POST ROAD CAPITAL MANAGEMENT

At a recent Boston investment conference, a student presented a misleading and

fallacious short presentation regarding Diamond Resorts International (DRII).
Surprisingly, this presentation won the contest and has been, circulated in the
investment community. Though it is not our intention to harm (reputation, career or
otherwise) a student with no professional analytic experience, it is our desire to set the
record straight and protect a high quality company, its founders, employees, customers
and investors.
We are shareholders and are sensitive to a companys brand in the investment world;
thus, we have chosen to publish a refutation (something we have not previously done)
of this report to put these questions to rest. We will be following up with additional
reports on the key aspects of the business. The Timeshare Industry is going through
profoundly positive changes and Diamond is at the forefront.
Unfortunately, this short report is inaccurate on virtually every point and conclusion. In
fact, we cannot find a single page that does not contain cheap shots (to influence
bias), irrelevant comments and factual inaccuracies and / or analytical fallacies. Our
line-by-line to this report is posted at www.postroadcap.com/drii.
Diamond Resorts is a well-run company originally financed by Soros Fund Management.
Currently, Guggenheim Partners is a major investor and retains two board seats. The
business is thriving and a recent securitization (November 2014) was issued with an
investment grade rating and a 2.58% average interest rate, thus proving the quality of
the customers and loan portfolio performance.

Of most relevance are the following mistaken comments:

The enterprise value is wrong; securitizations are non-recourse; cash on the balance
sheet is ignored, net income is also wrong
DRII is not some sort of scam; in fact, they pioneered the asset-light model which
results in the highest forms of FCF and returns while minimizing risk
Online agencies like Expedia are big partners, not adversaries
The report mistakes intentional churn of low quality acquired (in M&A) members for
a long-term pattern of decline. Memberships are not in decline
Loans in Default: The report CONFUSES servicing of a portfolio of loans with
securitized assets held in a portfolio. The student says that $243MM are in default.
Rather, $210MM (of the $243MM) are merely being serviced and were PURCHASED
out of bankruptcy in 2011. This $210MM is a company ASSET, a supply of inventory.
Further, DIAMOND IS INFACT OVER RESERVED. We expect management to provide
more clarity in their upcoming 10-K
Cash flow is significant, growing and sustainable NOT declining, NOT one-time

For ease of reading, we have underlined the factual and analytical errors. We remain
open to questions and comments. Once again, we are not in the business of publishing
reports, nor do we take any pleasure in showing the flaws in a students analysis.
Nonetheless, we do know what can happen when a companys reputation is harmed:
investors just look the other way and say pass. That would be a mistake in the case of
Diamond Resorts.

About Post Road Capital Management, LLC:

PRCM is an investment fund that utilizes a concentrated, long-term, tax efficient strategy focused on achieving outsized absolute returns. The firm was founded by David Eigen who has
over 20 years of investment experience including co-portfolio manager at Iridian Asset Management. Post Road Capital has successfully vetted and invested in the timeshare space and
continues to hold a position in Wyndham Worldwide (WYN).

POST ROAD CAPITAL MANAGEMENT

Disclosures:
This disclaimer is issued in connection with the website www.postroadcap.com/drii (the Website) maintained by Post Road Capital Management, LLC ("Post Road"), an investment
adviser to funds that are in the business of actively buying and selling securities and other financial instruments.
Post Road currently maintains a substantial long position in the common stock of Diamond Resorts International, Inc. (Diamond Resorts or DRII). Post Road will profit if the trading price
increases for common shares of Diamond Resorts and will lose money if the trading price decreases for common shares of Diamond Resorts.
Post Road may change its views about or its investment positions in Diamond Resorts at any time, for any reason or no reason. Post Road may buy, sell, cover or otherwise change the form
or substance of any of its investments related to Diamond Resorts at any time. Post Road disclaims any obligation to notify the market or any other party of any such changes.
The information and opinions contained in the Website are based on publicly available information about Diamond Resorts and other companies. Post Road recognizes that there may be
non-public information in the possession of Diamond Resorts or others that could lead Diamond Resorts or others to disagree with Post Roads analyses and conclusions.
The presentation includes forward-looking statements, estimates, projections and opinions prepared with respect to, among other things, Diamond Resorts anticipated operating
performance, access to capital markets, market conditions, assets and liabilities . Such statements, estimates, projections and opinions may prove to be substantially inaccurate and are
inherently subject to significant risks and uncertainties beyond Post Roads control.
Although Post Road believes the statements it makes in the presentation are substantially accurate in all material respects and do not omit to state material facts necessary to make those
statements not misleading, Post Road makes no representation or warranty, express or implied, as to the accuracy or completeness of those statements or any other written or oral
communication it makes with respect to Diamond Resorts and any other companies mentioned, and Post Road expressly disclaims any liability relating to those statements or
communications (or any inaccuracies or omissions therein). Thus, shareholders and others should conduct their own independent investigation and analysis of those statements and
communications and of Diamond Resorts and any other companies to which those statements or communications may be relevant.
The statements Post Road makes in the presentation or through the Website are not investment advice or a recommendation or solicitation to buy or sell any securities. Except where
otherwise indicated, those statements speak as of the date made, and Post Road undertakes no obligation to correct, update or revise those statements or to otherwise provide any
additional materials. Post Road also undertakes no commitment to take or refrain from taking any action with respect to Diamond Resorts or any other company.
All users and listeners agree and consent to exclusive jurisdiction and venue of any dispute or proceeding relating to or arising from the Website or any related subject matter in the Courts
of the State of Connecticut, Fairfield County or in the Federal courts located in United States District Court for the District of Connecticut.
As used herein, except to the extent the context otherwise requires, Post Road includes its affiliates and funds it manages or advises and their respective partners, officers and employees.
NOT AN OFFERING OF SECURITIES: The information contained in this presentation is for informational purposes only and is not intended, and shall not constitute, a solicitation or offering of
securities in any jurisdiction or of any of the investments mentioned therein. Post Road Capital Management, LLC is filed as an exempt reporting adviser with the State of Connecticut.

Diamond Resort International

Current Price: $25.61 Price Target: $10.00

DRII is a timeshare company that operates on a points system. It currently has 513,000
members under its global network. DRII sells points through Vacation Interest Sales and
collects an annual maintenance fee through Management Services
In April 2007, Stephen Cloobeck, acquired
Sunterra Corporation by merger, which was
delisted from NASDAQ as a result of the
resignation of Sunterra Corporation's auditors and
the withdrawal of their certification of Sunterra
Corporation's financial statements
Market Cap: ~$2.0B
Enterprise Value: $2.4B + ~450M of securitized
notes
2014E Net Income: $43.4M

Diamond Resort International

POST ROAD CAPITAL MANAGEMENT

Current Price: $24.18 Price Target: $54.00+

As measured by membership, DRII is the third largest timeshare

operator (after Wyndham and Marriot) with over 515,000 members.
It pioneered the asset-light business model. ALL companies now
employ this model! While limiting capital risk, it provides high
operating margins and free cash flow as well as exponential returns
on capital and equity
In April 2007, Stephen Cloobeck (with George Soros - later
Guggenheim), LBOd (NOT merged) Sunterra Corporation.
Sunterras auditors resigned (which resulted in the delisting). The
company was never financially insolvent. BDO performed a new
audit and all financials are up to date
Market Cap: ~$1.96B (at time of the report)
EV: < $2.3B (securitization is non-recourse; cash on the balance
sheet was not subtracted); On 2015, net debt is 0.5x EBITDA
2014E Guided Net Income: $53-69mn; YTD at $37.6MM

The author in
his prior career

The Bull Case

Inventory recapture model
The genius of this company is that DRII
recovers its inventory if the member
decides not to pay its membership fee
This implies a ~97% retention rate
Fast growth
Growth through acquisitions
High cash flow yield
Annualizing H114

Imperial Capital on inventory: Each year, 3-5% of owners fall behind on their annual payments and
abandon their interest. Diamond Resorts guarantees the annual payment (to the HOA) and resells the
ownership
I asked IR how they achieve such a 97% retention rate; they responded: they just like it so much

The Bull Case

POST ROAD CAPITAL MANAGEMENT

Inventory recapture model

Imitation is the biggest form of flattery.
Wyndham and Marriot all recapture in similar
fashion to Diamond ~3% - i.e. 97% retention
Fast growth
Growth through tuck-in acquisitions at 1 to 2x
EBITDA, typically in bankruptcy on favorable
terms! Why is this bad???.
With 3% recapture, current inventory and tuckins., VOI sales growth is sustainable
High cash flow yield savings of $60MM in interest
expense rolling in over the past two years plus cash
flow from recent acquisitions provides an estimated
FCF yield of 16% (2015) and 19% (2016E)
Diamond Resorts has a high focus on customer
satisfaction occupancy rates (at 90%+) speak
volumes! As the only reason, like it so much is
farcical

Diamond has the ability

to flex recapture up and
down to maximize returns

The Sales Pitch

Had to wait an hour with a sales rep before getting a quote
Free vacation tour as long as you come with your spouse,
make over $50,000 and bring a credit card with you. You
must sit through a 3 hr. sales pitch
President Obama made Cloobeck Chairman title of US
Corporation for Travel Promotion (major donor)
Video clips of Cloobeck in ABCs Undercover Boss
When compared with traditional online booking,
Expedia.com and other websites were cheaper without
paying a VIS membership
Most hotels and resorts can be booked online
DRIIs customers are now aware of online travel agencies

The Sales Pitch

POST ROAD CAPITAL MANAGEMENT

We signed up online and soon got a call. No wasted time! Roughly

70% are from existing owners who are already at the resort. WYN
and VAC percentages are similar
DRII does not give away free vacations, but offers mini vacations standard industry practice. Customers can leave anytime and the
pitch runs 1-2 hours. Only 14% convert. Not 100%! Minimum income
is $60k (NOT $50k). No industry peer accepts cash
Cloobecks govt appt.: Relevance? Same for Jeffrey Immelt,
Steven Rattner, Penny Pritzker, etc. Not bad company
Undercover Boss appearance Relevance??? Go see a resort and
see the maniacal focus on quality of product and experience! We
have
Yes: Most hotels and resorts can be booked online. Relevance???
Expedia.com (and other OTAs) are partners of DRII. Same for WYN,
VAC et al. Many clients START as hotel-like guests but become
members. Diamond is an innovative technology focused company.
We would be concerned if there was NOT an online presence

Best-in-class management team

David Palmer (right) CEO &
Alan Bentley (left) CFO
Exceptional operators with
extensive M&A, bankruptcy and
private equity backgrounds

97% Retention?
Reviews
Owners are trying to give their timeshare away after paying $20,000 plus initially
(for free). I realize now Diamond Resorts run a scam I should have done more
research before purchasing, but being a senior citizen, I was not prepared for this
kind of overcharging.
On Yelp, comments such as:

Diamond Resort Facebook users polled that 93.6% would not join again or recommend the
product to a friend.

POST ROAD CAPITAL MANAGEMENT

97% Retention

Due to historical industry practices, the timeshare industry has detractors. Every company has positive and
negative reviews. But DRII in particular, with its acquisitions of underperforming / failing resorts, has its share
of naysayers who do not want to or cannot pay for a better (yet more costly) experience. DRII continues to
be well respected in the timeshare community. For questions or concerns, check www.ARDA.org
Positive

Negative

We are dri members and are very happy with them we

get many hotels with them knowing accommodation is
first class, we know how to work the system and dont
feel connected, I dont understand anyone signing up
and paying for ANYTHING without looking into it properly I
noticed not many of the very happy members have
been printed, is it a conspiracy from other timeshares (yes
it does happen) to print negative things

Attention all DRI owners...if your maintenance fees increased again

please contact the Arizona Real Estate Division azre.gov/Contacts/Intro.

and file a formal complaint. Our fees have increased an average of 20%
per year for the last 3 years. We were contacted tonight by a board
member of Diamond Resorts, telling us what our fees will be for 2014. The
increase is 44.5% over what we paid in 2013! This is absolutely
OUTRAGEOUS!

- Nov 19, 2014 tripadvisor.com

-Oct. 4, 2013 yelp.com

...The location to restaurants and Colonial Williamsburg is

great.

I purchased Wyndham Timeshares over 7 years ago and havent

stopped paying through the nose yet! The sales agents actually bully
you and I was even told at one point I was stupid not to purchase
more points! This has been my greatest regret in life! I can never get the
rooms I want, where I want, when I want. If I use RCI I have to pay
additional fees! It is a vicious cycle to rob you of your money. You are
better off investing your money and/or saving for a vacation every year. I
would not recommend this company to anyone. If anyone knows how to
get out of these contracts please let me know!

It was a good week for us, and a memorable one. My

mom suffered a stroke and passed just 11 days after we
returned home so this vacation will have special meaning
to us for years to come.
-February 3, 2012 tripadvisor.com

--Aug 8, 2014 consumeraffairs.com

We are owners of this Marriott Timeshare facility and look
forward to staying here anytime we can. We especially
like to have family or friends with us as this facility has it all
and if you didn't want to go off property, you wouldn't
have to for anything.

Scam is right! Marriot runs this game and make the rules up as they
choose. Who is to say in another 5 years they dont come out with
another scheme that makes your points as worthless and impossible to
use as your weeks are now. Join the class action lawsuit that was entered
in May 2014!

- January 2014, tripadvisor.com

-July 11, 2014 tripadvisor.com

Secondary Marketplace
On sites such as Redweek.com and ebay.com,
members are selling their time shares at literally
nothing
DRII is threatening the users for not paying the
membership fee or their loans
The secondary market effectively competes against
DRIIs VIS

Secondary Marketplace - TINY

First and foremost, though the secondary market
exists, it is de minimis and exists for all timeshare
providers
Diamond does not threaten its members. Rather, as
with WYN et al., it sees every point of contact as an
opportunity for a sale. DRII has NEVER taken a
member to court
Diamond specifically protects its primary network
and purposely makes sure the asset has limited
resale value

POST ROAD CAPITAL MANAGEMENT

37.5% of Loans are in Default

According to DRIIs 10-K, as of December 31, 2013, DRIIs loan portfolio was comprised of
approximately 72,000 loans with an outstanding aggregate loan balance of approximately
$723.0 million. Approximately 45,000 of these consumer loans are loans under which the
consumer was not in default, and the average balance of such loans was approximately
$10,663. Approximately 27,000 loans within the loan portfolio are loans that were in default
had not yet been foreclosed upon or canceled

POST ROAD CAPITAL MANAGEMENT

Diamond is OVER reserved on their loan portfolio

This student attempts to tie together two irrelevant data points from the 10-K without reading the
footnotes (see Note 5 and Note 16). In addition, an investor can not evaluate a loan portfolio at a
random point in time --- it must be looked at as a static pool
Lets stick to the facts:
45k loans exist (on 515k members) = 8.9% of members have loans or 91.1% do not have loans
outstanding
The $243mn of defaulted loans has NOTHING to do with DRIIs owned or securitized loans. At the time
of the loan portfolio acquisition (from Tempus), $210MM was ALREADY in default. THIS IS AN ASSET
that provides VERY INEXPENSIVE INVENTORY we expect more information in the next 10-K
Any loan past 180 days is immediately written off!
Our analysis below shows DRII is 22% reserved on their cumulative portfoliowhich is VERY current!

The Problem
Current provision rate is only ~9% of sales
Cost of marketing is ~50% regardless of whether
member defaults
Net revenues and earnings are grossly overstated
DRII securitizes some of its mortgages to obtain
cash flow.

Its mortgage receivable asset is not accurate and

should be written off

Key takeaway: DRII did not learn from the housing

crisis. Ability to pay is very different than willingness
to pay.

POST ROAD CAPITAL MANAGEMENT

The Problem Flawed Analysis on Flawed Assumptions

Current provision rate of 9%+ of sales is greater than
historical and / or current default rates
Timeshare (incl. WYN/VAC) cost of marketing is ~50%
Due to GAAP accounting requirements, net revenues and
earnings mask significant free cash flow!
DRII, WYN, VAC, etc. all securitize mortgages to generate
cash flow. This lowers risk!
The author CONFUSES securitized portfolio loans and
serviced loans. All mortgages over 180 days past due
have ALREADY BEEN WRITTEN OFF! In fact the
securitizations all have investment grade ratings, high
FICO Scores, 95%+ advance rates and low interest rates.
November 2014 securitization was issued at investment
grade and a 96% advance rate. VERY HIGH QUALITY

Key takeaway: Diamond is not overstating any

financial figures but they are OVER reserved

Declining Membership
The SEC on February 22, 2013, wrote to DRIIs in
regards to the confidential draft registration:
Please balance your discussion of your
strategy to increase membership in THE Club
with the fact that you experienced lower
member count in the club for the period
ended September 30, 2012.
Q3 gain was after the acquisition of PMR
where they gained ~25,000 members
DRII has lost approximately ~2% of its NET
members each quarter. This is very alarming
since their VIS sales are up over 50% growth
rate for 2013 and over 15% for the past 3
quarters.

POST ROAD CAPITAL MANAGEMENT

Focus on the Relevant Key Performance Indicators!

The SEC statement is a two year-old statement on
(due to M&A) what was a rapidly changing portfolio
Q3 2013 gain was only partially due to acquisitions.
But investors need to know:
In the past couple of years, management has
acquired many distressed timeshare
companies, which results in high-grading the
portfolio. This will naturally increase near-term
churn since a portion of acquired owners were
of lower quality (and in many cases were in
default) This is good churn, not bad! Average
transactions size is up (over several years) from
~ $10,500 to over $19,000!
The 2% quarterly churn figure is WRONG! Post
expected churn, we think organic growth is around
0-4% with regular volatility/seasonality in timing. This
is very in line with industry peers and allows for
significant revenue and earnings growth

Valuation
After adjusting DRIIs earnings with a
provision rate reflective of the state of
the business, DRII trades at 91x 2015E
and 107x 2016E

VIS
Gross V acation Interest Sales
Provision
Marketing a nd other costs
VIS Gross Profit
Management Services Revenue
Cost of management s ervices
Management Gross Profit

2011A
211,321
16,562
71,737
123,022
$148,977
27,125
$94,069

2012A
318,555
25,457
157,309
135,789
$177,364
35,330
$111,723

2013A
509,283
44,670
258,102
206,511
$208,131
37,907
$135,891

2014E
596,003
82,368
305,018
208,617
$246,130
33,294
$179,830

2015E
685,403
163,772
366,940
154,690
$240,371
35,235
$173,938

2016E
719,673
171,961
385,287
162,425
$232,196
$32,956
$170,061

DRII will point out at cash flow growth.

There are two problems: (1) 2014 cash
flow growth comes from
management fees at the expense of
very large investments in previous
years, and (2) $50M of that cash flow
is from savings from financing through
securitization, already reflecting a
one-time gain

Total Corporate Expenses

134,295

152,022

250,524

255,247

260,337

268,709

Operating Income
Interest e xpense
Earnings before taxes
Taxes
Net Income
Provision as % of gross sales

Cash Flow V aluation

Cash flow from Operations
Capex a nd other Investments
Free cash flow
FCF Yield

82,796
82,010
786

95,490
96,157
(667)

91,878
88,626
3,252

133,200
54,868
78,332

68,292
38,304
29,987

63,776
38,304
25,472

(9,517)
$10,303

(14,310)
$13,643

5,777
($2,525)

34,927
$43,405

8,996
$20,991

7,642
$17,830

7.8%

8.0%

8.8%

13.8%

23.9%

23.9%

2011A
9,292
(109,800)
(100,508)

2012A
24,600
(69,338)
(44,738)

2013A
(5,409)
(57,925)
(63,334)

2014E
92,341
(18,589)
73,752

2015E
100,495
(24,000)
76,495

2016E
97,839
(28,000)
69,839

3.85%

3.99%

3.65%

A required 8% cash flow rate in 2015 in a declining cash flow business (since VIS have started to peak)
values DRII ~$12. However these cash flows are a result from earlier investments and thus mask the
underlying business economics. A P/E multiple places the stock much lower.

Valuation

POST ROAD CAPITAL MANAGEMENT

Due to the faulty default rate analysis, the report has outsized provision costs
that are nonsensical. The students EPS is irrelevant
Cash flow growth comes only partially from a vastly lower interest rate on
corporate debt as well as recently acquired (2013) properties at 1 to 2x
EBITDA. The $50M of that cash flow is nowhere to be found in any of the
financial statements. As shown to the right, the free cash flow inflection is
powerful and sustainable
VOI sales have NOT started to peak. The statement is wholly inaccurate!
An asset-light quality, real estate based business should trade at a 6% to 8%
free cash flow yield. At this multiple, DRII would trade at at $48 to $64 on
2015 figures and materially higher on 2016. ALL OF THIS ignores that debt /
EBITDA will be under 1x by year-end 2015! We need only be half right on our
expectations for this stock to be at least a double
ALL competitors trade on EBITDA and free cash flow multiples making the
P/E multiple less relevant though better than what his report implies

Insider Selling and Deceiving Investor Community

Stephen Cloobeck and other investors announced to sale some of their shares. DRII has
been especially active trying to attract investors

Management mentions in its latest roadshows: For the first six months of 2014 we generated
$81.5 million in cashThe primary source of cash generated during the six-month period was
from earnings.
Not true. It was through an increase in due to related parties (~$45M) and increase in
cash flow from financing (~$38M)

Misleading with its 3.5% inventory recapture rate

The company hides facts about their declining membership status or its defaulted customers
mangelo@Wharton.upenn.edu

POST ROAD CAPITAL MANAGEMENT

Shareholder Friendly and Aligned Management Team

Stephen Cloobeck and other insiders are hesitant to sell shares at these levels. (cancelled
10b5-1). Insiders/Executive Management own over 30% of the shares outstanding. The CEO
and his senior team have ZERO intention of selling stock in the near future
The student is analytically WRONG in regard to free cash flow, which we legitimately see at
OVER $200 million in 2014 and a run-rate of over $250 million going into 2015
DRII has entered a period of massive free cash flow growth, which makes it a materially
under-levered company
The company trades at a material valuation gap (relative and absolute) to its peers despite
its superior economic returns and comparable product offering
Multiple ways to win a) valuation gap closes, b) returning capital to shareholder (already
announced $100mn buyback), c) make accretive acquisitions (with leverage), and/or d)
private equity or other strategic will buy Diamond
David Eigen -- DLE@postroadcap.com

Nat Brogadir -- NGB@postroadcap.com