Real Estate

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Timeshares are getting more attention these days, and not just from summer renters.

Diamond Resorts International postponed its second-quarter earnings release on Monday after its accountant flagged potential flaws in how it recorded the value of inventory. Its shares fell as much as 3.7 percent Monday morning (before paring losses).

Apollo Global Management called the hiccup a non-issue, saying it won't impact the timing of its deal for Diamond, which was agreed about a month ago.

Deal or No Deal?
Diamond Resorts shares fell by the most in a month on Monday, but the timeshare property operator's buyout by Apollo seems to be on track
Source: Bloomberg

The other three publicly-traded U.S. timeshare companies -- Wyndham Worldwide, Interval Leisure Group and Marriott Vacations Worldwide -- sank in sympathy on Monday. But analysts said it was unlikely such accounting missteps had been made elsewhere in the industry.

Discounted Timeshares
Absent Diamond Resorts, Interval Leisure Group takes the honors as the least loved publicly-traded timeshare operator by valuation
Source: Bloomberg
*Will be private following Apollo buyout ** FY2017 used to fully reflect Interval Leisure Group's acquisition of Starwood's timeshare business Vistana

In fact, analysts have been jumping to the sector's defense lately, with consumer-focused Telsey Advisory Group telling clients late last month that misconceptions about the "underappreciated" industry should "dissipate over time." 

Some investors have been fleeing the sector on fears the Consumer Financial Protection Bureau may become more heavily involved in regulating it, while others have been concerned about its overall sustainability. 

Those worried about the latter might be interested to learn the timeshare occupancy rate is actually higher than that of hotels, even during recessions. That also partially squashes concerns that services such as Airbnb and HomeAway are truly competing for the same set of customers. 

Resort Life
Timeshares are actually more resilient than hotels in downturns as owners have already paid for their intervals
Source ARDA, STR (via Telsey Advisory Group)

Skeptics worried about timeshare owners defaulting or falling behind on debt repayments may have some reason for concern: Total U.S. timeshare asset-backed securities defaults for the year to March 30 -- the latest data available -- were 7.3 percent, according to Fitch Ratings. That's up from 6.8 percent in all of 2015. 

And delinquencies recently climbed to roughly 3.6 percent for the quarter ended March 30, up from 2.8 percent a year earlier -- though below the peak of 5.3 percent reached in the same quarter in 2009.

Still, with or without the coaxing of Wall Street, investors appear to be slowly but surely warming up to at least part of the sector: Marriott Vacations has rebounded some 33 percent since the start of the year, while Interval Leisure Group has added 15.2 percent. 

If the sector can keep up momentum, then one beneficiary could be Hilton Worldwide Holdings, which hopes to spin off its timeshare arm at a comparable, or even premium, valuation to the rest of the industry.

That will be a win too, for Hilton's biggest shareholder, Blackstone Group, for which the hotelier has been its Best Leveraged Buyout Ever -- a title that it may well hold for the foreseeable future. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net