NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
Our Business
Hilton Grand Vacations Inc. (“Hilton Grand Vacations,” “we,” “us,” “our,” “HGV” or the “Company”) is a global timeshare company engaged in developing, marketing, selling, managing and operating timeshare resorts, timeshare plans and ancillary reservation services, primarily under the Hilton Grand Vacations brands. On January 17, 2024 (“Bluegreen Acquisition Date”), we completed the acquisition of Bluegreen Vacations Holding Corporation (“Bluegreen”) (the “Bluegreen Acquisition”).
Our operations primarily consist of selling vacation ownership intervals and vacation ownership interests (collectively, “VOIs” or “VOI”) for us and third parties; financing and servicing loans provided to consumers for their timeshare purchases; operating resorts and timeshare plans; and managing our clubs and exchange programs.
As of September 30, 2024, we had approximately 200 properties located in the United States (“U.S.”), Europe, the Caribbean, Mexico, Canada, and Asia. A significant number of our properties and VOIs are concentrated in Florida, Europe, Hawaii, California, South Carolina, Arizona, Virginia, and Nevada inclusive of the new locations we have expanded into through the Bluegreen Acquisition. We are in the process of rebranding many of the Diamond properties and anticipate rebranding the majority of Bluegreen properties and sales centers. We expect to begin rebranding certain Bluegreen properties in 2025 to the Hilton Grand Vacations brands and Hilton standards.
Basis of Presentation
The unaudited condensed consolidated financial statements presented herein include all of our assets, liabilities, revenues, expenses and cash flows as well as all entities in which we have a controlling financial interest. The determination of a controlling financial interest is based upon the terms of the governing agreements of the respective entities, including the evaluation of rights held by other interests. If the entity is considered to be a variable interest entity (“VIE”), we determine whether we are the primary beneficiary, and then consolidate those VIEs for which we have determined we are the primary beneficiary. If the entity in which we hold an interest does not meet the definition of a VIE, we evaluate whether we have a controlling financial interest through our voting interests in the entity. We consolidate entities when we own more than 50% of the voting shares of a company or otherwise have a controlling financial interest, including Bluegreen/Big Cedar Vacations LLC, a joint venture in which HGV is deemed to hold a controlling financial interest based on its 51% equity interest (“Big Cedar”), its active role as the day-to-day manager of its activities, and majority voting control of its management committee. HGV acquired its equity interest in Big Cedar as part of the Bluegreen Acquisition. All material intercompany transactions and balances have been eliminated in consolidation. Our accompanying unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation.
The unaudited condensed consolidated financial statements reflect our financial position, results of operations and cash flows as prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Although we believe the disclosures made are adequate to prevent information presented from being misleading, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of and for the year ended December 31, 2023, included in our Annual Report on Form 10-K filed with the SEC on February 29, 2024.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and, accordingly, ultimate results could differ from those estimates. Interim results are not necessarily indicative of full year performance.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Noncontrolling Interest
Noncontrolling interest reflects a third party’s ownership interest in Big Cedar that is consolidated in our unaudited condensed consolidated financial statements but is less than 100% owned by HGV. The noncontrolling interest is recognized as equity in our unaudited condensed consolidated balance sheet and presented separately from the equity attributable to stockholders.
The amounts of consolidated net income and comprehensive income attributable to stockholders and noncontrolling interest are separately presented in the unaudited condensed consolidated statements of operations and comprehensive income.
Accounting Pronouncements Not Yet Adopted
In November 2023, the FASB issued Accounting Standards Update 2023-07 (“ASU 2023-07”), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 provides amendments to improve reportable segment disclosure requirements both on an interim and annual basis, primarily through enhanced disclosures about significant segment expenses. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The adoption of ASU 2023-07 is expected to impact disclosures only and not have a material impact on our consolidated financial statements.
In December 2023, the FASB issued Accounting Standards Update 2023-09 (“ASU 2023-09”), Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 states that an entity must provide greater disaggregation of its effective tax rate reconciliation disclosure. The ASU also states that an entity must separately disclose net cash taxes paid between federal, state, and foreign jurisdictions. The guidance is effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. The guidance is to be applied prospectively, although retrospective application is permitted. The adoption of ASU 2023-09 is expected to impact disclosures only and not have a material impact on our consolidated financial statements.
NOTE 3: ACQUISITIONS
Bluegreen Acquisition
On January 17, 2024, we completed the Bluegreen Acquisition in an all-cash transaction, with total consideration of approximately $1.6 billion. The Bluegreen Acquisition is expected to broaden HGV’s offerings, customer reach and sales locations. Costs related to the Bluegreen Acquisition were $25 million and $162 million during the three and nine months ended September 30, 2024. These costs were expensed as incurred and included within Acquisition and integration-related expense in our unaudited condensed consolidated statements of operations.
The following table presents the preliminary fair value of each class of consideration transferred in relation to the Bluegreen Acquisition as of the Bluegreen Acquisition Date:
| | | | | |
($ in millions, except share and per share data) | |
| Number of Class A shares issued and outstanding | 12,504,138 |
| Number of Class B shares issued and outstanding | 3,664,117 |
| Number of Class A shares deliverable as equity awards | 673,169 |
| Total shares and related equity awards outstanding | 16,841,424 |
| Cash consideration to Bluegreen shareholders and equity award holders per share | $ | 75.00 | |
| Purchase price | $ | 1,263 | |
Repayment of Bluegreen debt(1) | 265 | |
Payment of seller transaction fees(2) | 28 | |
| Total consideration transferred | $ | 1,556 | |
(1) Reflects the balance of Bluegreen’s debt repaid by HGV.
(2) Reflects transaction-related expenses incurred by Bluegreen but paid by HGV.
Preliminary Fair Values of Assets Acquired, Liabilities Assumed and Noncontrolling Interest
We accounted for the Bluegreen Acquisition as a business combination, which requires us to record the assets acquired, liabilities assumed and noncontrolling interest at fair value as of the Bluegreen Acquisition Date. The preliminary fair values of the assets acquired, liabilities assumed, and noncontrolling interest, which are presented in the table below, and the related preliminary acquisition accounting are based on management’s estimates and assumptions, as well as information compiled by management, including the books and records of Bluegreen. Our estimates and assumptions are subject to change during the measurement period, not to exceed one year from the Bluegreen Acquisition Date. The magnitude of the Bluegreen Acquisition could necessitate the need to use the full one-year measurement period to adequately analyze and assess a number of the factors used in establishing the asset, liability and noncontrolling interest fair values as of the Bluegreen Acquisition Date. The final values may also result in changes to amortization expense related to intangible assets and depreciation expense related to property and equipment, among other changes. Any potential adjustments made could be material in relation to the values presented in the table below.
As discussed more fully below, the primary areas of the purchase price allocation that are not yet finalized include the following: (1) finalizing the review and valuation of acquired intangible assets (including key assumptions, inputs and estimates) and assigning the useful lives to such assets; (2) finalizing the review and valuation of acquired inventory, property and equipment (including key assumptions, inputs and estimates) and assigning the remaining useful lives to the depreciable assets; (3) finalizing the review and valuation of acquired timeshare financing receivables (including key assumptions, inputs and estimates); (4) finalizing the valuation of certain in-place contracts or contractual relationships (including but not limited to leases), including determining the appropriate amortization periods; (5) finalizing the review and valuation of other acquired assets, assumed liabilities, including debt assumed, and noncontrolling interest; and (6) finalizing our estimate of the impact of purchase accounting on deferred income tax liabilities.
| | | | | |
| ($ in millions) | Preliminary Amounts Recognized as of the Bluegreen Acquisition Date |
| Assets acquired | |
| Cash and cash equivalents | $ | 71 | |
| Restricted cash | 44 | |
Accounts receivable | 32 | |
| Timeshare financing receivables, net | 907 | |
| Inventory | 430 | |
| Property and equipment | 139 | |
Investment in unconsolidated affiliates | 5 | |
| Operating lease right-of-use assets | 19 | |
| Intangible assets | 752 | |
| Other assets | 85 | |
| Total assets acquired | 2,484 | |
| Liabilities assumed | |
| Accounts payable, accrued expenses and other | 143 | |
Advanced deposits | 40 | |
Debt | 162 | |
Non-recourse debt | 606 | |
Operating lease liabilities | 20 | |
| Deferred revenue | 19 | |
| Deferred income tax liabilities | 338 | |
| Total liabilities assumed | 1,328 | |
| Net assets acquired | $ | 1,156 | |
| |
| Total consideration transferred | $ | 1,556 | |
Less: Net assets acquired | (1,156) | |
Plus: Noncontrolling interest | 140 | |
Goodwill(1) | $ | 540 | |
(1)Goodwill is calculated as total consideration transferred less net assets acquired and it primarily represents the value that we expect to obtain from synergies and growth opportunities from our combined Company post-acquisition.
The measurement period adjustments recorded during the nine months ended September 30, 2024 resulted from changes to our estimates of the fair value of the acquired assets, assumed liabilities and noncontrolling interest based on management’s review of the historical accounting records and third-party valuations. The measurement period adjustments recorded during the nine months ended September 30, 2024 resulted primarily from a reduction to timeshare financing receivables of $17 million and an increase to inventory of $69 million based on management's review of key assumptions and historical performance of the acquired portfolio, a decrease in the marketing agreement intangible asset of $55 million driven by a modification to the projected cash flows, decreases to our estimates of the fair value of property plant and equipment of $42 million and capitalized software of $5 million, and a decrease in noncontrolling interest of $18 million resulting from a change in the projected cash flows. These adjustments resulted in a net increase to goodwill for the period of $17 million, net of tax impacts of $10 million. There were measurement period adjustments not impacting goodwill for the nine months ended September 30, 2024, primarily due to management's review of historical accounting records and
alignment of policies. These adjustments primarily consisted of $13 million from Cash and cash equivalents to Accounts payable, accrued expenses and other and $39 million from Deferred revenue to Advanced deposits. The prior period net income effect associated with the measurement period adjustments recorded during the nine months ended September 30, 2024 was $(4) million.
Timeshare Financing Receivables
We acquired timeshare financing receivables, net which consist of loans to customers who purchased vacation ownership products and chose to finance their purchases. These timeshare financing receivables, net are collateralized by the underlying VOIs and generally have 10-year amortizing repayment terms. We preliminarily estimated the fair value of the timeshare financing receivables using a discounted cash flow model, which calculated a present value of expected future risk-adjusted cash flows over the remaining term of the respective timeshare financing receivables. We are continuing to evaluate the significant assumptions underlying the discounted cash flow model including default severity and prepayment assumptions, which could result in changes to our preliminary estimate. We have determined that the entire acquired timeshare financing receivables portfolio was considered purchase credit deteriorated (“PCD”) assets as it shows evidence of more-than-insignificant deterioration in credit quality since origination. See Note 6: Timeshare Financing Receivables, net for additional information.
Acquired timeshare financing receivables with credit deterioration as of the Bluegreen Acquisition Date were as follows:
| | | | | |
| ($ in millions) | As of
January 17, 2024 |
| Purchase price | $ | 907 | |
| Allowance for credit losses | 220 | |
| Premium attributable to other factors | (169) | |
| Par value | $ | 958 | |
Inventory
We acquired inventory which primarily consists of completed unsold VOIs. We preliminarily estimated the fair value of acquired inventory using a discounted cash flows method, which included an estimate of cash flows expected to be generated from the sale of VOIs. Significant estimates and assumptions impacting the fair value of the acquired inventory that are subjective and/or require complex judgments include our estimates of operating costs and margins, and the discount rate. Certain other estimates and assumptions impacting the fair value of the acquired inventory involving less subjective and/or less complex judgments include: short-term and long-term revenue growth rates and other factors impacting the discounted cash flows. We are continuing to assess the market assumptions and property conditions as of the Bluegreen Acquisition Date, which could result in changes to these preliminary values.
Property and Equipment
We acquired property and equipment, which includes land, buildings and improvements, leasehold improvements, computer hardware and software, furniture, fixtures, and office equipment, machinery and equipment, vehicles, construction in progress, and other assets. For our preliminary analysis, we estimated the fair value of the property and equipment using a mix of cost and market approaches. In determining the fair value using the cost approach, we estimated the reproduction cost by applying inflation trending indices to the historical capitalized costs within the fixed asset details. We also relied on the market approach to determine the fair value of certain assets. In applying the market approach to value, we relied on the percent of cost method. In addition, certain property and equipment assets were held at their carrying value, which is our best estimate of fair value at this time given the information available. We are continuing to assess the market assumptions and property conditions as of the Bluegreen Acquisition Date, which could result in changes to these preliminary values.
Operating Lease Right-of-Use-Assets and Lease Liabilities
We have recorded a preliminary estimate of the liability for those operating leases assumed in connection with the Bluegreen Acquisition with a remaining term in excess of one year. We measured the lease liabilities assumed at the present value of the remaining contractual lease payments based on the guidance in Accounting Standards Codification Topic 842: Leases discounted at an incremental borrowing rate applicable to HGV determined as of the Bluegreen Acquisition Date. The right-of-use assets for such leases were measured at an amount equal to the lease liabilities, adjusted for the favorable or unfavorable leasehold position considering the contractual terms of the lease when compared with market terms. A small number of operating lease right of use assets and lease liabilities were preliminarily estimated at
carrying value. Additionally, any equipment lease was held at carrying value. We continue to assess the market assumptions as of the Bluegreen Acquisition Date, which could result in changes to our preliminary estimate.
Intangible Assets
The following table presents our preliminary estimates of the fair values of the acquired Bluegreen’s identified intangible assets and their related estimated useful lives:
| | | | | | | | | | | |
| Weighted Average Estimated Useful Life
(in years) | | Estimated Fair
Value
($ in millions) |
| Trade name | 7 | | $ | 30 | |
| Management contracts | 19 | | 479 | |
| Club member relationships | 11 | | 36 | |
| Capitalized software | 3 | | 7 | |
Marketing agreements | 17 | | 154 | |
| Other contract-related intangible assets | 12 | | 46 | |
| Total intangible assets acquired | | | $ | 752 | |
We preliminarily estimated the fair value of Bluegreen’s trade name using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future cash flows, discounted to present value. We preliminarily estimated the value of management contracts and club member relationships using the multi-period excess earnings method, which is a variation of the income approach. This method estimates an intangible asset’s value based on the present value of the incremental after-tax cash flows attributable to the intangible asset. The marketing agreements were valued using the with‑and‑without method of the income approach. Under this method, the value of an asset is a function of the differential of projected cash flows with the asset in place and the projected cash flows without the asset in place, discounted to present value. We continue to review Bluegreen’s contracts and historical performance in addition to evaluating the assumptions impacting the estimated values of such intangible assets and their respective useful lives, including the discount rate applied to the estimated cash flows and renewal and growth estimates and expected margins as of the Bluegreen Acquisition Date, which could result in changes to these preliminary values.
Debt
As part of the acquisition and consideration transferred, we paid off $265 million of Bluegreen’s existing corporate debt and accrued interest. We preliminarily estimated the fair value of the remaining assumed debt using a discounted cash flow model under the income approach. The significant assumptions include prepayment rates, interest rates and other structural factors. We are continuing to evaluate the significant assumptions underlying the discounted cash flow model as of the Bluegreen Acquisition Date, which could result in changes to our preliminary estimate.
Non-Recourse Debt
We preliminarily estimated the fair value of the securitized debt and warehouse loan facilities, using a discounted cash flow model under the income approach. The significant assumptions in our analysis include default rates, prepayment rates, bond interest rates and other structural factors. We are continuing to evaluate the significant assumptions underlying the discounted cash flow model as of the Bluegreen Acquisition Date, which could result in changes to our preliminary estimate.
Deferred Revenue
Deferred revenue primarily relates to deferred sales incentives revenues, including Bonus Points, which are deferred and recognized upon redemption; and Club membership fees, which are deferred and recognized over the terms of the applicable contract term or membership on a straight-line basis. We preliminarily estimated the fair value of the deferred revenue at the carrying value of such liabilities as of the Bluegreen Acquisition Date. We continue to review Bluegreen’s contracts as of the Bluegreen Acquisition Date, which could result in changes to the preliminary estimate.
Deferred Income Taxes
Deferred income taxes primarily relate to the fair value of assets and liabilities acquired from Bluegreen, including timeshare financing receivables, inventory, property and equipment, intangible assets, and debt. We preliminarily estimated deferred income taxes based on the blended U.S. federal and state statutory tax rate which approximates to 25%. Within the measurement period, we will continue to assess the tax rates used, and we will update our estimate of deferred income
taxes based on changes to our preliminary valuations of the related assets and liabilities and refinement of the effective tax rates as of the Bluegreen Acquisition Date, which could result in changes to these preliminary values.
Noncontrolling Interest
The acquired noncontrolling interest relates to Bluegreen/Big Cedar Vacations, LLC, a joint venture in which we are deemed to hold a controlling financial interest based on our 51% equity interest, our active role as the day-to-day manager of its activities, and our majority voting control of its management committee. We preliminarily estimated the fair value of the noncontrolling interest using a discounted cash flow model. We continue to assess the market assumptions as of the Bluegreen Acquisition Date, which could result in changes to our preliminary estimate.
Goodwill
We have recorded a preliminary estimate of $540 million of goodwill in connection with the Bluegreen Acquisition. We have allocated the acquired goodwill to our segments, Real Estate Sales and Financing and Resort Operations and Club Management, as indicated in the table below. Our allocations may change throughout the measurement period as we continue to finalize the fair value of assets acquired and liabilities assumed in the Bluegreen Acquisition. The majority of goodwill is not expected to be deductible for tax purposes.
| | | | | | | | | | | | | | | | | |
| Resort Operations and Club Management Segment | | Real Estate Sales and Financing Segment | | Total Consolidated |
| Goodwill | $ | 183 | | | $ | 357 | | | $ | 540 | |
Pro Forma Results of Operations
The following unaudited pro forma information presents the combined results of operations of HGV and Bluegreen as if we had completed the Bluegreen Acquisition on January 1, 2023, the first day of our 2023 fiscal year, but using our preliminary fair values of assets and liabilities as of the Bluegreen Acquisition Date. These unaudited pro forma results do not reflect any synergies from operating efficiencies. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the Bluegreen Acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations.
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| ($ in millions) | 2024 | | 2023 |
| Revenue | $ | 3,743 | | | $ | 3,747 | |
Net income | 34 | | | 197 | |
Bluegreen Results of Operations
The following table presents the results of Bluegreen operations included in our unaudited condensed consolidated statement of operations for the period from the Bluegreen Acquisition Date through September 30, 2024:
| | | | | |
| ($ in millions) | January 17, 2024 to September 30, 2024 |
| Revenue | $ | 679 | |
| Net loss | (9) | |
Grand Islander Acquisition
On December 1, 2023 (“Grand Islander Acquisition Date”), the Company completed the acquisition of BRE Grand Islander Parent LLC (“Grand Islander”), by exchanging 100% of the outstanding equity interests of Grand Islander for $117 million (the “Grand Islander Acquisition”). Prior to the acquisition, we managed the resort property in Hawaii owned by Grand Islander. The acquisition expands our product offerings and provides existing members upgrade opportunities to locations outside of the prior Fee-for-service arrangement. The purchase price of $117 million included cash consideration, as well as $4 million of non-cash consideration attributable to the effective settlement of a pre-existing relationship based on the contract value.
As of September 30, 2024, the preliminary fair values of the assets acquired includes $8 million of cash and cash equivalents, $28 million of restricted cash, $5 million of accounts receivable, $53 million of unsecuritized timeshare financing receivables, net, $199 million of securitized timeshare financing receivables, net, $15 million of inventory, and $2 million of other assets. Of the securitized timeshare financing receivables acquired, $128 million is used as collateral to secure a non-recourse revolving timeshare receivable credit facility (“Grand Islander Timeshare Facility”). The preliminary fair values of the liabilities assumed consist of $193 million of non-recourse debt and $4 million of other liabilities.
The estimated fair values of the assets acquired, and liabilities assumed and the related preliminary acquisition accounting were based on management’s estimates and assumptions, as well as other information compiled by management. We preliminarily estimated the fair value of the timeshare financing receivables and inventory using a discounted cash flow model, which calculated a present value of expected future risk-adjusted cash flows over the remaining term of the respective timeshare financing receivable and the sell-out period of the inventory, respectively. For non-recourse debt, we estimated the fair value using recent trades of the debt, using adjustments to recent trades of similar debt or the settlement amounts for debt that was repaid in close proximity to the Grand Islander Acquisition Date.
The timeshare financing receivables acquired were considered PCD assets. The following table presents the acquired assets with credit deterioration as of the Grand Islander Acquisition Date:
| | | | | |
| ($ in millions) | As of
December 1, 2023 |
| Purchase price | $ | 252 | |
| Allowance for credit losses | 24 | |
| Premium attributable to other factors | (2) | |
| Par value | $ | 274 | |
Goodwill of $4 million is calculated as total consideration transferred less net assets acquired. The measurement period adjustments recorded during the nine months ended September 30, 2024 resulted from changes to our estimates of the fair value of the acquired assets and assumed liabilities based on updates to preliminary valuations of acquired timeshare financing receivables and inventory. These resulted in an increase to goodwill for the period of $2 million. We have allocated the acquired goodwill of $4 million to our Real Estate Sales and Financing segment. Our allocations may change throughout the measurement period as we continue to finalize the fair value of assets acquired and liabilities assumed in the Grand Islander Acquisition, not to exceed one year from the Grand Islander Acquisition Date. The majority of goodwill is expected to be deductible for tax purposes.
NOTE 4: REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue
The following tables show our disaggregated revenues by product and segment from contracts with customers. We operate our business in the following two reportable segments: (i) Real estate sales and financing and (ii) Resort operations and club management. See Note 17: Business Segments for more information related to our segments.
| | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Real Estate Sales and Financing Segment | 2024 | | 2023 | | 2024 | | 2023 |
| Sales of VOIs, net | $ | 550 | | | $ | 367 | | | $ | 1,459 | | | $ | 1,040 | |
| Sales, marketing, brand and other fees | 159 | | | 170 | | | 471 | | | 501 | |
| Interest income | 96 | | | 68 | | | 280 | | | 199 | |
| Other financing revenue | 9 | | | 7 | | | 31 | | | 26 | |
| Real estate sales and financing segment revenues | $ | 814 | | | $ | 612 | | | $ | 2,241 | | | $ | 1,766 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Resort Operations and Club Management Segment | 2024 | | 2023 | | 2024 | | 2023 |
| Club management | $ | 74 | | | $ | 56 | | | $ | 204 | | | $ | 160 | |
| Resort management | 105 | | | 82 | | | 312 | | | 242 | |
Rental(1) | 171 | | | 160 | | | 521 | | | 469 | |
| Ancillary services | 12 | | | 11 | | | 38 | | | 33 | |
| Resort operations and club management segment revenues | $ | 362 | | | $ | 309 | | | $ | 1,075 | | | $ | 904 | |
(1)Excludes intersegment transactions. See Note 17: Business Segments for additional information.
Receivables from Contracts with Customers, Contract Liabilities, and Contract Assets
Our accounts receivable that relate to our contracts with customers includes amounts associated with our contractual right to consideration for completed performance obligations and are settled when the related cash is received. Accounts receivable are recorded when the right to consideration becomes unconditional and is only contingent on the passage of time. Our timeshare financing receivables consist of loans related to our financing of VOI sales that are secured by the underlying timeshare properties. See Note 6: Timeshare financing receivables for additional information.
The following table provides information on our contracts with customers which are included in Accounts receivable, net and Timeshare financing receivables, net, respectively, on our condensed consolidated balance sheets:
| | | | | | | | | | | |
| ($ in millions) | September 30, 2024 | | December 31, 2023 |
| Receivables from contracts with customers: | | | |
| Accounts receivable, net | $ | 249 | | | $ | 343 | |
| Timeshare financing receivables, net | 3,009 | | | 2,113 | |
| Total | $ | 3,258 | | | $ | 2,456 | |
Contract liabilities include payments received or due in advance of satisfying our performance obligations. Such contract liabilities include advanced deposits received on prepaid vacation packages for future stays at our resorts, deferred revenue related to sales of VOIs of projects under construction, club activation fees and annual dues, the liability for bonus points awarded to our customers for purchase of VOIs at our properties or properties under our fee-for-service arrangements that may be redeemed in the future, deferred maintenance fees and other deferred revenue.
The following table presents the composition of our contract liabilities:
| | | | | | | | | | | |
| ($ in millions) | September 30, 2024 | | December 31, 2023 |
| Contract liabilities: | | | |
| Advanced deposits | $ | 224 | | | $ | 179 | |
| Deferred sales of VOIs of projects under construction | 2 | | | 39 | |
Club activation fees and annual dues | 107 | | | 97 | |
Bonus point incentive liability(1) | 96 | | | 83 | |
| Deferred maintenance fees | 16 | | | 12 | |
| Other deferred revenue | 48 | | | 38 | |
(1)The balance includes $56 million and $54 million of bonus point incentive liabilities included in Accounts payable, accrued expenses and other on our condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively. This liability is for incentives from VOI sales and sales and marketing expenses in conjunction with our fee-for-service arrangements.
Revenue earned for the three and nine months ended September 30, 2024, that was included in the contract liabilities balance at December 31, 2023, was approximately $31 million and $167 million, respectively.
Contract assets relate to incentive fees that can be earned for meeting certain targets on sales of VOIs at properties under our fee-for-service arrangements; however, our right to consideration is conditional upon completing the requirements of the annual incentive fee period. As of September 30, 2024 and December 31, 2023, contract assets were $1 million and $13 million, respectively.
Transaction Price Allocated to Remaining Performance Obligations
Transaction price allocated to remaining performance obligations represents contract revenue that has not yet been recognized. Our contracts with remaining performance obligations primarily include (i) sales of VOIs under construction, (ii) club activation fees paid at closing of a VOI purchase, (iii) customers’ advanced deposits on prepaid vacation packages and (iv) bonus points that may be redeemed in the future.
Deferred VOI sales include deferred revenue from sales associated with phases or buildings under-construction and not yet completed. The following table presents the deferred revenue, deferred cost of VOI sales and deferred direct selling costs from sales of VOIs related to projects under construction:
| | | | | | | | | | | |
| ($ in millions) | September 30, 2024 | | December 31, 2023 |
| Sales of VOIs, net | $ | 2 | | | $ | 39 | |
| Cost of VOI sales | — | | | 10 | |
| Sales and marketing expense | — | | | 6 | |
During the nine months ended September 30, 2024, we recognized $106 million of sales of VOIs, net, offset by deferrals of $68 million, related to sales of projects under construction, some of which were completed during the year. We expect to recognize the revenue, costs of VOI sales and direct selling costs related to the projects under construction as of September 30, 2024, upon their completion.
The following table includes the remaining transaction price related to Advanced deposits, Club activation fees and Bonus points incentive liability as of September 30, 2024:
| | | | | | | | | | | | | | | | | |
| ($ in millions) | Remaining
Transaction Price | | Recognition Period | | Recognition Method |
| Advanced deposits | $ | 224 | | | 18 months | | Upon customer stays |
| Club activation fees | 65 | | | 7 years | | Straight-line basis over average inventory holding period |
| Bonus point incentive liability | 96 | | | 18 - 30 months | | Upon redemption |
NOTE 5: ACCOUNTS RECEIVABLE
Accounts receivable within the scope of ASC 326 are measured at amortized cost. The following table represents our accounts receivable, net of allowance for credit losses:
| | | | | | | | | | | |
| ($ in millions) | September 30, 2024 | | December 31, 2023 |
| Fee-for-service commissions | $ | 53 | | | $ | 57 | |
| Real estate and financing | 57 | | | 87 | |
| Resort and club operations | 139 | | | 199 | |
| Tax receivables | 134 | | | 97 | |
| Insurance claims receivable | — | | | 54 | |
| Other receivables | 17 | | | 13 | |
| Total | $ | 400 | | | $ | 507 | |
Our accounts receivable are generally due within one year of origination. We use delinquency status and economic factors such as credit quality indicators to monitor our receivables within the scope of ASC 326 and use these as a basis for how we develop our expected loss estimates.
The changes in our allowance were as follows during the nine months ended September 30, 2024:
| | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Fee-for-service commissions | | Real estate and financing | | Resort and club operations | | Total |
Balance as of December 31, 2023 | $ | 23 | | | $ | 34 | | | $ | 3 | | | $ | 60 | |
| Current period provision for expected credit losses | 6 | | | 11 | | | 13 | | | 30 | |
| Write-offs charged against the allowance | (8) | | | (10) | | | (1) | | | (19) | |
Balance as of September 30, 2024 | $ | 21 | | | $ | 35 | | | $ | 15 | | | $ | 71 | |
NOTE 6: TIMESHARE FINANCING RECEIVABLES
We define our timeshare financing receivables portfolio segments as (i) originated and (ii) acquired. Our originated portfolio represents timeshare financing receivables that originated after August 2, 2021 related to Diamond (“Legacy-Diamond”), after December 1, 2023 related to Grand Islander (“Legacy-Grand Islander”), after January 17, 2024 related to Bluegreen (“Legacy-Bluegreen”) and timeshare financing receivables that existed both prior to and following the
various acquisition dates (“Legacy-HGV”). Our acquired portfolio includes all timeshare financing receivables acquired from Legacy-Diamond, Legacy-Grand Islander and Legacy-Bluegreen that existed as of the respective acquisition dates.
The following table presents the components of each portfolio segment by class of timeshare financing receivables:
| | | | | | | | | | | | | | | | | | | | | | | |
| Originated | | Acquired |
| ($ in millions) | September 30,
2024 | | December 31,
2023 | | September 30,
2024 | | December 31,
2023 |
| Securitized | $ | 941 | | | $ | 770 | | | $ | 703 | | | $ | 214 | |
Unsecuritized(1) | 1,766 | | | 1,326 | | | 528 | | | 551 | |
| Timeshare financing receivables, gross | $ | 2,707 | | | $ | 2,096 | | | $ | 1,231 | | | $ | 765 | |
Unamortized non-credit acquisition premium(2) | — | | | — | | | 131 | | | 32 | |
| Less: allowance for financing receivables losses | (722) | | | (500) | | | (338) | | | (279) | |
| Timeshare financing receivables, net | $ | 1,985 | | | $ | 1,596 | | | $ | 1,024 | | | $ | 518 | |
(1)Includes amounts used as collateral to secure a non-recourse revolving timeshare receivable credit facility (“Timeshare Facility”) as well as amounts held as future collateral for securitization activities.
(2)Non-credit premium of $97 million was recognized at the Diamond Acquisition Date, of which $17 million and $26 million remains unamortized as of September 30, 2024 and December 31, 2023, respectively. A non-credit premium of $2 million was recognized at the Grand Islander Acquisition Date with $1 million remaining unamortized as of September 30, 2024 and December 31, 2023, respectively. Non-credit premium of $169 million was recognized at the Bluegreen Acquisition Date, of which $113 million remains unamortized as of September 30, 2024.
In April 2024, we completed a securitization of approximately $240 million of gross timeshare financing receivables and issued approximately $101 million of 5.75% notes, $58 million of 5.99% notes, $46 million of 6.62% notes, and $35 million of 8.85% notes due September 2039. The securitization transaction did not qualify as a sale and, accordingly, no gain or loss was recognized. The transaction is considered a secured borrowing, and the notes from the transaction are presented as non-recourse debt. The proceeds were used to pay down in part some of our existing debt and for other general corporate purposes. See Note 8: Consolidated Variable Interest Entities and Note 11: Debt and Non-recourse Debt for additional information.
In May 2024, we completed a securitization of approximately $375 million of gross timeshare financing receivables and issued approximately $217 million of 5.50% notes, $80 million of 5.65% notes, $57 million of 5.99% notes, and $21 million of 6.91% notes due March 2038. The securitization transaction did not qualify as a sale and, accordingly, no gain or loss was recognized. The transaction is considered a secured borrowing, and the notes from the transaction are presented as non-recourse debt. The proceeds were used to pay down in part some of our existing debt and for other general corporate purposes. See Note 8: Consolidated Variable Interest Entities and Note 11: Debt and Non-recourse Debt for additional information.
As of September 30, 2024 and December 31, 2023, we had timeshare financing receivables of $13 million and $415 million, respectively, securing the Timeshare Facility. In connection with the acquisitions of Grand Islander and Bluegreen, we had access to additional timeshare facilities, which were terminated during the first quarter of 2024.
For our originated portfolio, we record an estimate of variable consideration for defaults as a reduction of revenue from financed VOI sales at the time revenue is recognized. We record the difference between the timeshare financing receivable and the variable consideration included in the transaction price for the sale of the related VOI as an allowance for financing receivables and record the receivable net of the allowance. For our acquired portfolio, any changes to the estimates of our allowance are recorded within Financing expense on our unaudited condensed consolidated statements of operations in the period in which the change occurs.
We recognize interest income on our timeshare financing receivables as earned. As of September 30, 2024 and December 31, 2023, we had interest receivable outstanding of $19 million and $17 million, respectively, on our originated timeshare financing receivables. As of September 30, 2024 and December 31, 2023, we had interest receivable outstanding of $8 million and $4 million, respectively, on our acquired timeshare financing receivables. Interest receivable is included in Other Assets within our unaudited condensed consolidated balance sheets. The interest rate charged on the notes correlates to the risk profile of the customer at the time of purchase and the percentage of the purchase that is financed, among other factors. As of September 30, 2024, our originated timeshare financing receivables had interest rates ranging from 1.5% to 25.8%, a weighted-average interest rate of 15.2%, a weighted-average remaining term of 8.5 years and maturities through 2039. Our acquired timeshare financing receivables had interest rates ranging from 2.0% to 25.0%, a weighted-average interest rate of 14.9%, a weighted-average remaining term of 7.1 years and maturities through 2039.
We apply payments we receive for loans, including those in non-accrual status, to amounts due in the following order: servicing fees; interest; principal; and late charges. Once a loan is 91 days past due, we cease accruing interest and reverse the accrued interest recognized up to that point. During the nine months ended September 30, 2024 and 2023, we reversed $54 million and $55 million, respectively, of accrued interest income. We resume interest accrual for loans for which we had previously ceased accruing interest once the loan is less than 91 days past due. We fully reserve for a timeshare financing receivable in the month following the date that the loan is 121 days past due and, subsequently, we write off the uncollectible note against the reserve once the foreclosure process, which is governed by product type and local law, is complete.
Allowance for Financing Receivables Losses
The changes in our allowance for financing receivables losses were as follows:
| | | | | | | | | | | |
| ($ in millions) | Originated | | Acquired |
Balance as of December 31, 2023 | $ | 500 | | | $ | 279 | |
Initial allowance for PCD financing receivables acquired during the period(1) | — | | | 214 | |
Provision for financing receivables losses(2) | 272 | | | 2 | |
| Write-offs | (86) | | | (195) | |
| Inventory recoveries | — | | | 74 | |
Upgrades(3) | 36 | | | (36) | |
Balance as of September 30, 2024 | $ | 722 | | | $ | 338 | |
| | | | | | | | | | | |
| ($ in millions) | Originated | | Acquired |
Balance as of December 31, 2022 | $ | 404 | | | $ | 338 | |
Provision for financing receivables losses(2) | 115 | | | 2 | |
| Write-offs | (55) | | | (94) | |
| Inventory recoveries | — | | | 21 | |
Upgrades(3) | 9 | | | (9) | |
Balance as of September 30, 2023 | $ | 473 | | | $ | 258 | |
(1)The initial allowance determined for receivables with credit deterioration was $220 million as of the Bluegreen Acquisition Date. We also reduced the initial allowance determined for receivables with credit deterioration for Legacy-Grand Islander by $6 million.
(2)For the Originated portfolio segment, this amount includes incremental provision for financing receivables losses, net of activity related to the repurchase of defaulted and upgraded timeshare financing receivables. For the Acquired portfolio segment, this amount includes incremental provision for credit loss expense from Acquired loans.
(3)Represents the initial change in allowance resulting from upgrades of Acquired loans. Upgraded Acquired loans and their related allowance are included in the Originated portfolio segment.
Originated Timeshare Financing Receivables
Our originated timeshare financing receivables as of September 30, 2024 mature as follows:
| | | | | | | | | | | | | | | | | |
| Originated Timeshare Financing Receivables |
| ($ in millions) | Securitized | | Unsecuritized | | Total |
| Year | | | | | |
| 2024 (remaining) | $ | 25 | | | $ | 29 | | | $ | 54 | |
| 2025 | 102 | | | 116 | | | 218 | |
| 2026 | 109 | | | 128 | | | 237 | |
| 2027 | 112 | | | 142 | | | 254 | |
| 2028 | 111 | | | 160 | | | 271 | |
| Thereafter | 482 | | | 1,191 | | | 1,673 | |
| Total | $ | 941 | | | $ | 1,766 | | | $ | 2,707 | |
Acquired Timeshare Financing Receivables with Credit Deterioration
Our acquired timeshare financing receivables were deemed to be purchased credit deteriorated financial assets. These notes receivable were initially recognized at their purchase price, represented by the acquisition date fair value, and subsequently “grossed-up” by our acquisition date assessment of the allowance for credit losses. The difference over which
par value of the acquired purchased credit deteriorated assets exceeds the purchase price plus the initial allowance for financing receivable losses is reflected as a non-credit premium and is amortized as a reduction to interest income under the effective interest method.
The fair value of our acquired timeshare financing receivables as of each respective acquisition date was determined using a discounted cash flow method, which calculated a present value of expected future risk-adjusted cash flows over the remaining term of the respective timeshare financing receivables. Consequently, the fair value of the acquired timeshare financing receivables recorded on our unaudited condensed consolidated balance sheet as of the respective acquisition date included an estimate of expected financing receivable losses which became the historical cost basis for that portfolio going forward.
The allowance for financing receivable losses for our acquired timeshare financing receivables is remeasured at each period end and takes into consideration an estimated measure of anticipated defaults and early repayments. We consider historical timeshare financing receivables performance and the current economic environment in the re-measurement of the allowance for financing receivable losses for our acquired timeshare financing receivables. Subsequent changes to the allowance for acquired financing receivable losses are recorded within Financing expense on our unaudited condensed consolidated statements of operations in the period in which the change occurs.
Our gross acquired timeshare financing receivables as of September 30, 2024 mature as follows:
| | | | | | | | | | | | | | | | | |
| Acquired Timeshare Financing Receivables |
| ($ in millions) | Securitized | | Unsecuritized | | Total |
| Year | | | | | |
| 2024 (remaining) | $ | 20 | | | $ | 15 | | | $ | 35 | |
| 2025 | 85 | | | 59 | | | 144 | |
| 2026 | 91 | | | 60 | | | 151 | |
| 2027 | 93 | | | 62 | | | 155 | |
| 2028 | 91 | | | 65 | | | 156 | |
| Thereafter | 323 | | | 267 | | | 590 | |
| Total | $ | 703 | | | $ | 528 | | | $ | 1,231 | |
Credit Quality of Timeshare Financing Receivables
We evaluate these portfolios collectively for purposes of estimating variable consideration, since we hold a large group of homogeneous timeshare financing receivables which are individually immaterial. We monitor the collectability of our receivables on an ongoing basis. There are no significant concentrations of credit risk with any individual counterparty or groups of counterparties. We use a technique referred to as static pool analysis as the basis for estimating expected defaults and determining our allowance for financing receivables losses on our timeshare financing receivables. For the static pool analysis, we use several years of default data through which we stratify our portfolio using certain key dimensions to stratify our portfolio such as FICO scores and equity percentage at the time of sale. The adequacy of the related allowance is determined by management through analysis of several factors, such as current and forward-looking economic conditions and industry trends, as well as the specific risk characteristics of the portfolio including assumed default rates, aging and historical write-offs of these receivables.
Originated Timeshare Financing Receivables
Our originated gross balances by average FICO score of our originated timeshare financing receivables were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Originated |
| September 30, 2024 |
| ($ in millions) | Legacy-HGV | | Legacy-DRI | | Legacy-Grand Islander | | Legacy-Bluegreen | | Total |
| FICO score | | | | | | | | | |
| 700+ | $ | 923 | | | $ | 474 | | | $ | 18 | | | $ | 271 | | | $ | 1,686 | |
| 600-699 | 329 | | | 271 | | | 4 | | | 75 | | | 679 | |
| <600 | 40 | | | 38 | | | — | | | 2 | | | 80 | |
No score(1) | 232 | | | 10 | | | 18 | | | 2 | | | 262 | |
| Total | $ | 1,524 | | | $ | 793 | | | $ | 40 | | | $ | 350 | | | $ | 2,707 | |
(1)Timeshare financing receivables without a FICO score are primarily related to foreign borrowers.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Originated |
| December 31, 2023 |
| ($ in millions) | Legacy-HGV | | Legacy-DRI | | Legacy-Grand Islander | | Legacy-Bluegreen | | Total |
| FICO score | | | | | | | | | |
| 700+ | $ | 882 | | | $ | 403 | | | $ | 3 | | | $ | — | | | $ | 1,288 | |
| 600-699 | 311 | | | 220 | | | — | | | — | | | 531 | |
| <600 | 39 | | | 31 | | | — | | | — | | | 70 | |
No score(1) | 196 | | | 8 | | | 3 | | | — | | | 207 | |
| Total | $ | 1,428 | | | $ | 662 | | | $ | 6 | | | $ | — | | | $ | 2,096 | |
(1)Timeshare financing receivables without a FICO score are primarily related to foreign borrowers.
The following table details our gross originated timeshare financing receivables by the origination year and average FICO score as of September 30, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Originated Timeshare Financing Receivables |
| ($ in millions) | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Total |
| FICO score | | | | | | | | | | | | | |
| 700+ | $ | 766 | | | $ | 398 | | | $ | 277 | | | $ | 110 | | | $ | 25 | | | $ | 110 | | | $ | 1,686 | |
| 600-699 | 272 | | | 174 | | | 132 | | | 48 | | | 9 | | | 44 | | | 679 | |
| <600 | 25 | | | 23 | | | 18 | | | 7 | | | 1 | | | 6 | | | 80 | |
No score(1) | 109 | | | 63 | | | 31 | | | 16 | | | 10 | | | 33 | | | 262 | |
| Total | $ | 1,172 | | | $ | 658 | | | $ | 458 | | | $ | 181 | | | $ | 45 | | | $ | 193 | | | $ | 2,707 | |
| | | | | | | | | | | | | |
| Current period gross write-offs | $ | 2 | | | $ | 4 | | | $ | 38 | | | $ | 22 | | | $ | 4 | | | $ | 16 | | | $ | 86 | |
(1)Timeshare financing receivables without a FICO score are primarily related to foreign borrowers.
As of September 30, 2024 and December 31, 2023, we had ceased accruing interest on originated timeshare financing receivables with an aggregate principal balance of $282 million and $208 million, respectively. The following tables detail an aged analysis of our gross timeshare receivables balance:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Originated - Securitized |
| September 30, 2024 |
| ($ in millions) | Legacy-HGV | | Legacy-DRI | | Legacy-Grand Islander | | Legacy-Bluegreen | | Total |
| Current | $ | 605 | | | $ | 225 | | | $ | 1 | | | $ | 74 | | | $ | 905 | |
| 31 - 90 days past due | 11 | | | 8 | | | — | | | 2 | | | 21 | |
| 91 - 120 days past due | 4 | | | 4 | | | — | | | 1 | | | 9 | |
| 121 days and greater past due | 4 | | | 2 | | | — | | | — | | | 6 | |
| Total | $ | 624 | | | $ | 239 | | | $ | 1 | | | $ | 77 | | | $ | 941 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Originated - Unsecuritized |
| September 30, 2024 |
| ($ in millions) | Legacy-HGV | | Legacy-DRI | | Legacy-Grand Islander | | Legacy-Bluegreen | | Total |
| Current | $ | 753 | | | $ | 405 | | | $ | 38 | | | $ | 266 | | | $ | 1,462 | |
| 31 - 90 days past due | 17 | | | 15 | | | 1 | | | 4 | | | 37 | |
| 91 - 120 days past due | 5 | | | 5 | | | — | | | 1 | | | 11 | |
| 121 days and greater past due | 125 | | | 129 | | | — | | | 2 | | | 256 | |
| Total | $ | 900 | | | $ | 554 | | | $ | 39 | | | $ | 273 | | | $ | 1,766 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Originated - Securitized |
| December 31, 2023 |
| ($ in millions) | Legacy-HGV | | Legacy-DRI | | Legacy-Grand Islander | | Legacy-Bluegreen | | Total |
| Current | $ | 577 | | | $ | 162 | | | $ | — | | | $ | — | | | $ | 739 | |
| 31 - 90 days past due | 11 | | | 8 | | | — | | | — | | | 19 | |
| 91 - 120 days past due | 4 | | | 3 | | | — | | | — | | | 7 | |
| 121 days and greater past due | 2 | | | 3 | | | — | | | — | | | 5 | |
| Total | $ | 594 | | | $ | 176 | | | $ | — | | | $ | — | | | $ | 770 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Originated - Unsecuritized |
| December 31, 2023 |
| ($ in millions) | Legacy-HGV | | Legacy-DRI | | Legacy-Grand Islander | | Legacy-Bluegreen | | Total |
| Current | $ | 723 | | | $ | 366 | | | $ | 6 | | | $ | — | | | $ | 1,095 | |
| 31 - 90 days past due | 16 | | | 18 | | | — | | | — | | | 34 | |
| 91 - 120 days past due | 4 | | | 7 | | | — | | | — | | | 11 | |
| 121 days and greater past due | 91 | | | 95 | | | — | | | — | | | 186 | |
| Total | $ | 834 | | | $ | 486 | | | $ | 6 | | | $ | — | | | $ | 1,326 | |
Acquired Timeshare Financing Receivables
Our gross balances by average FICO score of our acquired timeshare financing receivables were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Acquired |
| September 30, 2024 |
| ($ in millions) | Legacy-DRI | | Legacy-Grand Islander | | Legacy-Bluegreen | | Total |
| FICO score | | | | | | | |
| 700+ | $ | 185 | | | $ | 48 | | | $ | 440 | | | $ | 673 | |
| 600-699 | 131 | | | 15 | | | 227 | | | 373 | |
| <600 | 29 | | | — | | | 9 | | | 38 | |
No score(1) | 9 | | | 133 | | | 5 | | | 147 | |
| Total | $ | 354 | | | $ | 196 | | | $ | 681 | | | $ | 1,231 | |
(1)Timeshare financing receivables without a FICO score are primarily related to foreign borrowers.
| | | | | | | | | | | | | | | | | | | | | | | |
| Acquired |
| December 31, 2023 |
| ($ in millions) | Legacy-DRI | | Legacy-Grand Islander | | Legacy-Bluegreen | | Total |
| FICO score | | | | | | | |
| 700+ | $ | 256 | | | $ | 66 | | | $ | — | | | $ | 322 | |
| 600-699 | 189 | | | 20 | | | — | | | 209 | |
| <600 | 42 | | | — | | | — | | | 42 | |
No score(1) | 12 | | | 180 | | | — | | | 192 | |
| Total | $ | 499 | | | $ | 266 | | | $ | — | | | $ | 765 | |
(1)Timeshare financing receivables without a FICO score are primarily related to foreign borrowers.
The following tables detail our gross acquired timeshare financing receivables by the origination year and average FICO score as of September 30, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Acquired Timeshare Financing Receivables |
| ($ in millions) | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Total |
| FICO score | | | | | | | | | | | | | |
| 700+ | $ | 18 | | | $ | 245 | | | $ | 102 | | | $ | 79 | | | $ | 59 | | | $ | 170 | | | $ | 673 | |
| 600-699 | 7 | | | 97 | | | 58 | | | 53 | | | 38 | | | 120 | | | 373 | |
| <600 | — | | | 3 | | | 2 | | | 5 | | | 7 | | | 21 | | | 38 | |
No score(1) | — | | | 32 | | | 23 | | | 13 | | | 18 | | | 61 | | | 147 | |
| Total | $ | 25 | | | $ | 377 | | | $ | 185 | | | $ | 150 | | | $ | 122 | | | $ | 372 | | | $ | 1,231 | |
| | | | | | | | | | | | | |
| Current period gross write-offs | $ | — | | | $ | 45 | | | $ | 25 | | | $ | 28 | | | $ | 24 | | | $ | 73 | | | $ | 195 | |
(1)Timeshare financing receivables without a FICO score are primarily related to foreign borrowers.
As of September 30, 2024 and December 31, 2023, we had ceased accruing interest on acquired timeshare financing receivables with an aggregate principal balance of $254 million and $279 million, respectively. The following tables detail an aged analysis of our gross timeshare receivables balance:
| | | | | | | | | | | | | | | | | | | | | | | |
| Acquired - Securitized |
| September 30, 2024 |
| ($ in millions) | Legacy-DRI | | Legacy-Grand Islander | | Legacy-Bluegreen | | Total |
| Current | $ | 112 | | | $ | 67 | | | $ | 488 | | | $ | 667 | |
| 31 - 90 days past due | 4 | | | 1 | | | 18 | | | 23 | |
| 91 - 120 days past due | 1 | | | 1 | | | 8 | | | 10 | |
| 121 days and greater past due | 2 | | | — | | | 1 | | | 3 | |
| Total | $ | 119 | | | $ | 69 | | | $ | 515 | | | $ | 703 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Acquired - Unsecuritized |
| September 30, 2024 |
| ($ in millions) | Legacy-DRI | | Legacy-Grand Islander | | Legacy-Bluegreen | | Total |
| Current | $ | 46 | | | $ | 106 | | | $ | 123 | | | $ | 275 | |
| 31 - 90 days past due | 3 | | | 2 | | | 7 | | | 12 | |
| 91 - 120 days past due | 1 | | | 1 | | | 3 | | | 5 | |
| 121 days and greater past due | 185 | | | 17 | | | 34 | | | 236 | |
| Total | $ | 235 | | | $ | 126 | | | $ | 167 | | | $ | 528 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Acquired - Securitized |
| December 31, 2023 |
| ($ in millions) | Legacy-DRI | | Legacy-Grand Islander | | Legacy-Bluegreen | | Total |
| Current | $ | 131 | | | $ | 71 | | | $ | — | | | $ | 202 | |
| 31 - 90 days past due | 6 | | | 1 | | | — | | | 7 | |
| 91 - 120 days past due | 2 | | | — | | | — | | | 2 | |
| 121 days and greater past due | 3 | | | — | | | — | | | 3 | |
| Total | $ | 142 | | | $ | 72 | | | $ | — | | | $ | 214 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Acquired - Unsecuritized |
| December 31, 2023 |
| ($ in millions) | Legacy-DRI | | Legacy-Grand Islander | | Legacy-Bluegreen | | Total |
| Current | $ | 92 | | | $ | 177 | | | $ | — | | | $ | 269 | |
| 31 - 90 days past due | 5 | | | 3 | | | — | | | 8 | |
| 91 - 120 days past due | 2 | | | 1 | | | — | | | 3 | |
| 121 days and greater past due | 258 | | | 13 | | | — | | | 271 | |
| Total | $ | 357 | | | $ | 194 | | | $ | — | | | $ | 551 | |
NOTE 7: INVENTORY
Inventory was comprised of the following:
| | | | | | | | | | | |
| ($ in millions) | September 30, 2024 | | December 31, 2023 |
| Completed unsold VOIs | $ | 1,665 | | | $ | 1,259 | |
| Construction in process | 577 | | | 140 | |
| Land, infrastructure and other | 1 | | | 1 | |
| Total | $ | 2,243 | | | $ | 1,400 | |
For the nine months ended September 30, 2024, we recorded non-cash operating activity transfers of $285 million related to the registrations for timeshare units under construction for three properties from Property and equipment, net to Inventory. As VOI inventory is constructed, it is recorded into Property and equipment, net until such units are registered and made available for sale. Once registered and available for sale, the units are then transferred into completed unsold VOIs inventory.
The table below presents cost of sales true-ups relating to VOI products and the related impacts to the carrying value of inventory and cost of VOI sales:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| ($ in millions) | 2024 | | 2023 | | 2024 | | 2023 |
Cost of sales true-up(1) | $ | 4 | | | $ | 22 | | | $ | 15 | | | $ | 51 | |
(1)For the three and nine months ended September 30, 2024 and 2023, respectively, the cost of sales true-up decreased cost of VOI sales and increased inventory.
NOTE 8: CONSOLIDATED VARIABLE INTEREST ENTITIES
As of September 30, 2024, we consolidated 17 VIEs. The activities of these entities are limited primarily to purchasing qualifying non-recourse timeshare financing receivables from us and issuing debt securities and/or borrowing under a debt facility to facilitate such purchases. The timeshare financing receivables held by these entities are not available to our creditors and are not our legal assets, nor is the debt that is securitized through these entities a legal liability to us.
We have determined that we are the primary beneficiaries of these VIEs as we have the power to direct the activities that most significantly affect their economic performance. We are also the servicer of these timeshare financing receivables and we often replace or repurchase timeshare financing receivables that are in default at their outstanding principal amounts. Additionally, we have the right to receive benefits that could be significant to them. Only the assets of our VIEs are available to settle the obligations of the respective entities.
We have aggregated the variable interests in the entities, including those associated with Bluegreen's outstanding timeshare financing receivables securitization transactions, as they are similar in nature. See Note 11: Debt and Non-recourse debt for additional information.
Our condensed consolidated balance sheets included the assets and liabilities of these entities, which primarily consisted of the following:
| | | | | | | | | | | |
| ($ in millions) | September 30, 2024 | | December 31, 2023 |
| Restricted cash | $ | 51 | | | $ | 48 | |
| Timeshare financing receivables, net | 1,383 | | | 1,395 | |
| Non-recourse debt, net | 1,547 | | | 1,466 | |
NOTE 9: INVESTMENTS IN UNCONSOLIDATED AFFILIATES
As of September 30, 2024 and December 31, 2023, we had ownership interests in BRE Ace LLC and 1776 Holding LLC, which are VIEs. We do not consolidate BRE Ace LLC and 1776 Holding LLC because we are not the primary beneficiary. These two unconsolidated affiliates have aggregated debt balances of $382 million and $427 million as of September 30, 2024 and December 31, 2023, respectively. The debt is secured by their assets and is without recourse to us. Our maximum exposure to loss as a result of our investment interests in the two unconsolidated affiliates is primarily limited to (i) the carrying amount of the investments, which totaled $73 million and $71 million as of September 30, 2024 and December 31, 2023, respectively, and (ii) receivables for commission and other fees earned under fee-for-service arrangements. See Note 16: Related Party Transactions for additional information.
During the nine months ended September 30, 2024, we received a cash distribution of $10 million from our investment in BRE Ace LLC.
For these VIEs, our investment interests are included in the condensed consolidated balance sheets as Investments in unconsolidated affiliates, and equity earned is included in the unaudited condensed consolidated statements of operations as Equity in earnings from unconsolidated affiliates.
As part of the Bluegreen Acquisition, we obtained variable interests within statutory business trusts (collectively, the “Trusts”) formed previously by wholly owned subsidiaries of Bluegreen. Each subsidiary issued trust preferred securities as part of a larger pooled trust securities offering which was not registered under the Securities Act of 1933 and invested the proceeds thereof in its junior subordinated debentures. The Trusts were VIEs in which the subsidiaries are not the primary beneficiaries. As of September 30, 2024, we paid down $171 million, which represented the full balance of the junior subordinated debentures acquired as part of the Bluegreen acquisition. See Note 11: Debt and Non-recourse debt for additional information.
NOTE 10: INTANGIBLE ASSETS
Intangible assets and related accumulated amortization were as follows:
| | | | | | | | | | | | | | | | | |
| September 30, 2024 |
| ($ in millions) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Trade name | $ | 48 | | | $ | (21) | | | $ | 27 | |
| Management contracts | 1,820 | | | (446) | | | 1,374 | |
| Club member relationships | 175 | | | (72) | | | 103 | |
| Capitalized software | 259 | | | (158) | | | 101 | |
Marketing agreements | 154 | | | (8) | | | 146 | |
Other contract-related intangible assets | 46 | | | (3) | | | 43 | |
| Total | $ | 2,502 | | | $ | (708) | | | $ | 1,794 | |
| | | | | |
| December 31, 2023 |
| ($ in millions) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Trade name | $ | 18 | | | $ | (18) | | | $ | — | |
| Management contracts | 1,340 | | | (347) | | | 993 | |
| Club member relationships | 139 | | | (57) | | | 82 | |
| Capitalized software | 207 | | | (124) | | | 83 | |
| Total | $ | 1,704 | | | $ | (546) | | | $ | 1,158 | |
We acquired definite-life intangible assets as part of the Bluegreen Acquisition, which have been valued on a preliminary basis, in the amount of $752 million as of the Bluegreen Acquisition Date. Refer to Note 3: Acquisitions for additional information.
Amortization expense on intangible assets was $56 million and $40 million for the three months ended September 30, 2024 and 2023, respectively, and $162 million and $118 million for the nine months ended September 30, 2024 and 2023, respectively. No intangible impairment charges were recognized during the three and nine months ended September 30, 2024 and 2023, respectively.
NOTE 11: DEBT AND NON-RECOURSE DEBT
Debt
The following table details our outstanding debt balance and its associated interest rates:
| | | | | | | | | | | |
| ($ in millions) | September 30, 2024 | | December 31, 2023 |
Debt(1) | | | |
Senior secured credit facility | | | |
Term loan with a rate of 7.747%, due 2028 | $ | 1,261 | | | $ | 1,271 | |
Term loan with a rate of 7.497%, due 2031 | 896 | | | — | |
Revolver with a rate of 7.295%, due 2026 | 668 | | | 438 | |
Senior notes with a rate of 5.000%, due 2029 | 850 | | | 850 | |
Senior notes with a rate of 4.875%, due 2031 | 500 | | | 500 | |
Senior notes with a rate of 6.625%, due 2032 | 900 | | | — | |
Other debt (4) | 37 | | | 33 | |
| Total debt, gross | 5,112 | | | 3,092 | |
Less: unamortized deferred financing costs and discounts(2)(3)(5) | (73) | | | (43) | |
| Total debt, net | $ | 5,039 | | | $ | 3,049 | |
(1)As of September 30, 2024 and December 31, 2023, weighted-average interest rates were 6.699% and 6.649%, respectively.
(2)Amount includes unamortized deferred financing costs related to our term loans and senior notes of $39 million and $25 million, respectively, as of September 30, 2024 and $21 million and $17 million, respectively, as of December 31, 2023. This amount also includes unamortized original issuance discounts of $6 million and $5 million as of September 30, 2024 and December 31, 2023, respectively.
(3)Amount does not include unamortized deferred financing costs of $3 million as of September 30, 2024 and December 31, 2023, respectively, related to our revolving facility which are included in Other assets in our unaudited condensed consolidated balance sheets.
(4)This amount includes $5 million related to the recourse portion on the NBA Receivables Facility, which is generally limited to the greater of 15% of the outstanding borrowings and $5 million, subject to certain exceptions.
(5)Amount also includes unamortized discount of $3 million related to the Bluegreen debt recognized at the Bluegreen Acquisition Date.
Senior secured credit facility
On January 17, 2024, we entered into Amendment No. 4 (the “Amendment”) to the Credit Agreement and incurred $900 million of new term loans that will mature on January 17, 2031. Proceeds from the new term loans were used to pay the Bluegreen Acquisition consideration, fees and expenses incurred in connection with the Amendment and to refinance the repayment of certain indebtedness of Bluegreen and its subsidiaries.
On April 8, 2024, we amended our Term Loan due 2028 under the Senior secured credit facility. Under the amendment, the new interest rate is SOFR plus 2.50%, down from SOFR plus 2.75%. Also, the credit spread adjustment for the Term Loan due 2028 was removed. On July 18, 2024, we amended our Term Loan due 2031 under the Senior secured credit facility. Under the amendment, the new interest rate is SOFR plus 2.25%, down from SOFR plus 2.75%.
On October 8, 2024, we entered into a new $400 million senior secured term loan (“Term Loan A”) due January 2028, with a pricing of SOFR plus 1.75%. The proceeds were used to partially pre-pay the Term Loan due 2028.
As of September 30, 2024, we had $24 million of letters of credit outstanding under the revolving credit facility and $1 million outstanding backed by cash collateral. We were in compliance with all applicable maintenance and financial covenants and ratios as of September 30, 2024. As of September 30, 2024, we have $308 million remaining borrowing capacity under the revolver facility.
We primarily use interest rate swaps as part of our interest rate risk management strategy for our variable-rate debt. These interest rate swaps are associated with the SOFR-based senior secured credit facility. As of September 30, 2024, these interest rate swaps convert the SOFR-based variable rate on our Term Loan due 2028 to average fixed rates of 1.55% per annum with maturities between 2026 and 2028, for the balance on this borrowing up to the notional values of our interest rate swaps. As of September 30, 2024, the aggregate notional values of the interest rate swaps under our Term Loan due 2028 was $550 million. Our interest rate swaps have been designated and qualify as cash flow hedges of interest rate risk and are recorded at their estimated fair value as an asset in Other assets in our condensed consolidated balance sheets. As of September 30, 2024 and December 31, 2023, the estimated fair values of our cash flow hedges were $29 million and $42 million, respectively. We characterize payments we make in connection with these derivative instruments as interest expense and a reclassification of accumulated other comprehensive income for presentation purposes. We classify cash inflows and outflows from derivatives that hedge interest rate risk within operating activities in the unaudited condensed consolidated statements of cash flows.
The following table reflects the activity, net of tax, in Accumulated other comprehensive income related to our derivative instruments during the nine months ended September 30, 2024:
| | | | | |
| Net unrealized gain on derivative instruments |
Balance as of December 31, 2023 | $ | 32 | |
| Other comprehensive income before reclassifications, net | 2 | |
Reclassifications to net income | (12) | |
Balance as of September 30, 2024 | $ | 22 | |
Senior Notes due 2032
On January 10, 2024, we completed an offering for $900 million aggregate principal amount of 6.625% senior secured notes due 2032 (“Senior Notes due 2032”) issued by our wholly-owned subsidiaries, Hilton Grand Vacations Borrower Escrow, LLC and Hilton Grand Vacations Borrower Escrow, Inc. Proceeds from the new secured notes were used to pay the Bluegreen Acquisition consideration, fees and expenses incurred in connection with the Amendment and to refinance the repayment of certain indebtedness of Bluegreen and its subsidiaries. The Senior Notes due 2032 are guaranteed on a senior secured basis by certain of our subsidiaries. We are in compliance with all applicable financial covenants as of September 30, 2024.
Senior Notes due 2029 and 2031
The Senior Unsecured Notes are guaranteed on a senior unsecured basis by certain of our subsidiaries. We are in compliance with all applicable financial covenants as of September 30, 2024.
Junior subordinated debentures
As part of the Bluegreen Acquisition, we assumed junior subordinated debentures. During the nine months ended September 30, 2024, the junior subordinated debentures were paid down in full for $171 million. See Note 9: Investments in Unconsolidated Affiliates for additional information.
Non-recourse Debt
The following table details our outstanding non-recourse debt balance and associated interest rates:
| | | | | | | | | | | |
| ($ in millions) | September 30,
2024 | | December 31, 2023 |
Non-recourse debt(1) | | | |
Timeshare Facility with an average rate of 6.530%, due 2027(2) | $ | — | | | $ | 400 | |
Grand Islander Timeshare Facility with an average rate of 6.716%, due 2029 | — | | | 124 | |
HGV Securitized Debt 2018 with a weighted average rate of 3.602%, due 2032 | 47 | | | 66 | |
HGV Securitized Debt 2019 with a weighted average rate of 2.431%, due 2033 | 53 | | | 70 | |
HGV Securitized Debt 2022-1 with a weighted average rate of 4.304%, due 2034 | 86 | | | 118 | |
HGV Securitized Debt 2022-2 with a weighted average rate of 4.826%, due 2037 | 141 | | | 188 | |
HGV Securitized Debt 2023 with a weighted average rate of 5.937%, due 2038 | 197 | | | 264 | |
HGV Securitized Debt 2024-2 with a weighted average rate of 5.685%, due 2038 | 333 | | | — | |
HGV Securitized Debt 2024-1 with a weighted average rate of 6.419%, due 2039 | 203 | | | — | |
HGV Securitized Debt 2020 with a weighted average rate of 3.658%, due 2039 | 73 | | | 95 | |
Grand Islander Securitized Debt 2017 with a weighted average rate of 2.965%, due 2029 | — | | | 15 | |
Grand Islander Securitized Debt 2019 with a weighted average rate of 3.316%, due 2033 | 41 | | | 55 | |
Diamond Resorts Owner Trust 2021 with a weighted average rate of 2.160%, due 2033 | 67 | | | 87 | |
Bluegreen Securitized Debt 2017 with a weighted average rate of 3.117%, due 2032 | 12 | | | — | |
Bluegreen Securitized Debt 2018 with a weighted average rate of 4.019%, due 2034 | 20 | | | — | |
Bluegreen Securitized Debt 2020 with a weighted average rate of 2.597%, due 2036 | 44 | | | — | |
Bluegreen Securitized Debt 2022 with a weighted average rate of 4.599%, due 2037 | 94 | | | — | |
Bluegreen Securitized Debt 2023 with a weighted average rate of 6.321%, due 2038 | 159 | | | — | |
Quorum Purchase Facility with an average rate of 5.020%, due 2034 | 6 | | | — | |
NBA Receivables Facility with an average rate of 6.630%, due 2031(5) | 17 | | | — | |
| Total non-recourse debt, gross | 1,593 | | | 1,482 | |
Less: unamortized deferred financing costs and discount(3)(4) | (29) | | | (16) | |
| Total non-recourse debt, net | $ | 1,564 | | | $ | 1,466 | |
(1)As of September 30, 2024 and December 31, 2023, weighted-average interest rates were 5.068% and 5.095%, respectively.
(2)The revolving commitment period of the Timeshare Facility terminates in March 2026; however, the repayment maturity date extends 12 months beyond the commitment termination date to March 2027.
(3)Amount relates to securitized debt only and does not include unamortized deferred financing costs of $3 million and $2 million as of September 30, 2024 and December 31, 2023, respectively, relating to our Timeshare Facility included in Other Assets in our condensed consolidated balance sheets.
(4)Amount also includes unamortized discount of $2 million related to the Grand Islander securitized debt recognized at the Grand Islander Acquisition Date and unamortized discount of $11 million related to the Bluegreen securitized and non-recourse debt recognized at the Bluegreen Acquisition Date.
(5)Recourse on the NBA Receivables Facility is generally limited to the greater of 15% of the outstanding borrowings and $5 million, subject to certain exceptions.
In April 2024, we completed a securitization of approximately $240 million of gross timeshare financing receivables and issued approximately $101 million of 5.75% notes, $58 million of 5.99% notes, $46 million of 6.62% notes, and $35 million of 8.85% notes due September 2039. The issued notes are backed by pledged assets, consisting primarily of a pool of Bluegreen timeshare financing receivables secured by first mortgages and a letter of credit. The notes are a non-recourse obligation and are payable solely from the pool of timeshare financing receivables pledged as collateral for the notes. The proceeds of the notes were used to pay down in part some of our existing debt and for other general corporate purposes. Additionally, in connection with the securitization, we incurred $4 million in debt issuance costs.
In May 2024, we completed a securitization of approximately $375 million of gross timeshare financing receivables and issued approximately $217 million of 5.50% notes, $80 million of 5.65% notes, $57 million of 5.99% notes, and $21 million of 6.91% notes due March 2038. The issued notes are backed by pledged assets, consisting primarily of a pool of timeshare loans secured by first mortgages, first deeds of trust, membership interests or timeshare interests (other than a fee simple interest in real estate). The notes are a non-recourse obligation and are payable solely from the timeshare financing receivables pledged as collateral for the notes. The proceeds of the notes were used to pay down in part some of our existing debt and for other general corporate purposes. Additionally, in connection with the securitization, we incurred $5 million in debt issuance costs.
The Timeshare Facility is a non-recourse obligation payable solely from the pool of timeshare financing receivables pledged as collateral and related assets. As of September 30, 2024, our Timeshare Facility has a remaining borrowing capacity of $750 million. In March 2024, we renewed our Timeshare Facility agreement under new terms, which included extending the commitment and maturity period to March 2026 and March 2027, respectively, and permitting to pledge as collateral certain timeshare loans associated to Grand Islander. On January 31, 2024, we terminated the Grand Islander Timeshare Facility. In connection with the Bluegreen Acquisition, we acquired an additional timeshare facility which was subsequently terminated in February 2024.
We are required to deposit payments received from customers on the timeshare financing receivables securing the Timeshare Facility and Securitized Debt into depository accounts maintained by third parties. On a monthly basis, the depository accounts are utilized to make required principal, interest and other payments due under the respective loan agreements. The balances in the depository accounts were $51 million and $48 million as of September 30, 2024 and December 31, 2023, respectively, and were included in Restricted cash in our condensed consolidated balance sheets.
Debt Maturities
The contractual maturities of our debt and non-recourse debt as of September 30, 2024 were as follows:
| | | | | | | | | | | | | | | | | |
| ($ in millions) | Debt | | Non-recourse Debt | | Total |
| Year | | | | | |
| 2024 (remaining three months) | $ | 6 | | | $ | 112 | | | $ | 118 | |
| 2025 | 27 | | | 378 | | | 405 | |
| 2026 | 693 | | | 310 | | | 1,003 | |
| 2027 | 23 | | | 237 | | | 260 | |
| 2028 | 1,238 | | | 180 | | | 1,418 | |
| Thereafter | 3,125 | | | 376 | | | 3,501 | |
| Total | $ | 5,112 | | | $ | 1,593 | | | $ | 6,705 | |
NOTE 12: FAIR VALUE MEASUREMENTS
The carrying amounts and estimated fair values of our financial assets and liabilities were as follows:
| | | | | | | | | | | | | | | | | |
| September 30, 2024 |
| | | Fair Value |
| ($ in millions) | Carrying
Amount | | Level 1 | | Level 3 |
| Assets: | | | | | |
Timeshare financing receivables, net(1) | $ | 3,009 | | | $ | — | | | $ | 3,215 | |
| Liabilities: | | | | | |
Debt, net(2) | 5,039 | | | 4,314 | | | 717 | |
Non-recourse debt, net(2) | 1,564 | | | 1,580 | | | 19 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| | | Fair Value |
| ($ in millions) | Carrying
Amount | | Level 1 | | Level 3 |
| Assets: | | | | | |
Timeshare financing receivables, net(1) | $ | 2,113 | | | $ | — | | | $ | 2,289 | |
| Liabilities: | | | | | |
Debt, net(2) | 3,049 | | | 2,496 | | | 483 | |
Non-recourse debt, net(2) | 1,466 | | | 867 | | | 592 | |
(1)Carrying amount net of allowance for financing receivables losses.
(2)Carrying amount net of unamortized deferred financing costs and discounts.
Our estimates of the fair values were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop the estimated fair values. The table above excludes interest rate swaps discussed below and cash and cash equivalents, restricted cash, accounts receivable and advanced deposits, all of which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments.
The estimated fair values of our originated and acquired timeshare financing receivables were determined using a discounted cash flow model. Our model incorporates default rates, coupon rates, credit quality and loan terms respective to the portfolio based on current market assumptions for similar types of arrangements.
The estimated fair values of our Level 2 derivative financial instruments were determined utilizing projected future cash flows discounted based on an expectation of future interest rates derived from observable market interest rate curves and market volatility. Refer to Note 11: Debt and Non-recourse Debt above.
The estimated fair values of our Level 1 debt and non-recourse debt were based on prices in active debt markets. The estimated fair values of our Level 3 debt and non-recourse debt were based on the following:
•Debt – based on indicative quotes obtained for similar issuances and projected future cash flows discounted at risk-adjusted rates.
•Non-recourse debt – based on projected future cash flows discounted at risk-adjusted rates.
NOTE 13: INCOME TAXES
The effective tax rate for the three months ended September 30, 2024 and 2023 was approximately 68% and 32%, respectively. The effective tax rate for the nine months ended September 30, 2024 and 2023 was approximately 66% and 28%, respectively. The effective tax rate increase quarter over quarter is due to the overall change in earnings. The effective tax rate increase year over year is primarily due to the overall change in earnings partially offset by discrete items relative to income before taxes. The discrete items are primarily comprised of unrecognized tax benefits. The difference between our effective tax rate as compared to the U.S. statutory federal tax rate of 21% is primarily due to the impact of state and foreign income taxes, the jurisdictional mix of earnings, and discrete items, primarily unrecognized tax benefits.
NOTE 14: SHARE-BASED COMPENSATION
Stock Plan
On May 3, 2023, the 2023 Omnibus Incentive Plan (“2023 Plan”) was approved by our stockholders to replace the 2017 Omnibus Incentive Plan and the 2017 Plan for Non-Employee Directors (the “2017 Plans”). The 2023 Plan authorizes the issuance of restricted stock units (“Service RSUs” or “RSUs”), nonqualified stock options (“Options”), time and performance-vesting restricted stock units (“Performance RSUs” or “PSUs”), and stock appreciation rights (“SARs”) to certain employees and directors. Pursuant to the 2023 Plan, 5,240,000 shares of our common stock are reserved for issuance. The 2017 Plans remain in place until all of the awards previously granted thereunder have been paid, forfeited or expired. Shares underlying awards that are canceled or forfeited under the 2017 Plans without the issuance of any shares are added to the 2023 Plan share pool. However, the shares which remained available for issuance under the 2017 Plans are no longer available for issuance, and all future awards will be granted pursuant to the 2023 Plan.
On March 4, 2024, we filed a Registration Statement on Form S-8 to register 118,078 shares of common stock, par value $0.01 per share, of HGV’s Common Stock that may be issued under the 2023 Plan in accordance with, and subject to the terms and conditions of, an exception under Rule 303A.08 of the NYSE Listed Company Manual (“Rule 303A.08”). The shares of Common Stock registered represented the number of shares of Bluegreen common stock that were available for issuance under the Bluegreen’s 2021 Incentive Plan immediately prior to the Bluegreen Acquisition, as appropriately adjusted to reflect the Bluegreen Acquisition and assumed by us, in accordance with Rule 303A.08.
On March 5, 2024, our Board of Directors approved transaction incentive awards (“Transaction Incentive Awards”) in connection with the Bluegreen Acquisition consisting of Performance RSUs and performance-based cash awards (the “Performance Cash Awards”) for certain executive officers and employees. The Transaction Incentive Awards were granted under, and pursuant to the terms and conditions of, the 2023 Plan, and the award agreements approved by the Compensation Committee. The Performance Cash Awards are $8 million and are payable based on the level of achievement of pre-established performance goals relating to run rate cost savings following an 18-month performance period commencing on the Bluegreen Acquisition Date, and ending on June 30, 2025. On September 30, 2024, due to achievement of certain run rate cost savings, fifty percent (50%) of the Performance Cash Awards vested and were payable to certain executive officers and employees. These performance cash awards were included within Acquisition and integration-related expense in our unaudited condensed consolidated statements of operations.
As of September 30, 2024, there were 3,921,501 shares of common stock available for future issuance under the 2023 Plan. We recognized share-based compensation expense of $11 million and $12 million for the three months ended September 30, 2024 and 2023 and $37 million, for the nine months ended September 30, 2024 and 2023, respectively.
As of September 30, 2024, unrecognized compensation costs for unvested awards were approximately $46 million, which is expected to be recognized over a weighted average period of 1.8 years.
Service RSUs
During the nine months ended September 30, 2024, we issued 710,784 Service RSUs with a weighted-average grant date fair value of $44.06, which generally vest in equal annual installments over three years from the date of grant.
Options
During the nine months ended September 30, 2024, we granted 388,084 Options with a weighted-average exercise price of $44.45, which generally vest over three years from the date of the grant. The weighted-average grant date fair value of these Options was $22.63, which was determined using the Black-Scholes-Merton option-pricing model with the assumptions included in the table below. Expected volatility is calculated using the historical volatility of our share price. Risk-free rate is based on the Treasury Constant Maturity Rate closest to the expected life as of the grant date. Expected term is estimated using the vesting period and contractual term of the Options.
| | | | | |
| Expected volatility | 47.7 | % |
Dividend yield (1) | — | % |
| Risk-free rate | 4.1% - 4.3% |
| Expected term (in years) | 6.0 |
(1)At the date of grant we had no plans to pay dividends during the expected term of these options.
As of September 30, 2024, we had 1,903,655 Options outstanding that were exercisable.
Performance RSUs
During the nine months ended September 30, 2024, we issued 156,809 Performance RSUs with a weighted-average grant date fair value of $44.54. The Performance RSUs are settled at the end of a 3-year performance period, with 50% of the Performance RSUs subject to achievement based on the Company’s adjusted earnings before interest expense, taxes and depreciation and amortization, further adjusted for net deferral and recognition of revenues and related direct expenses related to sales of VOIs of projects under construction. The remaining 50% of the Performance RSUs are subject to the achievement of certain contract sales targets.
As part of the Transaction Incentive Awards, we issued 275,477 Performance RSUs with a grant date fair value of $44.32. These Performance RSUs are settled at the end of a 2-year performance period commencing as of the Bluegreen Acquisition Date, with 50% of the Performance RSUs subject to achievement based on the Company’s adjusted earnings before interest expense, taxes and depreciation and amortization, further adjusted for net deferral and recognition of revenues and related direct expenses related to sales of VOIs of projects under construction. The remaining 50% of the Performance RSUs are subject to the achievement of certain run rate cost savings. These Performance RSUs are subject to the executive’s continued employment with the Company.
We determined that the performance conditions for our Performance RSUs are probable of achievement and, for the nine months ended September 30, 2024, and 2023, we recognized compensation expense based on the number of Performance RSUs we expect to vest.
Employee Stock Purchase Plan
In March 2017, the Board of Directors adopted the Hilton Grand Vacations Inc. Employee Stock Purchase Plan (the “ESPP”), which became effective during 2017. In connection with the ESPP, we issued 2.5 million shares of common stock which may be purchased under the ESPP. The Board of Directors amended the ESPP plan in 2022 to allow eligible employees to purchase shares of our common stock at a price per share not less than 85% of the fair market value per share of common stock on the first day of the Purchase Period or the last day of the Purchase Period, whichever is lower, up to a maximum threshold established by the plan administrator for the offering period. The amendment became effective in 2023. During the three months ended September 30, 2024, we recognized less than $1 million of compensation expense related to this plan. During the nine months ended September 30, 2024, we recognized $1 million of compensation expense related to this plan. During the three and nine months ended September 30, 2023, we recognized less than $1 million of compensation expense related to this plan, respectively.
NOTE 15: EARNINGS PER SHARE
The following tables present the calculation of our basic and diluted earnings per share (“EPS”) and the corresponding weighted average shares outstanding referenced in these calculations:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| ($ and shares outstanding in millions, except per share amounts) | 2024 | | 2023 | | 2024 | | 2023 |
| Basic EPS: | | | | | | | |
| Numerator: | | | | | | | |
Net income attributable to stockholders | $ | 29 | | | $ | 92 | | | $ | 27 | | | $ | 245 | |
| Denominator: | | | | | | | |
| Weighted average shares outstanding | 101.0 | | | 109.5 | | | 103.2 | | | 111.0 | |
Basic EPS(1) | $ | 0.28 | | | $ | 0.84 | | | $ | 0.26 | | | $ | 2.21 | |
| Diluted EPS: | | | | | | | |
| Numerator: | | | | | | | |
Net income attributable to stockholders | $ | 29 | | | $ | 92 | | | $ | 27 | | | $ | 245 | |
| Denominator: | | | | | | | |
| Weighted average shares outstanding | 102.0 | | | 110.9 | | | 104.4 | | | 112.6 | |
Diluted EPS(1) | $ | 0.28 | | | $ | 0.83 | | | $ | 0.26 | | | $ | 2.18 | |
| | | | | | | |
Basic weighted average shares outstanding | 101.0 | | | 109.5 | | | 103.2 | | | 111.0 | |
RSUs(2), PSUs(3), Options(4) and ESPP | 1.0 | | | 1.4 | | | 1.2 | | | 1.6 | |
Diluted weighted average shares outstanding | 102.0 | | | 110.9 | | | 104.4 | | | 112.6 | |
(1)Earnings per share amounts are calculated using whole numbers.
(2) Excludes approximately 42,000 and 214,000 shares of RSUs that would have been anti-dilutive to EPS under the treasury stock method for the three and nine months ended September 30, 2024. Also excludes approximately 11,000 shares of RSUs that would have been anti-dilutive to EPS under the treasury stock method for the three months ended September 30, 2023. These RSUs could potentially dilute EPS in the future. There were no anti-dilutive RSUs for the nine months ended September 30, 2023.
(3) Excludes approximately 14,000 and 9,000 shares of PSUs that would have been anti-dilutive to EPS under the treasury stock method for the three and nine months ended September 30, 2024. These PSUs could potentially dilute EPS in the future. There were no anti-dilutive PSUs for the three and nine months ended September 30, 2023.
(4) Excludes approximately 1,209,000 and 1,120,000 shares of Options that would have been anti-dilutive to EPS under the treasury stock method for the three and nine months ended September 30, 2024. Also excludes approximately 854,000 and 663,000 shares of Options that would have been anti-dilutive to EPS under the treasury stock method for the three and nine months ended September 30, 2023. These Options could potentially dilute EPS in the future.
Share Repurchases
On May 3, 2023, our Board of Directors approved a share repurchase program authorizing the Company to repurchase up to an aggregate of $500 million of its outstanding shares of common stock over a two-year period (the “2023 Repurchase Plan”). On August 7, 2024, our Board of Directors approved a new share repurchase program authorizing us to repurchase up to an aggregate of $500 million of our outstanding shares of common stock over a two-year period (the “2024 Repurchase Plan”), which is in addition to the 2023 Share Repurchase Plan. The following table summarizes stock repurchase activity under the share repurchase program as of September 30, 2024:
| | | | | | | | | | | |
| (in millions) | Shares | | Cost |
As of December 31, 2023 | 4 | | | $ | 141 | |
| Repurchases | 7 | | | 307 | |
As of September 30, 2024 | 11 | | | $ | 448 | |
From October 1, 2024 through October 31, 2024, we repurchased approximately 1.4 million shares for $50 million. As of October 31, 2024, we had $503 million of remaining availability under the share repurchase programs, of which $3 million was under the 2023 Repurchase Plan and $500 million was under the 2024 Repurchase Plan.
NOTE 16: RELATED PARTY TRANSACTIONS
BRE Ace LLC and 1776 Holding, LLC
We hold an ownership interest in BRE Ace LLC, a VIE, which owns a timeshare resort property and related operations, commonly known as “Elara, by Hilton Grand Vacations.”
We hold an ownership interest in 1776 Holding, LLC, a VIE, which owns a timeshare resort property and related operations, known as “Liberty Place Charleston, by Hilton Club.”
We record Equity in earnings from our unconsolidated affiliates in our unaudited condensed consolidated statements of operations. See Note 9: Investments in Unconsolidated Affiliates for additional information. Additionally, we earn commissions and other fees related to fee-for-service agreements with the investees to sell VOIs at Elara, by Hilton Grand Vacations and Liberty Place Charleston, by Hilton Club. These amounts are summarized in the following table and are included in Sales, marketing, brand, and other fees on our unaudited condensed consolidated statements of operations as of the date they became related parties.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| ($ in millions) | 2024 | | 2023 | | 2024 | | 2023 |
| Equity in earnings from unconsolidated affiliates | $ | 4 | | | $ | 2 | | | $ | 12 | | | $ | 7 | |
| Commissions and other fees | 38 | | | 51 | | | 118 | | | 159 | |
We also had $3 million and $19 million of outstanding receivables related to these fee-for-service agreements included in Accounts receivable, net on our condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively.
NOTE 17: BUSINESS SEGMENTS
We operate our business through the following two reportable segments:
•Real estate sales and financing – We market and sell VOIs that we own. We also source VOIs through fee-for-service agreements with third-party developers. Related to the sales of the VOIs that we own, we provide consumer financing, which includes interest income generated from the origination of consumer loans to customers to finance their purchase of VOIs and revenue from servicing the loans. We also generate fee revenue from servicing the loans provided by third-party developers to purchasers of their VOIs.
•Resort operations and club management – We manage the clubs and earn activation fees, annual dues and transaction fees from member exchanges for other vacation products. We also earn fees for managing the timeshare properties. We generate rental revenue from unit rentals of unsold inventory and inventory made available due to ownership exchanges under our club programs. We also earn revenue from food and beverage, retail and spa outlets at our timeshare properties.
The performance of our operating segments, which are also our reportable segments, is evaluated primarily based on adjusted earnings before interest expense (excluding non-recourse debt), taxes, depreciation and amortization (“EBITDA”). We define Adjusted EBITDA as EBITDA, further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with: (i) other gains, including asset dispositions and foreign currency transactions; (ii) debt restructurings/retirements; (iii) non-cash impairment losses; (iv) share-based and other compensation expenses; and (v) other items, including but not limited to costs associated with acquisitions, restructuring, amortization of premiums and discounts resulting from purchase accounting, and other non-cash and one-time charges.
We do not include equity in earnings from unconsolidated affiliates in our measures of segment operating performance.
The following table below presents revenues for our reportable segment results which include the acquired Grand Islander and Bluegreen operations, within both segments and as of their respective acquisition dates, reconciled to consolidated amounts:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| ($ in millions) | 2024 | | 2023 | | 2024 | | 2023 |
| Revenues: | | | | | | | |
| Real estate sales and financing | $ | 814 | | | $ | 612 | | | $ | 2,241 | | | $ | 1,766 | |
Resort operations and club management(1) | 383 | | | 322 | | | 1,129 | | | 944 | |
| Total segment revenues | 1,197 | | | 934 | | | 3,370 | | | 2,710 | |
| Cost reimbursements | 130 | | | 97 | | | 381 | | | 289 | |
Intersegment eliminations(1) | (21) | | | (13) | | | (54) | | | (40) | |
| Total revenues | $ | 1,306 | | | $ | 1,018 | | | $ | 3,697 | | | $ | 2,959 | |
(1)Includes charges to the Real estate sales and financing segment from the Resort operations and club management segment for fulfillment of discounted marketing package stays at resorts.
The following table presents Adjusted EBITDA for our reportable segments reconciled to net income:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| ($ in millions) | 2024 | | 2023 | | 2024 | | 2023 |
| Adjusted EBITDA: | | | | | | | |
Real estate sales and financing(1) | $ | 233 | | | $ | 205 | | | $ | 632 | | | $ | 563 | |
Resort operations and club management(1) | 156 | | | 126 | | | 442 | | | 358 | |
| Segment Adjusted EBITDA | 389 | | | 331 | | | 1,074 | | | 921 | |
| Acquisition and integration-related expense | (36) | | | (12) | | | (193) | | | (42) | |
| General and administrative | (44) | | | (40) | | | (147) | | | (130) | |
| Depreciation and amortization | (68) | | | (53) | | | (198) | | | (156) | |
| License fee expense | (49) | | | (37) | | | (124) | | | (101) | |
Other gain (loss), net | 9 | | | (1) | | | 1 | | | 3 | |
| Interest expense | (84) | | | (45) | | | (250) | | | (133) | |
Income tax expense | (61) | | | (44) | | | (53) | | | (96) | |
| Equity in earnings from unconsolidated affiliates | 4 | | | 2 | | | 12 | | | 7 | |
Impairment expense | — | | | — | | | (2) | | | (3) | |
Other adjustment items(2) | (28) | | | (9) | | | (86) | | | (25) | |
Net income | 32 | | | 92 | | | 34 | | | 245 | |
Net income attributable to noncontrolling interest | 3 | | | — | | | 7 | | | — | |
Net income attributable to stockholders | $ | 29 | | | $ | 92 | | | $ | 27 | | | $ | 245 | |
(1)Includes intersegment transactions. Refer to our table presenting revenues by reportable segment above for additional discussion.
(2)These amounts include costs associated with share-based compensation, restructuring, one-time charges and other non-cash items included within our reportable segments.
NOTE 18: COMMITMENTS AND CONTINGENCIES
Bass Pro Shops Marketing Agreement Commitments
In November 2023, we entered into a 10-year exclusive marketing agreement with Bass Pro Shops (“Bass Pro”), a nationally-recognized retailer of fishing, marine, hunting, camping and sports gear, that provides us with the right to market and sell vacation packages at kiosks in Bass Pro’s and Cabela’s retail locations and through other means. This agreement became effective on the Bluegreen Acquisition Date. As a part of this agreement, we are required to make certain minimum annual payments and certain variable payments based upon the number of travel packages sold during the year or the number of Bass Pro and Cabela’s retail locations HGV maintains during the year.
As of September 30, 2024, HGV had sales and marketing operations at a total of 132 Bass Pro Shops and Cabela’s Stores, including 9 virtual kiosks.
Other Commitments
We have fulfilled certain arrangements with developers where we were committed to purchase vacation ownership units or other real estate at a future date to be marketed and sold under our Hilton Grand Vacations brand. As of September 30, 2024, we are committed to purchase approximately $52 million of inventory over a period of two years and $25 million of other commitments in the normal course of business. We are also committed to an agreement to exchange parcels of land in Hawaii, subject to the successful completion of zoning, land use requirements and other applicable regulatory requirements. The actual amount and timing of the acquisitions are subject to change pursuant to the terms of the respective arrangements, which could also allow for cancellation in certain circumstances.
During the nine months ended September 30, 2024, we fulfilled $27 million of purchases required under our inventory commitments for properties in Japan. As of September 30, 2024, our remaining obligations were expected to be incurred as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2024
(remaining) | | 2025 | | 2026 | | 2027 | | 2028 | | Thereafter | | Total |
| | | | | | | | | | | | | |
Marketing and license fee agreements | $ | 5 | | | $ | 49 | | | $ | 64 | | | $ | 78 | | | $ | 83 | | | $ | 198 | | | $ | 477 | |
Inventory purchase obligations(1) | 37 | | | 6 | | | 9 | | | — | | | — | | | — | | | 52 | |
Other commitments(2) | 4 | | | 11 | | | 6 | | | 1 | | | 1 | | | 2 | | | 25 | |
| Total | $ | 46 | | | $ | 66 | | | $ | 79 | | | $ | 79 | | | $ | 84 | | | $ | 200 | | | $ | 554 | |
(1)Commitments for a properties in Japan and Missouri.
(2)Primarily relates to commitments related to information technology and sponsorships.
On October 8, 2024, we fulfilled our inventory commitment and purchased a property in Japan for $36 million.
Litigation Contingencies
We are involved in litigation arising from the normal course of business, some of which include claims for substantial sums. We evaluate these legal proceedings and claims at each balance sheet date to determine the degree of probability of an unfavorable outcome and, when it is probable that a liability has been incurred, our ability to reasonably estimate the amount of loss. We record a contingent litigation liability when it is determined that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
As of September 30, 2024, we accrued liabilities of approximately $8 million for all legal matters, none of which relate to the judgment entered against Diamond in March 2022 in connection with a case filed in 2015 (O’Malley v. Diamond Resorts Management, Inc.). During the first quarter of 2024, the judgment entered in O’Malley v. Diamond Resorts Management, Inc. was fully satisfied for approximately $104 million. Of this $104 million, we made a payment of approximately $50 million and our insurance policies covered the remaining $54 million. Since we received the portion from our insurance policies, we no longer have an insurance claim receivable within Accounts receivable, net in our unaudited condensed consolidated balance sheet as of September 30, 2024. During the nine months ended September 30, 2024, we recognized charges of approximately $2 million to General and administrative in our unaudited condensed consolidated statement of operations that represents the amount of the settlement liability not deemed probable of recovery from the insurance carriers, prior to the full settlement of the matter. In May 2024, we settled an additional legal matter for approximately $13 million that was previously recorded in Accounts payable and accrued expenses.
On July 22, 2024, an adverse interim award was entered in an arbitration related to a matter that existed as of the Bluegreen Acquisition Date involving Bluegreen Vacations Unlimited, Inc., a Bluegreen subsidiary, in connection with an alleged breach of a purchase and sale agreement for The Manhattan Club property in New York, New York. Prior to any decision by the arbitration panel on potential damages for breach, the interim award allows Bluegreen to propose a cure for the breach, which may involve purchases of inventory at The Manhattan Club and assuming the management agreement for The Manhattan Club. The Company is currently evaluating potential cure or other resolution of this matter, which is not currently estimable and could potentially result in a measurement period adjustment related to the liabilities assumed as part of the Bluegreen Acquisition. The Company has also filed a petition to vacate the interim award in the United States District Court for the Southern District of New York.
While we currently believe that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material effect on the Company’s financial condition, cash flows, or materially adversely affect overall trends in our results of operations, legal proceedings are inherently uncertain and unfavorable rulings could, individually or in aggregate, have a material adverse effect on the Company’s business, financial condition or results of operations.
Surety Bonds
We utilize surety bonds related to the sales of VOIs in order to meet regulatory requirements of certain states. The availability, terms and conditions and pricing of such bonding capacity are dependent on, among other things, continued financial strength and stability of the insurance company affiliates providing the bonding capacity, general availability of such capacity and our corporate credit rating. We have commitments from surety providers in the amount of $732 million as of September 30, 2024, which primarily consist of escrow, subsidy and construction related bonds.
NOTE 19: SUBSEQUENT EVENTS
On November 6, 2024, we entered into the Second Amended and Restated License Agreement (the “Amended License Agreement”) with Hilton Worldwide Holdings Inc. (“Hilton”). The Amended License Agreement amends, restates and supersedes the First Amended and Restated License Agreement, dated as of March 10, 2021, between HGV and Hilton, as amended by the First Amendment, dated as of April 4, 2022, the Second Amendment, dated as of November 5, 2023, and the Third Amendment, dated as of January 16, 2024. The Amended License Agreement covers certain amendments relating to, among other things, our continued integration of the Bluegreen Acquisition, including a rebranding plan of the Bluegreen properties to the Hilton Grand Vacations brands and Hilton standards and certain matters related to Bluegreen’s marketing arrangement with Choice Hotels International, Inc., which we assumed in connection with the Bluegreen Acquisition.
On November 7, 2024, we completed a $500 million securitization of timeshare loans through Hilton Grand Vacations Trust 2024-3 with an overall weighted average interest rate of 5.18% and an overall advance rate of 98%. The proceeds will primarily be used to pay down debt and for other general corporate purposes.