Hilton Grand Vacations Inc. · NYSE:HGV
Hilton Grand Vacations — Investor Presentation (December 2016)
77 slides from Hilton Grand Vacations's investor presentation, Dec 8, 2016
Slide 1: Investor Presentation December 2016
Investor Presentation December 2016 Exhibit 99.2
Slide 2: Disclaimer
D I S C L A I M E R This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, but are not limited to, statements related to our expec
Slide 3: Robert LaFleur, Investor Relations
3 © Hilton Grand Vacations Proprietary ROBERT L A FLEUR Vice President Investor Relations, Hilton Grand Vacations
Slide 4: Slide 4
Slide 5: Mark Wang, President & CEO
5 © Hilton Grand Vacations Proprietary MARK WANG President & CEO, Hilton Grand Vacations
Slide 6: Hilton Grand Vacations club membership
2) Hilton Grand Vacations. RESORTS» CLUB MEMBERSHIP — POINTS. SIGNIN OWNERSHIP oe wee | On of Gral d\Wadations
Slide 7: Hilton Grand Vacations account profile
® Hilton Grand Vacations. RESORTS CLUB MEMBERSHIP POINTS OWNERSHIP. Account Profile Welcome Back, Mark Member No. 1-123456 Member Since January 1998 Home Weeks Edit Profile Switch Accounts 2- Bedroom 7,000 Bay Club ronerosts Points Summary © 7,000 Points Summary saycun z000 s 2- Bedroom 9,600 F6.600
Slide 8: Vacation ownership is flexible
V A C A T I O N O W N E R S H I P I S F L E X I B L E (1) As of October 2016 Source: Company reports
Slide 9: Resorts: Grand Islander resort update
RESORTS The Grand Islander by Hilton Grand Vacations Club © Honolal, aval Resort Update
Slide 10: Grand Islander
G R A N D I S L A N D E R
Slide 11: Exceptional vacation offerings
E X C E P T I O N A L V A C A T I O N O F F E R I N G S GRAND WAIKIKIAN Waikiki, Hawaii
Slide 12: Exceptional vacation offerings
E X C E P T I O N A L V A C A T I O N O F F E R I N G S GRAND WAIKIKIAN Waikiki, Hawaii Standard hotel room
Slide 13: Exceptional vacation offerings
E X C E P T I O N A L V A C A T I O N O F F E R I N G S GRAND WAIKIKIAN Waikiki, Hawaii Standard hotel room
Slide 14: High-Quality Customer
14 © Hilton Grand Vacations Proprietary High-Quality Customer
Slide 15: High-quality, loyal customers
We consider our 265,000 members to be among the highest quality in the industry with: 93% Homeowners (Owners as of 9/30/16) $113,000 Average Household Income (Owners as of 9/30/16) Leisure Travel Days Per Year H I G H - Q U A L I T Y , L O Y A L C U S T O M E R S
Slide 16: High-quality, loyal customers
We consider our 265,000 members to be among the highest quality in the industry with: H I G H - Q U A L I T Y , L O Y A L C U S T O M E R S Baby Boomers Millennials Generation X (2016 New Owners)
Slide 17: High-quality, loyal customers
We consider our 265,000 members to be among the highest quality in the industry with: H I G H - Q U A L I T Y , L O Y A L C U S T O M E R S 1.78% Delinquency Rate (For Loans Over 30 Days Past Due Not in Default) (As of 9/30/16) 2.84% Loan Default Rate (Year ended 12/31/15) Weighted Average Fico Scor
Slide 18: The new paradigm in vacation ownership
T H E N E W P A R A D I G M I N V A C A T I O N O W N E R S H I P (1) Approximate Third Party based on a range of product cost times sales value of inventory. (2) 37/9 assets in Resort/Urban destinations, respectively
Slide 19: The new paradigm in vacation ownership
T H E N E W P A R A D I G M I N V A C A T I O N O W N E R S H I P (2) 37/9 assets in Resort/Urban destinations, respectively
Slide 20: The new paradigm in vacation ownership
T H E N E W P A R A D I G M I N V A C A T I O N O W N E R S H I P (1) Approximate Third Party based on a range of product cost times sales value of inventory. © Hilton Grand Vacations Proprietary
Slide 21: The new paradigm in vacation ownership
T H E N E W P A R A D I G M I N V A C A T I O N O W N E R S H I P
Slide 22: The new paradigm in vacation ownership
T H E N E W P A R A D I G M I N V A C A T I O N O W N E R S H I P
Slide 23: The new paradigm in vacation ownership
T H E N E W P A R A D I G M I N V A C A T I O N O W N E R S H I P (1) Approximate Third Party based on a range of product cost times sales value of inventory. (2) 37/9 assets in Resort/Urban destinations, respectively © Hilton Grand Vacations Proprietary
Slide 24: Lines of business
L I N E S O F B U S I N E S S Rental & Ancillary Financing Club & Resort Real Estate
Slide 25: Customer lifecycle
C U S T O M E R L I F E C Y C L E First Time Buyer • Deeded timeshare • Real Estate margin 27.5% YE 2015 Real Estate Credit • Loans to high-quality customers • Interest income • Origination and servicing fees Financing Dues & Fees • Manage resort HOAs – HOA management fees • Operate HGV Club – Club
Slide 26: Revenue lifecycle
Note: (1) Average, including spend related to follow-on VOI purchases, adjusted for defaults and share of customers financing; includes all interest revenue for contract sales; (2) Rental sales and retail sales associated with transient and marketing stays not attributed to members. Analysis represe
Slide 27: Revenue lifecycle
R E V E N U E L I F E C Y C L E We expect to generate 60% of a customer’s lifetime value after the initial purchase. Note: (1) Average, including spend related to follow-on VOI purchases, adjusted for defaults and share of customers financing; includes all interest revenue for contract sales; (2) Re
Slide 28: Evolution of the timeshare industry
Now: 2016 Then: 1985 $1.0B Annual Industry VOI Sales Consumer protection Single Location Limited Single-week Classified by Small Independent Players $8.6B Annual Industry VOI Sales Meaningful Consumer Protection Points-based Global Network Led by Major Hospitality Brands DNC Cool Off Lending Laws Ho
Slide 29: Consistent growth
C O N S I S T E N T G R O W T H (1) Unless otherwise noted, HGV Net VOI Sales data from historical financial statements. – HGV Net VOI Sales estimated due to lack of historic data.Note: (*) Started as Orange Lake Resort (**) Wyndham predecessor Fairfield entered the market in 1966, but went bankrupt
Slide 30: Strong market positioning
S T R O N G M A R K E T P O S I T I O N I N G (1) Starwood Vacation Ownership acquired by Interval Leisure Group in May 2016. Source: Company Financials Trailing 12-Month Sales Relative to Calendar Year 2007 HGV Market Share: 5 % 12% (‘07-‘15)
Slide 31: Strong market positioning
S T R O N G M A R K E T P O S I T I O N I N G (1) Starwood Vacation Ownership acquired by Interval Leisure Group in May 2016. Source: Company Financials
Slide 32: HGV's key drivers: demand, engagement and inventory
H G V ’ S K E Y D R I V E R S : D E M A N D , E N G A G E M E N T A N D I N V E N T O R Y Source: Company reports Revenue Growth 2015 Real Estate Revenue $949M 2013-2015 CAGR 10% Demand Approximately 300k owners/new customer tours Customer Engagement Supply
Slide 33: Highly effective customer engagement model
H I G H L Y E F F E C T I V E C U S T O M E R E N G A G E M E N T M O D E L Tours (000s)
Slide 34: Marketing channels
Hilton Hotel Marketing 8% Non-Hilton Affiliate 12% In House 25% Direct Marketing 49% Club Direct 6% M A R K E T I N G C H A N N E L S YTD 9/30/16 Marketing Mix 88% Hilton Affiliated Channels
Slide 35: Highly effective customer engagement model
H I G H L Y E F F E C T I V E C U S T O M E R E N G A G E M E N T M O D E L Sophisticated and high - tech experience for customers
Slide 36: Highly effective customer engagement model
H I G H L Y E F F E C T I V E C U S T O M E R E N G A G E M E N T M O D E L Premium closing rates, cost effective model and high rate of repeat purchase
Slide 37: Scale and strategic distribution locations
Hawaii 8M Southern California 34M New York 58M Las Vegas 40M Japan 126M Myrtle Beach 22M D.C. 19M Orlando 63M v 1 S C A L E A N D S T R A T E G I C D I S T R I B U T I O N L O C A T I O N S (1) Japan Population Source: In-Market Tourist Travel Board Note: Numbers denote annual visitation 200M+
Slide 38: Net owner growth
N E T O W N E R G R O W T H Member Growth (1999 – 2015)
Slide 39: Capital-Efficient Business Model
39 © Hilton Grand Vacations Proprietary Capital-Efficient Business Model
Slide 40: Capital-efficient business model: inventory sources
C A P I T A L - E F F I C I E N T B U S I N E S S M O D E L Inventory Sources as a Percentage of 2015 Contract Sales ($1,068 million) Developed - VOI inventory sourced from projects developed by HGV Just-in-Time - VOI inventory sourced in transactions that are designed to closely correlate the timin
Slide 41: HGV developed inventory
C A P I T A L - E F F I C I E N T B U S I N E S S M O D E L HGV Developed Inventory Capital: • HGV Capital Revenue Streams: • Sales of VOI • Financing • Club & Resort Management • Rental & Ancillary Margin: • vs. JIT - higher • vs. FFS - higher Return: • vs. JIT - lower • vs. FFS - lower
Slide 42: Just-in-time inventory
C A P I T A L - E F F I C I E N T B U S I N E S S M O D E L Just-in-Time Inventory Capital: • HGV Capital Revenue Streams: • Sales of VOI • Financing • Club & Resort Management • Rental & Ancillary Margin: • vs. Developed - lower • vs. FFS - higher Return: • vs. Developed - higher • vs. FFS - lower
Slide 43: Fee-for-service inventory
C A P I T A L - E F F I C I E N T B U S I N E S S M O D E L Fee-for-Service Inventory Capital: • Third Party Capital Revenue Streams: • Commissions & Brand Fees • Club & Resort Management • Rental & Ancillary Margin: • vs. Developed - lower • vs. JIT - lower Return: • vs. Developed - higher • vs. JI
Slide 44: Inventory spend 2007-2008 vs 2014-2015
$96M 2007-2008 Avg. 2014-2015 Avg.
Slide 45: HGV inventory position
H G V I N V E N T O R Y P O S I T I O N We have dramatically increased inventory , 81% capital-efficient as of 9/30/16 (1) As of September 30, 2016, supply of inventory equaled 5.5+ years of sales up from 2.7 years in 2011 Source: Company 10-Ks, Company presentation
Slide 46: Capital-efficient model allows rapid inventory development
T H E C A P I T A L - E F F I C I E N T M O D E L A L L O W S U S T O D E V E L O P I N V E N T O R Y R A P I D L Y A N D S U P P O R T H I G H E R S A L E S HGV Contract Sales (2011-2015) (Millions of Dollars)
Slide 47: Key development partners
v K E Y D E V E L O P M E N T P A R T N E R S (1) Represents the capital HGV would have spent if these weren’t Fee-for-Service projects: estimated product cost of 25% applied to the $5B estimated gross volume Source: Company reports $61M vs. ~$1.3B
Slide 48: Industry-leading fee-for-service inventory model
Source: Company 10-Ks, Company presentation We are the industry leader in fee-for-service Why HGV? I N D U S T R Y L E A D I N G F E E - F O R - S E R V I C E I N V E N T O R Y M O D E L rd rd returns to HGV and 3 party developers • Proof of concept • Strong brand • Leading industry performance • Ef
Slide 49: Key Investment Highlights
49 © Hilton Grand Vacations Proprietary Key Investment Highlights
Slide 50: Key investment highlights
K E Y I N V E S T M E N T H I G H L I G H T S Exclusive Long-Term Relationship with Hilton Sophisticated Customer Engagement Model Exceptional Vacation Offerings High-Quality Customers & Strong Net Owner Growth Differentiated, Capital-Efficient Business Model Strong Growth Opportunities Experienced
Slide 51: Exclusive long-term relationship with Hilton
Access to Hilton’s strong commercial engines E X C L U S I V E L O N G - T E R M R E L A T I O N S H I P W I T H H I L T O N • Exclusive rights to use the Hilton brand name in the timeshare space • Access to 58 million HHonors members • Industry-leading sales & marketing platform and continued use o
Slide 52: Sophisticated customer engagement model
170+ million Unique Individuals (proven Hilton affinity) Contactable (legal and business rule compliance) Profile (wealth score) Offer Capable (income and model) S O P H I S T I C A T E D C U S T O M E R E N G A G E M E N T M O D E L 89+ Million Qualified Prospects
Slide 53: Exceptional vacation offerings
E X C E P T I O N A L V A C A T I O N O F F E R I N G S TUSCANY RESORT Orlando, Florida SUNRISE LODGE Park City, Utah ELARA Las Vegas, Nevada WEST 57 th STREET New York, New York
Slide 54: High-quality, loyal customers
H I G H - Q U A L I T Y , L O Y A L C U S T O M E R S We consider our 265,000 members to be among the highest quality in the industry with: 93% Homeowners (Owners as of 9/30/16) $113,000 Average Household Income (Owners as of 9/30/16) Leisure Travel Days Per Year Baby Boomers Millennials Generation
Slide 55: Industry-leading net owner growth
I N D U S T R Y - L E A D I N G N E T O W N E R G R O W T H (1) Reflects 2014-2015 growth in members for Vistana Signature Experiences and Hyatt Vacation Ownership Source: Company analysis
Slide 56: Differentiated, capital-efficient business model
Development Model VOI Sales Focus Distribution Model Ability to Respond to Market Growth D I F F E R E N T I A T E D , C A P I T A L - E F F I C I E N T B U S I N E S S M O D E L Source: Company analysis Traditional Timeshare Model Capital Intensive Majority Owner Sales Dispersed/ Smaller Center Mod
Slide 57: International growth opportunities
I N T E R N A T I O N A L G R O W T H O P P O R T U N I T I E S Source: Company reports
Slide 58: Strong long-term industry fundamentals
S T R O N G L O N G - T E R M I N D U S T R Y F U N D A M E N T A L S Consumer Spending & Employment Favorable Domestic Tourism Trends Timeshare Industry to Recover Peak Levels Allowing HGV to Outperform given reduced competition and greater market share
Slide 59: Experienced and execution-focused management team
E X P E R I E N C E D A N D E X E C U T I O N - F O C U S E D M A N A G E M E N T T E A M Mark Wang President and Chief Executive Officer James Mikolaichik Chief Financial Officer Michael Brown Chief Operating Officer Stan Soroka Chief Customer Officer Barbara Holkamp Chief Human Resources Officer C
Slide 60: Board of directors
B O A R D OF D I R E C T O R S BRENDA J. BACON President and CEO of Brandywine Senior Living KENNETH A. CAPLAN Senior managing director and the global chief investment officer of Blackstone’s Real Estate Group, a division of The Blackstone Group DAVID W. JOHNSON President and CEO of Aimbridge Hospit
Slide 61: Strategic priorities
Grow Vacation Sales Grow Our Member Base Continue to Enhance Member Experiences Optimize our Sales Mix of Capital Efficient Inventory Pursue Opportunistic Business Ventures S T R A T E G I C P R I O R I T I E S Source: Company reports Grow contract sales with balanced mix of new and existing owners
Slide 62: Financial Strengths
62 © Hilton Grand Vacations Proprietary Financial Strengths JIM MIKOLAICHIK Chief Financial Officer, Hilton Grand Vacations
Slide 63: Key business drivers
K E Y B U S I N E S S D R I V E R S Real estate revenues driven by tours and closings Real estate margin driven by inventory, sales and marketing efficiency We finance 2/3 of our owned inventory sales and scale and low cost of funds drives financing margin Net owner growth focus expands member base
Slide 64: Key business drivers
K E Y B U S I N E S S D R I V E R S (1) % of developed contract sales financed (excluding 90-day “same as cash” loans).
Slide 65: Business segment: real estate sales and financing
B U S I N E S S S E G M E N T : R E A L E S T A T E S A L E S A N D F I N A N C I N G
Slide 66: Business segment: resort operations and club management
B U S I N E S S S E G M E N T : R E S O R T O P E R A T I O N S A N D C L U B M A N A G E M E N T
Slide 67: Resilient business model
R E S I L I E N T B U S I N E S S M O D E L Contribution to Segment Adjusted EBIDTA LTM 9/30/16
Slide 68: Revenue, Adjusted EBITDA and free cash flow
R E V E N U E , A D J U S T E D E B I T D A A N D F R E E C A S H F L O W (1) See appendix for a reconciliation of Adjusted EBITDA and Free Cash Flow. (2) Free cash flow calculated as cash flow from operations (adjusted for non-cash stock compensation) less non-inventory capex. Total Revenues Total
Slide 69: Long-term targets
L O N G - T E R M T A R G E T S ( - Y E A R M O D E L ) Operating Metrics • 4 to 6 percent tour flow growth • Contract sales growth of 5% to 7% • Net owner growth of 6% to 7% • Real estate margin 27% to 29% Financial Statement Metrics • Total revenue growth of 5% to 6% • G&A 18% to 20% growth rate i
Slide 70: Revenue and operating income growth
R E V E N U E A N D O P E R A T I N G I N C O M E G R O W T H Note: Graphs Show 2019E Range of Outcomes at 5% and 7% Contract Sales CAGR Revenue Net Income
Slide 71: Adjusted EBITDA and earnings per share growth
A D J U S T E D E B I T D A A N D E A R N I N G S P E R S H A R E G R O W T H Note: Graphs Show 2019E Range of Outcomes at 5% and 7% Contract Sales CAGR Adjusted EBITDA Earnings per Share
Slide 72: Flexible capitalization structure
F L E X I B L E C A P I T A L I Z A T I O N S T R U C T U R E Note: Financial figures as of 9/30/2016. • Total leverage of 1.3x and net leverage of 0.9x • Staggered debt maturity schedule with no maturities for the next 5 years • Attractive weighted average cost of debt of 4.82% • Adequate liquidity
Slide 73: Outlook
O U T L O O K Net Income $160M to $176M $170M to $186M Adjusted EBITDA $383M to $409M $390M to $415M Net Cash Provided by Operating Activities $151M to $158M $174M to $191M Free Cash Flow $125M to $135M $140M to $160M Contract Sales Growth 8% to 9% 5% to 7% FFS as % of Contract Sales 55% to 57% 52%
Slide 74: Historical Adjusted EBITDA reconciliation
H I S T O R I C A L A D J U S T E D E B I T D A R E C O N C I L I A T I O N (1) Non-recourse debt interest expense is excluded from the definition of EBITDA as per timeshare industry standard methodology. Year Ended December 31, Nine months ended Sep. 30, LTM ended Sep. 30, Total Revenues $1,224 $1,
Slide 75: LTM sales and segment Adjusted EBITDA reconciliation
L T M S A L E S A N D S E G M E N T A D J U S T E D E B I T D A R E C O N C I L I A T I O N Year Ended December 31, Nine months ended Sep. 30, LTM ended Sep. 30, Contract Sales 1,068 1,137 Fee-for-Service Sales Owned Sales Business Lines Real Estate Revenues Sales of VOIs, net Sales, marketing, bran
Slide 76: Forward-year Adjusted EBITDA reconciliation
(In millions) Low Case High Case Low Case High Case F O R W A R D - Y E A R A D J U S T E D E B I T D A R E C O N C I L I A T I O N (1) Represents adjustments for one-time public company costs 2016E 2017E Contract Sales 8% 9% 5% 7% FFS as % of contract sales 55% 57% 52% 57% Segment adjusted EBITDA G
Slide 77: Hilton Grand Vacations
HILTON GRAND VACATIONS
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