Bluegreen Vacations
Corporation
BXG $16.00-$18.00 6.5 million shares Underwriters: Stifel,
Credit Suisse Co-Managers: BofA
Merrill Lynch, SunTrust Robinson Humphrey Proposed
trade date of 11/17. They are a leading vacation ownership company that markets and sells
vacation ownership interests and manages resorts in top leisure and urban
destinations.
Bluegreen Vacations Corporation BXG
Click here
to view the prospectus.
https://www.sec.gov/Archives/edgar/data/778946/000117494717001506/c478126_s1a.htm
Company
Overview
They are a leading vacation ownership company that
markets and sells vacation ownership interests (“VOIs”) and manages resorts in
top leisure and urban destinations. Their
resort network includes 43 Club Resorts (resorts in which owners in the
Bluegreen Vacation Club (“Vacation Club”) have the right to use most of
the units in connection with their VOI ownership) and 24 Club Associate
Resorts (resorts in which owners in their Vacation Club have the right to use a
limited number of units in connection with their VOI ownership). Their
Club Resorts and Club Associate Resorts are primarily located in popular,
high-volume, “drive-to” vacation locations, including Orlando, Las Vegas,
Myrtle Beach and Charleston, among others. Through their points-based
system, the approximately 211,000 owners in their Vacation Club have the
flexibility to stay at units available at any of their resorts and have
access to almost 11,000 other hotels and resorts through partnerships and
exchange networks. They have a robust sales and marketing platform supported by
exclusive marketing relationships with nationally-recognized consumer brands,
such as Bass Pro and Choice Hotels.
Prior
to 2009, their vacation ownership business consisted solely of the sale of VOIs
in resorts that they developed or acquired (“developed VOI sales”). While they continue to conduct such sales
and development activities, they now also derive a significant portion of their
revenue from their capital-light business model, which utilizes their expertise
and infrastructure to generate both VOI sales and recurring revenue from third
parties without the significant capital investment generally associated with
the development and acquisition of resorts. Their capital-light business
activities include sales of VOIs owned by third-party developers pursuant to
which they are paid a commission (“fee-based sales”) and sales of VOIs that they
purchase under just-in-time (“JIT”) arrangements with third-party developers or
from secondary market sources. In addition, they provide resorts and resort
developers with other fee-based services, including resort management, mortgage
servicing, title services and construction management. They also offer
financing to qualified VOI purchasers, which generates significant interest
income.
Their Vacation Club has grown from approximately
170,000 owners as of December 31, 2012 to approximately 211,000 owners as
of September 30, 2017. They primarily serve a demographic
underpenetrated within the vacation ownership industry, as the typical Vacation
Club owner has an average annual household income of approximately $75,000 as
compared to an industry average of $90,000. According to the most recent
U.S. census data, households with an annual income of $50,000 to $100,000
represent the largest percentage of the total population (approximately
29%). They believe their ability to effectively scale their transaction
size to suit their customer, as well as their high-quality,
conveniently-located, “drive-to” resorts are attractive to their core target
demographic.
Their Product
Since entering the vacation ownership industry in
1994, they have generated over 582,000 VOI sales transactions, including over
99,000 fee-based sales transactions. Their Vacation Club owners receive an
annual or biennial allotment of “points” in perpetuity that may be used
to stay at any of their 43 Club Resorts and 24 Club Associate Resorts, with the
number of points required for a stay at a resort varying depending on a variety
of factors, including resort location, size of the unit, vacation season and
the days of the week. Subject to certain restrictions and fees, Vacation Club
owners are typically allowed to carry over any unused points for one year and
to “borrow” points from the next year. Their VOI sales include:
·
Fee-based sales of VOIs
owned by third-party developers pursuant to which they are paid a commission
(generally in an amount equal to 65-75% of the VOI sales price);
·
JIT sales of VOIs they
acquire from third-party developers in close proximity to when they intend to
sell such VOIs;
·
Secondary market sales of
VOIs they acquire from homeowners associations (“HOAs”) or other owners; and
·
Developed VOI sales, or
sales of VOIs in resorts that they develop or acquire (excluding inventory
acquired pursuant to JIT or secondary market arrangements).
Dividend Policy
They intend to pay quarterly cash dividends on their
common stock in an initial amount equal to $0.15 per share commencing in the
first quarter of 2018. Based on their historical and projected cash flow,
including the expected net proceeds of this offering and funds expected to be
available to them under their credit facilities, they believe that they have
a reasonable basis for setting the initial quarterly dividend at $0.15 per
share. However, there is no assurance that this initial dividend amount
will be sustained or that they will continue to pay dividends in the
future.
IPO
Detail
This is the initial public offering of Bluegreen
Vacations Corporation and no public market currently exists for its common
stock. Bluegreen Vacations Corporation is offering 6,498,648 shares of common
stock as described in the prospectus. The company expects the initial public
offering price of its common stock to be between $16.00 and $18.00 per share.
The company has applied to list its common stock on the New York Stock Exchange
under the symbol “BXG.”
|
Common stock
offered by the company |
3,736,723
shares |
|
Common stock
offered by the selling shareholder |
2,761,925
shares |
|
Common stock to
be outstanding immediately after this offering |
74,734,455 shares |
Use of
Proceeds
They estimate that their net proceeds from this offering, after
deducting estimated underwriting discounts and commissions and offering
expenses payable by them, will be approximately $57.7 million. They intend to
use the proceeds from this offering for working capital, potential acquisitions
and development of VOI properties, sales and marketing activities, general and
administrative matters, other capital expenditures and general corporate
purposes, which may include the repayment of indebtedness. They will not
receive any proceeds from the sale of common stock by the selling shareholder.
Competition
|
Company |
|
Stock Symbol |
|
Exchange. |
||
|
Marriott
Vacations Worldwide Corp. |
|
VAC |
|
NYSE |
||
|
Walt
Disney Company |
|
|
DIS |
|
|
NYSE |
|
. Hilton Grand Vacations Inc. |
|
|
HGV |
|
|
NYSE |
|
Wyndham
Vacation Ownership(subsidiary of Wyndham Worldwide Corp) |
|
|
WYN |
|
|
NYSE |
|
ILG
Inc. |
|
|
ILG |
|
|
NASDAQ |
|
Diamond
Resorts International Inc. (subsidiary Apollo Global Management) |
|
|
APO |
|
|
NYSE |
Market
Opportunity
The vacation
ownership, or timeshare, industry is one of the fastest growing segments of the
global travel and tourism sector. Compared to
hotel rooms, vacation ownership units typically offer more spacious floor
plans and residential features, such as living rooms, fully-equipped kitchens
and dining areas. Compared to owning a vacation home in its entirety, the key
advantages of vacation ownership products typically include a lower up-front
acquisition cost and annual expenses, resort-style features and services and,
often, an established infrastructure to exchange usage rights for stays across
multiple locations. VOI sales have grown 800% over the last 30 years
with more than 9.2 million families (approximately 6.9% of U.S.
households) owning at least one VOI in 2016. They believe that this growth has
been driven by the benefits of VOI ownership and the entrance of globally-recognized
lodging and entertainment brands into the vacation ownership industry.
The U.S. vacation
ownership industry experienced a contraction in sales as a result of the
overall economic recession in 2008 and 2009, during which time they and many other vacation ownership companies and
resort developers reduced liquidity needs by managing businesses at lower tour
flow and sales levels. Increasing demand for VOIs and favorable macroeconomic
trends, including increased discretionary income, improving consumer confidence
and a shifting preference among consumers for increased spending on leisure,
have led to strong industry growth since 2009. However, because sales remain
below the peak level reached in 2007, they believe there remains sustained
opportunity for additional growth.
While the majority
of VOI owners are over the age of 50, new owners are, on average, approximately
10 years younger, with 39% between the ages of 35 and 49, and 30% under
the age of 35. VOI owners have an average annual household income of $90,000
and 90% of VOI owners own their own home.
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(dollars in thousands, except per share and per guest data)
|
|
|
For the Years
Ended December 31, |
|
|
For the Nine
Months Ended September 30, |
|
|
||||||||||||||||||
|
|
|
|
2016 |
|
|
2015 |
|
|
2017 |
|
|
2016 |
|
||||||||||||
|
Consolidated Statement of Operations
Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of VOIs |
|
|
|
$ |
266,142 |
|
|
|
|
$ |
259,236 |
|
|
|
|
$ |
172,839 |
|
|
|
|
$ |
196,654 |
|
|
|
Fee-based sales commission revenue |
|
|
|
|
201,829 |
|
|
|
|
|
173,659 |
|
|
|
|
|
179,046 |
|
|
|
|
|
153,718 |
|
|
|
Other fee-based services revenue |
|
|
|
|
103,448 |
|
|
|
|
|
97,539 |
|
|
|
|
|
83,442 |
|
|
|
|
|
78,421 |
|
|
|
Interest income |
|
|
|
|
89,510 |
|
|
|
|
|
84,331 |
|
|
|
|
|
65,673 |
|
|
|
|
|
66,931 |
|
|
|
Other income, net |
|
|
|
|
1,724 |
|
|
|
|
|
2,883 |
|
|
|
|
|
— |
|
|
|
|
|
597 |
|
|
|
Total revenues |
|
|
|
$ |
662,653 |
|
|
|
|
$ |
617,648 |
|
|
|
|
$ |
501,000 |
|
|
|
|
$ |
496,321 |
|
|
|
Net income attributable to shareholder |
|
|
|
$ |
74,951 |
|
|
|
|
$ |
70,304 |
|
|
|
|
$ |
59,057 |
|
|
|
|
$ |
49,383 |
|
|
|
Per Share Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic diluted earnings attributable to
shareholder |
|
|
|
$ |
749,510.00 |
|
|
|
|
$ |
703,040.00 |
|
|
|
|
$ |
590,570.00 |
|
|
|
|
$ |
493,830.00 |
|
|
|
|
|||||||||||||||||||||||||
|
|
|
|
As of
December 31, |
|
|
As of
September 30, |
|
|
||||||||||||||||||||
|
|
|
|
2016 |
|
|
2015 |
|
|
2017 |
|
|
2016 |
|
|
||||||||||||||
|
Consolidated Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Notes receivable, net |
|
|
|
$ |
430,480 |
|
|
|
|
$ |
415,598 |
|
|
|
|
$ |
429,356 |
|
|
|
|
$ |
424,533 |
|
|
|
|
|
|
Inventory |
|
|
|
|
238,534 |
|
|
|
|
|
220,211 |
|
|
|
|
|
269,241 |
|
|
|
|
|
227,688 |
|
|
|
||
|
Total assets |
|
|
|
|
1,128,632 |
|
|
|
|
|
1,083,151 |
|
|
|
|
|
1,172,343 |
|
|
|
|
|
1,114,426 |
|
|
|
||
|
Total debt obligations - non recourse |
|
|
|
|
327,358 |
|
|
|
|
|
314,024 |
|
|
|
|
|
347,308 |
|
|
|
|
|
341,291 |
|
|
|
||
|
Total debt obligations - recourse |
|
|
|
|
255,057 |
|
|
|
|
|
256,752 |
|
|
|
|
|
237,722 |
|
|
|
|
|
215,631 |
|
|
|
||
|
Total shareholder’s equity |
|
|
|
|
249,436 |
|
|
|
|
|
244,485 |
|
|
|
|
|
268,493 |
|
|
|
|
|
248,868 |
|
||||
Target
Markets
Grow VOI sales. They intend to utilize their
proven sales and marketing platform to continue their strong history of VOI
sales growth through the expansion of existing alliances, continued development
of new marketing programs and additional VOI sales to their existing Vacation
Club owners. They believe there are a number of opportunities within their
existing marketing alliances to drive future growth, including the expansion of
their marketing efforts with Bass Pro and Choice Hotels. In addition to
existing programs, they plan to utilize their sales and marketing expertise to
continue to identify marketing relationships with other nationally-recognized
brands that resonate with their core demographic. They also actively seek to
sell additional VOI points to their existing Vacation Club owners, which are
generally higher-margin sales as compared to sales to new customers, because
sales to existing owners typically involve significantly lower marketing costs
and have higher conversion rates. They are also committed to continually
expanding and updating their sales offices to more effectively convert tours
generated from their marketing programs into sales. They continue to
identify high-traffic resorts where they believe increased investment in sales
office infrastructure will yield strong sales results.
Continue to enhance their Vacation Club
experience. They believe their Vacation Club offers owners
exceptional value. Their Vacation Club offers owners access to their 43 Club
Resorts and 24 Club Associate Resorts in premier vacation destinations, as well
as access to approximately 11,000 other hotels and resorts and other vacation
experiences, such as cruises, through partnerships and exchange networks.
They continuously seek new ways to add value and flexibility to their Vacation
Club and enhance the vacation experience of their Vacation Club owners,
including the addition of new destinations, the expansion of their exchange
programs and the addition of new partnerships to offer increased vacation
options. They also continuously improve their technology, including websites
and applications, to enhance their Vacation Club owners’ experiences. They
believe this focus, combined with their high-quality customer service, will
continue to enhance the Vacation Club experience, driving sales to new
customers and additional sales to existing Vacation Club owners.
Grow their high-margin, cash generating
businesses. They
seek to continue to grow their ancillary businesses, including resort
management, title services and loan servicing. They believe these businesses
can grow with little additional investment in their corporate infrastructure
and will produce high-margin revenues.
Increase sales and operating efficiencies
across all customer touch-points. They
actively seek to improve their operational execution across all aspects of
their business. In their
sales and marketing platform, they utilize a variety of screening methods and
data-driven analyses to attract high-quality prospects to their sales offices
in an effort to increase sales volume per guest (“VPG”), an important measure
of sales efficiency. They also continue to test new and innovative methods
to generate sales prospects with a focus on increasing cost efficiency. In
connection with their management services and consumer financing activities, they
will continue to leverage their size, infrastructure and expertise to increase
operating efficiency and profitability. In addition, as they expand, they
expect to gain further operational efficiencies by streamlining their support
operations, such as call centers, customer service, administration, and
information technology.
Maintain operational flexibility while
growing their business. They
believe they have built a flexible business model that allows them to
capitalize on opportunities and quickly adapt to changing market environments.
They intend to continue to pursue growth through a balanced mix of
capital-light sales vs. developed VOI sales, sales to new customers vs. sales
to existing Vacation Club owners and cash sales vs. financed sales. While they
may from time to time pursue opportunities that impact their short-term
results, their long-term goal is to achieve sustained growth while maximizing
earnings and cash flow.
Pursue strategic transactions. With a disciplined approach to
capital allocation, they expect to continue to pursue acquisitions that meet
their high-quality standards and that they believe will provide value to their
Vacation Club owners or drive increased tour flow and sales. They may seek
acquisitions of resort assets, sales and marketing platforms, management
companies and contracts, and other assets, properties and businesses, including
where they believe significant synergies and cost savings may be available. They
may choose to pursue acquisitions directly or in partnership with third-party
developers or others, including pursuant to arrangements where third-party
developers purchase the resort assets and they sell the VOIs in the acquired
resort on a commission basis. They have a long history of successfully
identifying, acquiring and integrating complementary businesses, and their
flexible sales and marketing platform enables them to complete these
transactions in a variety of economic conditions.
Company's
Unique Strengths
Leading operator of “drive-to”
locations. Their
Vacation Club resorts, together with the 43 resorts within the direct-exchange
network (“direct-exchange”) that are available to Vacation Club owners who
choose to join the Bluegreen Traveler Plus program (“Traveler Plus”), provide a
broad and comprehensive offering of resort and urban destinations across the
United States and the Caribbean. Their resorts are primarily “drive-to”
resort destinations, with approximately 85% of their Vacation Club owners
living within a four-hour drive of at least one of their resorts. Their
resorts typically feature condominium-style accommodations with amenities such
as fully equipped kitchens, Wi-Fi internet access, entertainment centers and
in-room laundry facilities, providing a home away from home for their Vacation
Club owners. In addition, their resorts typically include numerous amenities
such as clubhouses (including a pool, game room, exercise facilities and
lounge) and offer hotel-type staff and concierge services.
Capital-efficient and flexible business
model. Their
business model is designed to give them flexibility to capitalize on
opportunities and quickly adapt to changing market environments to achieve
sustained growth while maximizing earnings and cash flow. Their fee-based sales
and JIT sales provide them with revenues where they are not at risk for
development financing and have no capital requirements, thereby increasing
their return on invested capital (“ROIC”). Secondary market sales generally
reduce their cost of sales because the VOI inventory sold in connection with
secondary market sales is typically acquired by them at a greater discount to
retail price compared to developed VOI sales and JIT sales. They have the
ability to adjust their targeted mix of capital-light VOI sales vs. developed
VOI sales, sales to new customers vs. sales to existing Vacation Club owners,
and cash sales vs. financed sales. While they may from time to time pursue
opportunities that impact their short-term results, their long-term goal is to
achieve sustained growth while maximizing earnings and cash flow.
Access to inventory. As of December 31, 2016, they
owned completed VOI inventory with an estimated retail sales value of
approximately $548 million (excluding units not currently being
marketed as VOIs, including model units) and had access to additional
completed VOI inventory with an estimated retail sales value of approximately
$504 million through fee-based and JIT arrangements. Based on current
estimates and expectations, they believe this inventory, combined with inventory
being developed by them or their third-party developer clients, and inventory
that they may reacquire in connection with mortgage and maintenance fee
defaults, can support their VOI sales at their current levels for over
four years.
Large and growing loyal, high-quality owner
base. The number of
owners in their Vacation Club has increased at a 5% compound annual growth rate
(“CAGR”) between 2012 and 2016, from approximately 170,000 owners as of
December 31, 2012 to approximately 208,000 owners as of December 31,
2016. As of September 30, 2017, there were approximately 211,000 owners in
their Vacation Club. Their Vacation Club owners’ satisfaction with, and loyalty
to, their Vacation Club drives their high-margin VOI sales to existing Vacation
Club owners, with these sales accounting for 46% and 49% of their system-wide
sales of VOIs, net for the year ended December 31, 2016 and the
nine months ended September 30, 2017, respectively. Further, the
customers to whom they provided financing in connection with their VOI
purchases during 2016 had a weighted-average FICO score after a 30-day, “same
as cash” period from the point of sale of 712. They generally do not
originate financing to customers with FICO scores below 575.
Long-term stable recurring revenue streams. They earn fees for providing
resort management services to resorts and their Vacation Club. As of
September 30, 2017, they provided management services to 48 resorts and
their Vacation Club through contractual arrangements with HOAs and had a 100%
renewal rate on management contracts from their Club Resorts. They believe their
management contracts yield highly predictable cash flows without the
traditional risks associated with hotel management contracts that are linked to
daily rate or occupancy. In connection with the management services provided to
their Vacation Club, they manage the reservation system and provide owner,
billing and collection services. In addition to resort and club management
services, they provide other fee-based services that produce revenues without
significant capital investment, including providing title and escrow services
for fees in connection with closing of VOI sales, and generating fees for
mortgage servicing and construction management services from third-party
developers.
Relationships with Bass Pro. They have an exclusive
marketing agreement with Bass Pro, a nationally-recognized retailer of fishing,
marine, hunting, camping and sports gear, that provides them with the right to
market and sell vacation packages at kiosks in each of Bass Pro’s retail
locations, as well as the right to market in Bass Pro catalogs and on its
website. Additionally, they have the right to access Bass Pro’s customer
database, which consists of loyal customers that strongly match their core
customer demographic. They sold vacation packages in 68 of Bass Pro’s stores as
of December 31, 2016. VOI sales to prospects and leads generated by the
agreement with Bass Pro accounted for approximately 16% and 15% of their VOI
sales volume for the year ended December 31, 2016 and the nine months
ended September 30, 2017, respectively. Their marketing alliance with
Bass Pro originated in 2000, has been renewed twice and currently runs through
2025.
In addition
to their marketing agreement with Bass Pro, they have a joint venture with an
affiliate of Bass Pro, pursuant to which they own a 51% interest in
Bluegreen/Big Cedar Vacations, LLC (“Bluegreen/Big Cedar Vacations”) and an
affiliate of Bass Pro owns the remaining 49% interest. Their Vacation Club
owners have access to Bluegreen/Big Cedar Vacations’ resorts, which consist of
three premier wilderness-themed resorts located near Branson, Missouri,
including a 40-acre resort overlooking Table Rock Lake and the surrounding
Ozarks. At Bluegreen/Big Cedar Vacations resorts, Vacation Club owners can
enjoy a 9,000 square foot clubhouse, lazy river and a rock-climbing wall, in
addition to full access to the amenities and recreational activities of Big
Cedar Lodge.
Strong corporate marketing partnerships
driving robust tour flow. In
addition to their relationship with Bass Pro, their sales and marketing
platform utilizes a variety of other methods to drive tour flow, including
marketing alliances with other nationally-recognized brands, lead generation
initiatives at high-traffic venues and events, telemarketing calls and existing
customer referrals. As of December 31, 2016, they had a pipeline of
over 230,000 marketing vacation packages sold, which generally require
attendance at a sales presentation (a sales tour) held at one of their sales
centers. Vacation packages typically convert to sales tours at a rate of 57%. They
have an exclusive strategic relationship with Choice Hotels which enables them
to leverage Choice Hotels’ brands, customer relationships and marketing
channels to sell vacation packages. They also generate leads and sell vacation
packages through their relationships with various other retail operators and
entertainment providers. Their relationship with Choice Hotels originated
in 2013 and was extended in 2017 to, subject to its terms and conditions, run
through at least 2032. As of December 31, 2016, they had kiosks in 31
outlet malls, strategically selected based on proximity to major vacation
destinations and strong foot traffic of consumers matching their core target
demographic. In addition, as of December 31, 2016, they had lead
generation operations in over 300 other locations.
Company's
Unique Risks
If they are unable to develop or acquire VOI
inventory or enter into and maintain fee-based service agreements or other
arrangements to source VOI inventory, their business and results would be
adversely impacted. In addition to developed VOI sales, they source VOIs as part of their
capital-light business strategy through fee-based service agreements with
third-party developers and through JIT and secondary market arrangements. If
they are unable to develop or acquire resorts at the levels or in the time
frame anticipated, or are unsuccessful in entering into agreements with
third-party developers or others to source VOI inventory in connection with
their capital-light business strategy, they may experience a decline in VOI
supply, which could result in a decrease in their revenues. In addition, a
decline in VOI supply could result in a decrease of financing revenues that are
generated by VOI purchases and fee and rental revenues that are generated by
their management services.
Their business and properties are subject to
extensive federal, state and local laws, regulations and policies. Changes in
these laws, regulations and policies, as well as the cost of maintaining
compliance with new or existing laws, regulations and policies and the
imposition of additional taxes on operations, could adversely affect their
business. In addition, results of audits of their tax returns or those of their
subsidiaries may have a material adverse impact on their financial condition.
Their business and profitability may be
impacted if financing is not available on favorable terms, or at all. In connection with VOI sales, they generally offer
financing to the purchaser of up to 90% of the purchase price of the VOI.
However, they incur selling, marketing and administrative cash expenses prior
to and concurrent with the sale. These costs, along with the cost of the
underlying VOI, generally exceed the down payment they receive at the time of
the sale. Accordingly, their ability to borrow against or sell their notes
receivable has historically been a critical factor in their continued
liquidity, and they therefore have depended on funds from their credit
facilities and securitization transactions to finance their operations. If
their pledged receivables facilities terminate or expire and they are unable to
extend them or replace them with comparable facilities, or if they are unable
to continue to participate in securitization-type transactions and “warehouse”
facilities on acceptable terms, their liquidity, cash flow and profitability
would be materially and adversely affected.
They would suffer substantial losses and
their liquidity position could be adversely impacted if an increasing number of
customers to whom they provide financing default on their obligations. Their VOI notes receivable
financing facilities could be adversely affected if a particular VOI note
receivable pool fails to meet certain performance ratios, which could occur if
the default rate or other credit metrics of the underlying VOI notes receivable
deteriorate. In addition, if they offer financing to purchasers of VOIs with
terms longer than those generally offered in the industry, they may not be able
to securitize those VOI financing receivables.
They may not be successful in maintaining or
expanding their capital-light business relationships, or their capital-light
activities, including fee-based sales and marketing arrangements, and JIT and
secondary market sales activities, and such activities may not be profitable,
which may have an adverse impact on their results of operations and financial
condition. They
offer fee-based marketing, sales, resort management and other services to
third-party developers. They have over the last several years continued to
expand their capital-light business strategy, which they believe enables them
to leverage their expertise in sales and marketing, resort management, mortgage
servicing, construction management and title services. While they could attempt
to utilize other arrangements, including JIT arrangements, where they would
utilize their receivable credit facilities in order to provide fee-based
marketing and sales services, this would reduce the credit otherwise available
to them and impact profitability. They commenced their capital-light activities
largely during the recession in response to poor economic conditions and their
fee-based and other capital-light business activities in the future may be
adversely impacted by changes in economic conditions. While they perform
fee-based sales and marketing services, they sell VOIs in resorts developed by
third parties as an interest in the Vacation Club. This subjects them to a
number of risks typically associated with selling products developed by others
under their own brand name, including litigation risks.
Their results of operations and financial
condition may be materially and adversely impacted if they do not continue to
participate in exchange networks and other strategic alliances with third
parties or if their customers are not satisfied with the networks in which they
participate or their strategic alliances. They
believe that their participation in exchange networks and other strategic
alliances and their Traveler Plus program make ownership of their VOIs more
attractive by providing owners with the ability to take advantage of vacation experiences
in addition to stays at their resorts. Their participation in the Resort
Condominiums International, LLC (“RCI”) exchange network allows Vacation Club
owners to use their points to stay at over 4,300 participating resorts, based
upon availability and the payment of a variable exchange fee. During the year
ended December 31, 2016, approximately 9% of Vacation Club owners utilized
the RCI exchange network for a stay of two or more nights. They also have an
exclusive strategic arrangement with Choice Hotels pursuant to which, subject
to payments and conditions, certain of their resorts have been branded as part
of Choice Hotels’ Ascend Hotel Collection. . They may not be able to or desire
to continue to participate in the RCI or direct exchange networks in the future
or maintain or extend their other marketing and strategic networks, alliances
and relationships. In addition, these networks, alliances and relationships,
and their Traveler Plus program, may not continue to operate effectively, and
their customers may not be satisfied with them. In addition, they may not be
successful in identifying or entering into new strategic relationships in the
future.
If maintenance fees at their resorts and/or
Vacation Club dues are required to be increased, their product could become
less attractive and their business could be harmed. The
maintenance fees, special assessments and Vacation Club dues that are levied by
HOAs and the Vacation Club on VOI owners may increase as the costs to maintain
and refurbish properties, and to keep properties in compliance with their
standards, increase. Increases in such fees, assessments or dues could
negatively affect customer satisfaction with their Vacation Club or otherwise
adversely impact VOI sales to both new customers and existing VOI owners.
The resale market for VOIs could adversely
affect their business. Based on their experience at their
resorts and at resorts owned by third parties, they believe that resales of
VOIs in the secondary market generally are made at net sales prices below the
original customer purchase prices. The relatively lower sales prices are partly
attributable to the high marketing and sales costs associated with the initial
sales of such VOIs. Accordingly, the initial purchase price of a VOI may be
less attractive to prospective buyers and they compete with buyers who seek to
resell their VOIs. While VOI resale clearing houses or brokers currently do not
have a material impact on their business, the availability of resale VOIs at
lower prices, particularly if an organized and liquid secondary market
develops, could adversely affect their level of sales and sales prices, which
in turn would adversely affect their business, financial condition and results
of operations.
Woodbridge’s controlling position in their
common stock will limit your ability to influence corporate matters, including
the outcome of director elections and other matters requiring shareholder
approval. Woodbridge holds 100% of their outstanding common stock and will
hold approximately 91.3% of their outstanding common stock immediately
following this offering. As a result of such ownership position, Woodbridge
will be able to exercise control over all matters requiring shareholder
approval.
Bottom Line
Their total revenues were $617.6 million
and $662.7 million and their net income was $70.3 million and $75.0 million in
2015 and 2016, respectively. In the first three quarters of 2017, their total
revenues increased 0.9% to $501 million, and their net income increased 19.6% to
$59.1 million, compared to results in the same period in 2016. They intend to
pay a quarterly dividend of $0.15 per share, or $0.60 annually, for a projected
3.5% annual return, based on the midpoint of the offering range.
Their resort network includes 43 Club
Resorts (resorts in which owners in the Bluegreen Vacation Club have the right
to use most of the units in connection with their VOI ownership) and 24
Club Associate Resorts (resorts in which owners in their Vacation Club have the
right to use a limited number of units in connection with their VOI
ownership). Their Club Resorts and Club Associate Resorts are primarily located
in popular, high-volume, “drive-to” vacation locations, including Orlando, Las
Vegas, Myrtle Beach and Charleston, among others. Prior to 2009, their vacation
ownership business consisted solely of the sale of VOIs in resorts that they
developed or acquired. While they continue to conduct such sales and
development activities, they now also derive a significant portion of their revenue
from their capital-light business model, which utilizes their expertise and
infrastructure to generate both VOI sales and recurring revenue from third
parties without the significant capital investment generally associated with
the development and acquisition of resorts. In addition, they provide resorts
and resort developers with other fee-based services, including resort
management, mortgage servicing, title services and construction management.
They also offer financing to qualified VOI purchasers, which generates
significant interest income. They primarily serve a demographic underpenetrated
within the vacation ownership industry, as the typical Vacation Club owner has
an average annual household income of approximately $75,000 as compared to an industry
average of $90,000. According to the most recent U.S. census data,
households with an annual income of $50,000 to $100,000 represent the
largest percentage of the total population (approximately 29%). Their
Vacation Club owners receive an annual or biennial allotment of “points”
in perpetuity that may be used to stay at any of their 43 Club Resorts and 24
Club Associate Resorts, with the number of points required for a stay at a
resort varying depending on a variety of factors, including resort location,
size of the unit, vacation season and the days of the week. Subject to certain
restrictions and fees, Vacation Club owners are typically allowed to carry over
any unused points for one year and to “borrow” points from the next year.
The vacation ownership, or timeshare,
industry is one of the fastest growing segments of the global travel and
tourism sector. VOI sales have grown 800% over the last 30 years with more
than 9.2 million families (approximately 6.9% of U.S. households) owning
at least one VOI in 2016. They believe that this growth has been driven by the
benefits of VOI ownership and the entrance of globally-recognized lodging and
entertainment brands into the vacation ownership industry. The U.S. vacation
ownership industry experienced a contraction in sales as a result of the
overall economic recession in 2008 and 2009. Demand has rebounded but, because
sales remain below the peak level reached in 2007, they believe there remains
sustained opportunity for additional growth. While the majority of VOI owners
are over the age of 50, new owners are, on average, approximately 10 years
younger, with 39% between the ages of 35 and 49, and 30% under the age of 35.
VOI owners have an average annual household income of $90,000 and 90% of
VOI owners own their own home.
They intend to utilize their proven
sales and marketing platform to continue their strong history of VOI sales
growth through the expansion of existing alliances, continued development of
new marketing programs and additional VOI sales to their existing Vacation Club
owners. They continue to identify high-traffic resorts where they believe
increased investment in sales office infrastructure will yield strong sales
results. . They continuously seek new ways to add value and flexibility to their
Vacation Club and enhance the vacation experience of their Vacation Club
owners, including the addition of new destinations, the expansion of their
exchange programs and the addition of new partnerships to offer increased
vacation options. They also continuously improve their technology, including
websites and applications, to enhance their Vacation Club owners’ experiences.
They seek to continue to grow their ancillary businesses, including resort
management, title services and loan servicing. They believe these businesses
can grow with little additional investment in their corporate infrastructure
and will produce high-margin revenues. They actively seek to improve their
operational execution across all aspects of their business. They also continue
to test new and innovative methods to generate sales prospects with a focus on
increasing cost efficiency. In addition, as they expand, they expect to gain
further operational efficiencies by streamlining their support operations, such
as call centers, customer service, administration, and information technology.
. They intend to continue to pursue growth through a balanced mix of
capital-light sales vs. developed VOI sales, sales to new customers vs. sales
to existing Vacation Club owners and cash sales vs. financed sales. While they
may from time to time pursue opportunities that impact their short-term
results, their long-term goal is to achieve sustained growth while maximizing
earnings and cash flow. With a disciplined approach to capital allocation, they
expect to continue to pursue acquisitions that meet their high-quality
standards and that they believe will provide value to their Vacation Club
owners or drive increased tour flow and sales.
Their resorts are primarily “drive-to”
resort destinations, with approximately 85% of their Vacation Club owners
living within a four-hour drive of at least one of their resorts. Their
business model is designed to give them flexibility to capitalize on
opportunities and quickly adapt to changing market environments to achieve
sustained growth while maximizing earnings and cash flow. Their fee-based sales
and JIT sales provide them with revenues where they are not at risk for
development financing and have no capital requirements, thereby increasing
their return on invested capital. They have the ability to adjust their
targeted mix of capital-light VOI sales vs. developed VOI sales, sales to new
customers vs. sales to existing Vacation Club owners, and cash sales vs.
financed sales. Based on current estimates and expectations, they believe this
inventory, combined with inventory being developed by them or their third-party
developer clients, and inventory that they may reacquire in connection with
mortgage and maintenance fee defaults, can support their VOI sales at their
current levels for over four years. The number of owners in their
Vacation Club has increased at a 5% compound annual growth rate between 2012
and 2016. The customers to whom they provided financing in connection with
their VOI purchases during 2016 had a weighted-average FICO score of 712. They
earn fees for providing resort management services to resorts and their
Vacation Club. As of September 30, 2017, they provided management services
to 48 resorts and their Vacation Club through contractual arrangements with
HOAs and had a 100% renewal rate on management contracts from their Club
Resorts. . In addition to resort and club management services, they provide
other fee-based services that produce revenues without significant capital
investment, including providing title and escrow services for fees in
connection with closing of VOI sales, and generating fees for mortgage
servicing and construction management services from third-party developers.
They have an exclusive marketing agreement with Bass Pro, a nationally-recognized
retailer of fishing, marine, hunting, camping and sports gear, that provides
them with the right to market and sell vacation packages at kiosks in each of
Bass Pro’s retail locations, as well as the right to market in Bass Pro catalogs
and on its website. Their marketing alliance with Bass Pro originated in 2000,
has been renewed twice and currently runs through 2025. In addition to
their relationship with Bass Pro, their sales and marketing platform utilizes a
variety of other methods to drive tour flow, including marketing alliances with
other nationally-recognized brands, lead generation initiatives at high-traffic
venues and events, telemarketing calls and existing customer referrals. They
have an exclusive strategic relationship with Choice Hotels which enables them
to leverage Choice Hotels’ brands, customer relationships and marketing
channels to sell vacation packages. They also generate leads and sell vacation
packages through their relationships with various other retail operators and
entertainment providers.
If they are unable to develop or acquire
resorts at the levels or in the time frame anticipated, or are unsuccessful in
entering into agreements with third-party developers or others to source VOI
inventory in connection with their capital-light business strategy, they may
experience a decline in VOI supply, which could result in a decrease in their
revenues. In addition, a decline in VOI supply could result in a decrease of
financing revenues that are generated by VOI purchases and fee and rental
revenues that are generated by their management services. Their business and
properties are subject to extensive federal, state and local laws, regulations
and policies. Their business and profitability may be impacted if financing is
not available on favorable terms, or at all. Their VOI notes receivable
financing facilities could be adversely affected if a particular VOI note
receivable pool fails to meet certain performance ratios, which could occur if
the default rate or other credit metrics of the underlying VOI notes receivable
deteriorate. In addition, if they offer financing to purchasers of VOIs with
terms longer than those generally offered in the industry, they may not be able
to securitize those VOI financing receivables. They may not be successful
in maintaining or expanding their capital-light business relationships, or
their capital-light activities, including fee-based sales and marketing
arrangements, and JIT and secondary market sales activities, and such activities
may not be profitable, which may have an adverse impact on their results of
operations and financial condition. While they perform fee-based sales and
marketing services, they sell VOIs in resorts developed by third parties as an
interest in the Vacation Club. This subjects them to a number of risks
typically associated with selling products developed by others under their own
brand name, including litigation risks. Their results of operations and
financial condition may be materially and adversely impacted if they do not
continue to participate in exchange networks and other strategic alliances with
third parties or if their customers are not satisfied with the networks in
which they participate or their strategic alliances. In addition, these
networks, alliances and relationships, and their Traveler Plus program, may not
continue to operate effectively, and their customers may not be satisfied with
them. In addition, they may not be successful in identifying or entering into
new strategic relationships in the future. If maintenance fees at their
resorts and/or Vacation Club dues are required to be increased, their product
could become less attractive and their business could be harmed. The
availability of resale VOIs at lower prices, particularly if an organized and
liquid secondary market develops, could adversely affect their level of sales
and sales prices, which in turn would adversely affect their business,
financial condition and results of operations. Woodbridge holds 100% of their
outstanding common stock and will hold approximately 91.3% of their outstanding
common stock immediately following this offering. As a result of such ownership
position, Woodbridge will be able to exercise control over all matters
requiring shareholder approval. Rating = 3