Alternative Ownership and Mixed Use Business Models for

Hotels & Resorts

Tapping New Potential in Asia Pacific

Presentation Topics

I The Evolution of the Alternative Ownership Industry & Business Models

II Why alternative ownership models have big market potential in Asia

III Monetising underdeveloped and underutilised Developer real estate

IV Optimising Developer yield using alternative ownership structures

The Evolution of Alternative Ownership Industry & Business Models

michael.kosmas@gmail.com

1974 RCI Introduces Exchange Benefit for Single Site Developers

Enter the Brands and Usage Innovations…Marriott 1984

2005 Hotel Online Headlines…

Luxury Brands in Asia…Focus on China

Today: Global Sales Estimate Q4 2015…$1,72 Bn USD

Hospitality Brands with AO / Mixed Use Business Models

• Purchase Fee = USD 22,200 (one time fee)• Club Dues = USD 780/year * 30 yrs = USD 23,400• Total Pay USD 45,600 for 30 year term.• USD 45,600 / 30 years = USD 1520 a year

Member Pays

• 7 nights at Phuket 2BD Pool Villa • Public rate is 500 USD/ night• USD 500 *7 nights = USD 3500 a year

Member Gets

“Member” (Owner) Pays USD $1520 vs. USD 3500 Per Year

Saves 56% on rack rate + value added benefits** Holiday Lifestyle Greatly Enhanced

**Exchange, food and beverage discounts, low season getaway specials, spa, golf, tours, discount weddings, loyalty benefits and even earn referral fees…

What is the Typical Value Proposition for the Consumer…?

Compelling Value Proposition for Asian Consumers

• Cost Effective alternative to second home purchase—pay only for time needed

• Taxes and Insurance Expenses Shared with Numerous Other Owners

• Enhanced Vacation Experiences: Dollars saved on accommodations available for more activities on holiday

• Quality Unit Type Guaranteed Every Year

• Annual Club Dues or Maintenance Fees Ensure FF&E Upkeep & Replacement

• Flexibility – Multiple choices for destinations, unit types, number of nights and desirable seasons

• Fair Treatment: Generally have an Independent Trustee to Oversee the Real Estate Trust and Represent Owner Members dealings with the developer

Business Model 1: Wyndham Vacation Ownership

World’s largest vacation ownership business

·More than 813,000 owner families ·More than 160 resorts

Nearly $1.6 billion in annual VOI sales

In business for over 40 years ·Rebranded in 2006

Based in Orlando, Florida

WYNDHAM WORLDWIDE TODAY

Leading Positions in Leisure Industry

5

MajorBrands Include

BusinessSegment

% of 2015EBITDA

Market PositionWorldwide

Hotel Group

#1Hotel franchisor

by hotels 26.16%

Exchange & Rentals

#1

Timeshareexchange and rental

company

24.88%

Vacation Ownership#1

Timesharedeveloper

48.97%

Rental 16%Development

$648m48%

Resort Management 22% Financing

14%

2014 Revenue $1.289bn

1.Sell vacation ownership products

2.Rent vacation ownership inventory

3.Finance consumer purchases of vacation ownership products

4.Manage resorts and provide services for owners and members at a cost plus profit

Revenues are derived from diverse sources and nearly half is recurring and stable

How has Marriott Vacations Worldwide performed?

The graph compares the relative performance of MVW common stock, the S&P Small Cap 600 Index and the S&P Composite 1500 Hotels, Resorts & Cruise Lines Index.

The graph assumes that $100 was invested in MVW common stock and each index on November 8, 2011, the date a “when-issued” trading market for MVW’s common stock began

Case Study: Anantara Vacation Club

Product Overview

Points Based Product • Ownership ranges from 5,000 to 100,000 points (average 16,000 points). • Units are deeded into a trust unencumbered. • Points are created from those units and sold to the consumers. • Points can be used for any unit at any time of the year. • Internal Exchange benefits via Club Escapes Program

Use Most Anantara Hotels and Resorts worldwide via Points Pay• External Exchange Access to Global Exchange Programs

RCI Registry Collection, Hilton HHonors • Anantara Adventures, and other Loyalty Benefits

Price: $2.00 to $2.50 USD per point

Annual Sales: Approximately $75M USD+

Why do alternative ownership business models have Big market potential in Asia Pacific…?

michael.kosmas@gmail.com

Developer Benefits• Selling units by a time interval increases total pricing by 4 to 5

times (vs. whole ownership)

• Mark of Maturity: A natural extension of hotel/resort/residence business

• Utilize surplus land and Speed up Sales of slow moving units

• Accelerated payback and increased IRR

• Potential to turn a financially marginal project to a financially viable one

• Provide lower debt & equity requirements for new developments or upgrading present facilities

• Generate consumer financing profit from 3, 5, 7 + Year Payment Plans

• Regain asset at end of ownership period

Quick Start for DevelopersWith extensive industry knowledge and proven marketing and sales techniques, Consultants or Vacation Club affiliations can readily share a depth and breadth of expertise for a start up, turn around or purpose built project with resort management, customer generation and sales solutions for resort developers.

Readily Available Services Include Shared Ownership Business Plans

Product Design

Sales and Marketing

Brand Licensing

Resort Management & Operations

Exchange Affiliation

Inventory Management Owner Services Club resort reservation, resort exchange and travel services Contract Compliance Billing and Collections Financial Reporting

Enhanced Sales, Marketing & Operational Synergies

Higher year-round occupancies. According to ARDA International Foundation (AIF), the global Vacation Ownership occupancy registered 76% last year.

This compares favorably with the worldwide hotel industry whose occupancy rates were substantially lower than vacation ownership properties.

Longer stay and higher average on-site spending per guest Build customer loyalty through ‘ownership’ Proven resilience during economic down cycles Operational synergy in mixed use environment

Vacation Ownership marketing component providing bulk purchase of room nights and F&B vouchers for marketing prospects

o Increased usage of F&B facilities o Increased opportunities for renting Hotel rooms to increase occupancy o Increased revenue for retail outlets o Increase revenue for commercial tours & activities o Broader scale promotion of the hotel at no cost to the owner (marketing efforts funded through the vacation club division’s marketing budget)

Key Factors driving market potential in Asia Pacific…

1. Much of the product already built during the recent over supply phase in some markets is well suited to alternative ownership specs—pool villas, suites, kitchenettes, etc. Thus offering an AO product to new and existing customers can (sometimes) be easily done, at a nice return

2. Adding AO product categories is a mark of a mature hotel & resort development co (similar to pursuing ‘asset-light’ / management-heavy strategy for maturing hotel portfolios)

3. Meeting Market Force Demand: Asian families enjoy traveling together, cooking together, relaxing together and like saving money on higher quality accommodations (the value prop).

4. AO Product Hallmarks: Kitchens, Living Rooms, Separate Bedrooms; Wherever Consumers are essentially Spending Less Money for Better Accommodations

A Few Notes on Fractional Interests and PRC’s

• Purchase = Ownership Interest

• Usually Highly Prized Real Estate

• Usually High Demand Destinations

• Usually Homes, Villas, Residences

• Shares range from a 1/25th to a ¼ share (3 months annual use)

• Prices vary depending on quality of product, degree of services and amenities

• Popular with St Regis, Four Seasons, & Luxury Regional Developers

What do these luxury brands have in common?

III Monetising underdeveloped and / or underutilised resort real estate

michael.kosmas@gmail.com

Is Your Existing or Planned Project A Good Vacation Club or Fractional…?

Ask a Consultant Feasibility Analysis Sales and Marketing Analysis Destination Assessment Infrastructure Assessment

FinanceITOperationsSalesMarketing

Establish Proper Legal Structure (RET) Develop a Critical Path, P&L, Cash Flows Sales & Marketing Strategies Exchange Program Implementation

What is ‘Mixed Use’…?Mixed Use typically refers to a destination, hotel or resort with mixed offerings:

1. Whole Ownership2. Fractional Units3. Timeshare or Vacation Clubs4. Transient Rentals (Hotel Rooms)

Mixed Use can refer to either a ‘Campus’ with multiple buildings clustered in a destination or a single building (perhaps with multiple wings, floors, towers)

Why is Mixed Use so desirable…? Vertical Product Offerings to reach and capture greater

market share Recurring revenue streams (financing, property

management, sales) Ancillary revenue Streams (upgrades, tours, marketing

room night sales) Increased On Site Spend from Longer Stay Guests Gain Operational Efficiencies through Shared Resources

Seem Challenging? Other real life applications…?• The Concierge Lounge and Club Level Rooms in Hotels• First Class, Business Class, Preferred Seating, Coach…• Discounted or Free amenities and / or upgraded service

levels for hotel loyalty program members under the same roof (free Wi-Fi, breakfast, etc.)

Product Differentiations: AO Categories

Product Type Buyer Motivation Typical Usage Predominant Product Type

• Vacation Ownership• Timeshare• Vacation Clubs

A quality holiday or leisure product and a way of fixing future holiday accommodation costs

One or two week annual vacations

Studio, 1, 2 or 3 bed

Fractional Interests Cost Effective alternative to vacation home; a lifestyle enhancement

3 weeks to 13 weeks 2, 3, 4 bed villa, townhouses and apartments (urban or resort setting)

Private Residence Clubs Second Home alternative; Lifestyle commitment, often with branded service overlay

1/7th to 1/12th fractional interests

luxury villas, detached vacation residences and apartments w services

Destination Clubs Money-rich/time poor who need to escape to luxury environments

Basic 30 days but with extra time available if desired

4/5 bed super luxury properties in outstanding locations

Buy-to-Use-and-Let Part enjoyment and part financial

At buyer’s option – 30 to 60 days + space available

600f2 to 1,500f2 apartments, sometimes with lock-offs

Branded Residences Primary or secondary residence

Full ownership but sometimes with rental opportunities

Luxury accommodations with high specifications +services

Product Comparisons Range of Consumer Options

Hotel Private Rental Vac Club FI/PRC 2nd Home

Advantages Easy to book,

Choice of brands,

choice of services

Flexible,Private, larger living space

Pre-paid vacation,

exchange, larger living

spaces

Premium Lifestyle, High Level of Service

Equity Investment

Potential, always available,privacy

DisadvantagesSmall

rooms, expensive

for high season and

suites

Unknown quality, less

services, more expensive

No resale value for

purchaser,Service

levels vary by resort

Premium Prices for

fixing desirable

usageperiods

Expensive, absentee

responsibilities for maintenance, lack of services &

amenities

The Typical Project Lifecycle

Qualifying Questions…?

New or Existing Project(s)…

Luxury Residences: Current sales pace too slow for whole ownership?(Good for Fractional Need to expand your market reach? or PRC?) Would Lower Fractional/PRC Prices Appeal to Target?

Hotels: What is Current / Projected Guest Occupancy and Mix?(Vacation Club?) What is Current / Projected ADR?

Mix of Suites, Villas or Adjacent Land Available?Would having a Vacation Club stabilize occupancy?

Destination Resorts: Abundance of Villas in the product mix?(Mixed Use?) Goal of Maintaining High ADR?

(strategically would you sacrifice occupancy for ADR?)Good Project for Affiliation Deal with a Brand?(example: Wyndham Sea Pearl Phuket)

IV Optimising financial yield using alternative ownership structures

michael.kosmas@gmail.com

Timeshare, Vacation Ownership, Vacation Clubs: Selling your units in intervals or points increases total pricing by 4.8 times(compared to whole ownership sales pricing)

Example:Whole Ownership Price 2BR Condo Phuket: $375,000 USDVacation Club: 52 x $25,000 USD = $1,300,000 USDMultiple: 3.46After Consumer Financing & Upgrades: Increase to 4.8 x

Private Residence Clubs, Fractionals:1.75 to 2 x MultiplePlus Broader Market Reach

Typical Yields Applying AO Business Models

Indicative Costs and Profits for AO Business Models

Vac Ownership Fractional Condo hotel Branded Res-idence

30%

50%

65%75%

9%

5%

4%

5%

45%22%

13%

10%

16 % 23%

16%10%

Product Cost Land, Construction FF & E and soft costs

General & Admin

Sales & Marketing

Indicative Profit

STARWOOD VACATION OWNERSHIPANALYSIS OF TIMESHARE RESORT OPERATIONS

1 2 3 4 5 6 7 8 9 10

YEAR OF OPERATION

PROFIT

LOSS

Analysis of Resort Operational Costs for AO Projects• New Projects tend to operate in the red until a critical mass of owners is achieved• ‘Developer Subsidies’ are common until owner occupancy and maintenance fees received• However, Operating costs can be mitigated with good marketing strategies

• Utilize vacant rooms for prospects touring the resort (promotional package guests considering purchasing your AO products)

• Create upward pricing pressure on premium rooms; made possible by displacing lowest tier with marketing guests (‘Below the Line” Preview Packages which cause value rooms ‘Sold Out’ online without compromising the perceived value of the room nights. Discount = Tour.)

A few thoughts regarding the Asian Markets…

Target Marketing = AO Ownership DemographicsInternational Marketing Benefits: Since 2010 multiple key feeder markets have been developed including Thailand, Singapore, Malaysia, Indonesia and Hong Kong…call centers in Hong Kong & China

Demographic Comparisons• US Market

• Mature Middle Class• Timeshare is a mature product in the US – Over 7.2 Million Owners

• Asia Market• Asia has a rapidly growing Middle Class• Timeshare has minimal presence in Asia - Less than 500,000

Owners (est.)

• Defining what "Middle Class" means in Asia• Q: How to Define and Quantify Middle Class in Asia? • A: Look at Middle Class Propensity

Asia Market Analysis: MC Propensity• If 7.2 M Timeshare owners in the U.S. = 8% market capture,

then…

• Some Key Observations by Country in Asia:

• US & Japan are similar markets due to 85%+ Middle Class Propensity (MCP)

• Australia, Hong Kong and Singapore similar with 80%+ MCP

• South Korea and Taiwan +/- 70% MCP

• China Lower MCP% but offers Largest Middle Class Globally due to gross population size

• India similar to China but smaller MCP and higher persons per household

Asia Potential for AO Sales Growth

US Asia

Total Population 307 M 3,400 M

Middle Class Propensity 88 % 17 %

Middle Class Population 270 M 650 M

Average Household size 3 4

Middle Class Households 90 M 211 M

Current Timeshare Owners 7.2 M 500,000

Current Market Capture 8.0 % 0.00236 %

Asia Potential Timeshare Buyers(at 8% Market Capture) 16.88 M

Asia Potential Timeshare Revenue(at USD $20,000 average) USD $337.6 Billion

US Learnings Applied to Asia

$337.6 Billion USD Market Potential for Asian Alternative Ownership Developers

Less than One Percent Asian Timeshare Owners (500,000 / 211M MC Households)

Opportunity to Monetize Developer Assets in Overbuilt Markets

Generate Recurring Revenue Streams

Experienced Consultants Readily Available to Reduce Learning Curves

Brand Affiliation Deals Available

100M Outbound Chinese Tourists 2016-17 (Starting to Venture Away from Groups)

Summary Take Away(s): Asian Developer Potential

44

Thank You

Questions…

michael.kosmas@gmail.com