If one merger worked well, why not another? In an exclusive Helium Report interview, Quintess announced a long-term partnership with Leading Hotels of the World and the firm’s second acquisition this year.

In August, the luxury destination club merged with competitor Dream Catcher Retreats to form a 240-member destination club with 37 private homes [See stories here and here]. Now, Quintess has acquired Leading Residences of the World and expanded its club to nearly 300 members and a portfolio of 49 residences.

The club drops its awkward “Catch the Dream” tagline and changes its name to an even lengthier moniker: “Quintess, The Leading Residences of the World.”

Combining a Luxury Club with a Luxury Hotel Brand

Ben Addoms, Quintess Co-founder and Managing Member, spoke with Helium Report analyst Jamie Cheng by phone yesterday. Paul McManus, CEO of Leading Hotels of the World, was unable to make the call but is scheduled for an interview with Helium Report later this week.

Addoms (photo, below) focused on the partnership between Quintess and Leading Hotels of the World and expressed enthusiasm about the deal’s impact on his club’s future growth potential. According to Addoms, the arrangement with Leading Hotels gives Quintess “the marketing and brand muscle, if you will, of an organization that has been around 80 years with hundreds of thousands of satisfied customers.”

Leading Hotels of the World represents more than 440 luxury hotels, resorts, and spas in 24 international markets. Quintess members now have the option to join the Leaders Club program and receive benefits such as automatic upgrades when staying at Leading Hotels properties.

The partnership also gives Quintess exclusive rights to develop residential properties at Leading Hotels locations. Addoms explained the access helps Quintess avoid challenges faced by other destinations clubs such as zoning issues, home owners’ association rules, and resistance from developers. He cited Gleneagles, Scotland as an example of a resort destination currently available only to Quintess members. Addoms noted that more than half of Leading Hotels’ properties have real estate assets where Quintess could develop private residences.

“The brand recognition of Leading Hotels of the World and Leading Residences of the World is enormous,” said Addoms. “The partnership will help catapult Quintess’ growth in both the broader market and our specific target audience.”

Most of the Members, Most of the Homes

In late 2005, Leading Hotels of the World partnered with Cendant to launch a destination club called Leading Residences of the World. The well-capitalized club came to market with a portfolio of 25 residences and quickly sold out its charter memberships. Growth appeared to stall in the fall as the website no longer promoted the club but rather was accessible only to current members.

Quintess acquires most of Leading Residences of the World’s homes in this deal and increases the club’s density in locations such as Telluride, CO and Kiawah Island, SC. Quintess also adds homes in Santa Fe, NM and Steamboat Springs, CO. The club opted not to purchase residences in Hana, Maui, but did assume some leases on hotel properties.

Membership deposits between the two clubs were fairly comparable: Quintess at $345,000 and Leading Residences at $325,000. Leading Residences offered one type of membership that was effectively a 30-day program. Members were offered a Quintess Premium membership with holiday reservations and paid no additional deposit. Annual dues increase to $21,000 after the acquisition is finalized.

“Over 95% of the [Leading Residences of the World] members elected to join,” says Addoms. Members were given a choice to resign and await their deposit return under the terms of their original contract or transition to Quintess. Several members upgraded into new plans, he noted.

Addoms explained Quintess was in merger discussions with both Dream Catcher Retreats and Leading Residences of the World at the same time this summer. Quintess saw an opportunity to consolidate their club with two of its primary competitors and move quickly towards critical mass. By the end of this year, the destination club expects to have over 300 members. Addoms states the milestone is important because Quintess becomes “sustainably cash flow positive…between 300 and 350 members.” The club has a member cap of 800 full member equivalents (1,000 total members).

Quintess is in the final stages of announcing a trust structure where membership deposits effectively become a “silent second mortgage” according to Addoms. The program is designed to ensure members do not become unsecured creditors in a worst-case scenario.

Helium Report Perspective

Quintess’ partnership and acquisition is the latest in a flurry of industry mergers. Consolidation and consumer assurance are the two catch-phrases that sum up the year for destination clubs. Quintess has managed both issues with dexterity.

The luxury destination club acquired two competitors, more than tripled its membership base, and led the industry in disclosure and transparency. While predecessor Dream Catcher Retreats gave prospects an open invitation to examine the firm’s financials, Quintess continues to assure prospects by engaging an independent auditing firm to produce quarterly financial summaries. Addoms asserts the reports “accurately portray the assets and liabilities to assure [Quintess members] the membership deposit is safe.”

Addoms characterizes Quintess as a “well-established, well-financed, well-run” destination club. While it’s not the only club that fits these three descriptions, there are at least five fewer choices for consumers at the end of this year than at the start of 2006. Quintess has made some deft maneuvers to position itself as a leading contender for the new year. The brand equity of Leading Hotels of the World was not enough to sustain a stand-alone destination club, but a successful partnership and integration with Quintess may catalyze other luxury hospitality brands to enter the destination club market.