Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the Company’s unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, including the Company’s audited consolidated financial statements and related notes contained therein.
Except as otherwise noted or where the context requires otherwise, references in this Quarterly Report on Form 10-Q to, “the Company,” “we,” “us” and “our” refer to Bluegreen Vacations Holding Corporation, together with its consolidated subsidiaries, including Bluegreen Vacations Corporation and its consolidated subsidiaries (“Bluegreen”). References to “BVH” or the “Parent company” refer to Bluegreen Vacations Holding Corporation at its parent company only level.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include all statements that do not relate strictly to historical or current facts and can be identified by the use of words such as “anticipates,” “estimates,” “expects,” “intends,” “plans,” “believes,” “projects,” “predicts,” “seeks,” “will,” “should,” “would,” “may,” “could,” “outlook,” “potential,” and similar expressions or words and phrases of similar import. Forward-looking statements include, among others, statements relating to the Company’s future financial performance, business prospects and strategy, anticipated financial position, liquidity and capital needs, including conditions surrounding, and the impact of, the Coronavirus Disease of 2019 (“COVID-19”) pandemic, and other matters. These statements are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Actual results may differ materially from those expressed in, or implied by, the forward-looking statements as a result of various factors, including, among others, the following:
BVH has limited sources of cash and is dependent upon dividends from Bluegreen to fund its costs of operations;
risks associated with the Company’s indebtedness, including that the Company will be required to utilize cash flow to service its indebtedness, that indebtedness may make the Company more vulnerable to economic downturns, and that indebtedness may subject the Company to covenants and restrictions on its operations and activities and the payment of dividends;
risks associated with the adverse impact of economic conditions, including the impact of the COVID-19 pandemic on the Company’s operations and results, the price and liquidity of the Company’s Class A Common Stock and Class B Common Stock, and the Company’s ability to obtain additional capital, including the risk that if the Company needs or otherwise believes it is advisable to issue debt or equity securities or to incur indebtedness in order to fund the Company’s operations or investments, it may not be able to issue any such securities or obtain such indebtedness on favorable terms, or at all, and any issuance could result in the dilution of the interest of the Company’s shareholders;
the availability of financing, the Company’s ability to sell, securitize or borrow against its VOI notes receivable on acceptable terms, and the Company’s ability to successfully increase its credit facility capacity or enter into capital market transactions or other alternatives to provide for sufficient available cash for a sustained period of time;
risks associated with adverse conditions in the stock market, the public debt market, and other capital markets and the impact of such conditions on the Company, as well as risks associated with any failure by the Company to maintain compliance with the listing requirements of the New York Stock Exchange (the “NYSE”), which include, among other things, a minimum average closing price, share volume, and market capitalization;
risks related to potential business expansion or other strategic opportunities, including that they may involve significant costs and the incurrence of significant indebtedness and may not be successful and that the
Company’s efforts and expenses including those aimed at enhancing the experience of Bluegreen Vacation Club Members, may be greater than anticipated and may not result in the benefits anticipated;
risks relating to public health issues, including in particular the COVID-19 pandemic and the effects of the pandemic, including that while conditions have improved, Bluegreen’s business was adversely impacted by the pandemic and any resurgence may have similar or worse effects, and the pandemic may continue to have adverse effects, including due to changes in consumer behavior and preferences, and potential future increases in default and delinquency rates;
adverse changes to, expirations or terminations of, or interruptions in, and other risks relating to the Company’s business and strategic relationships, management contracts, exchange networks or other strategic marketing alliances, and the risk that the Company’s business relationship with Bass Pro under the revised terms of the parties’ marketing agreement and its relationship with Choice Hotels may not be as profitable as anticipated, or at all, or otherwise not result in the benefits anticipated;
the risks of the real estate market and the risks associated with real estate development, including a decline in real estate values and a deterioration of other conditions relating to the real estate market and real estate development and the risks associated with the Company’s ability to maintain adequate, sufficient or desired amounts of VOI inventory for sale;
risks associated with the Company’s ability to comply with applicable regulations, and the costs of compliance efforts or a failure to comply, including risks associated with the Company’s ability to maintain the integrity of internal or customer data, the failure of which could result in damage to its reputation and/or subject the Company to costs, fines or lawsuits;
risks associated with adverse trends or disruptions in economic conditions generally or in the vacation ownership, vacation rental and travel industries, the Company’s ability to compete effectively in the highly competitive vacation ownership industry and against hotel and other hospitality and lodging alternatives and decreased demand from prospective purchasers of vacation ownership interests (“VOIs”);
risks associated with the Company’s customers’ compliance with their payment obligations under financing provided by the Company, the increased presence and efforts of “timeshare-exit” firms and the success of actions which the Company has taken or may take in connection therewith, and the impact of defaults on its operating results and liquidity position;
risks associated with the ratings of third-party rating agencies, including the impact of any downgrade on the Company’s ability to obtain, renew or extend credit facilities, or otherwise raise funds;
changes in the Company’s business model and marketing efforts, plans or strategies, which may cause marketing expenses to increase or adversely impact its operating results and financial condition, and such expenses as well as the Company’s investments, including investments in new and expanded sales offices, and other sales and marketing initiatives, including screening methods and data driven analysis, may not achieve the desired results;
technology and other changes and factors which may impact the Company’s telemarketing efforts, including new cell phone technologies that identify or block marketing vendor calls;
risks associated with the Company’s relationships with third-party developers, including that third-party developers who provide VOIs to be sold by the Company pursuant to fee-based services or just-in-time arrangements may not provide VOIs when planned and that may not fulfill their obligations to the Company or to the homeowners associations that maintain the resorts they developed;
risks associated with legal proceedings and regulatory proceedings, examinations or audits of the Company’s operations, including claims of noncompliance with applicable regulations or for development related defects, and the impact they may have on the Company’s financial condition and operating results;
audits of the Company or its subsidiaries’ tax returns, including that they may result in the imposition of additional taxes;
environmental liabilities, including claims with respect to mold or hazardous or toxic substances, and their impact on the Company’s financial condition and operating results;
risks that natural disasters, including hurricanes, earthquakes, fires, floods and windstorms, and other acts of God and conditions beyond the control of the Company may adversely impact the Company’s financial condition and operating results, including due to any damage to physical assets or interruption of access to physical assets or operations resulting therefrom, and the frequency or severity of natural disasters may increase due to climate change or other factors;
risks of cybersecurity threats, including the potential misappropriation of assets or confidential information, corruption of data or operational disruptions;
the updating of, and developments with respect to, technology, including the cost involved in updating technology and the impact that any failure to keep pace with developments in technology could have on the Company’s operations or competitive position, and the Company’s information technology expenditures may not result in the expected benefits;
the Company may not pay dividends in the future when or in the amount expected, or at all;
the impact on the Company’s consolidated financial statements and internal control over financial reporting of the adoption of new accounting standards; and
the preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) involves making estimates, judgments and assumptions, and any changes in estimates, judgments and assumptions used could have a material adverse impact on the financial condition and operating results of the Company.
Reference is also made to the other risks and uncertainties described in the reports filed with the SEC by the Company, including, without limitation, those discussed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The foregoing factors are not exclusive.
Non-GAAP Financial Measures
This Quarterly Report on Form 10-Q includes discussions of terms that are not recognized terms under GAAP, and financial measures that are not calculated in accordance with GAAP, including system-wide sales of VOIs, guest tours, sale to tour conversion ratio, average sales volume per guest, EBITDA, Segment Adjusted EBITDA, and Adjusted EBITDA Attributable to Shareholders. For a discussion of EBITDA, Adjusted EBITDA, and EBTIDA Attributable to Shareholders, see “Key Business and Financial Metrics Used by Management” below. In addition, see “Reportable Segments Results of Operations” below for a reconciliation of Adjusted EBITDA to net income and system-wide sales of VOIs to gross sales of VOIs. See also “Key Business and Financial Metrics used by Management in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of the Company’s Annual Report on Form10-K for the year ended December 31, 2021.
Critical Accounting Policies and Estimates
For a discussion of critical accounting policies, see “Significant Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
New Accounting Pronouncements
See Note 2 to the Company’s unaudited consolidated financial statements included in Item 1 of this report for a discussion of new accounting pronouncements applicable to the Company.
Company Overview
The Company is a leading vacation ownership company that markets and sells VOIs and manages resorts in popular leisure and urban destinations.
As of March 31, 2022, the Company had total consolidated assets of approximately $1.3 billion and shareholders’ equity of approximately $255.5 million.
Summary of Consolidated Results of Operations
Consolidated Results
The following summarizes key financial highlights for the three months ended March 31, 2022 compared to the three months ended March 31, 2021:
Total consolidated revenues of $195.1 million, a 33% increase compared to the three months ended March 31, 2021.
Income before income taxes from continuing operations of $19.2 million compared to income of $5.5 million during the three months ended March 31, 2021.
Net income attributable to shareholders of $16.0 million compared to net income of $3.0 million during the three months ended March 31, 2021.
Diluted earnings per share from continuing operations of $0.76 compared to diluted earnings per share of $0.15 during the three months ended March 31, 2021.
The comparison the Company’s consolidated results from continuing operations for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 were significantly impacted by the timing of, and the Company’s response to the COVID-19 pandemic. Specifically, the Company experienced:
An increase in revenues attributable to improved conditions and performance in the 2022 period.
A decrease in the provision for loan losses as a percentage of sales during the 2022 period as a result of lower than estimated first quarter 2022 defaults and relatively higher prepayments on the existing portfolio.
An increase in selling, general and administrative expenses primarily attributable to improved industry and economic conditions in the 2022 period noted above, as well as continued expansion of our sales and marketing operations.
Segment Results
The Company reports the results of its business activities through the following reportable segments: Sales of VOIs and Financing; and Resort Operations and Club Management.
Information regarding income before income taxes by reportable segment is set forth in the table below:
| | | | | |
| For the Three Months Ended March 31, |
| 2022 | | 2021 |
(in thousands) | | | | | |
Sales of VOIs and financing | $ | 34,084 | | $ | 19,723 |
Resort operations and club management | | 20,368 | | | 18,037 |
Bluegreen corporate and other | | (27,104) | | | (28,545) |
BVH corporate | | (1,950) | | | (2,522) |
Income before income taxes from continuing operations | | 25,398 | | | 6,693 |
Provision for income taxes | | (6,190) | | | (1,189) |
Net income | | 19,208 | | | 5,504 |
Less: Net income attributable to noncontrolling interest | | 3,220 | | | 2,530 |
Net income attributable to shareholders | $ | 15,988 | | $ | 2,974 |
Executive Overview
Bluegreen is a leading vacation ownership company that markets and sells VOIs and manages resorts in popular leisure and urban destinations. Bluegreen’s resort network includes 45 Club Resorts (resorts in which owners in its Vacation Club have the right to use most of the units in connection with their VOI ownership) and 23 Club Associate Resorts (resorts in which owners in its Vacation Club have the right to use a limited number of units in connection with their VOI ownership). These Club Resorts and Club Associate Resorts are primarily located in high-volume, “drive-to” vacation locations, including Orlando, Las Vegas, the Smoky Mountains, Myrtle Beach, Charleston and New Orleans, among others. Through Bluegreen’s points-based system, the approximately 218,000 owners in Bluegreen’s Vacation Club have the flexibility to stay at units available at any of Bluegreen’s resorts and have access to over 11,300 other hotels and resorts through partnerships and exchange networks. Bluegreen’s sales and marketing platform is supported by marketing relationships with nationally-recognized consumer brands, such as Bass Pro and Choice Hotels. The Company believes these marketing relationships drive sales within its core demographic. In 2020, Bluegreen launched its Bluegreen Renewal Program, which is part of its company-wide effort to revitalize sales, grow revenue and increase efficiency.
Impact of the COVID-19 pandemic
The COVID-19 pandemic caused an unprecedented disruption in the U.S. and global economies and the industries in which the Company operates due to, among other things, government ordered “shelter in place” and “stay at home” orders and advisories, travel restrictions, and restrictions on business operations, including government guidance with respect to travel, public accommodations, social gatherings, and related matters. These disruptions and the reaction of the general public to the pandemic had a significant adverse impact on the Company's financial condition and operations throughout 2020, including, without limitation, due to the temporary closure beginning in March 2020 of all of Bluegreen’s VOI sales centers, its retail marketing operations at Bass Pro Shops and Cabela’s stores and outlet malls, and its Choice Hotels call transfer program, Bluegreen’s cancellation of existing owner reservations through May 15, 2020 and new prospect guest tours through June 30, 2020, and the temporary closure of certain of Bluegreen’s Club Resorts and Club Associate Resorts in accordance with government mandates and advisories. While adverse conditions continued during 2021, including due to the emergence of new variants such as the Delta and Omicron variants, Bluegreen’s business and results generally improved during 2021 and continued to improve in the first quarter of 2022.
Status of Current Operations
As of March 31, 2022, we were operating marketing kiosks at 128 Bass Pro Shops and Cabela’s stores, including 21 new Cabela’s locations and two new Bass Pro locations as compared to March 31, 2021; and all of our VOI sales centers and resorts were open, except for one resort and sales center in Surfside, Florida which was closed due to conditions unrelated to the pandemic. Further, resort occupancy rates were approximately 77% at resorts with sales centers in the first quarter of 2022. While we sold only 42,000 vacation packages in the first quarter of 2022 compared
to 49,000 in the first quarter of 2021, Bluegreen’s pipeline of vacation packages was 200,600 at March 31, 2022 compared to 132,100 at March 31, 2021, which we believe reflected the impact of the temporary cessation of marketing activities at the outset of the COVID-19 pandemic. We believe that the increase in sales of VOIs in the first quarter of 2022 reflected the improvement in general economic conditions despite continued COVID-19 cases, increasing interest rates and inflationary trends during the period. While we hope that conditions in the travel and leisure industry continue to improve, the continued future impact of economic conditions and the pandemic on the Company is uncertain. Various state and local government officials may in the future issue new or revised orders that are different than the ones under which we are currently operating, and actions of foreign government may exacerbate supply chain constraints and result in increased inflation. It is impossible to predict the duration and severity of the pandemic and the likely impact of the pandemic on the Company’s future revenues, net income and other operating results.
VOI Sales and Financing
Bluegreen’s primary business is the marketing and sale of deeded VOIs, developed either internally or by third parties. Customers who purchase these VOIs receive an allotment of points, which can be redeemed for stays at one of Bluegreen’s resorts or at 11,300 other hotels and resorts available through partnerships and exchange networks. Bluegreen’s goal is to employ a flexible model with a mix of sales of our owned, acquired or developed VOIs and sales of VOIs on behalf of third-party developers, as determined by management to be appropriate from time to time based on market and economic conditions, available cash, and other factors. Our relationships with third-party developers enables us to generate fees from the sale and marketing of their VOIs without incurring the significant upfront capital investment generally associated with resort acquisition or development. While sales of Bluegreen owned inventory typically result in a greater contribution to EBITDA and Adjusted EBITDA, fee-based sales typically do not require an initial investment or involve development financing risk. Both Bluegreen owned VOI sales and fee-based VOI sales result in recurring, incremental and long-term fee streams by adding owners to the Bluegreen Vacation Club and new resort management contracts. Fee-based sales of VOIs comprised 24% and 36% of Bluegreen’s system-wide sales of VOIs during the three months ended March 31, 2022 and 2021, respectively. Bluegreen intends to remain flexible with respect to its sales of the different categories of its VOI inventory in the future based on economic conditions, business initiatives and other considerations. In conjunction with sales of VOIs, the Company generates interest income by providing financing to qualified purchasers. Collateralized by the underlying VOIs, Bluegreen’s loans are generally structured as 10-year, fully-amortizing loans with a fixed interest rate ranging from approximately 12% to approximately 18% per annum. As of March 31, 2022, the weighted-average interest rate on Bluegreen’s VOI notes receivable was 15.3%. In addition, the Company earns fees for various other services, including title and escrow services in connection with the closing of VOI sales, and mortgage servicing.
Resort Operations and Club Management
Bluegreen enters into management agreements with the HOAs that maintain most of the resorts in Bluegreen’s Vacation Club and earns fees for providing management services to those HOAs and the approximately 218,000 Vacation Club owners. These resort management services include providing or overseeing front desk operations, housekeeping services, maintenance, and certain accounting and administration functions. Our management contracts generally yield recurring cash flows and do not have the traditional risks associated with hotel management contracts that are generally linked to daily rate or occupancy. Our management contracts are typically structured as “cost-plus,” with an initial term of three years and automatic one year renewals. In connection with the management services provided to the Bluegreen Vacation Club, we manage the reservation system and provide owner, billing and collection services.
Key Business and Financial Metrics Used by Management
Management uses several key business and financial metrics that are specific to or typically utilized in the vacation ownership industry. EBITDA, Adjusted EBITDA, Adjusted EBITDA Attributable to Shareholders are discussed below. For a discussion of the other metrics, see “Key Business and Financial Metrics Used by Management” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
EBITDA, Adjusted EBITDA, and Adjusted EBITDA Attributable to Shareholders
The Company defines EBITDA as earnings, or net income, before taking into account interest income (excluding interest earned on VOI notes receivable), interest expense (excluding interest expense incurred on debt secured by VOI notes receivable), and depreciation and amortization. The Company defines Adjusted EBITDA as EBITDA, adjusted to exclude amounts of loss (gain) on assets held for sale, share-based compensation expense, and items that the Company believes are not representative of ongoing operating results. Adjusted EBITDA Attributable to Shareholders is Adjusted EBITDA excluding amounts attributable to the non-controlling interest in Bluegreen/Big Cedar Vacations (in which Bluegreen owns a 51% interest). For purposes of the calculation of EBITDA, Adjusted EBITDA and Adjusted EBITDA Attributable to Shareholders, no adjustments were made for interest income earned on VOI notes receivable or the interest expense incurred on debt that is secured by such notes receivable because they are both considered to be part of the ordinary operations of the Company’s business.
The Company considers EBITDA, Adjusted EBITDA, and Adjusted EBITDA Attributable to Shareholders to be indicators of operating performance, and they are used by the Company to measure its ability to service debt, fund capital expenditures and expand its business. EBITDA and Adjusted EBITDA are also used by companies, lenders, investors and others because they exclude certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company’s capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. EBITDA, Adjusted EBITDA and Adjusted EBITDA Attributable to Shareholders also exclude depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies.
EBITDA, Adjusted EBITDA and Adjusted EBITDA Attributable to Shareholders are not recognized terms under GAAP and should not be considered as an alternative to net income or any other measure of financial performance or liquidity, including cash flow, derived in accordance with GAAP, or to any other method or analyzing results as reported under GAAP. The limitations of using EBITDA, Adjusted EBITDA or Adjusted EBITDA Attributable to Shareholders as an analytical tool include, without limitation, that EBITDA, Adjusted EBITDA and Adjusted EBITDA Attributable to Shareholders do not reflect (i) changes in, or cash requirements for, working capital needs; (ii) interest expense, or the cash requirements necessary to service interest or principal payments on indebtedness (other than as noted above); (iii) tax expense or the cash requirements to pay taxes; (iv) historical cash expenditures or future requirements for capital expenditures or contractual commitments; or (v) the effect on earnings or changes resulting from matters that the Company does not believe to be indicative of future operations or performance. Further, although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often have to be replaced in the future, and EBITDA, Adjusted EBITDA and Adjusted EBITDA Attributable to Shareholders do not reflect any cash that may be required for such replacements. In addition, the Company’s definition of Adjusted EBITDA or Adjusted EBITDA Attributable to Shareholders may not be comparable to definitions of Adjusted EBITDA, Adjusted EBITDA Attributable to Shareholders or other similarly titled measures used by other companies.
Reportable Segments Results of Operations
Adjusted EBITDA Attributable to Shareholders for the three months ended March 31, 2022 and 2021:
The Company considers Segment Adjusted EBITDA in connection with its evaluation of its business segments as described in Note 14: Segment Reporting to the Company’s unaudited consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q. See above for a discussion of the definition of Adjusted EBITDA and related measures, how management uses it to manage its business and material limitations on its usefulness. The following tables set forth Segment Adjusted EBITDA, Adjusted EBITDA, Adjusted EBITDA Attributable to Shareholders, EBITDA and a reconciliation of EBITDA, Adjusted EBITDA, and Adjusted EBITDA Attributable to Shareholders to net income, the most comparable GAAP financial measure:
| | | | | | |
| | For the Three Months Ended March 31, |
| | 2022 | | 2021 |
(in thousands) | | | | | | |
Adjusted EBITDA - sales of VOIs and financing | | $ | 35,733 | | $ | 21,128 |
Adjusted EBITDA - resort operations | | | | | | |
and club management | | | 20,551 | | | 18,233 |
Total Segment Adjusted EBITDA | | | 56,284 | | | 39,361 |
Less: Bluegreen's Corporate and other | | | (21,492) | | | (22,643) |
Less: BVH Corporate and other | | | (468) | | | (759) |
Adjusted EBITDA | | | 34,324 | | | 15,959 |
Less: Adjusted EBITDA attributable to non-controlling interest | | | (3,269) | | | (3,239) |
Total Adjusted EBITDA attributable to shareholders | | $ | 31,055 | | $ | 12,720 |
| | | | | | |
| | For the Three Months Ended March 31, |
| | 2022 | | 2021 |
(in thousands) | | | | | | |
Net income attributable to shareholders | | $ | 15,988 | | $ | 2,974 |
Net income attributable to the non-controlling interest in Bluegreen/Big Cedar Vacations | | | 3,220 | | | 2,530 |
Net Income | | | 19,208 | | | 5,504 |
Add: Depreciation and amortization | | | 3,922 | | | 3,851 |
Less: Interest income (other than interest earned on | | | | | | |
VOI notes receivable) | | | (62) | | | (133) |
Add: Interest expense - corporate and other | | | 4,364 | | | 5,572 |
Add: Provision for income taxes | | | 6,190 | | | 1,189 |
EBITDA | | | 33,622 | | | 15,983 |
Add: Share-based compensation expense(1) | | | 746 | | | — |
Gain on assets held for sale | | | (44) | | | (24) |
Adjusted EBITDA | | | 34,324 | | | 15,959 |
Adjusted EBITDA attributable to the non-controlling | | | | | | |
interest | | | (3,269) | | | (3,239) |
Adjusted EBITDA attributable to shareholders | | $ | 31,055 | | $ | 12,720 |
(1)Share-based compensation expense for the three months ended March 31, 2022 consisted of $0.7 million related to restricted stock awards granted in June 2021 and January 2022.
The following table reconciles system-wide sales of VOIs to gross sales of VOIs, the most comparable GAAP financial measure.
| | | | | | |
| | For the Three Months Ended March 31, |
(in thousands) | | 2022 | | 2021 |
Gross sales of VOIs | | $ | 115,607 | | $ | 68,250 |
Add: Fee-Based sales | | | 35,937 | | | 38,797 |
System-wide sales of VOIs | | $ | 151,544 | | $ | 107,047 |
For the three months ended March 31, 2022 compared to the three months ended March 31, 2021
Sales of VOIs and Financing
| | | | | | | | | | |
| | For the Three Months Ended March 31, |
| | 2022 | | 2021 |
| | Amount | | % of System- wide sales of VOIs (5) | | Amount | | % of System- wide sales of VOIs (5) |
(in thousands) | | | | | | | | | | |
Bluegreen owned VOI sales(1) | | $ | 115,607 | | 76 | | $ | 68,250 | | 64 |
Fee-Based VOI sales | | | 35,937 | | 24 | | | 38,797 | | 36 |
System-wide sales of VOIs | | | 151,544 | | 100 | | | 107,047 | | 100 |
Less: Fee-Based sales | | | (35,937) | | (24) | | | (38,797) | | (36) |
Gross sales of VOIs | | | 115,607 | | 76 | | | 68,250 | | 64 |
Provision for loan losses (2) | | | (16,579) | | (14) | | | (12,319) | | (18) |
Sales of VOIs | | | 99,028 | | 65 | | | 55,931 | | 52 |
Cost of VOIs sold (3) | | | (11,841) | | (12) | | | (5,169) | | (9) |
Gross profit (3) | | | 87,187 | | 88 | | | 50,762 | | 91 |
Fee-Based sales commission revenue (4) | | | 24,084 | | 67 | | | 25,718 | | 66 |
Financing revenue, net of financing expense | | | 18,741 | | 12 | | | 15,122 | | 14 |
Other expense | | | (152) | | 0 | | | — | | 0 |
Other fee-based services, title operations and other, net | | | 2,130 | | 1 | | | 1,555 | | 1 |
Net carrying cost of VOI inventory | | | (4,056) | | (3) | | | (7,780) | | (7) |
Selling and marketing expenses | | | (83,889) | | (55) | | | (58,001) | | (54) |
General and administrative expenses - sales and marketing | | | (9,961) | | (7) | | | (7,653) | | (7) |
Operating profit - sales of VOIs and financing | | | 34,084 | | 22% | | | 19,723 | | 18% |
Add: Depreciation and amortization | | | 1,649 | | | | | 1,405 | | |
Adjusted EBITDA - sales of VOIs and financing | | $ | 35,733 | | | | $ | 21,128 | | |
(1)Bluegreen owned VOI sales represent sales of VOIs acquired or developed by Bluegreen.
(2)Percentages for provision for loan losses are calculated as a percentage of gross sales of VOIs, which excludes Fee-Based sales (and not as a percentage of system-wide sales of VOIs).
(3)Percentages for costs of VOIs sold and gross profit are calculated as a percentage of sales of VOIs (and not as a percentage of system-wide sales of VOIs).
(4)Percentages for Fee-Based sales commission revenue are calculated as a percentage of Fee-Based sales (and not as a percentage of system-wide sales of VOIs).
(5)Represents the applicable line item, calculated as a percentage of system-wide sales of VOIs unless otherwise indicated in the above footnotes.
System-wide sales of VOIs. System-wide sales of VOIs were $151.5 million and $107.0 million during the three months ended March 31, 2022 and 2021, respectively. System-wide sales of VOIs are driven by the number of guests attending a timeshare sale presentation (a “guest tour”) and our ability to convert such guest tours into purchases of VOIs. The number of guest tours is driven by the number of existing owner guests Bluegreen has staying at a resort with a sales center and new guests who agree to attend a sales presentation. During the first quarter of 2022, we experienced an increase in stays at our resorts and the use of our vacation packages, which contributed to an increase in the number of guest tours by 40% compared to the first quarter of 2021. The COVID-19 pandemic impacted guest tours during the 2021 period, resulting in lower system-wide sales of VOIs. The ultimate extent and duration of the impact from the COVID-19 pandemic cannot be predicted at this time.
Included in system-wide sales are Fee-Based Sales and Bluegreen-owned sales. Sales by category are tracked based on which deeded VOI is conveyed in each transaction. The individual VOIs sold is based on several factors, including the needs of fee-based clients, the Company’s debt service requirements and default resale requirements under term securitizations and similar transactions. These factors and business initiatives contribute to fluctuations in the amount of sales by category from period to period.
Sales of VOIs. Sales of VOIs were $99.0 million and $55.9 million during the three months ended March 31, 2022 and 2021, respectively. Sales of VOIs were impacted by the factors described in the discussion of system-wide sales of VOIs above, primarily the continued impact of the COVID-19 pandemic in 2021. Gross sales of VOIs were reduced by $16.6 million and $12.3 million during the three months ended March 31, 2022 and 2021, respectively, for the provision for loan losses. The provision for loan losses varies based on the amount of financed, non-fee based sales during the period and changes in estimates of future VOI notes receivable performance for existing and newly originated loans. The percentage of sales which were realized in cash within 30 days from sale was 45% during the both the three months ended March 31, 2022 and 2021. The provision for loan losses as a percentage of gross sales of VOIs was 14% and 18% during the three months ended March 31, 2022 and 2021, respectively. The decrease in the provision for loan loss as a percentage of sales during the 2022 period as compared to the 2021 period is due to lower than estimated first quarter 2022 defaults and higher than anticipated prepayments on the existing portfolio.
Bluegreen believes that the COVID-19 pandemic and general economic conditions including inflationary trends may have an impact on the collectibility of its VOI notes receivable. The provision for loan losses also continues to be impacted by defaults which Bluegreen believes are attributable to the receipt of letters from third parties and attorneys who purport to represent certain VOI owners and who have encouraged such owners to become delinquent and ultimately default on their obligations. See Note 9: Commitments and Contingencies to the Company’s unaudited consolidated financial statements included in Item 1 of this report for additional information regarding such letters and actions we have taken in connection with such letters. The impact of the COVID-19 pandemic, the continued impact of actions taken by timeshare exit firms and changing economic conditions are highly uncertain and there is no assurance that steps taken to mitigate the impact of these factors will be successful or they will not otherwise impact the collectability or our VOI notes receivable to a greater extent than estimated. As a result, actual defaults may differ from our estimates and the allowance for loan losses may not prove to be adequate.
The average annual default rates and delinquency rates (more than 30 days past due) on our VOI notes receivable were as follows:
| | | | |
| | | | |
| | For the Twelve Months Ended March 31, |
| | 2022 | | 2021 |
| | | | |
Average annual default rates (1) | | 8.19% | | 9.64% |
| | | | |
| | As of March 31, |
| | 2022 | | 2021 |
| | | | |
Delinquency rates (1) | | 2.82% | | 3.09% |
(1)The average annual default rates in the table above include VOIs which have been defaulted but had not yet charged off due to the provisions of certain of our receivable-backed notes payable transactions, as well as certain VOI loans over 127 days past due where we received cease and desist letters from attorneys and other third-party exit firms. Accordingly, these are excluded for purposes of calculating the delinquency rates above.
The following table sets forth certain information for system-wide sales of VOIs for the three months ended March 31, 2022 and 2021:
| | | | | | | | | |
| | For the Three Months Ended March 31, |
| | 2022 | | 2021 | | Change |
(dollars in thousands) | | | | | | | | | |
Number of sales centers open at period-end | | | 24 | | | 24 | | — | % |
Total number of VOI sales transactions | | | 7,514 | | | 6,197 | | 21 | % |
Average sales price per transaction | | $ | 20,226 | | $ | 17,303 | | 17 | % |
Number of total guest tours | | | 48,861 | | | 34,821 | | 40 | % |
Sale-to-tour conversion ratio– total marketing guests | | | 15.4% | | | 17.8% | | (240) | bp |
Number of existing owner guest tours | | | 24,841 | | | 18,332 | | 36 | % |
Sale-to-tour conversion ratio– existing owners | | | 16.8% | | | 20.6% | | (380) | bp |
Number of new guest tours | | | 24,020 | | | 16,489 | | 46 | % |
Sale-to-tour conversion ratio– new marketing guests | | | 13.9% | | | 14.7% | | (80) | bp |
Percentage of sales to existing owners | | | 57.0% | | | 63.5% | | (650) | bp |
Average sales volume per guest | | $ | 3,110 | | $ | 3,079 | | 1 | % |
Cost of VOIs Sold. During the three months ended March 31, 2022 and 2021, cost of VOIs sold was $11.8 million and $5.2 million, respectively, and represented 12% and 9%, respectively, of sales of VOIs. Cost of VOIs sold as a percentage of sales of VOIs varies between periods based on the relative costs of the specific VOIs sold in each period and the size of the point packages of the VOIs sold (due to offered volume discounts, including consideration of cumulative sales to existing owners). Additionally, the effect of changes in estimates under the relative sales value method, including estimates of sales, future defaults, upgrades and incremental revenue from the resale of repossessed VOI inventory, are accounted for as VOI inventory true-ups and retrospectively adjust the margin previously recognized subject to those estimates. During the three months ended March 31, 2022, approximately $2.7 million of cost of VOIs sold related to these true-ups. Cost of sales is typically favorably impacted in periods where a significant amount of Secondary Market VOI inventory is acquired or actual defaults and equity trades are higher than anticipated and the resulting change in estimate is recognized. Cost of VOIs sold as a percentage of sales of VOIs was higher for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 due to the relative mix of inventory being sold and lower secondary market purchases in the 2022 period.
Fee-Based Sales Commission Revenue. During the three months ended March 31, 2022 and 2021, Bluegreen sold $35.9 million and $38.8 million, respectively, of third-party VOI inventory under commission arrangements and earned sales and marketing commissions of $24.1 million and $25.7 million, respectively, in connection with those sales. The decrease in sales of third-party developer inventory on a commission basis during the 2022 period was due to Bluegreen’s increased focus on selling Bluegreen owned VOI sales. Bluegreen earned an average sales and marketing commission of 67% and 66% during the three months ended March 31, 2022 and 2021, respectively, which is net of a reserve for commission refunds in connection with early defaults and cancellations pursuant to the terms of certain of the fee-based service arrangements. Bluegreen typically recognizes a sales and marketing commission between 65% and 68% on sales of third-party VOI inventory.
Financing Revenue, Net of Financing Expense — Sales of VOIs. Interest income on VOIs notes receivable was $22.1 million and $19.1 million during the three months ended March 31, 2022 and 2021, respectively, which was partially offset by interest expense on receivable-backed debt of $3.4 million and $4.1 million, respectively. The increase in finance revenue, net of finance expense in the 2022 period as compared to the 2021 period is primarily due to higher VOI notes receivable balances as a result of higher sales of VOIs and lower outstanding receivable-backed debt balances and a lower weighted-average cost of borrowing attributable to the lower interest rate in the 2022 period. Revenues from mortgage servicing during both the three months ended March 31, 2022 and 2021 of $1.3 million are
included in financing revenue, net of mortgage servicing expenses of $1.4 million and $1.2 million during the three months ended March 31, 2022 and 2021, respectively.
Other Fee-Based Services — Title Operations, net. During the three months ended March 31, 2022 and 2021, revenue from title operations was $3.1 million and $2.3 million, respectively, which was partially offset by expenses directly related to title operations of $1.0 million and $0.7 million, respectively. Resort title fee revenue varies based on VOI sales volumes as well as the title costs in the jurisdictions where the inventory being sold is located. The increase in the 2022 period is due to the increase in system-wide sales of VOIs during such period compared to the 2021 period, as described above.
Net Carrying Cost of VOI Inventory. The gross carrying cost of VOI inventory was $10.3 million and $10.9 million during the three months ended March 31, 2022 and 2021, respectively, which was partially offset by rental and sampler revenues of $6.2 million and $3.1 million, respectively. The decrease in net carrying costs of VOI inventory was primarily related to increased rentals of developer inventory and increased sampler stays due to the more significant impact of the COVID-19 pandemic on operations in the 2021 period, and to a lesser extent lower maintenance fees and developer subsidies associated with the decrease in VOI inventory. In certain circumstances, marketing costs are offset by using inventory for marketing guest stays.
Selling and Marketing Expenses. Selling and marketing expenses were $83.9 million and $58.0 million during the three months ended March 31, 2022 and 2021, respectively. The increase in selling and marketing expenses during the three months ended March 31, 2022 compared to the three months ended March 31, 2021 is primarily attributable to the expansion of marketing operations into two Bass Pro stores and 21 additional Cabela’s stores since March 31, 2021 and the expansion of our sales operations in general. We utilize Bass Pro and Cabela’s stores to sell discounted vacation packages to customers for future travel which require the customers to attend a timeshare presentation. Further, we have invested in various local and national marketing programs in an effort to attract new customers. These program changes may not be successful or generate a sufficient number of prospects to offset the program costs incurred.
As a percentage of system-wide sales of VOIs, selling and marketing expenses were 55% and 54% during the three months ended March 31, 2022 and 2021, respectively. The increase in selling and marketing expenses as a percentage of system-wide sales of VOIs reflects a higher proportion of sales to new customers compared to the prior year.
The following table sets forth certain new customer marketing information, excluding sampler and other returning owner vacation packages, for the three months ended March 31, 2022 and 2021:
| | | | | | | | |
| | For the Three Months Ended March 31, |
| | 2022 | | 2021 | | % Change |
Number of Bass Pro and Cabela's marketing locations at period-end | | | 128 | | | 105 | | 22 |
Number of vacation packages outstanding, beginning of the period (1) | | | 187,244 | | | 121,915 | | 54 |
Number of vacation packages sold | | | 41,990 | | | 49,374 | | (15) |
Number of vacation packages outstanding, end of the period (1) | | | 200,627 | | | 132,142 | | 52 |
% of Bass Pro vacation packages at period end | | | 45% | | | 54% | | (17) |
% of Cabela's vacation packages at period end | | | 19% | | | 18% | | 6 |
% of Choice Hotel vacation packages at period end | | | 24% | | | 20% | | 20 |
% of Other vacation packages at period end | | | 12% | | | 9% | | 33 |
(1)Excludes vacation packages sold to customers more than one year prior to the period presented and vacation packages sold to customers who had already toured but purchased an additional vacation package.
In addition to vacation packages sold to new prospects, we also sell vacation packages to customers who have already toured, some of whom purchased a VOI, and have indicated they would tour again. As of March 31, 2022, the pipeline
of such packages was approximately 15,500. There is no assurance that such packages will convert to sales at historical or expected levels.
General and Administrative Expenses — Sales and Marketing Operations. General and administrative expenses, representing expenses directly attributable to sales and marketing operations, were $10.0 million and $7.7 million during the three months ended March 31, 2022 and 2021, respectively, reflecting the increased compensation costs due to expansion of our sales and marketing support operations. As a percentage of system-wide sales of VOIs, general and administrative expenses directly attributable to sales and marketing operations were 7% during both the three months ended March 31, 2022 and 2021.
Resort Operations and Club Management
| | | | | | | | | | | |
| | | For the Three Months Ended March 31, |
(dollars in thousands) | | | 2022 | | | | 2021 | | |
Resort operations and club management revenue | | | $ | 46,189 | | | | $ | 43,231 | | |
Resort operations and club management expense | | | | (25,821) | | | | | (25,194) | | |
Operating profit - resort operations and club management | | | | 20,368 | | 44% | | | 18,037 | | 42% |
Add: Depreciation and amortization | | | | 183 | | | | | 196 | | |
Adjusted EBITDA - resort operations and club management | | | $ | 20,551 | | | | $ | 18,233 | | |
Resort Operations and Club Management Revenue. Resort operations and club management revenue increased 7% during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. Cost reimbursement revenue, which consists of payroll and other operating expenses which we incur and passes through to the HOAs, increased 9% during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. The increase in cost reimbursement revenue was primarily attributable to an increase in headcount due to the recovery from the COVID-19 pandemic. Excluding cost reimbursement revenue, resort operations and club management revenues increased 6% during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 primarily due to an increase in management fees commensurate with higher resort operating costs. Our resort network includes 68 Club and Club Associate Resorts as of both March 31, 2022 and 2021. We managed 49 resort properties as of both March 31, 2022 and 2021.
Resort Operations and Club Management Expense. During the three months ended March 31, 2022, resort operations and club management expense increased 2% compared to three months ended March 31, 2021. The increase was primarily due to increased compensation costs incurred during the first quarter of 2022 as a result of or in connection with the continued recovery from the impact of the COVID-19 pandemic described above and a competitive labor market.
Bluegreen Corporate and Other
| | | | | | |
| | For the Three Months Ended March 31, |
(dollars in thousands) | | 2022 | | 2021 |
General and administrative expenses - corporate and other | | $ | (24,801) | | $ | (24,655) |
Other income (expense), net | | | 517 | | | (214) |
Gain on assets held for sale | | | (44) | | | (24) |
Add: Depreciation and amortization | | | 2,090 | | | 2,250 |
Add: Share-based compensation and other | | | 746 | | | — |
Adjusted EBITDA - Corporate and other | | $ | (21,492) | | $ | (22,643) |
General and Administrative Expenses — Corporate and Other. General and administrative expenses directly attributable to corporate overhead were $24.8 million and $24.7 million during the three months ended March 31, 2022 and 2021, respectively.
Other Income (Expense), net. Other income (expense), net was $0.5 million and ($0.2) million during the three months ended March 31, 2022 and 2021, respectively.
Interest Expense. Interest expense unrelated to receivable-backed debt was $2.9 million and $3.8 million during the three months ended March 31, 2022 and 2021, respectively. The decrease in such interest expense during the three months ended March 31, 2022 was primarily due to lower outstanding debt balances and lower weighted-average cost of borrowing, as compared to the three months ended March 31, 2021. The weighted average cost of borrowing excluding receivable-backed debt as of March 31, 2022 was approximately 5.18% compared to approximately 6.47% as of March 31, 2021.
Net Income Attributable to Non-Controlling Interest. The Company includes in its consolidated financial statements the results of operations and financial condition of Bluegreen/Big Cedar Vacations, Bluegreen’s 51%-owned subsidiary. Net income attributable to non-controlling interest is the portion of Bluegreen/Big Cedar Vacations that is attributable to Big Cedar LLC, which holds the remaining 49% interest in Bluegreen/Big Cedar Vacations. Net income attributable to noncontrolling interests during the three months ended March 31, 2022 and 2021 was $3.2 million and $2.5 million, respectively. The increase in net income attributable to noncontrolling interests for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 reflects the continued recovery from the COVID-19 pandemic, as discussed above.
BVH Corporate and Other
BVH Corporate and other in the Company’s segment information primarily includes the following:
BVH’s corporate general and administrative expenses;
Interest expense associated with Woodbridge’s junior subordinated debentures and its outstanding note payable to BBX Capital; and
Interest income on interest-bearing cash accounts.
Corporate General and Administrative Expenses
BVH’s corporate general and administrative expenses for the three months ended March 31, 2022 and 2021 were $0.5 million and $0.8 million, respectively, and consist primarily of costs associated with BVH being a publicly traded company (including, but not limited to, executive compensation, shareholder relations, and legal and auditing expenses).
Interest Expense
BVH’s interest expense for the three months ended March 31, 2022 and 2021 was $1.5 million and $1.8 million, respectively. Interest expense for the three months ended March 31, 2022 and 2021 includes $0.8 million and $1.1 million, respectively, of interest expense on the note payable to BBX Capital, issued in connection with the spin-off of BBX Capital in September 2020. The decrease in interest expense was primarily due to the repayment of $25.0 million of the note payable to BBX Capital in December 2021.
Provision for Income Taxes from continuing operations
The provision for income taxes was $6.2 million and $1.2 million for the three months ended March 31, 2022 and 2021, respectively. The Company’s effective income tax rate was approximately 28% and 29% for the three months ended March 31, 2022 and 2021, respectively.
Changes in Financial Condition
The following table summarizes the Company’s cash flows for the periods indicated (in thousands):
| | | | | | |
| | For the Three Months Ended March 31, |
| | 2022 | | 2021 |
| | | | | | |
Net cash provided by operating activities | | $ | 29,492 | | $ | 11,969 |
Net cash used in investing activities | | | (4,895) | | | (4,049) |
Net cash provided by (used in) financing activities | | | 18,028 | | | (25,138) |
Net increase (decrease) in cash, cash equivalents, and restricted cash | | $ | 42,625 | | $ | (17,218) |
Cash Flows from Operating Activities
The Company’s operating cash flow increased $17.5 million during the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily reflecting the following:
increased operating profit in the 2022 period reflecting the stronger 2022 performance and continued recovery from the COVID-19 pandemic; and
timing of the payment of certain 2022 expenses, including those to Bass Pro, made in December 2021;
partially offset by an increase in our VOI notes receivable portfolio.
Cash Flows from Investing Activities
Cash used in investing activities was $4.9 million and $4.0 million during the three months ended March 31, 2022 and 2021, respectively, and consisted of spending on purchases of property and equipment.
Cash Flows from Financing Activities
Cash provided by financing activities increased by $43.1 million during the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily due to a $45.6 million decrease in net borrowings in the 2022 period. In addition, the Company repurchased $4.7 million of shares of its common stock in the 2022 period with no such repurchases in the 2021 period.
For additional information on the availability of cash from existing credit facilities, as well as repayment obligations, see “Liquidity and Capital Resources” below.
Seasonality
The Company has historically, and expects to continue to experience, seasonal fluctuations in its revenues and results of operations. This seasonality has resulted, and may continue to result, in fluctuations in quarterly operating results. Due to consumer travel patterns, we typically experience more tours and higher VOI sales volume during the second and third quarters.
Liquidity and Capital Resources
The Company, excluding Bluegreen
As of March 31, 2022, the Company, excluding its subsidiaries, had cash, cash equivalents, and short-term investments of approximately $8.2 million. Its primary source of liquidity for the forseeable future is expected to be its available cash, cash equivalents, and short-term investments and distributions from Bluegreen.
In connection with the spin-off of BBX Capital in September 2020, BVH issued a $75.0 million note payable to BBX Capital that accrues interest at a rate of 6% per annum and requires payments of interest on a quarterly basis. Under the terms of the note, BVH has the option in its discretion to defer interest payments under the note, with interest on the entire outstanding balance thereafter to accrue at a cumulative, compounded rate of 8% per annum until such time as all accrued payments under the note are brought current, including deferred interest. In December 2021, BVH repaid $25.0 million on the note payable to BBX Capital, leaving a remaining balance as of March 31, 2022 of $50.0 million. All outstanding amounts under the note will become due and payable in September 2025 or earlier upon certain other events.
The Company’s wholly owned subsidiary, Woodbridge, had $65.3 million of junior subordinated debentures outstanding as of March 31, 2022. Woodbridge’s junior subordinated debentures accrue interest at a rate of 3-month LIBOR plus a spread ranging from 4.10% to 4.85%, mature between 2035 and 2036, and require interest payments on a quarterly basis.
The Company, at its parent company level, is a holding company with limited operations which currently expects to incur approximately $2.0 million annually in executive compensation expenses and public company costs and annual interest expense of approximately $6.0 million associated with Woodbridge’s junior subordinated debentures and the note payable to BBX Capital. These amounts are based on current expectations and assumptions, currently available information and, with respect to interest expense on Woodbridge’s junior subordinated debentures, interest rates as of March 31, 2022. Such assumptions and expectations may not prove to be accurate, interest rates may increase and, accordingly or otherwise, actual expenses may exceed the amounts expected. BVH will rely primarily on cash on hand and cash equivalents, as well as distributions, if any, that may be paid by Bluegreen in the future, to fund its operations and satisfy its debt service requirements and other liabilities, including its note payable to BBX Capital. BVH is dependent on the payment of distributions from Bluegreen to fund its operations and debt service requirements in future periods. There is no assurance that Bluegreen will pay distributions in the amounts required to fund BVH’s needs or at all.
Except as otherwise noted, the debts and obligations of Bluegreen are not direct obligations of BVH and generally are non-recourse to BVH. Similarly, the assets of Bluegreen are not available to BVH absent a distribution. Furthermore, certain of Bluegreen’s credit facilities contain terms which could limit the payment of distributions without the lender’s consent or waiver. BVH may also seek additional liquidity in the future from outside sources, including traditional bank financing, secured or unsecured indebtedness, or the issuance of equity and/or debt securities. However, these alternatives may not be available to BVH on attractive terms, or at all. The inability to raise funds through such sources when or to the extent needed would have a material adverse effect on the Company’s business, results of operations, and financial condition.
In August 2021, the Company’s board of directors approved a share repurchase program which authorized the repurchase of the Company’s Class A Common Stock and Class B Common Stock at an aggregate cost of up to $40.0 million. In March 2022, the Company’s board of directors approved a $50.0 million increase in the aggregate cost of the Company’s Class A Common Stock and Class B Common Stock that may be repurchased under the program. The Company repurchased and retired 151,232 of Class A Common Stock during the three months ended March 31, 2022 for an aggregate purchase price of $4.7 million. As of March 31, 2022, $58.0 million remained available for the repurchase of shares under the Company’s share repurchase program. In April 2022, the Company repurchased and retired 450,000 of Class A Common stock for $13.5 million in a private transaction. No shares were repurchased during the three months ended March 31, 2021.
On April 13, 2022, the Company’s board of directors declared a quarterly cash dividend of $0.15 per share on its Class A and Class B common stock, which totaled $3.0 million in the aggregate, to be paid on May 16, 2022. The record date for the dividend was May 2, 2022. The Company also indicated that it intends to continue to declare regular quarterly cash dividends on its Class A and Class B common stock of $0.15 per share, subject to declaration by, and the discretion of, the Company’s board of directors and limitations in its credit facilities.
Bluegreen
Bluegreen believes that it has sufficient liquidity from the sources described below to fund its operations, including its anticipated working capital, capital expenditure, and debt service requirements for the foreseeable future, subject to the success of its operations and initiatives (including those taken in connection with or in response to the COVID-19 pandemic) and the ongoing availability of credit.
Bluegreen’s primary sources of funds from internal operations are: (i) cash sales; (ii) down payments on VOI sales which are financed; (iii) proceeds from borrowings collateralized by notes receivable; (iv) cash from finance operations; and (v) net cash generated from sales and marketing fee-based services and other fee-based services, including resort management operations.
The ability to borrow against notes receivable from VOI buyers has been critical to Bluegreen’s continued liquidity. A financed VOI buyer is generally only required to pay a minimum of 10% of the purchase price in cash at the time of sale; however, selling, marketing and administrative expenses attributable to the sale are primarily cash expenses that generally exceed a buyer’s minimum required down payment. Accordingly, having financing facilities available to borrow against Bluegreen’s VOI notes receivable has been critical to its ability to meet its short and long-term cash needs. Bluegreen has attempted to maintain a number of diverse financing facilities. Historically, Bluegreen has relied on the term securitization market in order to generate liquidity and create capacity in its receivable facilities. In addition, maintaining adequate VOI inventory to sell and pursue growth into new markets requires Bluegreen to use cash on hand or incur debt for the acquisition, construction and development of new resorts. Development expenditures for the remainder of 2022 are expected to range between $50.0 million to $60.0 million and include development activity at resorts in Missouri and Tennessee. In addition, Bluegreen continues to look at opportunities for new resort or land acquisitions.
As described above, Bluegreen’s ability to borrow against its VOI notes receivable has historically been a critical factor in Bluegreen’s liquidity. If Bluegreen is unable to renew credit facilities or obtain new credit facilities, Bluegreen’s business, results of operations, liquidity, or financial condition would be materially, adversely impacted.
Bluegreen has entered into agreements with third-party developers that allow Bluegreen to buy VOI inventory, typically on a non-committed basis, prior to when it intends to sell such VOIs. Bluegreen also enters into secondary market arrangements with certain HOAs and others generally on a non-committed basis, which allows Bluegreen to acquire VOIs generally at a significant discount, as such VOIs are typically obtained by the HOAs through foreclosure in connection with maintenance fee defaults. Acquisition of JIT and secondary market inventory, both of which are considered Bluegreen-owned inventory, is expected to range between $10.0 million to $20.0 million in 2022.
In April 2022, Bluegreen completed a private offering and sale of $172.0 million of VOI receivable-backed notes (the “2022 Term Securitization”). The 2022 Term Securitization consisted of the issuance of three tranches of VOI receivable-backed notes (collectively, the “Notes”) as follows: $71.0 million of Class A Notes, $56.5 million of Class B Notes, and $44.5 million of Class C Notes. The interest rates on the Class A Notes, Class B Notes and Class C Notes are 4.12%, 4.61% and 5.35%, respectively, which blends to an overall weighted average note interest rate of approximately 4.60%. The gross advance rate for this transaction was 88.3%. The Notes mature in September 2037.
The amount of the VOI receivables sold or to be sold to BXG Receivables Note Trust 2022-A (the “Trust”) in the transaction is $194.7 million, $185.0 million of which was sold to the Trust at closing and $9.7 million of which is expected to be sold to the Trust by August 2022. The gross proceeds of such sales to the Trust are anticipated to be $171.9 million. A portion of the proceeds received at the closing were used to: repay the Key Bank/DZ Purchase Facility $53.2 million, representing all amounts outstanding under the facility; repay the Liberty Bank facility $11.0 million; repay Pacific Western Bank Facility $16.1 million; capitalize a reserve fund; and pay fees and expenses associated with the transaction. Prior to the closing of the 2022-A Term Securitization, Bluegreen, as servicer, funded $4.9 million in connection with the servicer redemption of the notes related to the 2013 Term Securitization, and certain of the VOI notes in such trust were sold to the Trust in connection with the 2022 Term Securitization. The remainder of the gross proceeds from the 2022 Term Securitization are expected to be used for general corporate purposes. As a result of the facility repayments described above, (i) there currently are no amounts outstanding under the KeyBank/DZ Purchase Facility, which allows for maximum outstanding receivable-backed borrowings of $80.0 million on a revolving basis through December 31, 2022, (ii) there is currently approximately $11.7 million
outstanding under the Liberty Bank Facility, which permits maximum outstanding receivable-backed borrowings of $40.0 million on a revolving basis through June 30, 2024, and (iii) there is currently approximately $5.3 million outstanding under the Pacific Western Bank Facility, which permits maximum outstanding receivable-backed borrowings of $40.0 million on a revolving basis through September 20, 2024. Thus, additional availability of approximately $80.3 million in the aggregate was generated as a result of the repayments.
Subject to performance of the collateral, Bluegreen will receive any excess cash flows generated by the receivables transferred under the 2022 Term Securitization (excess meaning after payments of customary fees, interest and principal under the 2022 Term Securitization) on a pro-rata basis as borrowers make payments on their VOI loans.
While ownership of the VOI receivables included in the 2022 Term Securitization is transferred and sold for legal purposes, the transfer of these receivables is accounted for as a secured borrowing for financial accounting purposes. Accordingly, no gain or loss was recognized as a result of this transaction.
Bluegreen has $12.4 million of required contractual obligations due to be paid within one year, as well as two financing facilities with advance periods that will expire within one year. While there is no assurance that Bluegreen will be successful, Bluegreen intends to seek to renew or extend its debt and extend its advance periods on certain facilities.
Bluegreen’s level of debt and debt service requirements have several important effects on its operations and in turn on the Company, including that: (i) significant debt service cash requirements reduce the funds available for operations and future business opportunities and increase Bluegreen’s vulnerability to adverse economic and industry conditions, as well as conditions in the credit markets, generally; (ii) Bluegreen’s leverage position increases its vulnerability to economic and competitive pressures; (iii) the financial covenants and other restrictions contained in indentures, credit agreements and other agreements relating to its indebtedness require Bluegreen to meet certain financial tests and may restrict Bluegreen’s ability to, among other things, pay dividends, borrow additional funds, dispose of assets or make investments; and (iv) Bluegreen’s leverage position may limit funds available for acquisitions, working capital, capital expenditures, dividends and other general corporate purposes. Certain of Bluegreen’s competitors may operate on a less leveraged basis and may have greater operating and financial flexibility than Bluegreen does.
Credit Facilities for Receivables with Future Availability
Bluegreen maintains various credit facilities with financial institutions which allow Bluegreen to borrow against or sell its VOI notes receivable. As of March 31, 2022, Bluegreen had the following credit facilities with future availability, all of which are subject to terms and conditions during the advance period (dollars in thousands):
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | Borrowing Limit as of March 31, 2022 | | Outstanding Balance as of March 31, 2022 | | Availability as of March 31, 2022 | | Advance Period Expiration; Borrowing Maturity as of March 31, 2022 | | Borrowing Rate; Rate as of March 31, 2022 |
Liberty Bank Facility | | $ | 40,000 | | $ | 20,233 | | $ | 19,767 | | June 2024; June 2026 | | Prime + 0.10% to 0.50%; floor of 3.00%; 3.00%(1) |
NBA Receivables Facility | | | 70,000 | | | 24,891 | | | 45,109 | | September 2023; March 2028 | | 30 day LIBOR+2.25%; floor of 3.00%; 3.00% (2) |
Pacific Western Facility | | | 50,000 | | | 21,467 | | | 28,533 | | September 2024; September 2027 | | 30 day LIBOR+2.50% to 2.75%(3); 3.21% |
KeyBank/DZ Purchase Facility | | | 80,000 | | | 55,067 | | | 24,933 | | December 2022; December 2024 | | 30 day LIBOR or CP +2.25%; interest rate floor of 0.25%; 2.53% (4) |
Quorum Purchase Facility | | | 50,000 | | | 17,866 | | | 32,134 | | December 2022; December 2034 | | (5) |
| | $ | 290,000 | | $ | 139,524 | | $ | 150,476 | | | | |
(1)Recourse is limited to $5.0 million, subject to certain exceptions.
(2)Borrowings after September 25, 2020 accrue interest at one-month LIBOR plus 2.25% (with an interest rate floor of 3.00%). Recourse to Bluegreen/Big Cedar Vacations is limited to $10.0 million, subject to certain exceptions.
(3)Recourse is limited to $7.5 million, subject to certain exceptions.
(4)Borrowings accrue interest at a rate equal to either LIBOR, a “Cost of Funds” rate or commercial paper (“CP”) rates plus 2.25%. The
interest rate will increase to the applicable rate plus 3.25% upon the expiration of the advance period.
(5)Of the amounts outstanding under the Quorum Purchase Facility at March 31, 2022, $9.7 million accrues interest at a rate per
annum of 4.95%, and $8.1 million accrues interest at a fixed rate of 5.10%.
See Note 10 to the Company’s Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2021 for additional information with respect to Bluegreen’s receivable-backed notes payable facilities.
Other Credit Facilities
Fifth Third Syndicated Line-of-Credit and Fifth Third Syndicated Term Loan. Bluegreen’s has a corporate credit facility which included a $100.0 million term loan (the “Fifth Third Syndicated Loan”) with quarterly amortization requirements and a $125.0 million revolving line of credit (the “Fifth Third Syndicated Line-of-Credit”) as of December 31, 2021. In February 2022, Bluegreen amended and increased the revolving line of credit by $75.0 million. Borrowings generally bear interest at a rate of term SOFR plus 1.75-2.50% and a 0.05%-0.10% credit spread adjustment, depending on Bluegreen’s leverage ratio. Borrowings are collateralized by certain VOI inventory, sales center buildings, management fees, short-term receivables and cash flows from residual interests relating to certain term securitizations. As of March 31, 2022, outstanding borrowings under the facility totaled $140.0 million, including $100.0 million under the Fifth Third Syndicated Term Loan with an interest rate of 1.99%, and $40.0 million under the Fifth Third Syndicated Line of Credit with an interest rate of 2.11%.
Bluegreen also has outstanding obligations under various credit facilities and securitizations that have no remaining future availability as the advance periods have expired.
Commitments
The following table summarizes the contractual minimum principal and interest payments required on all of the Company’s outstanding debt, and non-cancelable operating leases by period due date, as of March 31, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
Contractual Obligations | | Less than 1 year | | 1 – 3 Years | | 4 – 5 Years | | After 5 Years | | Unamortized Debt Issuance Costs | | Total |
| | | | | | | | | | | | | | | | | | |
Receivable-backed notes payable | | $ | — | | $ | 58,801 | | $ | 33,244 | | $ | 257,390 | | $ | (3,892) | | $ | 345,543 |
Bluegreen notes payable and other borrowings | | | 5,000 | | | 10,000 | | | 125,000 | | | — | | | (2,213) | | | 137,787 |
BVH note payable to BBX Capital, Inc. | | | | | | | | | 50,000 | | | | | | | | | 50,000 |
Jr. subordinated debentures (1) | | | — | | | — | | | — | | | 170,897 | | | (982) | | | 169,915 |
Noncancelable operating leases (2) | | | 7,378 | | | 10,624 | | | 5,767 | | | 23,133 | | | | | | 46,902 |
Bass Pro Settlement (3) | | | | | | 8,000 | | | | | | | | | | | | 8,000 |
Contractual interest (4) | | | 25,441 | | | 49,868 | | | 43,942 | | | 128,774 | | | | | | 248,025 |
Total contractual obligations | | $ | 37,819 | | $ | 137,293 | | $ | 257,953 | | $ | 580,194 | | $ | (7,087) | | $ | 1,006,172 |
| | | | | | | | | | | | | | | | | | |
(1)Amounts do not include purchase accounting adjustments for junior subordinated debentures of $34.7 million.
(2)Amounts represent the cash payment for leases and include interest of $10.5 million
(3)Amounts represent the $4.0 million annual cash payments to Bass Pro during each of 2023 and 2024 pursuant to the June 2019 settlement agreement and include imputed interest of $0.5 million.
(4)Assumes that the scheduled minimum principal payments are made in accordance with the table above and the interest rate on variable rate debt remains the same as the rate at March 31, 2022.
The future commitments of the Company, excluding Bluegreen, relate to Woodbridge’s junior subordinated debentures and the note payable to BBX Capital, including interest thereon. The Company will rely primarily on cash on hand and cash equivalents, as well as dividends, if any, that may be paid by Bluegreen in the future, in order to satisfy the principal payments required on its contractual obligations. As discussed above, while the Company believes that it will have sufficient cash and cash equivalents to fund its operations for the foreseeable future, it will be dependent on the payment of distribution by Bluegreen to fund its operations in future periods. There is no assurance that Bluegreen will pay distributions in amounts required to fund BVH’s needs or at all.
In lieu of paying maintenance fees for unsold VOI inventory, Bluegreen may enter into subsidy agreements with certain HOAs. During the three months ended March 31, 2022 and 2021, Bluegreen made payments related to such subsidies of $1.5 million and $1.6 million, respectively, which are included within cost of other fee-based services in the Company’s unaudited consolidated statements of operations and comprehensive income. As of March 31, 2022, we had $4.9 million accrued for such subsidies, which is included in accrued liabilities and other in the unaudited consolidated balance sheet as of such date. As of December 31, 2021, Bluegreen had no accrued liabilities for such subsidies.
Bluegreen intends to use cash on hand and cash flow from operations, including cash received from the sale or pledge of VOI notes receivable, and cash received from new borrowings under existing or future credit facilities in order to satisfy the principal and interest payments required on contractual obligations.
Bluegreen believes that its existing cash, anticipated cash generated from operations, anticipated future permitted borrowings under existing or future credit facilities, and anticipated future sales of notes receivable under existing, future or replacement purchase facilities will be sufficient to meet its anticipated working capital, capital expenditure and debt service requirements, including the contractual payment of the Bluegreen obligations set forth above, for the foreseeable future subject to the success of its ongoing business strategies, the ongoing availability of credit and the impact of general economic conditions, the COVID-19 pandemic and the success of any actions Bluegreen has taken in response thereto. Bluegreen will continue its efforts to renew, extend or replace any credit and receivables purchase facilities that have expired or that will expire in the near term. Bluegreen may, in the future, also obtain additional credit facilities and may issue corporate debt. Any debt incurred or issued may be secured or unsecured, bear interest at fixed or variable rates and may be subject to such terms as the lender may require and management believes acceptable. There can be no assurance that Bluegreen’s efforts to renew or replace credit facilities or receivables purchase facilities which have expired or which are scheduled to expire in the near term will be successful or that sufficient funds will be available from operations or under existing, proposed or future revolving credit or other borrowing arrangements or receivables purchase facilities to meet Bluegreen’s cash needs, including debt service obligations. To the extent Bluegreen is unable to sell notes receivable or borrow under such facilities, its ability to satisfy its obligations would be materially adversely affected.
Bluegreen’s receivables purchase facilities, credit facilities, indentures and other outstanding debt instruments include what Bluegreen believes to be customary conditions to funding, eligibility requirements for collateral, cross-default and other acceleration provisions and certain financial and other affirmative and negative covenants, including, among others, limits on the incurrence of indebtedness, payment of dividends, investments in joint ventures and other restricted payments, the incurrence of liens and transactions with affiliates, as well as covenants concerning net worth, fixed charge coverage requirements, debt-to-equity ratios, portfolio performance requirements and cash balances, and events of default or termination. In the future, Bluegreen may be required to seek waivers of such covenants, but may not be successful in obtaining waivers, and such covenants may limit its ability to raise funds, sell receivables or satisfy or refinance its obligations, or otherwise adversely affect its financial condition and results of operations, as well as its ability to pay distributions. Bluegreen’s future operating performance and ability to meet its financial obligations will be subject to future economic conditions and to financial, business and other factors, many of which may be beyond its control.
As previously disclosed, Bluegreen entered into a settlement agreement and revised marketing arrangement with Bass Pro and its affiliates during June 2019. Pursuant to the Settlement Agreement, Bluegreen agreed to make five annual
payments to Bass Pro of $4.0 million, which commenced in January 2020. Additionally, in lieu of the previous commission arrangement, Bluegreen agreed to pay to Bass Pro a fixed annual fee for each Bass Pro and Cabela’s retail store that Bluegreen accessed and an amount per net vacation package sold. As of March 31, 2022, Bluegreen had sales and marketing operations at a total of 128 Bass Pro Shops and Cabela’s Stores. In December 2021, Bluegreen paid Bass Pro $8.3 million in payment of the 2022 fixed fee, of which $6.3 million was unamortized as of March 31, 2022 and is included in prepaid expenses in the Company’s unaudited consolidated balance sheet.
Off-balance-sheet Arrangements
As of March 31, 2022, the Company did not have any “off-balance sheet” arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of its Chief Executive Officer and its Chief Financial Officer, conducted an evaluation of the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of March 31, 2022. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2022, the Company’s disclosure controls and procedures were effective in ensuring that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act has been recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and has been accumulated and communicated to its management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
During the three months ended March 31, 2022, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.