Sales: $96.9 million (1996)
Stock Exchanges: NASDAQ
SICs: 6531 Real Estate Agents & Managers; 6552 Land Subdividers & Developers; 6159 Miscellaneous Business Credit Institutions
Vistana, Inc. is a leading developer and operator of vacation ownership (“timeshare”) resorts in the United States. In September 1997, the company had more than 1,500 units in its six resorts and approximately 68,000 vacation ownership interests sold. Its resort properties were located in Florida (Vistana Resort, Vistana’s Beach Club, and Hampton Vacation Resort-Oak Plantation), Colorado (Eagle Point Resort and Falcon Point Resort), and Arizona (the Villas of Cave Creek). In addition to its own operations, Vistana develops timeshare resorts under joint ventures with Promus Hotel Corporation and the Professional Golf Association of America. Through its resorts, the company also markets and sells timeshares, finances the purchase of vacation ownership interests, and provides management and telecommunications services. Co-CEOs Raymond Gellein, Jr., and Jeffrey Adler control some 70 percent of the company stock.
The real estate timeshare concept began in the 1960s in the French Alps, as escalating costs led developers of resort condominiums to come up with a new way to sell their units. Their solution: subdivide the ownership of the units on a weekly basis, making them more affordable. Using this new type of ownership, someone could buy the exclusive right to use a furnished apartment unit at a resort, usually one week a year, for several decades. In the United States, buyers generally purchased a fee simple deed, gaining ownership to a fraction of the unit, which was treated as any other real estate interest. In Europe, developers sold a buyer a right to use (lease) the unit, but without an ownership interest.
Although the concept began with ski resorts, it quickly spread to resorts at beaches and golf courses and eventually to nearly any vacation venue, including houseboats, cruise ships, and campgrounds. For the price of the timeshare ($5,000 to $15,000) plus an annual maintenance fee ($125 to $400), the purchaser had a fixed-price vacation for decades. In 1974, Resort Condominiums International, Inc. added value to the purchase of a timeshare by organizing an international exchange network which enabled an owner, for a fee, to swap his or her “vacation interval” for a similar period at another timeshare resort. In 1978, timeshare ownership in the United States was a $3 million business.
For a while, the hardsell tactics of developers and difficulties owners had reselling their timeshares caused problems for the industry. During the 1980s, many states tightened regulations covering the marketing and promotion of timeshare units, requiring that promoters provide a prospectus and allowing a cooling-off period after sales.
The 1980s — Focus on Florida
At the start of the decade, worldwide sales of vacation ownerships stood at approximately $490 million. Vistana began operating in 1980, with the development of Vistana Resort, the first timeshare resort in Orlando, Florida. Orlando, in the central part of the state, was home to Walt Disney World, Sea World, and Cypress Gardens, and about an hour’s drive to Atlantic and Gulf beaches. The first phase of the development, the Courts, offered 98 luxury villas, along with a large swimming pool and a championship tennis complex.
Raymond Gellein, Jr., became chief executive officer in 1981, and in 1983, Jeffrey Adler was named executive vice-president. Both men had been officers at Continental Illinois National Bank and Trust Co. of Chicago.
When selling its one-week fee simple Vacation Ownership Interests (VOIs), Vistana offered buyers the option of either an annual or an alternate-year interest. With one week a year reserved for maintenance, the company could sell 51 annual VOIs or 102 alternative-year VOIs per villa.
As the Central Florida area added new attractions, Vistana Resort grew to accommodate more people. The second phase, the Falls, was completed in 1982, adding more villas, a club house, two swimming pools, and a children’s playground.
A typical villa at Vistana Resort had two bedrooms and two baths (some with whirlpool bathtubs), a dining area and living room, and a terrace or balcony, with sleeping space for six to eight people. The fully equipped kitchen included a dishwasher and microwave oven, laundry facilities, and plates, utensils, and glassware for eight people. The resort provided daily housekeeping service, including washing the dishes. The units were fully furnished and carpeted.
Vistana continued to develop the 135-acre Orlando complex, building three restaurants, more tennis courts, an 18-hole miniature golf course, recreation centers with saunas, exercise rooms, and other amenities, and facilities for volleyball, shuffle-board, and jogging.
The timeshare vacation was becoming more popular as the leisure industry grew and earlier abuses were stopped. In 1985, sales exceeded $1.5 billion. One big reason for their popularity was the convenience of having a pre-arranged, fixed-price vacation at a location the owner liked. A major sales pitch was to compare the cost of a weekly timeshare vacation over five to 10 years with the cost of paying for hotel rooms for week-long vacations over the same period.
Major hotel chains such as Marriott and Hilton were not slow in responding to the competition, and began operating their own vacation ownership properties. Since marketing was the most expensive component in timeshare resorts once they were built, hotel chains, with their familiar brand names, had a decided advantage in that area.
At the end of 1986, Vistana was sold to a corporate acquirer. Gellein and Adler continued to head the company, and in 1989, they purchased and opened Vistana’s Beach Club on Hutchin-son Island, near West Palm Beach, about two hours south of Orlando. The Beach Club consisted of a nine-story building with 48 two-bedroom condominium apartments right on the beach, and various recreational facilities.
In 1991, Gellein and Adler, with a third partner, repurchased Vistana and, in 1995, bought out the partner. By the mid-90s, the Orlando area was home to six timeshare resorts and the second largest concentration of timeshare ownerships in the world, accounting for more than a quarter of all timeshare interests in the United States. Worldwide, the timeshare industry had sales of $4.76 billion. Vistana continued to expand its properties, adding a second apartment building (for a total of 76 units) at Vistana’s Beach Club and developing more villas at Vistana Resort. In 1995, Vistana sold 5,190 VIOs at an average price of $9,664, and had revenues of $81.1 million. In 1995 (and again in 1996) Conde Nast Traveler magazine selected Vistana Resort as a “Gold List” resort, the only timeshare resort on its list of the top 500 resorts in the world.
The owners of Vistana’s interests lived in more than 100 countries, with about 30 percent of the sales to foreign purchasers. Florida was a popular vacation destination for the foreign market and Vistana took advantage of that, focusing on the South and Central American market, particularly Argentina, Guatemala, and Chile. The company maintained a direct foreign sales office in Santiago, Chile.
Vistana used three approaches to market the majority of its VOIs. In one program, a Vistana Preview Coordinator, located in the lobby of a hotel, vacation condominium, or other attraction near a Vistana resort, provided visitor information as well as information about Vistana to interested potential buyers. Between 1980 and 1996, the VPC program attracted some 400,000 people to tours of Vistana properties.
The second approach, the VIP/In-House Program, also used one-on-one contact. The difference here was that this program concentrated on people already staying at a Vistana property— owners, renters, or those on a timeshare exchange.
The third marketing strategy was to use a network of independent brokers to sell its VOIs abroad. The company also made use of other approaches, including direct mail, telemarketing, and vacation sampler programs, in which a potential buyer could experience timeshare ownership as a guest before deciding to purchase.
1996 to the Present
During the second half of the decade, Vistana took several steps to broaden its offerings and gain access to new markets. In June 1996, the company acquired the 16-acre Oak Plantation Villas in Kissimmee, just south of Orlando. Oak Plantation had been a rental apartment complex, and Vistana began converting the 242 one- and two-bedroom units and the property to a timeshare resort.
That year Vistana signed a five-year agreement with Promus Hotel Corporation. Promus was one of the world’s largest hotel companies and owned and/or franchised more than 800 hotels, under the Embassy Suites, Hampton Inn, and Homewood Suites brand names. Under the agreement, the two companies would jointly acquire, develop, manage, and market vacation resorts in North America under the Embassy Vacation Resort, Hampton Vacation Resort, and Homewood Vacation Resort brands. Vistana would also have the option to operate the vacation resorts on a franchise basis.
Vistana’s Vision is to become the highest quality timeshare operation in the world, whose commitment to exceeding guest expectations drives the planning and delivery of all decisions.
While not the first timeshare developer to have a joint venture with a hotel chain (HFS licensed its Ramada hotel brand name to timeshare operator Mego Financial Corporation, and Promus also licensed it Embassy Vacation Resort brand to Signature Resorts) Vistana was the first to use one hotel company’s different market concepts to reach various groups of potential buyers. The first activity under the agreement was to rename the Oak Plantation Villas in Kissimmee as the first mid-market Hampton Vacation Resort, which Vistana operated as a franchise. Prices for VOIs at that resort ranged from $7,250 to $10,950.
In December, Vistana bought 14 acres of land in Myrtle Beach, South Carolina, another popular timeshare area, moving out of Florida for the first time. The Myrtle Beach resort, with 48 units in its first phase, would be operated on a franchise agreement as an Embassy Vacation Resort when it opened in 1998.
Vistana also went after another market segment in 1996: goliers. In the fall the company began building the first phase of a 408-unii vacation resort at World Golf Village near St. Augustine, Florida. World Golf Village was the centerpiece of a major planned community that would eventually include the World Golf Hall of Fame, a championship golf course, a hotel and conference center, a golf academy, plus restaurants and stores. To help its marketing activities, Vistana also reached an agreement with the Professional Golfers Association (PGA) Tour Golf Course Properties, Inc. to have access to the PGA Tour databases.
Expanding further into the golf market, Vistana and PGA of America entered a joint venture to develop PGA Vacation Resorts by Vistana. The first of these was planned for Port St. Lucie, Florida, beside an existing 36-hole championship golf facility, with construction to begin in 1997.
In December, Gellein and Adler incorporated the various partnerships and corporations that operated and owned the company’s various businesses. During 1996, the company sold 5,794 VOIs at an average price of $10,366, and had total revenues of $96.9 million. This was an increase of more than 19 percent over 1995 sales, which the company attributed to higher sales prices and more interests sold. Vistana’s marketing efforts outside the United States resulted in sales of $9.9 million, more than double the company’s foreign sales in 1995. Sales and marketing expenses rose to over 46 percent of timeshare sales, partly due to greater international costs and the expenses associated with beginning to sell interests at Hampton Vacation Resort—Oak Plantation.
In February 1997, Gallein and Adler took Vistana public, selling 4.6 million shares and raising $49.5 million. They used the proceeds to pay down the debt caused by the repurchase of the company and the redeeming of options to purchase interests in the partnerships which operated Vistana Resort and Vistana’s Beach Club and to help capitalize its expansion. The two men became co-CEO’s of the new entity, with Gellein serving as chairman and Adler as president, and together controlled 70.5 percent of the stock.
The company did well following its initial public offering, with sales better each quarter than they had been in 1996, and revenue for the first half of the year up 33 percent. In September, Vistana bought The Success Companies and Points of Colorado, a privately-owned group of timeshare companies. The acquisition, which cost approximately $35.6 million in cash and stock, netted Vistana two undeveloped properties and three established resorts in a new geographic market for the company. The resorts, the Villas of Cave Creek, near Scottsdale, Arizona; Eagle Point Reserve in Vail, Colorado; and Falcon Point Resort in Avon, Colorado, had more than 130 units at the time of the purchase.
The timeshare industry continued to grow. By 1997, there were over 4,000 timeshare resorts around the world, with 37 percent in the United States. Most of these were in Florida (25 percent), with California (eight percent), Colorado (six percent), and Hawaii (five percent) other favorite locations. According to Smith Barney, “the typical timeshare owner is about 50 years old, earns $65,000 a year, is well-educated, married and has one child living at home.” The majority of timeshare owners (60 percent) lived in the United States. But more resorts were being built in Europe, with Spain and the Canary islands offering the largest concentration of timeshare ownerships in the world. Marriott became the first U.S. hospitality company to take its timeshare brand, Marriott Vacation Club International, to Europe, and new markets included urban destinations, such as New York City and Asia. At the Berjaya Vacation Club in Malaysia, for example, a timeshare week cost US$6,500 for 38 years.
Vistana’s relationships with Promus Hotels and PGA of America expanded its already extensive development and management experience and improved its marketing operations. With only three percent of U.S. households owning a timeshare interest, the vacation ownership market looked to continue to grow. As Michael Muller, an analyst at Montgomery Securities, told Investor’s Business Daily, “Vistana’s three-prong growth strategy—expanding Vistana branded properties, opening resorts with Promus, and developing golf resorts—should continue to fuel the company’s earnings and sales well into the future.”
Vistana Management, Ltd.; Vistana Development, Ltd.
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—Ellen D. Wernick