Fairfield Communities, Inc.
Fairfield Communities, Inc.
Sales: $491.73 million (1999)
Stock Exchanges: New York
Ticker Symbol: FFD
NAIC: 23311 Land Subdividers and Land Development
Fairfield Communities, Inc. is the third largest vacation ownership company in the United States, selling time-share ownership interests through its point-based vacation system, FairShare Plus. Fairfield operates 33 resorts in 12 states and the Bahamas, which are frequented by the company’s approximately 280,000 members. The company’s vacation ownership interests are generally in resort locations featuring fully furnished accommodations and near such amenities as golf courses, swimming pools, beaches, marinas, tennis courts, and other recreational facilities. Through affiliations with several worldwide vacation exchange companies, Fairfield also offers access to approximately 2,500 additional domestic and international resorts, including Hawaii, the Caribbean, Mexico, Europe, Asia, and Africa.
C. Randolph Warner triggered the events that led to Fairfield’s formation when he purchased 4,000 acres in 1966 in his native Arkansas. A former editor of the Harvard Law Review and an attorney by training, Warner developed a resort site on the property, located near Greers Ferry Lake. The business proved promising, prompting Warner to solicit the help of George Donovan, who ran a successful computer-leasing firm. Fairfield, incorporated in 1969, would help pioneer the vacation ownership industry in the United States.
Additional resort locations were added to Fairfield’s portfolio during the ensuing years, but Warner did not begin selling ownership interests in his resorts until more than a decade after buying the property on Greers Ferry Lake. Fairfield’s signature and pioneering time-share concept, FairShare, was introduced in 1978 at Fairfield Mountains in Lake Lure, North Carolina. Under the guidelines of FairShare, Fairfield members purchased an ownership stake in a particular resort property. Ownership of each property was divided into 52 one-week fixed intervals, allowing Fairfield members to spend a week at the particular resort in which they owned an ownership stake. The price of each ownership interest was determined by the value of the particular resort and by the season. The purchase of high-demand vacation time cost more than less popular times of the year. The FairShare plan was simple yet novel, drawing its inspiration from the European concept of fractional ownership that debuted during the 1950s.
The novelty of FairShare in the United States helped Warner build a bustling business that produced steadily rising profits during the late 1970s and early 1980s. With financing partly provided by junk bonds, Warner established a stable of resorts whose brochures attracted scores of new Fairfield members. By 1984, the company controlled 70,000 acres at more than a dozen locations in ten states and the Virgin Islands, which produced a record-setting $16 million in profits. Warner, who had seen his business grow tremendously during a short period, had already decided to retire by the time 1984’s record results were announced. In June 1983, he appointed his longtime associate Donovan as president of Fairfield, who assumed control midway through the company’s most ambitious expansion phase in its history. Between 1981 and 1986, Fairfield increased the number of its resort properties from seven to 29, adding retirement communities, time-share resorts, and a ski lodge to a stable of locations stretching from South Carolina to southern California.
Financial Problems Emerge in the Mid-1980s
As Fairfield exponentially increased its stature, however, serious problems were beginning to surface. Some industry pundits and Fairfield insiders cast part of the blame on Donovan who, prior to his appointment as president, had proven himself a tireless worker but subsequently demonstrated a penchant for corporate extravagances. He persuaded company officials to purchase a corporate Citation Jet, which he would board from his Jaguar. Donovan also refused to move to Little Rock, Arkansas, where Fairfield was based, ignoring a previously agreed upon plan to relocate from his office in Knoxville, Tennessee, once appointed president. Instead, Donovan abruptly moved to Atlanta, Georgia, and within a year, steered Fairfield headlong into the Florida resort home-building market. Within two years of Donovan’s presidential appointment, corporate expenses reeled out of control. Selling costs and corporate overhead rose to $85 million in 1985, or 25 percent of sales, a percentage that Warner deemed excessive. Further, the company was saddled with $370 million of debt, a total that exceeded Fairfield’s annual sales of $320 million. By December 1985, Donovan was forced to leave and Warner, who shelved his plans for retirement, returned to rescue a floundering company.
Warner faced the daunting task of trying to immediately cure profound problems. In an interview with Forbes magazine in September 19, 1988, he offered some insight into Fairfield’s miscue during the first half of the 1980s. “We were trying to build a national resort community that would get us within 500 miles of all the major metropolitan centers of the United States,” he said. “But we didn’t have the trained management to take on that many projects that quickly. We thought we were invincible.” Warner had yet to appreciate how vulnerable his company was as he began implementing sweeping turnaround measures in 1986. Among the changes, the salaries of senior management were reduced by ten percent, 20 percent of the company’s 2,600-person workforce was laid off, commercial properties in Colorado and Arizona were sold, and corporate offices in Atlanta and Jacksonville, Florida, were closed. Warner also hired a new chief financial officer known for being a corporate turnaround specialist, but little progress was achieved during the first year. By the end of 1986, the company had set a new record by losing $17.6 million.
Warner redoubled his efforts in 1987. He decided to liqui-date Fairfield’s home building operations that included ten properties in Florida, Arizona, and Colorado. In May 1988, he reached an agreement to sell five of the company’s six remaining Florida housing projects. After the massive restructuring effort, however, the telltale signs of a company nearing insolvency remained. Selling costs and corporate overhead in 1988 totaled $84 million, distressingly close to the total registered three years earlier. Debt stood at $400 million. In 1989, the company set another alarming record, registering the worst financial year in its history by posting a $24.8 million loss. As grave as it was, Fairfield’s condition was about to become much worse. Warner had yet to contend with the aftershock of the $500 billion collapse of the savings and loan industry. For Fairfield, the result was disastrous.
Part of Fairfield’s rapid growth during the late 1970s and early 1980s was fueled by junk bond financing provided by the infamous Michael Milken and Drexel Burnham Lambert. The company’s first junk bonds were issued in 1977, inaugurating a practice that would continue for the next 13 years, ultimately totaling $93 million between 1977 and 1990. When Milken and Drexel captured national newspaper headlines in 1989 because of their financial collapse, Fairfield found it decidedly more difficult to refinance its junk bonds when, as Arkansas Business reported on November 12,1990, “Mike Milken was no longer a phone call away.” To make matters worse, one of the company’s principal lenders, First National Bank of Boston, was mired in its own financial problems. The bank was plagued by more than $400 million in troubled real estate loans, prompting its directors to reform the company’s lending practices. As a result, First National severed Fairfield’s $45 million line of credit in August 1990, causing Fairfield’s liquidity to evaporate. Roughly a month later, Fairfield, stripped of cash, missed a $3.8 million junk bond payment. Warner was left with few options. On October 3, 1990, Fairfield declared bankruptcy, seeking Chapter 11 protection from a 226-page list of more than 2,000 creditors. It was the largest filing in the state’s history.
Today, over 260,000 families enjoy the Fairfield lifestyle. From the excitement of Myrtle Beach, South Carolina to the shores of California. From the star-filled stages of Branson, Missouri, to the snow-powdered slopes of Pagosa, Colorado. Fairfield has resorts in America’s most scenic locations. Golf. Tennis. Fishing. Boating. Swimming indoors and out. Hiking. Dining. Sightseeing. Horseback riding. Activities and entertainment for every age and interest. Fairfield members can even vacation at more than 2,500 additional resorts around the world through our international ex-change affiliations. Or they can make themselves at home at one of the several Fairfield resorts that offers homesites. Whatever our members choose, Fairfield offers a Personal Vacation System.
Fairfield Starts Anew in 1992
Nearly two years after shrouding itself in the veil of bankruptcy, Fairfield emerged from Chapter 11 protection after ex-changing much of its bondholder debt for equity. The new era in Fairfield’s history began in September 1992. By the end of its first full year after the 1990 debacle, annual sales reached $91 million—a fraction of the annual total collected during the 1980s—but the company was profitable, registering $7.1 million in earnings. The new version of Fairfield comprised 14 resorts frequented by more than 130,000 members and a new time-share plan called FairShare Plus. Unlike its predecessor, FairShare Plus offered Fairfield members considerable flexibility in arranging their vacation time through the adoption of a point-based system. Members’ ownership stakes were assigned symbolic points that could be used for vacation stays of a few days, a week, or longer, in any season members chose. The points, or credits, were renewed annually and, in some cases, could be borrowed from the next year’s allotment. Fairfield’s new marketing plan, like others implemented by other timeshare companies, no longer restricted members’ choices to a fixed week in fixed seasons.
By 1995, Fairfield, having fully recovered from the travesty of the 1980s, had 15 resort locations in operation. Among the properties were resorts in Orlando, Florida; Branson, Missouri; Myrtle Beach, South Carolina; Williamsburg, Virginia; Nashville, Tennessee; and Pagosa Springs, Colorado, but aside from these resorts and the company’s nine other properties, Fairfield members had thousands of other locations to choose from. Through affiliations with several worldwide vacation exchange companies, Fairfield offered access to approximately 2,500 additional domestic and international resorts, including Hawaii, the Caribbean, Mexico, Europe, Asia, and Africa.
The number of vacation destinations available to Fairfield members grew dramatically during the latter half of the 1990s, when the company expanded as aggressively as it had during the early 1980s. Based on the total properties in operation in 1995, the number of Fairfield-operated resorts more than dou-bled by the end of the decade, with a handful of the new resorts added through a major acquisition in 1997. In a transaction valued at $240 million, Fairfield acquired Fort Lauderdale-based Vacation Break U.S.A. Vacation Break owned and operated four developments in southern Florida, a time-share in Orlando, and a hotel in the Bahamas, giving Fairfield 20 time-share properties comprising 3,000 units. Aside from providing Fairfield with a heavy presence in southern Florida—an area estimated to be worth $100 million in sales—the acquisition of Vacation Break placed Fairfield among the four largest publicly held, time-share companies in the United States. Although there were major costs associated with the acquisition, Fairfield’s stock value soared during the year, increasing an impressive 175 percent.
The acquisition of Vacation Break was credited with Fairfield’s surge into the small pack of the country’s elite time-share companies. After moving its headquarters from Little Rock to Orlando in 1999, the company became the third largest time-share organization in the country, trailing only Marriott Vacation Club and Sunterra Corp., both of which were also based in Orlando. By the end of the 1990s, there were 33 Fairfield resorts located in 12 states and the Bahamas, with additional properties under development. In 1999, the company began sales operations on a start-up basis at six resorts still under development. The resorts, which were expected to be completed by late 2000 and early 2001 were located in Sedona, Arizona; Durango, Colorado; Daytona Beach, Florida; Las Vegas, Nevada; Gatlinburg, Tennessee; and Destin, Florida.
As Fairfield entered the 21st century, an announcement in January 2000 suggested the beginning of a new era for the company. Late in the month, Miami, Florida-based Carnival Corporation announced it was going to purchase Fairfield in a $775 million deal. Carnival, an operator of 45 cruise ships under the names Carnival Cruise Line, Holland America Line, Windstar Cruises, and Cunard Line Limited, had been a partner with Fairfield since 1996, offering its cruises to Fairfield members. Fairfield members were able to purchase cruises through FairShare Plus, but Carnival wanted to establish a reciprocal relationship with Fairfield. Under the terms of the proposed merger, Fairfield would become a wholly owned subsidiary of Carnival, allowing Carnival to market its cruises to Fairfield while Fairfield marketed its resorts to Carnival customers. Within a month, however, the deal collapsed. After watching his company’s shares plunge nearly 35 percent in value during the four weeks after the merger was announced, Carnival’s chairman withdrew from the transaction. His decision, as quoted by Knight-Ridder/Tribune Business News on February 25, 2000, “was based on recent disruptions within the stock market that have resulted in a negative impact on Carnival’s shares.”
In the wake of the scuttled merger, Fairfield pressed ahead with the development of its resorts. The company, after years of struggling with profound financial problems, faced its future with justifiable optimism. Its leading position within the industry rested on a solid financial foundation, one capable of supporting expansion in the decade ahead and underpinning the company’s bid to make Fairfield resorts the choice of vacationers throughout the country.
- C. Randolph Warner purchases 4,000 acres in Ar-kansas.
- Fairfield introduces its first time-share plan called Fair Share.
- Years of robust growth culminate in a record $16 million in profits.
- Fairfield experiences the worst financial year in its history, losing nearly $25 million.
- Fairfield files for bankruptcy in October.
- The company emerges from Chapter 11.
- Fairfield acquires Vacation Break U.S.A.
- Proposed merger with Carnival Corporation is abandoned.
Fairfield Communities, Inc.; Apex Marketing, Inc.; Fairfield Acceptance Corporation-Nevada; Fairfield Capital Corporation; Fairfield Funding Corporation, II; Fairfield Receivables Corporation; Fairfield Bay, Inc.; Fairfield Flagstaff Realty, Inc.; Fairfield Glade, Inc.; Fairfield Homes Construction Company; Fairfield Management Services, Inc.; Fairfield Mortgage Acceptance Corporation; Fairfield Mortgage Corporation; Fairfield Mountains, Inc.; Fairfield Myrtle Beach, Inc.; Fairfield Pagosa Realty, Inc.; Fairfield Sapphire Valley, Inc.; Fairfield Vacations Resorts, Inc.; Fairfield Virgin Islands, Inc.; Imperial Life Insurance Company; Ocean Ranch Development, Inc.; Palm Resort Group, Inc.; Shirley Realty Company; Suntree Development Company; The Florida Companies; Vacation Break, U.S.A., Inc.; Atlantic Marketing Realty, Inc.; Resorts Title, Inc.; Sea Gardens Beach and Tennis Resort, Inc.; Serenity Yacht Club, Inc.; Vacation Break at Ocean Ranch, Inc.; Vacation Break Management, Inc.; Vacation Break Resorts at Palm Aire, Inc.; Vacation Break Resorts at Star Island, Inc.; Vacation Break Resorts, Inc.; Vacation Break Welcome Centers, Inc.; Vacation Break International Limited (Bahamas); Vacation Break Marketing Company Limited (Bahamas).
Sunterra Corp.; Marriott International, Inc.; Cendant Corporation.
Barker, Time, “Orlando, Fla., Solidifies Time-Share Lead,” Knight-Ridder/Tribune Business News, May 17, 1999, p. OKRB991370ED.
Corzo, Cynthia, “Carnival Abandons Plan to Acquire Orlando, Fla., Time-Share Resort,” Knight-RidderfTribune Business News, February 25, 2000, p. ITEM00057082.
Schifrin, Matthew, “Fairfield the Fair,” Forbes, June 20, 1994, p. 272.
Taylor, John H., “‘We Thought We Were Invincible,’” Forbes, September 19, 1988, p. 72.
“Thank Goodness for Time-Sharing,” Financial World, February 15, tion. 1983, p. 30.
Waldon, George, “Real Estate Stocks Soar, Apartment Projects Mushroom,” Arkansas Business, December 29, 1997, p. 20.
Walker, Wythe, Jr., “Fairfield Fights for Its Life,” Arkansas Business, November 12, 1990, p. 20.
—Jeffrey L. Covell