FlexWeek, Inc.’s (OTC: FXWK)
innovative online platform for timeshare rentals is set to boost the secondary
market for timeshares, and that’s great news for timeshare owners and
investors. A functioning secondary market in timeshares will play the same important
roles as does the secondary market in securities. One of these roles is the
provision of liquidity. When one buys stocks, the funds are tied up
indefinitely, but suppose the proverbial rainy day comes along and you need to
cash in your investment. What can be done? It used to be that your only option
was finding a willing buyer by advertising or some other means. Now, some
companies like Home Depot (NYSE: HD), Colgate-Palmolive (NYSE: CL), and PepsiCo
(NYSE: PEP) offer Direct Stock Purchase Plans (DSPPs) and Dividend Reinvestment
Plans (DRIPs), and these plans may provide a way for a shareholder to sell
shares back to the plan. But such options may be unpalatable since the purpose
of these plans is to encourage long-term stock ownership.
A secondary market, such as the
one administered by the NYSE in which shares are traded, allows you to find a
willing buyer much easier and so makes the securities you own more liquid.
Another important function of securities markets is pricing and valuation. A
secondary market allows the price of one company’s shares to be compared to the
prices of all other traded companies’ shares and so compares the value of one
investment against another. For timeshares this is especially important.
Without a secondary market in timeshares,
the only price for a timeshare would be the one set by the developer. The value
of timeshares would essentially be determined by developers, but, if there is a
secondary market in which timeshares are resold, the value of timeshares would
be set by the market the way that securities’ prices are set in the secondary
market. No company could issue shares at $100 when they are trading in the
secondary market at $70, but this is exactly what is happening in the timeshare
market.
Evidence of the huge pricing gap
between the primary and secondary markets for timeshares is given by RedWeek,
which reports (http://dtn.fm/1d2tE) on its website that ‘Timeshare re-sales…
are typically priced 30-50% below the original developer or resort price’. This
assertion is supported by a story (http://dtn.fm/h6hAc) in Kiplinger that
states, “With brand-name developments, such as Disney (NYSE: DIS), Marriott
(NASDAQ: MAR) and Wyndham (NYSE: WYN), you typically pay 30% to 50% less than
the developer’s price.”
FlexWeek is contributing to the
development of the timeshare secondary market with its unique peer-to-peer
(P2P) platform, which is focused on timeshare rentals. Timeshare rentals can
provide the same two market functions that timeshare re-sales do. A vibrant
rental market will allow timeshare owners to recoup the costs for timeshare
weeks they could not utilize in much the same way a re-sale would have done. In
fact, it’s a superior option, since he still owns the asset. He didn’t have to
sell to mitigate losses. Rentals will also, undoubtedly, influence pricing and
valuations. They will, at the very least, establish a floor for valuations.
Valuation of timeshares is a complex issue since a timeshare owner enters the
contract expecting to pay a cash sum for an intangible benefit. Unlike owning a
financial asset, there is no expectation of future positive cash flows.
A survey in 2012 conducted by the
American Resort Development Association found that about 20 percent of
timeshares usually enter the re-sale market, and the recent State of the
Vacation Timeshare Industry: United States Study 2015 Edition reports that
timeshare revenues in 2014 amounted to $7.9 billion. This would put the size of
the re-sale market at approximately $1.6 billion. With an opportunity like that,
FlexWeek could be the AirBnB of the timeshare industry.
For more information, visit
www.flexweek.com
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