans; however, default rates as of December 2010 were at 8.5%, down from their peak in January 2010 when 10.0% of timeshare owners were in default







Timeshare Secondary Market Sale Prices

Net timeshare originations plunged 35% to $6.3 billion in 2009 and are down over 40% from the 2007 peak. Total revenues for many of the larger public operators increased in 2010 due to stabilization in receivables portfolios and stronger interest income

0%







15%

20%

25%

30%

20.0%

$1,000 - $5,000

17.0%

$5,000 - $10,000

14.0%

Median: $9,000

$10,000 - $25,000

25.0%

$25,000 - $50,000

8.0%

$50,000 - $100,000

The resale market for timeshare owners has been difficult to navigate, with a 2010 median resale price of $9,000 and some resales selling as low as 10% of the original purchase price

7.0%

$100,000 +

9.0% Resale Price (% of Resale Purchasers)

In some instances, cash-strapped timeshare owners are trying to give their units back to developers, but most developers already have excess inventory

Major Public Operators’ Timeshare Related Revenue ($ in millions)

Timeshare operators have been under pressure to trim HOA fees; however, this may lessen as hotel and condominium occupancy and rental rates rise

Larger Operators are Capitalizing on Current Capital Markets Conditions



10%

$0 - $1,000

$7,799 $255

$8,000

$684 $6,000



5%

The industry is currently in need of a “reset” period where pricing needs to adjust to reflect perceived value. This reset period has been delayed as pricing adjustments have been limited by lenders, who are unwilling to take discounts on developer debt balances Larger timeshare operators such as Marriott, Wyndham, Starwood, Hilton, Disney, Bluegreen and Silverleaf have shored up balance sheets and have effectively navigated the recent recession. These operators have been successfully issuing securitizations, with five of these major operators issuing securitizations totaling approximately $2.5b in 2010 and 2011YTD The timeshare securitization market is recovering with securitization issuance totaling $1.5b, $1.8b and over $2.5b, in 2008, 2009 and 2010 respectively Note restructuring has produced credit enhancements, helping larger operators mitigate and absorb the recent increase in membership defaults. Credit enhancements including overcollateralization, additional reserves and excess spread have been implemented by larger timeshare operators There is a current dislocation in the timeshare capital markets as larger operators are able to access capital while smaller, distressed operators are in need of and currently seeking capital

$7,040 $264 $595

$5,814

$1,750

$2,065

$1,153

$4,000

$2,000

$237 $367

$5,997 $226 $365

$6,099 $232 $380

$1,439

$1,546

$1,544

$674

$688

$709

$3,097

$3,172

$894

$3,643

$3,537

2007

2008 WYN

$3,234

$0 HOT

2009 MAR BXG

2010

LTM 2011

SVLF

Public Operators’ 2010 & 2011YTD Securitizations ($ in millions) $1,800

$1,500

$1,535

Total Securitization Issuance ~$2.5b

$1,200

$900

$600

$300 $304

$300 $229 $135

$0 WYN

SVLF

HOT

MAR

BXG

Sources: ARDA AIF Foundation; Company Filings; Capital IQ

Mergers & Acquisitions

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Capital Raising

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Real Estate

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Restructuring & Bankruptcy

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Valuation Services

Capital Markets Overview

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Select M&A Transaction Activity  

Timeshare lenders are looking for long-term solutions when dealing with distressed assets. They prefer “fee for service” or other mortgage portfolio work-outs over upfront discounts on their debt Select Transactions Select distressed recapitalizations and acquisitions include: –

May-2011: Island One Resorts, a large private operator of nine resort properties consisting of a customer base of over 50,000 owners is recapitalized and reorganized by Timeshare Acquisitions LLC



Apr-2011: Tempus Resorts is acquired by Tempus Resort Acquisitions LLC, an affiliate of the Diamond Resort Holdings and Guggenheim Partners



Mar-2011: Bluegreen announces that it is exploring strategic alternatives for the Company's Bluegreen Communities business segment



Sep-2010: Centerbridge Partners acquired the resort finance business from GMAC Commercial Finance, which primarily consists of a $1.0b portfolio of loans related to timeshare resorts throughout North America



Sep-2010: Diamond Resorts Corporation acquired the majority of the assets of ILX Resorts through a stalking horse bid. ILX Resorts filed for Chapter 11 bankruptcy in March 2009. Diamond purchased the assets for $29.7m, which was composed of $5.9m in cash and the assumption of the debtors’ obligations under Textron Financial’s loans



Jan-2010: Shell Vacations is recapitalized by York Capital Management. York acquired an equity interest in the company and provided working capital, partially replacing its existing senior term loan

Date May-11

Apr-11 May-11 Mar-11 Feb-11 Jan-11 Dec-10 Sep-10 Sep-10 Sep-10 Jul-10 Feb-10 Jan-10 Jul-08 Jun-07 Apr-07 Jul-06 Aug-06 Apr-02 Feb-02 Apr-01

Target

Island One Resorts (Bankruptcy) [1]

Acquiror Timeshare Acquisitions LLC

EV/EBITDA ND

Tempus Acquisitions LLC

EV/Revenue ND

NA

NA

Cerberus Capital Management To Be Determined

Marriott Vacation Clubs [3] Smugglers Notch James Villa Holidays Resort Quest International ILX Resorts (Bankruptcy) GMAC Consolidated Resorts Hoseasons Shell Vacations Bluegreen (Cancelled) Consolidated Resorts Sunterra

11.3x NA 8.0x

2.2x NA NA

Wyndham (Fee for Service) Wyndham (Fee for Service) Wyndham (Fee for Service) Diamond Resort Holdings Centerbridge Capital Partners The Arthur Spector Companies Wyndham (Fee for Service) York Capital Management Diamond Resort Holdings Whitehall - Goldman Sachs Diamond Resort Holdings

Cendant - Wyndham[4] Intrawest Trendwest Equivest Fairfield

NA NA NA 7.8x NA NA NA NA 10.0x NA 9.5x 11.4x

NA NA NA 0.9x NA NA NA NA 1.4x NA 2.2x 2.4x

Fortress Investment Group Cendant Cendant Cendant

10.4x 10.5x 8.3x 7.1x

1.6x 1.9x 2.5x 1.4x

9.4x 9.8x

1.8x 1.9x

Tempus Resorts (Bankruptcy) [2] Silverleaf Bluegreen Communities

Average Median

[1] Bankruptcy sale confirmed May 4, 2011; Enterprise value multiples not disclosed [2] Bankruptcy confirmed April 2011 [3] Proposed spin off of Marriott Vacation Clubs; EV/EBITDA multiple is based on 2012P [4] Cendant spin off of Wyndham Worldwide

Relevant Public Comparable Metrics 

Timeshare resort valuation multiples have recovered from the 2009 lows and are in line with 2007 valuations, signaling that future revenue and EBITDA growth may be priced into current public market valuations



Analysts are currently valuing public timeshare operating assets between 7.0x – 10.0x 2011P EBITDA, while traditional hotel assets are trading at 12.0x – 14.0x 2011P EBITDA. This difference is evident in the multiples below, as larger diversified hotel operators (i.e. Marriott and Starwood) are trading at 3.0x – 6.0x EV/EBITDA premiums over other timeshare focused businesses

Median Enterprise Value to Revenue EV/Revenue 3.0x

Median Enterprise Value to EBITDA EV/EBITDA 15.0x

Median Historical Average

2.5x

12.5x Historical Average: 1.8x

2.0x

10.0x

1.5x

7.5x

1.0x

5.0x

0.5x

2.5x

0.0x

Median Historical Average

Historical Average: 10.0x

0.0x Dec-06

Sep-07

Jun-08

Mar-09

Dec-09

($ in millions, except per share data)

Company

Ticker

Bluegreen Corporation [2] Interval Leisure Group, Inc. Marriott International, Inc. Starwood Hotels & Resorts Worldwide, Inc. Wyndham Worldwide Corporation

BXG IILG MAR HOT WYN

Present

Sep-10

Dec-06

Price

Equity

Enterprise

06/13/11

Value

Value [1]

$2.97 12.71 33.84 54.98 31.50

Mean Median

$96.5 730.3 12,161.1 10,726.1 5,354.4

$802.3 879.6 14,874.1 13,377.1 8,987.4

$5,813.7 $5,354.4

$7,784.1 $8,987.4

Sep-07

Jun-08

Mar-09

Enterprise Value to 2011LTM Revenue 2.1x 2.1x 1.3x 2.6x 2.3x 2.1x 2.1x

Dec-09

Sep-10

Present

Enterprise Value to 2011P

EBITDA

Revenue

9.2x 6.3x 15.2x 16.7x 9.6x

EBITDA

NA 2.1x 1.2x 2.4x 2.1x

11.4x 9.6x

NA 6.3x 12.1x 13.1x 9.2x

1.9x 2.1x

10.2x 10.7x

[1] Enterprise Value equals market capitalization plus the book value of preferred stock, minority interests and long and short term debt, less cash and cash equivalents [2] Enterprise Value and corresponding EBITDA multiple have been adjusted for restricted cash, non-cash inventory write-downs and non-cash stock compensation

Mergers & Acquisitions

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Capital Raising

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Real Estate

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Restructuring & Bankruptcy

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Source: Capital IQ

Valuation Services

Transaction In Focus The Ready-Mix Assets and Eastern Cement Corporation of

The Assets of Schwab Materials, Inc. has sold its Construction and Engineering Services Division to

have been acquired by

Recapitalization

have been acquired by

Financial Advisory Services

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a division of CRH plc

Refinancing

John A. Martell and Bonnie M. Martell Fairness opinion to the Board of Directors

a division of

has been acquired by

Harpoon Joint Venture Equity

Financial Advisory Services

a portfolio company of Marlin Equit a portfolio company

of Marlin Equity Partner

a portfolio company of

has been acquired by

has been ac quired by

has been acquired by

Land-O-Sun Dairies, LLC an affiliate of Dean Foods

Fairness Opinion

Series A Preferred Stock

has been recapitalized by

Series C Redeemable Convertible Participating Preferred Stock

The David J. Joseph Company a wholly owned subsidiary of

has sold its coupon redemption operations

has been acquired by

Financial Advisory Services

Bankruptcy Estate of Driggs Farms of Indiana, Inc.

has been acquired by

has been acquired by

May 2011

Financial Advisory Services

Valuation Advisory Services

has been reorganized by Timeshare Acquisitions LLC BC Investment Partners LLC

Has acquired and merged with

has been recapitalized by

a portfolio company of

Senior Credit Facility

and Members of Management

McCormack Advisors International, LLC

a division of

The undersigned acted as exclusive financial advisors has been acquired by to Island One Resorts, Inc. in this transaction

has been acquired b has been acquired by

Financ ial Adv is ory Serv ic es

A portfolio company of

has been acquired by &

has been recapitalized by

has been acquired by

has been acquired by

has been acquired by

has been acquired by

has been reorganized by Timeshare Acquisitions LLC A portfolio company of Fairness Opinion

Financial Advisory Services

have formed an Equity Joint Venture

A portfolio company of

and Members of Management

has been recapitalized by

Partners in Plastics, Inc. has sold certain assets to

has been acquired by

has sold its Large Aerospace Turbine Engine Component Repair Business to

has been acquired by

and Members of Manageme

Bill Burke

has been acquired by an Affiliate of

has been recapitalized a merged with

SR Technics Airfoil Services Limited Financial Advisory Services

Company Overview

a wholly-owned subsidiary of

and

Valuation Advisory Services

Island One, Inc., based in Orlando, Florida, is one of the largest privately‐held timeshare developers in the United States. Founded in 1981, the Company has grown from a single site to an organization that has successfully acquired, developed and re‐developed nine properties in Florida and the U.S. Virgin Islands. Island One’s affiliate, Club Navigo allows customers to gain access to a larger network of 29 affiliate resorts.

Transaction Overview Western Reserve represented Island One in its reorganization by Timeshare Acquisitions LLC. Island One filed a Chapter 11 bankruptcy case in September 2010, and its plan of reorganization was confirmed and became effective in May 2011. The reorganized company will retain operation of its eight resorts in Florida and divest of certain other inventory and assets. The Company’s executive team remains intact, with Deborah Linden, Board Co-Chair, focusing on business development and strategic planning and Sterling Stoudenmire IV assuming the role of Chief Executive Officer. “Western Reserve is happy to have helped provide a solution that has produced a stronger, more viable entity going forward. Working with Island One has been a gratifying experience, and after 20 months, it is nice to structure a transaction that keeps the organization intact and satisfies all parties involved,” said Western Reserve Managing Director, Victor F. Faris.

Contacts

Linden said, “Western Reserve was instrumental in finding and maintaining the interest of a capital partner that understands the industry and can integrate and implement our growth strategy. For the past 20 months, Vic and his team have provided great service and advice, helping our Company to arrive at the best possible outcome for all vested parties. We are now financially and structurally well-positioned to capitalize upon a Maindeliberate Phone: strategy for growth.” very 216.589.0900 Victor F. Faris Matthew J. Reus Main Phone: 216.589.0900 Main Phone: 216.589.0900 Managing Director Associate Direct: 216.589.9531 Direct: 216.574.2119 [email protected] Cell: 216.272.7071 [email protected] Cell: 206.465.7038 This newsletter is published solely for the general information of clients and friends of Western Reserve Partners LLC. Information contained in this publication is based on data obtained from sources we deem to be reliable; however, we do not guarantee or represent that it is accurate or complete, and it should not be relied upon as such. Opinions expressed are our current opinions as of the date appearing on this material only. This material should not be read as advice or recommendations, and we are not soliciting any action based upon receipt of this information. Nothing in this publication is intended to be an offer to buy or sell or the solicitation of an offer to buy or sell any specific security or company.

Mergers & Acquisitions

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Capital Raising

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Real Estate

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Restructuring & Bankruptcy

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Valuation Services