Press Release: Sunterra Corporation
November 4, 1999
ORLANDO, FL -- Sunterra Corporation (NYSE: OWN) yesterday announced record revenues and net income for the third
quarter, building on its record first half performance.
Third quarter revenues were up 21% to a record $153 million, fueled by a 21% increase in vacation ownership interest sales. This top line growth generated a 22% rise in net income and a 21% increase in diluted earnings per share. Net income for the quarter reached $17.5 million versus $14.3 million in the comparable year-earlier period, and diluted EPS was $0.46 per share, up from $0.38 last year.
``Our third quarter performance was very strong across the board,'' commented L. Steven Miller, Sunterra's President and CEO. ``We had solid top line growth; and with cost of sales and advertising/sales/marketing costs within target ranges, we were able to generate commensurate bottom line growth even as we continued to invest in the infrastructure required to build Club Sunterra.''
``The roll-out of Club Sunterra continues on schedule. We are currently introducing Club Sunterra at key locations in the West, including Sedona and Scottsdale, and will have the entire network on points-based sales by year- end. The sales force is enthusiastic and the comparable year-over-year sales increases indicate that our customers are as well.''
``In addition to providing our customers with an enhanced offering, Club Sunterra also serves as a flexible, points-based platform on which we can expand our relationship with existing customers and provide entry points for potential new customers -- in part through wide-ranging affiliations with other travel-related companies,'' continued Miller. ``For example, in the third quarter we announced our participation in American Airlines AADVANTAGE Program. We also announced an agreement with MemberWorks that includes a unique package of entertainment, dining, travel and other leisure lifestyle benefits, called Sunterra Privileges. We have also developed points-based trial programs for customers whom we are soliciting for the first time. We began selling these through the largest Century 21 franchisee, located in the Midwest, and are launching a similar program in Texas with a major franchisee of another nationally recognized real estate broker. Looking ahead, we will be announcing further major tie-ins during the fourth quarter of this year -- all with the objective of significantly broadening the base of active vacationers who rely on the Sunterra brand to fulfill their vacation needs, and in the process generating increasing levels of recurring revenue.''
``The ultimate opportunity to broaden our reach obviously relates to the internet, and 'Sunterra.com' is clearly the industry's most advanced and user- friendly web site. Not only can anyone take a virtual tour of each of our 70 resorts and obtain information about Club Sunterra member benefits and special programs, but all consumers can also instantly fulfill reservations for mini- vacations and rental specials directly on-line with credit card information. Indeed, we're using our web-based technology to develop private label booking engines that will handle on-line booking for Sunterra resorts at other travel- related sites, such as Vacationspot.com. In addition, the data base applications of this technology allow us to conduct fully automated lead generation and lead management programs on the web.''
``The combination of all these efforts supports our strategic plan to substantially expand the community of Club Sunterra vacationers, increase efficiencies and reduce costs in our lead generation activities, drive recurring revenues in new and existing business lines, and continue strong growth not only in our vacation interest sales but in the income we derive from our property management and rental businesses as well,'' concluded Miller.
Third Quarter Results
Revenues increased 21% from $127 million to $153 million in the quarter. This growth primarily reflected a 21% increase in Vacation Ownership Interest sales, which grew to $125 million from $103 million in the comparable year- earlier period. About three-quarters of this $22 million increase related to higher sales at resorts open in the comparable year earlier period and about one-quarter to resorts acquired or developed during the prior twelve months. This internal growth reflects the wide acceptance of Club Sunterra at our existing resorts where we have introduced it this year. Growth was fueled largely by a 22% increase in transactions.
Other income was up 18% for the quarter, primarily related to strong increases in management fees and rental income as well as to membership revenue from Club Sunterra. The growth would have been significantly higher except for the adverse impact of Hurricane Floyd on rental revenue during September.
The number of Sunterra vacation owner families reached 273,000 at September 30, 1999, up 21% from approximately 225,000 owners twelve months earlier. There were 90 operating resorts at the end of the third quarter, 3 more than the year-earlier period. The company is currently in active construction at 16 of our existing locations and is completing a new resort in San Diego that will be opening in the first quarter of next year. In addition, in mid-October we acquired our first property in Germany. It is located in the foothills of the Bavarian Alps, approximately 45 minutes driving time from Munich.
During the third quarter, the Company reported a pretax gain of $2.5 million on the sale of about $72 million of mortgages receivable, most of which were sold into our off-balance sheet conduit as part of our continuing program of monetizing the sales that we finance for our customers. In the comparable year-earlier period, there was a $1.0 million gain on sale of mortgages receivable. The quarter-over-quarter net positive P&L impact from mortgages receivable sales was more than offset, however, by the lower than expected current quarter vacation ownership sales and rental revenues as a result of Hurricane Floyd, which reduced diluted EPS by about 3 cents. Excluding both the gains on the mortgages receivable as well as the effect of the Hurricane, net income was up 25% and diluted EPS 22% and from quarter to quarter.
The $72 million in third quarter mortgages receivable sales, together with $70 million of first-half sales into conduits, securitizations and other vehicles, resulted in an $11 million decrease in net mortgages receivable since the beginning of the year (from $336 million to $325 million) even though there was a 25% increase in sales for the nine months ended September 30, 1999.
At the end of the third quarter, mortgages serviced by the Company (including securitized mortgages) in excess of 60 days past due totaled 6.4% as a percentage of gross mortgages receivable, down from 6.9% in the comparable year-earlier period. Net of inventory recoveries, these percentages are 4.4% and 4.7%, respectively. The allowance for doubtful accounts as a percentage of gross mortgages receivable was 6.4%, up from 6.3% a year ago.
Results for the Nine Months Ended September 30
Revenues were up 24% for the first nine months of the year to a record $402 million, primarily reflecting a 25% increase in vacation ownership interest sales to $327 million and a 36% increase in Other Income on the strength of higher management, rental, membership and other fees.
The strong revenue growth fueled a 31% increase in net income - from $31.3 million in the first nine months of 1998 to $41.0 million in the first nine months of this year. Over this same period, diluted earnings per share grew by 30% from $0.84 per share to $1.09 per share.
Sunterra Corporation is the largest international owner and manager of vacation ownership resorts, with 90 resort locations around the world and 273,000 owner families. In addition, Sunterra manages 18 third-party condominium and other resorts in Hawaii. The Company's operations consist of (i) marketing and selling vacation interests, (ii) developing, acquiring and operating vacation ownership resorts, (iii) financing customers' purchases and (iv) providing resort rental, management and maintenance services.
This release contains forward-looking statements, which include Sunterra's expansion plans, future prospects,
forecasts and other statements of expectations. Although management believes these statements are based on reasonable
assumptions, actual results may differ materially from those expressed in any of our forward looking statements
due to, among other things, factors related to the timing and terms of future acquisitions and the introduction
of Club Sunterra, mortgages receivable financing, integration of acquired operating companies and resort properties
and other factors identified in Sunterra's filings with the Securities and Exchange Commission, including those
set forth in Parts I and II of Sunterra's Annual Report on Form 10-K for the year ended December 31, 1998 and in
Sunterra's current reports on Forms 10-Q and Forms 8-K filed during 1999.
SUNTERRA CORPORATION
Consolidated Statements of Income
Three Months Ended
($ in thousands, unaudited)
September 30,
1999 1998
Revenues:
Vacation Interests sales $125,122 $103,292
Interest income 15,438 14,208
Gain on sale of receivables 2,501 1,032
Other income 10,084 8,520
Total Revenues 153,145 127,052
Costs & Operating Expenses:
Vacation Interests cost of sales 31,820 24,291
Advertising, sales and marketing 57,734 45,472
Loan portfolio:
Provision for doubtful accounts 2,144 3,252
Other expenses 1,944 727
General and administrative 16,462 13,182
Depreciation and amortization 4,259 3,258
Total costs & operating expenses 114,363 90,182
Income from operations 38,782 36,870
Interest expense 10,831 13,310
Minority interest in profits of
consolidated limited partnerships 3 --
Equity (gain)/loss on investment
in joint ventures (744) 38
Income before provision for taxes 28,692 23,522
Provision for income taxes 11,189 9,173
Net income before nonrecurring items 17,503 14,349
Extraordinary item, net of taxes -- --
Net income $17,503 $14,349
Net income - diluted $18,713 $15,559
Shares outstanding:
Basic 35,932 35,888
Diluted 41,055 40,793
Earnings per share -- before extraordinary item:
Basic $0.49 $0.40
Diluted $0.46 $0.38
Earnings per share:
Basic $0.49 $0.40
Diluted $0.46 $0.38
SUNTERRA CORPORATION
Consolidated Statements of Income
Nine Months Ended
($ in thousands, unaudited)
September 30,
1999 1998
Revenues:
Vacation Interests sales $326,550 $260,834
Interest income 39,832 38,979
Gain on sale of receivables 5,441 1,032
Other income 30,109 22,207
Total Revenues 401,932 323,052
Costs & Operating Expenses:
Vacation Interests cost of sales 81,725 61,928
Advertising, sales and marketing 149,887 117,849
Loan portfolio:
Provision for doubtful accounts 7,122 9,412
Other expenses 4,030 2,930
General and administrative 48,353 37,247
Depreciation and amortization 10,888 7,914
Total costs & operating expenses 302,005 237,280
Income from operations 99,927 85,772
Interest expense 35,131 34,238
Minority interest in profits of consolidated
limited partnerships (58) --
Equity (gain)/loss on investment in
joint ventures (2,388) 7
Income before provision for taxes 67,242 51,527
Provision for income taxes 26,224 20,095
Net income before nonrecurring items 41,018 31,432
Extraordinary item, net of taxes -- 129
Net income $41,018 $31,303
Net income - diluted $44,648 $34,933
Shares outstanding:
Basic 35,920 35,888
Diluted 40,958 41,357
Earnings per share -- before extraordinary item:
Basic $1.14 $0.88
Diluted $1.09 $0.85
Earnings per share:
Basic $1.14 $0.87
Diluted $1.09 $0.84
SUNTERRA CORPORATION
Consolidated Balance Sheets
($ in thousands)
September 30, December 31,
1999 1998
(unaudited)
Assets:
Cash and cash in escrow $46,436 $54,201
Mortgages receivable, net 325,157 335,982
Retained interests 46,904 12,518
Receivables and other assets 90,634 86,087
Investment in joint ventures 23,231 17,876
Real estate and development costs 355,727 336,620
Property and equipment, net 116,338 81,125
Intangible assets, net 95,387 96,723
Total assets $1,099,814 $1,021,132
Liabilities and equity:
Accounts payable $30,743 $21,864
Accrued liabilities 83,926 80,242
Income taxes payable 7,452 9,240
Deferred taxes 47,124 30,984
Notes payable 635,503 627,089
Total liabilities 804,748 769,419
Stockholders' equity 295,066 251,713
Total liabilities and equity $1,099,814 $1,021,132
SOURCE: Sunterra Corporation