Bluegreen Vacations - A Timeshare Worth the Time
After a brief hiatus for the Value Finder due to Hurricane Ian and all that goes along with living in Florida during a storm, the internet is back up in the 2k household and the writing is back!
This week is an interesting one for sure, as it is a type of company that I have never actually researched before and, to be completely transparent, need to continue more research on before making a final decision on investing.
That all being said, let’s check out the highlights!
The company this week currently is trading at:
Forward P/E ~ 4
Price to Cash ~ 1.5
Short Float of 4.15% (Ratio of almost 7 days)
A market cap of ~ $330 million
So what could this glorious value company be?
Bluegreen Vacations Holdings Corporations (BVH)
Company Description
Bluegreen is a fairly simple company in that it makes its money from purchasing resort properties and then selling them in “Vacation Ownership Interests” (VOI’s) that allow owners to use the property, or other company properties, for a certain amount of time each year. The owner’s own a small piece of the property and pay all fees for maintenance to Bluegreen, who turns a profit off of not only the sale and maintenance, but also from financing as well.
If this sounds like a timeshare company, that is because it is.
The MOAT
Okay, so let’s talk about the ever important competitive advantage of Bluegreen Vacations, switching.
Switching costs basically rule the timeshare business. Once you are in, you are in, and have to sell or buy your way out of the yearly fees that dominate your so called investment. While some may say that I am being harsh on a company that is doing nothing wrong, I say that timeshares are a very close relative of a sham that live in the weird gray area of legality.
But oh the money that they make. Let’s go to the pros and talk about it.
The Pros
The Timeshare Business. Let’s just be honest with one another when we are looking at the timeshare business; it’s lucrative. While many of us would never buy a timeshare, and have heard the horror stories of many doing so, owning the business seems like it would be a great. Bluegreen sells deeded interests in the properties that they hold. All the ownership is forever, or what is known as perpetuity. These things get passed down to the family when the original owner passes away. They currently offer three types of timeshares: fixed week (you own for a specific week a year), flex week (you have multiple weeks to choose from), or points. The points system is one of the main differences between Bluegreen and others in the timeshare business because it allows you to use the points that you own at other Bluegreen properties. Basically it’s a trade in value so someone else can use your place. This makes the system a bit more enticing to those interested in timeshares, because it isn’t locking you into a specific location but instead a network.
The Cash Position. Currently Bluegreen sits with around $220 million dollars of cash and cash equivalents. This places it an investor with a tremendous opportunity, as the market cap is only 1.5x the cash position. While the debt load is a bit higher, the interest rate on the debt is significantly low (~2.75%). The cash allows the company to search out acquisitions to build its future revenue.
The Financing. Want a business that is better than a timeshare in terms of locking people in to paying you for long periods of time? Well then take up lending. This is part of the Bluegreen business plan, and they actually have a significant amount of people that have financed through the company. The crazy thing though? 97% of those that have financed have a credit score over 600! 58% even are over 700! This is a significantly different song being played than most companies handing out loans.
The Cons
The Risk of Delinquencies. Let’s not skirt around the subject of delinquencies just because the company lends to good credit ratings. Even good credit goes bad and when a recession hits those that have never had issues do just that. In the last earnings report Bluegreen noted that “rising interest rates and inflation will have inverse impacts on collectability of VOI notes receivable”. This obviously would be less than ideal. No payments equals no money from lending and the company having to go through the legal process to get the property share back from the owner. While not the end of the world, it would be a mess for revenue. Currently the company has about $26 million dollars that are over 30 days late out of $660 million. While that seems small, remember that we have been having an economic blast the past decade.
Litigation. Speaking of going to court, I recommend you read through the quarterly earnings litigation section. I haven’t seen a list this long since I visited Santa at the North Pole. I’m kidding, but the list is seriously long. It seems that a lot of states have some major laws around time shares and a lot of customers aren’t happy by what they have been roped into. While this isn’t necessarily something that I imagine is different from other time share companies, it is a concern.
New Resorts. The company recently purchased a new resort in Vail, Colorado that includes 46 units, and are building new units in Big Bear, CA, The Smoky Mountains, TN, and Orlando, FL. Sounds great right? Well maybe. Let’s go through what is happening right now in the economy. People are losing jobs. Inflation is causing spikes in the price of living. Interest rates are increasing. What I’m saying is that this isn’t necessarily the time for people to run out and buy week interests in timeshare properties. Those are saved usually for times of prosperity.
Conclusion
As I said in the introduction this is a company that has me scratching my head. On one hand the profitability is real and the free cash flow generation (~$4 per share) places it in pure value range. On the other hand, the company is in a business that could be high risk during a recession and may be trying to expand foolishly during a time where they should be being conservative.
I explain this all to say this:
Put it on your watchlist.
The company has the makings of a big money maker for the long term, but hinges on how they can handle the next year or two. If VOI revenue stays high and delinquencies are kept to a minimum then this is a company that could not only show share appreciation but also a dividend increase. If these two are not sustainable then we can expect it to continue a slide to a bottom that we may not see any time soon.
As always, thanks for reading, and happy investing!
The Profit Investigator