Press Release
April 9, 2001
IS there any way one can help the many ailing hotels and resorts in the country?
Faced with poor business they are on the brink of closure.
This is where the vacation ownership or timeshare business can help to revive them and give local tourism a boost.
Franco Yong, managing director of Tanco Resorts Bhd, the operator of the popular Vacation SuperClub believes this
can work and will benefit at least five parties: resort owners, banks, timeshare operator, customers, and the government.
Yong, who is regarded as the doyen of the local timeshare industry, said resort and hotel owners should seriously
consider including vacation ownership into their business which could help them fill up rooms and improve business.
According to Yong, Tanco Resorts Bhd plans to help these ailing resorts, professionally. He feels there is much
uncertainty and risks running a hotel or resort property in the traditional way.
"Hoteliers and resort owners would need guests to fill up their rooms and eat on the premises to generate
business. The thought of having to struggle for business today and not expecting any tomorrow may be a constant
nightmare for many owners. If only hotels and resorts are able to have a formula to even out throughs and peaks
inherent in this business which is extremely sensitive not just to economic but international elements," he
said.
It is still fresh in many people's minds of how the haze in 1997 had temporarily threatened the hospitality industry
in the region. During these difficult times, the properties are either foreclosed with very little value or are
bought up by foreigners with ready cash for a song.
"This situation does not help anyone except perhaps, foreigners, or investors, trying to make quick profits
when the economy rebounded," Yong said.
He said vacation ownership had enormous opportunity in Malaysia as the industry was the most advanced in Asia and
well legislated.
Globally, vacation ownership is a US$6.5bil industry. In its present most developed form in the US, is a 30-year-old
industry and in recent years, the growth had been overwhelming.
According to Yong, this phenomenon is attributed to the fact that brand names such as Hilton, Hyatt, Walt Disney,
Sheraton, Accor, Holiday Inn and Mariott have realised that this segment of the hospitality industry has been the
greatest opportunity they have missed out for years until recently.
"There are several pure players and non-pure players listed on the NYSE (New York Stock Exchange).
In the US and Europe, the vacation ownership industry has matured to the stage where financial institutions and
insurance companies exist to support the needs of the developers and customers," he said.
There are 6,000 vacation ownership resorts and hotels worldwide and the numbers are growing at an extremely rapid
pace. The growth rate is close to 20% year-on-year in recent times.
Yong said that back home a number of resorts in the East Coast owned by individuals and big corporations were hardly
making ends meet.
"A lot of resort owners thought it was glamorous to manage a resort at the beginning but after a while it
became very tedious. The investments took a long time to pay back not to mention making a profit," he said.
Yong said there were between eight and nine East Coast resorts whose loans had been classified as non-performing.
"They can't find a way out. I have been approached by some who want to know how the time-share business works.
I told them that what makes our timeshare resorts work so well is because we meet three critical areas - repaying
bank loans, consistent revenue stream and with that a consistent level of upkeep," he said.
According to Yong, Tanco's resorts are paid upfront using cash derived from membership sales. In this way they
could pay off their bank loans.
It is assured of a consistent revenue from the annual maintenance fee from members. The money is used to maintain
a high level of upkeep for the resorts.
To put across his idea of how vacation ownership can work, Yong offers a case study:
*Vacation ownership as a solution.
Resort X has 35,700 room nights after excluding one week per room in a year for refurbishment. Assuming each room
night is worth a sales value of RM1,500, the gross sales value for 50% of the 35,700 available nights would be
RM26.8mil.
The owner is going to market each of 50% of the total available nights to individuals for a one-off purchase price
of use for a period of 30 years.
Assuming each customer purchases on average seven nights worth RM10,500 and the owner achieves 100% sales in 12
months. Considering the cost at 60% of gross revenue of the resort, it would have a gross profit of RM16.lmil.
The product would mean that at RM1,500 per night for 30 years, the value for each night would be a mere RM5O. This
is a hedge against inflation for the future on the purchaser's vacationing budget.
Yong said that from the gross profit, the resort could pay off its RM8mil bank loan, and still had enough money
for other uses.
Also, income can be generated from renting the remaining 50% of the rooms not sold, but now without the familiar
pressure to chase for business.
"For the next 30 years, the members will contribute some maintenance fees to the resort. This will ensure
that there is enough cash-flow to maintain the level of service and the upkeep of the resort," Yong said.
SOURCE: Tanco Resorts Berhad