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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
May 5, 1999
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Date of report (Date of earliest event reported)
SUNTERRA CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
Maryland 000-21193 95-4582157
(State or other Jurisdiction Commission Title (IRS Employer
of Incorporation) Number) Identification Number)
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1781 Park Center Drive
Orlando, Florida 32835
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(Address of Principal Executive Offices)
(407) 532-1000
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS
On May 5, 1999, Sunterra Corporation, a Maryland corporation (the
"Company"), issued a press release announcing its first quarter results. A copy
of the press release is attached as Exhibit 99 hereto and is incorporated herein
by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) EXHIBITS
Exhibit 99 - Text of Press Release issued by the Company dated
May 5, 1999.
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Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
SUNTERRA CORPORATION
By: /s/ THOMAS A. BELL
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Name: Thomas A. Bell
Title: Senior Vice President,
General Counsel and Secretary
Dated: May 11, 1999
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[SUNTERRA CORPORATION LETTERHEAD]
FOR IMMEDIATE RELEASE
Contact: Richard Goodman At The Financial Relations Board:
Chief Financial Officer Lise Needham (general information)
(407) 532-1000 Stephanie Mishra (analyst contact)
(415) 986-1591
Robert C. Weiner
Director of Investor Relations
(407) 532-1000
SUNTERRA CORPORATION REPORTS RECORD
FIRST QUARTER RESULTS
FIRST QUARTER TOTAL REVENUES UP 27%; NET INCOME UP 38%; AND EPS UP 35%
$100 MILLION SECURITIZATION COMPLETED
ORLANDO, FLORIDA, MAY 5, 1999 - Sunterra Corporation (NYSE: OWN) today announced
record financial performance for the three months ended March 31, 1999. It also
announced the completion this week of a $100 million securitization of its
mortgages receivable.
FIRST QUARTER RESULTS:
First quarter 1999 net income increased by 38% to a record $10.0
million compared with net income of $7.3 million in the first quarter of 1998.
First quarter 1999 earnings per diluted share increased 35% to $0.27 from $0.20
in the first quarter of 1998. Revenues increased by 27% to a record $114.3
million in the first quarter of 1999, up from $89.7 million in the first quarter
of 1998.
L. Steven Miller, Sunterra's President and CEO commented:
"We are very pleased to report our eleventh consecutive quarter of
record year over year growth in sales, income and earnings per share. Our
business is strong, with consumer demand and awareness of vacation ownership
increasing as we enter our strongest selling season between now and the end of
Summer.
One of the significant aspects of the first quarter is the roll out of
our points-based clubs, which accounted for fully 48% of Vacation Interests
sales in the first quarter of 1999.
o Our European and Sunterra Pacific clubs, which have been
operating on points-based systems for some time, accounted for
28% of our Vacation Interests sales in the first quarter. Our
new club in Japan accounted for another 2% of Vacation
Interests sales.
o Club Sunterra, introduced in the fourth quarter of 1998 at
seven of our North American resorts, accounted for 18% of our
Vacation Interests sales. (The remaining North American
resorts continued to sell Vacation Intervals during the first
quarter.)
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Sunterra Corporation Reports Record 1999 First Quarter Results
May 5, 1999
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o The $16.7 million in Club Sunterra revenues generated by these
seven resorts in the first quarter means that, from a sales
perspective, we're about one-quarter of the way to our goal of
fully rolling out our points-based system by the end of the
year."
The 27% increase in total revenues for the first quarter was driven by
a 29% increase in Vacation Interests sales to $92.6 million, up from $71.5
million in the first quarter of 1998. About half of the $21.1 million
quarter-over-quarter increase in Vacation Interests sales related to higher
sales in resorts that were open in the comparable year-earlier period and about
half to resorts opened or acquired since that time.
Resort Management, Rental Fees and Other Income reached $8.8 million in
the first quarter, up 42% from the first quarter of last year. This reflected:
substantial increases in resort management income in both Europe and the U.S.,
primarily as a result of a larger base of managed resorts; higher rental income;
and an increase in commissions from the UK financial institution that directly
finances our consumers' purchase of vacation interests in Europe.
First quarter income in 1999 included a $1.6 million pretax gain on the
sale of $25.9 million of mortgages receivable into the $100 million Conduit
Facility established in the fourth quarter 1998. There was no such sale in the
comparable prior year period. Excluding the gain on sale of mortgages receivable
of $1.0 million, net of taxes, first quarter net income increased by 24% versus
prior year and earnings per share were up 25% to $0.25 per diluted share.
Cost of sales, as a percentage of Vacation Interests sales, was 24.3%
in the first quarter of 1999 compared to 24.4% in the first quarter of 1998.
Advertising, sales and marketing expenses, as a percentage of Vacation Interests
sales, decreased to 46.1% from 47.2% in the comparable period of 1998,
reflecting increased sales efficiencies at our increasingly mature base of
resorts.
EBITDA for the first quarter of 1999 increased by 38% to $33.0 million
from $23.9 million in the first quarter of 1998. EBITDA margins increased to
28.8% in the first quarter of 1999 from 26.7% in same period last year.
Net interest expense in the first quarter of 1999 increased to $12.1
million, $2.9 million higher than in the first quarter of 1998, reflecting
additional borrowings which funded increases in additional vacation ownership
inventory and property and equipment.
At March 31, 1999, net mortgages receivable were $344.5 million, an
increase of $8.5 million from $336.0 million at December 31, 1998, and a $9.9
million decrease from $354.4 million at March 31, 1998.
Consumer loans serviced by the Company in excess of 60 days past due,
including defaulted loans and loans in the deed-in-lieu process at March 31,
1999, improved to 6.8%, as a percentage of gross mortgages receivable, from 6.9%
at March 31, 1998. Net of inventory recoveries, these same percentages would
decrease to 4.6% and 4.7%, respectively. The Company's allowance for doubtful
accounts, as a percentage of gross mortgages receivable, was 6.4% at both March
31, 1999 and at December 31, 1998.
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Sunterra Corporation Reports Record 1999 First Quarter Results
May 5, 1999
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SECURITIZATION:
Sunterra completed this week the securitization of $100 million
principal amount of its Vacation Ownership Receivables-Backed Notes 1999-A.
Rated "AAA", "A" and "BBB" by Duff & Phelps Credit Rating Co., these fixed rate
Notes were issued at 94% of the $106.8 million outstanding mortgages receivable
principal balances, bear interest at a weighted average rate of 6.66%, and are
without recourse to Sunterra. The securitization generated approximately $97
million in cash (after funding a reserve account and paying transaction
expenses), which Sunterra used to immediately pay down the Conduit and Senior
Bank Credit Facilities.
"I am pleased to complete this securitization as part of our previously
announced financing strategy," commented Richard Goodman, Sunterra's Chief
Financial Officer.
"Earlier this year, we stated that we would primarily be using
off-balance sheet conduits and securitizations to:
o sell our mortgages receivable for cash at very high advance
rates;
o demonstrate the creditworthiness of these mortgages receivable
by being able to place these investment grade Notes with
qualified institutional buyers;
o finance these investment grade securities at favorable
interest rates;
o simultaneously sell mortgages receivable on a non-recourse
basis for cash while retaining all of the excess spread
between the approximately 14.9% interest rate on the
underlying mortgages receivable and the 6.66% interest rate on
these Notes; and
o further reduce our debt levels by systematically removing
mortgages receivable from the balance sheet."
"In securitizing our mortgages receivable, we achieve all these goals."
The Notes are secured by Vacation Interests at nineteen of Sunterra's
resorts in the United States, primarily located in Arizona, Florida and
Virginia. SG Cowen Securities Corporation served as advisor and placement agent.
Sunterra annually generates mortgages receivable through the sale of
its vacation ownership products. These mortgages receivable, which equate to
approximately 65% of Sunterra's Vacation Interests sales, are primarily placed
into the Senior Bank Credit Facility or sold to the off-balance sheet Conduit
Facility. The mortgages receivable are then aggregated and securitized. The
securitizations allow the Company to repay its Conduit and Senior Bank Credit
Facilities, which have borrowing capacities of $100 million and $117.5 million,
respectively. Immediately following the securitization, total availability on
these two facilities increased to $179 million.
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Sunterra Corporation Reports Record 1999 First Quarter Results
May 5, 1999
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This securitization will result in a gain on the sale of the mortgages
receivable of approximately $0.01 per diluted share in the second quarter of
1999. This reflects the fact that all but $16 million of the mortgages
receivable in this securitization had been sold into the Company's off-balance
sheet Conduit Facility either during the fourth quarter of 1998 or in the first
quarter of 1999 - generating gains of $0.08 per share in fourth quarter of 1998
and of $0.02 per share in the first quarter of 1999.
Sunterra Corporation is the largest international owner and manager of
vacation ownership resorts, with 89 resort locations around the world and more
than 250,000 owner families. In addition, Sunterra manages condominium resorts
in Hawaii. The Company's operations consist of (i) marketing and selling
vacation interests, (ii) developing, acquiring and operating vacation ownership
resorts, (iii) financing customers' purchases and (iv) providing resort rental,
management and maintenance services.
This release contains forward-looking statements, which include
Sunterra's expansion plans, future prospects and other forecasts and statements
of expectations. Actual results may differ materially from those expressed in
any forward looking statements made by Sunterra due to, among other things,
factors related to the timing and terms of future acquisitions and the
introduction of Club Sunterra, mortgages receivable financing, integration of
acquired operating companies and resort properties and those factors identified
in Sunterra's filings with the Securities and Exchange Commission, including
those set forth in Parts I and II of Sunterra's Annual Report on Form 10-K for
the year ended December 31, 1998, and current reports on Form 8-K.
- FINANCIAL TABLES FOLLOW -
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Sunterra Corporation Reports Record 1999 First Quarter Results
May 5, 1999
Page 5
SUNTERRA CORPORATION
Consolidated Statements of Income
($ in thousands, unaudited)
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THREE MONTHS ENDED
MARCH 31,
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1999 1998
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REVENUES:
Vacation Interests sales $ 92,561 $ 71,487
Interest income 11,339 12,075
Gain on sale of receivables 1,597 --
Resort management, rental fees and other income 8,788 6,187
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TOTAL REVENUES 114,285 89,749
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COSTS AND OPERATING EXPENSES:
Vacation Interests cost of sales 22,452 17,456
Advertising, sales and marketing 42,670 33,727
Loan portfolio:
Provision for doubtful accounts 2,290 2,300
Other expenses 897 1,116
General and administrative 15,050 12,191
Depreciation and amortization 3,413 2,098
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TOTAL COSTS AND OPERATING EXPENSES 86,772 68,888
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INCOME FROM OPERATIONS 27,513 20,861
Interest expense - net 12,090 9,165
Minority interest in income of consolidated limited partnerships (10) --
Equity gain on investment in joint ventures (1,013) (241)
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INCOME BEFORE PROVISION FOR TAXES 16,446 11,937
Provision for income taxes 6,414 4,656
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NET INCOME $ 10,032 $ 7,281
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NET INCOME - DILUTED $ 11,242 $ 7,281
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Shares outstanding:
Basic 35,908 35,875
Diluted 40,986 36,665
Earnings per share:
Basic $ 0.28 $ 0.20
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Diluted $ 0.27 $ 0.20
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Sunterra Corporation Reports Record 1999 First Quarter Results
May 5, 1999
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SUNTERRA CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in thousands, unaudited)
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MARCH 31, DECEMBER 31,
1999 1998
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ASSETS:
Cash and cash equivalents $ 32,240 $ 28,250
Cash in escrow and restricted cash 43,628 25,951
Mortgages receivable, net 344,524 335,982
Retained interests 17,053 12,518
Due from related parties 24,097 25,849
Other receivables, net 38,060 38,207
Prepaid expense and other assets 23,365 22,031
Investment in joint ventures 18,933 17,876
Real estate and development costs 341,012 336,620
Property and equipment, net 95,517 81,125
Intangible assets, net 96,066 96,723
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TOTAL ASSETS $1,074,495 $1,021,132
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable $ 22,452 $ 21,864
Accrued liabilities 89,686 80,242
Income taxes payable 11,154 9,240
Deferred taxes 32,364 30,984
Notes payable 658,072 627,089
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TOTAL LIABILITIES 813,728 769,419
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Minority interest (deficit) in
consolidated limited partnership (2) --
Stockholders' equity 260,769 251,713
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,074,495 $1,021,132
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Sunterra Corporation Reports Record 1999 First Quarter Results
May 5, 1999
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SUNTERRA CORPORATION
EBITDA
($ in thousands, unaudited)
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THREE MONTHS ENDED
MARCH 31,
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1999 1998
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Net income $10,032 $7,281
Interest expense -- net 12,090 9,165
Capitalized interest expense
included in cost of sales 1,017 727
Income taxes 6,414 4,656
Depreciation and amortization 3,413 2,098
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EBITDA $32,966 $23,927
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