Hotel Online  Special Report

Timeshare Cash-Flow Modeling
and Market Feasibility

CANADIAN LODGING OUTLOOK
March  2005 Year-to-Date


The Canadian Lodging Outlook is a joint monthly publication 
of Smith Travel Research and HVS International, 
Vancouver and Toronto, Canada
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By: Kathleen Conroy, MAI - HVS Timeshare Consulting Services - Miami

A timeshare market-feasibility study and cash-flow projection serves as the cornerstone for timeshare valuations of proposed developments.

HVS Timeshare Consulting Services (a division of HVS International) built a new, state-of-the-art timeshare cash-flow financial model to help developers create realistic monthly cash-flow projections. Since timeshare revenues and expenses are incurred on a monthly basis, all calculations should be done on a monthly basis for a cash-flow projection to reflect a realistic scenario. The model also needs to be flexible to assess all real world variables and a wide variety of development scenarios.

Cash-flow modeling is an important part of a timeshare project's initial planning stages. On a front-end basis, projected cash-flow information serves a decision making tool and will help a developer create an adequate business plan. If the developer is familiar with the timeshare market where a resort is proposed and has performed basic due diligence on a reasonable timeshare interval pricing and expense expectations, he can request a preliminary financial projection even before conducting a detailed market-feasibility study.

Critical Information

Because of the number inter-related variables affecting a project's cash flows, professional cash-flow modeling will provide a timeshare developer with critical business decision making information. A sample list of information that a developer can obtain from the HVS timeshare cash-flow model follows: 

  • How much equity the developer will need to raise for his project and/or whether the equity now available is adequate to fulfill the project's goals.
  • The total number of units the developer will be able to build with a specific limited amount of equity capital.
  • The monthly cash-flow deficit periods expected to occur during the year (which would not be identified from an annual cash-flow projection if the project has a positive annual cash-flow balance).
  • Monthly construction loan proceeds and estimated repayments broken down between interest and principal.
  • The difference in the project's overall average price and sales revenue if the developer includes biennials as part of the sales inventory.
  • The monthly receivable-loan proceeds and repayment, based on a specified hypothecation loan advance rate, interest rate, and fees. The receivable-loan proceeds also may be programmed to reflect any required seasoning of the consumer notes and split fundings on the advance rate.
  • The construction-loan balance, receivable-loan balance, and resulting net portfolio balance at any time during the project's sales window.
Component of Feasibility

Cash-flow modeling also is a major component of a timeshare financial feasibility study, often used as marketing tool to attract equity investment. A timeshare financial feasibility study requires a number of sequential steps, including fieldwork and analysis to complete a market feasibility analysis, prior to generating financial projections. Based on the market feasibility conclusions, a complex financial cash-flow projection can be prepared.

The scope of a market feasibility study typically includes:

  • A physical inspection of the development site 
  • Analysis of the immediate neighborhood and overall area. 
  • Assessing timeshare supply and demand and the competitive product.
  • Determining whether the proposed timeshare product will fit the existing timeshare market.
  • Reviewing the development's marketing and sales plan (if available).
  • Suggesting a product mix of unit types and related seasonal time periods.
  • Estimating the average price for each element in the product mix and the annual sales pace the development will achieve.
The cash-flow projections generate an overall cash inflow and cash outflow statement that serves as the basis from which each of the three main components of the timeshare business - sale of the timeshare intervals, the treasury operation, and resort operations - can be analyzed and valued individually.

Kathleen Conroy, MAI
HVS International - Miami
8925 SW 148th Street, Suite 216
Miami, FL, 33176
(305) 378-0404

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CANADIAN LODGING OUTLOOK
HVS INTERNATIONAL - CANADA
March 2005

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© Smith Travel Research, 2004. Reproduction or quotation in whole or in part
without permission is forbidden. *INS - Insufficient Data
-
Contact:
Selina Lai
HVS International – Canada
2120 Queen St. East, Suite 202
Toronto, ON M42 1E2
(416) 686-2260, ext 21
(416) 686-2264 FAX
slai@hvsinternational.com
www.hvsinternational.com

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HVS International Hotel Development Cost Survey 2004 / Canadian Lodging Outlook - September 2004 Year-to-Date
Defining a Hotelier; The Hotel Professional Has Gone Through a Major Transition Over the Past 20 Years / Mark Keith / Canadian Lodging Outlook - August 2004 Year-to-Date
Hotel Investments; The Magic, Curse Of Leverage / Canadian Lodging Outlook - July 2004 Year-to-Date / September 2004
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Hotel Life Expectancy / Canadian Lodging Outlook - March 2004 Year-to-Date / May 2004
European Hotel Transactions 2003 - Country Analysis / Canadian Lodging Outlook - February 2004 Year-to-Date / April 2004
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