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Alternative Ownership and Mixed Use Business Models for
Hotels & Resorts
Tapping New Potential in Asia Pacific
Presentation Topics
I The Evolution of the Alternative Ownership Industry & Business Models
II Why alternative ownership models have big market potential in Asia
III Monetising underdeveloped and underutilised Developer real estate
IV Optimising Developer yield using alternative ownership structures
The Evolution of Alternative Ownership Industry & Business Models
1974 RCI Introduces Exchange Benefit for Single Site Developers
Enter the Brands and Usage Innovations…Marriott 1984
2005 Hotel Online Headlines…
Luxury Brands in Asia…Focus on China
Today: Global Sales Estimate Q4 2015…$1,72 Bn USD
Hospitality Brands with AO / Mixed Use Business Models
• Purchase Fee = USD 22,200 (one time fee)• Club Dues = USD 780/year * 30 yrs = USD 23,400• Total Pay USD 45,600 for 30 year term.• USD 45,600 / 30 years = USD 1520 a year
Member Pays
• 7 nights at Phuket 2BD Pool Villa • Public rate is 500 USD/ night• USD 500 *7 nights = USD 3500 a year
Member Gets
“Member” (Owner) Pays USD $1520 vs. USD 3500 Per Year
Saves 56% on rack rate + value added benefits** Holiday Lifestyle Greatly Enhanced
**Exchange, food and beverage discounts, low season getaway specials, spa, golf, tours, discount weddings, loyalty benefits and even earn referral fees…
What is the Typical Value Proposition for the Consumer…?
Compelling Value Proposition for Asian Consumers
• Cost Effective alternative to second home purchase—pay only for time needed
• Taxes and Insurance Expenses Shared with Numerous Other Owners
• Enhanced Vacation Experiences: Dollars saved on accommodations available for more activities on holiday
• Quality Unit Type Guaranteed Every Year
• Annual Club Dues or Maintenance Fees Ensure FF&E Upkeep & Replacement
• Flexibility – Multiple choices for destinations, unit types, number of nights and desirable seasons
• Fair Treatment: Generally have an Independent Trustee to Oversee the Real Estate Trust and Represent Owner Members dealings with the developer
Business Model 1: Wyndham Vacation Ownership
World’s largest vacation ownership business
·More than 813,000 owner families ·More than 160 resorts
Nearly $1.6 billion in annual VOI sales
In business for over 40 years ·Rebranded in 2006
Based in Orlando, Florida
WYNDHAM WORLDWIDE TODAY
Leading Positions in Leisure Industry
5
MajorBrands Include
BusinessSegment
% of 2015EBITDA
Market PositionWorldwide
Hotel Group
#1Hotel franchisor
by hotels 26.16%
Exchange & Rentals
#1
Timeshareexchange and rental
company
24.88%
Vacation Ownership#1
Timesharedeveloper
48.97%
Rental 16%Development
$648m48%
Resort Management 22% Financing
14%
2014 Revenue $1.289bn
1.Sell vacation ownership products
2.Rent vacation ownership inventory
3.Finance consumer purchases of vacation ownership products
4.Manage resorts and provide services for owners and members at a cost plus profit
Revenues are derived from diverse sources and nearly half is recurring and stable
How has Marriott Vacations Worldwide performed?
The graph compares the relative performance of MVW common stock, the S&P Small Cap 600 Index and the S&P Composite 1500 Hotels, Resorts & Cruise Lines Index.
The graph assumes that $100 was invested in MVW common stock and each index on November 8, 2011, the date a “when-issued” trading market for MVW’s common stock began
Case Study: Anantara Vacation Club
Product Overview
Points Based Product • Ownership ranges from 5,000 to 100,000 points (average 16,000 points). • Units are deeded into a trust unencumbered. • Points are created from those units and sold to the consumers. • Points can be used for any unit at any time of the year. • Internal Exchange benefits via Club Escapes Program
Use Most Anantara Hotels and Resorts worldwide via Points Pay• External Exchange Access to Global Exchange Programs
RCI Registry Collection, Hilton HHonors • Anantara Adventures, and other Loyalty Benefits
Price: $2.00 to $2.50 USD per point
Annual Sales: Approximately $75M USD+
Why do alternative ownership business models have Big market potential in Asia Pacific…?
Developer Benefits• Selling units by a time interval increases total pricing by 4 to 5
times (vs. whole ownership)
• Mark of Maturity: A natural extension of hotel/resort/residence business
• Utilize surplus land and Speed up Sales of slow moving units
• Accelerated payback and increased IRR
• Potential to turn a financially marginal project to a financially viable one
• Provide lower debt & equity requirements for new developments or upgrading present facilities
• Generate consumer financing profit from 3, 5, 7 + Year Payment Plans
• Regain asset at end of ownership period
Quick Start for DevelopersWith extensive industry knowledge and proven marketing and sales techniques, Consultants or Vacation Club affiliations can readily share a depth and breadth of expertise for a start up, turn around or purpose built project with resort management, customer generation and sales solutions for resort developers.
Readily Available Services Include Shared Ownership Business Plans
Product Design
Sales and Marketing
Brand Licensing
Resort Management & Operations
Exchange Affiliation
Inventory Management Owner Services Club resort reservation, resort exchange and travel services Contract Compliance Billing and Collections Financial Reporting
Enhanced Sales, Marketing & Operational Synergies
Higher year-round occupancies. According to ARDA International Foundation (AIF), the global Vacation Ownership occupancy registered 76% last year.
This compares favorably with the worldwide hotel industry whose occupancy rates were substantially lower than vacation ownership properties.
Longer stay and higher average on-site spending per guest Build customer loyalty through ‘ownership’ Proven resilience during economic down cycles Operational synergy in mixed use environment
Vacation Ownership marketing component providing bulk purchase of room nights and F&B vouchers for marketing prospects
o Increased usage of F&B facilities o Increased opportunities for renting Hotel rooms to increase occupancy o Increased revenue for retail outlets o Increase revenue for commercial tours & activities o Broader scale promotion of the hotel at no cost to the owner (marketing efforts funded through the vacation club division’s marketing budget)
Key Factors driving market potential in Asia Pacific…
1. Much of the product already built during the recent over supply phase in some markets is well suited to alternative ownership specs—pool villas, suites, kitchenettes, etc. Thus offering an AO product to new and existing customers can (sometimes) be easily done, at a nice return
2. Adding AO product categories is a mark of a mature hotel & resort development co (similar to pursuing ‘asset-light’ / management-heavy strategy for maturing hotel portfolios)
3. Meeting Market Force Demand: Asian families enjoy traveling together, cooking together, relaxing together and like saving money on higher quality accommodations (the value prop).
4. AO Product Hallmarks: Kitchens, Living Rooms, Separate Bedrooms; Wherever Consumers are essentially Spending Less Money for Better Accommodations
A Few Notes on Fractional Interests and PRC’s
• Purchase = Ownership Interest
• Usually Highly Prized Real Estate
• Usually High Demand Destinations
• Usually Homes, Villas, Residences
• Shares range from a 1/25th to a ¼ share (3 months annual use)
• Prices vary depending on quality of product, degree of services and amenities
• Popular with St Regis, Four Seasons, & Luxury Regional Developers
What do these luxury brands have in common?
III Monetising underdeveloped and / or underutilised resort real estate
Is Your Existing or Planned Project A Good Vacation Club or Fractional…?
Ask a Consultant Feasibility Analysis Sales and Marketing Analysis Destination Assessment Infrastructure Assessment
FinanceITOperationsSalesMarketing
Establish Proper Legal Structure (RET) Develop a Critical Path, P&L, Cash Flows Sales & Marketing Strategies Exchange Program Implementation
What is ‘Mixed Use’…?Mixed Use typically refers to a destination, hotel or resort with mixed offerings:
1. Whole Ownership2. Fractional Units3. Timeshare or Vacation Clubs4. Transient Rentals (Hotel Rooms)
Mixed Use can refer to either a ‘Campus’ with multiple buildings clustered in a destination or a single building (perhaps with multiple wings, floors, towers)
Why is Mixed Use so desirable…? Vertical Product Offerings to reach and capture greater
market share Recurring revenue streams (financing, property
management, sales) Ancillary revenue Streams (upgrades, tours, marketing
room night sales) Increased On Site Spend from Longer Stay Guests Gain Operational Efficiencies through Shared Resources
Seem Challenging? Other real life applications…?• The Concierge Lounge and Club Level Rooms in Hotels• First Class, Business Class, Preferred Seating, Coach…• Discounted or Free amenities and / or upgraded service
levels for hotel loyalty program members under the same roof (free Wi-Fi, breakfast, etc.)
Product Differentiations: AO Categories
Product Type Buyer Motivation Typical Usage Predominant Product Type
• Vacation Ownership• Timeshare• Vacation Clubs
A quality holiday or leisure product and a way of fixing future holiday accommodation costs
One or two week annual vacations
Studio, 1, 2 or 3 bed
Fractional Interests Cost Effective alternative to vacation home; a lifestyle enhancement
3 weeks to 13 weeks 2, 3, 4 bed villa, townhouses and apartments (urban or resort setting)
Private Residence Clubs Second Home alternative; Lifestyle commitment, often with branded service overlay
1/7th to 1/12th fractional interests
luxury villas, detached vacation residences and apartments w services
Destination Clubs Money-rich/time poor who need to escape to luxury environments
Basic 30 days but with extra time available if desired
4/5 bed super luxury properties in outstanding locations
Buy-to-Use-and-Let Part enjoyment and part financial
At buyer’s option – 30 to 60 days + space available
600f2 to 1,500f2 apartments, sometimes with lock-offs
Branded Residences Primary or secondary residence
Full ownership but sometimes with rental opportunities
Luxury accommodations with high specifications +services
Product Comparisons Range of Consumer Options
Hotel Private Rental Vac Club FI/PRC 2nd Home
Advantages Easy to book,
Choice of brands,
choice of services
Flexible,Private, larger living space
Pre-paid vacation,
exchange, larger living
spaces
Premium Lifestyle, High Level of Service
Equity Investment
Potential, always available,privacy
DisadvantagesSmall
rooms, expensive
for high season and
suites
Unknown quality, less
services, more expensive
No resale value for
purchaser,Service
levels vary by resort
Premium Prices for
fixing desirable
usageperiods
Expensive, absentee
responsibilities for maintenance, lack of services &
amenities
The Typical Project Lifecycle
Qualifying Questions…?
New or Existing Project(s)…
Luxury Residences: Current sales pace too slow for whole ownership?(Good for Fractional Need to expand your market reach? or PRC?) Would Lower Fractional/PRC Prices Appeal to Target?
Hotels: What is Current / Projected Guest Occupancy and Mix?(Vacation Club?) What is Current / Projected ADR?
Mix of Suites, Villas or Adjacent Land Available?Would having a Vacation Club stabilize occupancy?
Destination Resorts: Abundance of Villas in the product mix?(Mixed Use?) Goal of Maintaining High ADR?
(strategically would you sacrifice occupancy for ADR?)Good Project for Affiliation Deal with a Brand?(example: Wyndham Sea Pearl Phuket)
IV Optimising financial yield using alternative ownership structures
Timeshare, Vacation Ownership, Vacation Clubs: Selling your units in intervals or points increases total pricing by 4.8 times(compared to whole ownership sales pricing)
Example:Whole Ownership Price 2BR Condo Phuket: $375,000 USDVacation Club: 52 x $25,000 USD = $1,300,000 USDMultiple: 3.46After Consumer Financing & Upgrades: Increase to 4.8 x
Private Residence Clubs, Fractionals:1.75 to 2 x MultiplePlus Broader Market Reach
Typical Yields Applying AO Business Models
Indicative Costs and Profits for AO Business Models
Vac Ownership Fractional Condo hotel Branded Res-idence
30%
50%
65%75%
9%
5%
4%
5%
45%22%
13%
10%
16 % 23%
16%10%
Product Cost Land, Construction FF & E and soft costs
General & Admin
Sales & Marketing
Indicative Profit
STARWOOD VACATION OWNERSHIPANALYSIS OF TIMESHARE RESORT OPERATIONS
1 2 3 4 5 6 7 8 9 10
YEAR OF OPERATION
PROFIT
LOSS
Analysis of Resort Operational Costs for AO Projects• New Projects tend to operate in the red until a critical mass of owners is achieved• ‘Developer Subsidies’ are common until owner occupancy and maintenance fees received• However, Operating costs can be mitigated with good marketing strategies
• Utilize vacant rooms for prospects touring the resort (promotional package guests considering purchasing your AO products)
• Create upward pricing pressure on premium rooms; made possible by displacing lowest tier with marketing guests (‘Below the Line” Preview Packages which cause value rooms ‘Sold Out’ online without compromising the perceived value of the room nights. Discount = Tour.)
A few thoughts regarding the Asian Markets…
Target Marketing = AO Ownership DemographicsInternational Marketing Benefits: Since 2010 multiple key feeder markets have been developed including Thailand, Singapore, Malaysia, Indonesia and Hong Kong…call centers in Hong Kong & China
Demographic Comparisons• US Market
• Mature Middle Class• Timeshare is a mature product in the US – Over 7.2 Million Owners
• Asia Market• Asia has a rapidly growing Middle Class• Timeshare has minimal presence in Asia - Less than 500,000
Owners (est.)
• Defining what "Middle Class" means in Asia• Q: How to Define and Quantify Middle Class in Asia? • A: Look at Middle Class Propensity
Asia Market Analysis: MC Propensity• If 7.2 M Timeshare owners in the U.S. = 8% market capture,
then…
• Some Key Observations by Country in Asia:
• US & Japan are similar markets due to 85%+ Middle Class Propensity (MCP)
• Australia, Hong Kong and Singapore similar with 80%+ MCP
• South Korea and Taiwan +/- 70% MCP
• China Lower MCP% but offers Largest Middle Class Globally due to gross population size
• India similar to China but smaller MCP and higher persons per household
Asia Potential for AO Sales Growth
US Asia
Total Population 307 M 3,400 M
Middle Class Propensity 88 % 17 %
Middle Class Population 270 M 650 M
Average Household size 3 4
Middle Class Households 90 M 211 M
Current Timeshare Owners 7.2 M 500,000
Current Market Capture 8.0 % 0.00236 %
Asia Potential Timeshare Buyers(at 8% Market Capture) 16.88 M
Asia Potential Timeshare Revenue(at USD $20,000 average) USD $337.6 Billion
US Learnings Applied to Asia
$337.6 Billion USD Market Potential for Asian Alternative Ownership Developers
Less than One Percent Asian Timeshare Owners (500,000 / 211M MC Households)
Opportunity to Monetize Developer Assets in Overbuilt Markets
Generate Recurring Revenue Streams
Experienced Consultants Readily Available to Reduce Learning Curves
Brand Affiliation Deals Available
100M Outbound Chinese Tourists 2016-17 (Starting to Venture Away from Groups)
Summary Take Away(s): Asian Developer Potential