Hilton Grand Vacations Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This annual filing includes fourth-quarter results but is not a standalone Q4 report. HGV markets and sells vacation ownership interests (VOIs), provides consumer financing, manages resorts and operates vacation clubs.
Financial performance and key metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total revenue | $894 million | $1.838 billion |
| Net income (loss) | $(201) million | $216 million |
| Diluted EPS | $(2.36) | $2.42 |
| Adjusted EBITDA | $57 million | $408 million |
| Operating cash flow | $79 million | $143 million |
| Cash and cash equivalents | $428 million | $67 million |
| Total assets | $3.134 billion | $3.079 billion |
| Debt, net | $1.159 billion | $828 million |
| Non-recourse debt, net | $766 million | $747 million |
Cash and cash equivalents plus restricted cash totaled $526 million; restricted cash was $98 million. Gross debt and non-recourse debt together were approximately $1.939 billion before deferred financing costs. Investing cash outflow was $33 million and financing cash inflow was $328 million. The filing reports no dividend plan.
- Contract sales fell 62.6% to $528 million. Tour flow declined 66.8% to 127,085, while volume per guest rose 10.5% to $3,889.
- Sales revenue declined 71.2% to $272 million. Real estate reported a $69 million loss, versus $270 million profit; its margin was negative 25.4%, compared with positive 28.5%.
- Resort and club management revenue fell 13.1% to $166 million; segment profit was $130 million, down from $145 million. Rental and ancillary revenue fell 57.3% to $97 million, producing a $10 million loss.
- Financing revenue was $165 million and financing profit was $112 million, both modestly below 2019. The consumer loan portfolio was approximately $1.2 billion gross; the year-end weighted-average interest rate was 12.61%.
Material changes and unusual items
- COVID-19 closures and travel disruption drove the steep contraction in sales, rentals and earnings. The company began phased reopenings in May; approximately 85% of resorts and sales centers were open at year-end, often with capacity constraints.
- FY2020 included a $209 million non-cash impairment charge ($201 million for land and infrastructure classified as held for sale and $8 million for property and equipment). In Q4, revenue was $212 million and net loss was $154 million; the quarter included the impairment charge.
- Default rates on timeshare loans increased to 6.34%, from 5.14% in 2019. The allowance for financing receivable losses was $211 million at year-end.
- Management reduced planned new-inventory investment by approximately $200 million, furloughed staff, cut salaries and discretionary spending, and reduced the workforce by approximately 1,500. Approximately 1,800 employees remained furloughed at year-end.
Liquidity, outlook and principal risks
HGV drew $445 million on its revolving credit facility in March as a precaution, completed a $300 million receivables securitization in June, and amended its credit and timeshare facilities to provide covenant and liquidity flexibility. At year-end, it reported $139 million of remaining revolver capacity and $450 million of Timeshare Facility capacity. Certain financial covenants were waived for the first three quarters of 2021. The company said its liquidity measures were expected to meet near- and longer-term needs, but warned that a prolonged or worsening pandemic could impair liquidity and covenant compliance. No quantified earnings or revenue guidance was provided.
Contractual obligations totaled $2.692 billion, including $454 million of inventory purchase commitments over ten years. Scheduled debt maturities were concentrated in 2023, when approximately $947 million of debt and non-recourse debt was due. About $837 million of debt was variable-rate; HGV identified interest-rate and LIBOR-transition exposure. Other significant risks include travel demand recovery, loan defaults and securitization access, reliance on Hilton’s brands and license, property concentration in markets including Florida, Hawaii and New York, regulatory and litigation exposure, and the ability to meet debt obligations. Management reported adequate reserves for ordinary-course litigation and did not expect pending matters to materially affect the financial statements.
Most important facts for investors to verify
- Recovery in contract sales, tour flow, resort utilization and rental demand, particularly in Hawaii and New York.
- Whether loan defaults and delinquencies stabilize, and whether the $211 million allowance adequately reflects portfolio risk.
- Available unrestricted liquidity, access to securitization and credit facilities, covenant terms after waiver periods, and the 2023 maturity burden.
- Execution and proceeds of planned asset sales following the $209 million impairment, and any further impairment or inventory commitments.
- Reconciliation of non-GAAP Adjusted EBITDA to GAAP results and the impact of pandemic-related and other adjustments. Ernst & Young issued an unqualified opinion on the financial statements and internal controls.