Hilton Grand Vacations Inc. — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021; this is an annual filing, not a standalone fourth-quarter report. Amounts are in U.S. dollars. Diamond Resorts is included from its August 2, 2021 acquisition date, so year-over-year comparisons are not like-for-like.
Business context
HGV develops, sells, finances and manages vacation ownership interests (VOIs), resorts and membership clubs, primarily under the Hilton Grand Vacations brand. It reported two segments: real estate sales and financing, and resort operations and club management. At year-end it operated 154 properties and served approximately 333,000 Legacy-HGV Club members and 166,000 Diamond Club members.
HGV acquired Diamond in an all-stock transaction on August 2, 2021. Former Diamond holders received approximately 28% of the combined company; consideration transferred was reported at $3.41 billion, including $1.381 billion of HGV shares and repayment of $2.029 billion of Diamond debt.
Financial and operating performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $2.335 billion | $894 million |
| Net income (loss) | $176 million | $(201) million |
| Diluted EPS | $1.75 | $(2.36) |
| Adjusted EBITDA (non-GAAP) | $716 million | $57 million |
| Cash provided by operating activities | $168 million | $79 million |
| Cash used in investing activities | $(1.631) billion | $(33) million |
| Cash provided by financing activities | $1.636 billion | $328 million |
Revenue rose 161% and net income improved by $377 million, reflecting the Diamond contribution, reopening and recovery in travel demand, and $133 million of net recognition of VOI sales previously deferred for projects under construction. FY2020 included a $209 million non-cash impairment charge. FY2021 also included $106 million of Diamond acquisition and integration costs and a $20 million loss on debt extinguishment.
Contract sales, an operating metric rather than GAAP revenue, were $1.352 billion versus $528 million. Tour flow increased to 298,044 from 127,085 and volume per guest (VPG) rose to $4,332 from $3,889. Seventy percent of FY2021 contract sales were to existing owners.
- Real estate sales and financing: Segment revenue was $1.451 billion versus $494 million; segment Adjusted EBITDA was $537 million versus $33 million. Real estate profit was $427 million, with a 38.2% margin, versus a $69 million loss and negative 25.4% margin.
- Resort operations and club management: Segment revenue was $700 million versus $276 million; segment Adjusted EBITDA was $353 million versus $136 million. Resort and club management profit was $260 million, with a 76.5% margin, versus $130 million and 78.3%.
- Rentals and ancillary services: Revenue was $342 million versus $97 million; profit was $75 million versus a $10 million loss.
- Consumer financing: Financing revenue was $183 million versus $165 million; financing profit was $118 million versus $112 million, with margin declining to 64.5% from 67.9%.
At year-end, cash and cash equivalents were $432 million and restricted cash was $263 million. HGV reported $2.913 billion of debt, net, and $1.328 billion of non-recourse debt, net; aggregate debt and non-recourse debt principal was approximately $4.3 billion. Variable-rate debt was $1.873 billion, or 43% of total debt. The company reported $699 million of available revolver capacity and $461 million of remaining capacity across its Timeshare Facility and conduit facilities at year-end. After year-end, it repaid the $133 million outstanding balance on the two conduit facilities.
Net timeshare financing receivables were $1.747 billion, and the gross portfolio was approximately $2.435 billion. The reported annual default rate increased to 8.93% from 6.34%. HGV reported $5.643 billion of contractual obligations over nine years, including $775 million expected in 2022; this includes $923 million of interest payments over the period.
Outlook, risks and notable items
The filing gives no numerical earnings or revenue guidance. Management said it believed available cash, operating cash flow, revolver capacity and receivables financing would meet short- and long-term liquidity needs for the foreseeable future. Recovery remained subject to pandemic developments, variants, travel restrictions and consumer demand. Most resorts and nearly all sales centers were open at year-end, though some faced capacity constraints and safety measures.
Management’s stated priorities and operating plans include integrating Diamond, phased rebranding of acquired properties and sales centers beginning in early 2022, and pursuing cost savings and synergies. Achievement is uncertain: Diamond operations were required to be run as a “Separate Operation” under the Hilton license, and property conversions and brand use require Hilton approval. The purchase-price allocation remained preliminary, with measurement-period adjustments possible.
- Key risks include high leverage and interest-rate exposure, timeshare loan defaults and securitization access, travel and economic weakness, inventory and construction availability, and complex acquisition integration.
- HGV depends on Hilton’s brand, loyalty program and license; a breach, termination or delayed approval of conversions could materially harm operations.
- Legal matters accrued were approximately $27 million. Management expected pending or threatened matters not to have a material effect, while noting litigation outcomes are uncertain.
- The financial statement audit received an unqualified opinion. Management and the auditor reported effective internal control over financial reporting, but the assessment excluded Diamond, which represented approximately 64% of year-end assets and 27% of revenue. The acquired business may be excluded for up to one year after acquisition under SEC guidance.
Important facts for investors to verify
- How much of FY2021’s reported growth and Adjusted EBITDA reflects Diamond, reopening, deferred-sales recognition and other nonrecurring adjustments; review the non-GAAP reconciliation.
- Progress and costs of Diamond integration, Hilton approvals, rebranding, and realization of promised synergies.
- Trends in loan defaults, delinquency, allowances and financing-receivable performance, including the acquired portfolio.
- Debt maturities, variable-rate exposure, covenant headroom and remaining borrowing capacity after the post-year-end conduit repayment.
- Whether the acquired Diamond operations’ internal controls are integrated and assessed, and whether purchase-accounting estimates are finalized.