Ultimate Escapes Annual Dues Increase Option Overview

By: Destination Club News
Date: September 11, 2010

On Thursday night, Ultimate Escapes President and CEO Jim Tousignant spoke via webcast about the club's critical financial position. In default of a loan agreement with lender CapitalSource and facing a bankruptcy filing as early as Monday, Tousignant would discuss five potential plans available to the club. The second option outlined would consist of a permanent annual dues increase to all members, letting the destination club better cover their capital requirements.

"Strategic alternative number two would consist of a plan to raise annual dues permanently," Tousignant said. "For this option, for purposes of this discussion, assumes the club would raise approximately $15 million now in increased annual dues and each year in the future would continue that practice in terms of keeping that increased dues amount permanent going forward and would therefore just rise under normal CPI plus some percentage basis thereafter. This is, we believe, as an option also solves the working capital needs of the business and allows the club to cure the loan defaults and operate the club on a standalone basis. This option of course increases the cost each year to our members and does not give members any additional ownership interest in the club that a conversion to a member-owned club would provide."

As hinted at by Tousignant, the annual dues increase option is a less popular route than the member-owned structure in the mind of club executives. "We felt that a permanent increase in annual dues was not in the best interest of our members or the club over the long-term, and would definitely cost members much more in financial terms than a one-time Conversion Fee," the club writes.

Ultimate Escapes brought up both Exclusive Resorts and Quintess in their report and presentation, both of whom have increased annual dues to members in the recent past. Contrary to Ultimate Escapes who have steadfastly maintained that annual dues increases are not necessary, Exclusive Resorts and Quintess did reach out to members for dues increases and are in a substantially better position than Ultimate Escapes finds themselves in today in part to this decision. Exclusive Resorts has added over 100 new members during the year and have seen roughly 70 current members upgrade to higher membership plans. The world's largest destination club is also phasing in policies and dues increases that are expected to allow the club to run at a break-even basis by 2011. Quintess modified their inner workings and strengthened their financial position by increasing annual dues to members and now the cost of members' travels are covered by annual dues and sales and marketing costs are covered by the non-refundable portion of members' deposits. When the club reached out to members about the dues increase in early 2009, 88% voted in favor of such a measure.

Like Exclusive Resorts and Quintess, Ultimate Escapes should have introduced dues increases some time ago as their mounting debt increased and new membership sales came to a halt. Even if the club's planned member-owned conversion is approved, we believe that an annual dues increase of some size will be needed to make sure that the club doesn't find itself in the same position at some point in the future. As mentioned by Tousignant, this route would allow the club to "cure the loan defaults and operate the club on a standalone basis." Unfortunately, curing the loan defaults won't assure long term security of the club if the large debt owed to CapitalSource isn't paid down.

Like all of the plans outlined by Tousignant, approval by CapitalSource will be required. We will continue to monitor the situation and hope that the well educated members of Ultimate Escapes can help contribute to find a solution for all parties involved.