BLUEGREEN VACATIONS HOLDING A Except as otherwise noted or where the context otherwise requires, the terms
"the Company," "we," "us," or "our" refers to
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 our future financial performance, our business prospects, strategy and relationships, our anticipated financial position, liquidity and capital needs, economic and industry conditions and their impact on our business and future financial performance, and other similar 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. Our 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:
?adverse trends or disruptions in economic conditions generally or in the vacation ownership, vacation rental and travel industries;
?risks relating to public health issues, including in particular the COVID-19 pandemic and the effects of the pandemic. These include resort closures, travel and business restrictions, volatility in the international and national economy and credit markets, worker absenteeism, quarantines and other health-related restrictions; the length and severity of the COVID-19 pandemic and our ability to successfully resume full business operations thereafter; governmental and agency orders, mandates and guidance in response to the COVID-19 pandemic and the duration thereof, which is uncertain and will impact our ability to fully utilize resorts, sales centers and other marketing activities; the pace of recovery following the COVID-19 pandemic; competitive conditions; our liquidity and the availability of capital; our ability to successfully implement our strategic plans and initiatives to navigate the COVID-19 pandemic; risks that our current or future marketing alliances may not be available to us in the future; risks that default rates may increase and exceed our expectations; risks related to our indebtedness, including the potential for accelerated maturities and debt covenant violations; the risk of heightened litigation as a result of actions taken in response to the COVID-19 pandemic; the impact of the COVID-19 pandemic on consumers, including their income, their level of discretionary spending both during and after the pandemic, and their views towards travel and the vacation ownership industries; and the risk that our resort management fees and finance operations may not continue to generate recurring sources of cash during or following the pandemic to the extent anticipated or at all; ?adverse changes to, expirations or terminations of, or interruptions in, and other risks relating to Bluegreen's business and strategic relationships, management contracts, exchange networks or other strategic marketing alliances, and the risk that our business relationship withBass Pro under the revised terms of our marketing agreement and our relationship with Choice Hotels may not be as profitable as anticipated, or at all, or otherwise 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;
?adverse events or trends in vacation destinations and regions where the resorts in our network are located, including weather-related events and adverse conditions related to the COVID-19 pandemic;
?decreased demand from prospective purchasers of vacation ownership interests ("VOIs");
?our ability to maintain inventory of VOIs for sale;
33
-------------------------------------------------------------------------------- ?the availability of financing, our ability to sell, securitize or borrow against our VOI notes receivable at acceptable terms; and our ability to successfully increase our credit facility capacity or enter into capital market transactions or other alternatives to provide for sufficient available cash for a sustained period of time; ?our indebtedness may impact our financial condition and results of operations, and the terms of our indebtedness may limit, among other things, our activities and ability to pay dividends, and we may not comply with the terms of our indebtedness;
?changes in senior management;
?our ability to comply with regulations applicable to the vacation ownership industry or our other activities, and the costs of compliance efforts or a failure to comply;
?our ability to successfully implement our marketing strategies and plans and the impact they may have on our results and financial condition, including that efforts to increase our VOI sales, to the extent pursued, may not be successful and may adversely impact our cash flow;
?our ability to compete effectively in the highly competitive vacation ownership industry and against hotel and providers of other hospitality and lodging alternatives;
?our ability to offer or further enhance theVacation Club experience for ourVacation Club owners and risks related to our efforts and expenses in connection therewith, including that they may not result in the benefits anticipated and expenses may be greater than anticipated; ?our customers' compliance with their payment obligations under financing provided by us, the increased presence and efforts of "timeshare-exit" firms and the success of actions which we may take in connection therewith, and the impact of defaults on our operating results and liquidity position;
?the ratings of third-party rating agencies, including the impact of any downgrade on our ability to obtain, renew or extend credit facilities, or otherwise raise funds;
?changes in our business model and marketing efforts, plans or strategies, which may cause marketing expenses to increase or adversely impact our revenue, operating results and financial condition, and such expenses as well as our investments, including investments in new and expanded sales centers, 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 our telemarketing efforts, including new cell phone technologies that identify or block marketing calls;
?the impact of the resale market for VOIs on our business, operating results and financial condition;
?risks associated with our relationships with third-party developers, including that third-party developers who provide VOIs to be sold by us pursuant to fee-based services or just-in-time arrangements may not provide VOIs when planned and that third-party developers may not fulfill their obligations to us or to the homeowners associations that maintain the resorts they developed; ?risks associated with legal proceedings and regulatory proceedings, examinations or audits of our operations, including claims of noncompliance with applicable regulations or for development related defects, and the impact they may have on our financial condition and operating results;
?audits of our or our 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 our financial condition and operating
results;
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?risks that natural disasters, including hurricanes, earthquakes, fires, floods and windstorms may adversely impact our business 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 and severity of natural disasters may increase due to climate change or other factors;
?our ability to maintain the integrity of internal or customer data, the failure of which could result in damage to our reputation and/or subject us to costs, fines or lawsuits; ?risks related to potential business expansion or other opportunities that we may pursue, including that they may involve significant costs and the incurrence of significant indebtedness and may not be successful; ?the updating of, and developments with respect to, technology, including the cost involved in updating our technology and the impact that any failure to keep pace with developments in technology could have on our operations or competitive position, and the risk that our information technology expenditures may not result in the expected benefits;
?the impact on our consolidated financial statements and internal control over financial reporting of the adoption of new accounting standards; and
?other risks and uncertainties inherent to our business, the vacation ownership industry and ownership of our common stock, including those discussed in the "Risk Factors" section of, and elsewhere in, our Annual Report on Form 10-K for the year endedDecember 31, 2019 and the "Risk Factors" section of this Quarterly Report on Form 10-Q.
Critical Accounting Policies
See Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the section "Critical Accounting Policies" to the Company's 2019 Annual Report for a discussion of the Company's critical accounting policies.
New Accounting Pronouncements
See Note 1 to the Company's condensed consolidated financial statements included in Item 1 of this report for a discussion of new accounting pronouncements applicable to the Company.
Overview
Bluegreen Vacations Holding Corporation is aFlorida -based holding company which owns approximately 93% of Bluegreen Vacations Corporation ("Bluegreen Vacations " or "Bluegreen"). The Company's goal is to build long-term shareholder value. The Company's objective is long-term growth as measured by increases in book value and intrinsic value over time. As described below, the Company consummated the spin-off of all of its assets and businesses other than the assets and activities related toBluegreen Vacations . Further, the Company from time to time considers repurchases of its outstanding securities and the outstanding securities of its subsidiaries subject to market conditions and other factors.
As of
Spin-Off
OnSeptember 30, 2020 , BVH completed the spinoff of its wholly-owned subsidiary, BBX Capital. The spinoff separated BVH's businesses, activities, and investments into two separate, publicly-traded companies: (i) BVH, which continues to hold approximately 93% of Bluegreen's outstanding common stock, and (ii) BBX Capital, which will hold all of BVH's other businesses and investments, includingBBX Capital Real Estate LLC ("BBX Capital Real Estate " or "BBXRE"),BBX Sweet Holdings, LLC ("BBX Sweet Holdings "), andRenin Holdings, LLC ("Renin"). BBX Capital and its subsidiaries are presented as discontinued operations in the Company's financial statements. 35 -------------------------------------------------------------------------------- In connection with the spin-off, BVH (formerlyBBX Capital Corporation ) changed its name toBluegreen Vacations Holding Corporation , and BBX Capital changed its name fromBBX Capital Florida LLC to BBX Capital, Inc. In addition, in connection with the spin-off 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 BVH is current on all accrued payments under the note, including deferred interest. All outstanding amounts under the note will become due and payable in five years or earlier upon certain other events. Reverse Stock Split InJuly 2020 , BBX Capital effected a one-for-five reverse split of its Class A Common Stock and Class B Common Stock. The share and per share amounts described herein have been retroactively adjusted to reflect the one-for-five reverse stock split as if it had occurred as of the earliest period presented.
Shareholder Rights Plan
InJune 2020 , BVH adopted a shareholder rights plan in light of the ongoing novel coronavirus disease ("COVID-19") pandemic, the significant market volatility and uncertainties associated with the pandemic, and the impact on the Company and the market price of BVH's Class A Common Stock and ClassB Common Stock. The shareholder rights plan is similar to plans recently adopted by other public companies in light of the current environment and generally provides a deterrent to any person or group from acquiring 5% or more of BVH's Class A Common Stock and Class B Common Stock without the prior approval of BVH's Board of Directors.
Summary of Consolidated Results of Operations
Consolidated Results
The following summarizes key financial highlights for the three months ended
?Total consolidated revenues of
?Loss before income taxes from continuing operations of
?Net loss attributable to common shareholders of
?Diluted loss per share from continuing operations of
The following summarizes key financial highlights for the nine months ended
?Total consolidated revenues of
?Loss before income taxes from continuing operations of
?Net loss attributable to common shareholders of
?Diluted loss per share from continuing operations of
The Company's consolidated results from continuing operations for the three
months ended
?A decrease in the Company's revenues primarily attributable to the impact of the COVID-19 pandemic on its operations.
?A net decrease in selling, general and administrative expenses primarily
attributable to cost mitigating activities implemented in the 2020 period in
response to the COVID-19 pandemic, including permanent and temporary reductions
in workforce.
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-------------------------------------------------------------------------------- In addition to the items discussed above for the three months ended September, 30, 2020, the Company's consolidated results for the nine months endedSeptember 30, 2020 compared to the same 2019 period were significantly impacted by the following:
?An increase in Bluegreen's allowance for loan losses in the 2020 period as a result of the estimated impact of the COVID-19 pandemic on customer defaults.
?The recognition of a
Segment Results
BVH currently 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 (in thousands):
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2020 2019 Change 2020 2019 Change
Sales of VOIs and financing $ 25,731 39,517 (13,786) 15,978 62,860 (46,882)
Resort operations and club
management 15,069 14,903 166 47,494 43,695 3,799
Corporate and other (23,405) (24,067) 662 (57,106) (64,039) 6,933
BVH corporate (42,532) (13,774) (28,758) (63,339) (42,718) (20,621)
(Loss) income before income
taxes from continuing
operations (25,137) 16,579 (41,716) (56,973) (202) (56,771)
Provision for income taxes (201) (8,152) 7,951 (441) (4,658) 4,217
Net (loss) income from
continuing operations (25,338) 8,427 (33,765) (57,414) (4,860) (52,554)
Discontinued operations 2,864 18,073 (15,209) (32,526) 28,374 (60,900)
Net (loss) income (22,474) 26,500 (48,974) (89,940) 23,514 (113,454)
Less: Net income (loss)
attributable to
noncontrolling interests 2,848 4,112 (1,264) (508) 11,275 (11,783)
Net (loss) income
attributable to shareholders $ (25,322) 22,388 (47,710) (89,432) 12,239 (101,671)
Executive Overview
The Company is a leading vacation ownership company that markets and sells VOIs
and manages resorts in popular leisure and urban destinations. Our resort
network includes 45 Club Resorts (resorts in which owners in our 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 our Vacation Club have
the right to use a limited number of units in connection with their VOI
ownership). Our Club Resorts and Club Associate Resorts are primarily located in
popular, high-volume, "drive-to" vacation locations, including Orlando , Las
Vegas , Myrtle Beach and Charleston , among others. Through our points-based
system, the approximately 218,000 owners in our Vacation Club have the
flexibility subject to availability to stay at our resorts and have access to
nearly 11,300 other hotels and resorts through partnerships and exchange
networks. We also have a sales and marketing platform supported by marketing
relationships, such as with Bass Pro and Choice Hotels. These marketing
relationships have historically generated sales within our core demographic.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic has resulted in an unprecedented disruption in theU.S. economy and the travel, hospitality and vacation ownership industries due to, among other things, resort closures, travel restrictions and restrictions on business operations, including government guidance and restrictions with respect to travel, public accommodations, social gatherings and related matters. OnMarch 23, 2020 we temporarily closed all of our VOI sales centers; our retail marketing operations atBass Pro Shops andCabela's stores and outlet malls; and our Choice Hotels call transfer program. In connection with these actions we canceled existing owner reservations throughMay 15, 2020 and new prospect guest tours throughJune 30, 2020 . Further, some of our Club andClub Associate Resorts were closed in accordance with government mandates and advisories. Beginning inmid-May 2020 , we started the process of 37 -------------------------------------------------------------------------------- recommencing our sales and marketing operations and our closed resorts began to welcome guests as government mandates were lifted. BySeptember 30, 2020 , we recommenced marketing operations at 87Bass Pro Shops andCabela's stores and commenced marketing operations at 5 newCabela's stores, we reactivated our Choice Hotels call transfer program, all of our resorts were open, and all but one of our VOI sales centers were open. Resort occupancy for the third quarter of 2020 was approximately 70%. Additionally, inOctober 2020 , we recommenced marketing operations in one additional Bass Pro Shop and commenced marketing operations at 4 newCabela's stores for a total of 97Bass Pro Shops andCabela's stores. However, there is no assurance that our marketing operations at Bass Pro orCabela's stores or our VOI sales centers will remain open, including in the event of an increase in COVID-19 cases. As a result of the effect of the pandemic, we implemented several cost mitigating activities beginning inMarch 2020 , including reductions in workforce of over 1,600 positions and the placement of another approximate 3,200 of our associates on temporary furlough or reduced work hours. As ofSeptember 30, 2020 , approximately 3,200 associates had returned to work on a full-time basis for a total of approximately 4,400 full-time associates as ofSeptember 30, 2020 compared to approximately 6,060 full-time associates as ofSeptember 30, 2019 . As a result of the effect of the COVID-19 pandemic, during the three and nine months endedSeptember 30, 2020 , we incurred$0.4 million and$5.1 million in severance, respectively, and$1.5 million and$13.1 million , respectively, of payroll and payroll benefit expense relating to employees on temporary furlough or reduced work hours. These payments and expenses are included in selling, general and administrative expenses in our unaudited consolidated statement of operations and comprehensive income for the three and nine months endedSeptember 30, 2020 . As a precautionary measure to provide additional liquidity if needed, inMarch 2020 , Bluegreen drew down$60 million under its lines-of-credit and pledged or sold receivables under certain of its receivable backed facilities to increase its cash position. As ofSeptember 30, 2020 , Bluegreen repaid the$60.0 million borrowed under its lines-of-credit. While Bluegreen paid a special cash dividend of$1.19 per share duringAugust 2020 , there is no assurance that Bluegreen will recommence paying regular dividends or pay any other special dividends in the future. During the second quarter of 2020, Bluegreen suspended its regular quarterly cash dividends on its common stock. We have historically financed a majority of our sales of VOIs, and accordingly, are subject to the risk of defaults by our customers. GAAP requires that we reduce sales of VOIs by our estimate of uncollectible VOI notes receivable. The COVID-19 pandemic has had a material adverse impact on unemployment inthe United States and economic conditions in general and the impact may continue for some time. While we believe that it is still too early to know the full impact of COVID- 19 on our default or delinquency rates as ofSeptember 30, 2020 , we believe that the COVID-19 pandemic will have a significant impact on our VOI notes receivable. Accordingly, duringMarch 2020 , we recorded an allowance for loan losses of$12.0 million , which includes our estimate of customer defaults as a result of the COVID-19 pandemic, based on our historical experience, forbearance requests received from our customers, and other factors, including but not limited to, the seasoning of the notes receivable and FICO scores of the customers. The Coronavirus Aid, Relief, and Economic Securities Act ("CARES Act") was signed into law onMarch 27, 2020 in response to the COVID-19 pandemic. As ofSeptember 30, 2020 , we evaluated the income tax provisions of the CARES Act and determined they would have no significant effect on either ourSeptember 30, 2020 income tax rate or the computation of our estimated effective tax rate for the year endedDecember 31, 2020 . However, we have taken advantage of the deferral of the employer portion of the tax withholding amounts and the employee retention tax credits provided for in the CARES Act. During the nine months endedSeptember 30, 2020 , we recorded a tax withholding deferral of$5.0 million and employee retention tax credits of$6.9 million , which is included in selling, general and administrative expenses in our unaudited consolidated statements of operations and comprehensive income for the nine months endedSeptember 30, 2020 .
VOI Sales and Financing
Our primary business is the marketing and selling of deeded VOIs, developed
either by us or by third parties. Customers who purchase these VOIs receive an
annual allotment of points, which can be redeemed for stays at one of our
resorts or at nearly 11,300 other hotels and resorts available through
partnerships and exchange networks. Historically, VOI companies have funded the
majority of the capital investment in connection with resort development with
internal resources and acquisition and development financing. In 2009, we began
selling VOIs on behalf of third-party developers and have successfully
diversified from a business focused on capital-intensive resort development to a
more flexible model with a mix of developed and capital-light inventory 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 enable us to generate fees from the sales and marketing
of their VOIs without incurring the significant upfront capital investment
generally associated with resort acquisition or development. While sales of
acquired or developed inventory typically result in a greater contribution to
EBITDA and Adjusted EBITDA,
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-------------------------------------------------------------------------------- fee-based VOI sales typically do not require an initial investment or involve development financing risk. Both acquired or developed VOI sales and fee-based VOI sales drive recurring, incremental and long-term fee streams by adding owners to ourVacation Club and new resort management contracts. Fee-based sales of VOIs comprised 32% and 38% of system-wide sales of VOIs during the three month and nine months endedSeptember 30, 2020 , respectively, and 51% for each of the three and nine months endedSeptember 30, 2019 . While we intend to remain flexible with respect to our sales of the different categories of our VOI inventory in the future based on economic conditions, business initiatives and other considerations, we currently expect that our percentage of fee-based sales will continue to decrease over time to reflecting our recent focus on developed VOI sales. In conjunction with our VOI sales, we also generate interest income by originating loans to qualified purchasers. Collateralized by the underlying VOIs, our loans are generally structured as 10-year, fully-amortizing loans with a fixed interest rate ranging from approximately 12% to 18% per annum. As ofSeptember 30, 2020 , the weighted-average interest rate on our VOI notes receivable was 14.9%. In addition, we earn fees for various other services, including title and escrow services in connection with the closing of VOI sales, and we generate fees for mortgage servicing.
Resort Operations and Club Management
We enter into management agreements with the HOAs that maintain most of the resorts in ourVacation Club and earn fees for providing management services to those HOAs and our approximately 218,000Vacation Club owners. These resort management services include oversight of 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 theVacation Club , we manage the reservation system and provide owner, billing and collection services. In addition to resort and club management services, we earn fees for various other services that generally produce recurring, predictable and long term-revenue, including construction management services for third-party developers. As described above, while some of our Club andClub Associate Resorts were closed duringMarch 2020 in response to the COVID-19 pandemic, all were subsequently reopened and remained open as ofSeptember 30, 2020 .
Key Business and Financial Metrics Used by Management
?In addition to the principal components of revenues and expenses affecting Bluegreen' results of operations, which are further described in Item 7 to the Company's 2019 Annual Report, we use certain key business and financial metrics and terms to discuss our results of operations, including certain terms which are not recognized by GAAP, which are described below. Sales of VOIs. Represent sales of our owned VOIs, including developed VOIs and those acquired through JIT and secondary market arrangements, reduced by equity trade allowances and an estimate of uncollectible VOI notes receivable. In addition to the factors impacting system-wide sales of VOIs (as described below), sales of VOIs are impacted by the proportion of system-wide sales of VOIs sold on behalf of third-parties on a commission basis, which are not included in sales of VOIs. System-wide Sales of VOIs. Represents all sales of VOIs, whether owned by us or a third party immediately prior to the sale. Sales of VOIs owned by third parties are transacted as sales of VOIs in ourVacation Club through the same selling and marketing process we use to sell our VOI inventory. We consider system-wide sales of VOIs to be an important operating measure because it reflects all sales of VOIs by our sales and marketing operations without regard to whether we or a third party owned such VOI inventory at the time of sale. System-wide sales of VOIs is not a recognized term under GAAP and should not be considered as an alternative to sales of VOIs or any other measure of financial performance derived in accordance with GAAP or to any other method of analyzing our results as reported under GAAP.
Guest Tours. Represents the number of sales presentations given at our sales centers during the period.
Sale to Tour Conversion Ratio. Represents the rate at which guest tours are converted to sales of VOIs and is calculated by dividing guest tours by the number of VOI sales transactions.
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Average Sales Volume Per Guest ("VPG"). Represents the sales attributable to
tours at our sales locations and is calculated by dividing VOI sales by guest
tours. We consider VPG to be an important operating measure because it measures
the effectiveness of our sales process, combining the average transaction price
with the sale-to-tour conversion ratio.
EBIDTA and Adjusted EBITDA. We define 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 our VOI notes receivable), income and franchise taxes and
depreciation and amortization. We define Adjusted EBITDA as our EBITDA, adjusted
to exclude amounts attributable to the non-controlling interest in Bluegreen/Big
Cedar Vacations (in which we own a 51% interest), loss (gain) on assets held for
sale, and other items that we believe are not representative of ongoing
operating results. Accordingly, we exclude severance charges net of employee
retention tax credits, incremental costs associated with the COVID-19 pandemic,
and amounts paid, accrued or incurred in connection with the Bass Pro settlement
in June 2019 in the computation of Adjusted EBITDA. For purposes of the EBITDA
and Adjusted EBITDA calculations for each period presented, no adjustments were
made for interest income earned on our 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 our business.
We consider our Segment Adjusted EBITDA to be indicators of Bluegreen's
operating performance, and they are used by us to measure Bluegreen's 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 and Adjusted EBITDA 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 and Adjusted EBITDA are not recognized terms under GAAP and should not be
considered as an alternative to net income (loss) or any other measure of
financial performance or liquidity, including cash flow, derived in accordance
with GAAP, or to any other method or analyzing our results as reported under
GAAP. The limitations of using EBITDA or Adjusted EBITDA as an analytical tool
include, without limitation, that EBITDA and Adjusted EBITDA do not reflect (i)
changes in, or cash requirements for, our working capital needs; (ii) our
interest expense, or the cash requirements necessary to service interest or
principal payments on our indebtedness (other than as noted above); (iii) our
tax expense or the cash requirements to pay our 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 we consider not to be indicative of our future operations or performance.
Further, although depreciation and amortization are non-cash charges, the assets
being depreciated and amortized will often have to be replaced in the future,
and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such
replacements. In addition, our definition of Adjusted EBITDA may not be
comparable to definitions of Adjusted EBITDA or other similarly titled measures
used by other companies.
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Reportable Segments Results of Operations
Adjusted EBITDA for the three and nine months ended
We consider Segment Adjusted EBITDA in connection with our evaluation of the operating performance of Bluegreen's business segments as described in Note 13 to our condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q. See above for a discussion of our definition of Adjusted EBITDA, how management uses it to manage Bluegreen's business, and material limitations on its usefulness. The following tables set forth our Segment Adjusted EBITDA, total Adjusted EBITDA and a reconciliation of Adjusted EBITDA to the most closely related comparable GAAP financial measure: For the Three Months Ended For the Nine Months Ended September 30, September 30, (in thousands) 2020 2019 2020 2019 Adjusted EBITDA - sales of VOIs ? and financing$ 27,344 $ 41,618 $ 24,402 $ 107,152 Adjusted EBITDA - resort operations ? and club management 15,391 15,462 49,429 44,983 Total Segment Adjusted EBITDA 42,735 57,080 73,831 152,135 Less: corporate and other (20,373) (20,109) (44,575) (60,308) Total Adjusted EBITDA$ 22,362 $ 36,971 $ 29,256 $ 91,827
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 For the Nine Months Ended
September 30, September 30,
(in thousands) 2020 2019 2020 2019
Gross sales of VOIs $ 71,149 $ 82,729 $ 157,530 $ 225,834
Add: Fee-Based sales 33,159 87,646 97,266 237,793
System-wide sales of VOIs $ 104,308 $ 170,375 $ 254,796 $ 463,627
As of and for the As of and for the
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Other Financial Data:
(in thousands)
System-wide sales of VOIs $ 104,308 $ 170,375 $ 254,796 $ 463,627
Adjusted EBITDA - sales of VOIs and
? financing $ 27,344 $ 41,618 $ 24,402 $ 107,152
Adjusted EBITDA - resort operations
and club management$ 15,391 $ 15,462 $ 49,429 $
44,983
Number of
Vacation Club Associate resorts
at period end 68 69 68
69
Total number of sale transactions 6,130 11,613 15,657 30,530
Average sales volume per guest
2,605
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For the three and nine months ended
Sales of VOIs and Financing
For the Three Months Ended September 30,
2020 2019
% of % of
?System- ?System-
?wide sales ?wide sales
Amount ? of VOIs (5) Amount ? of VOIs (5)
(in thousands)
Developed VOI sales (1) $ 37,314 36% $ 87,863 52%
Secondary Market sales 24,076 23 72,081 42
Fee-Based sales 33,159 32 87,646 51
JIT sales 14,845 14 4,505 3
Less: Equity trade allowances (6) (5,086) (5) (81,720) (48)
System-wide sales of VOIs 104,308 100% 170,375 100%
Less: Fee-Based sales (33,159) (32) (87,646) (51)
Gross sales of VOIs 71,149 68 82,729 49
Provision for loan losses (2) (11,884) (17) (16,411) (20)
Sales of VOIs 59,265 57 66,318 39
Cost of VOIs sold (3) (3,597) (6) (3,121) (5)
Gross profit (3) 55,668 94 63,197 95
Fee-Based sales commission revenue (4) 22,119 67 60,478 69
Financing revenue, net of financing
expense 15,545 15 15,008 9
Other income, net - 0 537 (1)
Other fee-based services, title
operations and other, net 481 0 1,847 1
Net carrying cost of VOI inventory (8,580) (8) (5,878) (3)
Selling and marketing expenses (53,613) (51) (88,232) (52)
General and administrative expenses -
sales and
? marketing (5,889) (6) (7,440) (4)
Operating profit - sales of VOIs and
financing 25,731 25% 39,517 23%
Add: Depreciation and amortization 1,405 1,507
Add: Severance 208
594
Adjusted EBITDA - sales of VOI and financing$ 27,344 $
41,618
(1)Developed VOI sales represent sales of VOIs acquired or developed by us as part of our developed VOI business. Developed VOI sales do not include Secondary Market sales, Fee-Based sales or JIT sales. (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.
(6)Equity trade allowances are amounts granted to customers upon trading in their existing VOIs in connection with the purchase of additional VOIs. Subject to certain exceptions, equity trade allowances were generally eliminated inJune 2020 . ? 42
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For the Nine Months Ended September 30,
2020 2019
% of % of
?System- ?System-
?wide sales ?wide sales
Amount ? of VOIs (5) Amount ? of VOIs (5)
(in thousands)
Developed VOI sales (1) $ 128,396 50% $ 255,288 55%
Secondary Market sales 98,576 39 184,571 40
Fee-Based sales 97,266 38 237,793 51
JIT sales 20,453 8 9,157 2
Less: Equity trade allowances (6) (89,895) (35) (223,182) (48)
System-wide sales of VOIs 254,796 100% 463,627 100%
Less: Fee-Based sales (97,266) (38) (237,793) (51)
Gross sales of VOIs 157,530 62 225,834 49
Provision for loan losses (2) (44,083) (28) (39,483) (17)
Sales of VOIs 113,447 45 186,351 40
Cost of VOIs sold (3) (8,734) (8) (17,541) (9)
Gross profit (3) 104,713 92 168,810 91
Fee-Based sales commission revenue (4) 64,619 66 161,033 68
Financing revenue, net of financing
expense 46,658 18 45,101 10
Other income, net - 0 537 0
Other fee-based services, title
operations and other, net 2,364 1 5,260 1
Net carrying cost of VOI inventory (27,407) (11) (18,853) (4)
Selling and marketing expenses (155,597) (61) (238,205) (51)
General and administrative expenses -
sales and
? marketing (19,372) (8) (60,823) (13)
Operating profit - sales of VOIs and
financing 15,978 6% 62,860 14%
Add: Depreciation and amortization 4,447 4,577
Add: Severance 3,977 594
Add: Bass Pro Settlement - 39,121
Adjusted EBITDA - sales of VOIs and
financing $ 24,402 $ 107,152
(1)Developed VOI sales represent sales of VOIs acquired or developed by us as part of our developed VOI business. Developed VOI sales do not include Secondary Market sales, Fee-Based sales or JIT sales. (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.
(6)Equity trade allowances are amounts granted to customers upon trading in their existing VOIs in connection with the purchase of additional VOIs. Subject to certain exceptions equity trade allowances were generally eliminated inJune 2020 . Sales of VOIs. Sales of VOIs were$59.3 million and$113.4 million during the three and nine months endedSeptember 30, 2020 , respectively, and$66.3 million and$186.4 million during the three and nine months endedSeptember 30, 2019 , respectively. Sales of VOIs were impacted by the factors described in the discussion of system-wide sales of VOIs, primarily the adverse impact of the COVID-19 pandemic. Gross sales of VOIs were reduced by$11.9 million and$44.1 million during the three and nine months endedSeptember 30, 2020 , respectively, and$16.4 million and$39.5 million during the three and nine months endedSeptember 30, 2019 , 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 our estimates of future notes receivable performance for existing and newly originated loans. Our provision for loan losses as a percentage of gross sales of VOIs was 17% and 28% during the three and nine months endedSeptember 30, 2020 , respectively, and 20% and 17% for the three and nine months endedSeptember 30, 2019 , respectively. The percentage of our sales which were realized in cash within 30 days from sale was approximately 41% and 40% during the three months endedSeptember 30, 2020 andSeptember 30, 2019 , respectively, and 41% and 42% during the nine months endedSeptember 30, 2020 andSeptember 30, 2019 , respectively. 43 -------------------------------------------------------------------------------- We believe that the decrease in the provision for loan losses during the three months endedSeptember 30, 2020 as compared to the same period in 2019 was primarily due to an increase in sales realized in cash and an increase in sales to existing owners during the 2020 period. Further, we believe that it is still too early to know the full impact of COVID-19 on our default or delinquency rates, however, we believe that the COVID-19 pandemic will have a significant impact on our VOI notes receivable. Accordingly, inMarch 2020 , we recorded an allowance for loan losses of$12.0 million , which includes our estimate of customer defaults as a result of the COVID-19 pandemic, based on our historical experience, forbearance requests received from our customers, and other factors, including but not limited to, the seasoning of the notes receivable and FICO scores of the customers. InMarch 2020 , we began receiving requests from borrowers requesting a modification of their VOI note receivable due to financial hardship resulting from the economic impacts of the COVID-19 pandemic. Hardship requests declined inJune 2020 and the program was discontinued onJune 30, 2020 . As ofSeptember 30, 2020 , 3.8% of our portfolio was granted up to a three-month deferral or extension of payments, of which 86% have subsequently resumed payments under the newly modified terms. In addition to the COVID-19 pandemic, the provision for loan losses continues to be impacted by defaults which we believe 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. Defaults associated with such letters during the nine months endedSeptember 30, 2020 , decreased by 4% compared to the same period of 2019. See Note 8: Commitments and Contingencies to the Company's condensed 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 is highly uncertain and there is no assurance that our steps taken to mitigate the impact on the pandemic or actions taken by timeshare exit firms will be successful. As a result, actual defaults may differ from our estimates and the allowance for loan losses may not prove to be adequate. In addition to the factors described which impact system-wide sales of VOIs, sales of VOIs are impacted by the proportion of system-wide sales of VOIs sold on behalf of third parties on a commission basis, which are not included in sales of VOIs.
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
September 30,
2020 2019
Average annual default rates 9.71% 8.59%
As of September 30,
2020 2019
Delinquency rates 3.23% 3.31%
System-wide sales of VOIs. System-wide sales of VOIs were $104.3 million and
$254.8 million during the three and nine months ended September 30, 2020 ,
respectively, and $170.4 million and $463.6 million during the three and nine
months ended September 30, 2019 , respectively. System-wide sales of VOIs
increased by 16.5% through February 29, 2020 compared to the same period in
2019. However, as previously described, on March 23, 2020 , as a result of the
COVID-19 pandemic, we temporarily closed all of our VOI sales centers; our
retail marketing operations at Bass Pro Shops and Cabela's stores and outlet
malls; and our Choice Hotels call transfer program. Beginning in mid-May 2020 ,
we started the process of recommencing our sales and marketing operations,
except for marketing operations at outlet malls due to our determination that
traffic to the malls did not justify reopening. By September 30, 2020 , we
recommenced our marketing operations at 87 Bass Pro Shops and Cabela's stores
and commenced marketing operations at 5 new Cabela's stores, we reactivated our
Choice Hotels call transfer program, all of our resorts were open, and all but
one of our VOI sales centers were open. The temporary closure of all marketing
operations and VOI sales centers as a result of the COVID-19 pandemic and other
adverse impacts of the pandemic significantly impacted system-wide sales of VOIs
during the three and nine months ended September 30, 2020 and is expected to
continue to significantly impact system-wide sales of VOIs for the foreseeable
future, including the remainder of 2020. However, the ultimate impact, including
the extent and duration of the impact, cannot be predicted at this time.
Included in system-wide sales are Fee-Based Sales, JIT Sales, Secondary Market Sales and developed VOI sales. Sales by category are tracked based on which deeded VOI is conveyed in each transaction. We manage which VOIs
44
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are sold based on several factors, including the needs of fee-based clients, our
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. Fee-Based Sales comprised 32% and 38% of system-wide sales of VOIs
during the three and nine months ended September 30, 2020 , respectively, and 51%
during both of the three and nine months ended September 30, 2019 , respectively.
The decrease in system-wide sales was due in part to the temporary closure of
our VOI sales centers in response to the COVID-19 pandemic and other adverse
impacts of the pandemic, as described above. While we intend to remain flexible
with respect to our sales of the different categories of our VOI inventory in
the future based on economic conditions, business initiatives and other
considerations, we currently expect that our percentage of fee-based sales will
decrease over time as we have recently increased efforts with respect to our
developed VOI sales. Actual trends may differ from current expectations.
The following table sets forth certain information for system-wide sales of VOIs
for the three and nine months ended
For the Three Months Ended For the Nine Months Ended
?September 30, ?September 30,
2020 2019 Change 2020 2019 Change
Number of sales centers
open at period-end 25 26 (4) % 25 26 (4) %
Number Bass Pro and
Cabela's marketing
locations at period-end 92 75 23 % 92 75 23 %
Number of active sales
arrangements with
third-party clients at
period-end 15 15 - % 15 15 - %
Total number of VOI sales
transactions 6,130 11,613 (47) % 15,657 30,530 (49) %
Average sales price per
transaction $ 17,094 $ 14,799 16 % $ 16,324 $ 15,290 7 %
Number of total guest
tours 36,268 65,875 (45) % 83,022 179,180 (54) %
Sale-to-tour conversion
ratio-
?total marketing guests 16.9% 17.6% (70) bp 18.9% 17.0% 190 bp
Number of new guest tours 17,583 40,914 (57) % 40,762 109,451 (63) %
Sale-to-tour conversion
ratio-
?new marketing guests 12.4% 14.4% (200) bp 15.1% 14.0% 110 bp
Percentage of sales to
existing owners 66.8% 52.5% 1,430 bp 63.9% 53.9% 1,000 bp
Average sales volume per
guest $ 2,889 $ 2,609 11 % $
3,079
Cost of VOIs Sold. During the three months endedSeptember 30, 2020 and 2019, cost of VOIs sold was$3.6 million and$3.1 million , respectively, and represented 6% and 5%, respectively, of sales of VOIs. During the nine months endedSeptember 30, 2020 and 2019, cost of VOIs sold was$8.7 million and$17.5 million , respectively, and represented 8% 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 reflected on a retrospective basis in the period the change occurs. Therefore, cost of sales will typically be 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 increased during the three months endedSeptember 30, 2020 , as compared to the prior year period, primarily due to sales of relatively higher cost VOIs and lower secondary market purchases during the current year period. Cost of VOIs sold as a percentage of sales of VOIs decreased during the nine months endedSeptember 30, 2020 , as compared to the prior year period, primarily due to the impact of anticipated higher future defaults partially offset by lower cost secondary market purchases. Fee-Based Sales Commission Revenue. During the three months endedSeptember 30, 2020 and 2019, we sold$33.2 million and$87.6 million , respectively, of third-party VOI inventory under commission arrangements and earned sales and marketing commissions of$22.1 million and$60.5 million , respectively, in connection with those sales. During the nine months endedSeptember 30, 2020 and 2019, we sold$97.3 million and$237.8 million , 45 -------------------------------------------------------------------------------- respectively, of third-party VOI inventory under commission arrangements and earned sales and marketing commissions of$64.6 million and$161.0 million , respectively, in connection with those sales. The decreases in sales of third-party developer inventory on a commission basis during the 2020 periods was due primarily to the temporary closure of VOI sales centers as a result of the COVID-19 pandemic and other factors described above. We earned an average sales and marketing commission of 67% and 66% during the three and nine months endedSeptember 30, 2020 , respectively, and 69% and 68% during the three and nine months endedSeptember 30, 2019 , respectively, which is net of a reserve for commission refunds in connection with early defaults and cancellations, pursuant to the terms of certain of our fee-based service arrangements. The decrease in sales and marketing commissions as a percentage of fee-based sales for the three months endedSeptember 30, 2020 as compared to the three months endedSeptember 30, 2019 was primarily related to an increase in our reserve for cancellations coupled with a decrease in fee-based sales. Financing Revenue, Net of Financing Expense - Sales of VOIs. Interest income on VOI notes receivable was$19.0 million and$20.0 million during the three months endedSeptember 30, 2020 and 2019, respectively, which was partially offset by interest expense on receivable-backed debt of$3.9 million and$5.1 million , respectively. Interest income on VOI notes receivable was$58.3 million and$60.0 million during the nine months endedSeptember 30, 2020 and 2019, respectively, which was partially offset by interest expense on receivable-backed debt of$12.7 million and$15.4 million , respectively. The increase in finance revenue net of finance expense during the 2020 periods as compared to the 2019 periods is primarily due to lower outstanding receivable-backed debt balances and lower weighted-average cost of borrowings due to lower interest rates partially offset by lower notes receivable balances primarily due to the temporary closure of VOI sales centers as a result of the COVID-19 pandemic and other factors described above. Revenues from mortgage servicing of$1.4 million and$4.5 million during the three and nine months endedSeptember 30, 2020 , respectively, and$1.6 million and$4.6 million during the three and nine months endedSeptember 30, 2019 , respectively, are included in financing revenue, net of mortgage servicing expenses of$1.0 million and$3.4 million during the three and nine months endedSeptember 30, 2020 , respectively, and$1.6 million and$4.1 million during the three and nine months endedSeptember 30, 2019 , respectively. Other Fee-Based Services - Title Operations, net. During the three months endedSeptember 30, 2020 and 2019, revenue from our title operations was$1.3 million and$4.3 million , respectively, which was partially offset by expenses directly related to our title operations of$0.8 million and$2.4 million , respectively. During the nine months endedSeptember 30, 2020 and 2019, revenue from our title operations was$5.4 million and$10.1 million , respectively, which was partially offset by expenses directly related to our title operations of$3.0 million and$4.8 million , respectively. Resort title fee revenue varies based on sales volumes as well as the relative title costs in the jurisdictions where the inventory being sold is located. The decrease in the 2020 periods is due to the temporary closure of VOI sales centers as a result of the COVID-19 pandemic and other factors described above. Net Carrying Cost of VOI Inventory. The carrying cost of our VOI inventory was$10.4 million and$9.2 million during the three months endedSeptember 30, 2020 and 2019, respectively, which was partially offset by rental and sampler revenues of$1.8 million and$3.4 million , respectively. The carrying cost of our VOI inventory was$30.9 million and$26.6 million during the nine months endedSeptember 30, 2020 and 2019, respectively, which was partially offset by rental and sampler revenues of$3.5 million and$7.8 million , respectively. The increase in net carrying costs of VOI inventory was primarily related to decreased rentals of developer inventory and decreased sampler stays due to, among other things, government ordered travel restrictions and temporary resort closures in accordance with government mandates and advisories associated with the COVID-19 pandemic as well as increased maintenance fees and developer subsidies associated with our increase in VOI inventory. In certain circumstances, we offset marketing costs by using inventory for marketing guest stays. Selling and Marketing Expenses. Selling and marketing expenses were$53.6 million and$155.6 million during the three and nine months endedSeptember 30, 2020 , respectively, and$88.2 million and$238.2 million during the three and nine months endedSeptember 30, 2019 , respectively. As a percentage of system-wide sales of VOIs, selling and marketing expenses were 51% and 61% during the three and nine months endedSeptember 30, 2020 , respectively, compared to 52% and 51% during the three and nine months endedSeptember 30, 2019 , respectively. The decrease in selling and marketing expenses as a percentage of system-wide sales of VOIs during the three months endedSeptember 30, 2020 compared toSeptember 30, 2019 , is primarily due to cost mitigation efforts as well as a higher proportion of sales to owners in the third quarter of 2020. The increase in selling and marketing expenses as a percentage of system-wide sales of VOIs during the nine months endedSeptember 30, 2020 compared toSeptember 30, 2019 , is primarily attributable to certain fixed costs inherent in Bluegreen's sales and marketing operations and the costs of maintaining certain sales and marketing associates on furlough despite the temporary closure of our VOI sales sites and marketing operations during April andMay 2020 as discussed above. During the three and nine months endedSeptember 30, 2020 , we incurred$0.1 million and$4.0 million , respectively, in severance and$1.4 million and 46 --------------------------------------------------------------------------------$12.3 million , respectively, of payroll and benefits expenses relating to employees on temporary furlough or reduced work hours as a result of the impact of the COVID-19 pandemic. In addition, since reopening activities commenced, we incurred costs associated with the reopening of 87 Bass Pro andCabela's stores that were open prior to the COVID-19 pandemic and the commencement of marketing operations at 5 newCabela's stores. We utilize these stores to sell mini-vacation packages to customers for future travel which require the customers to attend a timeshare presentation. Our agreement with Bass Pro previously provided for the payment of a variable commission upon the sale of a VOI to a marketing prospect obtained through the Bass Pro marketing channels. As previously disclosed, pursuant to the settlement agreement and amended marketing arrangement with Bass Pro entered into duringJune 2019 , the settlement payment and a portion of the ongoing annual marketing fees are fixed costs and/or are subject to annual minimums regardless of the volume of VOI sales produced from the resulting marketing prospects generated from the amended agreement, including reduced sales as a result of the temporary closure of our sales operations due to the COVID-19 pandemic. If our marketing operations pursuant to the amended agreement with Bass Pro do not generate a sufficient number of prospects and leads or is terminated or limited, we may not be able to successfully market and sell our products and services at anticipated levels or at levels required in order to offset the costs associated with our marketing efforts. In addition, the amended arrangement with Bass Pro has resulted in an increase in our marketing costs as a percentage of sales from the program, based on increases in program fixed costs and anticipated VOI sales volumes from this marketing channel. In light of the decrease in sales due to the COVID-19 pandemic, the increase in cost of this marketing program has adversely impacted our results of operations and cash flow and may continue to have an adverse impact if sales continue to be below expected levels. General and Administrative Expenses - Sales and Marketing Operations. General and administrative expenses attributable to sales and marketing operations were$5.9 million and$19.4 million during the three and nine months endedSeptember 30, 2020 , respectively, and$7.4 million and$60.8 million during the three and nine months endedSeptember 30, 2019 , respectively. As a percentage of system-wide sales of VOIs, general and administrative expenses attributable to sales and marketing operations was 6% and 8% during the three and nine months endedSeptember 30, 2020 , respectively, and 4% and 13% during the three and nine months endedSeptember 30, 2019 , respectively, reflecting fixed costs including costs of maintaining certain sales associates on furlough. Included in general and administrative expenses attributable to sales and marketing operations for the nine months endedSeptember 30, 2019 was approximately$39.1 million related to the settlement of the dispute with Bass Pro inJune 2019 . See Note 9: Commitments and Contingencies to our unaudited consolidated financial statements included in Item 1 of this report for additional information regarding the Bass Pro settlement.
Resort Operations and Club Management
For the Three Months Ended For the Nine Months Ended
?September 30, ?September 30,
(in thousands) 2020 2019 2020 2019
Resort operations and
?club management revenue $ 42,234 $ 47,338 $ 124,859 $ 132,856
Resort operations
and club management
expense (27,165) (32,435) (77,365) (89,161)
Operating profit - resort
?operations and club
management 15,069 36% 14,903 31% 47,494 38% 43,695 33%
Add: Depreciation and
amortization 208 321 588 1,050
Add: Severance 114 238 1,347 238
Adjusted EBITDA - resort
operations
? and club management $ 15,391 $ 15,462 $ 49,429 $ 44,983
Resort Operations and Club Management Revenue. Resort operations and club
management revenue decreased 11% and 6% for the three and nine months ended
September 30, 2020 , compared to the three and nine months ended September 30,
2019 , respectively. Cost reimbursement revenue, which primarily consists of
payroll and payroll related expenses for management of the HOAs and other
services we provide where we are the employer, decreased 12% and 5% during the
three and nine months ended September 30, 2020 , compared to the three and nine
months ended September 30, 2019 , respectively, reflecting the temporary closure
of many resorts related to the COVID-19 pandemic, as described above. Net of
cost reimbursement revenue, resort operations and club management revenues
decreased 10% and 7% during the three and nine months ended September 30, 2020
as compared to three and nine months ended September 30, 2019 , respectively,
primarily as a result of decreases in revenues from our Traveler Plus program,
other
47
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owner programs, resort retail operations and third-party rental commissions as a
result of the COVID-19 pandemic. We managed 49 resort properties as of both
Resort Operations and Club Management Expense. During the three and nine months endedSeptember 30, 2020 , resort operations and club management expense decreased 16% and 13%, compared to the three and nine months endedSeptember 30, 2019 , respectively. The decreases were primarily due to cost mitigation efforts implemented in the first quarter of 2020 in addition to lower costs related to the Traveler Plus program, other owner programs and resort retail operations in the 2020 periods as compared to the 2019 periods, in each case, as a result of the COVID-19 pandemic. Corporate and Other For the Three Months Ended For the Nine Months Ended ?September 30, ?September 30, (dollars in thousands) 2020 2019 2020 2019 General and administrative expenses - ? corporate and other$ (20,254) $ (22,149) $ (48,603) $ (58,603) Adjusted EBITDA attributable to the ? non-controlling interest ? in Bluegreen/Big Cedar Vacations (2,757) (2,364) (4,438) (9,339) Other (expense) income, net (365) 1,609 41 3,691 Franchise taxes 101 112 118 171 Loss (gain) on assets held for sale 283 (166) 326 (2,146) Add: Depreciation and amortization 2,278 1,757 6,645 4,826 Add: Severance 59 1,092 1,782 1,092 Less: Employee Retention credit related to severance - - (2,202) - Add: COVID-19 incremental costs 282 - 1,756 - Adjusted EBITDA - Corporate and other$ (20,373) $ (20,109) $
(44,575)
General and Administrative Expenses - Corporate and Other. General and administrative expenses attributable to corporate overhead were$20.3 million and$48.6 million during the three and nine months endedSeptember 30, 2020 , respectively, and$22.1 million and$58.6 million during the three and nine months endedSeptember 30, 2019 , respectively. The decreases were primarily due to a$6.9 million employee retention credit earned inJune 2020 under the CARES Act ($2.2 million of which was earned on severance). This credit was partially offset by$0.1 million and$1.8 million in severance cost for corporate employees during the three and nine months endedSeptember 30, 2020 , respectively, of which$0.1 million and$1.2 million , respectively, was due to severance related to cost mitigation efforts attributable to the COVID-19 pandemic. Adjusted EBITDA Attributable to Non-Controlling Interest inBluegreen/Big Cedar Vacations . We include in our consolidated financial statements the results of operations and financial condition ofBluegreen/Big Cedar Vacations , our 51% owned subsidiary. The non-controlling interest in Adjusted EBITDA ofBluegreen/Big Cedar Vacations is the portion ofBluegreen/Big Cedar Vacations' Adjusted EBITDA that is attributable toBig Cedar LLC , which holds the remaining 49% interest inBluegreen/Big Cedar Vacations . Adjusted EBITDA attributable to the non-controlling interest inBluegreen/Big Cedar Vacations was$2.8 million and$4.4 million during the three and nine months endedSeptember 30, 2020 , respectively, and$2.4 million and$9.3 million during the three and nine months endedSeptember 30, 2019 , respectively. The decrease in Adjusted EBITDA attributable to the non-controlling interest inBluegreen/Big Cedar Vacations for the nine months endedSeptember 30, 2020 was primarily related to the impact of the COVID-19 pandemic, including the temporary closure of our VOI sales centers in connection with the COVID-19 pandemic as described above. Interest Expense. Interest expense not related to receivable-backed debt was$3.4 million and$11.9 million during the three and nine months endedSeptember 30, 2020 , respectively, and$5.3 million and$14.6 million during the three and nine months endedSeptember 30, 2019 , respectively. The decrease in interest expense during the three and nine months endedSeptember 30, 2020 was primarily due to a lower weighted-average cost of borrowing, partially offset by higher outstanding debt balances during the 2020 periods. 48 -------------------------------------------------------------------------------- Other (Expense) Income, net. Other (expense) income, net was($0.4) million and$0.1 million during the three and nine months endedSeptember 30, 2020 , respectively, and$2.1 million and$4.2 million during the three and nine months endedSeptember 30, 2019 , respectively. These decreases were primarily related to a land sale duringJune 2019 that resulted in a gain of$2.0 million and$1.7 million in Hurricane Irma business interruption insurance proceeds received inJuly 2019 . BVH Corporate
BVH Corporate in the Company's segment information includes the following:
?BVH's corporate general and administrative expenses;
?Interest expense associated with Woodbridge's junior subordinated debentures; and
?Interest income on interest-bearing cash accounts; and
Corporate General and Administrative Expenses
BVH's corporate general and administrative expenses consist primarily of costs associated with administering the various support functions at its corporate headquarters, including executive compensation, legal, accounting, human resources, investor relations, and executive offices. BVH's corporate general and administrative expenses for the three and nine months endedSeptember 30, 2020 were$41.2 million and$58.5 million , respectively, compared to$11.9 million and$36.4 million for the comparable 2019 periods. The increase in corporate general and administrative expenses for the 2020 periods as compared to the same 2019 periods primarily reflects the acceleration of the vesting of unvested restricted stock awards and payments to settle the BVH's long-term incentive program for 2020 which in the aggregate resulted in$32.6 million of compensation expense for the three and nine months endedSeptember 30, 2020 . In addition, included in BVH corporate general and administrative expenses for three and nine months endedSeptember 30, 2020 was$1.8 million of costs associated with the spin-off.
Interest Expense
BVH's interest expense (excluding interest expense the$80.0 million note payable to Bluegreen) for the three and nine months endedSeptember 30, 2020 was$0.6 million and$3.0 million , respectively, compared to$1.4 million and$4.3 million for the comparable 2019 periods. The decrease in interest expense during the three and nine months endedSeptember 30, 2020 compared to the same 2019 periods primarily resulted from the repayment of BBX Capital's mandatorily redeemable cumulative preferred stock inDecember 2019 and lower interest expense on Woodbridge's junior subordinated debentures reflecting variable rates of interest on such debt during the 2020 periods. BBX Capital's interest expense on the$80.0 million note payable to Bluegreen was$0.5 million and$2.5 million for the three and nine months endedSeptember 30, 2020 compared to$1.2 million and$3.6 million for the comparable 2019 periods. The decrease in interest expense reflects repayment of the note inAugust 2020 from proceeds received from a special cash dividend declared by Bluegreen. The interest expense on this note and the related interest income recognized by Bluegreen are eliminated in the Company's consolidated statements of operations. Interest Income
During the three and nine months ended
49--------------------------------------------------------------------------------
Provision for Income Taxes
The Company estimates its effective annual income tax rate on a quarterly basis based on current and forecasted operating results for the annual period and applies the estimated effective income tax rate to its loss before income taxes reduced by net income attributable to noncontrolling interests in joint ventures taxed as partnerships. The Company's effective income tax rate for the three and nine months endedSeptember 30, 2020 from continuing operations was different than the expected federal income tax rate of 21% due to the impact of the Company's nondeductible executive compensation. In connection with the spin-off of BBX Capital, the Company accelerated the vesting of outstanding restricted stock awards and paid executive incentive bonuses which amounted to$32.6 million of nondeductible compensation expense. The Company's effective income tax rate was different than the expected federal income tax rate of 21% due to the impact of nondeductible executive compensation and state income taxes. The effective tax rate for the three and nine months endedSeptember 30, 2019 excludes the tax benefit associated with the$39.1 million Bass Pro litigation settlement, which the Company accounted for as a discrete item at the statutory income tax rate of 26%.
Discontinued Operations
Discontinued operations represent the activities of the Company's wholly-owned subsidiary, BBX Capital, which was disposed of in the spin-off transaction that was completed onSeptember 30, 2020 . BBX Capital's businesses include all of BVHs previous businesses other than Bluegreen, includingBBX Capital Real Estate ,BBX Sweet Holdings , and Renin. Loss from discontinued operations before income taxes for the three months endedSeptember 30, 2020 was$5.8 million compared to income from discontinued operations for the three months endedSeptember 30, 2019 of$24.6 million , which primarily reflects a reduction in equity in net earnings from unconsolidated real estate joint ventures of$28.6 million due to sales of real estate byBBX Capital Real Estate's investments in unconsolidated joint ventures in the 2019 period. Loss from discontinued operations before income taxes for the nine months endedSeptember 30, 2020 was$41.6 million compared to income from discontinued operations for the nine months endedSeptember 30, 2019 of$38.8 million , which reflects the impact of$30.7 million of impairment losses primarily resulting from the impact of the COVID-19 pandemic on BBX Capital's businesses, including IT'SUGAR, and a reduction in equity in net earnings from unconsolidated real estate joint ventures of$37.2 million due to the above mentioned sales in the 2019 period of real estate byBBX Capital Real Estate's investments in unconsolidated joint ventures.
Net Income or Loss from Continuing Operations Attributable to Noncontrolling Interests
BVH's consolidated financial statements include the results of operations and financial position of various partially-owned subsidiaries in which it holds a controlling financial interest, including Bluegreen andBluegreen/Big Cedar Vacations . As a result, the Company is required to attribute net income or loss to the noncontrolling interests in these subsidiaries. Net income from continuing operations attributable to noncontrolling interests was$3.4 million and$4.3 million during the three and nine months endedSeptember 30, 2020 compared to$4.2 million and$11.4 million for the comparable 2019 period. The decrease in net income from continuing operations attributable to noncontrolling interests for the three months endedSeptember 30, 2020 compared to the same 2019 period was primarily due to lower earnings at the Bluegreen. The decrease in net income attributable to noncontrolling interests for the nine months endedSeptember 30, 2020 compared to the same 2019 period was primarily due to a decrease in the net income of Bluegreen and theBluegreen/Big Cedar Vacations joint venture. 50
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Consolidated Cash Flows
A summary of our consolidated cash flows is set forth below (in thousands):
For the Nine Months Ended
September 30,
2020 2019
Cash flows provided by operating activities $ 3,161 60,394
Cash flows (used in) provided by investing activities (12,183)
23,609
Cash flows used in financing activities (151,066)
(87,685)
Net decrease in cash, cash equivalents and restricted cash$ (160,088)
(3,682)
Cash, cash equivalents and restricted cash at beginning of period 406,870
421,097
Cash, cash equivalents and restricted cash at end of period
$ 246,782
417,415
Cash Flows provided by Operating Activities
The Company's cash provided by operating activities decreased by$57.2 million during the nine months endedSeptember 30, 2020 compared to the same 2019 period primarily due to increased operating losses as a result of the impacts of the COVID-19 pandemic, including decreases in sales of VOIs including cash sales and down payments from customers associated with the temporary closure of VOI sales centers and a decrease in trade sales primarily reflecting the closure ofBBX Sweet Holdings' retail locations and a subsequent decrease in consumer demand, and lower distributions from unconsolidated real estate joint ventures, partially offset by a reduction in spending on the acquisition and development of VOI and real estate inventory during the 2020 period as compared to the 2019 period, an increase in other liabilities for unpaid rent onBBX Sweet Holdings retail locations and a$16.0 million reduction in settlement payments made by Bluegreen to Bass Pro pursuant to the settlement agreement entered into inJune 2019 .
Cash Flows used in Investing Activities
The Company's cash used in investing activities increased by$35.8 million during the nine months endedSeptember 30, 2020 compared to the same 2019 period primarily due to lower distributions from unconsolidated real estate joint ventures, decreased investments in unconsolidated real estate joint ventures and decreased proceeds from the sale of real estate, partially offset by decreased spending by Bluegreen for property and equipment and an increase in loan recoveries in the legacy asset portfolio.
Cash Flows used in Financing Activities
The Company's cash used in financing activities increased by$63.4 million during the nine months endedSeptember 30, 2020 compared to the same 2019 period, which was primarily due to$96.8 million of cash transferred in the spin-off and Bluegreen's repurchase of$11.7 million of its common stock in a private transaction during the 2020 period partially offset by$8.9 million of purchases of the Company's Class A common stock in 2019, and a$38.1 million increase in net borrowings on the Company's notes payable and other borrowings, which included additional borrowings by Bluegreen on its credit facilities and various receivable-backed facilities in an effort to increase its cash position and ensure adequate liquidity for a prolonged period in response to the COVID-19 pandemic. Seasonality Bluegreen has historically experienced, 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 Bluegreen's quarterly operating results. Due to consumer travel patterns, Bluegreen typically experienced more tours and higher VOI sales during the second and third quarters. However, due to the impact of the COVID-19 pandemic, including the temporary closures of its marketing operations and VOI sales centers as described above, Bluegreen experienced significantly decreased sales of VOIs in the second quarter of 2020 as compared to prior years and currently expect such adverse impact to continue for the remainder of 2020 and into 2021. 51
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Commitments
The Company's material commitments as of
The following table summarizes the contractual minimum principal and interest payments required on the Company's outstanding debt, outstanding payments required under the Bass Pro settlement agreement, and payments required on the Company's non-cancelable operating leases by period due date as ofSeptember 30, 2020 (in thousands): Payments Due by Period Unamortized Debt Less than 1 - 3 4 - 5 After 5 Issuance Contractual Obligations 1 year Years Years Years Costs Total Receivable-backed notes payable $ - - 118,531 266,327 (4,140) 380,718 Notes payable and other borrowings 11,300 25,673 125,000 - (1,302) 160,671 Note payable to BBX Capital, Inc. - - 75,000 - - 75,000 Jr. subordinated debentures - - - 177,129 (39,192) 137,937 Noncancelable operating leases 6,326 9,592 2,832 11,412 - 30,162 Bass Pro settlement agreement 4,000 8,000 4,000 - - 16,000 Total contractual obligations 21,626 43,265 325,363 454,868 (44,634) 800,488 Interest Obligations (1) Receivable-backed notes payable 13,145 26,291 23,137 64,177 - 126,750 Notes payable and other borrowings 4,047 6,991 3,162 - - 14,200 Notes payable to BBX Capital, Inc. 4,500 9,000 9,000 - - 22,500 Jr. subordinated debentures 8,424 16,850 16,850 87,657 - 129,781 Total contractual interest 30,116 59,132 52,149 151,834 - 293,231 Total contractual obligations $ 51,742 102,397 377,512 606,702 (44,634) 1,093,719 (1)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 atSeptember 30, 2020 . In lieu of paying maintenance fees for unsold VOI inventory, we may enter into subsidy agreements with certain HOAs. During the nine months endedSeptember 30, 2020 and 2019, Bluegreen made payments related to such subsidies of$7.7 million and$10.5 million , respectively, which are included in cost of other fee-based services in the unaudited consolidated statements of operations and comprehensive income for such periods. As ofSeptember 30, 2020 , we had$10.1 million accrued for such subsidies, which is included in accrued liabilities and other in the unaudited consolidated statements of financial condition as of such date. InDecember 2019 , Bluegreen's then-serving President and Chief Executive Officer resigned. In connection with his resignation, Bluegreen agreed to make payments totaling$3.5 million over a period of 18 months,$1.8 million of which remained payable as ofSeptember 30, 2020 . We intend 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 payments required on contractual obligations. We believe that our 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 our anticipated working capital, capital expenditure and debt service requirements, including the contractual payment of the obligations set forth above, for the foreseeable future, subject to the success of our ongoing business strategies, the ongoing availability of credit and the success of the 52 -------------------------------------------------------------------------------- actions we have taken in response to the COVID-19 pandemic to mitigate the impact of the pandemic. We will continue our efforts to renew, extend or replace any credit and receivables purchase facilities that have expired or that will expire in the near term. We may, in the future, also obtain additional credit facilities and may issue corporate debt or equity securities. 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 our 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 our cash needs, including debt service obligations. To the extent we are unable to sell notes receivable or borrow under such facilities, our ability to satisfy our 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 dividends. InApril 2020 , Bluegreen's board of directors suspended regular quarterly cash dividends on its common stock due to the impact of the COVID-19 pandemic. While Bluegreen declared a special dividend duringJuly 2020 which is payable onAugust 21, 2020 to shareholders of record as of the close of trading onAugust 6, 2020 , no regular or any other special cash dividends are currently anticipated, and BVH used the proceeds of the special dividend to repay its outstanding$80.0 million debt owed to Bluegreen. 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 Bluegreen's control. Pursuant to a settlement agreement Bluegreen entered into with Bass Pro and its affiliates duringJune 2019 , Bluegreen paid Bass Pro$20.0 million and agreed to make five annual payments to Bass Pro of$4.0 million , which commenced inJanuary 2020 . Additionally, in lieu of the previous commission arrangement, Bluegreen agreed to pay Bass Pro a fixed annual fee of$70,000 for each Bass Pro andCabela's retail store that Bluegreen is accessing (excluding sales at retail stores which are designated to provide tours toBluegreen/Big Cedar Vacations , or "Bluegreen/Big Cedar feeder stores"), plus$32.00 per net vacation package sold (less cancellations or refunds within 45 days of sale). Bluegreen also agreed to contribute to theWonders of Wildlife Foundation $5.00 per net package sold (less certain cancellations and refunds within 45 days of sale), subject to an annual minimum of$700,000 . Subject to the terms and conditions of the settlement agreement, Bluegreen is generally required to pay the fixed annual fee with respect to at least 59 Bass Pro retail stores and a minimum number ofCabela's retail stores that increases over time to a total of at least 60Cabela's retail stores by the end of 2021. InJanuary 2020 , Bluegreen paid$5.2 million for this fixed fee, of which$1.3 million was prepaid and is included in the Company's condensed consolidated statement of financial condition as ofSeptember 30, 2020 . Bluegreen had marketing operations at 26Cabela's stores atSeptember 30, 2020 and is required to begin marketing operations in at least 14 more stores byDecember 31, 2020 . Notwithstanding the foregoing, the minimum number of Bass Pro andCabela's retail stores for purposes of the fixed annual fee may be reduced under certain circumstances set forth in the agreement, including as a result of a reduction of traffic in the stores in excess of 25% year-over-year. InMarch 2020 as a result of the COVID-19 pandemic, Bluegreen temporarily closed its retail marketing operations atBass Pro Shops andCabela's stores. Beginning inmid-May 2020 , Bluegreen started the process of recommencing its sales and marketing operations and bySeptember 30, 2020 , Bluegreen recommenced its marketing operations at 87Bass Pro Shops andCabela's stores and commenced marketing operations at 5 newCabela's stores. Additionally, inOctober 2020 , Bluegreen recommenced marketing operations in one additional Bass Pro Shop and commenced marketing operations at 4 newCabela's stores for a total of 97Bass Pro Shops andCabela's stores.
Off-balance-sheet Arrangements
As of
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Liquidity and Capital Resources
BVH and Subsidiaries, excluding Bluegreen
As ofSeptember 30, 2020 , the Company, excluding Bluegreen, had cash, cash equivalents, and short-term investments of approximately$22.3 million . BVH believes that its primary source of liquidity for the foreseeable future will be its available cash, cash equivalents, and short-term investments and that it has sufficient liquidity to fund anticipated working capital and debt service requirements. BVH's principal sources of liquidity have historically been its available cash and short-term investments, dividends received from Bluegreen, and from borrowings. However, as described below, the COVID-19 pandemic has impacted or otherwise resulted in uncertainty regarding many of these sources of liquidity. Bluegreen has announced that it has suspended its regular quarterly dividend, and notwithstanding Bluegreen's recent declaration of a special cash dividend in the third quarter of 2020, as described below, BVH does not expect to receive regular quarterly dividends from Bluegreen for the foreseeable future. For the nine months endedSeptember 30, 2020 and 2019, BBX Capital received regular dividends from Bluegreen of$8.7 million and$34.3 million , respectively. The resumption of dividends payments by Bluegreen, as well as the amount and timing of such dividends, will be based upon factors that Bluegreen's board of directors deems to be appropriate, including Bluegreen's operating results, financial condition, cash position, and operating and capital needs. Dividends from Bluegreen are also dependent on restrictions contained in Bluegreen's debt facilities. 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 dividend or distribution. Furthermore, certain of Bluegreen's credit facilities contain terms which could limit the payment of cash dividends without the lender's consent or waiver, and Bluegreen may only pay dividends subject to such restrictions as well as the declaration of dividends by its board of directors. As a consequence,BVH Capital may not resume receiving dividends from Bluegreen consistent with prior periods, in the time frames or amounts anticipated, or at all. OnJuly 22, 2020 , Bluegreen declared a special cash dividend of$1.19 per share on its common stock, or$86.3 million in the aggregate. The dividend was payableAugust 21, 2020 to shareholders of record as of the close of trading onAugust 6, 2020 . BVH used the proceeds of the special cash dividend of approximately$80.0 million to repay BVH's outstanding$80.0 million debt owed to Bluegreen. BVH previously had a$50.0 million revolving line of credit withIberiaBank . EffectiveSeptember 30, 2020 , the loan agreement was terminated at the request of BVH in connection with the completion of the spin-off of BBX Capital. In connection with the termination of the facility,IberiaBank released the security interest over all collateral granted to the lenders under the facility. No amounts were outstanding under the facility when it was terminated onSeptember 30, 2020 . BVH has also historically received funds from its subsidiaries, including Bluegreen, in connection with the parties' tax sharing agreement to the extent that a subsidiary utilized BVH's tax benefits in BVH's consolidated tax return. However, BVH did not receive tax sharing payments from its subsidiaries during the nine months endedSeptember 30, 2020 and does not expect to receive any significant payments for the remainder of 2020 primarily as a result of the impact of COVID-19 on the Company's operations. BBX Capital and its subsidiaries are no longer parties to the tax sharing agreement. BVH believes that its current financial condition will allow it to meet its anticipated near-term liquidity needs. 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 the sources discussed above would have a material adverse effect on the Company's business, results of operations, and financial condition. 54
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Anticipated and Potential Liquidity Requirements
BVH in the past declared regular quarterly dividends on its Class A and Class B Common Stock and declared cash dividends of$0.25 per share on its common stock, or$4.8 million in the aggregate, during the year endedDecember 31, 2019 . However, inApril 2020 , BVH suspended its regular quarterly dividend due to the impacts of the COVID-19 pandemic. Future declaration and payment of cash dividends with respect to the Company's common stock, if any, will be determined in light of the then-current financial condition of the Company, its operating and capital needs, its debt covenants, and other factors deemed relevant by the board of directors. InJune 2017 , BVH's board of directors approved a share repurchase program which authorizes the purchase of a total of up to 5,000,000 shares of the Company's Class A Common Stock and Class B Common Stock at an aggregate cost of no more than$35.0 million . This program authorizes management, at its discretion, to purchase shares from time to time subject to market conditions and other factors. As ofSeptember 30, 2020 , BVH had purchased 4,750,483 shares of its Class A Common Stock for approximately$25.4 million pursuant to theJune 2017 share repurchase program. In connection with the spin-off, 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 BVH is current on all accrued payments under the note, including deferred interest. All outstanding amounts under the note will become due and payable in five years or earlier upon certain other events. BVH through its wholly-owned subsidiary, Woodbridge, had$66.3 million in junior subordinated debentures outstanding as ofSeptember 30, 2020 . Woodbridge's junior subordinated debentures accrue interest at a rate of 3-month LIBOR plus a spread ranging from 3.80% to 3.85%, mature between 2035 and 2036, and require interest payments on a quarterly basis. BVH is a Bluegreen holding company with limited operations, and it is currently expected that it will incur approximately$700,000 in annual executive compensation expenses, approximately$1.5 -$2.0 million annually in other general and administrative expenses, including costs associated with being a public company, and annual interest expense of approximately$7.2 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 ofSeptember 30, 2020 . 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, cash equivalents, as well as dividends from Bluegreen, to fund its operations and satisfy its debt service requirements and other liabilities, including its note payable to BVH. As discussed above, the COVID-19 pandemic has resulted in Bluegreen suspending its regular quarterly dividend, and while BVH believes that it will have sufficient cash and cash equivalents to fund its operations for approximately two years following the spin-off, it will be dependent on the resumption of dividends from Bluegreen to fund its operations in future periods. There is no assurance that Bluegreen will resume the payment of dividends consistent with prior periods, in the time frames or amounts previously paid, or at all.
Bluegreen
Bluegreen believes that it has sufficient liquidity from the sources described
below to fund operations, including its anticipated working capital, capital
expenditure, debt service requirements and impacts associated with the COVID-19
pandemic challenges for the foreseeable future, subject to the success of its
ongoing mitigating measures to manage through current challenges caused by the
COVID-19 pandemic, as discussed in this report, including cost and capital
expenditure reductions 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
the sale of, or borrowings collateralized by, VOI notes receivable, (iv) cash
from finance operations, including mortgage servicing fees and principal and
interest payments received on the purchase money mortgage loans arising from
sales of VOIs, and (v) net cash generated from sales and marketing fee-based
services and other fee-based services, including resort management operations.
While the vacation ownership business has historically been capital intensive
and Bluegreen has pursued transactions or activities which require significant
capital investment and adversely impact cash flows, including VOI development or
acquisition, Bluegreen has also sought to focus on the generation of "free cash
flow" (defined as cash flow from
55
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operating activities, less capital expenditures) by: (i) incentivizing its sales
associates and creating programs with third-party credit card companies to
generate a higher percentage of sales in cash; (ii) maintaining sales volumes
that focus on efficient marketing channels; (iii) limiting its capital and
inventory expenditures; (iv) utilizing sales and marketing, mortgage servicing,
resort management services, title and construction expertise to pursue
fee-based-service business relationships that generally require less up-front
capital investment and have the potential to produce incremental cash flows; and
(v) more recently, by selling VOIs obtained through secondary market or JIT
arrangements. Bluegreen considers free cash flow to be a measure of cash
generated by operating activities that can be used for future investing and
financing activities, however, there is no assurance that Bluegreen will
generate free cash flow or that any cash flow generated will be used for such
purposes. While Bluegreen intends to remain flexible with its sales of different
categories of VOI inventory in the future, Bluegreen currently expects that its
mix of fee-based inventory will decrease over time.
Bluegreen had
The ability to sell and/or 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% to 20% 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 for the hypothecation, sale or transfer of Bluegreen's VOI notes receivable has been critical to Bluegreen's 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 its ability to sell receivables in the term securitization market in order to generate liquidity and create capacity in Bluegreen's receivable facilities. Bluegreen has historically financed a majority of its sales of VOIs, and accordingly, are subject to the risk of defaults by its customers. While it is still too early to know the full impact of COVID-19 on Bluegreen's default or delinquency rates, Bluegreen believes that the COVID-19 pandemic will have a significant impact on the performance of its VOI notes receivable. Accordingly, inMarch 2020 , Bluegreen recorded an allowance for loan losses of$12.0 million , which included its estimate of customer defaults as a result of the COVID-19 pandemic based on Bluegreen's historical experience, forbearance requests received from Bluegreen's customers, and other factors, including, but not limited to, the seasoning of the notes receivable and FICO scores of the customers. The impact of the COVID-19 pandemic is rapidly changing and highly uncertain. Accordingly, and due to other risks and uncertainties associated with assumptions and changing market conditions, Bluegreen's allowance may not prove to be accurate and may be increased in future periods, which would adversely impact Bluegreen's operating results for those periods. Further, the COVID-19 pandemic has resulted in instability and volatility in the financial markets. As described above, Bluegreen's ability to borrow against or sell its VOI notes receivable has historically been a critical factor in its liquidity. If Bluegreen is unable to renew credit facilities or obtain new credit facilities, its business, results of operations, liquidity, or financial condition may be materially, adversely impacted. In connection with its capital-light business activities, 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 Bluegreen intends to sell such VOIs, although there is no assurance that these third party developers will be in a position to deliver that inventory in the future. Bluegreen's capital-light business strategy also includes secondary market sales, pursuant to which Bluegreen enters into secondary market arrangements with certain HOAs and others 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. Acquisitions of JIT and secondary market inventory during the remainder of 2020 are expected to be between$1.0 million to$3.0 million . InOctober 2020 , Bluegreen completed the 2020-A Term Securitization, a private offering and sale of approximately$131.0 million of investment-grade, VOI receivable backed notes (the "Notes"), including approximately$48.6 million of Class A Notes, approximately$47.9 million of ClassB Notes and approximately$34.5 million of ClassC Notes with interest rates of 1.55%, 2.49%, and 4.22%, respectively, which blends to an overall interest rate of approximately 2.60%. The gross advance rate for this transaction was 88.0%. The Notes mature inFebruary 2036 .KeyBanc Capital Markets Inc. ("KeyCM") andBarclays Capital Inc. acted as co-lead managers and were the initial purchasers of the Notes. KeyCM also acted as structuring agent for the transaction. Subject to performance of the collateral, Bluegreen will receive any excess cash flows generated by the receivables transferred under the 2020-A Term Securitization (excess meaning after payments of customary fees, interest, and principal under the 2020-A Term Securitization) on a pro-rata basis as borrowers make payments on their VOI loans. 56 -------------------------------------------------------------------------------- While ownership of the VOI receivables included in the 2020-A 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's level of debt and debt service requirements have several important effects on Bluegreen's operations, including the following: (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 Bluegreen's 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 operate on a less leveraged basis and have greater operating and financial flexibility than Bluegreen does.
Credit Facilities for Bluegreen 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 ofSeptember 30, 2020 , Bluegreen had the following credit facilities with future availability, all of which are subject to revolving availability terms during the advance period and therefore provide for additional availability as the facility is paid down, subject in each case to compliance with covenants, eligible collateral and applicable terms and conditions during the advance period (dollars in thousands): Advance Period Borrowing Borrowing Outstanding Availability ?Expiration; Rate; ?Limit as of ?Balance as of ?as of ?Borrowing ?Rate as of ?September 30, ?September 30, ? September 30, ?Maturity as of ?September ?2020 ?2020 ?2020 ?September 30, 2020 30, 2020 Prime Rate - 0.10%; floor Liberty Bank June 2021; of 3.40%; Facility (4) $ 40,000$ 19,715 $ 20,285 ?June 2024 3.40% 30 day LIBOR+2.25% to 2.75%; floor of 3.00% to NBA Receivables September 2023; 3.50%; 3.35% Facility 70,000 33,389 36,611 ?March 2028 (1) 30 day LIBOR+2.75% Pacific Western September 2021; to 3.00%; Facility (4) 40,000 24,313 15,687 ?September 2024 3.03% KeyBank/DZ 30 day LIBOR Purchase December 2022; or CP +2.25%; Facility (4) 80,000 60,981 19,019 ?December 2024 2.50% (2) Quorum Purchase December 2020; Facility 50,000 34,240 15,760 ?December 2032 (3)$ 280,000 $ 172,638 $ 107,362 (1)As described in further detail below, borrowings prior toSeptember 25, 2020 accrue interest at a rate equal to one month LIBOR plus 2.75% (with an interest rate floor of 3.50%), provided that the rate shall decrease to one-month LIBOR plus 2.25% (with an interest rate floor of 3.00%) on the then remaining balance of borrowing prior toSeptember 25,2020 if new advances subsequent toSeptember 25,2020 are at least$25.0 million byJune 30, 2021 . Borrowings afterSeptember 25, 2020 accrue interest at one-month LIBOR plus 2.25% (with an interest rate floor of 3.00%). (2)Borrowings accrue interest at a rate equal to either LIBOR, a "Cost of Funds" rate or commercial paper ("CP") rates plus 2.25%. As described in further detail below, the interest rate will increase to the applicable rate plus 3.25% upon the expiration of the advance period. (3)Of the amounts outstanding under the Quorum Purchase Facility atSeptember 30, 2020 ,$2.4 million accrues interest at a rate per annum of 4.75%,$16.4 million accrues interest at a fixed rate of 4.95%,$1.3 million accrues interest at a fixed rate of 5.00%,$13.2 million accrues interest at a fixed rate of 5.10%, and$0.8 million accrues interest at a fixed rate of 5.50%.
(4)Balance and availability indicated above is prior to giving effect to October repayments in connection with the 2020 Term Securitization.
See Note 5 under Item 1 included in this report and Note 13 to the Company's consolidated financial statements included in the 2019 Annual Report for additional information with respect to Bluegreen's receivable-backed notes payable facilities.
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Other Credit Facilities and Outstanding Notes Payable
Fifth Third Syndicated Line-of-Credit and Fifth Third Syndicated Term Loan. InDecember 2016 , Bluegreen entered into a$100.0 million syndicated credit facility withFifth Third Bank , as administrative agent and lead arranger, and certain other bank participants as lenders. InOctober 2019 , Bluegreen amended the facility and increased the facility to$225.0 million . The amended facility includes a$100.0 million term loan (the "Fifth Third Syndicated Term Loan") with quarterly amortization requirements and a$125.0 million revolving line of credit (the "Fifth Third Syndicated Line-of-Credit"). Borrowings under the amended facility generally bear interest at LIBOR plus 2.00% - 2.50%, depending on Bluegreen's leverage ratio, are collateralized by certain of Bluegreen's VOI inventory, sales center buildings, management fees, short-term receivables and cash flows from residual interests relating to certain term securitizations, and will mature inOctober 2024 . OnJune 29, 2020 , the facility was amended to modify certain customary covenants. As ofSeptember 30, 2020 , outstanding borrowings under the facility totaled$145.0 million , including$95.0 million under the Fifth Third Syndicated Term Loan with an interest rate of 2.56%, and$50.0 million under the Fifth Third Syndicated Line of Credit with an interest rate of 2.39%.
Bluegreen also has outstanding obligations under various credit facilities and securitizations that have no remaining future availability as the advance periods have expired.
See Note 5 under Item 1 included in this report and Note 13 to the Company's consolidated financial statements included in the 2019 Annual Report for additional information with respect to Bluegreen's other credit facilities and outstanding notes payable.
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