Hilton Grand Vacations Inc. · NYSE:HGV
Hilton Grand Vacations — Investor Presentation (March 2019)
34 slides from Hilton Grand Vacations's investor presentation, Mar 14, 2019
Slide 1: Investor Presentation March 2019
INVESTOR PRESENTATION M A R C H 2 0 1 9
Slide 2: Cautionary Note Regarding Forward-Looking Statements
1 Cautionary Note Regarding Forward-Looking Statements DISCLAIMER expectations This presentation as to contains the future forward-looking of HGV, and are statements based on within management’s the meaning beliefs, of Section expectations, 27A of the assumptions Securities Act and of such 1933, pla
Slide 3: Who We Are
WHO WE ARE 1 2 3 4 We have a winning Resilient and We manage for Our dynamic net owner growth proven business strong returns capital allocation driven demand model throughout through our unique strategy to strategy in a great economic cycles capital efficient maximize returns is industry that isn’t
Slide 4: Net Owner Growth (NOG) Driven Strategy
NET OWNER GROWTH (NOG) DRIVEN STRATEGY H I L T O N W A I K O L O A V I L L A G E © 2019 Hilton Grand Vacations Inc. Proprietary
Slide 5: NOG Is a Simple Yet Powerful Driver of Our Strategy
4 NOG IS A SIMPLE YET POWERFUL DRIVER OF OUR STRATEGY TO CREATE LONG-TERM SHAREHOLDER VALUE ADD RETAIN Net new existing Owner owners owners GROWTH Create Deliver exceptional NOG is the y-o-y % demand vacation experiences change in members Each new owner is a NOG increases the total We realize substa
Slide 6: Our NOG Strategy Embeds Substantial Value in Our Owner Base
5 OUR NOG STRATEGY EMBEDS SUBSTANTIAL VALUE IN OUR OWNER BASE FROM THREE HIGHLY PREDICTABLE AND/OR CONTRACTUAL SOURCES FINANCING – 69% MARGIN1 ï,§ Profits from existing loans and future owner upgradesï,§ 66% of buyers finance their purchasesï,§ Typically 10-year fixed-rate secured loans with average
Slide 7: We Monetize Embedded Value Near Term, Then Embed More Future Value
WE MONETIZE EMBEDDED VALUE IN THE NEAR TERM, THEN EMBED EVEN MORE FUTURE VALUE BY ADDING NEW OWNERS Embedded value of owner base ($M) (Rounded to nearest $100M) 700 3,800 3,600 1,100 Finance 1,000 (500) 1,200 Club and 1,100 Resort Real 1,500 1,500 Estate 2018 Embedded value Embedded value NOG Embedd
Slide 8: Upgrades Have Accelerated
UPGRADES HAVE ACCELERATED – OWNERS ARE UPGRADING FASTER AND MORE OFTEN % of owners with additional purchase Over 30% of our new 50% owners make an additional purchase in 3 years 40% 30% 20% 10% 0% 5 10 15 20 25 1 Years of ownership Existing owners are upgrading 5x quicker than the 90s Year first 201
Slide 9: Our NOG Strategy Has Driven Industry Leading EBITDA Growth
OUR NOG STRATEGY HAS DRIVEN INDUSTRY LEADING EBITDA GROWTH Adjusted EBITDA ($M) NOG Revenue ASC 605 CAGR CAGR (‘08-‘18) (‘08-‘18) 500 CAGR +11% 435 8% 7% 400 390 395 338 360 300 299 5%2 4%2 260 2016 – 2017 flat due to 200 G&A buildout 213 100 1% -1% 0 2011 2012 2013 2014 2015 2016 2017 20181 0% 2% 1
Slide 10: Hilton Is the World's Most Valuable Hotel Brand
HILTON IS THE WORLD’S MOST VALUABLE HOTEL BRAND 1 AND WE LEVERAGE KEY MARKETING BENEFITS FROM OUR RELATIONSHIP “Why did you consider purchasing a “Why did you purchase a timeshare T h e H i l t o n b r a n d i s a timeshare with HGV?” with HGV?” s i g n i f i c a n t i n f l u e n c e r 1. “I was of
Slide 11: Highest VPG in the Industry Despite Half of Sales From New Customers
DESPITE HALF OUR SALES COMING FROM NEW CUSTOMERS, WE STILL HAVE THE HIGHEST VPG IN THE INDUSTRY 2018 Volume Per Guest $3,743 48% OF SALES TO NEW CUSTOMERS $3,666 APPROX. $4,300 35% OF SALES TO NEW CUSTOMERS $2,642 48% OF SALES TO NEW CUSTOMERS Effective VPG if we sold 35% of sales to new $2,392 cust
Slide 12: Our Owner Base Is Globally Diverse and Growing
OUR OWNER BASE IS GLOBALLY DIVERSE AND GROWING 350 5% OTHER INT’L OWNERS 300 (PRIMARILY WESTERN EUROPE AND CANADA) 250 20% (000s) JAPANESE OWNERS 8% NOG CAGR Owners 200 150 75% U.S. OWNERS 8% NOG CAGR 100 2012 2013 2014 2015 2016 2017 2018 © 2019 Hilton Grand Vacations Inc. Proprietary
Slide 13: Strong US Owner Base and Unique Strength in Japan
STRONG US OWNER BASE AND UNIQUE STRENGTH IN JAPAN 75% 20% U.S. OWNERS JAPAN 56 92% AVG. OWNER AGE2 HOMEOWNERS2 61K+ ~JP¥13M OWNERS AVERAGE INCOME4 22% 64% ($117K USD) OF NEW OWNERS COLLEGE ARE MILLENNIALS2 EDUCATED2 ~$150K 749 16 69% AVERAGE INCOME3 FICO LEISURE DAYS PER YEAR4 COLLEGE EDUCATED4 20%
Slide 14: And We've Only Scratched the Surface
AND WE’VE ONLY SCRATCHED THE SURFACE APPROX. APPROX. APPROX. ~49M 49M 0.5% 128M 107M $75K+ Household $75K+ penetration in households in from age Household income targeted US America 25-74 income APPROX. market1 225K HGV owners in the US Source: 2017 US census data 1. Assumes one HGV owner per househ
Slide 15: Resiliency and Strength Through Multiple Cycles
RESILIENCY AND STRENGTH THROUGH MULTIPLE CYCLES O C E A N T O W E R B Y H I L T O N G R A N D V A C A T I O N S , W A I K O L O A , H A W A I I © 2019 Hilton Grand Vacations Inc. Proprietary
Slide 16: Tours Have Grown Consistently and Conversion Rates Remained in Tight Range
TOURS HAVE GROWN CONSISTENTLY AND CONVERSION RATES HAVE REMAINED IN A TIGHT RANGE EVEN IN RECESSIONARY TIMES Conversion rate (%) Tours (K) 400 15 300 10 200 5 100 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2001 Great Tours Conversion rate reces
Slide 17: Last Major Inventory Investment Period Was 2007-2008
OUR LAST MAJOR INVENTORY INVESTMENT PERIOD WAS 2007-2008 WHEN WE INVESTED $810 MILLION IN FOUR PROJECTS WE OPENED FOUR PROPERTIES Annual inventory spend ($M) DURING THE GREAT RECESSION 600 GRAND WAIKIKIAN (opened 2008) Honolulu, Hawaiiï,§ 80% Sold by 2012 400 WEST 57TH ST. (opened 2009) New York, Ne
Slide 18: We've More Than Doubled Our Sales and Market Share Since 2007
WE’VE MORE THAN DOUBLED OUR SALES AND MARKET SHARE SINCE 2007 5% 13% Net sales through recession HGV market share (2007-2017) Trailing 12-month sales, relative to 2007 HGV has captured more than 20% of the entire growth of the timeshare industry since 2009 250% HGV 200% 150% -3% HGV declined 3% Mark
Slide 19: Better Positioned for a Potential Slowdown Than in 2008
TODAY WE ARE EVEN BETTER POSITIONED FOR A POTENTIAL SLOWDOWN THAN WE WERE IN 2008 4.1% Sold packages Hilton Honors members Owners who have not Default rate1 upgraded 372K 85M 185K 5.7% 4.7% 106K 122K 23M 2008 2018 2008 2018 2008 2018 2008 2018 In addition, 2018 owner base is % of gross sales2 global
Slide 20: Timeshare Business Model Is Fundamentally Different From Traditional Hotels
WHILE THERE ARE SOME SIMILARITIES, THE TIMESHARE BUSINESS MODEL IS FUNDAMENTALLY DIFFERENT FROM TRADITIONAL HOTELS There are some high level similarities …but many key fundamentals are very different from between timeshare and hotels… the traditional hotel model • Top timeshare companies are • Very
Slide 21: Capital Efficient Inventory Strategy
CAPITAL EFFICIENT INVENTORY STRATEGY © 2019 Hilton Grand Vacations Inc. Proprietary
Slide 22: Diversified, Capital-Efficient Inventory Sourcing Strategy
DIVERSIFIED, CAPITAL -EFFICIENT INVENTORY SOURCING STRATEGY Capital efficient Traditional development deals development deals Fee for service Development deals Asset always sits on partner’s balance Asset sits on balance sheet from beginning sheet of project Just-in-time Inventory reacquisition Asse
Slide 23: Our Three Deal Structures Each Offer Attractive Returns
OUR THREE DEAL STRUCTURES EACH OFFER ATTRACTIVE RETURNS BUT SCALE AND TIMING OF RETURNS AND CASH FLOWS WILL VARY Cumulative Adj. EBITDA ($M) Cumulative Cash Flow ($M) Cash generated ($M) & ROIC (%) $80 $60 $70 $40 $57 M $60 $50 M $50 $20 $40 $0 $30 Cash invested in project1 : $26 M $20 -$20 Develope
Slide 24: Optimizing Mix of Owned and Capital Efficient Deals to Maximize Adjusted EBITDA
BY OPTIMIZING MIX OF OWNED AND CAPITAL EFFICIENT DEALS WE CAN MAXIMIZE ADJUSTED EBITDA GROWTH AND STILL DRIVE ROIC Note: based on actual committed pipeline and feasibility projects Adjusted EBITDA ($M) ROIC (%) 600 40 35 500 30 25 400 20 300 15 2016 2017 2018 2019 2020 2021 2016 2017 2018 2019 2020
Slide 25: Inventory Spending Commitments in Proven Sequel or Strategic New Markets
OUR INVENTORY SPENDING COMMITMENTS ARE IN PROVEN SEQUEL MARKETS OR STRATEGICALLY IMPORTANT NEW MARKETS Inventory spending ($ millions) Capital committed to strategic projects guidance1 opening within 4 years Project Sales Start Opening Japan (Odawara – Bay Forest) In Sales 2018 497 Hawaii (Ocean Tow
Slide 26: Dynamic Capital Allocation Strategy Supported by Strong Financial Performance
DYNAMIC CAPITAL ALLOCATION STRATEGY SUPPORTED BY STRONG FINANCIAL PERFORMANCE H I L T O N H A W A I I A N V I L L A G E , O A H U , H A W A I I © 2019 Hilton Grand Vacations Inc. Proprietary
Slide 27: Dynamic Approach to Allocating Capital and Maximizing Returns
WE WILL TAKE A DYNAMIC APPROACH TO ALLOCATING CAPITAL AND MAXIMIZING RETURNS INVEST IN INVENTORY / PRODUCT FOR PROFITABLE GROWTH Average of $375—$425M in investments per year over the next 3 years SHARE REPURCHASES STRATEGIC M&A AND DIVIDENDS Authorization to repurchase Maintain flexibility should $
Slide 28: Strong Fundamental Business Drivers
STRONG FUNDAMENTAL BUSINESS DRIVERS Tours (‘000) Members (‘000) +8% +8% 331 358 288 309 288 306 250 269 262 230 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Contract Sales ($M) Default Rate +12% 71% 12% 4 . 67% 4 . 1,410 22% 3 . 1,275 3 . 84% 905 1,068 1,172 2 . 2014 2015 2016 2017 2018 2014 20
Slide 29: Translate Into Healthy Revenue and Margin Growth
TRANSLATE INTO HEALTHY REVENUE AND MARGIN GROWTH Total Revenue ($M) Real Estate Margin ($M) Financing Margin ($M) +10% +8% +6% 1,904 307 329 95 102 104 109 1,475 1,583 1,711 244 271 286 88 1,317 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Resort & Club Margin ($M) Rent
Slide 30: Nearly 70% of Adjusted EBITDA From Recurring or Predictable Sources
NEARLY 70% OF OUR ADJUSTED EBITDA 1,2 COMES FROM RECURRING SOURCES OR HIGHLY PREDICTABLE OWNER UPGRADES Segment adjusted EBITDA Segment adjusted EBITDA ($M) 10% -15% Real estate EBITDA from 1,000 new owners 15%—20% Rental & ancillary EBITDA Real estate and transaction 32%—37% EBITDA from existing ow
Slide 31: 2019 Guidance
2019 GUIDANCE Guidance Metrics 2019 Net income $260M—$275M Earnings per share—diluted $2.74—$2.89 Adjusted EBITDA $450M—$470M Net cash flow provided by operating activities $75M—$115M Adjusted free cash flow $60M—$120M Contract sales growth 9%—11% FFS as % of contract sales 48%—54% Construction defe
Slide 32: Appendix
APPENDIX H I L T O N H A W A I I A N V I L L A G E , O A H U , H A W A I I © 2019 Hilton Grand Vacations Inc. Proprietary
Slide 33: Outlook Adjusted EBITDA and FCF Reconciliation
OUTLOOK ADJUSTED EBITDA AND FCF RECONCILIATION 2019E Low Case High Case ($ millions) Net income $260 $275 Income tax expense 97 103 Interest expense 30 27 Depreciation and amortization 42 39 Interest expense and depreciation and amortization from unconsolidated affiliates 1 2 EBITDA $430 $446 Share
Slide 34: Historical Adjusted EBITDA and FCF Reconciliation
HISTORICAL ADJUSTED EBITDA AND FCF RECONCILIATION For the year ending 12/31 (in millions) 20111 20121 20131 20141 20151 20161 20171 20181 Total revenues $1,007 $1,172 $1,224 $1,317 $1,475 $1,583 $1,711 $1,904 Net income 73 118 128 167 174 168 327 247 Interest expense 53 45 48 36 29 29 27 30 Income t
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