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
2
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
4
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
5
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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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
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Timeshare Market Update
3
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
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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
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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
5
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.
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Capital Raising
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Restructuring & Bankruptcy
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Valuation Services