I posted this article today on GuruFocus, I thought the readers would be interested.
Interval Leisure (IILG) is currently trading at $17.00 a share, and offers an attractive valuation based on both qualitative and quantitative factors.
Interval Leisur is a young company, which was spun-off from internet conglomerate IAC in the summer of ’08.
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Interval provides membership and leisure services to the vacation industry worldwide. The company operates through two segments, Interval and Aston. Interval to summarize in one sentence; signs up members to give them access to timeshares, and provides an exchange through which time shares with other members.
(For clarity sake when I use the term IILG in this article I am referring to the total company. When I refer to Interval it is specifically the Interval segment and ditto for Aston.)
This is how it works for large developers; Marriott will build a time share resort and sell the units for approximately $20k. This entitles the owner of the time share to have one week a year forever, they can even pass the property down to their children. Marriott has an exclusive agreement with IILG. Marriott will pay the IILG membership for the first year for new buyers and afterwards they will have to pay to be a member of IILG. IILG has exclusive contracts with several other major business, including Hyatt, Starwood, Sheraton and other large resort builders.
Interval charges a fee to join the network which entitles members to a one week vacation timeshare in many of the vacation hot spots in the US and around the world; including Cancun, Hawaii and Orlando. The total network consists of 2,500 resorts in over 75 nations.
For basic membership the cost is $89, and includes extra perks including travel agency services, discounts and more. The membership fee entitles the time share owner to be a member of IILG’s network, consisting of approximately 1.8 million members. It should be noted that the time share business is a duopoly with IILG and Wynn’s RCI unit with 3.8m members controlling 99% of the time share market. ILG has a stronger moat from the two as I explain below.
The main benefit of being a member of the IILG network, is that it allows time members to exchange their time shares with other members. For example if a member has a time share in Florida for one week in January and they cannot make it due to work or other obligations they can exchange time shares with other members. For a fee of $139 online and $159 over the phone, the member will be able to get an equivalent quality time share in Hawaii in May. These fees are far lower than RCI exchange fees, which run closer to $200.
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