Trendwest Resorts, Inc.

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Trendwest Resorts, Inc.

9805 Willows Road
Redmond, Washington 98052
U.S.A.
Telephone: (425) 498-2500
Toll Free: (800) 722-3487
Fax: (425) 498-3050

Web site: http://www.trendwestresorts.com

Majority-Owned Subsidiary of JELD-WEN, Inc.
Incorporated: 1989 as Trendwest Resorts, Inc.
Employees: 1,064
Sales: $200.95 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: TWRI
NAIC: 53121 Offices of Real Estate Agents and Brokers; 52231 Mortgage and Nonmortgage Loan Brokers

Trendwest Resorts, Inc. sells timeshare ownership interests in condominiums located in Washington, Oregon, California, Arizona, Utah, Hawaii, British Columbia, Mexico, and Fiji. Trendwest acquires vacation properties and transfers ownership of the units to WorldMark, The Club, a nonprofit benefit corporation created by Trendwest to protect the rights of its member owners. The company uses a point-based system in which credits purchased by customers are used to reserve vacation accommodations. Trendwest markets its vacation product through a network of more than 20 sales offices, which are located primarily in metropolitan markets. The company serves roughly 90,000 timeshare owners, managing properties at 31 resorts that contain more than 1,600 condominium units.

Origins

Trendwest’s formation came at the behest of executives working for JELD-WEN, Inc., a low-profile, privately owned company based in Klamath Falls, Oregon, with an impressive roster of assets. The company achieved considerable success manufacturing wooden doors, windows, and mill work products, eventually becoming one of the largest privately owned enterprises in the United States, as ranked by Forbes magazine. As JELD-WEN’s annual sales hurtled toward the $1 billion mark, it leveraged its success in doors and windows to branch out into an array of different businesses, diversifying with decided relish. The company formed or acquired a family of subsidiaries that carried the JELD-WEN name into financial services, hospitality and recreation, real estate, and retail, accumulating more than 100 subsidiaries whose geographic reach stretched across the United States and into nine foreign countries. One of the company’s diversifying efforts led to the development of a golf resort in Redmond, Oregon, named Eagle Crest, which provided the link between JELD-WEN and the creation of Trendwest.

During the late 1980s, JELD-WEN executives noticed increasing timeshare sales at Eagle Crest and were intrigued. Interested in exploring the business opportunities in vacation ownership, JELD-WEN officials asked William F. Peare to create a timeshare program whose implementation would be governed by a separate JELD-WEN subsidiary. Trendwest was created in March 1989, when Peare, with the aid of Jeff Sites and Mike Moyer, began devising a new vacation ownership concept that represented an evolutional step forward in the business of timeshare sales. The trio spent eight months designing the unique system, devoting considerable energy toward canvassing potential Trendwest customers. Peare, Sites, and Moyer interviewed Eagle Crest timeshare owners to discover why they were attracted by vacation ownership and what could be done differently. Further, they asked all the people who declined to buy into Eagle Crest why they had done so, and what, if anything, would have induced them to buy a timeshare. Based on the research, Peare developed a new program that became known as WorldMark, The Club.

At the time of Peare’s investigation, the vacation ownership industry had evolved from its European roots in the 1950s in a clear direction. The prevailing trend, as the industry matured, was toward increased flexibility for vacation owners. Originally, the concept of timeshare was based on fractional ownership—groups of Europeans purchased a vacation home together and divided the property’s usage among the group, providing no choice of location and little flexibility in terms of selecting vacation dates. Next, cooperative ownership emerged as the prevalent timeshare model, its design predicated on the ownership of apartment buildings situated in tourist destinations. By the time the timeshare concept had migrated to the United States, cooperative ownership had become a business. Companies were formed whose sole business consisted of selling weeklong stays in hotels, providing customers with a fixed week at a fixed location. The design was far from ideal. Member owners soon tired of the rigidity of having to stay at one location during a particular week, which forced timeshare marketers to provide increased flexibility by offering a floating week during a fixed season. By the late 1980s, as Peare, Sites, and Moyer sat huddled around a table trying to address the needs of potential customers, timeshare owners could select a particular week for their vacations, but they had little choice in where to spend their vacations.

Peare, in the course of his interviews with both established and potential new customers, discovered that people wanted to vacation more often with shorter stays at a variety of locations. The research concluded that customers wanted to vacation both at destinations within driving distance from their homes and at more exotic locations overseas. Customers also wanted greater diversity in the length of their vacations. Instead of being shackled to one-week stays, customers wanted the option to schedule vacation periods ranging between two-night stays to extended, two-week vacations. In short, the research conducted in 1989 revealed a demand for greater diversity and flexibility, prompting Peare and his colleagues to develop a system that would distinguish Trendwest from all other timeshare companies.

At the heart of the new company that took shape in 1989 was a point-based system that Trendwest pioneered. Instead of purchasing a one-week block at a particular location, customers purchased what Trendwest called “Vacation Credits.” After purchasing a minimum number of credits, members could use the points to reserve vacation accommodations at different time periods and at different locations. The number of credits withdrawn from an owner’s account was determined by the location of the accommodations, the size of the accommodations, the season of the year, whether the stay included the weekend or not, and the length of the stay. To use their credits judiciously, owners consulted a valuation booklet. Any credits not used during the year were carried over to the next year and, if an owner wished to, credits from the upcoming year could be borrowed for use during the current year.

The Formation of WorldMark in 1989

To implement the program, Trendwest created WorldMark, The Club. Laws regulating timeshare businesses required protections against any loss of property rights stemming from the debt or financial condition of the developer. Therefore, Trendwest, as the developer, established WorldMark to be a legally and financially separate entity, free from any debt and guaranteed to always have sufficient resources to operate the properties through its own source of income from the annual dues paid by WorldMark members. WorldMark, a nonprofit benefit corporation, operated similarly to a large homeowner’s association, providing protection for those who purchased Trendwest’s vacation product. It was created for the specific purpose of owning, operating, and maintaining the real property purchased and developed by Trendwest. Once Trendwest had developed a vacation property, it transferred the property to WorldMark free and clear of any monetary encumbrances in exchange for the exclusive right to sell the vacation credits created by the units transferred.

In October 1989, sales of ownerships in WorldMark began in Kirkland, Washington. Trendwest, as it set out to implement its innovative marketing program, began with three employees and three condominium units, supported by one sales office. It was a modest start, particularly in light of the deep coffers of Trendwest’s parent company, JELD-WEN, but growth would soon come. The company needed to add to its portfolio of vacation properties and, concurrently, establish a web of sales offices to support geographic expansion. Trendwest chose to situate some of the new offices near a particular WorldMark resort, but the majority were located in major metropolitan areas within the company’s operating territory, offices that Trendwest referred to as “offsite sales.” By concentrating on off site sales offices, the company conducted its crucial marketing efforts closer to its prospective customers and thereby was able to draw upon a larger customer base.

No matter the effectiveness of its sales presentations, Trend-west could not succeed without an attractive list of vacation destinations and accommodations. Acquiring vacation properties was of paramount importance as Trendwest entered the 1990s and sought to assemble a mixture of drive-to locations and more “exotic” tourist destinations. The company’s units at Eagle Crest, where WorldMark would eventually own 83 units, were complemented by 14 units at a resort named Valley Isle in Maui, Hawaii, which were transferred to WorldMark in April 1990. In August 1990, the company purchased units at Lake Chelan Shores in Chelan, Washington. In 1991, Trendwest added four new destinations to its catalogue of properties: Lake Tahoe in January; Kauai, Hawaii, in July; Long Beach, Washington, in September; and Bass Lake, California, in October. Expansion continued in 1992, as the company fleshed out its presence in Washington with the purchase of units in Sequim in January and Leavenworth in July. The year also marked Trendwest’s entry into Canada with the acquisition of 72 units in Whistler, British Columbia, in February. A single acquisition was completed in 1993, the purchase of 20 units at the Beachcomber in Pismo Beach, California.

Company Perspectives:

Trendwest is dedicated to providing great vacations, but first and foremost, we are a sales and marketing company. Our primary mission is to present our product to potential customers, and we are extremely effective at it. We are very proud of our strategy of drive-to resorts combined with off-site sales. Our network of sales offices is essentially a distribution system for our vacation product. By locating our sales offices in major metropolitan areas, we access a huge market. In addition, most of our selling takes place near where people live and work, rather than trying to capture their attention while on vacation. This strategy has worked extremely well. Where we can take advantage of an existing resort facility, we supplement this approach with on-site sales offices to further increase our market share.

Energetic Growth Begins in 1993

After three full years of operation, Trendwest loomed as a rising force in the timeshare industry. Annual sales had swelled to $45.5 million, driven upward by expansion into Washington, California, Hawaii, and British Columbia, where the company managed properties in 12 resorts. Systemwide, by 1993, Trend-west managed 239 units, which served as a benchmark for the prolific growth to follow during the ensuing five years. Between 1993 and 1998, the company averaged 30 percent annual revenue growth, as the number of units under its control nearly quadrupled. Peare, presiding as president and chief executive officer, orchestrated the company’s growth by adhering to the strategy devised in 1989. Trendwest would expand by acquiring drive-to properties within a five-hour drive of its members and complement these weekend getaway destinations with properties more suitable for extended vacations.

Trendwest widened its operating territory in 1994 by completing a foray into Mexico, acquiring units at Coral Baja in San Jose del Cabo, Mexico, in November. By the end of the year, sales had increased to $63.8 million, from which the company reported a profit of $5.3 million. Over the course of the next two years, five more acquisitions were completed, two in Washington and California in 1995 and three in California, Nevada, and Oregon in 1996, bringing the total number of Trendwest resorts to 19 by the end of 1996 and total units to 746. The company eclipsed $100 million in sales in 1996, posting $116.9 million, with $12.6 million in net income.

1997 Public Offering and Late 1990s Expansion

As Trendwest prepared to enter the late 1990s, expectations were running high. The company’s point-based system had proven to be a market winner, serving as a model that other timeshare companies were emulating. To reap the full benefits of his successful innovation, Peare needed to accelerate expansion, both in terms of the company’s vacation properties and its network of sales offices. Expansion meant money, prompting Peare to take the company public through an initial public offering (IPO). After adding the Klamath Falls-based Running Y Ranch in February 1997, Peare and his senior executives prepared for the company’s public debut. The IPO, completed in August 1997, raised $51.8 million, giving the company the resources it needed to aggressively expand during the late 1990s. JELD-WEN retained its majority interest in the company, controlling roughly 80 percent of Trendwest’s stock. Following the IPO, another resort in Hawaii was added to the company’s properties, as well as the Clear Lake resort in northern California.

With 52,000 members by the end of 1997, Trendwest could count itself among the industry’s elite. Sales for the year increased nearly 30 percent to $151.5 million, while net income recorded a more animated leap, jumping more than 60 percent to $20.6 million. In terms of vacation ownership sales, Trend-west ranked as the fifth largest company in its industry, occupying the same tier as Disney, Marriott, Hilton, and Signature Resorts. The company attributed much of its success to its strategy of situating its sales offices in metropolitan areas, rather than relying exclusively on resort-based marketing efforts. In 1997, three new sales offices were opened, giving the company a total of 14 sales locations.

As Trendwest neared the completion of its first decade of business, there was just cause for celebration. After adding four new resorts—including the first in Utah—and 344 condominium units in 1998, sales eclipsed $200 million and net income rose to a record high $24 million. The company’s network of sales offices was increased by seven during the year, highlighted by the establishment of two offices in Utah and one in Arizona that marked the company’s entry into the Southwest. Also in 1998, Trendwest secured a three-year $30 million revolving line of credit, which set the stage for a period of aggressive expansion as the company pushed forward into the 21st century. In 1999, five new resorts were added to the company’s catalogue of properties, with three additional resorts scheduled to be transferred to WorldMark during the first half of 2000. Of the new properties, the most noteworthy acquisition was Trendwest’s entry into Fiji. By December 1999, 38 units in a timeshare resort on Denarau Island had been transferred to WorldMark, the first stage of a plan to develop 76 units in Fiji. Concurrent with the expansion into Fiji, Trendwest announced its intention to acquire and develop resort locations in Queensland, Australia. On this note, the company concluded its inaugural decade of business and prepared for a future that promised to witness the further extension of its innovative point-based system.

Principal Subsidiaries

TW Holdings, Inc.; Trendwest Funding I Inc.; Trendwest Funding II Inc.

Principal Competitors

Cendant Corporation; Sunterra Corp.; Fairfield Communities, Inc.

Key Dates:

1989:: Trendwest Resorts and WorldMark, The Club are founded.
1990:: First vacation properties in Hawaii are acquired.
1992:: First international destination, Sundance in Whistler, British Columbia, joins company’s fold.
1994:: First condominiums in Mexico are acquired.
1997:: Trendwest completes its initial public offering.
1999:: Fijian condominiums become available to Trend-west customers.