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Are DCs really that much "riskier" than Timeshares?

Elsway

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Taking HCC as an example, does anyone know what their "burn rate" is? That is, assuming that they are still in a "loss" mode, how long would it be before they burn through reserves and are no longer able to meet expenses (especially debt service?) At what point are they expecting to be at breakeven or "profit" mode? How large a cushion of reserves exists, compared to the projected point in time to reach that breakeven point? What are the assumptions underlying the projected time at which breakeven is achieved? How many new memberships do they need to sell, at what intervals, and at what membership fee? How does the purchase of new homes factor in to the projected breakeven date? What is projected to happen to maintenance fees during that period of time? To state the obvious, assuming that those of you who have purchased HCC memberships (or memberships in any DC) are able to answer all of these questions, and you are comfortable with the assumptions underlying the projections, then the decision to acquire your DC memberships are financially sound. If not, well then your strategy is something along the lines of "keeping your fingers crossed" while enjoying the current benefits.

Lots of great questions. I don't have specific answers - I doubt anyone here will have the numbers.

I would hope that HCC would be close to break even on an operating cash flow basis, but running a deficit ("burn") net of capital expenditures.

Assuming a target occupancy rate of 70%, HCC properties would be utilized 255 days per year. This amounts to 10 affiliate members (25 days useage) and gross membership deposits of $400,000. They are buying $1 million properties, so they are suffering a large cash flow deficit net of property acquisitions.

I am concerned that HCC is over promising by charging so little for so much. They will succeed to the extent that they can raise membership dues rapidly/significantly in the future.
 

hipslo

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I am concerned that HCC is over promising by charging so little for so much. They will succeed to the extent that they can raise membership dues rapidly/significantly in the future.

That is the implicit point behind my questions, I guess. The answers to my questions would shed some light on the viability of their business plan. To what extent the underlying assumptions are or are not realistic is likely to be the key. (Note that, if they need to rapidly raise dues in order to meet projections, they will soon be competing with some of the big boys, and that could have an adverse impact on their ability to meet the projected pace of selling new memberships, since it seems as if, at the moment, HCC's primary distinguishing feature appears to be their price point).
 

Elsway

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That is the implicit point behind my questions, I guess. The answers to my questions would shed some light on the viability of their business plan. To what extent the underlying assumptions are or are not realistic is likely to be the key. (Note that, if they need to rapidly raise dues in order to meet projections, they will soon be competing with some of the big boys, and that could have an adverse impact on their ability to meet the projected pace of selling new memberships, since it seems as if, at the moment, HCC's primary distinguishing feature appears to be their price point).

I would say that is mostly accurate. The low price point enables some people to disregard the risk (i.e. "I can afford to lose this amount of money, so I won't need to closely examine the club's economic viability.") HCC offers great value, IMO, but not netted against the risks (unless one adopts the aforementioned perspective that the amount at stake is rather small).

Let me apply my same analysis (previous post) to BelleHavens: At 70% occupancy rate (255 days per year), BH will have 8.5 members (at the Adventurer level, 30 days useage). This membership sells for $200,00 currently which means BH raises $1.7 million per home. Given their average home value of $2 millioin, things are pretty well balanced. (Note: BH raises membership to $225,000 on June 16, which raises $1.9 million per home.)

In relation to BH, HCC is offering better value - but on a risk-adjusted basis, BelleHavens exceeds, IMO.
 

PerryM

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That's the ticket I am going with....let's call this the Purple Pill.

As I type this, the interior design team is here delivering brand new outdoor furniture for the HCC Turks and Caisos property along with some new drapery. Funny, I thought the original stuff was fine, but the new furniture is very upscale.

I like that too, the little Purple Pill. So far I've not have to start with them but it seems that the older you get the more the Purple Pill is something you see every morning.
 

puffpuff

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The best and easiest way to find out is to talk to Dan Moorhead their CFO who will be happy to walk you thru the current numbers.
 

Bourne

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Taking HCC as an example, does anyone know what their "burn rate" is? That is, assuming that they are still in a "loss" mode, how long would it be before they burn through reserves and are no longer able to meet expenses (especially debt service?) At what point are they expecting to be at breakeven or "profit" mode? How large a cushion of reserves exists, compared to the projected point in time to reach that breakeven point? What are the assumptions underlying the projected time at which breakeven is achieved? How many new memberships do they need to sell, at what intervals, and at what membership fee? How does the purchase of new homes factor in to the projected breakeven date? What is projected to happen to maintenance fees during that period of time? To state the obvious, assuming that those of you who have purchased HCC memberships (or memberships in any DC) are able to answer all of these questions, and you are comfortable with the assumptions underlying the projections, then the decision to acquire your DC memberships are financially sound. If not, well then your strategy is something along the lines of "keeping your fingers crossed" while enjoying the current benefits.

all of the above questions are good ones. i do have answer to all the questions above but will not post them here.

point is that you need to pick up the phone, call hcc, sign a nda and find it out for yourself.

enough of this bs about not doing enough due diligence and keeping my fingers crossed. a lot is being implied on this forum with bunch of questions asked. if you need the answers, stop typing and start calling.

not only am i amazed, i now have a headache too.
 

puffpuff

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1. agreed. Nothing better than from the horses mouth. Make the call !

2. All clubs , includng ER, UR, Quintess, BH factor in 300 days in their definition of a when a house is purchased. Other than pay as you go clubs like PE, the actual usage is approximately 70- 80% of what is acutally sold in the industry.

The key to remember is that the industry sells out 300 days a year. How you break it up is company dependent. Their revenue is based on the 300 days. The hosue is actually worth on the market about $1.7. The balance is profit to the Banyan people. In the case of BH, they generate 10 member equivalent orf 30 days usage per member to get one house. if a club offers 45 days as a full member, then they need 7 members equivalent per house purchase. ER and HCC employe this model. At the end of the day, all the clubs are pretty much similar in terms of offering in the membership fee structure once you take out the acquisiton cost out of the equation. The difference liesin the cost of purchasinig the house which dictates the entrance fee.
 

Elsway

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Nothing better than from the horses mouth. Make the call!

Personally I see nothing wrong with trying to lever off of the knowledge of others who have completed due diligence. If certain individuals feel bound by a confidentiality agreement, they don't have to post. I spent almost two hours with the CEO of Ultimate Resorts and never signed a confidentiality agreement. And when I did put down a deposit to see the imember documents, there had very very little in terms of relevant information - certainly no facts and figures which would significantly enhance my understanding of the company's solvency.

In my case, I have no interest in joining HCC. Therefore, I have no interest in putting down a deposit, reviewing docs and speaking with management. I do, however, feel I can learn a few things about the clubs which interest me by understanding how HCC operates.
 

hipslo

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enough of this bs about not doing enough due diligence and keeping my fingers crossed.

If you have the answers, and are satisfied with them, as I stated in my post, you HAVE done the due diligence, and you are NOT someone who is just keeping your fingers crossed. Maybe that doesnt describe anyone, that would be a GOOD thing. Not sure why you're taking any of this personally....

Since I am not interested in a non-equity based DC, I have no real need or desire, personally, to investigate HCC further. This thread was started, I thought, to explore whether DCs are riskier than timeshares. I thought I'd set out some specific questions, the answers to which will typically provide the answer to that question. I'm not sure how much sense it makes to imply that I shouldnt be posting on this forum, or setting out the questions, the answers to which will be very telling about the inherent risk of any DC, unless I want to call one of those clubs and get the answers myself.

This seems to be a pretty touchy topic, for some reason.
 

pwrshift

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Annual MF for DC's ... any double digits like Marriott?

The posts on this board are coming so fast and some of them almost textbook length that I can't keep up. So I apologize if this has been answered elsewhere.

Everyone in the Marriott timeshare family was pretty upset with surprise double digit increases in most of the annual maint/tax bills for 2007. That's after an average of about 4% a year, well above the inflation rate. It's anyone's guess about 2008, but I've heard rumblings that it will be another double digit for most! If so it might be time to dump them.

The annual MF on CD's is higher - much higher - and I guess I expected that because of what they offer members. But, what do you think will happen to these MF over the years. Do they make any guarantees? If they are raising membership fees by $25,000 (BH) perhaps those fees will offset 'special assessments' and double digit MF increases??

Interesting that from the Helium board I've been receiving some very impressive packages these days ... 3 today in fact (or make that only 2 as I sent one back). The BH pkg arrived via DHL with a C.O.D. on it of about $10 so I refused it on principle. Perhaps they are economizing already?

Brian
 

NeilGoBlue

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The posts on this board are coming so fast and some of them almost textbook length that I can't keep up. So I apologize if this has been answered elsewhere.

Everyone in the Marriott timeshare family was pretty upset with surprise double digit increases in most of the annual maint/tax bills for 2007. That's after an average of about 4% a year, well above the inflation rate. It's anyone's guess about 2008, but I've heard rumblings that it will be another double digit for most! If so it might be time to dump them.

The annual MF on CD's is higher - much higher - and I guess I expected that because of what they offer members. But, what do you think will happen to these MF over the years. Do they make any guarantees? If they are raising membership fees by $25,000 (BH) perhaps those fees will offset 'special assessments' and double digit MF increases??

Interesting that from the Helium board I've been receiving some very impressive packages these days ... 3 today in fact (or make that only 2 as I sent one back). The BH pkg arrived via DHL with a C.O.D. on it of about $10 so I refused it on principle. Perhaps they are economizing already?

Brian

MF at DC seem to be misunderstood. All the DC's I talked to had a MF that could only go up x percent above cpi. Usually 'x' was about 5%. Almost all clubs said they only raised the MF as much as the CPI, nothing more. It doesn't mean they won't raise the MF for new members. So, it's possible a new member might be paying 18K but an old member might only be paying 12K.
 

Elsway

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The posts on this board are coming so fast and some of them almost textbook length that I can't keep up. So I apologize if this has been answered elsewhere.

Everyone in the Marriott timeshare family was pretty upset with surprise double digit increases in most of the annual maint/tax bills for 2007. That's after an average of about 4% a year, well above the inflation rate. It's anyone's guess about 2008, but I've heard rumblings that it will be another double digit for most! If so it might be time to dump them.

The annual MF on CD's is higher - much higher - and I guess I expected that because of what they offer members. But, what do you think will happen to these MF over the years. Do they make any guarantees? If they are raising membership fees by $25,000 (BH) perhaps those fees will offset 'special assessments' and double digit MF increases??

Interesting that from the Helium board I've been receiving some very impressive packages these days ... 3 today in fact (or make that only 2 as I sent one back). The BH pkg arrived via DHL with a C.O.D. on it of about $10 so I refused it on principle. Perhaps they are economizing already?

Brian

It might be best to inquire directly to the websites of the destination clubs as opposed to going through Helium Report or others. The web addresses are easily available - we don't need an added middle man (although I respect the value added info on Helium Report and Sherpa Report).

These glossy packages from the DCs are not inexpensive to produce or to mail - so I understand their attempt to conserve on marketing expenses. At the same time, I agree with the poster - nothing should arrive C.O.D. You did right!
 

Elsway

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MF at DC seem to be misunderstood. All the DC's I talked to had a MF that could only go up x percent above cpi. Usually 'x' was about 5%. Almost all clubs said they only raised the MF as much as the CPI, nothing more. It doesn't mean they won't raise the MF for new members. So, it's possible a new member might be paying 18K but an old member might only be paying 12K.

I believe Exclusive Resorts had a HUGE annual fee increase in the past year. I agree, however, that most clubs have a set arrangement for fee increases based on CPI+. In the absence of such, I would balk.
 
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Bourne

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If you have the answers, and are satisfied with them, as I stated in my post, you HAVE done the due diligence, and you are NOT someone who is just keeping your fingers crossed. Maybe that doesnt describe anyone, that would be a GOOD thing. Not sure why you're taking any of this personally....

Since I am not interested in a non-equity based DC, I have no real need or desire, personally, to investigate HCC further. This thread was started, I thought, to explore whether DCs are riskier than timeshares. I thought I'd set out some specific questions, the answers to which will typically provide the answer to that question. I'm not sure how much sense it makes to imply that I shouldnt be posting on this forum, or setting out the questions, the answers to which will be very telling about the inherent risk of any DC, unless I want to call one of those clubs and get the answers myself.

This seems to be a pretty touchy topic, for some reason.

My apologies to you if I sounded testy in that post. As you can see, it was all in lowercase. Try typing a whole post on your net enabled cellphone. :p Me being amazed, having a headache and being compelled to type a verbose post on a cellphone resulted in a testy tone.

That said, what I meant was that some of us should call HCC for the answers. I also see nothing wrong with trying to lever off of the knowledge of others who have completed due diligence. However, there is an undertone in the posts of posters leaning against a DC than the one's who are members. It is similar to the one that shows up in conversations regarding buying TS from developer or in the resale market.

I am always willing to help out but the other person should have an open mind. And a willingness to listen. Without that, I rather shut up as I have nothing to lose. If someone does or does not want to buy a membership, it's their decision. Not mine.
 
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smbrannan

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Interesting that from the Helium board I've been receiving some very impressive packages these days ... 3 today in fact (or make that only 2 as I sent one back). The BH pkg arrived via DHL with a C.O.D. on it of about $10 so I refused it on principle. Perhaps they are economizing already?

I had the same experience, but my wife had already paid for the package before I got home.

I believe that the amount due was a duty on the international shipment of goods, not a payment that BH would have received.

For some reason they said that the value of the goods in the package was US$20, so our wonderful Cdn gov't decided that duty was payable on the shipment, and that probably triggered a handling charge.

In truth the materials have no commercial value, and so BH should have shown the value of the goods as $0, and it would have gone through just fine.
 

travelguy

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My apologies to you if I sounded testy in that post. As you can see, it was all in lowercase. Try typing a whole post on your net enabled cellphone. :p Me being amazed, having a headache and being compelled to type a verbose post on a cellphone resulted in a testy tone.

That said, what I meant was that some of us should call HCC for the answers. I also see nothing wrong with trying to lever off of the knowledge of others who have completed due diligence. However, there is an undertone in the posts of posters leaning against a DC than the one's who are members. It is similar to the one that shows up in conversations regarding buying TS from developer or in the resale market.

I am always willing to help out but the other person should have an open mind. And a willingness to listen. Without that, I rather shut up as I have nothing to lose. If someone does or does not want to buy a membership, it's their decision. Not mine.

I understand Bourne's frustration and share his headache.

There are a number of High Country Club members on this board who have done extensive due diligence on HCC and other DCs prior to becoming members of HCC. As a result, we have a pretty good handle on the HCC biz plan, current financial status and future plans. Those of use that have been members for a period of time have seen HCC perform BEYOND their projections.

High Country Club has made a tremendous amount of financial information available to members and investors, both current and potential. In addition, they make the corporate execs available to answer all questions potential members may have. I personally spent hours talking to their CFO about the HCC financial status, both current and future.

The frustration we share is that we routinely see speculative postings about the basic HCC biz plan that is nowhere near the reality of how HCC operates. We continue to post corrective information in order to set the record straight on the FACTS, not our opinions, of the HCC biz plan and financial numbers. Many times these postings are ignored or, in the most aggravating cases, our factual responses face accusations of ignorance and/or bias.

This is not like buying a timeshare where information issuspect and incomplete. There is no need to speculate. For that matter, there is no need to take the word of me or my fellow HCC members about HCC and it's financials. Contact HCC directly and get the actual facts. They are not like the high pressure and dishonest timeshare sales organizations that we Tuggers have come to dread and hate.

We are not saying that our opinions are right or wrong. We are asking those of you that are interested in understanding how HCC operates to contact them directly and get your facts from HCC. You can have all the answers from HCC in less time than it takes to make a speculative post. :D
 

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My Quick and Dirty on HCC - With Public Information

At first glance, it appears that High Country Club is leveraging their properties above industry norms:

Home Cost = 850,000
Occupancy Rate = 70%
Days of Occupancy = 255.5
Nights of Use (Affiliate Member) = 25
Members per Home 10.22
Membership Cost (Affiliate Member) = 40,000
Membership Dues per Home (10.22 X 40,000) = $408,800
Mortgage per Home (850,000 - 408,800) = $441,200
Leverage per Property ($441,200 / $850,000) = 51.9%

However: The annual dues do appear to be sufficient to service the mortgage debt:

Mortgage Rate (Interest Only) = 6%
Annual Mortgage Cost = $26,472
Annual Dues (Affiliate Membership) = $5,400
Annual Dues per Home = (10.22 X $5400) = $55,188
Net Available for Operating Expenses per Property = $28,716

Presumably:
1) HCC has strong equity sponsorship which has enabled the company to utilize less leverage than is implied by my analysis.
2) HCC is in a position where they can use the "excess" annual dues to reduce leverage and/or contribute to the acquisition of portfolio properties.
3) HCC will be able to raise prices at a fairly rapid pace over the coming years.

So:
I don't think anyone who has joined HCC has much a dumb decision.

But:
I don't think it is unfair to question the company's financial model.

And:
I doubt that the HCC CEO could say anything that would materially alter my opinions.
 

jerseygirl

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Elsway said:
Net Available for Operating Expenses per Property = $28,716

This seems dangerously low compared to high-end timeshares with no mortgage, examples:

  • Florida HGVC affiliate (relatively low level of onsite services) collects about $40000, with a significant portion going to insurance and taxes.
  • Hyatt (high level of onsite services) collects over $50000
  • Harborside collects about twice that amount per unit (using an average of one-BR and two-BR units)

Am I missing something?
 

Bourne

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Please do no post misinformation.

And:
I doubt that the HCC CEO could say anything that would materially alter my opinions.

:rolleyes:

For starters, it is misinformation that is being posted. The numbers are assumptions. Please call to the facts straight.

I'll be nice. You have two numbers wrong.

According to HCC, it targets 300-320 days of use though the actual number is lower because all members do not use up their allocated days. In addition, HCC introduces a few properties at peak times to boost the availability for the short term.

Second, HCC buys a property per 6-7 FULL memberships. i.e. memberships that are based on 45 days usage. It takes approx 7 Private, 14 affiliate or 20 associate members before they buy a property.

Another tidbit. HCC properties are the cheapest in the industry. As a result, their fixed costs i.e. taxes, insurance, maintenance etc are lower too. As per HCC, they average about 25K in fixed costs per property.

However, you were correct in assuming that the average property is leveraged at 45-50%. The moot point is that when they started, it was around approx 65%.

To redo your numbers,

Home Cost = 850,000
Occupancy Rate = 80-85%
Days of Occupancy = 300-320
Nights of Use (Affiliate Member) = 25
Members per Home 14
Membership Cost (Affiliate Member) = 40,000
Membership Dues per Home (14 X 40,000) = $560,000
Mortgage per Home (850,000 - 560,000) = $290,000
Leverage per Property ($441,200 / $850,000) = 35%
However, the earlier properties were leveraged at a higher percentage. As a resut, the cumulative leveraged amount is higher.

However: The annual dues do appear to be sufficient to service the mortgage debt:

Mortgage Rate (Interest Only) = 6%
Annual Mortgage Cost = $25,500 ( Using this number as the total leverage is ironically around 45-50% )
Annual Dues (Affiliate Membership) = $5,400
Annual Dues per Home = (14 X $5400) = $75,500
Net Available for Operating Expenses per Property = $40,000
Actual operating expenses per property = $25,000


* Please do not base calculations on assumed numbers
* I would love to know where you found the numbers used in the calculation as they are presumably public information.
* A simple search on this board would have infact pointed you to the right direction on two of the three assumptions used. Please pull up a post by Doug posted a.k.a travelguy six months back.

Please do no post misinformation.
 
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Bourne

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This seems dangerously low compared to high-end timeshares with no mortgage, examples:

  • Florida HGVC affiliate (relatively low level of onsite services) collects about $40000, with a significant portion going to insurance and taxes.
  • Hyatt (high level of onsite services) collects over $50000
  • Harborside collects about twice that amount per unit (using an average of one-BR and two-BR units)

Am I missing something?


This is infact the direct result of misniformation posted. I rest my case.
 

Elsway

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:rolleyes:

For starters, it is misinformation that is being posted. The numbers are assumptions. Please call to the facts straight.

I'll be nice. You have two numbers wrong.

According to HCC, it targets 300-320 days of use though the actual number is lower because all members do not use up their allocated days. In addition, HCC introduces a few properties at peak times to boost the availability for the short term.

Second, HCC buys a property per 6-7 FULL memberships. i.e. memberships that are based on 45 days usage. It takes approx 7 Private, 14 affiliate or 20 associate members before they buy a property.

Another tidbit. HCC properties are the cheapest in the industry. As a result, their fixed costs i.e. taxes, insurance, maintenance etc are lower too. As per HCC, they average about 25K in fixed costs per property.

However, you were correct in assuming that the average property is leveraged at 45-50%. The moot point is that when they started, it was around approx 65%.

To redo your numbers,

Home Cost = 850,000
Occupancy Rate = 80-85%
Days of Occupancy = 300-320
Nights of Use (Affiliate Member) = 25
Members per Home 14
Membership Cost (Affiliate Member) = 40,000
Membership Dues per Home (14 X 40,000) = $560,000
Mortgage per Home (850,000 - 560,000) = $290,000
Leverage per Property ($441,200 / $850,000) = 35%
However, the earlier properties were leveraged at a higher percentage. As a resut, the cumulative leveraged amount is higher.

However: The annual dues do appear to be sufficient to service the mortgage debt:

Mortgage Rate (Interest Only) = 6%
Annual Mortgage Cost = $25,500 ( Using this number as the total leverage is ironically around 45-50% )
Annual Dues (Affiliate Membership) = $5,400
Annual Dues per Home = (14 X $5400) = $75,500
Net Available for Operating Expenses per Property = $40,000
Actual operating expenses per property = $25,000


* Please do not base calculations on assumed numbers
* I would love to know where you found the numbers used in the calculation as they are presumably public information.
* A simple search on this board would have infact pointed you to the right direction on two of the three assumptions used. Please pull up a post by Doug posted a.k.a travelguy six months back.

Please do no post misinformation.

So sensitive....:confused:

As I prefaced in my post: "quick and dirty" and "at first glance"...

Thanks for the correction. 14 affiliate members at 25 days useage amounts to 350 days of useage. I am sure those Colorado properties are in high demand during the summer. Sounds like a great plan to me.
 

Bourne

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Few things that I'll quote again from my previous post...


HCC targets a usage of 300-320 days. For the longest time, its affiliate member could use 21 days. In addition, the average of all members usage rounds up to 300-320 days historically.

At the new 25 day affiliate, they would be using approx 13 members 320/25. I did not modify the calculations because the change went into effect for the last 5-10% of the member base.

I can preface my post to anything. Or I can add a line as a footer. That does not mean I can post irresponsibily.

It is not being sensitive. It's just a matter to correcting information that is wrong. Like I mentioned before, what comes around goes around. If one sets a tone in the post, be ready to get it back in the same tone.

That said, I am seriously done here. I will lurk but I am done posting in a negative tone. Too much BS flying around.

No more of thread crapping from me. Only info.
:wave:
 

PerryM

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This is going to be hard to believe, but I'm lost in all the numbers.

What are folks saying here; I'd appreciate a concise summary.

Thanks
 

Elsway

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Few things that I'll quote again from my previous post...


HCC targets a usage of 300-320 days. For the longest time, its affiliate member could use 21 days. In addition, the average of all members usage rounds up to 300-320 days historically.

At the new 25 day affiliate, they would be using approx 13 members 320/25. I did not modify the calculations because the change went into effect for the last 5-10% of the member base.

I can preface my post to anything. Or I can add a line as a footer. That does not mean I can post irresponsibily.

It is not being sensitive. It's just a matter to correcting information that is wrong. Like I mentioned before, what comes around goes around. If one sets a tone in the post, be ready to get it back in the same tone.

That said, I am seriously done here. I will lurk but I am done posting in a negative tone. Too much BS flying around.

No more of thread crapping from me. Only info.
:wave:

I'll ignore your tantrum and do my best to focus on the facts.

Thanks for the info regarding planned occupancy.
HCC targets a usage of 300-320 days.

This works out to an occupancy rate of about 85%.

The Sherpa Report suggest that "The occupancy rate is a major criterion for evaluation of a destination club." "Clubs usually have average occupancy rates of 40% - 70%." "Most of the clubs plan for an occupancy rate of around 50%." (Source: Destination Clubs, A Guide for Prospective Members, Sherpa Report, June 2007)

Exclusive Resorts has come out recently acknowledging that they need to improve property availability for their members. Yet, ER seems to be targeting an average occupancy rate which is well below that of HCC.

I don't thnk it is unreasonable to be concerned that property availability at HCC will be disappoint members unless the club takes measures to reduce their planned occupancy rate.
 
S

Steamboat Bill

Popular locations like Hawaii and the Carribean will probably be in the 85-90% useage year-round for all DCs while ski locations will be 100% for ski seasons and 0% for the mud season and 20% for summer.
 
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