Exclusive Resorts Discloses Mid-Year Update

By: Destination Club News
Date: July 30, 2009

As summer draws to an end, Exclusive Resorts has released the results to their 2009 mid-year valuation of the club's properties to determine if they are still in compliance with the Net Asset Test.

The Net Asset Test was devised by the Destination Club Association, the industry's governing body who helps provide best practices. In essence, the Net Asset Test strives to show that a club can cover its outstanding membership deposit debt with its real estate holdings.

After Tanner & Haley, a leading destination club for many years, was forced into bankruptcy, it was learned that many of the club's properties were not owned by the club. Membership deposits were being used for operations and securing costly short term leases, neither of which secured the refundable membership deposits owed to members. Spiraling out of the club's bankruptcy, the industry's leading clubs banded together to form the Destination Club Association and to develop standards that would help demonstrate each club's financial stature.

According to Exclusive Resort's release:

To calculate the Net Asset Test, we add together the appraised fair market value of our real estate holdings with our cash holdings and then subtract from this amount all secured debt and all refundable Membership Deposits. We then determine whether these assets exceed these liabilities.

We are pleased to report that, despite the economic recession, our long-standing Net Asset Test remained positive as of June 30, 2009, just as it was on December 31, 2008 — and has been every year-end since first implemented in 2004.

In discussions with other clubs, including the industry's leading equity destination club Equity Estates, many clubs have seen drastic decreases in property values since the beginning of the recession. According to Equity Estates, they have seen properties that they have looked at for purchase up to 40% off, allowing well capitalized clubs the ability to pick and choose properties that once were well outside their price range.

While the Net Asset Test does provide a rough overview of the club's financial position, the inherent flaw is that it can only provide a snapshot of the club's position at that given time. For example, High Country Club met and exceeded the Net Asset Test standards for the year of 2007. By January of 2009, the club had ceased operations, cancelled all reservations, and filed for bankruptcy after a lengthy attempt to reorganize their business structure.

Responsible business practices should also be widely considered when evaluating a destination club. Exclusive Resorts has made responsible fiscal decisions over the past year, making cuts to their staff and introducing a Sponsored Guest Program to allow more people the opportunity to learn more about the club.

In an interview with Exclusive Resorts' CEO Jeff Potter last year, he stated, "We've been so fortunate that management had the foresight to put into place such a strong business model, knowing that the economy comes in cycles. Right now we are focused on our current member base and I think that is what we take the most pride in. During these financial times, you have to step back and make sure you do what you promised to do."

As the largest destination club in the industry, Exclusive Resorts also gets to capitalize on various economies of scale. Unlike other destination clubs that buy properties one at a time, Exclusive Resorts has the ability to purchase multiple properties in the same area at once, providing for even more substantial discounts on real estate.

Congratulations to Exclusive Resorts on their positive Net Asset Test result and we hope that the streak continues when the year end results are announced.