Sunterra Corporation

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Sunterra Corporation

3865 West Cheyenne Avenue
North Las Vegas, Nevada 89032
Telephone: (702) 804-8600
Fax: (702) 304-7066
Web site:

Public Company
1996 as KGK Resorts, Inc.
Employees: 5,000
Sales: $288.7 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: SNRR
NAIC: 531210 Offices of Real Estate Agents and Brokers

Sunterra Corporation is one of the largest vacation ownership companies in the world, supported by nearly 100 resorts in 13 countries. Sunterra's properties are located in North America, Europe, and the Caribbean, where its more than 300,000 customers can use their vacation ownership interests to stay at selected resorts, typically for a one-week stay. The company offers financing services to its customers, referred to as "owner families," and also develops and manages resort properties.


Sunterra experienced the highs and lows of competing as a timeshare operator during its first decade of business, recording phenomenal growth before falling spectacularly from the heights it had attained. The company's roller-coaster ride began in 1992, when Osamu Kaneko, Andrew J. Gessow, and Steven C. Kenninger decided to delve into the acquisition and development of timeshare resorts. Kaneko, a native of Japan who was educated in the United States, had spent the previous 25 years developing and acquiring resorts, spending the years immediately preceding the formation of Sunterra working with Kenninger, a business attorney. In 1985, the pair founded KOAR Group, Inc., a Los Angeles-based real estate acquisition and development company. The third member of the founding group, Gessow, brought his own entrepreneurial experience to the team, having founded Argosy Group, Inc., a Woodside, California-based real estate and acquisition company, in 1990.

When Kaneko, Kenninger, and Gessow started out, a single corporate entity did not exist. Instead, a group of individual limited partnerships and limited liability companies (LLCs), each in charge of a particular resort and each affiliated with the founders, constituted Sunterra's predecessor organization. With each acquisition, a new limited partnership or LLC became part of the organization controlled by the founders, beginning with their first acquisition in November 1992, the purchase of the Cypress Pointe Resort in Lake Buena Vista, Florida. A single corporate entity did not exist until 1996, when KGK Resorts, Inc. was incorporated, a company that at the time of its creation controlled nine resort properties acquired by Kaneko, Kenninger, and Gessow. After the acquisition of the Cypress Pointe Resort, the founders purchased Plantation at Fall Creek, an 82-unit resort in Branson, Missouri. In 1994, two resorts were acquired, a 40-unit property in Hilton Head, South Carolina, called Royal Dunes Resort, and an Embassy Vacation Resort in Koloa, Kauai, Hawaii, with 219 units. In 1995, after acquiring another Florida property, the 72-unit Grand Beach in Orlando, the company acquired its first property in the Caribbean, the Royal Palm Beach Club on St. Maarten in The Netherlands Antilles, a 140-unit resort. A second resort on St. Maarten was acquired the same year, the 172-unit Flaming Beach Club. In 1996, the company added destinations in California, acquiring a property in South Lake Tahoe and the San Luis Bay Resort in Avila Beach.

The nine resorts in operation by the time KGK Resorts was incorporated marked a turning point in the history of Sunterra, the end of the first chapter in the company's story and the beginning of the most eventful period in its development. The same month the company acquired the Avila Beach property it changed its name to Signature Resorts, Inc., the corporate banner under which it completed its initial public offering (IPO) of stock two months later. When Signature Resorts completed its IPO in August 1996, the acquisition program executed during the previous years had produced impressive financial growth, increasing revenue from $11 million in 1992 to $72 million in 1995. Following its IPO, however, the company began acquiring resorts more aggressively.

Rapid Expansion in the Late 1990s

By the end of 1997, roughly one year after its IPO, Signature Resorts could claim to be the largest vacation ownership company in the world, having spent the previous year acquiring resort properties at a furious pace. In a little more than 12 months, the company increased its stable of resorts from nine to 81, giving its customers the opportunity to vacation in eight North American and European countries. The company's annual sales shot past $300 million, propelled by its torrid acquisition campaign. Its stock value reacted favorably to the expansion drive, reaching a high of $32.17 per share in October 1997. Wall Street, as evinced in the increasing value of Signature Resorts' shares, approved of the company's decision to expand at a rapid clip, but the applause from investors and analysts soon ended. After reaching $32.17 per share, the company's stock value plummeted, falling at one point to five cents per share. "In its quest for growth," an analyst reflected in a March 2, 2005 interview with Investor's Business Daily, "financial caution was sacrificed and the company gave loans to people who weren't qualified."

The collapse of Signature Resorts' stock value represented a telling barometer of profound problems, reflecting the financial community's reaction to a company spinning out of control. The severity of the company's problems was not revealed until early 2000, two years after Signature Resorts had changed its name to Sunterra Corporation. In the three years since the major portion of the company's acquisition campaign had ended, annual sales had grown to $500 million, a total derived from the 89 resorts under Sunterra's control at the dawn of the 21st century. Such size had come at a hefty price, however, a price that proved nearly fatal to the company that heralded itself as the largest company of its kind in the world. The scope of its problemsthe effect of its acquisition campaign on its financial stabilityfirst became apparent after an in-depth audit in early 2000 discovered that Sunterra would have to write off $43 million in delinquent accounts. From there, the company's situation worsened as the months passed. At the end of its fiscal quarter in March 2000, the company posted an alarming $15.6 million loss, a result that stood in stark contrast to the $10 million profit recorded during the first quarter of 1999. Steven Miller, who was appointed chief executive officer in 1998, was replaced, as the company's board of directors tried to contend with the problems presented to it. In May 2000, the company laid off 12 percent of its workforce, stopped work on several development products, including a partly completed, $22 million headquarters complex in Orlando, and hoped to stave off financial ruin. Sunterra's difficulties proved greater than the measures implemented to correct them, however. The company's infrastructureits customer service operations, central reservations functions, and its accounting departmenthad not been able to keep pace with the rapid expansion fueled by acquisitions, exacerbating its debt problems. At the end of May, after defaulting on scheduled loan payments, Sunterra admitted defeat and declared bankruptcy, awash in debt totaling $850 million. The company was delisted by the New York Stock Exchange in the summer, and ended the year with a staggering $376 million loss.

Reorganization After Collapse: Emerging from Bankruptcy in 2002

Once under court protection from its creditors, Sunterra focused on reconstituting itself for a return as a participant in the timeshare industry. After several leadership changes, the company found the chief executive officer to spearhead its revival, a former British Army officer, Nicholas J. Benson. Benson was promoted from within the Sunterra organization, having joined the company in 1997 as chief operating officer of its European operations. He was promoted to chief executive officer of the company's international business in January 2000, the post he occupied before the board of directors appointed him as chief executive officer of the entire company in November 2001. Under Benson's guidance, Sunterra reduced the number of properties it owned or managed from 89 to 75 as it worked on developing a reorganization plan to submit to the bankruptcy court. As the plan was being developed, the company announced that it was relocating its headquarters from Orlando to Las Vegas, part of a reorganization that divided the company's operations into two divisions: Sunterra Europe, based in England, and Sunterra USA, based in Las Vegas. After ending 2001 with another loss, $72 million, the company submitted its reorganization plan in January 2002, ready to make a fresh start and to exercise greater financial discipline in the future.

Under Benson's leadership, Sunterra staged an impressive comeback. The company returned to profitability in 2003, achieving financial stability that allowed it to begin rebuilding its portfolio of resorts. By the fall of 2004, Sunterra had regained its pre-Chapter 11 stature, owning or managing more than 90 resorts in 12 countries from which its more than 300,000 owner families could select as their vacation destination. The company's fiscal year ended in September 2004, a year in which sales declined 7 percent to $288 million, but most important, produced another encouraging profit result. For the year, Sunterra collected $21 million in net income, spurring Benson and his management team to continue with their acquisition program.

Company Perspectives:

Sunterra's goal is to become the global currency of relaxation. Our key strategies include: expand our channels of distribution in key markets around the world; to complement our current product offerings with an active development program, including strategic partnerships; to increase our brand name recognition; and to provide consistently high levels of quality and reliability so that our current and prospective owner families can look forward to their vacations with trust and pleasure.

As Sunterra concluded its first decade as a publicly traded company, it appeared to have put its troubles behind it. On the acquisition front, the company continued to press forward, beginning the start of fiscal 2005 in October 2004 with the announcement of two purchases. The company acquired Jardines de Sol resort at Playa Blanca in Lanzarote, Spain, a property with 54 villas, and signed an affiliation agreement with Alvechurch Waterway Holidays, which operated eight traditional English canal boats moored at a marina in Cheshire on the Trent and Mersey canal. In July 2005, Sunterra announced that it had entered an agreement to acquire the 69 percent it did not already own in the Embassy Vacation Resort Poipu Point on the Hawaiian island of Kauai, one of the first nine properties in which the company had invested before its IPO. Sunterra completed the deal in September 2005.

In the years ahead, Sunterra's success depended on the attractiveness of the resort properties it owned and managed and its ability to expand its operations in a financially responsible manner. The lessons learned from managerial mistakes made during the late 1990s served as valuable guidelines governing the company's acquisition efforts in the 21st century, making it stronger, more disciplined, and sensitive to the threat of expanding in a careless fashion. Toward this end, much of the responsibility for not falling victim to the same type of problems that beset the company in the late 1990s fell to Benson and Sunterra's chief financial officer, Steven E. West. West joined Sunterra as CFO in September 2002 after serving as the vice-president of finance for Coast Asset Management. In May 2005, he was promoted to the additional post of executive vice-president. As Sunterra plotted its future course, Benson and West were the two principal executives responsible for ensuring that the company's second decade of existence did not end as the first one had, a challenge both executives appeared well equipped to meet.

Principal Subsidiaries

KGK Investors, Inc.; Lake Tahoe Resort Partners, LLC; Premier Vacations, Inc.; Resort Marketing International, Inc.; Sunterra Centralized Services Global, LLC; Sunterra Centralized Services USA, LLC; Sunterra Financial Services, Inc.; Vacation Time Share Travel, Inc. (Bahamas); Vacation Research Ltd. (U.K.); Sunterra Spanish Sales SL (Spain); Sunterra Sales Italy S.R.L.; Octopus GmbH (Austria); Mercadotechnia de Hospedaje S.A. de C.V.; Kenmore Club Ltd. (U.K.); GVC Deutschland Holding GmbH (Germany).

Principal Competitors

Hilton Grand Vacations Company, LLC; Marriott Vacation Club International; Trendwest Resorts, Inc.

Key Dates:

The first Sunterra resort is acquired, the Cypress Pointe Resort in Lake Buena Vista, Florida.
The company completes its initial public offering of stock, debuting on the New York Stock Exchange as Signature Resorts, Inc.
After acquiring more than 70 properties during the previous year, Signature Resorts changes its name to Sunterra Corporation.
Sunterra declares bankruptcy.
Nicholas J. Benson is appointed chief executive officer.
The company emerges from bankruptcy.
The number of resorts owned or managed by Sunterra reaches 97.

Further Reading

Barker, Tim, "Orlando, Fla.-Based Sunterra Hopes to Shine Again in Time-Share Industry," Orlando Sentinel, March 12, 2001.

, "Orlando, Fla.-Based Time-Share Company Files Bankruptcy," Orlando Sentinel, June 1, 2000.

Brennan, Terry, "Sunterra to Emerge from Ch. 11," Daily Deal, June 21, 2002.

Foster, Christine, "Short Memories," Forbes, September 22, 1997, p. 269.

Isaac, David, "Sunterra Corp. North Las Vegas, Nevada; Back from the Brink, but No Time to Relax," Investor's Business Daily, p. A7.

Pack, Todd, "Bankrupt Orlando, Fla., Time-Share Company Names New CEO," Orlando Sentinel, October 12, 2000.

, "Time-Share Operator to Leave Orlando, Fla., for Las Vegas," Orlando Sentinel, March 9, 2002, p. B2.

"Signature Resorts Will Change Name," Hotel & Motel Management, July 20, 1998, p. 1.

"Sunterra Buys Resort Group," Travel Weekly, September 19, 2005, p. 51.