Sometimes all a business with a shady reputation needs to do is change its name and marketing, and all is forgiven. That seems to be the case with the old timeshare industry, which now likes to think of itself as offering “interval” stays at vacation resorts.
And one company is really cleaning up in the process.
Interval Leisure Group (NASDAQ:IILG) is the second-largest provider of timeshares and timeshare management services in the world. Based in Miami, Fla., it is affiliated with 2,600 timeshare resorts spread across 75 countries, and the $750 million market cap company boasts 1.8 million vacation ownership interest owners enrolled as members.
IILG enters into multiyear contracts with the developers of high-end vacation ownership resorts, such as Four Seasons, Hyatt and Westin. The developers then agree to enroll purchasers of vacation interests at their location as members of IILG’s Interval Exchange Program. Interval Leisure members then are allowed to trade timeshare weeks at the various resorts among themselves, or they can purchase weeks at another timeshare without giving up weeks at their own.
The company collects from members on two occasions. Members must pay recurring membership fees, as well as a transaction fee on every trade or purchase of extra time. This division captures margins that exceed 35%.
Members tend to have higher incomes than the rest of the timeshare industry; the median is $102,000 per year, vs. a $78,000 median for the rest of the industry.
Speaking of the industry, it’s important to note that the timeshare business essentially is a duopoly that IILG splits with RCI, a division of Wyndam Worldwide (NYSE:WYN). IILG has 32% of the market, and RCI has all but 1% of the rest.
In 2007, Interval Leisure entered into the managerial side of the business by acquiring Ashton Hotels and Resorts — a group of properties, including villas and condos, spread across Hawaii. The firm subsequently has gone on to acquire Trading Places International to expand its membership and exchange list. This division contributes 16% to IILG’s revenue.
Click to EnlargeThe company went public in August 2008, right in the middle of the last financial crisis, and for the first seven months, shares plunged. The stock based at $3.15 in March 2009, then rose almost sixfold to a high of $17.95 in February this year. Shares proceeded to sink to around $10 during the summer but have bounced back to base recently in the high $13s.
The company has rebounded well because it is simply growing well. When times are really tough and credit is hard to get, families drop out of the fractional ownership game. But when confidence resumes, they quickly swarm back in, allowing well-managed companies to increase margins rapidly.
IILG witnessed a decrease in membership over 2010 and 2011, but Morningstar analysts observe that levels have stabilized, allowing for more growth in revenues and earnings. This was evidenced in the third quarter, when revenue was reported up 6.2% — half of which came from a ramp-up in transaction fees.
The company has continued to expand its business overseas in the meantime, most recently announcing this month a partnership with Zalu Zanzibar, a luxury boutique timeshare development in Tanzania, which looks pretty cool.
Interval Leisure has proven that it knows how to ride out a storm, make accretive acquisitions and manage its shares through buybacks. Now that memberships have stabilized, with any decent tone in the economy the shares have a fighting chance over the next six months. It’s a buy under $14.
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