The 2010 Outlook Letter From Jim Tousignant

By: Destination Club News
Date: October 22, 2010

When 2010 began, Ultimate Escapes was coming off one of the worst years in history and was quick to blame the global economy for their precarious position. Even so, the world's second largest destination club believed that they were positioned to dominate the market again with the new calendar year and the mantra "Stay calm. Carry on." Oh how wrong they were.

President and CEO Jim Tousignant wrote members early in the year, outlining the goals for 2010 and the commitments the club made in 2009. Not even 250 days since drafting that message, nearly everything changed at Ultimate Escapes.

Despite a self proclaimed vigilance to cut spending, two new executives were brought on board within the first 35 of the year, Super Bowl tickets were given away, rent at three office buildings continued. The club was suspended from the NYSE and stock prices tumbled. Quarterly reports continued to get worse and worse and by June, the club was unable to make interest payments to their primary lender, CapitalSource. Despite the poor year, the club would wait until September to announce to club members "We are in crisis."

The rest of the story is history. Ultimate Escapes filed for bankruptcy. CEO and President Jim Tousignant was terminated. Chairman Richard Keith resigned just days later. After weeks of uncertainty, the club announced that Demeure was the successful bidder for their assets and members are now beginning to evaluate a transition to Demeure.

Members have asked "how did we get here?" A club that many thought was too big to fail did just that. Money gone and vacations cancelled. The bliss of memorable travel time with friends and family replaced by anger towards club executives. The Ultimate Escapes story is far from over, but we invite you to read the letter sent out to club members earlier this year, detailing the club's unrealized plans for the year.

As I began writing this letter, I thought about the very beginning of 2009. I suppose it could be said that we tried to follow Winston Churchill’s famous admonition to the British citizens during the horrendous bombings in WWII: "Stay calm. Carry on." Indeed, faced with a terrible financial hangover from 2008, it took some doing in 2009 to stay calm and carry on.

As we all remember, the global economy and consumer confidence levels continued to fall during 2008 and into the first quarter of 2009 and the economic malaise was punctuated by a ten year low on the Dow Jones Industrial Index on March 9, 2009.

As you well know, your Club was also challenged during this time and we quickly took extraordinary measures, convinced that if we could make it through 2009, we would not only survive, but would begin to prevail. It took some very tough measures on all our parts. We made cuts in every single employee's compensation, with Club management taking the deepest cuts. We reduced our staff head count, and we cut overhead every way that we could. Even with these tough measures, we would not have made it without you, our Members. The 2009 Assessment, which was painful for everyone concerned, proved to be the very best thing we could have done to ensure your Club continued to operate, and this was only possible because of the commitment and support of our Members.

Commitments Kept

During these tough times, our management team, with the support of our dedicated employees, made a number of commitments to our Members and the Club. Now as I look back on the events of 2009, our ability to deliver on these commitments during very challenging times is what I take particular pride in – and I hope it is what we all remember most about 2009.

  • We committed to right-size the operating costs of the business. We in fact reduced operating costs to the point where Member annual dues plus modest growth should be sufficient to run the Club going forward on a break-even or better basis.
  • We committed to complete the transaction with Private Escapes. Although this transaction took longer than anyone expected, it was successfully completed on September 15, 2009. We were fully committed to this deal and knew that completing this transaction was important to solidify our growing leadership in the industry. We are now the #1 destination club in the world in both the entry level category (with our Premiere Club) and the mid-tier level category (with our Signature Club) and a stronger #2 in the high-end category (with our Elite Club). We believe it is important for our continued growth and success to have the best value and the most choices available in the market. Ultimate Escapes today offers the most number of destination club offerings and membership plans in the industry, combined with the best value as compared to other luxury vacation alternatives. Now with the Private Escapes transaction completed, Ultimate Escapes has also become the largest luxury destination club in the world as measured by total destinations.
  • We committed to amending our loan facility with our principal lender, Capital Source. We closed our amended CapitalSource loan facility in September 2009, increasing our revolving credit line and updating our property appraisals.
  • We committed to increase the Club’s capital base. We completed a business combination with Secure America Acquisition Corporation, a public company Special Purpose Acquisition Company (SPAC) on October 29, 2009, raised almost $10 million in new equity capital and became the industry's first and only public destination club.
  • We committed to begin rationalizing our real estate portfolio. We began the process in 2009 to right-size and re-balance our real estate portfolio, based on various factors including member satisfaction, annual occupancy levels and property operating costs. This process will continue through 2010 and will lead to, we believe, the right number of homes available in high demand markets (including selectively adding homes in certain destinations), and fewer homes in markets where there is excessively high operating costs and low Member demand. This continuing effort will not only reduce our annual property operating costs but will improve overall availability for our Members in those markets where there is high demand.
  • We committed to better communications and alignment with our Members. Throughout 2009, we increased our communications with Members, including regular quarterly conference calls, town hall meetings throughout the US, regular Member events, email updates and an improved Member-only web site. Also, as a result of completing the transaction with Secure America on October 29, 2009, we now have over 150 Club Members who are also shareholders of Ultimate Escapes, further aligning the interests of the Club and our public shareholders with our Member's interests.

Goals For 2010

As encouraged as we are by our achievements during an otherwise challenging 2009, what matters now is what lies ahead in 2010. Our Club is better prepared to deal with challenges we may face in 2010, and we are particularly excited about the increasing opportunities ahead for our Club and our Members. To that end, we would like to share with you some of our key goals for 2010, including:

  • Achieving 2010 Business Plan. In mid-December 2009, we filed an 8K investor presentation with the Securities and Exchange Commission (SEC) that included certain pro forma financial highlights for 2010, including our estimate of 2010 adjusted GAAP revenues of approximately $53 million and adjusted EBITDA of approximately $23 million. We intend to accomplish this 2010 plan with a combination of modest organic member growth driven primarily through member referrals, expansion of our affiliated resort Reciprocity Program, further reductions in certain operating costs, and completing a small target acquisition during 2010.
  • Secondary Offering – On January 15, 2010, Ultimate Escapes filed a Form S-1 Registration Statement with the Securities and Exchange Commission (SEC) to raise additional equity capital for our business. We currently intend to use a portion of the net proceeds from this offering to fund possible investments in, or acquisition of, destination clubs, properties and/or other complementary businesses, and such acquisitions may also involve the issuance of unregistered and/or registered common stock of the company. We also currently intend to use a portion of the net proceeds from this offering to repay a portion of the outstanding indebtedness under our CapitalSource credit facility, which was approximately $99 million at December 31, 2009. We currently intend to use the remaining proceeds for general corporate purposes, including working capital and capital expenditures, including capital to fund renovating selected Club properties during 2010.
  • Improve Member Communication and Member Participation. We are committed to working even more closely with the Member Board of Advisors in 2010 and providing Club Members with full disclosure and transparency regarding our business. We will continue to increase the various ways we communicate with our Members, including regular quarterly conference calls, town hall meetings throughout the US, regular Member events, email updates and an improved Member-only web site. As the first and only public destination club, we have set a new standard of excellence regarding providing Club Members and the entire public market with detailed business and financial information about Ultimate Escapes. Our Members regularly tell us how helpful this detailed business and financial information is in better understanding the Club, and we believe it helps improve Member trust and confidence in our Club. Members will continue to receive regular emails from the Club in 2010 updating them on various Club activities, membership plans, destinations, properties, Member events and other information of interest to Members. We will provide more information on our Member-only website in 2010, and will also add investor and financial information on our public website for potential new Club Members and public investors to access, including stock information, charts, news on the Company and access to our SEC filings. We also plan to re-launch an Ultimate Escapes newsletter in 2010, which will provide Members with updates on new Club offerings, destination highlights and reviews, member testimonials, a schedule of upcoming Club events, and other news and information.
  • Improve Member Satisfaction Through Property Improvements. Based on regular Member surveys and feedback, the majority of our Members are very satisfied with the Club, including very satisfied with their Escape Planners and Local Hosts and satisfied with overall Club property conditions. That being said, we do recognize that, like any hospitality and real estate operation, we need to periodically invest capital into our properties, and we are committed to investing capital in 2010 for renovations and improvements of selected Club properties. For example, we are in the process of renovating all 7 Trump International units in Manhattan, which will cost the Club approximately $1.5 million in new capital to complete during 2010.
  • Improve Member Satisfaction Through Better Availability. Regarding our goal to improve Club availability, we are working on a number of activities in 2010 to improve overall availability in all three Clubs (Elite, Signature and Premiere), including buying and leasing new properties in selected high demand markets, selling existing properties that have historical low usage in low demand markets and improving online availability and reservation tools on the Ultimate Escapes Member-only web site. We plan to sell low demand/high cost/underperforming homes, while at the same time, expanding into selected new destinations (most recently Florence, Italy) and adding selected new properties in existing destinations where appropriate to achieve greater density and improve our operating efficiencies. We are also working on other initiatives to improve club availability, including expanding seasonal leases in mountain locations to increase availability during high demand months in the winter and summer and expanding our Reciprocity Program offerings with additional luxury hotels, resorts and unique luxury properties around the world (most recently Villa Castellamonte del Mare, an exclusive five-star ultra-luxury villa in the Dominican Republic). We are also beginning to work on developing an “Ultimate Points” reciprocity option, with the goal of providing Members with a simple, flexible reciprocity program designed to improve availability and reciprocal use across all three Clubs and our affiliated resorts. We plan to update Members in more detail about the Ultimate Points programs later in 2010.
  • Grow The Club From Within – The most effective way to grow your Club is for you and other existing Members to refer qualified friends, neighbors and business associates to consider joining the Club. To achieve this, we need to build stronger, deeper relationships with our Members, and to that end we are focusing our 2010 marketing efforts on a variety of regional Member activities and guest events. We have re-organized our team of Membership Directors and Escape Planners to work more closely with all of our Members, better understand your needs and desires, listen to your ideas and suggestions and work more closely with you to introduce the Club to your qualified friends, neighbors and business associates. This does not mean that Members should feel any pressure to "sell" the Club; rather we believe that Members and their families who enjoy the Club and continue to experience a lifetime of memorable vacations will happily and sincerely "spread the word." The strongest luxury brands and the best companies in the world ALL count customer loyalty and customer passion as one of their most important assets. Our plans include aligning our Membership Directors more directly with our Members, creating regional sales offices, and even "Regional Member Chapters". We are committed to better serving our Members and being more responsive to Member needs and desires, which we believe will improve overall member satisfaction and result in new organic membership growth directly as a result of Member referrals from existing satisfied Members.

The entire management team and staff of Ultimate Escapes sincerely thank you for your commitment and support. We will continue to work tirelessly to make 2010 the best year ever for Ultimate Escapes and all our Members.

Ultimate Regards,

Jim Tousignant
President and CEO