Hilton Grand Vacations (US:HGV)2022-02-28 16:00Acquisition and Company Structure - Hilton Grand Vacations completed the acquisition of Dakota Holdings, Inc. (Diamond) on August 2, 2021, with pre-existing shareholders owning approximately 72% of the combined company post-acquisition[19]. - The company operates its business across two segments: real estate sales and financing, and resort operations and club management[26]. - The company has approximately 50 sales distribution centers in various domestic and international locations, with rebranding of acquired centers from the Diamond Acquisition expected to start in early 2022[38]. - The company has not experienced any terminations or lapses in management agreements since inception, including those from the Diamond Acquisition[51]. - The company has entered into a Distribution Agreement with Hilton and Park, which includes the apportionment of Shared Contingent Liabilities at fixed percentages of 65% for Hilton, 26% for Park, and 9% for the company[108]. Financial Performance and Sales - As of December 31, 2021, Hilton Grand Vacations had 154 properties across the U.S., Europe, Mexico, the Caribbean, Canada, and Japan, with approximately 333,000 Legacy-HGV Club members and 166,000 Diamond Club members[23]. - For the year ended December 31, 2021, sales from fee-for-service, just-in-time, and developed inventory sources accounted for 31%, 20%, and 24% of contract sales, respectively, with the remaining 25% from points-based products[35]. - The estimated contract sales value of inventory available for sale is approximately $13 billion at current pricing, with capital-efficient arrangements representing about 40% of that supply[35]. - Approximately 70% of contract sales for the year ended December 31, 2021, were made to existing owners[37]. - The consumer loan portfolio had a balance of approximately $2.4 billion as of December 31, 2021, with default rates of 8.93%, 6.34%, and 5.14% for the fiscal years ended December 31, 2021, 2020, and 2019, respectively[176]. Financing and Loans - The average loan outstanding as of December 31, 2021, was approximately $22,000, with a weighted average interest rate of 14.3%[43]. - Financing for members purchasing VOIs is generally structured as 10-year, fully-amortizing loans, with a minimum down payment of 10% required[42]. - The weighted-average FICO score for loans to U.S. and Canadian borrowers at the time of origination was 734, indicating a relatively low collection risk[45]. - The company targets securitizations ranging in size from $250 million to $350 million, with future securitizations dependent on anticipated sales volume and capital needs[47]. - The company intends to access the securitization markets to securitize timeshare financing receivables, which could be affected by financial market instability[169]. Operational and Management Fees - In 2021, homeowners' associations (HOAs) collected approximately $948 million in maintenance fees, which includes the company's management fees[52]. - The management fees earned by the company are between 10% and 15% of the costs to operate the applicable resort, providing predictable revenue[51]. - Management agreements typically provide for a cost-plus management fee equal to 10% to 15% of the costs to operate the applicable resort[180]. Employee and Workforce - As of December 31, 2021, more than 13,000 team members were employed across various locations, including timeshare resorts and corporate offices[76]. - Approximately 75% of team members are enrolled in health and well-being programs, which include medical, dental, vision, and various voluntary benefits[83]. - In 2021, team members completed approximately 100,000 course completions during 70,000 total training hours, with over 36,000 course completions dedicated to compliance training[82]. - The company is committed to an inclusive workforce, currently having six Team Member Resource Groups (TMRGs) and planning to launch six additional groups[80]. Risks and Challenges - The company faces competition from major players in the timeshare industry, including Marriott Vacations Worldwide and Disney Vacation Club[58]. - The company faces significant business, financial, and operational risks inherent to the timeshare and hospitality industry, which could reduce revenues and limit growth opportunities[128]. - The company faces significant risks related to cyber-security, including potential breaches that could compromise customer and employee data, which may adversely affect its reputation and financial performance[190]. - The company is experiencing a labor shortage, exacerbated by the COVID-19 pandemic, which may impact its ability to achieve strategic objectives[160]. - The company is subject to various risks related to real estate investments, including interest rate fluctuations and the availability of financing, which could adversely affect financial results[150]. Regulatory and Compliance - The company is subject to extensive regulations governing its real estate development activities, and failure to comply could result in substantial costs and legal liabilities[198]. - Changes in telemarketing legislation have increased costs associated with marketing, and the company has implemented procedures to ensure compliance, though effectiveness is uncertain[199]. - Compliance with evolving privacy laws and regulations incurs significant costs, which may increase in the future, potentially impacting the company's ability to provide services[193]. - The company must continually adapt to changing regulatory requirements, which may require significant investments and could affect cash flow and operational results[202]. Debt and Indebtedness - As of December 31, 2021, the company's total indebtedness was approximately $4.2 billion[218]. - The company significantly increased its level of indebtedness by closing an unregistered offering of $850 million in senior notes due 2029 and $500 million in senior notes due 2031[218]. - The company borrowed term loans in an initial aggregate principal amount of $1.3 billion under a new senior secured term loan credit facility[218]. - The company's substantial debt could divert cash flow from operations for debt payments[218]. - Risks related to indebtedness could affect the company's ability to raise additional capital and operate its business effectively[218].