Hilton Grand Vacations Stock

Hilton Grand Vacations Inc. operates as a global timeshare company.

The company engages in developing, marketing, selling, managing and operating timeshare resorts, timeshare plans and ancillary reservation services, primarily under the Hilton Grand Vacations brand. The company also owns and operates Legacy-Diamond resorts and sales centers that have been acquired through the Diamond Acquisition, which are undergoing rebranding.

The company’s operations primarily consist of selling vacation ownership intervals and vacation ownership interests (collectively, ‘VOIs’, ‘VOI’) for the company and third parties; financing and servicing loans provided to consumers for their timeshare purchases; operating resorts and timeshare plans; and managing both the company’s points-based Hilton Grand Vacations Club and Hilton Club exchange program (collectively the ‘Legacy-HGV Club’) and the Diamond points-based multi-resort timeshare plans and exchange programs (the ‘Legacy-Diamond Clubs’).

As of December 31, 2022, the company had properties located in the United States (‘U.S.’), Europe, Mexico, the Caribbean, Canada, and Japan. A significant number of the company’s properties and VOIs are concentrated in Florida, Europe, Hawaii, California, Arizona, Nevada and Virginia. As of December 31, 2022, the company had approximately 519,000 members across its club offerings. Legacy-HGV Club members have the flexibility to exchange their VOIs for stays at any Hilton Grand Vacations Club resort or any property in the Hilton system of 19 industry-leading brands across approximately 7,000 properties, as well as numerous experiential vacation options, such as cruises and guided tours, or they have the option to exchange their VOI for various other timeshare resorts throughout the world through an external exchange program. Legacy-Diamond Club members are able to utilize their points across the Diamond resorts, affiliated properties and alternative experiential options.

During 2022, the company began offering a new club membership called HGV Max across certain of the company’s sales centers. For any customer who purchases a VOI, this membership provides the ability to use points across all properties within the company’s network. The membership provides new destinations for both Legacy-HGV and Legacy-Diamond club owners and broader vacation opportunities for new buyers. It also combines the best benefits from both Club programs, making Hilton hotel benefits available to Legacy-Diamond Club owners and new travel benefits, Hilton hotel discounts and alternative experiential options available to Legacy-HGV Club owners. The Legacy-HGV Club, Legacy-Diamond Clubs and HGV Max are collectively referred to as ‘Clubs’.

Segments

The company operates through two segments, Real Estate Sales and Financing; and Resort Operations and Club Management.

The company’s Real Estate Sales and Financing segment primarily generates revenue from:

VOI Sales—The company sells its owned inventory and interests directly and, through the company’s fee-for-service agreements, the company sells VOIs on behalf of third-party developers using the Hilton Grand Vacations brand in exchange for sales, marketing and brand fees.

Financing—The company provides consumer financing, which includes interest income generated from the origination of consumer loans to members to finance their purchase of VOIs owned by it. The company also generates fee revenue from servicing the loans provided by third-party developers to purchasers of their VOIs.

The company’s Resort Operations and Club Management segment primarily generates revenue from:

Resort Management—The company’s resort management services primarily consist of operating properties under management agreements for the benefit of homeowners’ associations (‘HOA’s) of VOI owners at both the company’s resorts and those developed by third parties. The company’s management agreements with HOAs provide for a cost-plus management fee, which means the company generally earns a fee equal to 10% to 15% of the costs to operate the applicable resort.

Club Management—The company operates and manages the Clubs and receive annual membership fees, as well as incremental fees depending on exchanges and transactions members choose for other vacation products and services within the Club system.

Rental of Available Inventory—The company generates rental revenue from unit rentals of unsold inventory and inventory made available due to ownership exchanges through the company’s Clubs programs. This allows the company to utilize otherwise unoccupied inventory to generate additional revenues. The company also earns fee revenue from the rental of inventory owned by third parties, as well as revenue from retail, spa and other outlets at the company’s timeshare properties.

VOI and Club Products

The company’s timeshare properties are relatively concentrated in significant tourist markets, including Florida, Europe, Hawaii, California, Arizona, Nevada and Virginia.

The company’s primary Legacy-HGV VOI product that the company markets and sells is fee-simple, deeded in perpetuity and right to use real estate interests, developed either by the company or by third parties. This ownership interest is generally equivalent to one week on an annual or biennial basis, at the timeshare resort in which the VOI is located. Purchasers of a Legacy-HGV VOI also become members of a Legacy-HGV Club, which allows the member to exchange their points for a number of vacation options. In addition to an annual membership fee, members pay incremental fees depending on exchange or services they choose.

The company’s primary Legacy-Diamond VOI product, which the company acquired in the Diamond Acquisition, that the company markets and sells is a beneficial interest in one of the company’s Collections, which are represented by an annual or biennial allotment of points that can be utilized for vacations at any of the resorts in that Collection. Purchasers of a Legacy-Diamond VOI are also offered the opportunity to become members of a Legacy-Diamond Club through which they can exchange their points for a number of vacation options.

Persons who become members of the Legacy-HGV Club or Legacy-Diamond’s The Club through the purchase of a qualifying VOI from an authorized HGV sales center become HGV Max members in their respective Club through which such members have access to more properties in more destinations and discounts across the Hilton portfolio of hotels and resorts. Specifically, along with other benefits, HGV Max members of a Legacy-HGV Club have access to resorts available in The Club. Likewise, HGV Max members of The Club have access to resorts available within the Legacy-HGV Club.

As of December 31, 2022, the company had approximately 519,000 members across the company’s various club offerings.

Inventory and Development Activities

The company secures VOI inventory by developing or acquiring resorts in strategic markets, building additional phases at the company’s existing resorts, re-acquiring inventory from owners in default and in the open market and sourcing inventory from third-party developers through fee-for-service and just-in-time transactions.

The company’s development activities involving the acquisition of real estate are followed by construction or renovation to create individual vacation ownership units. These development activities, and the related management of construction activities, are performed either by the company or third-party developers. The development and construction of the units require a large upfront investment of capital and can take several years to complete in the case of a ground-up project. Additionally, the VOIs must be legally registered prior to sale to the company’s end customers.

The company also sources VOIs through fee-for-service agreements with third-party developers. These agreements enable the company to generate fees from the marketing and sale of Hilton-branded VOIs and Legacy-HGV Club memberships and from the management of the timeshare properties without requiring the company to fund up-front acquisition and construction costs or incur unsold inventory maintenance costs. The capital investment the company makes in connection with these projects is typically limited to the cost of constructing the company’s on-site sales centers. In just-in-time transactions, the company acquires and sells inventory in transactions that are designed to closely correlate the timing of the company’s acquisition of inventory with its sale of that inventory to purchasers. The company refers to fee-for-service transactions and just-in-time sales as ‘capital-efficient transactions’.

The company’s fee-for-service sales generally improve returns on invested capital and liquidity, while sales of owned inventory, including just-in-time inventory, typically result in a greater contribution to the profitability of the company’s real estate sales and financing segment. The company monitors sales that occur in the secondary market and exercises its right of first refusal in certain cases.

Marketing and Sales Activities

The company’s marketing and sales activities are based on targeted direct marketing and a highly personalized sales approach. The company uses targeted direct marketing to reach potential members who are identified as having the financial ability to pay for the company’s products, are frequent leisure travelers and have an affinity with the company’s brands.

The company sells its vacation ownership products through its distribution network of both in-market and off-site sales centers. The company’s products are marketed for sale throughout the United States, Mexico, Canada, Europe and Japan. The company operates sales distribution centers in major markets and popular leisure destinations with year-round demand and a history of being a friendly environment for vacation ownership. The company has approximately 50 sales distribution centers in various domestic and international locations. A phased rebranding of the Legacy-Diamond acquired sales centers began in late 2021.

Financing Activities

The company originates loans for members purchasing its developed and acquired VOIs who qualify according to its underwriting criteria. The company periodically securitizes timeshare financing receivables the company originates in connection with the sale of VOIs to monetize receivables and achieve an efficient return on capital and manage the company’s working capital needs.

Timeshare Financing Receivables Origination

As of December 31, 2022, the company’s entire portfolio consisted of originated loans and loans that were acquired as part of the Diamond Acquisition, which are referred to as acquired loans. The portfolio had a weighted average length of loan of 10 years and the weighted average remaining length of loan of 8 years. The company also finances its working capital needs in part by borrowing against timeshare financing receivables.

Loan Portfolio Servicing

The company has a skilled, integrated consumer finance team. This team is responsible for payment processing and loan servicing, collections, default recovery and portfolio reporting and analytics.

Resort and Club Management Activities

Resort Management

The company’s services include day-to-day operations of the resorts, maintenance of the resorts, preparation of books and financial records, including reports, budgets and projections, arranging for annual audits and maintenance fee billing and collections and personal employment training and oversight. The company is then able to resell those VOIs through its normal distribution channels.

Club Management

The company also manages and operates its Clubs providing exclusive exchange, leisure travel and reservation services to the company’s Club members. When owners purchase a VOI, they are generally enrolled in a Club, which allows the member to exchange their points for a number of vacation options. In addition to an annual membership fee, Club members pay incremental fees depending on exchanges they choose within the Club system.

Rental of Available Inventory

The company rents unsold VOI inventory, third-party inventory and inventory made available due to ownership exchanges through the company’s Clubs programs. By using the company’s websites, Hilton’s websites and other direct booking channels to rent available inventory, the company is able to reach potential new members that may already have an affinity for and loyalty to the Hilton brands and introduce them to the company’s products. Inventory rentals allow the company to utilize otherwise unoccupied inventory to generate additional revenues and provision of ancillary services. Additionally, the company provides ancillary offerings, including food and beverage, retail and spa offerings at these timeshare properties.

Competition

The company’s primary competitors in the timeshare space include Marriott Vacations Worldwide, Travel + Leisure Co., Disney Vacation Club, Holiday Inn Club Vacations, Westgate Resorts and Bluegreen Vacations.

Seasonality

The company experiences modest seasonality in timeshare sales at certain resorts, with stronger revenue generation during traditional vacation periods for those locations.

Government Regulation

The company’s business is subject to various international, national, federal, state and local laws, regulations and policies in jurisdictions in which the company operates. Some laws, regulations and policies impact multiple areas of the company’s business, such as securities, anti-discrimination, anti-fraud, data protection and security and anti-corruption and bribery laws and regulations or government economic sanctions, including applicable regulations under the U.S. Treasury’s Office of Foreign Asset Control and the U.S. Foreign Corrupt Practices Act (‘FCPA’).

The company is generally subject to laws and regulations typically applicable to real estate development, subdivision and construction activities, such as laws relating to zoning, land use restrictions, environmental regulation, accessibility, title transfers, title insurance and taxation. In the United States, these include the Fair Housing Act and the Americans with Disabilities Act of 1990 and the Accessibility Guidelines promulgated thereunder, which the company refers to collectively as (the ‘ADA’).

The company’s marketing and sales activities are highly regulated in the U.S. and in non-U.S. jurisdictions. In addition to regulations implementing laws enacted specifically for the timeshare industry, a wide variety of laws and regulations govern the company’s marketing and sales activities, including regulations implementing the USA PATRIOT Act, Foreign Investment In Real Property Tax Act, the Federal Interstate Land Sales Full Disclosure Act and fair housing statutes, the U.S. Federal Trade Commission (‘FTC’) and state ‘Little FTC Acts’ and other regulations governing unfair, deceptive or abusive acts or practices, including unfair or deceptive trade practices and unfair competition, state attorney general regulations, anti-fraud laws, prize, gift and sweepstakes laws, real estate, title agency or insurance and other licensing or registration laws and regulations, anti-money laundering, consumer information privacy and security, breach notification, information sharing and telemarketing laws, home solicitation sales laws, tour operator laws, lodging certificate and seller of travel laws and other consumer protection laws.

The company’s lending and related activities are subject to a number of laws and regulations, including those of applicable supervisory agencies, such as in the United States, the Consumer Financial Protection Bureau, the FTC, and the Financial Crimes Enforcement Network, and, in the case of the company’s international operations, the Financial Conduct Authority (in the United Kingdom) and other similar or equivalent agencies in other countries and regions in which the company operates. The company’s lending and related activities are also subject to the laws and regulations of other jurisdictions, including among others, laws and regulations related to consumer loans, retail installment contracts, mortgage lending, fair debt collection and credit reporting practices, loan servicing, consumer debt collection practices, mortgage disclosure, lender or mortgage loan originator licensing and registration and anti-money laundering.

History

Hilton Grand Vacations Inc., a Delaware corporation, was founded in 1992. The company was incorporated in 2016.