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Strategies & Market Trends : Timeshare Companies - OWN FFD TWRI VSTN SVR BXG
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To: Grommit who wrote (25)5/25/1999 12:05:00 PM
From: Michael Burry   of 55
 
"I think you could do this for most any business and say that the cannot afford to fund their growth. " "Very rarely do I hear the argument that financing is the constraint for growing a profitable company."

IMO, it appears that some businesses are consistently unable to get cash out of their business (and hence need financing or the entire sum of their operating cash flow to grow) in the name of building up to a certain level of business, but in the end they are putting in place some long-lived revenue-generating assets. In those instances it is appropriate to look at EBITDA, perhaps. But not here. With SVR, they are selling these VOIs, and get very little revenue from them after 7-10 years. In fact the sales price is counted the first year. And then for 7-10 years there's the interest and the management fees, and then thereafter there's really only management fees. And the sales must necessarily slow, unless there is further dilution of the capital base with additional LT debt. The lone exception might be a firm whose acquisition costs of VOIs is very, very low and sales price very very high. This is where the increasing marketing costs, increasing cost of VOI for SVR, and increasing debt costs due to the addition of longer term instruments, becomes a problem, and why they are so signficant.

Mike
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