Ultimate Escapes CEO, Jim Tousignant, Responds To Economic Environment

By: Destination Club News
Date: October 30, 2008

Our friends at DestinationClubForums recently communicated with luxury destination club Ultimate Escapes' President and CEO Jim Tousignant. Following a similar letter sent to Ultimate Escapes' members, Tousignant provided the following about the state of Ultimate Escapes during the current real estate and stock market downturns.

For almost everyone, 2008 has certainly been one of the most memorable, exciting and equally challenging years on record, with a critically important US Presidential race, the US economy facing major challenges, global financial markets in crisis and a likely recession that has already begun to negatively impact many businesses and families. While there are certainly real challenges, there are also signs of hope and optimism that our country will begin to solve some difficult problems that will certainly provide great opportunities as our economy begins to recover in 2009. As many of us know from history and our own experiences, the best personal and financial opportunities generally arise during the most difficult times. And it is usually in the most difficult times that we appreciate more than ever the importance of family and friends and the things in life that matter most.

We are seeing increasing signs, for example, that the real estate housing market will reach a “bottom” over the next 6-12 months, which most real estate experts, business executives and economists believe is the most important factor to achieving overall market stability and renewed growth in the US and global economy during 2009 and beyond. As an example of “challenge breeds opportunity”, the soft real estate market has created a great market opportunity for Ultimate Escapes to acquire future real estate assets at “bargain prices” over the next several years. In addition, the soft real estate market has likely increased the focus by affluent consumers and their families on acquiring a membership interest in “shared vacation assets” versus owning second vacation homes, with all the costs and hassles of real estate ownership.

Overall, Ultimate Escapes made good progress in 2008, in spite of a difficult economy and challenged financial markets. Our positive performance in 2008 demonstrates the demand for our unique luxury vacation offerings (even in a difficult global market), and highlights the fundamental strength of our seasoned management team, our business strategy and the scale benefits of our strong brand and our growing market share. Fortunately, our Members are financially secure and they will weather this downturn. Further, our Members also recognize what their most important “assets” are – family and friends – and appreciate the importance of spending quality leisure and vacation time with their family and friends, both in good times and difficult times.

Many important factors have contributed to Ultimate Escapes’ progress in 2008, including:

• Ultimate Escapes is a market leader in the emerging luxury destination club market, with a target market of over 10 million affluent families in the United States that love to travel in style with their family and friends (or corporate clients) and have a high net worth and annual income. Ultimate Escapes Members today have an average net worth over $5+ million (even with the recent market downturn) and average annual incomes over $500,000.
• Ultimate Escapes provides our Members with a lifetime of unique luxury vacation experiences that can be enjoyed with their family, friends and important business clients.

  • Ultimate Escapes offers our Members great long-term value relative to owning a vacation second home, renting villas or booking luxury hotels.
  • Ultimate Escapes offers multiple clubs and membership plans for our Members to choose from with an expanding portfolio of global club destinations and properties.
  • Ultimate Escapes delivers the highest quality Member Services to our Members with a team of talented Escape Planners and Local Hosts.

These and other key factors have resulted in Ultimate Escapes achieving consistently high Member satisfaction scores and annual club renewal rates, which are important to the sustainability and future growth of our Club, and increasingly lead to new member referrals from satisfied existing Members.

Some Members have asked us what impact the recent Wall Street “credit crisis” and volatility in the global financial markets may be having on Ultimate Escapes. While we continue to be concerned about the economy in general, we have only seen limited direct negative impact on our business to date. We have continued to sell new memberships in 2008, and our existing Members continue to express high satisfaction levels and use the club actively. Almost 50% of our Members have upgraded their membership plans over the last 12-18 months. During 2008, our Members renewed their club memberships at record high levels (99% renewal rate), paid their annual dues on time, and are increasingly referring family, friends and business associates to join Ultimate Escapes. Member referrals have grown from under 10% of new membership sales in 2006 to over 40% of new membership sales in 2008. Member referrals, more than any other factor, is the strongest indication that we are delivering on our commitment to provide our growing base of Members with “the vacation of a lifetime everytime”.

In addition, our membership sales have never depended on Members financing their membership purchases or annual dues, as is the case with many timeshare and fractional real estate purchases. In fact, while we have offered a membership financing option with one of our strategic partners, First Again®, for most of 2008, very few members (less than 5%) have actually used this membership financing option.

In 2008, in addition to completing the integration of Tanner & Haley, we expanded our club offerings, expanded our real estate portfolio, added new club destinations, generated new membership sales and upgrades, and dramatically increased Member referrals. We also worked very hard to manage our expenses and operate the business in a very conservative and financially prudent fashion.

While continuing to grow our global business, we also substantially “de-leveraged” our business, reducing our debt by almost $10 million over the last 18 months, thereby reducing our financing and operating costs, while also expanding our borrowing capacity to acquire additional club real estate in the future.

Our principal real estate lender, CapitalSource (NYSE: CSE) is a commercial lender offering focused lending products serving clients in the middle markets.

CapitalSource collectively managed total assets of approximately $17.3 billion as of June 30, 2008, including a commercial loan portfolio of $9.4 billion and a healthcare net lease portfolio of $1.0 billion. CapitalSource operates principally through its CapitalSource Bank subsidiary, a recent acquisition, which has $5.2 billion in available deposits and 22 retail bank branches.

CapitalSource is the largest lender in the destination club industry, with real estate loan facilities in place today with Ultimate Escapes, Exclusive Resorts, Quintess and other leading destination clubs. Our existing loan facility has millions of dollars of existing available committed capacity, and as we continue to pay down debt, that available capacity will increase.

We believe that the difficult global financial market conditions during 2008 will have some negative impact on the travel, resort and hospitality industry, including hotels, timeshare operators, fractional operators and destination clubs. Fortunately, we operate one of the largest destination clubs in the world, and our growing size and scale have helped us weather the storm and even increase our market share in 2008.

Regards,

Jim Tousignant
President & CEO
Ultimate Escapes

It is always positive to hear about the health of a club directly from the executive staff. Although High Country Club's restructuring may send shockwaves through the destination club industry in the near term, it may have the same effect that Tanner & Haley's bankruptcy had in the long term, leading to increased transparency and the creation of a destination club governing body in the Destination Club Association. The Veras Group commends Ultimate Escapes and any other destination club executives in their diligence to keep both members and prospects apprised of the health of their firm and the industry as a whole.