INDEPENDENT THIRD-PARTY REPORT ATTRIBUTES PELICAN DOWNFALL TO TAPRC MISMANAGEMENT, ECONOMIC CONDITIONS.

Simpson Bay:--- An independent third-party report conducted by the unbiased St. Maarten Timeshare Association (SMTA) in the aftermath of the foreclosure of Pelican Resort Club cites the Board of the Tenants Association Pelican Resort Club's (TAPRC) mismanagement as a major factor along with adverse economic conditions.  The independent analysis states: "there is nothing to show that Royal Resorts acted in anything other than good faith."

The analysis confirms that "the resort was owned from 1996-January 2011 by the Pelican Resort Club, the Owner Company N.V. and managed by the Pelican Resort Club, the Management Company N.V., both of which were wholly owned by the TAPRC, comprised of all timeshare owners who were then in good standing."

The SMTA report goes on to reiterate that the: "TAPRC was more than just an influence. It was the actual shareholder and through instructions to Royal Resorts which are substantiated by extensive documentation, Pelican Resort Club groups under its direct ownership made independent and unilateral decisions regarding, budgets, payment and non-payment of loans, and assessing of maintenance fees."

The report traces the history of Pelican Resort Club back to its first bankruptcy in 1996 when the TAPRC's "acquisition of the property was mostly financed by the bankruptcy trustee of the Vlietman phase, with the resort being valued at $8,500,000 based upon unsold timeshare intervals and a starting debt to the trustee of $6,500,000 to be paid over 18 months.  The trustee later accepted an extension of the time to pay off the purchase as the TAPRC did not have the funds.

"From November of 1996 through July of 1997 the resort had major problems as a succession of General Managers produced nothing but failed attempts.  On July 31, 1997, the TAPRC hired the Royal Resorts Group, one of the world’s leading developers and management companies with a stellar reputation as a co-managing director of the management company and to provide management services to straighten out what was a fiscal and operational mess.  During that time estimated losses were 1.5 million dollars," the report noted.

The report details how "over the next several years there were continuing shortfalls in operating money including sorely needed repairs and replacements. Due to the shortage of funds, Royal Resorts was not paid its fee and the trustee was only partly paid."

SMTA explains that "Royal Resorts' advice on maintenance fees were not followed by the TAPRC Board," and how the Board "did not make efforts to collect outstanding fees that would normally be done resulting in large write-offs of outstanding maintenance fees and assessments."

The analysis points to a positive chapter in the Pelican Resort Club's history when "4,004 unsold inventory were sold by the owning company to Friendly Island Properties (FIP) in 2000 and 2001, an affiliate of Royal Resorts, and over the next two years all these intervals were sold or transferred to individuals – almost exclusively to Royal Resorts’ membership base in Cancun, Mexico.  This resulted in the first year of no operational losses in 2001 and again in 2002."

Unfortunately, as detailed in the SMTA report, "the resort’s timeshare owners were still reluctant to increase maintenance fees to a sufficient point to bring the resort up to proper standards out of fear that each raise in fees would result in people abandoning their timeshares.  Ironically, it can also be argued that keeping the fees too low also resulted in deterioration of the product that resulted in people abandoning their timeshares.

"By the end of 2004, the TAPRC group finally paid off the original bankruptcy trustee for the purchase of the property – again through borrowing.  The system deciding who to owe money to, continued to be a drag on operations, but interestingly Royal Resorts group consistently forgave all or most of any interest owed on accumulated debts to it over the years," said the report.

"Consistent operational losses [continued] to weaken the capital of the property resulting in a complex web of planned and budgeted borrowing via the PCIP and deferred payments to various parties."

The study explains how profits from the Pelican Marina Residences project were intended to be used to retire all debts and for much needed renovations.  "This plan, conceived by the TAPRC Board and Royal Resorts group in 1999 should have worked, but events over the next eight years would conspire to doom these efforts.  The future events to unfold were complex and few of them could have been foreseen," according to SMTA.

The report provides background into the investment climate in the Caribbean during the time the Pelican Marina Residences project was conceived.  "Timeshare construction loans and the required receivable financing loans were not easy to obtain in the Caribbean. None of the local banks had an interest in this and there were very few banks and lending institutions that would even consider a Caribbean project and all of these were requiring personal financial commitments of the developers; despite its internal discussion, something not available to TAPRC and affiliates.  Royal Resorts was able to arrange these loans through personal connections with Quantum Investment Trust (QIT) without the personal guarantees but with full collateralization of the immovable assets of the resort, not just the new project.

The analysis clarifies that Royal Resorts' "personal connections were fully disclosed" and that, "as part of a standard clause in these types of loans, a contract with an experienced and successful sales and marketing company was required"

The report shows that "since its inception in 1996, the TAPRC was way undercapitalized for the project and efforts to improve this were hampered by a lack of strong commitment until the plan to develop their way out of their problem [via the Pelican Marina Residences] emerged.  This involved some risk taking as any developer must do, whether it is an individual, a group or in this case 12,000 timeshare owners.  With no capital cushion, the risk in this case resulted in a loss to the developer.  This is a normal occurrence in business, which cannot be regulated by law.

"The current board of the TAPRC is attempting to show that this was some sinister plot on the part of Royal Resorts and QIT to 'steal' their property," however, the analysis shows that, "had TAPRC properly funded itself from the beginning, there would have been no need to assume additional risk. The debt service it had from the beginning, as even countries such as our own Netherlands Antilles discovered, was resulting in financial failure."

The SMTA confirms that "beyond unsubstantiated allegations, there is nothing to show that Royal Resorts acted in anything other than good faith in attempting to shepherd the timeshare owners through their trials. The number of supportive deals and forgiving of debt and timely payment on the part of Royal Resorts is well substantiated."

The report notes that "sales [for the Pelican Marina Residences] began in 2006 pre-construction and through 2008 performed reasonably well," but goes on to explain that "serious questions on the part of the outside financial auditing company, Ernst and Young, were raised in 2008 on the sustainability of the operation as balances on equity and income were all in negative territory.

The study also notes that the Pelican Marina Residences project "faced serious headwinds due to various groups of Pelican timeshare owners that were for a long time publicly engaged in bashing Royal Resorts."

SMTA explains that these owners "improperly sought access to all TAPRC timeshare owner contacts, blaming all financial problems on Royal Resorts," concluding that "without this headwind, the superior quality of the Pelican Marina Residences project could have produced far better results."

In its findings, SMTA recognized the impact of the economy on timeshare sales, which along with the destructive influence of current TAPRC Board Chairman Jeffery Borowick and his followers, played a significant role in diminishing sales for the Residences.

"In 2009, at Pelican as well as throughout St. Maarten and the rest of the western world, timeshare industry sales literally fell through the floor as the 'Great Recession' took deep roots in discretionary spending of the upper-middle and middle classes.  The resort and QIT renegotiated the terms of the financing at this time in an effort to forestall foreclosure on default.  Interest rates were reduced and the loans were fully restored to good standing.

"In summary of this period, one can look at what was considered a reasonable plan to resolve financial issues that began in 1996, whereby initial undercapitalization and a non-stop cycle of debt and consequent interest payments constantly threatened the resort as a going concern.  Initial shortfalls in funding at the time of the 1996 takeover by TAPRC and failure to raise needed capital early on through maintenance fees or special assessments resulted in debt service that prevented the TAPRC from having a sustainable business plan," according to the independent analysis.

Contrary to the claims of the current TAPRC Board, which argued that Royal Resorts' commission fees on sales for Pelican Marina Residences was excessive, the third-party SMTA report explains that "even the most successful properties were experiencing combined costs of sales and marketing in excess of 50% and in some cases as high as 65%, all well over the 45% commission rate" and further suggests that, had Royal Resorts and TAPRC "negotiated a raise in sales commissions it might have proved possible to make the project viable."

It also noted that "persons who are now TAPRC Board members have long stated that Royal Resorts' 10% management fee has been way too high and is the cause of the resort’s financial difficulties," but disputes this premise as "research has shown that the average management fee for the timeshare industry is between 8-12% placing Royal Resorts' fee completely in line with standard business practice."

SMTA explains that the "situation changed as the TAPRC board in place from the beginning of [2010] increasingly displayed well-documented hostility towards both the lender and the Royal Resorts group, and had initiated overt actions to have the Royal Resorts group removed from its managing and sales roles.  TAPRC further fanned the flames in June of 2010 when it decided to stop paying the loan servicing and demanded another renegotiation of the loan terms.  This might have worked in other situations, but faced with what was now seen as a hostile resort owner (borrower) deeply in debt and arrears that was further threatening the stability of the entire project by attempting to remove Royal Resorts with no clear plan or prior management and sales credibility, QIT acted within its legal rights in defense of its outstanding loans of over $20,000,000 and subsequently foreclosed on the entire property.

Citing additional evidence of the 2010 Board's mismanagement, the report points to "the decision by the TAPRC to not allow any maintenance fee increases for 2010 and 2011.  This was done despite Royal Resorts’ recommendation for increases of 3% per year, in line or below what other St. Maarten timeshare properties were finding necessary due to rising resort operations costs, which were in excess of general inflation rates.  In 2010 this action led to the closing of units, the reduction in work-week from 5 days to 4 for union and non-union employees, and reduction in needed repairs and replacements."

The report summarizes "TAPRC’s vision was to delay payments to government, vendors and the lender even further for 2011; a short-term solution with no exit strategy."

The analysis emphasized that, "as a result of [the TAPRC Board's] consistent refusal to increase maintenance fees and aggressive actions against their lender QIT, the foreclosure took place, and undermining via a strong internet campaign among owners the credibility of the project all helped to reduce sales of the Pelican Marina Residences in addition to influence of the recession."

It also detailed how the "auction was unsuccessfully challenged in court prior to the auction date by TAPRC" and that "the judge then ruled that TAPRC could then in no way supply reasonable proof that it would be in a position to cure its default within any reasonable time.  The financial history and all the correspondence were evaluated by the court at that time as a basis for the decision. This independent analysis of the documentation confirms this opinion."

Reflecting on the current state of affairs at the Simpson Bay Resort & Marina, the SMTA acknowledges "a significant shortfall in the maintenance revenue collected and available for operation of the resort in 2011" and explains that this is a direct result of "financial decisions made by the previous owner."

The analysis also points out that "pending court cases initiated by the TAPRC can have major consequences," explaining that the "TAPRC is trying to have the auction annulled, which if successful could result in another closure due to lack of funds to operate by the TAPRC.

"Another potential area of problem is that TAPRC was the owner of the resort furnishings, these not being part of the loan collateral, and recently transferred the ownership of the furnishings to a foundation.  TAPRC has demanded the sum of $5,000,000 for the furnishings from Simpson Bay Resort & Marina, [which] has responded with an offer to forgive the monies used by TAPRC group for 2010 expenses taken from the 2011 maintenance fees collected starting in October of 2010.  As the resort was operating in arrears this amount is quite substantial, so the Simpson Bay Resort offer seems to be quite fair.

The report comes to the same conclusion as Royal Resorts and other concerned parties, suggesting "it seems likely at this time that TAPRC will maintain a series of court cases for as long as they can afford to pay legal fees."

Simpson Bay Resort & Marina hopes that this unbiased, independent report will shed some light on the history of the resort's difficulties and the TAPRC's significant contribution to the decline and foreclosure of Pelican Resort Club.

It feels that most TAPRC members are level-minded individuals who simply wish to enjoy the resort and hopes this third-party analysis will motivate them to become more involved in TAPRC elections in order to prevent further damages to their timeshare investments.  It would like to remind members that the reckless actions of Borowick and the rogue group currently in control of the TAPRC were made possible by the widespread voter apathy which allowed them into power in the first place, despite overwhelming evidence of their shortsightedness and destructive influence.