Acquisition News [Gold Key Resorts] [MERGED]

Maintenance Fees:

Turtle Cay, 1 bedroom went from $704 to $773.
Beach Quarters 1 bedroom went from $652 to $716.

smtundra said:

Maintenance Fees:

Turtle Cay, 1 bedroom went from $704 to $773.
Beach Quarters 1 bedroom went from $652 to $716.

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It's called "unlocking shareholder value."

I'm sure there are added lines in the budget at each resort for the DRI "management" fees.

I was surprised at the $85 jump at OBC.

RLS50 said:

But I am a little surprised at the 10% jump at OCB. I am a big fan of the Gold Key properties at VB, and had a chance to either stay in or tour them all. But they certainly aren't the quality of the oceanfront Marriott resorts all along the eastern seaboard. If they keep bumping up MF's at this kind of annual rate they are going to need to do a lot of work on the properties and addressing all the little details to make the MF's even close to worth it. JMO.

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I agree. I love OBC, but the $949 MF for 2016 was unexpected and is entering territory (maintenance fee wise) that is unsettling. DRI didn't waste no time. When MFs get so high that you can't rent your unused weeks to cover the fees, then it will be time to say bye-bye.

I like the higher-end former-GKR properties, but I've still got Four Sails two doors down. Basic, but I still love it. Great staff, well-maintained, awesome location and low MFs!

Got the budget in the mail today for Beachwoods. And there it is! An increase of almost $300k for "management fees", $540k for "corporate allocation" & $45k more for "front office". Take out those 3 and the developer subsidy from the revenue and the MF would have actually gone down. Even if you include the $323k for the annual operation of the new water park.

Not quite sure how a few more things changed as much as they did. Like +$112k on property maintenance, +$134k for utilities, but -$141k on insurance?

Looks like we'd all be up a creek if we didn't get that "developer subsidy".

I would like to hear the explanation for this. Wouldn't it be nice if the owners could kick DRI as the managing entity. Almost $900,000 in additional fees going toward management type allocations.

harveyhaddixfan said:

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Got the budget in the mail today for Beachwoods. And there it is! An increase of almost $300k for "management fees", $540k for "corporate allocation" & $45k more for "front office". Take out those 3 and the developer subsidy from the revenue and the MF would have actually gone down. Even if you include the $323k for the annual operation of the new water park.

Not quite sure how a few more things changed as much as they did. Like +$112k on property maintenance, +$134k for utilities, but -$141k on insurance?

Looks like we'd all be up a creek if we didn't get that "developer subsidy".

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Actually, I wonder if the management costs are variable with units.

Thanks for those budget details...

Corporate Allocation: The major line item that I don't understand is the "corporate allocation." I mean, between us we know DRI was going to jack up the fees, especially to help reimburse the wallet for the big buyout of Gold Key. But how do they explain that rather large line item? What does it include or cover? Does anybody know?

Management Fees: Not a shocker at all. See above. Expected when it was announced DRI was buying out Gold Key.

Front Office: I don't really have a problem with this one. The Owner Relations fee disappeared from previous year, so it is almost flat year over year, or a smaller increase.

How does Diamond Resorts make money?

RLS50 said:

Thanks for those budget details...

Corporate Allocation: The major line item that I don't understand is the "corporate allocation." I mean, between us we know DRI was going to jack up the fees, especially to help reimburse the wallet for the big buyout of Gold Key. But how do they explain that rather large line item? What does it include or cover? Does anybody know?

Management Fees: Not a shocker at all. See above. Expected when it was announced DRI was buying out Gold Key.

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From Diamond's Investor FAQ:

Annual fees paid by our members cover the operating costs of our managed resorts (including an allocation of a substantial portion of our overhead related to the provision of our management services), our management fees and, in the case of THE Club members, dues for membership in THE Club.

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It looks like Diamond is allocating owners the indirect cost of corporate overhead in addition to the direct cost of resort management fees.:annoyed:

From Diamond's 10-K

A substantial portion of the revenue from our hospitality and management services business converts directly to Adjusted EBITDA. [i.e. Earnings Before Interest, Taxes, Depreciation and Amortization]

Substantially all of our management contracts with our managed resorts and the Diamond Collections automatically renew, and under these contracts we receive management fees generally ranging from 10% to 15% of the other costs of operating the applicable resort or Diamond Collection (with a weighted average of 12.9% based upon the total management fee revenue for the year ended December 31, 2014). The covered costs paid by our managed resorts and the Diamond Collections include both the direct resort operating costs and the absorption of a substantial portion of our overhead related to this part of our business. Accordingly, our management fee revenue results in a comparable amount of Adjusted EBITDA. Generally, our revenue from management contracts increases to the extent that (i) operating costs at our managed resorts and the Diamond Collections rise and, consequently, our management fees increase proportionately under our cost-plus management contracts; (ii) we add services under our management contracts or (iii) we acquire or enter into contracts to manage resorts not previously managed by us.

(source: 2014 10-k report, p. 8)

Five resorts in the same town? What was DRI thinking?

Five resorts in the same town? What was DRI thinking? Why do they think DRI members need FIVE options in the same town? Very strange thinking.

BobInNH said:

Five resorts in the same town? What was DRI thinking? Why do they think DRI members need FIVE options in the same town? Very strange thinking.

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Between all 5 resorts, it will still be almost impossible to get anything larger than a studio during the summer with points.

BobInNH said:

Five resorts in the same town? What was DRI thinking? Why do they think DRI members need FIVE options in the same town? Very strange thinking.

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Diamond did not acquire Gold Key for the benefit of The Club's members. Diamond bought (i) management contracts (40% of its net income comes from management contracts) and (ii) a new pool of owners to market Diamond’s points based system.

See this presentation to investors:
http://phx.corporate-ir.net/Externa...9NTkyOTQwfENoaWxkSUQ9MzAxMjU1fFR5cGU9MQ==&t=1

BobInNH said:

Five resorts in the same town? What was DRI thinking? Why do they think DRI members need FIVE options in the same town? Very strange thinking.

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Marriott's have over five timeshare resorts on Hilton Head Island and in Orlando,Fl. That is not totally foreign.

pedro47 said:

Marriott's have over five timeshare resorts on Hilton Head Island and in Orlando,Fl. That is not totally foreign.

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Virginia Beach is hardly Hilton Head or Orlando.

https://www.diamondresorts.com/Virginia-Resorts

Not all the resorts list the capacity on the facts pages but Powhatan in Williamsburg lists 845 units. Combining the 3 smaller VB resorts (Beach Quarters. Turtle Cay, and Boardwalk) you only have 500 units.

I found this in a TripAdvisor forum:

487. Re: Diamond Resorts International
Oct 30, 2015, 10:53 PM

I totally agree. We had a time share with Gold Key and they sold out to Diamond in Virginia Beach, as of October 2015. At a meeting the staff recommended we attend, they tried to get my husband and I to join. The presentation lasted 2 hours. It wasn't until the end that the real explanation was given: We HAVE TO BUY 8500 points at $8.20 per point....that adds up to about $69,000.00. Now that's on top of the price we paid for our time share with Gold Key the year before. Now we use Interval World. This works for us. I've never needed to take the time to answer a blog but this is a bit over the top.

http://www.tripadvisor.com/ShowTopi...nternational-Timeshares_Vacation_Rentals.html

RLS50 said:

Thanks for those budget details...

Corporate Allocation: The major line item that I don't understand is the "corporate allocation." I mean, between us we know DRI was going to jack up the fees, especially to help reimburse the wallet for the big buyout of Gold Key. But how do they explain that rather large line item? What does it include or cover? Does anybody know?

Management Fees: Not a shocker at all. See above. Expected when it was announced DRI was buying out Gold Key.

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I was looking at a trascript of CEO David Palmer's conference call with investors for Q4 2014 and found this:

"Going forward, our G&A [General and Administrative] structure will be simple and clear and the main tenants of our management agreements to the HOAs will not change. We will continue to recover a significant portion of our corporate overhead from the HOAs for the services provided to them, while also earning a management fee on the allocations."

Michael1991 said:

We will continue to recover a significant portion of our corporate overhead from the HOAs for the services provided to them, while also earning a management fee on the allocations."

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It's good work if you can get it.

nuwermj said:

I found this in a TripAdvisor forum:

487. Re: Diamond Resorts International
Oct 30, 2015, 10:53 PM

I totally agree. We had a time share with Gold Key and they sold out to Diamond in Virginia Beach, as of October 2015. At a meeting the staff recommended we attend, they tried to get my husband and I to join. The presentation lasted 2 hours. It wasn't until the end that the real explanation was given: We HAVE TO BUY 8500 points at $8.20 per point....that adds up to about $69,000.00. Now that's on top of the price we paid for our time share with Gold Key the year before. Now we use Interval World. This works for us. I've never needed to take the time to answer a blog but this is a bit over the top.

http://www.tripadvisor.com/ShowTopi...nternational-Timeshares_Vacation_Rentals.html

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$69,000 for 8500 points. Wow!

Before I saw your post, that's what went through my brain.

Maple_Leaf said:

It's good work if you can get it.

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Diamond bought out my group of timeshare resorts recently. I didn't buy into the Diamond machine.

I guess it doesn't make much difference how I got here.....just that I'm a part of it now.

Agreed. "It's good work if you can get it." They seem to have it sown up.

pedro47 said:

$69,000 for 8500 points. Wow!

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Why would anyone do this when you can pick up Diamond points for free or nearly free on resale? Just to have your Gold Key week be eligible for Diamond points??

Collection

Has anyone mentioned which collection they will be put in? if U.S. collection then that makes it lot more valuable for resale points.

RuralEngineer said:

Has anyone mentioned which collection they will be put in? if U.S. collection then that makes it lot more valuable for resale points.

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This is in the U.S. Collection.

RuralEngineer said:

Has anyone mentioned which collection they will be put in? if U.S. collection then that makes it lot more valuable for resale points.

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This has not been mentioned. Recently, only a couple of locations , Naples (small) and Indiana (sports or something), have been mentioned as part of the US collection. I would think they manage this inventory separately but I would be delighted if they added it. Here's to hope!