Aulani Problems Lead to Firings

[Sammie]

Quote:

Disney halts sales and fires executives amid financial issues with Hawaiian resort

By Jason Garcia, Orlando Sentinel
8:38 p.m. EDT, August 15, 2011

Financial issues with a new Walt Disney Co. resort scheduled to open this month in Hawaii prompted the company to suspend all time-share sales for the project and force out three executives, including the president of its Celebration-based time-share business, according to several people familiar with the events.

Disney on Friday fired Jim Lewis, president of Disney Vacation Club, the company's time-share division. The company also dismissed Jim Heaney, senior vice president and chief financial officer of Disney Cruise Line and travel operations, and Lawrence Smith, a former director of finance for Disney Vacation Club who was most recently with food-and-beverage operations for Walt Disney World.

The dismissals followed an internal investigation into problems surrounding Aulani, an estimated $850 million hotel and time share scheduled to open Aug. 29 on the Hawaiian island of Oahu. Plans call for the resort to have 460 Disney Vacation Club time shares and 359 conventional hotel rooms.

Disney said Monday evening it had appointed Claire Bilby, a 23-year company veteran who had most recently been senior vice president of distribution marketing and Asia Pacific sales, to run its time-share business. Bilby's title will be senior vice president of Disney Vacation Club.

According to the people familiar with details of the investigation, it focused on the annual dues that Disney Vacation Club plans to charge buyers of Aulani time shares. Those yearly fees are used to cover ongoing expenses such as the resort's maintenance and repairs.

Those people said Disney concluded that Vacation Club executives had calculated dues amounts so low that they would not generate enough money to cover the cost of maintaining Aulani. The inadequate dues amounts were included in legal-disclosure documents submitted to the Hawaiian government.

Disney said Aulani's operating costs were underestimated, leading to the inadequate annual dues. It said the mistake was unintentional.

The low fees prompted concerns within the company that Aulani would eventually face a significant operating shortfall, the people familiar with the investigation said. The company also feared the possibility of a brand-damaging backlash from Hawaiian regulators or consumers should Disney attempt to significantly raise Aulani's annual dues in future years to plug any deficit.

All of the people familiar with the events spoke only on the condition that they not be identified because of the sensitivity of the issue.

Disney suspended Aulani sales on July 9, a little more than one year after it started selling the project to consumers. The company says it is accepting "deposit reservations" in the interim from buyers who wish to lock in current Aulani prices, though there is no penalty for consumers who cancel such reservations.

Rena Langley, a spokeswoman for Disney, said the company is now in the process of changing the registration materials submitted to the Hawaiian government and that it expects to file the updated documents this week. She said the changes involve "adjustments to our annual dues forecast for Aulani."

Disney's initial sales materials stated that the 2011 annual dues for Aulani would be $4.31 for every "point" purchased, or $689.60 a year based on 160 points, which Disney says is the minimum amount for new Vacation Club members. (Disney Vacation Club sells points, rather than specific time periods, which allows buyers to redeem them at various times and destinations.)

Langley said buyers who have already purchased points in Aulani will be exempted from any future increases to annual dues. She declined to say how many people have bought into Aulani so far.

All time-share developers face pressure to keep maintenance fees as low as possible in order to drive sales. While such fees may seem a trifling issue when compared with the upfront sticker price of a time share — which can cost $50,000 or more — they can nonetheless be a significant deterrent for buyers.

A 2009 survey for the American Resort Development Association, the time-share industry trade group, found that one in four recent time-share buyers cited annual maintenance fees as a top reason they had been hesitant about purchasing a time share.

Tammie Kaufman, a professor in the University of Central Florida's Rosen College of Hospitality Management, said many buyers are wary because dues are a recurring expense that can increase from year to year.

"It's because of the unknown. People have heard horror stories" about dues, Kaufman said.

Aulani's performance is being closely watched by Disney investors. The project is the first test of the company's strategy to build standalone hotels and niche parks in secondary markets away from its massive theme-park resorts in Orlando and Anaheim, Calif., as Disney's parks division searches for new sources of growth in North America.

None of the three executives fired Friday received a severance package, according to a person who spoke with one of the men.

The dismissal marks a shocking fall for Jim Lewis, once considered a rising star within Disney's executive ranks and a leading candidate to become president of Walt Disney World, the company's biggest and most profitable theme-park operation.

Lewis joined Disney in 1996 from PepsiCo as a director of planning and finance for Disney's sales unit. He was tapped to oversee Disney Vacation Club in 2003, and under his watch the unit became the fastest-growing business within Disney's global theme-park division. At its peak before the global recession, Disney Vacation Club generated an estimated $190 million a year in operating income.

Lewis did not return phone messages Monday.

Disney's decision to force Heaney out in addition to Lewis stunned several company followers. The finance executive was highly regarded both inside and outside of Disney; he had earned the nickname "The Brain" from some fellow executives.

"I am very proud of my accomplishments and how I conducted business during my 16-plus years with Disney," Heaney said. "Given this track record, I am bewildered by the company's decision."

Smith could not be reached for comment.

The Aulani paralysis has frustrated some Disney customers. William Montgomery, a 37-year-old business owner from Dallas, said he called Disney on July 27 planning to buy into Aulani — only to be told by the sales agent that he couldn't.

"And so I said, 'What's the deal?' He got real cryptic, real fast. … All he would say is there was something wrong in the documentation and that the Disney lawyers had stopped everything," said Montgomery, who also owns an interest in a Disney time share in Orlando. "It's the damnedest thing. I mean, Disney won't take your mone

Lucky for those that has already bought Aulani that their dues will not be increased.

 

[Breyean]

Quote:

Disney halts sales and fires executives amid financial issues with Hawaiian resort

By Jason Garcia, Orlando Sentinel
8:38 p.m. EDT, August 15, 2011



Lucky for those that has already bought Aulani that their dues will not be increased.

Oh, they'll go up, but maybe from the lower base. What's the max annual increase - 15%? Whatever it is it sounds like they will need to increase it as much as possible.

 

[mickeylr]

That increase limit is for already sold units. They stopped sales so that they could rewrite the papers with a new starting dues amount. That new number can be any amount they want/need for the unsold units.

 

[Sammie]

Oh, they'll go up, but maybe from the lower base. What's the max annual increase - 15%? Whatever it is it sounds like they will need to increase it as much as possible.

Langley said buyers who have already purchased points in Aulani will be exempted from any future increases to annual dues. She declined to say how many people have bought into Aulani so far.

Wonder how long they will be exempt?

 

[mickeylr]

Doesn't one of the other resorts already have a two tier dues system? The dues for people that have already bought will go up, but if I understand this correctly they will always be a set amount lower than later buyers, where that set amount is the difference between the dues cost announced later this week or next and the $4.31 in the initial sales.

 

[nytimez]

The story was updated and the "exempt" line was removed. It now says:

Langley said buyers who have already purchased points in Aulani will get a credit toward their annual dues equal to the difference between the original quoted amount and whatever higher price Disney sets now. She declined to say how many people have bought into Aulani so far.

 

[Sammie]

The story was updated and the "exempt" line was removed. It now says:

Langley said buyers who have already purchased points in Aulani will get a credit toward their annual dues equal to the difference between the original quoted amount and whatever higher price Disney sets now. She declined to say how many people have bought into Aulani so far.

Interesting, it would almost have to. Thanks for the update.

 

[DenLo]

It sounds to me like they'll be like Vero Beach which has a two tiered MF system. The original buyers and the later set of owners that purchased after DVD changed VB to a smaller resort. For Aulani it will be the current owners and future owners.

I expect DVD will amend the statement about current owners never having any increases. I would think current owners, will just be charged the standard annual dues increases (up to 15%) based on the actual expense increases each year versus the whooper increase new owners will have to make up for the deficient. The current owners will always have a much lower MF.

 

[bwvBound]

Hmmm ... perhaps DVC will now maintain two resorts with subsidized rates (VB and Aulani).

 

[hakepb]

Holy cow, Aulani dues are low?

1 week in a Magic season Pool View is 350 points * 4.81 (low) dues is more than $1600 in dues for the one week per year + initial purchase

If an OKW 1BR cost that total per week (1600 in dues) OKW dues would be 7.58/point based on 222 points per week. So doesn't that mean dues were wrongly projected to be "only" 50% higher than OKW? What are they supposed to be? Double? Triple?

 

[CWO4DVC]

If dues were set low enough to cause the firing of 3 execs, I am thinking they will now be significantly more than the current rate. I have a feeling current owners will be getting a 15% increase annually until they are caught up I am sure DVC does not want to have a PR nightmare with existing owners at this resort. Bottom line, the resort is half DVC and half regular rooms....Maybe an increase in room rates will cover current DVC owners.

 

[fdwang]

Hmmm ... perhaps DVC will now maintain two resorts with subsidized rates (VB and Aulani).

Doubt it, looks like just a one time 1 year fix of fees, after that, SLAMED on the higher amount.

 

[Sammie]

Dues at Aulani would naturally be high, just as Vero and HHI are. Higher taxes and higher insurance for one thing.

 

[nytimez]

If dues were set low enough to cause the firing of 3 execs, I am thinking they will now be significantly more than the current rate. I have a feeling current owners will be getting a 15% increase annually until they are caught up I am sure DVC does not want to have a PR nightmare with existing owners at this resort. Bottom line, the resort is half DVC and half regular rooms....Maybe an increase in room rates will cover current DVC owners.

You can't just up the room rates... I'm sure they're already at a premium. You go too high, and people simply won't stay there.

 

[CWO4DVC]

Agree, but you also cannot make maintenance fees to high or you will hurt sales. tough fix.

 

[hakepb]

Is Disney already too high? One site was showing annual dues for the Mariott next door as $1470 per week for a 3 BR. Why will Disney cost so much more?

 

[wdrl]

I have a feeling current owners will be getting a 15% increase annually until they are caught up I am sure DVC does not want to have a PR nightmare with existing owners at this resort. Bottom line, the resort is half DVC and half regular rooms....Maybe an increase in room rates will cover current DVC owners.

I doubt the State of Hawaii, or any timeshare regulatory agency, would permit a timeshare developer to underestimate the yearly maintenance fees during the sales phase and then raise the fees in subsequent years to correct the shortage.

Also, raising the rates for the hotel portion of Aulani would not help the DVC portion of Aulani. Disney cannot use revenues from the hotel portion of Aulani to support or subsidize the Vacation Club operations.

 

[disneynutz]

I posted this on the Lewis thread but it fits here too.

I have often questioned the low dues at BLT and now you have to ask did Lewis do the same thing to BLT and will the owners be faced with a dues increase. The other executives fired seemed to have moved on to other jobs, when did they work with Lewis, prior to BLT being built?

Bill

 

[Mickey'sApprentice]

It sounds to me like they'll be like Vero Beach which has a two tiered MF system. The original buyers and the later set of owners that purchased after DVD changed VB to a smaller resort. For Aulani it will be the current owners and future owners.

I expect DVD will amend the statement about current owners never having any increases. I would think current owners, will just be charged the standard annual dues increases (up to 15%) based on the actual expense increases each year versus the whooper increase new owners will have to make up for the deficient. The current owners will always have a much lower MF.

I smell lawsuits!

Legally, I think the only thing they could away with would be for the dues of the lucky few to always be a certain percentage of whatever that new figure is going to be from this year forward.

It would work like this...if current owners were told $4.31 and the new adjusted amount is $8.62 (double)...then the current owners would always pay 50% of whatever the future owners dues are each year. I also think original owners should be given the option of getting all of their money back and calling it a day.

I can't think of any other way that would be fair.

 

[fdwang]

Someone on another forum posted this.



I just got some info from the Sentinel journalist who wrote the article, and he said he updated the article and I could share this info:

They misstated things earlier. What they will get is a credit equal to the difference between the original 2011 amount and the new 2011 amount that will be set in the near future. That credit will carry forward to future years

Interesting info, if True, than that means two tiers for Aulani.