Desties

posted by Desties on Nov 10

These are tough times for the destination club industry, but no one is having it harder than High Country Club. The club is facing an implosion if enough members don’t buy into the company’s “Success Plan” this month.

Ultimate Escapes is in a position to help.

Forget a buyout. High Country Club supposedly owes more on their properties than they are currently worth in resale, and the CEO’s stern warning that liquidation of the club won’t likely leave any funds to repay member deposits implies that acquiring members is also a liability.

However, as the new entry-level destination club (with High Country Club temporarily ceasing the marketing of new memberships), Ultimate Escapes is in a great position to offer disenchanted HCC members another way out.

The proposed new HCC dues to keep the club afloat are within spitting distance of what Ultimate Escapes Premiere is charging. Once you factor in the more DC-centric features of Ultimate Escapes (greater booking flexibility, lack of exit cleaning fees, the presence of a local host to tackle grassroots problems, serve as concierge, and stock requested groceries) it’s arguably a better deal.

The rub, of course, is that High Country Club members are unlikely to fork over new deposits to a second club. The negative equity of HCC makes UE unlikely to take on members with a lack of deposit funds.

However, if — and only IF — the HCC Success Plan falters, why doesn’t UE take in the HCC members with “dues only” memberships?

UE has the same problem that all of its peers have at the moment. Membership growth has stalled. In fact, going by UE’s own marketing materials, one can deduce that several of the Private Escapes members (in the dozens, since recruitment emails to the public have gone from touting a club with “1400 members” in mid-August to “more than 1300 members” today) decided not to stick around after the merger with Ultimate Resorts to form Ultimate Escapes.

In other words, Ultimate Escapes could use more members. Since every club’s goal these days is to bump up occupancy levels, it also makes better sense to take on new “dues only” members than to unload properties. 

I know. Dues pay for maintenance fees but deposits pay for new homes. Taking on SOME of the HCC members won’t bankroll new properties. It doesn’t have to, as long as the move wins over “dozens” of HCC members instead of “hundreds” — which in of itself wouldn’t be a bad problem to have.

The beauty, of course, is that UE can offer HCC members the “dues only” memberships for a limited time. Let’s say, for instance, it offers folks who can confirm that they were HCC members a “dues only” deal for the next 2-3 years. At that point they would have to pay a deposit to continue as members. This would give HCC members a sampling of the club and it would also give UE bodies to ride out the near-term slump.

It’s a win-win, and that’s rare these days.

posted by Desties on Oct 30

Is there a white knight waiting in the wings to scoop up High Country Club? 

I’m hoping somebody does, if only to take a hit for the team so the industry doesn’t have to go through the whole Tanner & Halley fiasco in winning back consumer credibility.

And by taking “a hit for the team” I don’t mean that HCC wouldn’t be a great collection of properties and members. It would. The problem is that it’s unlikely that a rational club would buy in. Since the mortgage holders are owed more than the properties are worth, it would be cheaper for any club to just buy new properties instead of inheriting homes that are underwater. Dues-paying members are great to have, but most clubs would have to jack those dues to make it commensurate with what current members are paying in their own clubs. Perhaps more importantly, is that they would be acquiring members who have expectations of getting their deposits back with the acquiring club not getting anything in return.

After Ultimate Resorts acquired the T&H properties in bankruptcy, it offered its members the ability to join the club, with the expectation that they would get most of their original deposit back if they stuck around for another 5-7 years. The math made sense on Ultimate’s part at the time, becasue it had a ton of new properties and needed bodies to fill them. I don’t know if a club would make such a generous offer this time around. It costs plenty to acquire a new member, but clearly not the amount of any initial deposit.

So what’s it going to be? Is someone going to step up and take a hit for the team? Steve Case? Are you angling for karma points?

posted by Desties on Oct 27

Today’s radical “success plan” strategy implemented by High Country Club should bury to rest one of the destination club industry’s biggest assessment tools: the net asset test. The balance sheet test, which clubs use to measure their fiscal fortitude, simply divides a club’s net asset value by the amount of member refundable deposits.

To be a member of the Destination Club Association, a club must maintain an asset test rating of 66%. In other words, it must have enough assets to cover 67% of the refundable deposit. At the start of 2008, High Country Club was proud to have an asset test score in excess of 100%.

Today?

“Due to the current economic conditions, we believe that once the mortgage holders are paid there will not be any equity left for us to refund to our members,” writes HCC CEO Christian Kirschner, if the club should have to liquidate if less than 75% of the members agree to the new structure.

How can a company go from more than 100% to less than zero?

There are two major reasons. The first, obviously, is the real estate market. Since clubs like HCC finance most of their purchases, once the assessed value of the property dipped below the down payment and accrued principal payments, the asset turned into a property with negative equity.

The less obvious flaw in the asset test is that it allows a club to book a value at 100% of its purchased value for the first two years. In other words, even though a property in the Outer Banks could have been purchased for $1.2 million a year ago and is worth closer to $0.8 million today, asset test rules allow it to be recorded at $1.2 million until next year.

HCC took a realistic assessment of its asset values in coming to grips with today’s decision. Other clubs should follow suit.