The director of operations at Southern Sun Lifestyle Resorts and chairman of VOASA talks with Perspective Magazine’s Matt McDaniel about his company and where it’s headed, as well as what’s going on in shared ownership countrywide.
Southern Sun has been involved in the Timeshare Industry for over 30 years, originally as a developer of timeshare as an exciting new holiday option, while nowadays it is actively involved in the management and administration of the individual share block companies that own these timeshare resorts. The first development was Umhlanga Sands, which started operating as a share block company in the early 1980s, followed by Cabana Beach, Beacon Island, Drakensberg Sun, Sabi River Sun and Pine Lake Lifestyle Resorts. All Southern Sun managed lifestyle resorts and timeshare businesses are grouped under the Southern Sun Lifestyle Resorts brand.
How is business doing for Southern Sun Lifestyle Resorts?
Let me start off with how the hotel industry is going in general in South Africa at the moment. Like everywhere else, South Africa saw a major decline in 2008, and in 2009 we also saw a big decline. But in 2010, fortunately, we had the football World Cup in South Africa and that picked us up quite nicely for a six-week period, although it wasn’t what we had anticipated, it was very good. But now in 2011 we are only starting to slowly come out of the recession and we don’t have a World Cup here.
Added to that is the attention that was focused on South Africa in 2010 caused a lot of additional capacity to be added, as a lot of new hotels opened in South Africa for the World Cup. One of the challenges of that is that we now have 17% additional room stock in the formal hotel business, which we didn’t have prior to 2010. So with us coming out of the recession slowly, but added to that an additional 17% extra hotel rooms, as you can imagine, the pressure is on. So we are not looking at a growth year, but certainly a very challenging and competitive 2011 in the hotel industry in South Africa. [member]
As far as vacation ownership is concerned, the interesting thing is that in South Africa we haven’t had financing of new sales by financial institutions even prior to the crash, so financing vacation ownership is not done on a structured or formalized basis. That has both a positive and a negative. We didn’t reach the sales volumes prior to the crash that we could have had with financing, but on the back of that coin we also didn’t have the collapse that our colleagues in other parts of the world experienced because of the credit crunch. There are a lot of developers that have elected a financing model of their own, and they extend credit when they’re selling their own timeshares, but it’s not been done through any financial institutions. I’m expecting that in the next year to two years that we will see financing being introduced on a structured and conservative kind of basis in the vacation ownership arena in South Africa, and I think that that would certainly help to pick up sales volume.
Are you looking for that financing to come from South African banks or from international sources?
South Africa is having approaches from various banks that are looking at different models and we’ve had one or two inquiries from international sources, but I think it will largely come from South African financial institutions. And if it doesn’t come from banks as such, it may be from private equity companies, because the arbitrage to be made is quite significant and so it’s quite attractive.
Switching gears a bit, let’s talk more about your company. What year did the Southern Sun’s timeshare business start?
Timeshare in South Africa really got going, and it was led by our company, in the mid- to late 70s, and the 80s were really boom time. If I read the history correctly, South Africa was leading the number of sales, the number of developments, the number of weeks being built and developed, and was certainly by world standards right up there. So we were quite active and very successful in those early years.
How does your timeshare operation fit into Southern Sun Hotels? Is it a totally separate silo?
Yes, a separate silo is probably the best description. It’s a separate division, it’s a separate brand within the greater family of brands of Southern Sun, and it was recently expanded to include other resort properties as well. Until about two or three years ago the division was called Southern Sun Timeshare; we changed our name to Southern Sun Lifestyle Resorts and took over the management of a couple of our resort hotels into the same portfolio. Of the eight properties that fall within the Southern Sun Lifestyle Resorts brand, six are timeshare (of which four are pure timeshare and two are mixed use with a hotel and a timeshare component) and two are hotel only.
Why are the two hotels combined into the brand with the timeshare properties?
The Southern Sun group of brands consists largely of business hotels in urban areas, and these two properties are resort-destination hotels. All eight Southern Sun Lifestyle Resorts properties are destination resorts.
Are all the Southern Sun Lifestyle Resorts located in South Africa?
Yes, all eight of them are within South Africa. I’m a director of the Southern Sun Company, and our division is Southern Sun South Africa; we have a sister company called Southern Sun Offshore, which is all of our properties outside of South Africa, and there are quite a number of those.
Do you plan to expand outside of SA?
No, not at this stage, and I can tell you why: There isn’t sufficient legislation implemented in neighboring countries around South Africa, so we as a branded company are reluctant to enter into a market which is not governed or regulated in like form, because we would be operating according to strict corporate governance guidelines, and so on, but our competitors in those markets will not necessarily do the same. We prefer operating in an environment where there’s a structured regulatory framework, and the only African country that comes close is Mozambique. Certainly there isn’t legislation in Botswana, Zimbabwe, Zambia, Namibia or any of those countries for the timeshare industry.
The second reason is that South Africa, where the environment is regulated and structured, is full of some very low-hanging fruit and great development opportunities. I would rather look at those low-hanging fruit before I stress myself on trying to operate in a country which is foreign to me.
Tell me about your relationship with Interval International and how that affiliation fits into your business plan.
They definitely are a most critical part of our business. You have to go back to a bit of history with that. We were affiliated with RCI for a good 17 years when a 10-year contract came up for renewal about three years ago. At the time, South Africa was represented by only one of the two big international companies, and that was RCI. When we looked at the alternatives, we came across Interval International, and after a tender and a bidding process we selected Interval as our partner. The affiliation has formally been in place for two years now.
One of the factors that influenced our decision was that Interval International does a lot of the back-end exchanges for branded hotel companies. We’re a branded hotel company and we found that that was a good match for us. It’s turned out to be a very good decision for our industry as well, because Interval is now represented in South Africa and offering a bit more of a competitive exchange environment, which has improved the service levels for everybody, and anyone that owns timeshare in South Africa.
As VOASA chairman, could you speak further on the current state of the industry in South Africa?
We’re coming out of a recession at the moment, so we’re slowly dusting ourselves off and starting to look at future further development and expansion. The past two years have really been buttoning down the hatches and trying to avoid losing too many owners and so on. It’s not been a lot of new development; it’s been some development in the fractional arena, but that’s been very small and not big in number.
What we’re now seeing is more interest going forward in expanding timeshare offerings and new development, and largely because we’ve got a growing black middle class which is becoming economically quite strong and they are looking at holiday opportunities. Up to now, they’ve not really embraced vacation ownership, so we believe that there’s a latent market amongst the emerging middle class for this kind of product. And we’ve got the baby boomers, people around 60 or 65 who are retiring with both time and money, and wanting to travel on holiday. And vacation ownership offers them the perfect kind of product.
So I think it’s on the upswing, though it’s not going to be a dramatic upswing. I think it’s going to take a good two to three years to build up a good head of steam.
What is unique about the SA market?
South Africa is a very great tourism destination with wildlife. What we learned out of the World Cup, I think it even took South Africans by surprise, we didn’t realize just how extremely friendly and engaging and comfortable our people are, let’s call it our humanity. It’s probably one of our greatest selling features, certainly on the international market. In the local market, because vacation ownership is, to a large extent as you could imagine, a local, domestic product, 90% of our owners are South African, and we are a country that enjoy our holidays. With the economy improving and the fact that we’ve got a lot of public holidays and a lot of long weekends (we’re blessed with, for the average worker, between three and four weeks of holiday a year) and good weather to go with it, people want to travel.
How wide open is the South Africa market? That is, do you see many major European or American companies entering the market in the near future, or is it more of a regional developer market?
It will probably remain 80% a local developer market. The market is sophisticated enough; we have the structures, the brands and are familiar with the product, it’s obviously easier for us and a lower cost to get going. But there’s certainly been some international interest, and I’m aware that some of the big, branded vacation ownership companies have been looking at South Africa for potential development on and off over the past five years. The recession or meltdown has obviously stopped that for a while, but the high profile we got with the World Cup last year has certainly generated a bit more interest.
I don’t see any further hotel development, with the 17% additional capacity that was built for the World Cup. We’ve got to absorb the extra hotel capacity into the market, another three to five years first, before we’ll see any significant new hotel development.
What do you think the future holds for shared-ownership in South Africa?
Certainly we’re going to see some growth. We’re currently doing research because we don’t have sufficient information, but we estimate that there are about 400,000 to 450,000 intervals in South Africa and owned by approximately 270,000 owners, we have a lot of owners that own multiple weeks. The growth largely, over the past seven to 10 years, have been pure points-based clubs, so the points-based business has got a very high ratio in South Africa; probably 70% of our total timeshare development is points based and only 30% is what we would call deeded timeshare. Southern Sun Lifestyle Resorts falls into the deeded timeshare category, as well as a couple of the other hotel operators. The future development, because of the popularity and flexibility of points, is probably going to continue like that. So we’re definitely going to see growth on the points side, but until we’ve changed fairly restrictive legislation for big property development, I don’t think we will see grand scale or large timeshare resort development for the foreseeable future. We’ll see a lot of smaller kind of development, maybe 40 or 80 units, maybe golf course-based, maybe coastal based, and even also in our game parks.
For more information, please call Deon Viljoen, director of operations, Southern Sun Lifestyle Resorts on +27 (0)31 5612204, or visit www.southernsun.com. [/member]