timeshare market update - western reserve partners...

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Timeshare Index DJIA S&P 500 Nasdaq

Indexed at 100 - 06/13/2006

Public Market Performance

The timeshare industry declined precipitously during the most recent recession due to excessleverage, collateral deterioration and a weakening in resort real estate valuations; however, theindustry has recovered from its 2009 lows and is continuing its recovery in-line with the broadermarket

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

MAR’s decision to spin off its timeshare business as an independent, NYSE-listed firm will improveinvestor awareness and understanding of the industry, as many analysts who currently cover MARare 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 offeringperforms well, this may allow for the possibility of other timeshare related equity offerings

Timeshare Index[1] Performance Versus Broader Market Indices

Western Reserve Partners deliverscustomized investment bankingsolutions for middle-marketcompanies. The firm’s ManagingDirectors average more than 15years of experience and havedirectly executed more than 550transactions. Western Reserve is amember of M&A International Inc.,the world’s leading alliance ofinvestment banking firms, with 47members and more than 500professionals across 41 countries.

Timeshare Market Update

Inside this issue:

Western Reserve Partners LLC200 Public Square

Suite 3750Cleveland, OH 44114

Phone: 216.589.0900www.wesrespartners.com

Market Overview

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

Significant consolidation is expected among smaller private operators, which do not possess criticalmass 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-upacquisition strategies, thereby growing their operating platform

Many timeshare operators are seeking additional capital, but most are pursuing alternatives totraditional industry-specific debt financing

The timeshare industry is notoriously complex due to the nature of the relationships amongtimeshare developers, resort managers, customers, lenders and shareholders; however, thissituation represents a unique investment opportunity to those who understand such intricacies

Currently, there are several institutional investors working to develop an understanding of theindustry, but there is room for only a handful of sponsors due to its size and complexity

Timeshare Market Update 2

Improvement in Securitization Issuances

2011 Brings an Increase in Activity to the Timeshare Capital Markets

Timeshare Consumer and Operator Outlook

Larger Operators are Capitalizing on Current Capital Markets Conditions

Mergers & Acquisitions l Capital Raising l Real Estate l Restructuring & Bankruptcy l Valuation Services

Source: Capital IQ

Capital Markets Overview 4

Select M&A Transaction Activity

Relevant Public Comparable Metrics

Transaction In Focus 5

Company Overview

Transaction Overview

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

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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

Indexed at 100 - 06/14/2010



Sources: ARDA AIF Foundation; Company Filings; Capital IQ

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 andreorganized by Timeshare Acquisitions LLC

May-2011: Cerberus Capital Management closes its $94m acquisition of Silverleaf Resorts (announced on February 3, 2011), a 75% premiumover 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 DiamondResort Holdings and Guggenheim Partners

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

Recent Public Timeshare Operators’[1] Performance

Improvement in Securitization Issuances

Timeshare developers typically provide financing options for theircustomers, charging average interest rates between 12% and 16%

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

Before the economic downturn, timeshare companies issuedcollateralized debt securities at advance rates between 80% and90% and with yields between 6% and 8%; however, beginning in2008 advances on customer receivables plummeted to ratesbelow 60% with yields soaring above 10%

In 2008, timeshare companies began collecting and publishing thecredit quality of customers’ securitized accounts receivable, asmeasured by purchasers’ average FICO scores; as a result of thisadditional disclosure, the yields on many classes of timeshare ABSrose significantly

Wyndham’s Historical Securitizations

Silverleaf acquisition

announced at $2.50 a share

Currently, timeshare companies are completing receivable securitizations of receivables backed by customers with average FICOs between700 and 725 and expect advance rates of approximately 75% to 90%; these receivable securitizations are yielding between 5% and 8%, manyABS 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 beenlimited

40%

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90%

100%

0%

2%

4%

6%

8%

10%

12%

Yield Advance Rate

(% Yield) (% Advance Rate)

[1] Operators: SVLF – Silverleaf Resorts, BXG – Bluegreen Corporation, WYN – Wyndham Worldwide, MAR – Marriott International, HOT – Starwood Hotels & Resorts

$1,535

$304 $300 $229

$135 $0

$300

$600

$900

$1,200

$1,500

$1,800

WYN SVLF HOT MAR BXG

($ in millions)

Larger Operators are Capitalizing on Current

Capital Markets Conditions

The industry is currently in need of a “reset” period where pricingneeds to adjust to reflect perceived value. This reset period hasbeen 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 upbalance sheets and have effectively navigated the recentrecession. These operators have been successfully issuingsecuritizations, with five of these major operators issuingsecuritizations totaling approximately $2.5b in 2010 and 2011YTD

The timeshare securitization market is recovering withsecuritization issuance totaling $1.5b, $1.8b and over $2.5b, in2008, 2009 and 2010 respectively

Note restructuring has produced credit enhancements, helpinglarger operators mitigate and absorb the recent increasein membership defaults. Credit enhancements includingovercollateralization, additional reserves and excess spread havebeen implemented by larger timeshare operators

There is a current dislocation in the timeshare capital markets aslarger operators are able to access capital while smaller,distressed operators are in need of and currently seeking capital


Timeshare Consumer and Operator Outlook

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

Buyers now perceive timeshare purchases almost solely as alifestyle investment

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

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

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

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

Major Public Operators’ Timeshare Related Revenue

Public Operators’ 2010 & 2011YTD Securitizations

Timeshare Secondary Market Sale Prices

20.0%

17.0%

14.0%

25.0%

8.0%

7.0%

9.0%

0% 5% 10% 15% 20% 25% 30%

$0 - $1,000

$1,000 - $5,000

$5,000 - $10,000

$10,000 - $25,000

$25,000 - $50,000

$50,000 - $100,000

$100,000 +

Resale Price (% of Resale Purchasers)

Median: $9,000

Total Securitization

Issuance ~$2.5b


Sources: ARDA AIF Foundation; Company Filings; Capital IQ

$3,643 $3,537 $3,097 $3,172

$3,234

$1,153 $894

$674 $688 $709

$2,065

$1,750

$1,439 $1,546 $1,544

$684

$595

$367 $365 $380

$255

$264

$237 $226 $232

$7,799

$7,040

$5,814 $5,997 $6,099

$0

$2,000

$4,000

$6,000

$8,000

2007 2008 2009 2010 LTM 2011WYN HOT MAR BXG SVLF

($ in millions)

0.0x

2.5x

5.0x

7.5x

10.0x

12.5x

15.0x

Dec-06 Sep-07 Jun-08 Mar-09 Dec-09 Sep-10

Median

Historical Average

EV/EBITDA

Historical Average: 10.0x

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Median

Historical Average

EV/Revenue

Historical Average: 1.8x

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 mortgageportfolio work-outs over upfront discounts on their debt

Capital Markets Overview

Relevant Public Comparable Metrics

Timeshare resort valuation multiples have recovered from the 2009 lows and are in line with 2007 valuations, signaling that future revenueand 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 aretrading at 12.0x – 14.0x 2011P EBITDA. This difference is evident in the multiples below, as larger diversified hotel operators (i.e. Marriottand Starwood) are trading at 3.0x – 6.0x EV/EBITDA premiums over other timeshare focused businesses

4

Select Transactions

Median Enterprise Value to EBITDAMedian Enterprise Value to Revenue

Present Present

($ in millions, except per share data)

Select distressed recapitalizations and acquisitions include:

– May-2011: Island One Resorts, a large private operator of nine resort propertiesconsisting of a customer base of over 50,000 owners is recapitalized andreorganized by Timeshare Acquisitions LLC

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

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

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

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

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


Source: Capital IQ

[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

Date Target Acquiror EV/EBITDA EV/Revenue

May-11 Island One Resorts (Bankruptcy) [1] Timeshare Acquisitions LLC ND ND

Apr-11 Tempus Resorts (Bankruptcy) [2] Tempus Acquisitions LLC NA NA

May-11 Silverleaf Cerberus Capital Management 11.3x 2.2x

Mar-11 Bluegreen Communities To Be Determined NA NA

Feb-11 Marriott Vacation Clubs [3] 8.0x NA

Jan-11 Smugglers Notch Wyndham (Fee for Service) NA NA

Dec-10 James Villa Holidays Wyndham (Fee for Service) NA NA

Sep-10 Resort Quest International Wyndham (Fee for Service) NA NA

Sep-10 ILX Resorts (Bankruptcy) Diamond Resort Holdings 7.8x 0.9x

Sep-10 GMAC Centerbridge Capital Partners NA NA

Jul-10 Consolidated Resorts The Arthur Spector Companies NA NA

Feb-10 Hoseasons Wyndham (Fee for Service) NA NA

Jan-10 Shell Vacations York Capital Management NA NA

Jul-08 Bluegreen (Cancelled) Diamond Resort Holdings 10.0x 1.4x

Jun-07 Consolidated Resorts Whitehall - Goldman Sachs NA NA

Apr-07 Sunterra Diamond Resort Holdings 9.5x 2.2x

Jul-06 Cendant - Wyndham[4] 11.4x 2.4x

Aug-06 Intrawest Fortress Investment Group 10.4x 1.6x

Apr-02 Trendwest Cendant 10.5x 1.9x

Feb-02 Equivest Cendant 8.3x 2.5x

Apr-01 Fairfield Cendant 7.1x 1.4x

Average 9.4x 1.8x

Median 9.8x 1.9x

Price Equity Enterprise Enterprise Value to 2011LTM Enterprise Value to 2011P

Company Ticker 06/13/11 Value Value [1] Revenue EBITDA Revenue EBITDA

Bluegreen Corporation[2] BXG $2.97 $96.5 $802.3 2.1x 9.2x NA NA

Interval Leisure Group, Inc. IILG 12.71 730.3 879.6 2.1x 6.3x 2.1x 6.3x

Marriott International, Inc. MAR 33.84 12,161.1 14,874.1 1.3x 15.2x 1.2x 12.1x

Starwood Hotels & Resorts Worldwide, Inc. HOT 54.98 10,726.1 13,377.1 2.6x 16.7x 2.4x 13.1x

Wyndham Worldwide Corporation WYN 31.50 5,354.4 8,987.4 2.3x 9.6x 2.1x 9.2x

Mean $5,813.7 $7,784.1 2.1x 11.4x 1.9x 10.2x

Median $5,354.4 $8,987.4 2.1x 9.6x 2.1x 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

Contacts

Main Phone:216.589.0900

Company OverviewIsland One, Inc., based in Orlando, Florida, is one of the largest privately‐held timeshare developers in the United States. Founded in 1981, theCompany has grown from a single site to an organization that has successfully acquired, developed and re‐developed nine properties in Floridaand 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 OverviewWestern Reserve represented Island One in its reorganization by Timeshare Acquisitions LLC. Island One filed a Chapter 11 bankruptcy case inSeptember 2010, and its plan of reorganization was confirmed and became effective in May 2011. The reorganized company will retain operationof 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 IslandOne has been a gratifying experience, and after 20 months, it is nice to structure a transaction that keeps the organization intact and satisfies allparties involved,” said Western Reserve Managing Director, Victor F. Faris.

Linden said, “Western Reserve was instrumental in finding and maintaining the interest of a capital partner that understands the industry and canintegrate and implement our growth strategy. For the past 20 months, Vic and his team have provided great service and advice, helping ourCompany to arrive at the best possible outcome for all vested parties. We are now financially and structurally well-positioned to capitalize upon avery deliberate strategy for growth.”

5Transaction In Focus


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 obtainedfrom 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 ourcurrent 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 receiptof 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.

Victor F. FarisManaging [email protected]

Matthew J. [email protected]

Main Phone: 216.589.0900Direct: 216.589.9531Cell: 216.272.7071

Main Phone: 216.589.0900Direct: 216.574.2119Cell: 206.465.7038

has been reorganized by

Timeshare Acquisitions LLC

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Fairness Opinion


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a div is ion of

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have formed an Equity

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a portfolio company

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a portfolio company of Marlin Equity Partnersa portfolio company of Marlin Equity Partners


The David J. Joseph Company

a wholly owned subsidiary of


Series C Redeemable

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Driggs Farms of Indiana,

Inc.

Land-O-Sun Dairies, LLC

an affiliate of Dean Foods


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merged withhas sold its Large Aerospace Turbine

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The Ready-Mix Assets and Eastern

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a div is ion of

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has been

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May 2011

has been reorganized by Timeshare Acquisitions LLC

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


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