Friday’s Letter from America: Hilton Acquisition of Diamond

BREAKING NEWS

The Radio 4 program You and Yours will not be broadcasting the MacDonald Resorts segment today as planned, this is due to MacDonald Resorts contacting our reader and making an offer of settlement. Hopefully we will be able to publish a successful conclusion in the future.

Back now to our Letter from America.

Welcome to the end of another week with Inside Timeshare, today’s Letter from America is from an old friend, Irene Parker. It needs no introduction apart from it is a subject that has sparked many conversations, the acquisition of Diamond Resorts by Hilton Grand Vacations. Here Irene explores what this means to Diamond Members.

What does Hilton Grand Vacations Acquisition of Diamond Resorts Means to Diamond Members?

How Private Equity has Influenced Timeshare

https://3.bp.blogspot.com/-ekXeotGrjrY/WjpQO-ixsXI/AAAAAAAAAzA/yGSIiE4brYMiojy4Q6G0iHTZtgtmP5UIACPcBGAYYCw/s200/Depositphotos_54721893_original.jpg

By Irene Parker

March 26, 2021

Several Diamond Resorts members have expressed bewilderment by the announcement this month that Hilton is acquiring Diamond Resorts. Former deeded owners of resorts purchased by Diamond – Monarch, Gold Key, Sunterra, ILX, Amber and others, were told that they had to give up their deed and convert to points. It is likely they will once again be told they must upgrade to have access to Hilton properties. Overall, Diamond members seem to feel Hilton’s acquisition is a welcome development. The transaction is expected to close by summer.

According to HGV CEO Mark Wang:

But when you think about the power of putting the Hilton brand on …. it will, number one, create a tremendous amount of credibility. It’ll allow us to attract customers, higher-quality customers than Diamond was able to attract.

We’re going to be– we’re launching a new brand called Hilton Vacation Club. And Hilton Vacation Club will be positioned just below Hilton Grand Vacation Club, which is an upper upscale brand. And Hilton Vacation Club will be an upscale brand. And the entry price points are significantly lower, about $20,000 lower to– to enter the system.

https://finance.yahoo.com/video/hilton-grand-vacations-ceo-diamond-154939235.html

What does it mean? How will it work?

According to Hilton’s website: 

Accelerates launch of HGV-branded trust product offering: rebrand Diamond’s properties over time to drive revenue growth in a new customer segment

My Comment: Trust-based means properties are owned by a Trust, but that is of no benefit to timeshare members who don’t “own” anything. Buyers of non-deeded points purchase a right-to-use product. They have no beneficial interest in a Developer’s Trust any more than a member of a Country Club or gym club has a beneficial interest in their club’s brick and mortar buildings. 

My question: Diamond’s properties are already in Diamond’s Trusts. Does Hilton plan to buy legacy (older) resorts, modeling Diamond’s business model?

  • Combining HGV’s points-based deeded product with Diamond’s points-based trust structure will allow the Company to cater to a wider audience, attract more new buyers and drive incremental growth in a capital-efficient manner.
  • HGV’s deeded product provides premium pricing, inventory sourcing flexibility, and the ability to pre-sell projects to support strong project-level cash flow, while giving buyers and owners the value of guaranteed availability.

My question: How is availability guaranteed? According to Hilton members I spoke with, availability is guaranteed by means of an advanced booking window. It’s not the same as owning a fixed week that is a true guarantee.     

  • The introduction of a trust product allows for lower barriers to ownership, reduced inventory delivery volatility and inventory recycling, enabling smoother sales and upgrades while providing buyers and owners network and pricing flexibility.

The biggest question on the minds of many Diamond members is – will there finally be a resale value. Rules change, but at last check if you buy Diamond points on the secondary market, you must buy 50% of the number of points you bought on the secondary market, directly from Diamond to be eligible for The Club, to be able to exchange. Will Hilton be so restrictive?   

Inventory delivery volatility reduction must be because points are of almost unlimited supply and eternal. 

Inventory recycling means foreclosing or taking back points. 

“Smoother sales and upgrades” is something Diamond members are very used to and many are wary of. 

One Diamond member expressed Diamond’s pricing flexibility: 

Kona 11/6/18 – Our agent tried to convince us to purchase Hawaii collection points for $11.40 per point, as opposed to $4.79 presented on Oahu the week before. Manager Brett asked us where the $4.79 came from. We shared the paperwork we had been given. He became rude and threatening saying, “it is illegal for you to have these papers.” The papers had been given to us.   

  • Integrates Diamond’s innovative Events of a Lifetime® experiential sales and marketing platform that drives strong engagement and Volume Per Guest (VPG) premiums with HGV’s owner base

My Comment: It is hoped Hilton will do a better job of informing the person presented with an EOL that it is a solicitation. 

Volume per Guest is a metric that is often used to show efficiency in sales. Total sales volume divided by the number of tours “guests” that each site has. 

Ex. Site sells 200,000 on a day with 25 guests = 8,000 VPG – This is the expectation for existing owners. (Figures provided by an industry insider)

Many on our Diamond member-sponsored Facebook have questioned how this remarkably high VPG has been achieved. 

https://www.facebook.com/groups/DiamondResortsOwnersAdvocacy/

DRI 7,000-12,000 VPG 

Wyndham 3,000-4,000

Bluegreen 3,000-4,000

Marriott 3,000-5,000

Hilton 4,000-5,500  

https://www.hiltongrandvacations.com/-/media/project/hgv/presence/news-media/press-releases-pdf/hgv_press-release_2021-03-10_final.pdf?la=en

The History and Effect of Private Equity on Diamond Resorts and Timeshare 

It’s not your Grandmothers’ Timeshare

Leon Black founded Apollo in 1990 with partners from Drexel Burnham Lambert, the junk-bond shop led by Michael Milken that collapsed in a scandal. 

https://www.bloomberg.com/news/articles/2021-03-22/leon-black-steps-down-as-apollo-ceo-succeeded-by-marc-rowan

Apollo took Diamond Resorts private in 2016 for $2.2 billion and made a bid to buy Hilton Grand Vacations three years later for about $40 a share. 

https://www.bloomberg.com/news/articles/2021-03-22/leon-black-steps-down-as-apollo-ceo-succeeded-by-marc-rowan

In 2018 – Private-equity firm Apollo Global Management LLC is preparing to take Diamond Resorts public …. Apollo could seek a valuation for Diamond Resorts of around $4 billion and aim to raise in excess of $500 million in the offering, though price expectations are moving around, according to people familiar with the process.

https://www.wsj.com/articles/apollo-plans-to-take-diamond-resorts-public-1524222000

HGV, spun out of Hilton Worldwide in 2017, will buy the Las Vegas-based Diamond Resorts (for $1.4 billion) from funds managed by affiliates of Apollo Global Management Inc., Reverence Capital Partners and others in an all-stock deal.

https://www.streetinsider.com/General+News/Hilton+Grand+Vacations+to+buy+Diamond+Resorts+International+for+about+%241.4+billion/18106449.html?classic=1&fbclid=IwAR138X7CdWS5ffgQB154da07xYABd9pJCmAhgueJ-UzRun8uHFx7FH3puXU

Private Equity v Hedge Funds (Investopedia)

Private equity funds more closely resemble venture capital firms in that they invest directly in companies, primarily by purchasing private companies, although they sometimes seek to acquire controlling interest in publicly traded companies through stock purchases. They frequently use leveraged buyouts to acquire financially distressed companies. Once they acquire or control interest in a company, private equity funds look to improve the company through management changes, streamlining operations or expansion, with the eventual goal of selling the company for a profit, either privately or through an initial public offering in a stock market. 

History Repeats Itself

The first Diamond member to submit an article about their timeshare experience to Inside Timeshare was in 2016. A family of five, with their firstborn off to college, they alleged that they were told if they became Platinum they could offset maintenance fees. The most recent Inside Timeshare article is about a Diamond member who received a $95,678 judgement contesting a $3,995 Sampler trial product. He alleged that he was told he could offset maintenance fees at $.20 per point by charging purchases to a Diamond Barclaycard.  

https://insidetimeshare.com/fridays-letter-from-america-73/

Many Diamond members have reported that they were told that if they did not give up their deed their heirs would be liable for the timeshare. There have been 157 Platinum members who have reported allegations that they were promised the ability to be relieved of maintenance fees, unlock equity, or be able to sell points if they became Platinum loyalty level or bought additional points. 

Do your timeshare math when purchasing a timeshare or upgrading.  Seniors especially need to amortize the buy-in price over their expected lifetime to determine if the outlay is worth the price.   

Thank you, Irene, as usual, you have given us much to think about, let us hope the industry itself wakes up and take notes from what their own members are saying.

Join us again next week as we explore and report on the murky world of timeshare, have a great weekend.

More Breaking News

On Monday Inside Timeshare will be publishing the latest on the Cazorla Group, the majority shareholders of Anfi, it has been announced that the courts have declared the Cazorla Group bankrupt.


One Comments

  • Grant

    May 9, 2021

    Great information, thank you. We hold deeds to 4 weeks at Diamond’s Kaanapali Beach Club in Maui. We’ve owned since 2000 and did not relinquish the deeds, despite the hard sell to do so. How will Hilton handle deeded property held by Diamond owners?
    Thank you

    Reply

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