Hilton Grand Vacations Inc. - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_________ to ________

Commission file number 001-37794

Hilton Grand Vacations Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	81-2545345
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

6355 MetroWest Boulevard, Suite 180,
Orlando, Florida	32835
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code (407) 613-3100

(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.01 par value per share		HGV		New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, as of October 25, 2019 was 85,469,804.

HILTON GRAND VACATIONS INC.

FORM 10-Q TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1.		Financial Statements	2
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.		Controls and Procedures	48

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings		49
Item 1A.	Risk Factors		49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		49
Item 3.	Defaults Upon Senior Securities		49
Item 4.	Mine Safety Disclosures		49
Item 5.	Other Information		49
Item 6.	Exhibits		50
	Signatures		51

PART I FINANCIAL INFORMATION

Item 1.

Financial Statements

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

	September 30,		December 31,
	2019		2018
	(unaudited)
ASSETS
Cash and cash equivalents	$	113	$	108
Restricted cash		98		72
Accounts receivable, net of allowance for doubtful accounts of $19 and $14		137		153
Timeshare financing receivables, net		1,139		1,120
Inventory		518		527
Property and equipment, net		765		559
Operating lease right-of-use assets, net		62		—
Investments in unconsolidated affiliates		44		38
Intangible assets, net		87		81
Other assets		75		95
TOTAL ASSETS (variable interest entities - $799 and $647)	$	3,038	$	2,753
LIABILITIES AND EQUITY
Liabilities:
Accounts payable, accrued expenses and other	$	343	$	324
Advanced deposits		112		101
Debt, net		815		604
Non-recourse debt, net		795		759
Operating lease liabilities		78		—
Deferred revenues		165		95
Deferred income tax liabilities		236		254
Total liabilities (variable interest entities - $798 and $640)		2,544		2,137
Commitments and contingencies - see Note 19
Equity:
Preferred stock, $0.01 par value; 300,000,000 authorized shares, none issued or outstanding as of September 30, 2019 and December 31, 2018		—		—
Common stock, $0.01 par value; 3,000,000,000 authorized shares, 85,469,804 issued and outstanding as of September 30, 2019 and 94,558,086 issued and outstanding as of December 31, 2018		1		1
Additional paid-in capital		174		174
Accumulated retained earnings		319		441
Total equity		494		616
TOTAL LIABILITIES AND EQUITY	$	3,038	$	2,753

See notes to unaudited condensed consolidated financial statements.

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in millions, except per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenues
Sales of VOIs, net	$	138		$	99		$	383		$	427
Sales, marketing, brand and other fees		143			152			429			423
Financing		43			40			127			117
Resort and club management		45			40			130			116
Rental and ancillary services		54			60			173			164
Cost reimbursements		43			36			128			110
Total revenues		466			427			1,370			1,357
Expenses
Cost of VOI sales		24			29			92			109
Sales and marketing		188			174			544			528
Financing		14			12			39			35
Resort and club management		11			11			34			33
Rental and ancillary services		36			37			108			95
General and administrative		28			31			82			84
Depreciation and amortization		14			9			37			25
License fee expense		26			25			75			73
Cost reimbursements		43			36			128			110
Total operating expenses		384			364			1,139			1,092
Interest expense		(12	)		(7	)		(33	)		(22	)
Equity in earnings from unconsolidated affiliates		1			1			4			—
Other loss, net		(1	)		(1	)		(3	)		(1	)
Income before income taxes		70			56			199			242
Income tax expense		(20	)		(15	)		(55	)		(64	)
Net income	$	50		$	41		$	144		$	178
Earnings per share:
Basic	$	0.59		$	0.42		$	1.61		$	1.82
Diluted	$	0.59		$	0.42		$	1.60		$	1.81

See notes to unaudited condensed consolidated financial statements.

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in millions)

	Nine Months Ended September 30,
	2019			2018
Operating Activities
Net income	$	144		$	178
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		37			25
Amortization of deferred financing costs and other		7			4
Provision for financing receivables losses		60			50
Other loss, net		3			1
Share-based compensation		18			13
Deferred income tax benefit		(21	)		(21	)
Equity in earnings from unconsolidated affiliates		(4	)		—
Distributions received from unconsolidated affiliates		—			2
Net changes in assets and liabilities:
Accounts receivable, net		17			(39	)
Timeshare financing receivables, net		(79	)		(83	)
Inventory		(6	)		(15	)
Purchases and development of real estate for future conversion to inventory		(107	)		(299	)
Other assets		(22	)		(61	)
Accounts payable, accrued expenses and other		20			(15	)
Advanced deposits		11			13
Deferred revenues		70			42
Net cash provided by (used in) operating activities		148			(205	)
Investing Activities
Capital expenditures for property and equipment		(25	)		(29	)
Software capitalization costs		(19	)		(12	)
Return of investment from unconsolidated affiliates		—			11
Investments in unconsolidated affiliates		(2	)		(5	)
Net cash used in investing activities		(46	)		(35	)
Financing Activities
Issuance of debt		455			215
Issuance of non-recourse debt		365			663
Repayment of debt		(272	)		(168	)
Repayment of non-recourse debt		(327	)		(436	)
Debt issuance costs		(6	)		(6	)
Repurchase and retirement of common stock		(283	)		(112	)
Payment of withholding taxes on vesting of restricted stock units		(3	)		(4	)
Proceeds from employee stock plan purchases		2			—
Capital contribution		—			3
Other financing activity		(2	)		—
Net cash (used in) provided by financing activities		(71	)		155
Net increase (decrease) in cash, cash equivalents and restricted cash		31			(85	)
Cash, cash equivalents and restricted cash, beginning of period		180			297
Cash, cash equivalents and restricted cash, end of period	$	211		$	212

Supplemental disclosure of non-cash operating activities:
Cumulative effect of adoption of new accounting standard	$	—		$	38
Non-cash transfer from Other Assets to Inventory⁽¹⁾		2			—
Non-cash transfer from Inventory to Property and Equipment⁽²⁾		16			—
Non-cash transfer from Other Assets to Property and Equipment⁽²⁾		40			—
Supplemental disclosure of non-cash financing activities:
Issuance of other debt	$	23		$	—

⁽¹⁾	See Note 6: Inventory for more information.

⁽²⁾	See Note 7: Property and Equipment for more information.

See notes to unaudited condensed consolidated financial statements.

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in millions)

						Additional			Accumulated
	Common Stock					Paid-in			Retained			Total
	Shares			Amount		Capital			Earnings			Equity
Balance as of December 31, 2018		94		$	1	$	174		$	441		$	616
Net income		—			—		—			55			55
Activity related to share-based compensation		—			—		1			—			1
Repurchase and retirement of common stock		(3	)		—		(5	)		(92	)		(97	)
Balance as of March 31, 2019		91			1		170			404			575
Net income		—			—		—			39			39
Activity related to share-based compensation		—			—		10			—			10
Repurchase and retirement of common stock		(5	)		—		(11	)		(163	)		(174	)
Balance as of June 30, 2019		86			1		169			280			450
Net income		—			—		—			50			50
Activity related to share-based compensation		—			—		6			—			6
Repurchase and retirement of common stock		(1	)		—		(1	)		(11	)		(12	)
Balance as of September 30, 2019		85		$	1	$	174		$	319		$	494

						Additional			Accumulated
	Common Stock					Paid-in			Retained			Total
	Shares			Amount		Capital			Earnings			Equity
Balance as of December 31, 2017		99		$	1	$	162		$	355		$	518
Net income		—			—		—			30			30
Activity related to share-based compensation		—			—		(1	)		—			(1	)
Repurchase and retirement of common stock		(2	)		—		(3	)		(109	)		(112	)
Revenue recognition cumulative-effect adjustment		—			—		—			(38	)		(38	)
Capital contribution		—			—		3			—			3
Balance as of March 31, 2018		97			1		161			238			400
Net income		—			—		—			107			107
Activity related to share-based compensation		—			—		6			—			6
Other		—			—		3			1			4
Balance as of June 30, 2018		97			1		170			346			517
Net income		—			—		—			41			41
Activity related to share-based compensation		—			—		4			—			4
Balance as of September 30, 2018		97		$	1	$	174		$	387		$	562

See notes to unaudited condensed consolidated financial statements.

HILTON GRAND VACATIONS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Organization

Our Business

Hilton Grand Vacations Inc. (“Hilton Grand Vacations,” “we,” “us,” “our,” “ourselves,” “HGV” or the “Company”) is a global timeshare company engaged in developing, marketing, selling and managing timeshare resorts primarily under the Hilton Grand Vacations brand. Our operations primarily consist of: selling vacation ownership intervals (“VOIs”) for ourselves and third parties; financing and servicing loans provided to consumers for their timeshare purchases; operating resorts; and managing our points-based Hilton Grand Vacations Club exchange program (the “Club”). As of September 30, 2019, we had 57 properties, comprised of 9,177 units, located in the United States (“U.S.”), Japan, the United Kingdom, Italy and Barbados.

In connection with the completion of the spin-off in January 2017, we entered into agreements with Hilton Worldwide (“Hilton”) (who at the time was a related party) and other third parties, including licenses to use the Hilton Grand Vacations brand. The unaudited condensed consolidated financial statements reflect the effect of these agreements. For the three months ended September 30, 2019 and 2018, we incurred $36 million and $38 million, respectively, and for the nine months ended September 30, 2019 and 2018, we incurred $128 million and $135 million, respectively, in costs relating to the agreements entered with Hilton. See Key Agreements Related to the Spin-Off section in Part I - Item 1. Business of our Annual Report on Form 10-K for the year ended December 31, 2018 for further information.

Note 2: Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements presented herein include 100 percent of our assets, liabilities, revenues, expenses and cash flows as well as all entities in which we have a controlling financial interest. In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods. All material intercompany transactions and balances have been eliminated in consolidation.

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, 2018, included in our Annual Report on Form 10-K filed with the SEC on February 28, 2019.

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.

Summary of Significant Accounting Policies

Leases

We lease sales centers, office space and equipment under operating leases. We determine if an arrangement is a lease at inception. Amounts related to operating leases are included in Operating lease right-of-use (“ROU”) assets, net and Operating lease liabilities in our condensed consolidated balance sheets. Operating lease ROU assets are adjusted for lease incentives received.

ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term as of the commencement date. Because most of our leases do not provide an explicit or implicit rate of return, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments on an individual lease basis. Our incremental borrowing rate for a lease is the rate of interest we would have to pay on a collateralized basis to borrow an amount equal to the lease payments for the asset under similar terms.

We have lease agreements with lease and non-lease components. Our operating leases may require minimum rent payments, contingent rent payments based on a percentage of revenue or income or rental payments adjusted periodically for inflation or rent payments equal to the greater of a minimum rent or contingent rent. Our leases do not contain any residual value guarantees or material restrictive covenants. Leases with a lease term of 12 months or less are not recorded on the condensed consolidated balance sheets and lease expense is recognized on a straight-line basis over the lease term.

We monitor events or changes in circumstances that change the timing or amount of future lease payments which results in the remeasurement of a lease liability, with a corresponding adjustment to the ROU asset. ROU assets for operating and financing leases are periodically reviewed for impairment losses under ASC 360-10, Property, Plant, and Equipment, to determine whether a ROU asset is impaired, and if so, the amount of the impairment loss to recognize.

Recently Issued Accounting Pronouncements

Adopted Accounting Standards

On January 1, 2019, we adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) as amended, using the modified retrospective approach permitted under ASU No. 2018-11, Targeted Improvements, collectively Accounting Standards Codification Topic 842 (“ASC 842”). Accordingly, previously reported financial information has not been restated to reflect the application of the new standard to the comparative periods presented. As permitted under the transition guidance in ASC 842, we have made an accounting policy election to adopt the following package of practical expedients:

to not reassess whether expired or existing contracts are or contain leases;

ii.

to not reassess lease classification for expired or existing leases;

iii.

to not reassess any initial direct costs for any existing leases;

iv.

to not reassess the existence of a lease for existing or expired land easements that were not previously accounted for as leases;

to record short-term lease payments (less than 12 months) in profit and loss on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred; and

vi.

to not prospectively, and upon adoption, separate lease and non-lease components.

ROU assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ASC 842 had no impact on our condensed consolidated statements of operations or on our condensed consolidated statements of cash flows. Upon adoption, we recognized ROU assets of $68 million and operating lease liabilities of $80 million for our real estate and equipment operating leases on the condensed consolidated balance sheets.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, (“ASU 2016-13”), Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses. Subsequent to ASU 2016-13, the FASB has issued several related ASUs amending the original ASU. The updates are intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The update is effective for annual periods beginning after December 15, 2019. We are currently evaluating the effect of this ASU but we do not expect it to have a material impact on our unaudited condensed consolidated financial statements.

Note 3: Revenue from Contracts with Customers

Disaggregation of Revenue

The following tables show our disaggregated revenues by segment from contracts with customers. We operate our business in the following two segments: (i) Real estate sales and financing and (ii) Resort operations and club management. Please refer to Note 18: Business Segments below for more details related to our segments.

	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)	2019		2018		2019		2018
Real Estate and Financing Segment
Sales of VOIs, net	$	138	$	99	$	383	$	427
Sales, marketing, brand and other fees		143		152		429		423
Interest income		37		35		109		103
Other financing revenue		6		5		18		14
Real estate and financing segment revenues	$	324	$	291	$	939	$	967

	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)	2019		2018		2019		2018
Resort Operations and Club Management Segment
Club management	$	28	$	25	$	80	$	71
Resort management		17		15		50		45
Rental		48		53		153		144
Ancillary services		6		7		20		20
Resort operations and club management segment revenues	$	99	$	100	$	303	$	280

Contract Balances

The following table provides information on our accounts receivable and contract assets from contracts with customers which are included in Accounts receivable, net on our condensed consolidated balance sheets:

($ in millions)	September 30, 2019		December 31, 2018
Receivables	$	112	$	122
Contract assets		4		—

The following table presents the composition of our contract liabilities for the nine months ended September 30, 2019.


($ in millions)	September 30, 2019		December 31, 2018
Contract liabilities:
Advanced deposits	$	112	$	101
Deferred Sales of VOIs of projects under construction		49		—
Club activation fees, annual dues and other		99		72
Club Bonus Point incentive liability⁽¹⁾		65		56

⁽¹⁾

Amounts related to the Club Bonus Point incentive liability are included in Accounts payable, accrued expenses and other on our condensed consolidated balance sheets. This liability is comprised of revenue for incentives from VOI sales and sales and marketing expenses in conjunction with our fee-for-service arrangements.

Revenue earned during the three and nine months ended September 30, 2019 that was included in the contract liabilities balance at December 31, 2018 was approximately $16 million and $94 million, respectively.

Our accounts receivables that relate to our contracts with customers includes amounts associated with our contractual right to consideration for completed performance obligations related primarily to our fee-for-service arrangements and homeowners’ associations (“HOA”) management agreements 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. Refer to Note 5: Timeshare Financing Receivables for information on balances and changes in balances during the period related to our timeshare financing receivables.

Contract assets relate to incentive fees that can be earned for meeting certain target 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.

Contract liabilities include payments received or due in advance of satisfying our performance obligations. Such contract liabilities include advance deposits received on prepaid vacation packages for future stays at our resorts, deferred revenues related to sales of VOIs of projects under construction, club activation fees and annual dues and the liability for Club 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.

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) Club Bonus Points that may be redeemed in the future. As of September 30, 2019, we deferred $49 million of revenue and $7 million of direct selling costs from sales of VOIs under construction that will be acquired under a just-in-time arrangement once construction is complete. We expect to recognize the revenue and direct selling costs during the second quarter of 2020. Upon acquisition, we expect to recognize $16 million in costs of VOI sales related to these sales. As of December 31, 2018, we had no remaining performance obligations on sales of VOIs under construction.

The following table includes the remaining transaction price related to Advanced deposits, Club activation fees and Club Bonus Points as of September 30, 2019:

($ in millions)	Remaining Transaction Price		Recognition Period	Recognition Method
Advanced deposits	$	112	18 months	Upon customer stays
Club activation fees		68	7 years	Straight-line basis over average inventory holding period
Club Bonus Points		65	24 months	Upon redemption

Note 4: Restricted Cash

Restricted cash was as follows:

	September 30,		December 31,
($ in millions)	2019		2018
Escrow deposits on VOI sales	$	48	$	45
Reserves related to non-recourse debt⁽¹⁾		50		27
	$	98	$	72

⁽¹⁾	Includes a $21 million cash deposit that will be released upon future pledging of qualified collateral. See Note 11: Debt & Non-recourse Debt for further discussion.

Note 5: Timeshare Financing Receivables

Timeshare financing receivables were as follows:

	September 30, 2019
($ in millions)	Securitized and Pledged			Unsecuritized⁽¹⁾			Total
Timeshare financing receivables	$	795		$	523		$	1,318
Less: allowance for financing receivables losses		(60	)		(119	)		(179	)
	$	735		$	404		$	1,139

	December 31, 2018
($ in millions)	Securitized and Pledged			Unsecuritized⁽¹⁾			Total
Timeshare financing receivables	$	660		$	632		$	1,292
Less: allowance for financing receivables losses		(43	)		(129	)		(172	)
	$	617		$	503		$	1,120

⁽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 upcoming securitization activities.

As of September 30, 2019, we had timeshare financing receivables with a carrying value of $24 million securing the Timeshare Facility in anticipation of future financing activities. As of December 31, 2018, the carrying value of our timeshare financing receivables securing the outstanding debt balance of our Timeshare Facility was $171 million. We record an estimate of variable consideration for estimated defaults as a reduction of revenue from VOI sales at the time revenue is recognized on a VOI sale.

In August 2019, we completed a securitization of $300 million of gross timeshare financing receivables, which included a $21 million cash deposit that will be released upon future pledging of qualified collateral, and issued approximately $216 million of 2.34 percent notes, $50 million of 2.54 percent notes and $34 million of 2.84 percent notes, which have a stated maturity date of July 25, 2033. The securitization transaction did not qualify as a sale and, accordingly, no gain or loss was recognized. The transaction is considered a secured borrowing; therefore, the proceeds from the transaction are presented as non-recourse debt (collectively, the “Securitized Debt”). The proceeds were primarily used to pay down the remaining borrowings on our Timeshare Facility and our Securitized Debt with a rate of 2.280%, due 2026 and general corporate operating expenses. See Note 11: Debt and Non-recourse Debt for additional information.

Our timeshare financing receivables as of September 30, 2019 mature as follows:

($ in millions)	Securitized and Pledged			Unsecuritized			Total
Year
2019 (remaining)	$	22		$	22		$	44
2020		90			49			139
2021		94			50			144
2022		98			49			147
2023		101			50			151
Thereafter		390			303			693
		795			523			1,318
Less: allowance for financing receivables losses		(60	)		(119	)		(179	)
	$	735		$	404		$	1,139

We evaluate this portfolio 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 credit quality 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 determining our allowance for financing receivables losses on our timeshare financing receivables. For static pool analysis, we use certain key dimensions to stratify our portfolio, including FICO scores, equity percentage at the time of sale and certain other factors. The adequacy of the related allowance is determined by management through analysis of several factors, such as current 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. The allowance is maintained at a level deemed adequate by management based on a periodic analysis of the mortgage portfolio.

We recognize interest income on our timeshare financing receivables as earned. 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, 2019, our timeshare financing receivables had interest rates ranging from 3.9 percent to 20.5 percent, a weighted-average interest rate of 12.43 percent, a weighted-average remaining term of 7.8 years and maturities through 2034.

Our gross timeshare financing receivables balances by FICO score were as follows:

	September 30,		December 31,
($ in millions)	2019		2018
FICO score
700+	$	802	$	790
600-699		289		280
<600		38		37
No score⁽¹⁾		189		185
	$	1,318	$	1,292

⁽¹⁾	Timeshare financing receivables without a FICO score are primarily related to foreign borrowers.

We apply payments we receive for timeshare financing receivables, including those in non-accrual status, to amounts due in the following order: servicing fees; interest; principal; and late charges. Once a receivable is 91 days past due, we cease accruing interest and reverse the accrued interest recognized up to that point. We resume interest accrual for receivables for which we had previously ceased accruing interest once the receivable is less than 91 days past due. We fully reserve for a timeshare financing receivable in the month following the date that the receivable is 121 days past due and, subsequently, we write off the uncollectible balance against the reserve once the foreclosure process is complete and we receive the deed for the foreclosed unit.

As of September 30, 2019 and December 31, 2018, we had ceased accruing interest on timeshare financing receivables with an aggregate principal balance of $68 million and $69 million, respectively. The following tables detail an aged analysis of our gross timeshare financing receivables balance:

	September 30, 2019
($ in millions)	Securitized and Pledged		Unsecuritized		Total
Current	$	783	$	449	$	1,232
31 - 90 days past due		7		11		18
91 - 120 days past due		3		5		8
121 days and greater past due		2		58		60
	$	795	$	523	$	1,318

	December 31, 2018
($ in millions)	Securitized and Pledged		Unsecuritized		Total
Current	$	648	$	556	$	1,204
31 - 90 days past due		8		11		19
91 - 120 days past due		3		3		6
121 days and greater past due		1		62		63
	$	660	$	632	$	1,292

The changes in our allowance for financing receivables losses were as follows:

	September 30, 2019
($ in millions)	Securitized and Pledged			Unsecuritized			Total
Balance as of December 31, 2018	$	43		$	129		$	172
Write-offs		—			(53	)		(53	)
Securitizations		29			(29	)		—
Provision for financing receivables losses⁽¹⁾		(12	)		72			60
Balance as of September 30, 2019	$	60		$	119		$	179

	September 30, 2018
($ in millions)	Securitized and Pledged			Unsecuritized			Total
Balance as of December 31, 2017	$	27		$	114		$	141
Write-offs		—			(22	)		(22	)
Securitization		30			(30	)		—
Provision for financing receivables losses⁽¹⁾		(10	)		60			50
Balance as of September 30, 2018	$	47		$	122		$	169

⁽¹⁾	Includes incremental provision for financing receivables losses, net of activity related to the repurchase of defaulted and upgraded securitized timeshare financing receivables.

Note 6: Inventory

Inventory was as follows:

	September 30,		December 31,
($ in millions)	2019		2018
Completed unsold VOIs	$	249	$	243
Construction in process		11		9
Land, infrastructure and other		258		275
	$	518	$	527

For the nine months ended September 30, 2019, we recorded non-cash operating activity transfers from Inventory to Property and equipment. See Note 7: Property and Equipment. Additionally, we recorded non-cash transfers from Other assets to Inventory of $2 million related to the reclassification of deposits on properties for timeshare inventory.

We recognized $14 million in costs of sales true-ups relating to VOI products for the nine months ended September 30, 2019, which resulted in a $14 million increase to the carrying value of inventory as of September 30, 2019, and a corresponding decrease in Cost of VOI sales for the nine months ended September 30, 2019. We recognized $10 million in costs of sales true-ups relating to VOI products for the year ended December 31, 2018, which resulted in a $10 million increase to the carrying value of inventory as of December 31, 2018, and a corresponding decrease in Cost of VOI sales for the year-to-date period ended December 31, 2018. Shown below are expenses incurred, recorded in Cost of VOI sales, related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects.

	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)	2019		2018		2019		2018
Cost of VOI sales related to fee-for-service upgrades	$	8	$	8	$	24	$	23

Note 7: Property and Equipment

Property and equipment was as follows:

	September 30,			December 31,
($ in millions)	2019			2018
Land	$	313		$	268
Building and leasehold improvements		300			295
Furniture and equipment		66			54
Construction in progress		190			25
		869			642
Accumulated depreciation		(104	)		(83	)
	$	765		$	559

During the third quarter of 2019, we completed the purchase of 87 hotel units for future conversion to 74 timeshare units in Los Cabos Mexico for $37 million. For the nine months ended September 30, 2019, we recorded non-cash operating activity transfers of $40 million related to the reclassification of deposits on properties for future development into timeshare inventory from Other assets to Property and equipment. Non-cash transfers are reflected in our unaudited condensed consolidated statements of cash flows.

Note 8: Consolidated Variable Interest Entities

As of September 30,2019 and December 31, 2018, we consolidated 5 and 4 variable interest entities (“VIEs”), respectively, that issued non-recourse debt backed by pledged assets consisting primarily of a pool of timeshare financing receivables which is without recourse to us. 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 are required to replace or repurchase timeshare financing receivables that are in default at their outstanding principal amounts. Additionally, we have the obligation to absorb their losses and 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.

Our condensed consolidated balance sheets included the assets and liabilities of these entities, which primarily consisted of the following:

	September 30,		December 31,
($ in millions)	2019		2018
Restricted cash	$	49	$	23
Timeshare financing receivables, net		735		617
Non-recourse debt⁽¹⁾		795		639

⁽¹⁾	Net of deferred financing costs.

During the nine months ended September 30, 2019 and 2018, we did not provide any financial or other support to any VIEs that we were not previously contractually required to provide, nor do we intend to provide such support in the future.

Note 9: Investments in Unconsolidated Affiliates

As of September 30, 2019, we have 25 percent and 50 percent ownership interests in BRE Ace LLC and 1776 Holdings LLC, respectively, that are deemed as VIEs. We do not consolidate BRE Ace LLC and 1776 Holdings LLC because we are not the primary beneficiary. Our investment interests in and equity earned from both VIEs are included in the consolidated balance sheets as Investments in unconsolidated affiliates and in the consolidated statements of operations as Equity in earnings from unconsolidated affiliates, respectively.

We held investments in our two unconsolidated affiliates with aggregated debt balances of $495 million and $490 million as of September 30, 2019 and December 31, 2018, 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 totals $44 million and $38 million as of September 30, 2019 and December 31, 2018, respectively and (ii) receivables for commission and other fees earned under fee-for-service arrangements. See Note 17: Related Party Transactions for additional information.

Note 10: Other Assets

Other assets were as follows:

	September 30,		December 31,
($ in millions)	2019		2018
Inventory deposits	$	7	$	46
Prepaid expenses		23		18
Other		45		31
	$	75	$	95

For the nine months ended September 30, 2019, we recorded non-cash operating activity transfers from Other assets to Inventory and Property and equipment. See Note 6: Inventory and Note 7: Property and Equipment for more information.

Note 11: Debt & Non-recourse Debt

Debt

The following table details our outstanding debt balance and its associated interest rates:

	September 30,			December 31,
($ in millions)	2019			2018
Debt⁽¹⁾
Senior secured credit facilities:
Term loan with an average rate of 3.766%, due 2023	$	190		$	197
Revolver with an average rate of 3.766%, due 2023		305			115
Senior notes with a rate of 6.125%, due 2024		300			300
Other debt		27			—
		822			612
Less: unamortized deferred financing costs and discount⁽²⁾⁽³⁾		(7	)		(8	)
	$	815		$	604

⁽¹⁾	As of September 30, 2019 and December 31, 2018, weighted-average interest rates were 4.739 percent and 5.170 percent, respectively.

⁽²⁾	Amount includes deferred financing costs related to our term loan and senior notes of $2 million and $5 million, respectively, as of September 30, 2019 and $2 million and $6 million as of December 31, 2018.

⁽³⁾	Amount does not include deferred financing costs of $5 million as of September 30, 2019 and $6 million as of December 31, 2018, relating to our revolving facility included in Other Assets in our condensed consolidated balance sheets.

During the nine months ended September 30, 2019, we borrowed $455 million and repaid $272 million (including recurring payments) under the senior secured credit facilities with an interest rate based on one month LIBOR plus 1.75 percent.

As of September 30, 2019 and December 31, 2018, we had $1 million of outstanding letters of credit under the revolving credit facility. We were in compliance with all applicable financial covenants as of September 30, 2019.

Non-recourse Debt

The following table details our outstanding non-recourse debt balance and its associated interest rates:

	September 30,			December 31,
($ in millions)	2019			2018
Non-recourse debt⁽¹⁾
Timeshare Facility with an average rate of 3.164%, due 2021	$	—		$	120
Securitized Debt with a rate of 2.280%, due 2026		—			33
Securitized Debt with an average rate of 1.810%, due 2026		52			74
Securitized Debt with an average rate of 2.711%, due 2028		162			206
Securitized Debt with an average rate of 3.602%, due 2032		293			333
Securitized Debt with an average rate of 2.431%, due 2033		297			—
		804			766
Less: unamortized deferred financing costs⁽²⁾		(9	)		(7	)
	$	795		$	759

⁽¹⁾	As of September 30, 2019 and year ended December 31, 2018, weighted-average interest rates were 2.874 percent and 3.126 percent, respectively.

⁽²⁾	Amount relates to securitized debt only and does not include deferred financing costs of $3 million as of September 30, 2019 and December 31, 2018 relating to our Timeshare Facility which are included in Other Assets in our condensed consolidated balance sheets.

In August 2019, we completed a securitization of $300 million of gross timeshare financing receivables and issued approximately $216 million of 2.34 percent notes, $50 million of 2.54 percent notes and $34 million of 2.84 percent notes due July 2033. The Securitized Debt is backed by pledged assets, consisting primarily of a pool of timeshare financing receivables secured by first mortgages or deeds of trust on timeshare interest and temporarily by a $21 million cash deposit, which is reflected as Restricted cash in our condensed consolidated balance sheets. The Securitized Debt is a non-recourse obligation and is payable solely from the pool of timeshare financing receivables pledged as collateral to the debt. The proceeds were primarily used to pay down the remaining borrowings on our Timeshare Facility and our Securitized Debt with a rate of 2.280%, due 2026 (“2013-A”) and general corporate operating expenses. In connection with the securitization, we incurred $4 million in debt issuance costs.

In September 2019, we exercised our call option on the remaining outstanding principal balance on our 2013-A Notes and prepaid the remaining balance in accordance with the terms of the arrangement. Collateral securing the notes will be pledged as a part of the collateral backing the 2019-A Notes offering in place of the $21 million of cash used as collateral as a part of our 2019 securitization.

The Timeshare Facility is a non-recourse obligation with a borrowing capacity of $450 million and is payable solely from the pool of timeshare financing receivables pledged as collateral and related assets. In April 2019, we amended the Timeshare Facility, extending the end of the commitment period, from March 2020 to April 2021, and certain covenants. In September 2019, we amended the Timeshare Facility, temporarily changing certain covenant requirements. All other terms and borrowing capacity remained the same in both amendments.

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 $29 million and $27 million as of September 30, 2019 and December 31, 2018, 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, 2019 were as follows:

($ in millions)	Debt		Non-recourse Debt		Total
Year
2019 (remaining)	$	3	$	51	$	54
2020		12		247		259
2021		11		155		166
2022		10		110		120
2023		463		108		571
Thereafter		323		133		456
	$	822	$	804	$	1,626

Note 12: Fair Value Measurements

The carrying amounts and estimated fair values of our financial assets and liabilities were as follows:

	September 30, 2019
			Hierarchy Level
($ in millions)	Carrying Amount		Level 1		Level 3
Assets:
Timeshare financing receivables, net⁽¹⁾	$	1,139	$	—	$	1,424
Liabilities:
Debt, net⁽²⁾		815		320		527
Non-recourse debt, net⁽²⁾		795		—		797

⁽¹⁾	Carrying amount net of allowance for financing receivables losses.

⁽²⁾	Carrying amount net of unamortized deferred financing costs and discount.

	December 31, 2018
			Hierarchy Level
($ in millions)	Carrying Amount		Level 1		Level 3
Assets:
Timeshare financing receivables, net⁽¹⁾	$	1,120	$	—	$	1,339
Liabilities:
Debt, net⁽²⁾		604		302		309
Non-recourse debt, net⁽²⁾		759		—		753

⁽¹⁾	Carrying amount net of allowance for financing receivables losses.

⁽²⁾	Carrying amount net of unamortized deferred financing costs and discount.

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 cash and cash equivalents, restricted cash, accounts receivable, accounts payable, advance deposits and accrued liabilities, 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 timeshare financing receivables were determined using a discounted cash flow model. Our model incorporates default rates, coupon rates, credit quality and borrowing terms respective to the portfolio based on current market assumptions for similar types of arrangements.

The estimated fair values of our Level 1 debt was based on prices in active debt markets. The estimated fair value of our Level 3 debt and non-recourse debt were as follows:

•

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.

We do not have any assets or liabilities measured at fair value on a recurring basis as of September 30, 2019.

Note 13: Leases

We lease sales centers, office space and equipment under operating leases. Our leases expire at various dates from 2019 through 2030, with varying renewal and termination options. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Rent expense for lease payments is recognized on a straight-line basis over the lease term. Rental expense for all operating leases was $6 million and $16 million for the three and nine months ended September 30, 2019 respectively. This amount includes immaterial short-term leases and variable lease costs. Rent expense for all operating leases for the year ended December 31, 2018 was as follows:

($ in millions)
Minimum rentals	$	21
Contingent rentals		3
	$	24

Supplemental information related to operating leases for the nine months ending September 30, 2019:

($ in millions)
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases	$	(12	)

Supplemental non-cash information:
Right-of-use assets obtained in exchange for new operating lease liabilities		9
Weighted-average remaining lease term of operating leases	6.4 years
Weighted-average discount rate of operating leases		5.34	%

Future minimum lease payments under noncancelable operating leases, due in each of the next five years and thereafter as of September 30, 2019, are as follows:

($ in millions)	Operating Leases
Year
2019 (remaining)	$	4
2020		17
2021		16
2022		11
2023		11
Thereafter		33
Total future minimum lease payments	$	92
Less: imputed interest		(14	)
Present value of lease liabilities	$	78

Future minimum lease payments under noncancelable operating leases, due in each of the next five years and thereafter as of December 31, 2018, are as follows:

($ in millions)	Operating Leases
Year
2019	$	16
2020		15
2021		14
2022		10
2023		10
Thereafter		29
Total future minimum lease payments	$	94

Note 14: Income Taxes

At the end of each quarter, we estimate the effective tax rate expected to be applied for the full year. The effective tax rate is determined by the level and composition of pre-tax income or loss, which is subject to federal, foreign and state and local income taxes. The effective tax rate for the nine months ended September 30, 2019 and 2018 was approximately 28 percent and 27 percent, respectively, which increased primarily due to a reduction in the tax benefit related to share-based compensation awards exercised or vested during the nine months ended September 30, 2019.

Note 15: Share-Based Compensation

Stock Plan

We issue service-based restricted stock units (“Service RSUs”), service and performance-based restricted stock units (“Performance RSUs”) and nonqualified stock options (“Options”) to certain employees and directors. We recognized share-based compensation expense of $6 million and $5 million during the three months ended September 30, 2019 and 2018, respectively, and $18 million and $13 million for the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, unrecognized compensation costs for unvested awards were approximately $23 million, which is expected to be recognized over a weighted average period of 1.9 years. As of September 30, 2019, there were 6,485,046 shares of common stock available for future issuance under this plan.

Service RSUs

During the nine months ended September 30, 2019, we issued 500,925 Service RSUs with a weighted-average grant date fair value of $33.07, which generally vest in equal annual installments over three years from the date of grant.

Options

During the nine months ended September 30, 2019, we issued 544,209 Options with a weighted-average exercise price of $33.32, which vest over three years from the date of the grant.

The weighted-average grant date fair value of these options was $12.29, which was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:

Expected volatility	33.1	%
Dividend yield	—	%
Risk-free rate	2.6	%
Expected term (in years)	6.0

As of September 30, 2019, we had 624,145 Options outstanding that were exercisable.

Performance Shares

During the nine months ended September 30, 2019, we issued 133,660 Performance RSUs with a weighted-average grant date fair value of $33.32. The Performance RSUs are settled at the end of a three-year performance period, with 70 percent 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 30 percent of the Performance RSUs are subject to the achievement of certain contract sales targets. We determined that the performance conditions for these awards are probable of achievement and, as of September 30, 2019, we recognized compensation expense based on the number of Performance RSUs we expect to vest.

Note 16: Earnings Per Share

The following table presents the calculation of our basic and diluted earnings per share (“EPS”). The weighted- average shares outstanding used to compute basic EPS and diluted EPS for the three months ended September 30, 2019 was 85,704,321 and 86,272,979, respectively, and for the nine months ended September 30, 2019 was 89,863,807 and 90,348,418, respectively. The weighted-average shares outstanding used to compute basic EPS and diluted EPS for the three months ended September 30, 2018 was 96,840,685 and 97,432,015, respectively, and for the nine months ended September 30, 2018 was 97,407,644 and 98,142,238, respectively.

	Three Months Ended September 30,				Nine Months Ended September 30,
($ and shares outstanding in millions, except per share amounts)	2019		2018		2019		2018
Basic EPS:
Numerator:
Net Income⁽¹⁾	$	50	$	41	$	144	$	178
Denominator:
Weighted average shares outstanding		86		97		90		97
Basic EPS	$	0.59	$	0.42	$	1.61	$	1.82
Diluted EPS:
Numerator:
Net Income⁽¹⁾	$	50	$	41	$	144	$	178
Denominator:
Weighted average shares outstanding		86		97		90		98
Diluted EPS	$	0.59	$	0.42	$	1.60	$	1.81

⁽¹⁾	Net income for the three months ended September 30, 2019 and 2018 was $50,659,927 and $40,533,279, respectively, and for the nine months ended September 30, 2019 and 2018 was $144,352,584 and $177,564,538, respectively.

The dilutive effect of outstanding share-based compensation awards is reflected in diluted earnings per common share by application of the treasury stock method using average market prices during the period.

For the three and nine months ended September 30, 2019, we excluded 887,859 and 979,779, respectively, and for the three and nine months ended September 30, 2018, we excluded 533,721 and 359,127 share-based compensation awards, respectively, because their effect would have been anti-dilutive under the treasury stock method.

Note 17: Related Party Transactions

BRE Ace LLC and 1776 Holding, LLC

In 2017, we acquired a 25 percent 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.”

In 2018, we entered into an agreement with SCG 1776, LLC to form 1776 Holding, LLC, which will construct a timeshare resort property, known as “Liberty Place Charleston, by Hilton Club.” In conjunction with this agreement, we contributed $10 million in cash for a 50 percent ownership interest in 1776 Holding, LLC. In May 2019, the agreement was amended to assign the interest of SCG 1776, LLC in 1776 Holding, LLC to 1776 Investment Group, LLC. In May 2019, we also contributed an additional $2 million in cash to 1776 Holding, LLC.

We record Equity in earnings (losses) from our unconsolidated affiliates in our 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 our 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)	2019		2018		2019		2018
Equity in earnings from unconsolidated affiliates	$	1	$	1	$	4	$	—
Commissions and other fees		31		32		99		96

We also have $21 million of outstanding receivables related to the fee-for-service agreements as of September 30, 2019.

HNA Tourism Group Co., Ltd (“HNA”)

On March 13, 2018, HNA entered into an underwriting agreement with several underwriters to sell 22,250,000 shares of our common stock. In connection with the underwriting offer, we elected to purchase 2,500,000 shares at a price of approximately $44.75 per share. The transactions were completed on March 19, 2018 and HNA ceased to be a related party.

Note 18: Business Segments

We operate our business through the following two 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 receivables to customers to finance their purchase of VOIs and revenue from servicing the timeshare financing receivables. We also generate fee revenue from servicing the timeshare financing receivables provided by third-party developers to purchasers of their VOIs.

•

Resort operations and club management – We manage the Club, earn activation fees, annual dues and transaction fees from member exchanges for other vacation products. We 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 program. We also earn revenue from food and beverage, retail and spa outlets at our timeshare properties.

The performance of our operating 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 which has been further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with: (i) asset dispositions; (ii) foreign currency transactions; (iii) debt restructurings/retirements; (iv) non-cash impairment losses; (v) reorganization costs, including severance and relocation costs; (vi) share-based and other compensation expenses; (vii) costs related to the spin-off; and (viii) other items.

We do not include equity in earnings (losses) from unconsolidated affiliates in our measures of segment operating performance.

The following table present revenues for our reportable segments reconciled to consolidated amounts:

	Three Months Ended September 30,						Nine Months Ended September 30,
($ in millions)	2019			2018			2019			2018
Revenues:
Real estate sales and financing	$	324		$	291		$	939		$	967
Resort operations and club management⁽¹⁾⁽²⁾		108			108			332			304
Total segment revenues		432			399			1,271			1,271
Cost reimbursements		43			36			128			110
Intersegment eliminations⁽¹⁾⁽²⁾		(9	)		(8	)		(29	)		(24	)
Total revenues	$	466		$	427		$	1,370		$	1,357

⁽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. These charges totaled $9 million and $8 million for the three months ended September 30, 2019 and 2018, respectively, and $29 million and $24 million for the nine months ended September 30, 2019 and 2018, respectively.

⁽²⁾	Includes charges to the real estate sales and financing segment from the resort operations and club management segment for the rental of model units to show prospective buyers. These charges totaled less than $1 million for each of the three and nine months ended September 30, 2019 and 2018.

The following table presents Segment Adjusted EBITDA for our reportable segments reconciled to net income:

	Three Months Ended September 30,						Nine Months Ended September 30,
($ in millions)	2019			2018			2019			2018
Adjusted EBITDA:
Real estate sales and financing⁽¹⁾	$	94		$	67		$	243		$	274
Resort operations and club management⁽¹⁾		62			62			193			179
Segment Adjusted EBITDA		156			129			436			453
General and administrative		(28	)		(31	)		(82	)		(84	)
Depreciation and amortization		(14	)		(9	)		(37	)		(25	)
License fee expense		(26	)		(25	)		(75	)		(73	)
Other loss, net		(1	)		(1	)		(3	)		(1	)
Interest expense		(12	)		(7	)		(33	)		(22	)
Income tax expense		(20	)		(15	)		(55	)		(64	)
Equity in earnings from unconsolidated affiliates		1			1			4			—
Other adjustment items		(6	)		(1	)		(11	)		(6	)
Net income	$	50		$	41		$	144		$	178

⁽¹⁾	Includes intersegment transactions. Refer to our table presenting revenues by reportable segment above for additional discussion.

Note 19: Commitments and Contingencies

We have entered into certain arrangements with developers to commit to purchase vacation ownership units at a future date to be marketed and sold under our Hilton Grand Vacations brand. As of September 30, 2019, we were committed to purchase approximately $480 million of inventory and land over a period of 11 years and $32 million of other commitments under the normal course of business. Additionally, we have committed to develop additional vacation ownership units at an existing resort. We expect to begin construction of these units in 2020. The actual amount and timing of the acquisitions is 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, 2019 and 2018, we purchased $66 million and $18 million, respectively, as required under our commitments. As of September 30, 2019, our remaining obligation pursuant to these arrangements were expected to be incurred as follows:

($ in millions)	2019 (remaining)		2020		2021		2022		2023		Thereafter		Total
Inventory purchase obligations	$	—	$	220	$	92	$	56	$	58	$	54	$	480
Other commitments⁽¹⁾		4		19		8		1		—		—		32
Total	$	4	$	239	$	100	$	57	$	58	$	54	$	512

⁽¹⁾	Primarily relates to commitments related to information technology and brand licensing under the normal course of business.

We are involved in litigation arising from the normal course of business, some of which includes claims for substantial sums. Management has evaluated these legal matters and we believe that possible losses derived from an unfavorable outcome that is reasonably possible or remote is not reasonably estimable. While the actual results of claims and litigation cannot be predicted with certainty, we expect that the resolution of all pending or threatened claims and litigation as of September 30, 2019, will not materially affect our unaudited condensed consolidated financial statements.

Note 20: Condensed Consolidating Guarantor Financial Information

The following schedules present the unaudited condensed consolidating financial information as of September 30, 2019 and December 31, 2018 and for the three and nine months ended September 30, 2019 and 2018 for the Parent, Subsidiary Issuers, Guarantors and Non-Guarantors.

	September 30, 2019
($ in millions)	Parent		Issuers		Guarantors		Non- Guarantors		Eliminations			Total
ASSETS
Cash and cash equivalents	$	2	$	—	$	79	$	32	$	—		$	113
Restricted cash		—		—		48		50		—			98
Accounts receivable, net		—		—		142		22		(27	)		137
Timeshare financing receivables, net		—		—		380		759		—			1,139
Inventory		—		—		480		38		—			518
Property and equipment, net		—		—		713		52		—			765
Operating lease right-of-use assets, net		—		—		60		2		—			62
Investments in unconsolidated affiliates		—		—		44		—		—			44
Intangible assets, net		—		—		87		—		—			87
Other assets		—		5		59		11		—			75
Investments in subsidiaries		492		1,275		144		—		(1,911	)		—
TOTAL ASSETS	$	494	$	1,280	$	2,236	$	966	$	(1,938	)	$	3,038
LIABILITIES AND EQUITY
Accounts payable, accrued expenses and other	$	—	$	—	$	346	$	24	$	(27	)	$	343
Advanced deposits		—		—		111		1		—			112
Debt, net		—		788		27		—		—			815
Non-recourse debt, net		—		—		—		795		—			795
Operating lease liabilities		—		—		76		2		—			78
Deferred revenues		—		—		165		—		—			165
Deferred income tax liabilities		—		—		236		—		—			236
Total equity		494		492		1,275		144		(1,911	)		494
TOTAL LIABILITIES AND EQUITY	$	494	$	1,280	$	2,236	$	966	$	(1,938	)	$	3,038

	December 31, 2018
($ in millions)	Parent		Issuers		Guarantors		Non- Guarantors		Eliminations			Total
ASSETS
Cash and cash equivalents	$	4	$	—	$	89	$	15	$	—		$	108
Restricted cash		—		—		45		27		—			72
Accounts receivable, net		—		—		157		17		(21	)		153
Timeshare financing receivables, net		—		—		209		911		—			1,120
Inventory		—		—		502		25		—			527
Property and equipment, net		—		—		553		6		—			559
Investments in unconsolidated affiliate		—		—		38		—		—			38
Intangible assets, net		—		—		81		—		—			81
Other assets		—		6		41		48		—			95
Investments in subsidiaries		612		1,210		277		—		(2,099	)		—
TOTAL ASSETS	$	616	$	1,216	$	1,992	$	1,049	$	(2,120	)	$	2,753
LIABILITIES AND EQUITY
Accounts payable, accrued expenses and other	$	—	$	—	$	332	$	13	$	(21	)	$	324
Advanced deposits		—		—		101		—		—			101
Debt, net		—		604		—		—		—			604
Non-recourse debt, net		—		—		—		759		—			759
Deferred revenues		—		—		95		—		—			95
Deferred income tax liabilities		—		—		254		—		—			254
Total equity		616		612		1,210		277		(2,099	)		616
TOTAL LIABILITIES AND EQUITY	$	616	$	1,216	$	1,992	$	1,049	$	(2,120	)	$	2,753

	For the Three Months Ended September 30, 2019
($ in millions)	Parent		Issuers			Guarantors			Non- Guarantors			Eliminations			Total
Revenues
Sales of VOIs, net	$	—	$	—		$	123		$	15		$	—		$	138
Sales, marketing, brand and other fees		—		—			154			1			(12	)		143
Financing		—		—			19			26			(2	)		43
Resort and club management		—		—			44			1			—			45
Rental and ancillary services		—		—			53			1			—			54
Cost reimbursements		—		—			42			1			—			43
Total revenues		—		—			435			45			(14	)		466
Expenses
Cost of VOI sales		—		—			22			2			—			24
Sales and marketing		—		—			187			13			(12	)		188
Financing		—		—			6			10			(2	)		14
Resort and club management		—		—			11			—			—			11
Rental and ancillary services		—		—			34			2			—			36
General and administrative		—		—			27			1			—			28
Depreciation and amortization		—		—			14			—			—			14
License fee expense		—		—			28			(2	)		—			26
Cost reimbursements		—		—			42			1			—			43
Total operating expenses		—		—			371			27			(14	)		384
Interest expense		—		(12	)		—			—			—			(12	)
Dividends from subsidiary		6		6			—			—			(12	)		—
Equity in earnings from unconsolidated affiliates		—		—			1			—			—			1
Other loss, net		—		—			(1	)		—			—			(1	)
Income before income taxes		6		(6	)		64			18			(12	)		70
Income tax expense		—		—			(20	)		—			—			(20	)
Income before equity in earnings from subsidiaries		6		(6	)		44			18			(12	)		50
Equity in earnings from subsidiaries		44		62			18			—			(124	)		—
Net income	$	50	$	56		$	62		$	18		$	(136	)	$	50

	For the Three Months Ended September 30, 2018
($ in millions)	Parent		Issuers			Guarantors			Non- Guarantors		Eliminations			Total
Revenues
Sales of VOIs, net	$	—	$	—		$	97		$	2	$	—		$	99
Sales, marketing, brand and other fees		—		—			151			1		—			152
Financing		—		—			17			26		(3	)		40
Resort and club management		—		—			40			—		—			40
Rental and ancillary services		—		—			59			1		—			60
Cost reimbursements		—		—			35			1		—			36
Total revenues		—		—			399			31		(3	)		427
Expenses
Cost of VOI sales		—		—			29			—		—			29
Sales and marketing		—		—			172			2		—			174
Financing		—		—			4			11		(3	)		12
Resort and club management		—		—			11			—		—			11
Rental and ancillary services		—		—			36			1		—			37
General and administrative		—		—			30			1		—			31
Depreciation and amortization		—		—			9			—		—			9
License fee expense		—		—			25			—		—			25
Cost reimbursements		—		—			35			1		—			36
Total operating expenses		—		—			351			16		(3	)		364
Interest expense		—		(7	)		—			—		—			(7	)
Equity in earnings from unconsolidated affiliates		—		—			1			—		—			1
Other loss		—		—			(1	)		—		—			(1	)
Income (loss) before income taxes		—		(7	)		48			15		—			56
Income tax expense		—		—			(15	)		—		—			(15	)
Income (loss) before equity in earnings (loss) from subsidiaries		—		(7	)		33			15		—			41
Equity in earnings from subsidiaries		41		48			15			—		(104	)		—
Net income	$	41	$	41		$	48		$	15	$	(104	)	$	41

	For the Nine Months Ended September 30, 2019
($ in millions)	Parent			Issuers			Guarantors			Non- Guarantors			Eliminations			Total
Revenues
Sales of VOIs, net	$	—		$	—		$	333		$	50		$	—		$	383
Sales, marketing, brand and other fees		—			—			459			5			(35	)		429
Financing		—			—			57			76			(6	)		127
Resort and club management		—			—			129			1			—			130
Rental and ancillary services		—			—			171			2			—			173
Cost reimbursements		—			—			125			3			—			128
Total revenues		—			—			1,274			137			(41	)		1,370
Expenses
Cost of VOI sales		—			—			83			9			—			92
Sales and marketing		—			—			544			35			(35	)		544
Financing		—			—			14			31			(6	)		39
Resort and club management		—			—			34			—			—			34
Rental and ancillary services		—			—			104			4			—			108
General and administrative		—			—			81			1			—			82
Depreciation and amortization		—			—			37			—			—			37
License fee expense		—			—			75			—			—			75
Cost reimbursements		—			—			125			3			—			128
Total operating expenses		—			—			1,097			83			(41	)		1,139
Interest expense		—			(33	)		—			—			—			(33	)
Dividends from subsidiary		281			281			—			—			(562	)		—
Equity in earnings from unconsolidated affiliates		—			—			4			—			—			4
Other loss, net		—			—			(3	)		—			—			(3	)
Income before income taxes		281			248			178			54			(562	)		199
Income tax expense		—			—			(54	)		(1	)		—			(55	)
Income before equity in earnings from subsidiaries		281			248			124			53			(562	)		144
Equity in (losses) earnings from subsidiaries		(181	)		177			53			—			(49	)		—
Net income	$	100		$	425		$	177		$	53		$	(611	)	$	144

	For the Nine Months Ended September 30, 2018
($ in millions)	Parent		Issuers			Guarantors			Non- Guarantors		Eliminations			Total
Revenues
Sales of VOIs, net	$	—	$	—		$	422		$	5	$	—		$	427
Sales, marketing, brand and other fees		—		—			424			3		(4	)		423
Financing		—		—			54			68		(5	)		117
Resort and club management		—		—			116			—		—			116
Rental and ancillary services		—		—			162			2		—			164
Cost reimbursements		—		—			107			3		—			110
Total revenues		—		—			1,285			81		(9	)		1,357
Expenses
Cost of VOI sales		—		—			109			—		—			109
Sales and marketing		—		—			526			6		(4	)		528
Financing		—		—			14			26		(5	)		35
Resort and club management		—		—			33			—		—			33
Rental and ancillary services		—		—			93			2		—			95
General and administrative		—		—			83			1		—			84
Depreciation and amortization		—		—			25			—		—			25
License fee expense		—		—			73			—		—			73
Cost reimbursements		—		—			107			3		—			110
Total operating expenses		—		—			1,063			38		(9	)		1,092
Interest expense		—		(22	)		—			—		—			(22	)
Other loss		—		—			(1	)		—		—			(1	)
Income (loss) before income taxes		—		(22	)		221			43		—			242
Income tax expense		—		—			(64	)		—		—			(64	)
Income (loss) before equity in earnings (loss) from subsidiaries		—		(22	)		157			43		—			178
Equity in earnings from subsidiaries		178		200			43			—		(421	)		—
Net income	$	178	$	178		$	200		$	43	$	(421	)	$	178

	For the Nine Months Ended September 30, 2019
($ in millions)	Parent			Issuers			Guarantors			Non- Guarantors			Eliminations			Total
Operating Activities
Net cash provided by (used in) operating activities	$	—		$	248		$	(50	)	$	231		$	(281	)	$	148
Investing Activities
Capital expenditures for property and equipment		—			—			(22	)		(3	)		—			(25	)
Software capitalization costs		—			—			(19	)		—			—			(19	)
Investments in unconsolidated affiliates		—			—			(2	)		—			—			(2	)
Dividends from subsidiary		281			281			—			—			(562	)		—
Net cash provided by (used in) investing activities		281			281			(43	)		(3	)		(562	)		(46	)
Financing Activities
Issuance of debt		—			455			—			—			—			455
Issuance of non-recourse debt		—			—			—			365			—			365
Repayment of debt		—			(272	)		—			—			—			(272	)
Repayment of non-recourse debt		—			—			—			(327	)		—			(327	)
Debt issuance costs		—			—			—			(6	)		—			(6	)
Repurchase and retirement of common stock		(283	)		—			—			—			—			(283	)
Payment of withholding taxes on vesting of restricted stock units		—			—			(3	)		—			—			(3	)
Proceeds from employee stock plan purchases		—			—			2			—			—			2
Other financing activity		—			—			(2	)		—			—			(2	)
Intercompany transfers		—			(712	)		89			(220	)		843			—
Net cash (used in) provided by financing activities		(283	)		(529	)		86			(188	)		843			(71	)
Net (decrease) increase in cash, cash equivalents and restricted cash		(2	)		—			(7	)		40			—			31
Cash, cash equivalents and restricted cash, beginning of period		4			—			134			42			—			180
Cash, cash equivalents and restricted cash, end of period	$	2		$	—		$	127		$	82		$	—		$	211

	For the Nine Months Ended September 30, 2018
($ in millions)	Parent		Issuers			Guarantors			Non- Guarantors			Eliminations			Total
Operating Activities
Net cash (used in) provided by operating activities	$	—	$	(20	)	$	10		$	(241	)	$	46		$	(205	)
Investing Activities
Capital expenditures for property and equipment		—		—			(25	)		(4	)		—			(29	)
Software capitalization costs		—		—			(12	)		—			—			(12	)
Return of investment from unconsolidated affiliates		—		—			11			—			—			11
Investment in unconsolidated affiliate		—		—			(5	)		—			—			(5	)
Net cash used in investing activities		—		—			(31	)		(4	)		—			(35	)
Financing Activities
Issuance of debt		—		215			—			—			—			215
Issuance of non-recourse debt		—		—			—			663			—			663
Repayment of debt		—		(168	)		—			—			—			(168	)
Repayment of non-recourse debt		—		—			—			(436	)		—			(436	)
Debt issuance costs		—		—			—			(6	)		—			(6	)
Repurchase and retirement of common stock		—		(112	)		—			—			—			(112	)
Payment of withholding taxes on vesting of restricted stock units		—		(4	)		—			—			—			(4	)
Capital contribution		—		3			—			—			—			3
Intercompany transfers		—		86			(63	)		23			(46	)		—
Net cash provided by (used in) financing activities		—		20			(63	)		244			(46	)		155
Net decrease in cash, cash equivalents and restricted cash		—		—			(84	)		(1	)		—			(85	)
Cash, cash equivalents and restricted cash, beginning of period		—		—			259			38			—			297
Cash, cash equivalents and restricted cash, end of period	$	—	$	—		$	175		$	37		$	—		$	212

Note 21: Subsequent Events

Management has evaluated all subsequent events through October 31, 2019, the date the unaudited consolidated financial statements were available to be issued. The results of management’s analysis indicated no significant subsequent events have occurred that required consideration as adjustments to our disclosures in the unaudited consolidated financial statements.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2018.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements convey management’s expectations as to our future, and are based on management’s beliefs, expectations, assumptions and such plans, estimates, projections and other information available to management at the time we make such statements. Forward-looking statements include all statements that are not historical facts and may be identified by terminology such as the words “outlook,” “believe,” “expect,” “potential,” “goal,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “projects,” predicts,” “intends,” “plans,” “estimates,” “anticipates” “future,” “guidance,” “target,” or the negative version of these words or other comparable words. The forward-looking statements contained in this Report include statements related to our revenues, earnings, taxes, cash flow and related financial and operating measures, and expectations with respect to future operating, financial and business performance, and other anticipated future events and expectations that are not historical facts.

We caution you that our forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the future results, business performance or achievements expressed in or implied by such statements. The forward-looking statements in this Report are not guarantees of our future performance, and you should not place undue reliance on such statements. Factors that could cause our actual results to differ materially from those contemplated by our forward-looking statements include: risks associated with the inherent business, financial and operating risks of the timeshare industry, including limited underwriting standards due to the real-time nature of industry sales practices, and the intense competition associated with the industry; our ability successfully market and sell VOIs; our development and other activities to source inventory for VOI sales; significant increases in defaults on HGV’s vacation ownership mortgage receivables; the ability of managed homeowner associations to collect sufficient maintenance fees; general volatility in the economy and/or the financial and credit markets; adverse economic or market conditions and trends in the tourism and hospitality industry, which may impact the purchasing and vacationing decisions of consumers; our actions or the occurrence of other events that could cause a breach under or termination of our license agreement with Hilton that could affect or terminate our access to the Hilton brands and programs, or actions of Hilton that affect the reputation of the licensed marks or Hilton’s programs; economic and operational uncertainties related to our expanding global operations, including our ability to manage the outcome and timing of such operations and compliance with anti-corruption, data privacy and other applicable laws and regulations affecting our international operations; the effects of foreign currency exchange; changes in tax rates and exposure to additional tax liabilities; the impact of future changes in legislation, regulations or accounting pronouncements; HGV’s acquisitions, joint ventures, and strategic alliances that that may not result in expected benefits, including the termination of material fee-for-service agreements; our dependence on third-party development activities to secure just-in-time inventory; our use of social media platforms; cyber-attacks, security vulnerabilities, and information technology system failures resulting in disclosure of personal data, company data loss, system outages or disruptions of our online services, which could lead to reduced revenue, increased costs, liability claims, harm to user engagement, and harm to our reputation or competitive position; the impact of claims against us that may result in adverse outcomes, including regulatory proceedings or litigation; our credit facilities, indenture and other debt agreements and instruments, including variable interest rates, operating and financial restrictions, our ability to make scheduled payments, and our ability to refinance our debt on acceptable terms; the continued service and availability of key executives and employees; and catastrophic events or geo-political conditions including war, terrorist activity, political strife or natural disasters that may disrupt our operations in key vacation destinations. Any one or more of the foregoing factors could adversely impact our operations, revenue, operating margins, financial condition and/or credit rating.

For additional information regarding factors that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements in this Report, please see the risk factors discussed in “Part I—Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, and those described from time to time other periodic reports that we file with the SEC. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, changes in management’s expectations, or otherwise.

Terms Used in this Quarterly Report on Form 10-Q

Except where the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Hilton Grand Vacations,” “HGV,” “the Company,” “we,” “us” and “our” refer to Hilton Grand Vacations Inc., together with its consolidated subsidiaries. Except where the context requires otherwise, references to our “properties” and “rooms” refer to the timeshare properties managed, franchised, owned or leased by us. Of these properties and rooms, a portion are directly owned or leased by us or joint ventures in which we have an interest and the remaining properties and rooms are owned by third-party owners.

“Developed” refers to VOI inventory that is sourced from projects developed by HGV.

“Fee for service” refers to VOI inventory that we sell and manage on behalf of third-party developers.

“Just-in-time” refers to VOI inventory that is primarily sourced in transactions that are designed to closely correlate the timing of the acquisition by us with our sale of that inventory to purchasers.

“VOI” refers to vacation ownership intervals.

Non-GAAP Financial Measures

This Quarterly Report on Form 10-Q includes discussion of terms that are not recognized terms under U.S. Generally Accepted Accounting Principles (“U.S. GAAP”), and financial measures that are not calculated in accordance with U.S. GAAP, earnings before interest expense (excluding interest expense relating to our non-recourse debt), taxes and depreciation and amortization (“EBITDA”) and Adjusted EBITDA.

Operational Metrics

This Quarterly Report on Form 10-Q includes discussion of key business operational metrics including contract sales, sales revenue, real estate margin, tour flow, volume per guest and transient rate.

See “Key Business and Financial Metrics and Terms Used by Management” and “-Results of Operations” for a discussion of the meanings of these terms, the Company’s reasons for providing non-GAAP financial measures, and reconciliations of non-GAAP financial measures to measures calculated in accordance with U.S. GAAP.

Overview

Our Business

We are a growing timeshare company that markets and sells VOIs, manages resorts in top leisure and urban destinations, and operates a points-based vacation club. As of September 30, 2019, we have 57 properties, representing 9,177 units, which are located in iconic vacation destinations such as the Hawaiian Islands, New York City, Orlando and Las Vegas, and feature spacious, condominium-style accommodations with superior amenities and quality service. As of September 30, 2019, we have approximately 322,000 Hilton Grand Vacations Club (the “Club”) members. Club members have the flexibility to exchange their VOIs for stays at any Hilton Grand Vacations resort or any property in the Hilton system of 17 industry-leading brands across more than 5,900 properties, as well as numerous experiential vacation options, such as cruises and guided tours.

We operate our business across two segments: (1) real estate sales and financing; and (2) resort operations and club management.

Real Estate Sales and Financing

Our primary product is the marketing and selling of fee-simple VOIs deeded in perpetuity, developed either by us or by third parties. This ownership interest is an interest in real estate generally equivalent to one week annually at the timeshare resort where the VOI was purchased. Traditionally, timeshare operators have funded 100 percent of the investment necessary to acquire land and construct timeshare properties. In 2010, we began sourcing VOIs through fee-for-service and just-in-time agreements with third-party developers and have successfully transformed from a capital-intensive business to one that is highly capital-efficient. The fee-for-service agreements enable us to generate fees from the sales and marketing of the VOIs and Club memberships and from the management of the timeshare properties without requiring us to fund acquisition and construction costs. The just-in-time agreements enable us to source VOI inventory in a manner that allows us to correlate the timing of acquisition of the inventory with the sale to purchasers. Sales of owned, including just-in-time inventory, generally result in greater Adjusted EBITDA contributions, while fee-for-service sales require less initial investment and allow us to accelerate our sales growth. Both sales of owned inventory and fee-for-service sales generate long-term, predictable fee streams, by adding to the Club membership base and properties under management, that generate strong returns on invested capital.

For the nine months ended September 30, 2019, sales from fee-for-service, just-in-time and developed inventory sources were 54 percent, 17 percent and 29 percent, respectively, of contract sales. See “Key Business and Financial Metrics and Terms Used by Management——Real Estate Sales Metrics” for additional discussion of contract sales. Based on our trailing twelve months sales pace, we have access to approximately seven years of future inventory, with capital efficient arrangements representing approximately 55 percent of that supply. We believe that the visibility into our long-term supply allows us to efficiently manage inventory to meet predicted sales, reduce capital investments, minimize our exposure to the cyclicality of the real estate market and mitigate the risks of entering into new markets.

We sell our vacation ownership products under the Hilton Grand Vacations brand primarily through our distribution network of both in-market and off-site sales centers. Our products are currently marketed for sale throughout the United States and the Asia-Pacific region. We operate sales distribution centers in major markets and popular leisure destinations with year-round demand and a history of being a friendly environment for vacation ownership. We have sales distribution centers in Las Vegas, Myrtle Beach, Hilton Head, New York, Washington D.C., Chicago, Orlando, Park City, Waikoloa, Korea and Japan. Our marketing and sales activities are based on targeted direct marketing and a highly personalized sales approach. We use targeted direct marketing to reach potential members who are identified as having the financial ability to pay for our products and have an affinity with Hilton and are frequent leisure travelers. Tour quality impacts key metrics such as close rate and VPG, defined in “Key Business and Financial Metrics and Terms Used by Management——Real Estate Sales Metrics.” Additionally, the quality of tours impacts sales revenue and the collectability of our timeshare financing receivables. For the nine months ended September 30, 2019, 52 percent of our contract sales were to our existing owners.

We provide financing for members purchasing our developed and acquired inventory and generate interest income. Our timeshare financing receivables are collateralized by the underlying VOIs and are generally structured as 10-year, fully-amortizing receivables that bear a fixed interest rate typically ranging from nine percent to 18 percent per annum. Financing propensity was 66.6 percent and 66.3 percent for the nine months ended September 30, 2019 and 2018, respectively. We calculate financing propensity as contract sales volume of financed contracts originated in the period divided by contract sales volume of all contracts originated in the period.

The interest rate on our timeshare financing receivables is determined by, among other factors, the amount of the down payment, the borrower’s credit profile and the receivable term. The weighted-average high FICO score and weighted-average FICO score for new timeshare financing receivables to U.S. and Canadian borrowers at the time of origination were as follows:

	Nine Months Ended September 30,
	2019		2018
Weighted-average high FICO score		748		748
Weighted-average FICO score		735		740

Prepayment is permitted without penalty. When a member defaults, we ultimately return their VOI to inventory for resale and that member no longer participates in our Club.

Some of our timeshare financing receivables have been pledged as collateral in our securitization transactions, which have in the past and may in the future provide funding for our business activities. In these securitization transactions, special purpose entities are established to issue various classes of debt securities which are generally collateralized by a single pool of assets, consisting of timeshare financing receivables that we service and related cash deposits. For additional information see Note 5: Timeshare Financing Receivables in our unaudited condensed consolidated financial statements.

In addition, we earn fees from servicing our securitized timeshare financing receivables and the timeshare financing receivables provided by third-party developers of our fee-for-service projects to purchasers of their VOIs.

Resort Operations and Club Management

We enter into management agreements with the HOA of the VOI owners for timeshare resorts developed by us or a third party. Each of the HOAs is governed by a board of directors comprising owner and developer representatives that are charged with ensuring the resorts are well-maintained and financially stable. Our management services include day-to-day operations of the resorts, maintenance of the resorts, preparation of reports, budgets and projections and employee training and oversight. Our HOA management agreements provide for a cost-plus management fee, which means we generally earn a fee equal to 10 percent to 15 percent of the costs to operate the applicable resort. The fees we earn are highly predictable due to the relatively fixed nature of resort operating expenses and our management fees are unaffected by changes in rental rate or occupancy. We are reimbursed for the costs incurred to perform our services, principally related to personnel providing on-site services. The initial term of our management agreements typically ranges from three to five years and the agreements are subject to periodic renewal for one to three-year periods. Many of these agreements renew automatically unless either party provides advance notice of termination before the expiration of the term.

We also manage and operate the points-based Hilton Grand Vacations Club and Hilton Club exchange programs, which provide exclusive exchange, leisure travel and reservation services to our Club members. When owners purchase a VOI, they are generally enrolled in the Club and given an annual allotment of points that allow the member to exchange their annual usage rights in the VOI that they own for a number of vacation and travel options. In addition to an annual membership fee, Club members pay incremental fees depending on exchanges they choose within the Club system.

We rent unsold VOI inventory, third-party inventory and inventory made available due to ownership exchanges through our club programs. We earn a fee from rentals of third-party inventory. Additionally, we provide ancillary offerings including food and beverage, retail and spa offerings at these timeshare properties.

Key Business and Financial Metrics and Terms Used by Management

Real Estate Sales Metrics

We measure operating performance using the following key metrics:

•

Contract sales represents the total amount of VOI products (fee-for-service and developed) under purchase agreements signed during the period where we have received a down payment of at least 10 percent of the contract price. Contract sales differ from revenues from the Sales of VOIs, net that we report in our condensed consolidated statements of operations due to the requirements for revenue recognition, as well as adjustments for incentives and other administrative fee revenues. We consider contract sales to be an important operating measure because it reflects the pace of sales in our business. See Note 2: Basis of Presentation and Summary of Significant Accounting Policies in our audited consolidated financial statements included in Item 8 in our Annual Report on form 10-K for the year ended December 31, 2018, for additional information on Sales of VOI, net.

•

Sales revenue represents Sale of VOIs, net, commissions and brand fees earned from the sale of fee-for-service intervals.

•

Real estate margin represents sales revenue less the cost of VOI sales, sales and marketing costs, net of marketing revenue. Real estate margin percentage is calculated by dividing real estate margin by sales revenue. We consider this to be an important operating measure because it measures the efficiency of our sales and marketing spending and management of inventory costs.

•

Tour flow represents the number of sales presentations given at our sales centers during the period.

•

Volume per guest (“VPG”) represents the sales attributable to tours at our sales locations and is calculated by dividing Contract sales, excluding telesales, by tour flow. We consider VPG to be an important operating measure because it measures the effectiveness of our sales process, combining the average transaction price with the closing rate.

Resort and Club Management and Rental Metrics

•

Transient rate represents the total rental room revenue for transient guests divided by total number of transient room nights sold in a given period and excludes room rentals associated with marketing programs, owner usage and the redemption of Club Bonus Points.

For further information see Item 8. Financial Statements and Supplementary Data - Note 2: Basis of Presentation and Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the year ended December 31, 2018.

EBITDA and Adjusted EBITDA

EBITDA, presented herein, is a financial measure that is not recognized under U.S. GAAP that reflects net income (loss), before interest expense (excluding non-recourse debt), a provision for income taxes and depreciation and amortization.

Adjusted EBITDA, presented herein, is calculated as EBITDA, as previously defined, further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with: (i) asset dispositions; (ii) foreign currency transactions; (iii) debt restructurings/retirements; (iv) non-cash impairment losses; (v) reorganization costs, including severance and relocation costs; (vi) share-based and certain other compensation expenses; (vii) costs related to the spin-off; and (viii) other items.

EBITDA and Adjusted EBITDA are not recognized terms under U.S. GAAP and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. In addition, our definitions of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

We believe that EBITDA and Adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons: (i) EBITDA and Adjusted EBITDA are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions; and (ii) EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry.

EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered either in isolation or as a substitute for net income (loss), cash flow or other methods of analyzing our results as reported under U.S. GAAP. Some of these limitations are:

•

EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

•

EBITDA and Adjusted EBITDA do not reflect our interest expense (excluding interest expense on non-recourse debt), or the cash requirements necessary to service interest or principal payments on our indebtedness;

•

EBITDA and Adjusted EBITDA do not reflect our tax expense or the cash requirements to pay our taxes;

•

EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;

•

EBITDA and Adjusted EBITDA do not reflect the effect on earnings or changes resulting from matters that we consider not to be indicative of our future operations;

•

EBITDA and Adjusted EBITDA do not reflect any cash requirements for future replacements of assets that are being depreciated and amortized; and

•

EBITDA and Adjusted EBITDA may be calculated differently from other companies in our industry limiting their usefulness as comparative measures.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.

Results of Operations

Three and Nine Months Ended September 30, 2019 Compared with the Three and Nine Months Ended September 30, 2018

Segment Results

We evaluate our business segment operating performance using segment Adjusted EBITDA, as described in Note 18: Business Segments in our unaudited condensed consolidated financial statements. We do not include equity in earnings (losses) from unconsolidated affiliates in our measures of segment operating performance. For a discussion of our definition of EBITDA and Adjusted EBITDA, how management uses them to manage our business and material limitations on their usefulness, refer to “—Key Business and Financial Metrics and Terms Used by Management—EBITDA and Adjusted EBITDA.” The following tables set forth revenues and Adjusted EBITDA by segment:

	Three Months Ended September 30,						Variance						Nine Months Ended September 30,						Variance
($ in millions)	2019			2018			$			%			2019			2018			$			%
Revenues:
Real estate sales and financing	$	324		$	291		$	33			11.3	%	$	939		$	967		$	(28	)		(2.9	)%
Resort operations and club management		108			108			—			—			332			304			28			9.2
Segment revenues		432			399			33			8.3			1,271			1,271			—			—
Cost reimbursements		43			36			7			19.4			128			110			18			16.4
Intersegment eliminations⁽¹⁾		(9	)		(8	)		(1	)		12.5			(29	)		(24	)		(5	)		20.8
Total revenues	$	466		$	427		$	39			9.1		$	1,370		$	1,357		$	13			1.0

⁽¹⁾	Refer to Note 18: Business Segments in our unaudited condensed consolidated financial statements for details on the intersegment eliminations.

The following table reconciles net income, our most comparable U.S. GAAP financial measure, to EBITDA and Adjusted EBITDA:

	Three Months Ended September 30,				Variance						Nine Months Ended September 30,				Variance
($ in millions)	2019		2018		$			%			2019		2018		$			%
Net Income	$	50	$	41	$	9			22.0	%	$	144	$	178	$	(34	)		(19.1	)%
Interest expense		12		7		5			71.4			33		22		11			50.0
Income tax expense		20		15		5			33.3			55		64		(9	)		(14.1	)
Depreciation and amortization		14		9		5			55.6			37		25		12			48.0
Interest expense, depreciation and amortization included in equity in earnings (losses) from unconsolidated affiliates		—		1		(1	)		(100.0	)		2		3		(1	)		(33.3	)
EBITDA		96		73		23			31.5			271		292		(21	)		(7.2	)
Other loss, net		1		1		—			—			3		1		2		NM⁽¹⁾
Share-based compensation expense		6		5		1			20.0			18		13		5			38.5
Other adjustment items⁽²⁾		8		1		7		NM⁽¹⁾				11		11		—			—
Adjusted EBITDA	$	111	$	80	$	31			38.8		$	303	$	317	$	(14	)		(4.4	)

⁽¹⁾	Fluctuation in terms of percentage change is not meaningful.

⁽²⁾	Includes restructuring costs and costs associated with the spin-off of $7 million and $2 million for the three months ended September 30, 2019 and 2018, respectively, and $9 million for each of the nine months ended September 30, 2019 and 2018.

The following table reconciles our segment Adjusted EBITDA to Adjusted EBITDA:

	Three Months Ended September 30,						Variance						Nine Months Ended September 30,						Variance
($ in millions)	2019			2018			$			%			2019			2018			$			%
Adjusted EBITDA:
Real estate sales and financing⁽¹⁾	$	94		$	67		$	27			40.3	%	$	243		$	274		$	(31	)		(11.3	)%
Resort operations and club management⁽¹⁾		62			62			—			—			193			179			14			7.8
Segment Adjusted EBITDA		156			129			27			20.9			436			453			(17	)		(3.8	)
Adjustments:
Adjusted EBITDA from unconsolidated affiliates		1			2			(1	)		(50.0	)		6			3			3			100.0
License fee expense		(26	)		(25	)		(1	)		4.0			(75	)		(73	)		(2	)		2.7
General and administrative⁽²⁾		(20	)		(26	)		6			(23.1	)		(64	)		(66	)		2			(3.0	)
Adjusted EBITDA	$	111		$	80		$	31			38.8		$	303		$	317		$	(14	)		(4.4	)

⁽¹⁾	Includes intersegment transactions, share-based compensation, depreciation and other adjustments attributable to the segments.

⁽²⁾	Excludes segment related share-based compensation, depreciation and other adjustment items.

Real Estate Sales and Financing

In accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”), revenue and the related costs to fulfill and acquire the contract (“direct costs”) from sales of VOIs under construction are deferred until the point in time when construction activities are deemed to be completed. The Real estate sales and financing segment is impacted by construction related deferral and recognition activity. In periods where Sales of VOIs and related direct costs of projects under construction are deferred, margin percentages will generally contract as the indirect marketing and selling costs associated with these sales are recognized as incurred in the current period. In periods where previously deferred Sales of VOIs and related direct costs are recognized upon construction completion, margin percentages will generally expand as the indirect marketing and selling costs associated with these sales were recognized in prior periods.

The following table represents deferrals and recognitions of Sales of VOI revenue and direct costs for properties under construction:

	Three Months Ended September 30,						Variance		Nine Months Ended September 30,						Variance
($ in millions)	2019			2018			$		2019			2018			$
Sales of VOIs (deferrals)	$	(15	)	$	(45	)	$	30	$	(49	)	$	(154	)	$	105
Sales of VOIs recognitions		—			—			—		—			134			(134	)
Net Sales of VOIs (deferrals) recognitions		(15	)		(45	)		30		(49	)		(20	)		(29	)
Cost of VOI sales (deferrals)⁽¹⁾		(5	)		(13	)		8		(16	)		(51	)		35
Cost of VOI sales recognitions		—			—			—		—			37			(37	)
Net Cost of VOI sales (deferrals) recognitions⁽¹⁾		(5	)		(13	)		8		(16	)		(14	)		(2	)
Sales and marketing expense (deferrals)		(2	)		(7	)		5		(7	)		(21	)		14
Sales and marketing expense recognitions		—			—			—		—			17			(17	)
Net Sales and marketing expense (deferrals) recognitions		(2	)		(7	)		5		(7	)		(4	)		(3	)
Net construction (deferrals) recognitions	$	(8	)	$	(25	)	$	17	$	(26	)	$	(2	)	$	(24	)

⁽¹⁾	Includes anticipated Costs of VOI sales of VOIs under construction that will be acquired under a just-in-time arrangement once construction is complete for the three and nine months ended September 30, 2019.

Real estate sales and financing segment revenues increased by $33 million for the three months ended September 30, 2019, compared to the same period in 2018, primarily due to a $27 million increase in sales revenue, a $3 million increase in marketing revenue and other fees mainly associated with higher vacation package sales and a $3 million increase in financing revenue related to an increase in interest income primarily from higher outstanding timeshare receivables balance and an increase in servicing fees. Sales revenue increased for the three months ended September 30, 2019, compared to the same period in 2018, primarily due to lower deferrals of revenue from VOI sales for properties under construction compared to the same period in 2018. For the three months ended September 30, 2019, sales revenue was impacted by a $15 million deferral of revenue from VOI sales of The Central at 5^th by Hilton Club, a just-in-time property in pre-sales, compared to a $45 million deferral of revenue from VOI sales of Ocean Tower by Hilton Grand Vacation Club during the same period in 2018. Real estate sales and financing segment Adjusted EBITDA increased by $27 million for the three months ended September 30, 2019, compared to the same period in 2018, primarily due to the increases in segment margin associated with segment performance discussed below.

Real estate sales and financing segment revenues decreased by $28 million for the nine months ended September 30, 2019, compared to the same period in 2018, primarily due to a $49 million decrease in sales revenue, partially offset by an $11 million increase in marketing revenue and other fees mainly associated with higher vacation package sales, and a $10 million increase in financing revenue related to an increase in interest income from higher outstanding timeshare receivables balance and an increase in servicing fees. Sales revenue decreased for the nine months ended September 30, 2019, compared to the same period in 2018, primarily due to higher deferrals of revenue from VOI sales for properties under construction compared to the same period in 2018. For the nine months ended September 30, 2019 sales revenue was impacted by a $49 million deferral of revenue from VOI sales of The Central at 5^th by Hilton Club compared to a $20 million net deferral of revenue from the deferral of revenue of VOI sales of Ocean Tower by Hilton Grand Vacation Club and the recognition of VOI sales from the completion of The Residences by Hilton Club which was under construction during the same period in 2018. Real estate sales and financing segment Adjusted EBITDA decreased by $31 million for the nine months ended September 30, 2019, compared to the same period in 2018, primarily due to the decreases in segment margin associated with segment performance discussed below.

Refer to “—Real Estate” and “—Financing” for further discussion on the revenues and expenses of the real estate sales and financing segment.

Resort Operations and Club Management

Resort operations and club management segment revenues remained flat for the three months ended September 30, 2019, compared to the same period in 2018, primarily due to an increase of $5 million in resort and club management revenues due to an increase in Club members as well as higher resort management revenue from the launch of new properties subsequent to the third quarter of 2018 offset by a decrease of $6 million in rental and ancillary services revenues. Rental and ancillary services revenue decreased due to lower transient rental room revenue, primarily related to an operating hotel acquired in June 2018 that is undergoing a conversion to timeshare inventory beginning in the third quarter of 2019 and lower club inventory rentals at our developed and fee-for-service properties. Resort operations and club management segment Adjusted EBITDA remained flat for the three months ended September 30, 2019, compared to the same period in 2018, primarily due to the offsetting increases and decreases in revenues and expenses associated with the segment.

Resort operations and club management segment revenues increased by $28 million for the nine months ended September 30, 2019, compared to the same period in 2018, primarily due to (i) an increase of $14 million in resort and club management revenues primarily due to an increase in Club members and (ii) an increase of $9 million in rental and ancillary services revenues. Rental and ancillary services revenue increased primarily due to higher transient rental room revenue, primarily due to the June 2018 acquisition of an operating hotel and higher club inventory rentals at our developed and fee-for-service properties. Resort operations and club management segment Adjusted EBITDA increased by $14 million for the nine months ended September 30, 2019, compared to the same period in 2018, primarily due to the increases in revenues associated with the segment, partially offset by an increase of $13 million in segment expenses primarily due to the June 2018 acquisition of an operating hotel.

Refer to “— Resort and Club Management” and “—Rental and Ancillary Services” for further discussion on the revenues and expenses of the resort operations and club management segment.

Real Estate Sales and Financing Segment

Real Estate

	Three Months Ended September 30,						Variance						Nine Months Ended September 30,						Variance
($ in millions, except Tour flow and VPG)	2019			2018			$			%			2019			2018			$			%
Sales of VOIs, net	$	138		$	99		$	39			39.4	%	$	383		$	427		$	(44	)		(10.3	)%
Adjustments:
Fee-for-service sales⁽²⁾		194			211			(17	)		(8.1	)		569			574			(5	)		(0.9	)
Provision for financing receivables losses		22			20			2			10.0			60			50			10			20.0
Reportability and other:
Net deferral (recognition) of sales of VOIs under construction⁽³⁾		15			45			(30	)	NM⁽¹⁾				49			20			29		NM⁽¹⁾
Fee-for-service sales upgrades, net		(15	)		(21	)		6		NM⁽¹⁾				(39	)		(40	)		1		NM⁽¹⁾
Other⁽⁴⁾		6			10			(4	)	NM⁽¹⁾				23			19			4		NM⁽¹⁾
Contract sales	$	360		$	364		$	(4	)		(1.1	)	$	1,045		$	1,050		$	(5	)		(0.5	)
Tour flow		102,911			94,816			8,095			8.5			287,267			266,785			20,482			7.7
VPG	$	3,363		$	3,648		$	(285	)		(7.8	)	$	3,464		$	3,732		$	(268	)		(7.2	)

⁽¹⁾	Fluctuation in terms of percentage change is not meaningful.

⁽²⁾	Represents contract sales from fee-for-service properties on which we earn commissions and brand fees.

⁽³⁾	Represents the net impact of deferred revenues related to the Sales of VOIs under construction that are recognized when construction is complete.

⁽⁴⁾	Includes adjustments for revenue recognition, including amounts in rescission and sales incentives.

Contract sales decreased slightly for the three months ended September 30, 2019, compared to the same period in 2018, primarily due to lower VPG from both a 30-basis point decline in close rate and 5.8 percent average transaction price reduction, partially offset by an 8.5 percent growth in tour flow. Contract sales decreased for the nine months ended September 30, 2019, compared to the same period in 2018, primarily due to lower VPG from both a 60-basis point decline in close rate and a 3.4 percent average transaction price reduction, partially offset by a 7.7 percent improvement in tour flow.

	Three Months Ended September 30,						Variance						Nine Months Ended September 30,						Variance
($ in millions)	2019			2018			$			%			2019			2018			$			%
Sales, marketing, brand and other fees	$	143		$	152		$	(9	)		(5.9	)%	$	429		$	423		$	6			1.4	%
Less:
Marketing revenue and other fees		34			31			3			9.7			102			91			11			12.1
Commissions and brand fees		109			121			(12	)		(9.9	)		327			332			(5	)		(1.5	)
Sales of VOIs, net		138			99			39			39.4			383			427			(44	)		(10.3	)
Sales revenue		247			220			27			12.3			710			759			(49	)		(6.5	)
Less:
Cost of VOI sales		24			29			(5	)		(17.2	)		92			109			(17	)		(15.6	)
Sales and marketing expense, net⁽¹⁾		145			135			10			7.4			415			413			2			0.5
Real estate margin	$	78		$	56		$	22			39.3		$	203		$	237		$	(34	)		(14.3	)
Real estate margin percentage		31.6	%		25.5	%								28.6	%		31.2	%

⁽¹⁾	Includes revenue recognized through our marketing programs for existing owners and prospective first-time buyers and revenue associated with sales incentives, title service and document compliance.

Sales revenue increased for the three months ended September 30, 2019, compared to the same period in 2018, primarily due to $30 million lower deferrals of revenue from VOI sales for properties under construction, partially offset by lower fee-for-service sales and upgrade activity resulting in a $12 million decrease in commission and brand fees driven by a shift in inventory mix. The increase in real estate margin and margin percentage for the three months ended September 30, 2019, compared to 2018, was primarily due to the decrease of net construction deferrals which drove the expansion of margin percentage, partially offset by an increase in sales and marketing expense driven primarily by the increase in tours with lower conversion rates and VPGs.

Sales revenue decreased for the nine months ended September 30, 2019, compared to the same period in 2018, primarily due to $29 million higher net deferrals of revenue from VOI sales for properties under construction and a $10 million increase in the provision for financing receivable losses driven by a marginal increase in default rates and higher loan volume. The decrease in sales revenue was partially offset by an $11 million increase in marketing revenue and other fees mainly associated with higher vacation package sales. The decrease in real estate margin and margin percentage for the nine months ended September 30, 2019, compared to the same period in 2018, was primarily due to the increase of net construction deferrals which drove the contraction of margin percentage, partially offset by an increase in sales and marketing expense, net driven primarily by the increase in tours with lower conversion rates and VPGs.

Financing

	Three Months Ended September 30,						Variance					Nine Months Ended September 30,						Variance
($ in millions)	2019			2018			$		%			2019			2018			$			%
Interest income	$	37		$	35		$	2		5.7	%	$	109		$	103		$	6			5.8	%
Other financing revenue		6			5			1		20.0			18			14			4			28.6
Financing revenue		43			40			3		7.5			127			117			10			8.5
Consumer financing interest expense		8			6			2		33.3			22			16			6			37.5
Other financing expense		6			6			—		—			17			19			(2	)		(10.5	)
Financing expense		14			12			2		16.7			39			35			4			11.4
Financing margin	$	29		$	28		$	1		3.6		$	88		$	82		$	6			7.3
Financing margin percentage		67.4	%		70.0	%							69.3	%		70.1	%

Financing revenue increased by $3 million and $10 million for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018, due to higher interest income resulting from an increase in the weighted average interest rate we receive on our timeshare financing receivables balance and an increase in other financing revenue related to growth in loan servicing revenues related to our third-party loan portfolios. Financing margin increased for the three and nine months ended September 30, 2019, compared to the same periods in 2018, due to an increase in interest income as well as loan servicing revenue. Financing margin percentage decreased for the three months ended September 30, 2019, primarily due to an increase in interest expense as a result of an increase in our average outstanding borrowings on our non-recourse debt compared to the same period in 2018.

Resort Operations and Club Management Segment

Resort and Club Management

	Three Months Ended September 30,						Variance					Nine Months Ended September 30,						Variance
($ in millions)	2019			2018			$		%			2019			2018			$		%
Club management revenue	$	28		$	25		$	3		12.0	%	$	80		$	71		$	9		12.7	%
Resort management revenue		17			15			2		13.3			50			45			5		11.1
Resort and club management revenues		45			40			5		12.5			130			116			14		12.1
Club management expense		6			6			—		—			20			19			1		5.3
Resort management expense		5			5			—		—			14			14			—		—
Resort and club management expenses		11			11			—		—			34			33			1		3.0
Resort and club management margin	$	34		$	29		$	5		17.2		$	96		$	83		$	13		15.7
Resort and club management margin percentage		75.6	%		72.5	%							73.8	%		71.6	%

Resort and club management revenues increased for the three and nine months ended September 30, 2019, compared to the same periods in 2018, primarily due to (i) an increase of approximately 17,000 Club members and higher rates pertaining to annual dues and transaction fees and (ii) an increase in resort management revenue from the launch of new properties subsequent to the third quarter of 2018. Resort and club management margin and margin percentage increased for the three and nine months ended September 30, 2019, compared to the same periods in 2018, primarily due to increases in segment revenues.

Rental and Ancillary Services

	Three Months Ended September 30,						Variance						Nine Months Ended September 30,						Variance
($ in millions)	2019			2018			$			%			2019			2018			$			%
Rental revenues	$	48		$	53		$	(5	)		(9.4	)%	$	153		$	144		$	9			6.3	%
Ancillary services revenues		6			7			(1	)		(14.3	)		20			20			—			—
Rental and ancillary services revenues		54			60			(6	)		(10.0	)		173			164			9			5.5
Rental expenses		30			30			—			—			89			78			11			14.1
Ancillary services expense		6			7			(1	)		(14.3	)		19			17			2			11.8
Rental and ancillary services expenses		36			37			(1	)		(2.7	)		108			95			13			13.7
Rental and ancillary services margin	$	18		$	23		$	(5	)		(21.7	)	$	65		$	69		$	(4	)		(5.8	)
Rental and ancillary services margin percentage		33.3	%		38.3	%								37.6	%		42.1	%

Rental and ancillary services revenues and expenses decreased by $6 million and $1 million for the three months ended September 30, 2019, compared to the same period in 2018. The decrease in revenues and expenses is primarily due to a decrease in transient guests related to an operating hotel acquired in June 2018 that is currently undergoing a conversion to timeshare inventory. In addition, we had lower club inventory rentals at our developed and fee-for-service properties. Rental and ancillary services revenues and expenses increased by $9 million and $13 million for the nine months ended September 30, 2019, compared to the same period in 2018 primarily due to the acquisition of an operating hotel in June 2018. Rental and ancillary services margin percentage decreased for the three and nine months ended September 30, 2019, compared to the same periods in 2018 primarily due to changes in segment revenues and expenses discussed above.

Other Operating Expenses

	Three Months Ended September 30,				Variance						Nine Months Ended September 30,				Variance
($ in millions)	2019		2018		$			%			2019		2018		$			%
General and administrative	$	28	$	31	$	(3	)		(9.7	)%	$	82	$	84	$	(2	)		(2.4	)%
Depreciation and amortization		14		9		5			55.6			37		25		12			48.0
License fee expense		26		25		1			4.0			75		73		2			2.7

The change in other operating expenses for the three and nine months ended September 30, 2019, compared to the same periods in 2018, is primarily due to higher depreciation and amortization expense as a result of additional software placed into service primarily related to the Oracle cloud-based information system implementation during the second half of 2018 as well as additional depreciation of unregistered operating assets held for future conversion to timeshare inventory and leasehold improvements at newly renovated sales centers.

Non-Operating Expenses

	Three Months Ended September 30,						Variance					Nine Months Ended September 30,					Variance
($ in millions)	2019			2018			$		%			2019			2018		$			%
Interest expense	$	12		$	7		$	5		71.4	%	$	33		$	22	$	11			50.0	%
Equity in earnings from unconsolidated affiliates		(1	)		(1	)		—		—			(4	)		—		(4	)	NM⁽¹⁾
Other loss, net		1			1			—		—			3			1		2		NM⁽¹⁾
Income tax expense		20			15			5		33.3			55			64		(9	)		(14.1	)

⁽¹⁾	Fluctuation in terms of percentage change is not meaningful

The change in non-operating expenses for the three and nine months ended September 30, 2019, compared to the same periods in 2018, is primarily due to (i) an increase in interest expense due to higher average outstanding balance on our senior secured credit facilities and (ii) changes in income tax expense primarily driven by pre-tax income.

Liquidity and Capital Resources

Overview

Our cash management objectives are to maintain the availability of liquidity, minimize operational costs, make debt payments and fund future acquisitions and development projects. Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating expenses and other expenditures, including payroll and related benefits, legal costs, operating costs associated with the operation of our resorts and sales centers, interest and scheduled principal payments on our outstanding indebtedness, inventory-related purchase commitments, and capital expenditures for renovations and maintenance at our offices and sales centers. Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities, inventory-related purchase commitments and costs associated with potential acquisitions and development projects.

We finance our short- and long-term liquidity needs primarily by cash and cash equivalents, cash generated from our operations, draws on our senior secured credit facility and our non-recourse revolving timeshare credit facility (“Timeshare Facility”), and through periodic securitizations of our timeshare financing receivables.

•

As of September 30, 2019, we had total cash and cash equivalents of $211 million, including $98 million of restricted cash. The restricted cash balance relates to escrowed cash from sales of our VOIs and reserves related to our non-recourse debt.

•

As of September 30, 2019, we have $494 million remaining borrowing capacity under the revolver facility (“Revolver”) which includes $29 million of undrawn borrowing capacity available for letters of credit and $10 million available under short-term borrowings. In addition, we have $450 million remaining borrowing capacity under our Timeshare Facility. See Note 11: Debt and Non-Recourse Debt for additional information.

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 $230 million as of September 30, 2019 which primarily consist of escrow and construction related bonds.

We believe these sources of capital will be adequate to meet our short- and long-term liquidity requirements for operating expenses and other expenditures, including payroll and related benefits, legal costs, and to finance our long-term growth plan and capital expenditures for the foreseeable future.

We believe that our capital allocation strategy provides adequate funding for our operations, is flexible enough to fund our development pipeline, securitizes the optimal level of receivables at metrics setting the benchmark for the industry, and provides the ability to be strategically opportunistic in the marketplace, while providing returns to our shareholders. We have made commitments with developers to purchase vacation ownership units at a future date to be marketed and sold under our Hilton Grand Vacations brand. As of September 30, 2019, our inventory-related purchase commitment was $480 million over eleven years, none of which are expected to be purchased for the remainder of 2019.

Sources and Uses of Our Cash

The following table summarizes our net cash flows and key metrics related to our liquidity:

	Nine Months Ended September 30,						Variance
($ in millions)	2019			2018			$
Net cash provided by (used in):
Operating activities	$	148		$	(205	)	$	353
Investing activities		(46	)		(35	)		(11	)
Financing activities		(71	)		155			(226	)

⁽¹⁾	Fluctuation in terms of percentage change is not meaningful.

Operating Activities

Cash flow provided by operating activities is primarily generated from (1) sales and financing of VOIs and (2) net cash generated from managing our resorts, Club operations and providing related ancillary services. Cash flows used in operating activities primarily include spending for the purchase and development of real estate for future conversion to inventory and funding our working capital needs. Our cash flows from operations generally vary due to the following factors related to the sale of our VOIs; the degree to which our owners finance their purchase and our owners’ repayment of timeshare financing receivables; the timing of management and sales and marketing services provided; and cash outlays for VOI inventory acquisition and development. Additionally, cash flow from operations will also vary depending upon our sales mix of VOIs; over time, we generally receive more cash from the sale of an owned VOI as compared to that from a fee-for-service sale.

The change in net cash flows provided by (used in) operating activities for the nine months ended September 30, 2019, compared to the same period in 2018 was primarily due to (i) a reduction in the purchase and development of real estate for future conversion to inventory; (ii) a reduction in inventory deposits; and (iii) a federal tax payment of $63 million made in January of 2018 which was deferred from 2017.

The following table exhibits our VOI inventory spending:

	Nine Months Ended September 30,
($ in millions)	2019		2018
VOI spending - owned properties	$	61	$	77
VOI spending - fee-for-service upgrades⁽¹⁾		36		35
Purchases and development of real estate for future conversion to inventory		107		299
Inventory deposits		—		43
Total VOI inventory spending	$	204	$	454

⁽¹⁾	Includes expense related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects from developed projects of $24 million and $23 million recorded in Costs of VOI sales for the nine months ended September 30, 2019 and 2018, respectively.

Investing Activities

The following table summarizes our net cash used in investing activities:

	Nine Months Ended September 30,						Variance
($ in millions)	2019			2018			$
Capital expenditures for property and equipment	$	(25	)	$	(29	)	$	4
Software capitalization costs		(19	)		(12	)		(7	)
Return of investment from unconsolidated affiliates		—			11			(11	)
Investments in unconsolidated affiliates		(2	)		(5	)		3
Net cash used in investing activities	$	(46	)	$	(35	)	$	(11	)

The change in net cash used in investing activities for the nine months ended September 30, 2019, compared to the same period in 2018, was primarily due to an $11 million return of investment from our 25 percent interest in BRE Ace LLC as a result of a distribution received in 2018, a $7 million increase in software capitalization costs, offset by lower property and equipment spending.

Our capital expenditures include spending related to technology, buildings and leasehold improvements used to support sales and marketing locations, resort operations and corporate activities. We believe the renovations of our existing assets are necessary to stay competitive in the markets in which we operate.

Financing Activities

The following table summarizes our net cash provided by financing activities:

	Nine Months Ended September 30,						Variance
($ in millions)	2019			2018			$
Issuance of debt	$	455		$	215		$	240
Issuance of non-recourse debt		365			663			(298	)
Repayment of debt		(272	)		(168	)		(104	)
Repayment of non-recourse debt		(327	)		(436	)		109
Debt issuance costs		(6	)		(6	)		—
Repurchase and retirement of common stock		(283	)		(112	)		(171	)
Payment of withholding taxes on vesting of restricted stock units		(3	)		(4	)		1
Proceeds from employee stock plan purchases		2			—			2
Capital contribution		—			3			(3	)
Other financing activity		(2	)		—			(2	)
Net cash (used in) provided by financing activities	$	(71	)	$	155		$	(226	)

⁽¹⁾	Fluctuation in terms of percentage change is not meaningful.

The change in net cash flows (used in) provided by financing activities for the nine months ended September 30, 2019 was primarily due to additional repurchases and retirements of common stock compared to the same period in 2018, partially offset by incremental net debt and non-recourse debt activity.

Contractual Obligations

The following table summarizes our significant contractual obligations as of September 30, 2019:

	Payments Due by Period
($ in millions)	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Debt	$	822	$	12	$	22	$	465	$	323
Non-recourse debt		804		246		293		169		96
Interest on debt⁽¹⁾		251		59		100		72		20
Operating leases		92		17		29		22		24
Inventory purchase commitments		480		90		277		98		15
Other commitments⁽²⁾		32	18		14			—		—
Total contractual obligations	$	2,481	$	442	$	735	$	826	$	478

₍₁₎	Includes interest on our debt and non-recourse debt. For our variable-rate debt, we have assumed a constant 30-day LIBOR rate of 2.016 percent as of September 30, 2019.

₍₂₎	Primarily relates commitments related to information technology and brand licensing under the normal course of business.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements as of September 30, 2019 consisted of $480 million of certain commitments with developers whereby we have committed to purchase vacation ownership units at a future date to be marketed and sold under the Hilton Grand Vacations brand and $32 million of other commitments under the normal course of business. The ultimate amount and timing of the acquisitions is subject to change pursuant to the terms of the respective arrangements, which could also allow for cancellation in certain circumstances. See Note 19: Commitments and Contingencies in our unaudited condensed consolidated financial statements for a discussion of our off-balance sheet arrangements.

Subsequent Events

Critical Accounting Policies and Estimates

The preparation of our unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed those policies and estimates that we believe are critical and require the use of complex judgment in their application in our Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from changes in interest rates and currency exchange rates. We manage our exposure to these risks by monitoring available financing alternatives and through pricing policies that may take into account currency exchange rates. Our exposure to market risk has not materially changed from what we previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

Interest Rate Risk

We are exposed to interest rate risk on our variable-rate debt, comprised of the term loans, revolver and our Timeshare Facility, of which the Timeshare Facility is without recourse to us. The interest rates are based on one-month LIBOR and we are most vulnerable to changes in this rate.

We intend to securitize timeshare financing receivables in the asset-backed financing market periodically. We expect to secure fixed-rate funding to match our fixed-rate timeshare financing receivables. However, if we have variable-rate debt in the future, we will monitor the interest rate risk and evaluate opportunities to mitigate such risk through the use of derivative instruments.

To the extent we utilize variable-rate indebtedness in the future, any increase in interest rates beyond amounts covered under any corresponding derivative financial instruments, particularly if sustained, could have an adverse effect on our net income, cash flows and financial position. Hedging transactions we may enter into may not adequately mitigate the adverse effects of interest rate increases or that counterparties in those transactions will honor their obligations.

The following table sets forth the contractual maturities, weighted-average interest rates and the total fair values as of September 30, 2019, for our financial instruments that are materially affected by interest rate risk:

				Maturities by Period
($ in millions)	Weighted Average Interest Rate⁽¹⁾			2019		2020		2021		2022		2023		There- after		Total⁽²⁾		Fair Value
Assets:
Fixed-rate securitized timeshare financing receivables		12.078	%	$	22	$	90	$	94	$	98	$	101	$	390	$	795	$	867
Fixed-rate unsecuritized timeshare financing receivables		12.964	%		22		49		50		49		50		303		523		557
Liabilities:⁽³⁾
Fixed-rate debt		3.840	%		52		249		156		110		108		456		1,131		1,144
Variable-rate debt⁽⁴⁾		3.766	%		2		10		10		10		463		—		495		500

⁽¹⁾	Weighted-average interest rate as of September 30, 2019.

⁽²⁾	Amount excludes unamortized deferred financing costs.

⁽³⁾	Includes debt and non-recourse debt.

⁽⁴⁾	Variable-rate debt includes principal debt outstanding as of September 30, 2019. There were no outstanding borrowings as of September 30, 2019 on our non-recourse debt. See Note 11: Debt & Non-recourse Debt in our unaudited condensed consolidated financial statements for additional information.

Foreign Currency Exchange Rate Risk

Though the majority of our operations are conducted in United States dollar (“U.S. dollar”), we are exposed to earnings and cash flow volatility associated with changes in foreign currency exchange rates. Our principal exposure results from our timeshare financing receivables denominated in Japanese yen, the value of which could change materially in reference to our reporting currency, the U.S. dollar. A 10 percent increase in the foreign exchange rate of Japanese yen to U.S. dollar would increase our gross timeshare financing receivables by less than $1 million.

ITEM 4.

Controls and Procedures

Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) or our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of the controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error and mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of effectiveness of controls and procedures to future periods are subject to the risk that the controls and procedures may become inadequate because of changes in conditions, or that the degree of compliance with the controls and procedures may have deteriorated.

In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of the end of the period covered by this quarterly report, were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 1.

Legal Proceedings

We are involved in litigation arising from the normal course of business, some of which includes claims for substantial sums. Management has evaluated these legal matters and we believe an unfavorable outcome is either reasonably possible or remote and/or for which are not reasonably estimable. While the ultimate results of claims and litigation cannot be predicted with certainty, we expect that the ultimate resolution of all pending or threatened claims and litigation as of September 30, 2019 will not have a material effect on our unaudited condensed consolidated financial statements.

Item 1A.

Risk Factors

As of September 30, 2019, there have been no material changes from the risk factors previously disclosed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2018. These risk factors may be important to understanding statements in this Form 10-Q and should be read in conjunction with the unaudited condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q.

The risks described in our Annual Report on Form 10-K for the year ended December 31, 2018 contain forward-looking statements, and they may not be the only risks facing the Company. The business, financial condition and operating results of the Company can be affected by the risk factors described in the foregoing reports and by other factors currently unknown or that management presently believes not to be material. Any one or more of such factors could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and the trading price of our common stock. Because of these factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(a) None.

(b) Not applicable.

	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Appropriate Dollar Value of Shares that May Yet Be Purchased Under Plan
July 1 - July 31, 2019		—	$	—		—	$	57,121,193
August 1 - August 31, 2019		469,924		25.90		469,924		44,949,739
September 1 - September 30, 2019		—		—		—		44,949,739
Total		469,924	$	25.90		469,924	$	44,949,739

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

Item 6.Exhibits

Exhibit No.		Description

3.1		Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37794) filed on March 17, 2017).

3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-37794) filed on March 17, 2017).
10.1		Omnibus Amendment No. 12 to Receivables Loan Agreement, effective as of September 19, 2019, by and among Hilton Grand Vacations Trust I LLC, as borrower, Hilton Resorts Corporation, the financial institutions signatory thereto as managing agents, the financial institutions signatory thereto as conduit lenders, the financial institutions signatory thereto as committed lenders, Bank of America, N.A., as administrative agent, and Wells Fargo Bank, National Association, as securities intermediary and paying agent. *

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		XBRL Taxonomy Label Linkbase Document.

101.PRE		XBRL Taxonomy Presentation Linkbase Document.

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

*	Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 31^st day of October 2019.

	HILTON GRAND VACATIONS INC.

	By:	/s/ Mark D. Wang
	Name:	Mark D. Wang
	Title:	President and Chief Executive Officer

	By:	/s/ Daniel J. Mathewes
	Name:	Daniel J. Mathewes
	Title:	Executive Vice President and Chief Financial Officer