Hilton Grand Vacations Inc. (NYSE:HGV) (“HGV” or the “Company”) today reported its third-quarter and nine-months 2017 results. Highlights include:

  • EPS was $0.43 for the third quarter, a 22.9 percent increase from the same period in 2016.
  • Net income for the third quarter was $43 million, a 22.9 percent increase from the same period in 2016.
  • Adjusted EBITDA for the third quarter was $94 million, a 1.1 percent increase from the same period in 2016.
  • Contract sales for the third quarter increased 6.5 percent from the same period in 2016.
  • Net Owner Growth (NOG) for the 12 months ending Sept. 30, 2017, was 7.1 percent.
  • Subsequent to the third quarter, the Company acquired the remaining inventory and other assets of Sunrise Lodge, a Hilton Grand Vacations Club, located in Park City, Utah.
  • Pursuant to the Company’s effective shelf registration, HGV announced the pricing of 5.1 million secondary common shares, at a price per share of $35.91, by certain selling stockholders affiliated with The Blackstone Group L.P.

Overview

For the three months ended Sept. 30, 2017, EPS was $0.43 compared to $0.35 for the three months ended Sept. 30, 2016. Net income was $43 million for the three months ended Sept. 30, 2017, compared to $35 million for the three months ended Sept. 30, 2016, and adjusted EBITDA was $94 million for the three months ended Sept. 30, 2017, and $93 million for the three months ended Sept. 30, 2016.

“HGV posted another strong quarter of contract sales and Net Owner Growth (NOG),” says Mark Wang, president and CEO of Hilton Grand Vacations. “Our teams continue to deliver outstanding operating results, execute against our strategic priorities and build solid momentum as we head into the one-year anniversary of our public listing. Looking ahead to 2018, we will continue to identify new projects and locations that help enhance member experiences and deliver value to our owners, team members and shareholders.”

Segment Highlights – Third Quarter

Real Estate Sales and Financing

Real estate sales and financing segment revenue was $310 million in the third quarter of 2017, an increase of 3.0 percent compared to the same period in 2016. Real estate and financing segment adjusted EBITDA was $81 million in the third quarter of 2017, compared to $85 million in the same period in 2016. Real estate and financing segment adjusted EBITDA margin as a percentage of real estate and financing segment revenues was 26.1 percent in the third quarter of 2017 compared to 28.2 percent for the same period in 2016.

Contract sales were $326 million in the third quarter of 2017, an increase of 6.5 percent compared to the same period in 2016. Fee-for-service contract sales represented 51.8 percent of total contract sales in the third quarter of 2017, compared to 59.2 percent in the same period in 2016. Tours increased 9.4 percent to 87,346 in the third quarter compared to the same period in 2016. VPG for the third quarter of 2017 was $3,555, a decrease of 1.3 percent compared to the same period in 2016.

Financing revenues were $38 million in the third quarter of 2017, an increase of 11.8 percent compared to the same period in 2016.

The weighted average FICO score of new loans made to U.S. and Canadian borrowers at the time of origination was 738 for the nine months ended Sept. 30, 2017, compared to 736 for the nine months ended Sept. 30, 2016. For the nine months ended Sept. 30, 2017, 65.5 percent of HGV’s sales were to customers who financed part of their purchase.

As of Sept. 30, 2017, gross timeshare financing receivables were $1.2 billion with a weighted average interest rate of 12.1 percent and a weighted average remaining term of 7.7 years. As of Sept. 30, 2017, 1.73 percent of HGV’s financing receivables were more than 30 days past due and not in default.

Resort Operations and Club Management

Resort operations and club management segment revenue was $90 million in the third quarter of 2017, an increase of 11.1 percent compared to the same period in 2016. Resort operations and club management segment adjusted EBITDA was $50 million in the third quarter of 2017, compared to $42 million in the same period in 2016. Resort operations and club management segment adjusted EBITDA margin as a percentage of resort operations and club management segment revenues was 55.6 percent in the third quarter of 2017, compared to 51.9 percent for the same period in 2016.

Inventory

As of Sept. 30, 2017, the estimated contract sales value of HGV’s pipeline of available inventory was approximately $6 billion at current pricing or approximately 4.8 years of sales at the current trailing 12-month sales pace. As of Sept. 30, 2017, the estimated contract sales value of HGV’s pipeline of available owned inventory was approximately $3.1 billion or approximately 2.5 years of sales. As of Sept. 30, 2017, the estimated contract sales value of HGV’s pipeline of available fee-for-service inventory was approximately $2.9 billion or approximately 2.3 years of sales.

Of the current pipeline of available inventory, 40 percent is considered just-in-time and 48.3 percent is considered fee-for-service. As such, the Company considers 88.3 percent of the pipeline of available inventory as of Sept. 30, 2017, to be from capital-efficient sources.

Balance Sheet and Liquidity

As of Sept. 30, 2017, HGV had $484 million of corporate debt with a weighted average interest rate of 5.1 percent and $612 million of non-recourse debt outstanding with a weighted average interest rate of 2.5 percent.

Total cash was $284 million as of Sept. 30, 2017, including $58 million of restricted cash.

Free cash flow, which the Company defines as cash from operating activities, less non-inventory capital spending, was $262 million for the nine months ending Sept. 30, 2017, compared to $119 million for the nine months ending Sept. 30, 2016.

Outlook

Full-Year 2017

  • Net income is projected to be between $180 million and $198 million.
  • EPS is projected to be between $1.80 and $1.98.
  • Adjusted EBITDA is projected to be between $380 million and $410 million.
  • Full-year contract sales are expected to increase between 6.5 percent and 8.5 percent.
  • Fee-for-service contract sales are expected to be between 52 percent and 57 percent of full-year contract sales.
  • Free cash flow is projected to be between $280 million and $300 million.

Transactions and Other Events

On July 18, 2017, HGV entered into an agreement with BRE Ace Holdings LLC, a Delaware limited liability company (“BRE Ace Holdings”), an affiliate of The Blackstone Group L.P. (“Blackstone”), and formed BRE Ace LLC. Pursuant to the agreement, HGV contributed $40 million in cash for a 25 percent interest in BRE Ace LLC, which owns a 1,201-key timeshare resort property and related operations, commonly known as “Elara, a Hilton Grand Vacations Club,” located in Las Vegas. HGV’s investment interest in and equity earned from BRE Ace LLC are included in the condensed consolidated balance sheets as Investment in unconsolidated affiliate and in the condensed consolidated statements of operations as Equity in earnings from unconsolidated affiliate, respectively.

Additionally, following the close of the quarter, on Oct. 15, 2017, HGV acquired Sunrise Lodge, a Hilton Grand Vacations Club. Since 2012, the 83-unit, ski-in mountain lodge in Park City, Utah, had been operating under a fee-for-service agreement through which HGV provided marketing, sales and resort management services to the seller Sunrise Park City, LLC. The transaction was funded by existing cash on HGV’s balance sheet and is expected to be accretive to HGV’s total adjusted EBITDA and EPS. Sunrise Lodge is located at the base of the Sunrise lift in the Canyons area of Park City Mountain Resort. The property, which is comprised of one-, two-, three- and four-bedroom suites, is situated minutes from restaurants, shopping, historic Main Street and Utah Olympic Park.

About Hilton Grand Vacations Inc.

Hilton Grand Vacations Inc. (NYSE:HGV) is recognized as a leading global timeshare company. With headquarters in Orlando, Fla., Hilton Grand Vacations develops, markets and operates a system of brand-name, high-quality vacation ownership resorts in select vacation destinations. The Company also manages and operates two innovative club membership programs: Hilton Grand Vacations Club® and The Hilton Club®, providing exclusive exchange, leisure travel and reservation services for more than 280,000 Club Members. For more information, visit www.hgv.com and www.hiltongrandvacations.com.