March/April 2010 Developments - 24

Finance Mike Harding, Phil Nix, and Bruce Grimes Performance Trends: Renewed Focus on Operating Efﬁciencies he vacation ownership industry had been growing at a signiﬁcant rate in the years prior to the economic recession and credit crisis of the past two years. Developers’ ability to access the credit markets was essential to this growth. During the second half of 2008 and into 2009, timeshare companies had to react to these broader economic constraints by immediately changing the manner in which they marketed, sold, and ﬁnanced their timeshare properties. T Overview, Stats Deloitte’s recent quarterly pulse survey research for the ARDA International Foundation (AIF) shows that respondents eliminated more than 18,500 positions during the 12 months ending September 30, 2009. Most of these head-count reductions—17,500—occurred during the fourth quarter of 2008 (Q4 2008) and the ﬁrst quarter of 2009 (Q1 2009), with a leveling off later in 2009. Furthermore, timeshare respondents reported that they added approximately 650 new positions during Q2 and Q3 2009. Sales volume at respondent companies during the ﬁrst three quarters of 2009 had decreased quarter over quarter as much as 41.3 percent. However, the sales volume rate of decrease slowed slightly after the ﬁrst quarter of 2009. During Q3 2009, net originated sales were down 33.3 percent, compared to Q3 2008. The economic recession and diminished availability to raise capital appears to have spurred many timeshare companies to evaluate their current marketing channels, as well as to seek to retain their most successful and efﬁcient sales personnel and sales sites, as sales efﬁciency metrics improved during 2009 through September 30. The improvement in sales efﬁciencies 24 is evidenced by increases reported by respondent companies in close rates and average volume per guest from 12.1 percent and $1,969 during Q4 2008 to 14.6 percent and $2,125 in Q3 2009, respectively. Responding timeshare companies realized higher default rates on ﬁnanced vacation ownership interval sales in 2009 compared to prior years, as measured by the gross defaults that were charged against the allowance for uncollectible accounts as a percentage of the gross outstanding portfolio balance. The default rate for Q1 2009 was 3.8 percent, as compared to a default rate during Q1 2008 of 2.9 percent. However, the ﬁrst quarter of 2009 default rate was the highest reported by the respondent companies during the ﬁrst nine months of 2009. During Q3 2009, the reported default rate was back to 2.9 percent—an indicator perhaps of a peaking in the default rate. The survey results also showed other indicators of evidence of strength within the respondent companies’ timeshare receivables portfolios. The currency rate of consumer loans, which were less than 31 days past due, rose from 88.5 percent as of December 31, 2008, to 88.9 percent as of September 30, 2009. In addition, average Figure 1 down payments on non-upgrade sales increased from 12.9 percent during Q4 2008 to 18.5 percent in Q3 2009. Key Metrics to Know It is in this context that we present the results of the Quarterly Pulse Surveys for the ﬁrst three quarters of 2009. The results in these surveys are a measure of performance as of and through Q3 2009, reported by a range of 21 to 27 timeshare companies. The results below are a summary of selected key metrics that the AIF believes provide an overview of the vacation timeshare industry in the United States. • Net originated sales at U.S. locations decreased substantially from 2008 (see Figure 1); however, we noted that the rate of decline quarter over quarter has been shrinking since Q1 2009. Net originated sales at U.S. locations decreased 41.3 percent from Q1 2008 to Q1 2009, 34.4 percent from Q2 2008 to Q2 2009, and 33.3 percent Q3 2008 to Q3 2009. • Respondents reported hosting over 1.6 million sales presentation tours during 2009 through the third quarter. Respondents reported an average increase in their net closing rates and Developments • March/April 2010

March/April 2010 Developments

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