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

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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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. ~~(Check one):~~

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 27, 2017~~April 23, 2021 was ~~99,088,973.~~

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF ~~STOCKHOLDERS’ EQUITY~~CASH FLOWS (UNAUDITED)

~~On January 3, 2017, the previously announced spin-off was completed by way of a pro rata distribution of~~ Hilton Grand Vacations Inc.’s (“Hilton Grand Vacations,” “we,” “us,” “our,” “HGV” or the “Company”) common stock to Hilton Worldwide Holdings Inc. (“Hilton”) stockholders. Each Hilton stockholder received one share of our common stock for every ten shares of Hilton common stock. As a result of the spin-off, we became a separate publicly-traded company on the New York Stock Exchange under the ticker symbol “HGV,” and Hilton did not retain any ownership interest in our company.

In connection with the completion of the spin-off, we entered into agreements with Hilton (who at the time was a related party) and other third parties, including licenses to use the Hilton brand. The unaudited condensed consolidated financial statements reflect the effect of these agreements. For the three months ended September 30, 2017 and 2016, we incurred $39 million and $46 million, respectively, and for the nine months ended September 30, 2017 and 2016, we incurred $137 million and $150 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, 2016 for further information.~~

~~Prior to the spin-off, Hilton maintained a share-based compensation plan for the benefit of its officers, directors and employees which was presented as a component of~~ ~~Net transfers (to) from Parent,~~ a financing activity, on the condensed consolidated statements of cash flows. Subsequent to the spin-off, share-based compensation expense is presented as a component of operating activities on the condensed consolidated statements of cash flows.

~~Hilton Grand Vacations~~ 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 us and third parties; ~~operating resorts;~~ financing and servicing loans provided to consumers for their timeshare purchases; operating resorts; and managing our points-based Hilton Grand Vacations Club and Hilton Club exchange program ~~(the~~(collectively the “Club”). As of ~~September 30, 2017,~~March 31, 2021, we had ~~48 timeshare~~62 properties, comprised of ~~8,101 units,~~499,616 VOIs, located in the United States (“U.S.”), Japan, the United Kingdom, Italy, Barbados and ~~Europe.~~Mexico. A significant number of our properties and VOIs are concentrated in Florida, Hawaii, Nevada, New York, and South Carolina.

The unaudited condensed consolidated financial statements presented herein include 100 percent of our assets, liabilities, revenues, expenses and cash flows ~~and~~as well as all entities in which we have a controlling financial interest. ~~Through~~In our opinion, the ~~date of the spin-off, the~~accompanying unaudited condensed consolidated financial statements ~~presented herein were prepared on~~reflect all adjustments, including normal recurring items, considered necessary for a ~~stand-alone basis~~fair presentation of the interim periods. All material intercompany transactions and ~~were derived from the unaudited consolidated financial statements and accounting records of Hilton.~~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, ~~2016,~~2020, included in our Annual Report on Form 10-K filed with the SEC on March ~~2, 2017.~~1, 2021.

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.

~~The accompanying unaudited condensed consolidated financial statements, in our opinion, reflect all adjustments, including normal recurring items, considered necessary for a fair presentation~~

Impact of the ~~interim periods. All material intercompany transactions~~COVID-19 Pandemic

The novel coronavirus (“COVID-19”) pandemic that started in early 2020 significantly negatively impacted the hospitality, travel and ~~balances~~leisure industries due to various mandates and orders to close non-essential businesses, impose travel restrictions, require “stay-at-home” and/or self-quarantine, and require similar actions. Such restrictions and directives have ~~been eliminated~~resulted in ~~consolidation.~~

~~We review~~cancellations and significant reductions in travel around the world and caused various other negative global economic conditions. In response to these events, we closed substantially all of our ~~estimate~~resorts and sales centers during early 2020, but began a phased reopening of resorts and resumption of our business activities during the second quarter 2020 under new operating guidelines and with enhanced safety measures as mandates and orders for business closures, quarantine and travel restrictions began to ease. With the anticipated continuation of the ~~expected redemption~~pandemic receding, as well as COVID-19 vaccinations becoming more widespread, such mandates and orders have continued to ease, resulting in consumer confidence increasing to resume normal activities, including travel and leisure, and more businesses to continue to resume operations. Accordingly, the positive trends in leisure travel and stays at our properties have continued. For example, as of ~~expired prepaid discounted vacation packages (“packages”) on an ongoing basis.~~March 31, 2021, we have approximately 80 percent of our resorts and nearly all of our sales centers open and currently operating, although many are operating in markets with various capacity constraints, social distancing requirements and other safety measures, which are impacting consumer demand for resorts in those markets. We ~~only reduce the liability for expired packages when a package is redeemed~~plan to continue to reopen our resorts and resume our normal business as conditions permit, but there can be no assurance that such positive trends will continue or ~~the likelihood~~that there will not be any increases of ~~redemption is remote. This review considers factors~~new infections or new variants that may impede or reverse recovery and such ~~as historical experience, current business practices for pursuing individuals to redeem~~positive trends.

In response to the impact of COVID-19, we took a variety of actions in 2020 and to date in 2021 to ensure the ~~sufficiency~~continuity of our business and ~~reliability~~operations and to secure our liquidity position to provide financial flexibility. These actions include amending certain financial covenant ratios in the fourth quarter of ~~data available following a change in those redemption~~2020 through the third quarter of 2021, as may be needed due to the ongoing and uncertain future impact of the COVID-19 pandemic on our business ~~practices. Previously, we concluded that redemption of an expired package was remote once a package had been expired for six months~~ and ~~therefore retained the liability until six months after expiration. During the review~~operations. We also furloughed team members beginning in the second quarter of ~~2017,~~2020 and completed a workforce reduction plan in the fourth quarter of 2020 that impacted approximately 1,500 team members. As of March 31, 2021, 1,100 team members continue to be furloughed.

Prior to re-opening our resorts and sales centers, we ~~determined~~introduced the HGV Enhanced Care Guidelines, designed to provide owners, guests and team members with the highest level of cleaning protocols and safety standards recommended by the Center for Disease Control and Prevention and cleaning solutions approved by the Environmental Protection Agency in response to the COVID-19 pandemic.

While we ~~then had sufficiently reliable updated information under current business practices~~hope that conditions in the hospitality and travel industries continue to ~~revise our estimate of expired packages~~reflect the improvement that we ~~expect to redeem. As a result~~saw during the ~~second quarter~~March travel season, the pandemic continues to be unprecedented and rapidly changing, and has unknown duration and severity. Further, various state and local government officials may issue new or revised orders that are different than current ones under which we are operating. Accordingly, there remains significant uncertainty as to the degree of ~~2017, we changed our accounting estimate for expected redemptions of expired packages to relieve a portion~~continuing impact and duration of the ~~remaining liability post expiration and recorded an $11 million reduction to~~conditions stemming from the ~~Advanced Deposits~~ ~~liability, with corresponding increases to~~ ~~Sales, marketing, brand~~ongoing pandemic on our revenues, net income and other ~~fees~~ ~~revenue of $10 million~~operating results, as well as our business and ~~Accounts payable, accrued expenses and other~~ for the related sales tax liability of $1 million. As a result, for the nine months ended September 30, 2017, our net income increased by $10 million and basic and diluted earnings per share increased by $0.10.

We account for investments in unconsolidated affiliates under the equity method of accounting when we exercise significant influence, but do not maintain a controlling financial interest over the affiliates. We evaluate our investments in affiliates for impairment when there are indicators that the fair value of our investment may be less than our carrying value.

~~Cash and cash equivalents include all highly liquid investments with original maturities of three months or less.~~

~~In March 2016, the Financial Accounting Standards Board (“FASB”) issued~~On January 1, 2021 we adopted Accounting Standards Update ~~(“ASU”) No. 2016-09~~2019-12 (“ASU ~~2016-09”~~2019-12”), ~~Compensation - Stock Compensation~~Income Taxes (Topic ~~718)~~740): ~~Improvements~~Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies various aspects related to ~~Employee Share-Based Payment Accounting. ASU 2016-09 includes provisions intended to simplify several aspects of the~~ accounting ~~and presentation of share-based payments. These provisions include the recognition of the~~for income ~~tax effects of awards in the consolidated statement of operations when the awards vest or are settled, permitting an employer to withhold shares in an amount up~~taxes by removing certain exceptions to the ~~employee’s maximum individual tax rate without resulting~~general principles in ~~liability classification of the award, permitting entities~~Topic 740 and clarifies and amends existing guidance to make a policy election to account for forfeitures as they occur, and changes to the classification of tax-related cash flows resulting from share-based payments and cash payments made to taxing authorities on the employee’s behalf on the statement of cash flows. This ASU 2016-09 was effective for reporting periods beginning after December 15, 2016. We adopted ASU 2016-09 retrospectively as of January 1, 2017 and have applied to all periods herein with no material impact to our unaudited condensed consolidated financial statements.

~~In November 2016, the FASB issued ASU No. 2016-18, (“ASU 2016-18”)~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash.~~ This ASU is intended to provide guidance on the presentation of restricted cash or restricted cash equivalents and reduce the diversity in practice. This ASU requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts on the statement of cash flows. We elected, as permitted by the standard, to early adopt ASU 2016-18 retrospectively as of January 1, 2017 and have applied it to all periods presented herein.improve consistent application. The adoption of ASU ~~2016-18~~2019-12 did not have a material impact ~~to our unaudited condensed consolidated financial statements. The effect of the adoption of ASU 2016-18~~ on our condensed consolidated financial statements ~~of cash flows was to include restricted cash balances in the beginning~~ and end of period balances of cash and cash equivalent and restricted cash. The change in restricted cash was previously disclosed in operating activities and financing activities in the condensed consolidated statements of cash flows.

~~In January 2017, the FASB issued ASU No. 2017-01 (“ASU 2017-01”),~~ ~~Business Combinations (Topic 804): Clarifying the Definition of a Business~~. This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. We elected, as permitted by the standard, to early adopt ASU 2017-01 prospectively as of January 1, 2017. The adoption of ASU 2017-01 did not have a material impact to our unaudited condensed consolidated financial statements.

~~In May 2014, the FASB issued ASU No. 2014-09 (“ASU 2014-09”),~~ Note 3: Revenue from Contracts with Customers ~~(Topic 606)~~

The following tables show our disaggregated revenues by segment from contracts with customers. We operate our business in the following 2 segments: (i) Real estate sales and financing and (ii) Resort operations and club management. ~~This ASU supersedes the revenue recognition requirements in~~ ~~Revenue Recognition (Topic 605), and requires entities~~Please refer to ~~recognize revenue~~Note 18: Business Segments below for more details related to our segments.

~~in a way that depicts the transfer of promised goods orservices to customers in an amount that reflects the consideration to which the entity expects to be entitled inexchange for those goods or services. Subsequent to ASU 2014-09, the FASB has issued several related ASUs amending the original ASU.~~

The ~~provisions of this ASU~~following table provides information on our accounts receivable from contracts with customers which are to be applied retrospectively or using a modified retrospective approach for reporting periods beginning after December 15, 2017. A determination as to whether we will apply the retrospective or modified retrospective adoption method will be made onceincluded in Accounts receivable, net on our ~~quantitative evaluation is complete and we commence quantifying the expected impacts later this year.~~condensed consolidated balance sheets:

~~We are currently evaluating~~The following table presents the ~~effect that this ASU will have on our consolidated financial statements by analyzing both transactional and analytical data for each~~composition of our ~~revenue streams. The following is a status of our evaluation of impacts by significant revenue stream:~~contract liabilities.

Revenue earned for the three months ended March 31, 2021 that was included in the contract liabilities balance at December 31, 2020 was approximately $35 million.

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 6: Timeshare Financing Receivables for information on balances and changes in balances during the period related to our timeshare financing receivables.

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 ~~net~~ – 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 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.

The following table represents the deferred revenue, cost of VOI sales and direct selling costs from sales of VOIs related to projects under construction as of March 31, 2021:

We expect to recognize ~~Sales~~the revenue, costs of VOI ~~net~~ ~~when control~~sales and direct selling costs upon completion of the ~~VOI passes~~projects throughout the remainder of 2021.

The following table includes the remaining transaction price related to ~~the customer, which generally occurs shortly after the expiration~~Advanced deposits, Club activation fees and Club Bonus Points as of ~~the purchaser’s period to cancel for a refund. We do not expect that this timing change will have a material impact on our accounting for~~ ~~Sales of VOIs, net. We expect our accounting for uncollectible timeshare financing receivables to remain unchanged.~~March 31, 2021:

~~We are still evaluating the impact on revenue recognition for sales of VOIs that are under construction.~~

We plan to recognize the expected breakage on prepaid discounted vacation packages (“packages”) as revenue proportionately when our customers redeem their packages rather than when the likelihood of redemption is remote as we are entitled to the breakage amount. We are currently in the process of assessing the impact of this expected change.

~~We do not expect material changes to our accounting for our commissions, brand and other fees under fee-for-service arrangements.~~

~~We expect immaterial impacts from changes to (i) timing of service fees charged on packages and (ii) classification of contract acquisition costs paid to fee-for-service customers.~~

~~We will continue to evaluate and disclose expected impacts that ASU 2014-09 will have on our unaudited condensed consolidated financial statements as more information becomes available.~~

~~In August 2016, the FASB issued ASU No. 2016-15 (“ASU 2016-15”),~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~. This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The provisions of this ASU are effective for reporting periods beginning after December 15, 2017; early adoption is permitted. We are currently evaluating the effect that this ASU will have on our consolidated financial statements.

~~In January 2017, the FASB issued ASU 2017-03 (“ASU 2017-03”),~~ ~~Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323)~~. ASU 2017-03 requires registrants to disclose the effect that recently issued accounting standards will have on their financial statements when adopted in a future period. The SEC staff expects the additional qualitative disclosures to include a description of the effect of the accounting policies that the registrant expects to apply, if

determined, and a comparison to the registrant’s current accounting policies. In addition, a registrant should describe the status of its process to implement the new standards and the significant implementation matters yet to be addressed. ASU 2017-03 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years with early adoption permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We are currently evaluating the effect that this ASU will have on our consolidated financial statements.

The following table represents our accounts receivable, net of allowance for credit losses. Accounts receivable within the scope of ASC 326 are measured at amortized cost.

Our accounts receivable are all due within one year of origination. We use delinquency status and economic factors such as credit quality indicators to monitor our receivables within the scope of ASC 326 and use these as a basis for how we develop our expected loss estimates.

We sell VOIs on behalf of third-party developers using the Hilton Grand Vacations brand in exchange for sales, marketing and brand fees. We use historical losses and economic factors as a basis to develop our allowance for credit losses. Under these fee-for-service arrangements, we earn commission fees based on a percentage of total interval sales. Additionally, the terms of these arrangements include provisions requiring the reduction of fees earned for defaults and cancellations.

~~The interest rate charged on the notes correlates to the risk profile of the borrower at the time of purchase and the percentage of the purchase that is financed, among other factors.~~ As of ~~September 30, 2017, our~~March 31, 2021 and December 31, 2020, we had timeshare financing receivables ~~had interest rates ranging from 5.3 percent to 20.5 percent, a weighted average interest rate of 12.1 percent, a weighted average remaining term of 7.7 years and maturities through 2028.~~

~~We pledge a portion of our timeshare financing receivables as collateral to secure a non-recourse revolving timeshare receivable credit facility (“Timeshare Facility”)~~ with a ~~borrowing capacity~~carrying value of ~~$450 million. As of September 30, 2017 and December 31, 2016, we had $143~~$15 million and ~~$509~~$17 million, respectively, ~~of gross timeshare financing receivables~~ securing the Timeshare ~~Facility. We recognize interest income on our timeshare~~Facility in anticipation of future financing ~~receivables as earned.~~ activities.We record an estimate of ~~uncollectibility~~variable consideration for estimated defaults as a reduction of revenue from VOI sales at the time revenue is recognized on a VOI sale.

~~In March 2017, we completed a securitization~~ We record the difference between the timeshare financing receivable and the variable consideration included in the transaction price for the sale of ~~approximately $357 million of gross timeshare~~the related VOI as an allowance for financing receivables and ~~issued approximately $291~~record the receivable net of the allowance. In March 2020, we recorded an incremental $23 million revenue reduction related to the changes in estimates primarily driven by economic factors surrounding the COVID-19 pandemic. For the three months ended March 31, 2021 we recorded an adjustment to our estimate of ~~2.66 percent notes and approximately $59 million~~variable consideration of 2.96 percent notes, which have a stated maturity date of December 2028. The securitization transactions did not qualify as sales 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”). See Note 8: ~~Debt & Non-recourse debt~~ ~~for further discussion.~~$16 million.

Our timeshare financing receivables as of ~~September 30, 2017~~March 31, 2021 mature as follows:

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~~collectability of our receivables on an ongoing basis. There are no significant concentrations of credit risk with any individual counterparty or groups of counterparties. We use a technique referred to as static pool analysis as the basis for estimating expected defaults and determining our ~~loan loss reserve requirements~~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. As of both March 31, 2021 and December 31, 2020, we hadinterest receivable outstanding of $7 million included in our condensed consolidated balance sheets. The interest rate charged on the notes correlates to the risk profile of the customer at the time of purchase and the percentage of the purchase that is financed, among other factors. As of March 31, 2021, our timeshare financing receivables had interest rates ranging from 1.5 percent to 19.5 percent, a weighted-average interest rate of 12.6 percent, a weighted-average remaining term of 7.4 years and maturities through 2036.

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

The following table details the origination year of our gross timeshare financing receivables by the origination year and average FICO score as of March 31, 2021:

We apply payments we receive for ~~loans,~~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 ~~loan~~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 ~~loans~~receivables for which we had previously ceased accruing interest once the ~~loan~~receivable is less than 91 days past due. We fully reserve for a timeshare financing receivable in the month following the date that the ~~loan~~receivable is 121 days past due and, subsequently, we write off the uncollectible ~~note~~balance against the reserve once the foreclosure process is complete and we receive the deed for the foreclosed unit.

As of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, we had ceased accruing interest on timeshare financing receivables with an aggregate principal balance of ~~$47~~$111 million and ~~$38~~$117 million, respectively. The following tables detail an aged analysis of our gross timeshare ~~financing~~ receivables balance:

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

~~We benefited from $4 million in~~The table below presents (i) costs of sales true-ups relating to VOI products ~~for~~and the ~~nine months ended September 30, 2017, which resulted in a $4 million increase~~related impacts to the carrying value of inventory as of September 30, 2017. We benefited from $10 million in costs of sales true-ups relating to VOI products for the year ended December 31, 2016, which resulted in a $10 million increase to the carrying value of inventory as of December 31, 2016. Shown below areand (ii) 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.

As of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, we consolidated ~~three and two~~4 variable interest entities (“VIEs”), respectively, that issued ~~Securitized Debt,~~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:

During the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, we did ~~not~~0t 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.

~~On July 18, 2017,~~As of March 31, 2021, we entered into an agreement with BRE Ace Holdings LLC, a Delaware limited liability company (“BRE Ace Holdings”), an affiliate of The Blackstone Group L.P. (“Blackstone”) and formed BRE Ace LLC. Pursuant to the agreement, we contributed $40 million in cash for ahave 25 percent ~~interest~~and 50 percent ownership interests in BRE Ace LLC ~~which owns a 1,201-key timeshare resort property~~ and ~~related operations, commonly known~~1776 Holding LLC, respectively, that are deemed as ~~“Elara, by Hilton Grand Vacations,” located in Las Vegas, Nevada.~~VIEs. We do not consolidate BRE Ace LLC and 1776 Holding LLC because we are not the primary beneficiary. Our investment ~~interest~~interests in and equity earned from ~~BRE Ace LLC~~both VIEs are included in the ~~condensed~~ consolidated balance sheets as ~~Investment~~Investments in unconsolidated ~~affiliate~~affiliates and in the ~~condensed~~ consolidated statements of operations as Equity in earnings (losses) from unconsolidated ~~affiliate~~affiliates, respectively.

~~BRE Ace LLC had~~Our 2 unconsolidated affiliates have aggregated debt balances of ~~$207~~$442 million and ~~non-recourse debt of $235~~$454 million as of ~~September 30, 2017.~~March 31, 2021 and December 31, 2020, respectively. The debt ~~and non-recourse debt are~~is secured by ~~its~~their assets and ~~are~~is without recourse to us. Our maximum exposure to loss as a result of our investment ~~interest~~interests in ~~BRE Ace LLC~~the two unconsolidated affiliates is primarily limited to (i) the carrying amount of the ~~investment~~investments which totals ~~$41~~$53 million and $51 million as of ~~September 30, 2017, as well as~~March 31, 2021 and December 31, 2020, respectively and (ii) receivables for commission and other fees earned under a fee-for-service ~~arrangement.~~arrangements. See Note ~~13:~~ 17: Related Party Transactions for additional information.

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

In March 2021, we amended our Credit Agreement which amended certain terms related to financial covenants to permit the previously announced proposed acquisition of Dakota Holdings, Inc., (“Diamond”), which indirectly owns all of the interests in Diamond Resorts International Inc. (the “Merger”), pursuant to that certain Agreement and Plan of Merger dated March 10, 2021. Refer to Note 20: Planned Acquisition for further information regarding the Merger. The borrowing capacity under the Credit Agreement remained the same. In connection with the amendment, we incurred $1 million in debt issuance costs. In addition, we obtained a revolving credit facility commitment in connection with the Merger and incurred $2 million in debt issuance costs which were amortized over the term of the commitment in the first quarter of 2021. This was included in interest expense in our condensed consolidated statements of operations.

During the three months ended March 31, 2021, we repaid $2million (including recurring payments) under the senior secured credit facilities with an interest rate based on one month LIBOR plus 3.50percent, subject to a 0.25 percent floor.

We primarily use interest rate swaps as part of our interest rate risk management strategy for our variable-rate debt. As of March 31, 2021, we had approximately $175 million of our Term Loan subject to interest rate swaps. Such interest rate swaps converted the LIBOR-based variable rates on our Term Loan to an average fixed annual rate of 0.53 percent per annum through November 2023. Our interest rate swaps have been designated and qualify as cash flow hedges of interest rate risk and recorded as a liability in Accounts payable, accrued expenses and other in our condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020. We characterize payments we make in connection with these derivative instruments as interest expense and a reclassification of accumulated other comprehensive income for presentation purposes. For the three months ended March 31, 2021, we recorded less than $1 million in accumulated other comprehensive loss related to the hedge.

As of March 31, 2021 and December 31, 2020, we had $1 million of outstanding letters of credit under the revolving credit facility. We were in compliance with all applicable maintenance and financial covenants and ratios as of ~~September 30, 2017.~~March 31, 2021.

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

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.

As of March 31, 2021, and December 31, 2020, we had $450 million remaining borrowing capacity under our Timeshare Facility, respectively. In March ~~2017,~~2021, we completed a securitization of approximately $357 million of gross timeshare financing receivables and issued approximately $291 million of 2.66 percent notes and $59 million of 2.96 percent notes due December 2028. 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 interests. The Securitized Debt is a non-recourse obligation and is payable solely from the pool of timeshare financing receivables pledgedamended our Timeshare Facility to align with our amended Credit Agreement, as ~~collateral to the debt.~~described above.

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 ~~$22~~$29 million as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, respectively, and were included in Restricted cash in our condensed consolidated balance sheets.

The contractual maturities of our debt and non-recourse debt as of ~~September 30, 2017~~March 31, 2021 were as follows:

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

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 loan 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~~were based on prices in active debt markets. The estimated fair ~~value~~values of our Level 3 debt and non-recourse debt were based on the following:

Our assets that are measured at fair value on a non-recurring basis include land and infrastructure held for sale. These assets were measured to their estimated fair value as of December 31, 2020. We utilized the market approach for the land and cost approach for the infrastructure to determine their respective fair values. The fair value determinations involve judgement and are sensitive to key assumptions utilized, including comparative sales for land (level 2) and replacement costs for infrastructure (level 3). As of March 31, 2021 and December 31, 2020, the estimated fair value of these assets were as follows and their carrying values were reflected in Land and infrastructure held for sale in our condensed consolidated balance sheets.

We lease sales centers, office space and equipment under operating leases. Our leases expire at various dates from 2021 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.

We recognize rent expense on leases with both contingent and non-contingent lease payment terms. Rent associated with non-contingent lease payments are recognized on a straight-line basis over the lease term. Rent expense for all operating leases for the three months ended March 31, 2021 and 2020 was $4 million and $5 million, respectively. These amounts include $1 million of short-term and variable lease costs for the three months ended March 31, 2021 and 2020, respectively.

Supplemental balance sheet information related to operating leases was as follows:

The future minimum lease payments under noncancelable operating leases, due in each of the next five years and ~~projected future cash flows discounted at risk-adjusted rates.~~thereafter as of March 31, 2021, are as follows:

At the end of each quarter, we estimate the effective tax rate expected to be applied for the full year. The effective ~~income~~ tax rate is determined by the level and composition of pre-tax ordinary income or loss, which is subject to federal, foreign and state and local income taxes. The effective ~~income~~ tax rate for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 was approximately 3846 percent and 4311 percent, ~~respectively, which decreased~~respectively. The effective tax rate is higher primarily due to the change in earnings mix of our worldwide income and the impact of a ~~decrease in cumulative installment sale interest liability.~~

~~The Company was a party to several intercompany asset transfers with Hilton prior~~non-recurring discrete item recorded during the first quarter of 2021 as compared to the ~~spin-off. As required under U.S.~~first quarter of 2020.

We have considered the income tax ~~regulations, the gain resulting from the intercompany transfer of these assets should be deferred~~accounting and ~~no deferred tax asset or liability should be recognized until a recognition event occurs. On January 3, 2017, Hilton executed a tax-free spin-off~~disclosure implications of the ~~Company, which met~~relief provided by the ~~requirement~~American Rescue Plan Act of ~~a recognition event. On~~2021 enacted on March 11, 2021. As of March 31, 2021, we evaluated the ~~spin-off date,~~income tax provisions of the American Rescue Plan Act and have determined there to be no effect on either the March 31, 2021 tax rate or the computation of the estimated effective tax rate for the ~~assets transferred, we recognized a stepped up~~year. We will continue to evaluate the income tax ~~basis, re-measured the asset by applying applicable tax rate changes and evaluated the realizability~~provisions of the ~~asset. This resulted~~American Rescue Plan Act and monitor the developments in ~~a reduction to our net deferred~~the jurisdictions where we have significant operations for tax ~~liability~~law changes that could have income tax accounting and ~~an increase in our~~ ~~Additional paid-in capital~~ ~~of $9 million on our condensed consolidated balance sheet as of September 30, 2017.~~disclosure implications.

We issue ~~time-vesting~~service-based restricted stock units (“Service RSUs”), service and performance-based restricted stock units (“Performance RSUs”) and nonqualified stock options (“~~options”~~Options”) to certain ~~employees. All performance shares that were issued under the stock plan of Hilton, were converted to RSUs as of December 31, 2016.~~employees and directors. We recognized share-based compensation expense of $5$4 million ~~and $2 million during~~for the three months ended ~~September 30, 2017 and 2016, respectively and $13 million and $7 million during~~March 31, 2021. For the ~~nine~~three months ended ~~September 30, 2017 and 2016, respectively.~~March, 31, 2020, we recognized a credit to share-based compensation expense of $2 million due to the reversal of $8 million of expense recognized in prior years related to our Performance RSUs which were not expected to achieve certain performance targets. As of ~~September 30, 2017,~~March 31, 2021, unrecognized compensation costs for unvested awards were approximately ~~$13~~$49 million, which is expected to be recognized over a weighted average period of ~~2.0~~1.6 years. As of ~~September 30, 2017,~~March 31, 2021, there were ~~7,961,151~~4,024,218 shares of common stock available for future ~~issuance.~~issuance under this plan.

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021, we issued ~~530,674~~560,604 Service RSUs with a ~~weighted average~~ grant date fair value of ~~$29.15,~~$38.22, which generally vest ~~25 percent~~ in ~~the first year, 25 percent in the second year and 50 percent in the third year~~equal annual installments over three years from the date of grant.

During the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021, we issued ~~669,658 options~~542,793 Options with aan exercise price of $38.22, which vest over three years from the date of the grant.

The weighted-average grant date fair value of ~~$8.66 and an exercise price of $28.30,~~these options was $13.30, which ~~generally vest 25 percent in the first year, 25 percent in the second year and 50 percent in the third year from the date of grant.~~

~~The grant date fair value of each of these option grants~~ was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:

As of ~~September 30, 2017,~~March 31, 2021, we had ~~169,926 options~~1,416,603 Options outstanding that were exercisable.

During the three months ended March 31, 2021, we issued 124,711 Performance RSUs with a grant date fair value of $38.22. The Performance RSUs are settled at the end of a three-year performance period, with 50 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 50 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 March 31, 2021, we recognized compensation expense based on the number of Performance RSUs we expect to vest.

In March 2017, the Board of Directors adopted the Hilton Grand Vacations Inc. Employee Stock Purchase Plan (the “ESPP”), which became effective during 2017. In connection with the Plan, we issued 2.5 million shares of common stock which may be purchased under the ESPP. The ESPP allows eligible employees to purchase shares of our common stock at a price per share not less than 95 percent of the fair market value per share of common stock on the purchase date, up to a maximum threshold established by the plan administrator for the offering period. During the three months ended March 31, 2021 and 2020, we recognized less than $1 million of compensation expense related to this plan.

The following table presents the calculation of our basic and diluted (loss) earnings per share (“EPS”). The weighted average shares outstanding for the three and nine months ended September 30, 2016 reflect 98,802,597 shares distributed on January 3, 2017, our spin-off date, to our stockholders. See Note 1: ~~Organization and Basis of Presentation~~ ~~for further discussion.~~ The weighted average shares outstanding used to compute basic EPS and diluted EPS for the three months ended ~~September 30, 2017 is 98,981,557~~March 31, 2021 was 85,307,705.The weighted average shares outstanding used to compute basic EPS and ~~99,730,483, respectively and~~diluted EPS for the ~~nine~~three months ended ~~September 30, 2017 is 98,916,894~~March 31, 2020 was 85,519,151 and ~~99,530,534,~~86,044,525, 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. Potentially dilutive shares of 943,373 for the three months ended March 31, 2021, were excluded from the calculation of diluted weighted average shares outstanding and diluted earnings per share as a result of our net loss position.

For the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021 and 2020, we excluded ~~224,783~~638,050 and1,754,656 share-based compensation awards, respectively, because their effect would have been anti-dilutive under the treasury stock method. ~~For the three months ended September 30, 2017, we did not exclude any share-based compensation awards.~~

On January 3, 2017, when the spin-off was completed, Hilton and Park Hotels & Resorts Inc. ceased to be related parties of HGV. In connection with the spin-off, we entered into certain agreements with Hilton (who at the time was a related party) and other third parties. 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, 2016 for further information.~~

On March 15, 2017, Blackstone completed the previously announced sale of 24,750,000 shares of our common stock to HNA Tourism Group Co., Ltd. (“HNA”), representing approximately 25 percent of the outstanding shares of our common stock.

In connection with the consummation of the sale, we adopted our amended and restated by-laws, effective March 15, 2017, to remove references to Blackstone’s ownership of at least 40 percent of the total voting power of our common stock and revised certain provisions referencing the Blackstone Stockholders Agreement, as appropriate, to include references to the HNA Stockholder Agreement.

As of March 31, 2017, Blackstone held 15,008,689 shares, or approximately 15 percent of our outstanding common stock. On May 25, 2017, Blackstone filed a Registration Statement on Form S-1 and registered all of our common stock held by them. On June 14, 2017, Blackstone entered into an underwriting agreement with J.P. Morgan Securities LLC pursuant to which J.P. Morgan

Securities LLC agreed to purchase from Blackstone 9,650,000 shares of our common stock at a price of $35.40 per share. The sale was completed on June 20, 2017. Subsequently, on September 25, 2017, Blackstone completed the sale of substantially all of the remaining shares of our common stock held by them to several institutional investors and ceased to be a related party of HGV. We did not receive any proceeds from either of these sales. As of September 30, 2017, Blackstone holds only a nominal number of shares of our common stock.

The following table summarizes amounts included in our condensed consolidated statements of operations related to a fee-for-service arrangement with Blackstone affiliates to sell VOIs on their behalf through September 30, 2017:

~~Also related to the fee-for-service agreement, as of September 30, 2017 and December 31, 2016, we have outstanding receivables of $8 million and $20 million, respectively.~~

~~On July 18, 2017, we entered into an agreement with BRE Ace Holdings, an affiliate of Blackstone, to form BRE Ace LLC. In conjunction with this agreement we acquired~~We hold a 25 percent ownership interest in BRE Ace ~~LLC. During the nine months ended September 30, 2017, we recorded $1 million~~LLC, a VIE, which owns a timeshare resort property and related operations, commonly known as “Elara, by Hilton Grand Vacations.”

We hold a 50 percent ownership interest in ~~equity~~1776 Holding, LLC, a VIE, which is currently constructing a timeshare resort property, known as “Liberty Place Charleston, by Hilton Club.”

We record Equity in earnings from our unconsolidated affiliates~~, included~~ in our condensed consolidated statements of operations. See Note 7: ~~Investment~~10: Investments in Unconsolidated ~~Affiliate~~Affiliates for additional information. ~~In addition,~~Additionally, we earn commissions and other fees related to a fee-for-service ~~agreement~~agreements with the investees to sell VOIs at Elara, by Hilton Grand ~~Vacations.~~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 a related ~~party.~~parties.

~~Also~~We also had $5 million and $7 million of outstanding receivables related to the fee-for-service ~~agreement,~~agreements as of ~~September 30, 2017 we have outstanding receivables of $29 million.~~ March 31, 2021 and December 31, 2020, respectively.

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) other gains, including asset ~~dispositions; (ii)~~dispositions and foreign currency ~~transactions; (iii)~~translations; (ii) debt restructurings/retirements; ~~(iv)~~(iii) non-cash impairment losses; ~~(v) reorganization costs, including severance and relocation costs; (vi)~~(iv) share-based and other compensation expenses; ~~(vii)~~and (v) other items, including but not limited to costs ~~related to the spin-off;~~associated with acquisitions, restructuring and ~~(viii)~~ other items. During the first quarter of 2017, we revised our definition of EBITDA to exclude the adjustment of interest expense relating to our non-recourse debt as a reconciling item to arrive at net income (loss) in order to conform to the presentation of the timeshare industry following the consummation of the spin-off from Hilton. This adjustment was retrospectively applied to prior period(s) to conform with the current presentation.non-cash and one-time charges.

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

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

The following table presents Adjusted EBITDA for our reportable segments reconciled to net (loss) income:

We have entered into certain arrangements with developers whereby we have committed to purchase vacation ownership units or other real estate at a future date to be marketed and sold under our Hilton Grand Vacations brand. As of ~~September 30, 2017,~~March 31, 2021, we were committed to purchase approximately ~~$208~~$453 million of inventory and land over a period of ~~five years.~~10 years and $11 million of other commitments under the normal course of business. Additionally, we have committed to develop additional vacation ownership units at an existing resort in Japan. We are also committed to an agreement to exchange parcels of land in Hawaii, subject to the successful completion of zoning, land use requirements and other applicable regulatory requirements. The ~~ultimate~~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~~three months ended ~~September 30, 2017 and 2016,~~March 31, 2021, we purchased $9$1 million ~~and $11 million, respectively, of VOI inventory~~ as required under our inventory-related purchase commitments.We did 0t make any purchases related to our commitments for the three months ended March 31, 2020. As of ~~September 30, 2017,~~March 31, 2021, our remaining obligation pursuant to these arrangements ~~was~~were expected to be incurred as follows: ~~$3 million in 2018, $187 million in 2019, $9 million in 2020, and $9 million in 2021.~~

We are involved in litigation arising from the normal course of business, some of which includes claims for substantial sums. Management has ~~also identified certain other~~evaluated these legal matters ~~where~~and we believe that possible losses derived from an unfavorable outcome that is reasonably possible ~~and/or for which no estimate of possible losses can be made.~~is not reasonably estimable. While the ~~ultimate~~actual 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, 2017,~~March 31, 2021, will ~~not have a material effect on~~0t materially affect our unaudited condensed consolidated ~~results~~financial statements.

On March 10, 2021, we and our wholly-owned subsidiary Hilton Grand Vacations Borrower LLC entered into an Agreement and Plan of ~~operations, financial position or~~Merger (“Merger Agreement”) with Dakota Holdings, Inc. (“Diamond”), which is controlled by the investment funds and vehicles managed by affiliates of Apollo Global Management Inc. (“Apollo”) and certain stockholders of Diamond, under which we agreed to acquire Diamond, in a stock transaction with an equity fair value of approximately $1.4 billion as of that date. Under the Merger Agreement, Apollo and other Diamond stockholders are expected to receive approximately 34.5 million shares of our common stock, par value $0.01 per share, subject to customary adjustments. Upon transaction close, existing HGV shareholders are expected to own approximately 72% of the combined company and Apollo is expected to own approximately 28% of the combined company. The transaction has been approved by the Board of Directors for both companies. Consummation of this transaction is subject to customary conditions, including approval from shareholders of both us and Diamond, receipt of any required regulatory approvals and other customary closing conditions.

We intend to finance the transaction through a combination of cash ~~flows.~~on hand, assumption of debt and incremental debt financing. The transaction is anticipated to close during the summer of 2021.

~~On October 13, 2017, we acquired an 83-unit, ski-in mountain lodge~~Management has evaluated all subsequent events through April 29, 2021, the date the unaudited condensed consolidated financial statements were available to be issued. The results of management’s analysis indicated no significant subsequent events have occurred that required consideration or adjustment to our disclosures in ~~Park City, Utah, known as “The Sunrise Lodge, a Hilton Grand Vacations Club.” Prior to~~ the ~~acquisition, HGV was providing marketing, sales and resort management services to the seller Sunrise Park City, LLC under a fee-for-service agreement.~~ unaudited financial statements.

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, ~~2016.~~2020.

This Quarterly Report on Form 10-Q 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 (the “Exchange Act”) that~~amended. Forward-looking statements convey management’s expectations as to the future of HGV, and are based on ~~our~~ management’s beliefs, ~~and~~expectations, assumptions and on such plans, estimates, projections and other information ~~currently~~ available to ~~our management. Forward-looking statements include, but are not limited to, statements related to our expectations regarding~~management at the performance of our business, our financial results, our liquidity and capital resources, the benefits resulting from our spin-off, the effects of competition and the effects of future legislation or regulations and other non-historicaltime HGV makes such statements. Forward-looking statements include all statements that are not historical facts and ~~can~~may be identified by ~~the use of forward-looking~~ terminology such as the words “outlook,” ~~“believes,~~“believe,” ~~“expects,~~“expect,” “potential,” “goal,” “continues,” “may,” “will,” “should,” “could,”, “would”, “seeks,” “approximately,” “projects,” ~~“predicts,~~predicts,” “intends,” “plans,” “estimates,” “anticipates” “future,” “guidance,” “target,” or the negative version of these words or other comparable words, although not all forward-looking statements may contain such words. The forward-looking statements contained in this Quarterly Report on Form 10-Q include statements related to HGV’s 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.

~~Forward-looking~~HGV cautions you that our forward-looking statements involve known and unknown risks, uncertainties and ~~assumptions. Actual~~other factors, including those that are beyond HGV’s control, that may cause the actual results, performance or achievements to be materially different from the future results. Factors that could cause HGV’s actual results to differ materially from those contemplated by its forward-looking statements include: the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement; the inability to complete the proposed Merger due to the failure to obtain stockholder approval for the proposed Merger or the failure to satisfy other conditions to completion of the proposed Merger, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transaction; risks related to disruption of management’s attention from HGV’s ongoing business operations due to the transaction; the effect of the announcement of the proposed Merger on HGV’s relationships, operating results and business generally; the risk that the proposed Merger will not be consummated in a timely manner; exceeding the expected costs of the Merger; the material impact of the COVID-19 pandemic on HGV’s business, operating results, and financial condition; the extent and duration of the impact of the COVID-19 pandemic on global economic conditions; HGV’s ability to meet its liquidity needs; risks related to HGV’s indebtedness; inherent business risks, market trends and competition within the timeshare and hospitality industries; HGV’s ability to successfully source inventory and market, sell and finance VOIs; default rates on our financing receivables; the reputation of and our ability to access Hilton brands and programs, including the risk of a breach or termination of our license agreement with Hilton; compliance with and changes to United States and global laws and regulations, including those related to anti-corruption and privacy; risks related to HGV’s acquisitions, joint ventures, and other partnerships; HGV’s dependence on third-party development activities to secure just-in-time inventory; the performance of HGV’s information technology systems and our ability to maintain data security; regulatory proceedings or litigation; adequacy of our workforce to meet HGV’s business and operation needs; HGV’s ability to attract and retain key executives and employees with skills and capacity to meet our needs; and natural disasters or adverse geo-political conditions. Any one or more of the foregoing factors could adversely impact HGV’s operations, revenue, operating profits and margins, financial condition and/or credit rating.

For additional information regarding factors that could cause HGV’s actual results to differ materially from those expressed or implied in ~~these forward-looking statements. You should not put undue reliance on any~~the forward-looking statements in this Quarterly Report on Form ~~10-Q. We do not intend to update any of these forward-looking statement or publicly announce~~10-Q, please see the ~~results of any revisions to these forward-looking statements, other than as is required under the federal securities laws.~~

~~The~~ risk factors discussed in “Part ~~I-Item~~I—Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~2020, as supplemented and updated by the risk factors discussed in “Part II-Item 1A. Risk Factors” of this ~~Quarterly~~ Report ~~on Form 10-Q for~~and those described from time to time in other periodic reports that we file with the ~~quarter ended September 30, 2017 could cause our results to differ materially from those expressed in forward-looking statements.~~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. ~~Any such risks could cause our results~~Except for HGV’s ongoing obligations to ~~differ materially from those expressed in forward-looking statements. We~~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, except as required by law.~~otherwise.

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” or “resorts” and ~~“rooms”~~“VOIs” refer to the timeshare properties ~~managed,~~

~~franchised, owned~~that we manage or ~~leased by us.~~own. Of these ~~properties~~resorts and ~~rooms,~~VOIs, a portion ~~are~~is directly owned ~~or leased~~ by us or our joint ventures in which we have an interest and the remaining ~~properties~~resorts and ~~rooms~~VOIs are owned by our third-party owners.

Investment funds associated with or designated by The Blackstone Group L.P. and their affiliates, former majority owners of Hilton Worldwide Holdings, Inc. (together with its then consolidated subsidiaries, “Hilton”), are referred to herein as “Blackstone.”

~~Investment funds associated with or designated by HNA Tourism Group Co., Ltd. and their affiliates are referred to herein as “HNA.”~~

“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.

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, including ~~contract sales, sales revenue, real estate margin, tour flow, volume per guest, capital efficiency ratio, transient rate,~~ earnings before interest expense (excluding interest expense relating to our non-recourse debt), taxes and depreciation and amortization (“EBITDA”), and Adjusted ~~EBITDA~~EBITDA.

This Quarterly Report on Form 10-Q includes discussion of key business operational metrics including contract sales, sales revenue, real estate profit, tour flow, and ~~segment Adjusted EBITDA.~~ volume per guest (“VPG”).

See ~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations-Key~~“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.

On January 3, 2017, the previously announced spin-off was completed by way of a pro rata distribution of the Company’s common stock to Hilton stockholders. Each Hilton stockholder received one share of our common stock for every ten shares of Hilton common stock. As a result of the spin-off, we became a separate publicly-traded company on the New York Stock Exchange under the ticker symbol “HGV” and Hilton did not retain any ownership interest in us.

~~In connection with the completion of the spin-off, we entered into agreements with Hilton (who at the time was a related party) and other third parties, including licenses to use the Hilton brand. 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, 2016 for further information.~~

On March 15, 2017, Blackstone completed the previously announced sale of 24,750,000 shares of our common stock to HNA, representing approximately 25 percent of the outstanding shares of our common stock. Blackstone retained 15,008,689 shares, or approximately 15 percent of our common stock upon the completion of the sale.

On May 25, 2017, Blackstone filed a Registration Statement on Form S-1 and registered all of our common stock held by them. On June 14, 2017, Blackstone entered into an underwriting agreement with J.P. Morgan Securities LLC pursuant to which J.P. Morgan Securities LLC agreed to purchase from Blackstone 9,650,000 shares of our common stock at a price of $35.40 per share. The sale was completed on June 20, 2017. Subsequently, on September 25, 2017, Blackstone completed the sale of substantially all of the remaining shares of our common stock held by them to several institutional investors. We did not received any proceeds from either of these sales. As of September 30, 2017, Blackstone holds only a nominal number of shares of our common stock.

Subsequent to the spin-off, we have no unrecognized taxes that, if recognized, would have impacted our effective tax rate. As a large taxpayer, Hilton is continuously under audit by the IRS and other taxing authorities. HGV has joined in the Hilton U.S. Federal tax consolidated filing for prior tax years up to the date of the spin-off. Although we do not anticipate that a significant impact to our unrecognized tax balance will occur during the next fiscal year as a result of these audits, it remains possible that the amount of our liability for unrecognized taxes could change over that time period. Pursuant to the Tax Matters Agreement, Hilton is liable and shall pay the relevant tax authority for all taxes related to the taxable income prior to the spin-off. HGV will be responsible for its portion of any amounts Hilton is deemed liable by a taxing authority according to the Tax Matters Agreement. HGV is responsible for tax years subsequent to the spin-off.

We are a ~~rapidly 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, 2017,~~March 31, 2021, we have ~~48 resorts,~~62 properties, representing ~~8,101 units, which~~499,616 VOIs, that are primarily located in ~~iconic~~ vacation destinations such as Orlando, Las Vegas, the Hawaiian Islands, New York City, ~~Orlando~~Washington D.C., South Carolina, Barbados and ~~Las Vegas,~~Mexico and feature spacious, condominium-style accommodations with superior amenities and quality service. As of ~~September 30, 2017,~~March 31, 2021, we have approximately ~~284,000~~328,000 Hilton Grand Vacations Club ~~(the~~and Hilton Club (collectively 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 1418 industry-leading brands across ~~more than 5,000~~approximately 6,400 properties, as well as numerous experiential vacation options, such as cruises and guided tours. Our business has been and continues to be adversely impacted by the COVID-19 pandemic and its effects on the global economy, including the various government orders and mandates for closures of non-essential businesses. Please see “Recent Events Related to the COVID-19 Pandemic and Impact on Our Results of Operations, Financial Condition, and Business During the Three Months Ended March 31, 2021” and other discussions throughout this Report for additional information regarding such impacts.

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

Our primary product is the marketing and selling of fee-simple VOIs deeded in perpetuity and right to use real estate interests, developed either by us or by third parties. This ownership interest is an interest in real estate generally equivalent to one week ~~annually~~on an annual basis, 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~~We source 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.~~focused our inventory strategy on developing an optimal inventory mix focused on developed properties as well as fee-for-service and just-in-time agreements. 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 ~~by us~~ with the sale to purchasers. Sales of owned, ~~inventory,~~ including ~~purchased~~ 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~~three months ended ~~September 30, 2017,~~March 31, 2021, sales from fee-for-service, just-in-time and developed inventory sources were 5440 percent, 2028 percent and 2632 percent, respectively, of contract sales. See ~~“-Real~~“Key Business and Financial Metrics and Terms Used by Management——Real Estate Sales Operating Metrics” for additional discussion of contract sales. ~~Based on~~The estimated contract sales value related to our ~~trailing twelve months sales pace, we have access to~~inventory that is currently available for sale at open or soon-to-be open projects and inventory at new or existing projects that will become available for sale in the future upon registration, delivery or construction is approximately ~~five years of future inventory, with capital~~$10 billion at current pricing.

Capital efficient arrangements, ~~representing~~comprised of our fee-for-service and just-in-time inventory, represented approximately 8852 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 ~~originate loans~~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, Mexico 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, Orlando, Oahu, Japan, New York, Myrtle Beach, Waikoloa, Washington D.C., Hilton Head, Park City, Chicago, Korea, Carlsbad and Los Cabos. 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 flow 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 tour flow impacts sales revenue and the collectability of our timeshare financing receivables. For the three months ended March 31, 2021, 66 percent of our contract sales were to our existing owners.

We provide financing for members purchasing our developed and acquired inventory ~~which~~and generate interest income. Our ~~loans~~timeshare financing receivables are collateralized by the underlying VOIs and are generally structured as 10-year, fully-amortizing loans that bear a fixed interest rate typically ranging from 94 percent to 18 percent per annum. Financing propensity was 65 percent and 63 percent for the three months ended March 31, 2021 and 2020, 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 loans is determined by, among other factors, the amount of the down payment, the borrower’s credit profile and the loan term. The ~~weighted average~~weighted-average FICO score for new loans to U.S. and Canadian borrowers at the time of origination were as follows:

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 ~~loans~~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 4: 6: Timeshare Financing Receivables in our unaudited condensed consolidated financial statements.

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

We enter into a management ~~agreement~~agreements with the ~~homeowners’ association (“HOA”)~~HOAs 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~~comprised of 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~~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 ~~an owner purchases~~owners purchase a VOI, ~~he or she is~~they are generally ~~automatically~~ enrolled in the Club and given an annual allotment of points that allow the member to exchange ~~his or her~~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~~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.

~~The~~We measure our performance using the following ~~are not recognized terms under U.S. GAAP:~~key operating metrics:

~~Real estate margin~~
•
Real estate profit represents sales revenue less the cost of VOI sales, ~~and~~ 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 closing rate.

•
~~Capital efficiency ratio~~ ~~represents the ratio of cost of VOI sales to VOI inventory spend, including fee-for-service upgrades.~~ We consider this to be an important operating measure because ~~capital~~it measures the efficiency ~~allows us to reduce~~of our sales and marketing spending and management of inventory ~~investment requirements while continuing to generate growth in revenues and cash flows.~~costs.
~~Resort and Club Management and Rental Metrics~~
•
Tour flow represents the number of sales presentations given at our sales centers during the period.
~~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.
•
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.
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, ~~2016.~~2020.

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. During the first quarter of 2017, we revised our definition of EBITDA to exclude the adjustment of interest expense relating to our non-recourse debt as a reconciling item to arrive at net income (loss) in order to conform to the presentation of the timeshare industry following the consummation of the spin-off from Hilton. The revised definition was applied to prior period(s) to conform with current presentation.
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) other gains, including asset ~~dispositions; (ii)~~dispositions and foreign currency ~~transactions; (iii)~~translations; (ii) debt restructurings/retirements; ~~(iv)~~(iii) non-cash impairment losses; ~~(v) reorganization costs, including severance and relocation costs; (vi)~~(iv) share-based and ~~certain~~ other compensation expenses; ~~(vii)~~and (v) other items, including but not limited to costs ~~related to the spin-off;~~associated with acquisitions, restructuring and ~~(viii)~~ other ~~items.~~non-cash and one-time charges.
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 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 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 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 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 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 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.~~
•
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.
Recent Events Related to the COVID-19 Pandemic and Impact on Our Results of Operations, Financial Condition, and Business During the Three Months Ended March 31, 2021.

In March 2020, a National Public Health Emergency was declared in response to the coronavirus, known as COVID-19. As a result, many local, county and state government officials have issued, and continue to issue or reinstate, various mandates and orders to close non-essential businesses, impose travel restrictions, and require “stay-at-home” and/or self-quarantine in certain cases, all in an effort to protect the health and safety of individuals and aimed at slowing and ultimately stopping the spread and transmission of the virus. Accordingly, commencing in March 2020, we started to temporarily close substantially all of our properties and suspended our U.S sales operations and closed such sales offices. In the second quarter of 2020, we began a phased reopening of resorts and resumption of our business activities, but under new operating guidelines and with safety measures. With the anticipated gradual receding of the pandemic, as well as COVID-19 vaccinations becoming more widespread and various restrictions continuing to ease, consumers have started to resume normal activities, including travel and leisure, and more businesses have commenced resuming operations. We plan to continue to reopen our resorts and resume our normal business as conditions permit, but there can be no assurance that such positive trends will continue or that there will not be any increases of new infections or new variants that may impede or reverse recovery and such positive trends.

~~Recent Events~~
In response to the impact of the COVID-19 pandemic, we took a variety of actions to ensure the continuity of our business and operations and to secure our liquidity position to provide financial flexibility. These actions include amending certain financial covenant ratios through the third quarter of 2021, as may be needed due to the ongoing and uncertain future impact of the COVID-19 pandemic on our business and operations.

The temporary closure of our resorts and sales centers, and the related suspensions of our operations, as well as various travel and other restrictions, expectedly have had a materially adverse impact on our revenues, net (loss) income and other operating results during the first quarter, as well as our business and operations generally, as more fully discussed below. As discussed in further detail below, substantially all of the unfavorable changes in our operating results during the quarter ended March 31, 2021 as compared to prior periods were a result of the ongoing impact of the COVID-19 pandemic on travel demand.
Outlook
The COVID-19 pandemic has created an unprecedented and challenging time. Our current focus is on continuing to position the Company to be in a sound position from an operational, liquidity, credit access, and compliance perspective for a strong recovery when the impact of COVID-19 subsides. As mentioned above, we have taken several steps to enhance our liquidity and provide financial flexibility. We will continue to assess the evolving COVID-19 pandemic, including the various restrictions on travel, leisure and other activities, and general business operations, and will take additional actions as appropriate.
As of March 31, 2021, approximately 80 percent of our resorts and nearly all of our sales centers are open and currently operating. However, some of our resorts and sales centers are operating in markets with capacity constraints and various safety measures, which are impacting consumer demand for resorts in those markets. Prior to reopening our resorts and sales centers, we introduced the HGV Enhanced Care Guidelines, designed to provide owners, guests and team members with the highest level of cleaning protocols and safety standards recommended by the Center for Disease Control and Prevention and cleaning solutions approved by the Environmental Protection Agency in response to the COVID-19 pandemic. While we plan to continue to reopen our resorts and resume our business as conditions and applicable rules and regulations permit, the pandemic continues to be unprecedented and rapidly changing, and has unknown duration and severity. Further, despite the recent receding of travel and other restrictions in regions and locations where we have a significant concentration of our properties and units and other positive trends with the pandemic, the pandemic continues to adversely impact consumer demand for our resorts in those areas and our business in general.
Accordingly, there remains significant uncertainty as to the continuing degree of impact and duration of the conditions stemming from the ongoing pandemic on our revenues, net income and other operating results, as well as our business and operations generally. Please carefully review the risk factors contained in this quarterly report on Form 10-Q, in Item 1A of our Form 10-K for the year ended December 31, 2020 and those described from time to time in other periodic reports that we file with the SEC for discussions of various factors and uncertainties related to the pandemic that may materially impact us.
Planned Acquisition of Diamond
On ~~July 18, 2017,~~March 10, 2021, we and our wholly-owned subsidiary Hilton Grand Vacations Borrower LLC entered into an ~~agreement~~Agreement and Plan of Merger (“Merger Agreement”) with ~~BRE Ace~~Dakota Holdings, ~~LLC,~~Inc. (“Diamond”), which is controlled by the investment funds and vehicles managed by affiliates of Apollo Global Management Inc. (“Apollo”) and certain stockholders of Diamond, under which we agreed to acquire Diamond, in a ~~Delaware limited liability company (“BRE Ace Holdings”),~~stock transaction with an ~~affiliate~~equity fair value of ~~Blackstone~~approximately $1.4 billion as of that date. Under the Merger Agreement, Apollo and ~~formed BRE Ace LLC. Pursuant to the agreement, we contributed $40~~other Diamond stockholders will receive approximately 34.5 million in cash for a 25 percent interest in BRE Ace LLC, which owns a 1,201-key timeshare resort property and related operations, commonly known as “Elara, by Hilton Grand Vacations,” located in Las Vegas, Nevada.
~~On September 10, 2017, Hurricane Irma hit the Florida Keys as a Category 4 hurricane, weakening somewhat as it made landfall along Florida’s southwest shoreline. Although certain~~shares of our ~~managed Florida properties were temporarily closed~~common stock, par value $0.01 per share, subject to customary adjustments. Upon transaction close, existing HGV shareholders will own approximately 72% of the combined company and Apollo will own approximately 28% of the combined company. The transaction has been approved by the Board of Directors for both companies. Consummation of this transaction is subject to customary conditions, including approval from shareholders of both us and Diamond, receipt of any required regulatory approvals and other customary closing condition.
We intend to finance the transaction through a combination of cash on hand, assumption of debt and incremental debt financing. The transaction is anticipated to close during the ~~aftermath~~summer of Hurricane Irma, neither HGV’s operations nor financial performance were significantly impacted by this storm. In the aftermath of Hurricane Irma, the IRS has granted an automatic extension to individuals and businesses affected by the hurricanes, which extends tax filing and payment deadlines beginning September 4, 2017.  As a result, we have delayed our third quarter Federal income tax payment.  2021.

Results of Operations
Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2021 Compared with the Three ~~and Nine~~ Months Ended ~~September 30, 2016~~March 31, 2020
Segment Results
We evaluate our business segment operating performance using segment Adjusted EBITDA, as described in Note ~~14:~~ 18: Business Segments in our unaudited condensed consolidated financial statements. We do not include equity in earnings (losses) from unconsolidated ~~affiliate~~affiliates in our measures of segment ~~revenues.~~operating performance. For a discussion of our definition of EBITDA and Adjusted EBITDA, how management uses itthem to manage our business and material limitations on ~~its~~their usefulness, refer to “—Key Business and Financial Metrics and Terms Used by Management—EBITDA and Adjusted EBITDA.” The following ~~table sets~~tables set forth revenues and Adjusted EBITDA by ~~segment, reconciled to consolidated amount, including net income, our most comparable U.S. GAAP financial measure:~~segment:

Three Months Ended
September 30,

Variance

Nine Months Ended
September 30,

Variance

Three Months Ended March 31,

Variance

($ in millions)

2017

2016

$

%

2017

2016

$

%

2021

2020

$

%

Revenues:

Real estate sales and financing

$
310

$
301

$
9

3.0
%

$
916

$
843

$
73

8.7
%

$
123

$
206

$
(83
)

(40.3
)%

Resort operations and club management

90

81

9

11.1

270

251

19

7.6

80

104

(24
)

(23.1
)

Segment revenues

400

382

18

4.7

1,186

1,094

92

8.4

203

310

(107
)

(34.5
)

Cost reimbursements

34

33

1

3.0

102

94

8

8.5

35

49

(14
)

(28.6
)

Intersegment eliminations⁽¹⁾

(8
)

(8
)

—

—

(24
)

(20
)

(4
)

(20.0
)

(3
)

(8
)

5

(62.5
)

Total revenues

$
426

$
407

$
19

4.7

$
1,264

$
1,168

$
96

8.2

$
235

$
351

$
(116
)

(33.0
)

⁽¹⁾⁽¹⁾
Refer to Note ~~14:~~ 18: Business Segments in our unaudited condensed consolidated financial statements for details on the intersegment eliminations.

The following table reconciles net (loss) 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)

2017

2016

$

%

2017

2016

$

%

Net Income

$
43

$
35

$
8

22.9
%

$
144

$
130

$
14

10.8
%
Interest expense

7

—

7

NM⁽¹⁾

21

—

21

NM⁽¹⁾

Allocated Parent interest expense

—

7

(7
)

(100.0
)

—

20

(20
)

(100.0
)
Income tax expense

28

33

(5
)

(15.2
)

87

98

(11
)

(11.2
)
Depreciation and amortization

7

6

1

16.7

21

17

4

23.5

Interest expense, depreciation and amortization included in equity in earnings from unconsolidated affiliate

2

—

2

NM⁽¹⁾

2

—

2

NM⁽¹⁾

EBITDA

87

81

6

7.4

275

265

10

3.8

Other loss, net

—

—

—

—

—

1

(1
)

(100.0
)
Gain on foreign currency transactions

(1
)

(1
)

—

—

(1
)

(2
)

1

(50.0
)
Share-based compensation expense

5

2

3

NM⁽¹⁾

13

7

6

85.7

Other adjustment items⁽²⁾

3

11

(8
)

(72.7
)

7

21

(14
)

(66.7
)
Adjusted EBITDA

$
94

$
93

$
1

1.1

$
294

$
292

$
2

0.7

Three Months Ended March 31,

Variance

($ in millions)

2021

2020

$

%

Net (loss) income

$
(7
)

$
8

$
(15
)

NM⁽¹⁾

Interest expense

15

10

5

50.0
%

Income tax (benefit) expense

(6
)

1

(7
)

NM⁽¹⁾

Depreciation and amortization

11

12

(1
)

(8.3
)

Interest expense, depreciation
   and amortization included in
   equity in earnings from
   unconsolidated affiliates

1

1

—

—

EBITDA

14

32

(18
)

(56.3
)

Other loss (gain), net

1

(2
)

3

NM⁽¹⁾

Share-based compensation
   expense⁽²⁾

4

(2
)

6

NM⁽¹⁾

Impairment expense

1

—

1

NM⁽¹⁾

Other adjustment items⁽³⁾

22

5

17

NM⁽¹⁾

Adjusted EBITDA

$
42

$
33

$
9

27.3

⁽¹⁾⁽¹⁾
Fluctuation in terms of percentage change is not meaningful.
⁽²⁾
For the three ~~and nine~~ months ended ~~September 30, 2017, amounts represent~~March 31, 2021, we recognized share-based compensation expense of $4 million. For the three months ended March, 31, 2020, we recognized a credit to share-based compensation expense of $2 million ~~and $5~~due to the reversal of $8 million ~~respectively,~~ of ~~costs associated with the spin-off transaction.~~

Three Months Ended
September 30,

Variance

Nine Months Ended
September 30,

Variance

($ in millions)

2017

2016

$

%

2017

2016

$

%

Adjusted EBITDA:

Real estate sales and financing⁽¹⁾

$
81

$
85

$
(4
)

(4.7
)%

$
263

$
250

$
13

5.2
%
Resort operations and club management⁽¹⁾

50

42

8

19.0

153

139

14

10.1

Segment Adjusted EBITDA

131

127

4

3.1

416

389

27

6.9

Adjustments:

Adjusted EBITDA from unconsolidated affiliate

3

—

3

NM⁽¹⁾

3

—

3

NM⁽¹⁾

License fee expense

(22
)

(22
)

—

—

(65
)

(61
)

(4
)

6.6

General and administrative⁽²⁾

(18
)

(12
)

(6
)

50.0

(60
)

(36
)

(24
)

66.7

Adjusted EBITDA

$
94

$
93

$
1

1.1

$
294

$
292

$
2

0.7

⁽¹⁾
~~Includes intersegment eliminations and other adjustments.~~expense recognized in prior years related to our Performance RSUs which were not expected to achieve certain performance targets.
⁽²⁾⁽³⁾
For the three months ended March 31, 2021 this amount includes $15 million of acquisition costs associated with the recently announced acquisition of Diamond, $4 million of costs associated with restructuring, and $3 million of other one-time charges and non-cash items. For the three months ended March 31, 2020, this amount includes costs associated with restructuring, one-time charges, and other non-cash items.

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

Three Months Ended March 31,

Variance

($ in millions)

2021

2020

$

%

Adjusted EBITDA:

Real estate sales and financing⁽¹⁾

$
27

$
15

$
12

NM⁽¹⁾

Resort operations and club
   management⁽¹⁾

42

55

(13
)

(23.6
)%
Adjustments:

Adjusted EBITDA from
   unconsolidated affiliates

3

4

(1
)

(25.0
)
License fee expense

(14
)

(22
)

8

(36.4
)
General and administrative⁽²⁾

(16
)

(19
)

3

(15.8
)
Adjusted EBITDA

$
42

$
33

$
9

27.3

⁽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 March 31,

Variance

($ in millions)

2021

2020

$

Sales of VOIs (deferrals)

$
(32
)

$
(47
)

$
15

Sales of VOIs recognitions

—

—

—

Net Sales of VOIs (deferrals) recognitions

(32
)

(47
)

15

Cost of VOI sales (deferrals)⁽¹⁾

(10
)

(13
)

3

Cost of VOI sales recognitions

—

—

—

Net Cost of VOI sales (deferrals) recognitions⁽¹⁾

(10
)

(13
)

3

Sales and marketing expense (deferrals)

(4
)

(7
)

3

Sales and marketing expense recognitions

—

—

—

Net Sales and marketing expense
     (deferrals) recognitions

(4
)

(7
)

3

Net construction (deferrals) recognitions

$
(18
)

$
(27
)

$
9

⁽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 months ended March 31, 2021 and 2020.

Real estate sales and financing segment revenues ~~increase~~decreased by $83 million for the three months ended ~~September 30, 2017,~~March 31, 2021, compared to the same period in ~~2016,~~2020, primarily due to ~~a $4 million increase~~decreases in sales revenue ~~a $2 million increase in~~and marketing revenue as a result of the significant ongoing impact of the COVID-19 pandemic on travel demand. As of March 31, 2021, operations at approximately 20 percent of our properties remain temporarily suspended, and a $4number of our remaining markets continue to operate under capacity and other constraints, which has led to decreased results.
Real estate sales and financing Adjusted EBITDA increased by $12 million ~~increased~~for the three months ended March 31, 2021, compared to the same period in ~~financing revenues. The increase in sales revenue was~~2020, primarily due to ~~higher~~the decrease in cost of VOI sales ~~of VOIs, net, due to sales at our newly developed project beginning~~and real estate operating expenses exceeding the decrease in ~~the fourth quarter of 2016.  The increase in marketing~~segment revenues was primarily due to an increase in title related services. The increase in financing revenues was primarily due an increase in interest income from higher outstanding timeshare financing receivables balance. Realassociated with segment performance discussed herein. In addition, real estate sales and financing segment Adjusted EBITDA ~~decreased~~was impacted by $4the favorable impact of a $3 million net credit of government assistance from Japan and an employee retention credit granted under the CARES Act, primarily related to payments made to employees as a result of operational closures caused by the COVID-19 pandemic for the three months ended ~~September 30, 2017, compared to the same period in 2016, primarily due to a $14 million increase in sales and marketing expense as well as a decrease in commission and brand fees.~~
Real estate sales and financing segment revenues increased for the nine months ended September 30, 2017, compared to the same period in 2016, primarily due to a $44 million increase in sales revenue, a $22 million increase in marketing revenue and a $9 million increased in financing revenues. The increase in sales revenue was primarily due to a $47 million increase in sales of VOIs, net, due to sales at our newly developed project beginning in the fourth quarter of 2016. The increase in marketing revenue was primarily due to (i) a $10 million reduction of our expected redemptions of expired discounted vacation packages, (ii) a $8 million

increase in the actual redemption of discounted vacation packages and (iii) a $3 million increase in title related service revenue.  The increase in financing revenues was primarily due an increase in interest income from higher outstanding timeshare financing receivables balance.  Real estate sales and financing segment Adjusted EBITDA increased by $13 million for the nine months ended September 30, 2017, compared to the same period in 2016, primarily due to an increase in revenues associated with the segment, partially offset by a $49 million increase in sales and marketing expense as well as a decrease in commission and brand fees.March 31, 2021.
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 ~~increased~~decreased $24 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2021, compared to the same ~~periods~~period in ~~2016,~~2020, primarily due to (i) an increase of $4 million and $10 million, respectively, in resort and club management revenues from the launch of new properties subsequent to the third quarter of 2016 and (ii) an increase of $4 million and $3 million, respectively,decreases in rental and ancillary ~~services~~ revenues as a result of ~~higher transient room~~the ongoing impact of the COVID-19 pandemic on travel demand. As of March 31, 2021, operations at approximately 20 percent of our properties remain temporarily suspended, and ~~club inventory rentals at~~a number of our ~~developed~~remaining markets continue to operate under capacity and ~~fee-for-service properties.~~  other constraints, which has led to decreased results.
Resort operations and club management segment Adjusted EBITDA ~~increased~~decreased $13 million for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2021, compared to the same ~~periods~~period in ~~2016,~~2020, primarily due to ~~increases~~the decreases in ~~revenues~~segment margin associated with ~~the~~ segment ~~partially offset by increases of $3 million and $9 million, respectively, in segment expenses.~~  performance discussed herein.
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

Three Months Ended March 31,

Variance

($ in millions, except Tour flow and VPG)

2017

2016

$

%

2017

2016

$

%

2021

2020

$

%

Sales of VOIs, net

$
145

$
130

$
15

11.5
%

$
406

$
359

$
47

13.1
%
Contract sales

$
139

$
244

$
(105
)

(43.0
)%
Adjustments:

Fee-for-service sales⁽¹⁾⁽²⁾

169

181

(12
)

(6.6
)

508

512

(4
)

(0.8
)

(56
)

(130
)

74

(56.9
)
Loan loss provision

19

14

5

35.7

45

37

8

21.6

Reportability and other⁽²⁾

(7
)

(19
)

12

(63.2
)

(23
)

(49
)

26

(53.1
)
Contract sales

$
326

$
306

$
20

6.5

$
936

$
859

$
77

9.0

Provision for financing receivables losses

(16
)

(37
)

21

(56.8
)
Reportability and other:

Net deferral (recognition) of sales of VOIs under construction⁽³⁾

(32
)

(47
)

15

(31.9
)
Fee-for-service sale upgrades, net

2

8

(6
)

(75.0
)
Other⁽⁴⁾

(4
)

18

(22
)

NM⁽¹⁾

Sales of VOIs, net

$
33

$
56

$
(23
)

(0.4
)
Tour flow

87,346

79,817

7,529

9.4

246,865

230,362

16,503

7.2

27,948

66,965

(39,017
)

(58.3
)
VPG

$
3,555

$
3,602

$
(47
)

(1.3
)

$
3,590

$
3,504

$
86

2.5

$
4,647

$
3,506

$
1,141

32.5

⁽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.
⁽²⁾⁽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 ~~percentage-of-completion deferrals and amount~~amounts in rescission and sales ~~incentives, as well as adjustments related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects.~~incentives.

Contract sales ~~increased~~decreased $105 million for the three months ended ~~September 30, 2017,~~March 31, 2021, compared to the same period in ~~2016,~~2020, primarily due to ~~an increase~~a decrease in tour flow ~~which correlates~~related to the ~~increase in marketing expense. VPG~~ongoing impact of the COVID-19 pandemic on travel demand. As of March 31, 2021, operations at approximately 20 percent of our properties remain temporarily suspended, and a number of our remaining markets continue to operate under capacity and other constraints, which has led to decreased ~~for the three months ended September 30, 2017, compared to the same period in 2016 due to a 1.4 percent decrease in close rate, partially offset by a 0.8 percent increase in average transaction price.~~results.
Contract sales increased for the nine months ended September 30, 2017, compared to the same period in 2016, primarily due to an increase in tour flow which correlates to the increases in marketing expense and VPG. VPG increased for the nine months ended September 30, 2017, compared to the same period in 2016 due to a 0.5 percent and 2.1 percent increase in close rate and average transaction price, respectively.

Three Months Ended
September 30,

Variance

Nine Months Ended
September 30,

Variance

Three Months Ended March 31,

Variance

($ in millions)

2017

2016

$

%

2017

2016

$

%

2021

2020

$

%

Sales of VOIs, net

$
145

$
130

$
15

11.5
%

$
406

$
359

$
47

13.1
%
Sales, marketing, brand and other fees

127

136

(9
)

(6.6
)

401

382

19

5.0

$
53

$
106

$
(53
)

(50.0
)%
Less:

Marketing revenue and other fees

34

32

2

6.3

109

87

22

25.3

21

25

(4
)

(16.0
)
Commissions and brand fees

32

81

(49
)

(60.5
)
Sales of VOIs, net

33

56

(23
)

(41.1
)
Sales revenue

238

234

4

1.7

698

654

44

6.7

65

137

(72
)

(52.6
)
Less:

Cost of VOI sales

40

44

(4
)

(9.1
)

107

110

(3
)

(2.7
)

3

14

(11
)

(78.6
)
Sales and marketing expense, net⁽¹⁾

142

125

17

13.6

394

356

38

10.7

Real estate margin

$
56

$
65

$
(9
)

(13.8
)

$
197

$
188

$
9

4.8

Real estate margin percentage

23.5
%

27.8
%

28.2
%

28.7
%

Sales and marketing expense, net⁽²⁾

59

125

(66
)

(52.8
)
Real estate profit (loss)

$
3

$
(2
)

$
5

NM⁽¹⁾

Real estate profit margin

4.6
%

(1.5
)%

⁽¹⁾
Fluctuation in terms of percentage change is not meaningful.
⁽²⁾
Includes revenue recognized through our marketing programs for existing owners and prospective first-time ~~buyers.~~buyers and revenue associated with sales incentives, title service and document compliance.
Sales revenue ~~increased~~decreased for the three months ended ~~September 30, 2017,~~March 31, 2021, compared to the same period in ~~2016, primarily~~2020, due to decrease in sales of VOI revenue, commissions and brand fees and related expenses as a result of ~~a $15 million increase in Sales~~the ongoing impact of ~~VOIs, net due to sales at our newly developed projects beginning~~the COVID-19 pandemic on travel demand, as discussed above in the ~~fourth quarter~~discussion related to contract sales. Cost of ~~2016, in Washington, DC~~VOI sales, and New York, NY.  The increase in sales revenues was partially offset by (i) a decrease in commission and brand fees primarily due to a shift in sales mix from fee-for-service to developed projects, (ii) a decrease in commission rate received on fee-for-service due to project mix and (iii) higher sales and marketing expense, ~~due to an increase~~net, decreased consistent with sales revenue decrease.
Real estate profit increased as a result of the decrease in ~~contract sales volume and research and development costs to evaluate new markets.~~
~~Sales revenue increased for~~expenses in the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021 as compared to the same period in ~~2016, primarily as a result of (i) a $47 million increase in Sales of VOIs, net due to sales at our newly developed projects beginning in~~2020, was greater than the fourth quarter of 2016, in Washington, DC and New York, NY, (ii) a $10 million reduction of our expected redemptions of expired discounted vacation packages, (iii) an $8 million increase in the actual redemption of discounted vacation packages and (iii) a $3 million increase in title related service revenue.   The increase in sales revenues was partially offset by (i) a decrease in ~~commission and brand fees~~revenue for the same period.
Financing

Three Months Ended March 31,

Variance

($ in millions)

2021

2020

$

%

Interest income

$
31

$
38

$
(7
)

(18.4
)%
Other financing revenue

6

6

—

—

Financing revenue

37

44

(7
)

(15.9
)
Consumer financing interest expense

7

7

—

—

Other financing expense

6

6

—

—

Financing expense

13

13

—

—

Financing profit

$
24

$
31

$
(7
)

(22.6
)
Financing profit margin

64.9
%

70.5
%

Financing revenue decreased $7 million for the three months ended March 31, 2021, compared to the same period in 2020 primarily due to a ~~shift in sales mix from fee-for-service to developed projects, (ii) a~~ decrease in ~~commission rate received on fee-for-service due to project mix and (iii) higher sales and marketing expense due to~~the timeshare financing receivables portfolio balance, offset by an increase in ~~contract sales volume and research and development costs~~revenue resulting from an increase in the related weighted average interest rate for the portfolio from 12.52 percent to ~~evaluate new markets.~~  12.59 percent for the three months ended March 31, 2021, compared to the same period in 2020. Financing expense remained flat year over year.
~~Real estate margin and real estate margin percentage~~Financing profit decreased for the three months ended ~~September 30, 2017,~~March 31, 2021, compared to the same period in 2016, primarily as a result of an increase in our marketing costs as a percentage of revenue and additional research and development costs to evaluate new markets. Real estate margin increased for the nine months ended September 30, 2017, compared2020 related to the ~~same period~~aforementioned decrease in 2016, primarily as a result of the increases in segment revenues, partially offset by the aforementioned sales and marketing expenses.  Real estate margin percentage was flat for the nine months ended September 30, 2017, compared to the same period in 2016.interest income.

~~Financing~~

Three Months Ended
September 30,

Variance

Nine Months Ended
September 30,

Variance

($ in millions)

2017

2016

$

%

2017

2016

$

%

Interest income

$
33

$
31

$
2

6.5
%

$
97

$
91

$
6

6.6
%
Other financing revenue

5

3

2

66.7

12

9

3

33.3

Financing revenue

38

34

4

11.8

109

100

9

9.0

Consumer financing interest expense

6

3

3

100.0

16

9

7

77.8

Other financing expense

5

5

—

—

16

15

1

6.7

Financing expense

11

8

3

37.5

32

24

8

33.3

Financing margin

$
27

$
26

$
1

3.8

$
77

$
76

$
1

1.3

Financing margin percentage

71.1
%

76.5
%

70.6
%

76.0
%

Financing revenue increased for the three and nine months ended September 30, 2017, compared to the same periods in 2016, primarily due to an increase of $2 million and $6 million, respectively, in interest income resulting from a higher outstanding timeshare financing receivables balance during the three and nine months ended September 30, 2017. Financing margin percentage decreased for the three and nine months ended September 30, 2017, compared to the same periods in 2016, primarily due to higher non-recourse debt balance associated with the additional drawdown on our timeshare facility in December 2016. See Note 8: ~~Debt & Non-recourse debt~~ ~~in our unaudited condensed consolidated financial statements for additional information.~~
Resort Operations and Club Management Segment
Resort and Club Management

Three Months Ended
September 30,

Variance

Nine Months Ended
September 30,

Variance

Three Months Ended March 31,

Variance

($ in millions)

2017

2016

$

%

2017

2016

$

%

2021

2020

$

%

Club management revenue

$
22

$
21

$
1

4.8
%

$
63

$
60

$
3

5.0
%

$
27

$
25

$
2

8.0
%
Resort management revenue

15

12

3

25.0

45

38

7

18.4

18

19

(1
)

(5.3
)
Resort and club management revenues

37

33

4

12.1

108

98

10

10.2

45

44

1

2.3

Club management expense

7

5

2

40.0

18

15

3

20.0

5

7

(2
)

(28.6
)
Resort management expense

5

4

1

25.0

14

10

4

40.0

3

5

(2
)

(40.0
)
Resort and club management expenses

12

9

3

33.3

32

25

7

28.0

8

12

(4
)

(33.3
)
Resort and club management margin

$
25

$
24

$
1

4.2

$
76

$
73

$
3

4.1

Resort and club management margin percentage

67.6
%

72.7
%

70.4
%

74.5
%

Resort and club management profit

$
37

$
32

$
5

15.6

Resort and club management profit margin

82.2
%

72.7
%

Resort and club management revenues increased for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2021, compared to the same period in 2020, primarily due to an increase in club management revenue per member, compared to the same period in 2020.
Resort and club management profit increased for the three months ended March 31, 2021, primarily due to a reduction in resort and club management expenses driven by the ongoing impact of the COVID-19 pandemic on travel demand, along with the phased reopening of our resort operations which continued throughout the first quarter of 2021.
Rental and Ancillary Services

Three Months Ended March 31,

Variance

($ in millions)

2021

2020

$

%

Rental revenues

$
30

$
47

$
(17
)

(36.2
)%
Ancillary services revenues

2

5

(3
)

(60.0
)
Rental and ancillary services revenues

32

52

(20
)

(38.5
)
Rental expenses

29

32

(3
)

(9.4
)
Ancillary services expense

2

5

(3
)

(60.0
)
Rental and ancillary services
   expenses

31

37

(6
)

(16.2
)
Rental and ancillary services profit

$
1

$
15

$
(14
)

(93.3
)
Rental and ancillary services profit margin

3.1
%

28.8
%

Rental and ancillary services revenues, expenses, and profit percentage decreased for the three months ended March 31, 2021, compared to the same periods in ~~2016, primarily~~2020, due to ~~(i) an increase~~the ongoing impact of the COVID-19 pandemic on travel demand. As of March 31, 2021, operations at approximately 20 percent of our properties remain temporarily suspended, and a number of our remaining markets continue to operate under capacity and other constraints, which has led to decreased results.
Other Operating Expenses

Three Months Ended March 31,

Variance

($ in millions)

2021

2020

$

%

General and administrative

$
36

$
21

$
15

71.4
%
Depreciation and amortization

11

12

(1
)

(8.3
)
License fee expense

14

22

(8
)

(36.4
)

The change in resort management revenue from the launch of new properties subsequent to the third quarter of 2016 and (ii) an increase of approximately 19,000 in Club members resulting in higher annual dues and transaction fees. These increases were partially offset by higher resort and club managementother operating expenses due to an increase in costs for servicing additional Club members and properties.  In addition, for the nine months ended September 30, 2017, the increases were partially offset by a one-time fee earned in 2016 on a prepaid contract.
~~Resort and club management margin increased~~ for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2021, compared to the same ~~periods~~period in ~~2016, primarily due to the aforementioned increases in segment revenues, partially offset~~2020, is driven by an increase in ~~segment~~general and administrative expenses offset by a decrease in license fee expense related to the corresponding decrease in real estate sales revenue. The increase in general and administrative expenses is related to (i) an increase in consulting and legal expenses related to the recently announced acquisition of Diamond, (ii) decrease in salaries and wages from the furloughs and reduction in force consummated in the prior year, and (iii) increase in expense related to Performance RSUs. In the prior year, certain expenses related to Performance RSUs were reversed as the related RSUs were not expected to achieve certain performance targets, resulting in a ~~result of customer and company related initiatives.  Resort and club management margin percentage decreased~~credit to expense in the prior period.
Non-Operating Expenses

Three Months Ended March 31,

Variance

($ in millions)

2021

2020

$

%

Interest expense

$
15

$
10

$
5

50.0
%
Equity in (earnings) losses from unconsolidated affiliates

(2
)

(3
)

1

(33.3
)
Other loss (gain), net

1

(2
)

3

NM⁽¹⁾

Income tax (benefit) expense

(6
)

1

(7
)

NM⁽¹⁾

The change in non-operating expenses for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2021, compared to the same ~~periods~~period in ~~2016,~~2020, is primarily due to an increase in ~~segment expenses~~interest expense as a result of ~~customer and company related initiatives, partially offset by the aforementioned increases in segment revenues.~~

~~Rental and Ancillary Services~~

Three Months Ended
September 30,

Variance

Nine Months Ended
September 30,

Variance

($ in millions)

2017

2016

$

%

2017

2016

$

%

Rental revenues

$
39

$
35

$
4

11.4
%

$
120

$
116

$
4

3.4
%
Ancillary services revenues

6

6

—

—

18

19

(1
)

(5.3
)
Rental and ancillary services revenues

45

41

4

9.8

138

135

3

2.2

Rental expenses

25

23

2

8.7

73

67

6

9.0

Ancillary services expense

5

7

(2
)

(28.6
)

15

19

(4
)

(21.1
)
Rental and ancillary services expenses

30

30

—

—

88

86

2

2.3

Rental and ancillary services margin

$
15

$
11

$
4

36.4

$
50

$
49

$
1

2.0

Rental and ancillary services margin percentage

33.3
%

26.8
%

36.2
%

36.3
%

Rental and ancillary services revenues increased for the three months ended September 30, 2017, compared to the same period in 2016, primarily due to an increase of $4 million in rental revenues as a result of higher transient room and club inventory rentals at our developed and fee-for-service properties.  Rental expenses increased by $2 million, offset by a decrease in ancillary expense.
Rental and ancillary services revenues increased for the nine months ended September 30, 2017, compared to the same period in 2016, primarily due to an increase of $4 million in rental revenues as a result of higher transient room and club inventory rentals at our developed and fee-for-service properties.  The increases were partially offset by (i) a net increase of $2 million in rental expenses due to additional owners and new properties, (ii) a one-time insurance claim payment of $2 million received in 2016, and (iii) a reduction in access fees received due to higher quantity of access fees sold in 2016.
Rental and ancillary services margin increased for the three months ended September 30, 2017, compared to the same period in 2016, due to aforementioned increases in segment revenues and lower property subsidy expenses from operational savings. Rental and ancillary services margin was flat for the nine months ended September 30, 2017, compared to the same period in 2016.
~~Other Operating Expenses~~

Three Months Ended
September 30,

Variance

Nine Months Ended
September 30,

Variance

($ in millions)

2017

2016

$

%

2017

2016

$

%

Unallocated general and administrative

$
23

$
17

$
6

35.3
%

$
75

$
44

$
31

70.5
%
Allocated general and administrative

—

7

(7
)

(100.0
)

—

17

(17
)

(100.0
)
General and administrative

$
23

$
24

(1
)

(4
)

$
75

$
61

$
14

23.0

~~Unallocated general and administrative expenses increased for the three and nine months ended September 30, 2017, compared to the same periods in 2016, primarily due to~~ an increase in ~~expenses relating to regulatory filings, professional fees~~related debt, and other costs as a result of becoming an independent publicly traded company. Allocated general and administrative were expenses allocated to us from Hilton relating to the spin-off which was completed on January 3, 2017.

Three Months Ended
September 30,

Variance

Nine Months Ended
September 30,

Variance

($ in millions)

2017

2016

$

%

2017

2016

$

%

Depreciation and amortization

$
7

$
6

$
1

16.7
%

$
21

$
17

$
4

23.5
%
License fee expense

22

22

—

—

65

61

4

6.6

~~Depreciation and amortization expense increased for the three and nine months ended September 30, 2017, compared to the same periods~~decrease in 2016, primarily due to asset transfers from Hilton during the fourth quarter of 2016, some of which we hold as property and equipment for future conversion into inventory. The increase in license fee expense for the nine months ended September 30, 2017 was as a result of the increase in revenues.

~~Non-Operating Expenses~~

Three Months Ended
September 30,

Variance

Nine Months Ended
September 30,

Variance

($ in millions)

2017

2016

$

%

2017

2016

$

%

Gain on foreign currency transactions

$
(1
)

$
(1
)

$
—

—

$
(1
)

$
(2
)

$
1

(50.0
)%
Allocated Parent interest expense

—

7

(7
)

(100.0
)

—

20

(20
)

(100.0
)
Interest expense

7

—

7

NM⁽¹⁾

21

—

21

NM⁽¹⁾

Other loss, net

—

—

—

—

—

1

(1
)

(100.0
)
Income tax expense

28

33

(5
)

(15.2
)

87

98

(11
)

(11.2
)
Equity in earnings from unconsolidated affiliate

(1
)

—

(1
)

NM⁽¹⁾

(1
)

—

(1
)

NM⁽¹⁾

⁽¹⁾
~~Fluctuation in terms of percentage change is not meaningful.~~
~~The Allocated Parent interest expense relates to an unconditional obligation to guarantee certain Hilton allocated debt balances which was released in November 2016.~~
The increase in interest expense for the three and nine months ended September 30, 2017, compared to the same periods in 2016 is directly related to the financing transactions closed during and subsequent to the fourth quarter of 2016.
~~Income~~income tax expense ~~decreased for the three and nine months ended September 30, 2017, compared to the same periods in 2016, primarily~~ due to a decrease in income before taxes combined with an increase in the ~~cumulative installment sale interest liability.~~
~~Equity in earnings from unconsolidated affiliate relates to our 25 percent interest in BRE Ace LLC.~~effective tax rate. See Note 7: ~~Investment in unconsolidated affiliate~~ ~~in our unaudited condensed consolidated financial statements~~14: Income Taxes for additional information.
Liquidity and Capital Resources
Overview
~~Prior~~
Our cash management objectives are to maintain the ~~fourth quarter~~availability of ~~2016, any net cash generated by our business has been transferred to Hilton, where it has been centrally managed. Transfers of cash to~~liquidity, minimize operational costs, make debt payments and ~~from Hilton have been reflected as a component of~~ ~~Net transfers (to) from Parent~~ ~~in our condensed consolidated statements of cash flows.~~
~~As of September 30, 2017, we had total cash~~fund future acquisitions and cash equivalents of $284 million, including $58 million of restricted cash. The restricted cash balance relates to escrowed cash from our sales of our VOIs and consumer financing receivables pledged to our non-recourse revolving timeshare receivable credit facility or securitizations.
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 ~~business activities~~short- and long-term liquidity needs primarily ~~with existing~~through 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.
•
In March 2021, we amended our Credit Agreement which amended certain terms related to financial covenants to permit the previously announced proposed acquisition of Dakota Holdings, Inc., pursuant to that certain Agreement and Plan of Merger dated March 10, 2021. The financial covenants were also amended to provide greater flexibility for the Company. The borrowing capacity under the Credit Agreement remained the same. In connection with the amendment, we incurred $1 million in debt issuance costs. We amended our Timeshare Facility to align with our amended Credit Agreement. In addition, we obtained a revolving credit facility commitment in connection with the Merger and incurred $2 million in debt issuance costs which were amortized over the term of the commitment in the first quarter of 2021. This was included in Interest expense in our condensed consolidated statements of operations.
•
As of March 31, 2021, we had total cash and cash equivalents of $505 million, including $105 million of restricted cash. The restricted cash balance relates to escrowed cash from our sales of our VOIs and reserves related to our non-recourse debt.

•
As of March 31, 2021, we have $139 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.
•
We intend to finance the planned acquisition, Merger, as mentioned above in “Planned Acquisition of Diamond,” through a combination of cash on hand, assumption of debt and incremental debt financing. The transaction is anticipated to close during the summer of 2021.
In response to the impact of COVID-19, we have taken a variety of actions to ensure the continuity of our business and operations and to secure our liquidity position to provide financial flexibility. This included amending certain financial covenant ratios through the third quarter of 2021 as may be needed due to the ongoing and uncertain future impact of the COVID-19 pandemic on our business and operations.
As of March 31, 2021, we have approximately 80 percent of our resorts and nearly all of our sales centers open and currently operating. However, some of HGV’s resorts and sales centers are operating in markets with capacity constraints and are subject to various safety measures, which are impacting consumer demand for resorts in those markets. While we plan to continue to reopen our resorts and resume our business as conditions permit, the pandemic continues to be unprecedented and rapidly changing, and has unknown duration and severity.
We believe that ~~this cash will~~our capital allocation strategy provides adequate funding for our operations, is flexible enough to fund our development pipeline, securitizes the optimal level of receivables, and provides the ability to be ~~adequate~~strategically opportunistic in the marketplace. We have made commitments with developers to ~~meet anticipated requirements for operating expenses~~purchase vacation ownership units at a future date to be marketed and ~~other expenditures, including payroll and related benefits, legal costs and capital expenditures for the foreseeable future. The objectives~~sold under our Hilton Grand Vacations brand. As of March 31, 2021, our cash management policy are to maintain the availability of liquidity, minimize operational costs, make debt payments and fund future acquisitions and development projects. Further, we have an investment policy that is focused on the preservation of capital and maximizing the return on new and existing investments.inventory-related purchase commitments totaled $453 million over 10 years.

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

Three Months Ended March 31,

Variance

($ in millions)

2017

2016

$

%

2021

2020

$

Net cash provided by (used in):

Operating activities⁽²⁾

$
299

$
133

$
166

NM⁽¹⁾

$
62

$
53

$
9

Investing activities

(77
)

(21
)

(56
)

NM⁽¹⁾

(5
)

(8
)

3

Financing activities⁽²⁾

(89
)

(94
)

5

(5.3
)

(78
)

562

(640
)

⁽¹⁾
~~Fluctuation in terms of percentage change is not meaningful.~~
⁽²⁾
~~Reflects the adoption of Accounting Standards Update (“ASU”) No. 2016-18, (“ASU 2016-18”)~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash.~~ ~~See Note 2:~~ ~~Significant Accounting Policies~~ ~~in our unaudited condensed consolidated financial statements for further discussion.~~
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 ~~acquisition of inventory,~~purchase and development of ~~new phases of existing resorts~~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:~~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.

~~Net~~The change in net cash flows provided by operating activities ~~increased by $166 million during~~for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021, compared to the same period in ~~2016,~~2020 was primarily ~~as a result of improved operating results~~due to an increase in ~~the real estate sales and~~proceeds from timeshare financing ~~segment and increased~~receivables, partially offset by decreased sources of cash ~~for~~from working capital requirements.  In addition, as permitted by the federal government pursuant to a tax relief program for regions impacted by Hurricane Irma, we deferred our estimated federal tax payment until the first quarter of 2018.capital.
Capital efficiency allows us to reduce inventory investment requirements and to generate growth in revenues and cash flows. Over a short-term period, depending on the timing of inventory spend, our capital efficiency may vary; however, over the long-term, we generally target a 50/50 mix of owned and fee-for-service inventory, which we expect will allow us to expand partner relationships and to provide a strong inventory supply without the upfront capital investment. In addition, we continue to move towards more just-in-time owned inventory sourcing arrangements that we expect to also drive capital efficiency. The change for the nine months ended September 30, 2017, compared to the same period in 2016, is primarily due to reduced inventory spending while maintaining a consistent sales pace and fewer fee-for-service upgrades.  However, over the long-term, we consider a ratio of VOI inventory spend to cost of VOI sales of 1:1 to be indicative of capital efficiency.

The following ~~is a summary of~~table exhibits our ~~Capital Efficiency Ratio:~~VOI inventory spending:

Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions)

2017

2016

2021

2020

VOI spending - owned properties

$
31

$
62

$
15

$
17

VOI spending - fee-for-service upgrades(1)

41

65

2

8

Total VOI inventory spending⁽¹⁾

$
72

$
127

Cost of VOI sales⁽¹⁾

$
107

$
110

Capital Efficiency Ratio

1.5

0.9

Purchases and development of real estate for future conversion to inventory

6

5

Total VOI inventory spending

$
23

$
30

⁽¹⁾
Includes ~~costs~~expense related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects from developed projects of $1 million and $5 million recorded in Costs of VOI sales ~~related to~~for the ~~cost of reacquiring inventory that we have developed from existing owners upgrading into fee-for-service projects. Excludes non-cash asset transfers from Hilton~~three months ended March 31, 2021 and ~~non-cash inventory accruals.~~2020, respectively.

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

Nine Months Ended September 30,

Variance

Three Months Ended March 31,

Variance

($ in millions)

2017

2016

$

%

2021

2020

$

Capital expenditures for property and equipment

$
(25
)

$
(16
)

$
(9
)

56.3
%

$
(1
)

$
(3
)

$
2

Software capitalization costs

(12
)

(5
)

(7
)

NM⁽¹⁾

(4
)

(5
)

1

Investment in unconsolidated affiliate

(40
)

—

(40
)

NM⁽¹⁾

Net cash used in investing activities

$
(77
)

$
(21
)

$
(56
)

NM⁽¹⁾

$
(5
)

$
(8
)

$
3

⁽¹⁾
~~Fluctuation in terms of percentage change is not meaningful.~~
Our capital expenditures include spending related to technology and 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.
The change in net cash used in investing activities for the three months ended March 31, 2021, compared to the same period in 2020, was primarily due to a reduction of property and equipment spending.
Financing Activities
The following table summarizes our net cash ~~used in~~provided by financing activities:

Nine Months Ended September 30,

Variance

Three Months Ended March 31,

Variance

($ in millions)

2017

2016

$

%

2021

2020

$

Issuance of debt

$
—

$
495

$
(495
)
Issuance of non-recourse debt

$
350

$
—

$
350

NM⁽¹⁾

—

195

(195
)
Repayment of debt

(2
)

(57
)

55

Repayment of non-recourse debt

(428
)

(85
)

(343
)

NM⁽¹⁾

(69
)

(58
)

(11
)
Repayment of debt

(7
)

—

(7
)

NM⁽¹⁾

Debt issuance costs

(5
)

(6
)

1

(16.7
)%

(3
)

—

(3
)
Allocated Parent debt activity

—

111

(111
)

(100.0
)
Net transfers to Parent⁽²⁾

—

(114
)

114

(100.0
)
Repurchase and retirement of common stock

—

(10
)

10

Payment of withholding taxes on vesting of restricted stock units

(5
)

(2
)

(3
)
Proceeds from stock option exercises

1

—

1

NM⁽¹⁾

2

—

2

Net cash used in financing activities

$
(89
)

$
(94
)

$
5

(5.3
)
Other financing activity

(1
)

(1
)

—

Net cash (used in) provided by financing activities

$
(78
)

$
562

$
(640
)

⁽¹⁾
~~Fluctuation in terms of percentage change is not meaningful.~~
⁽²⁾
~~All transactions between HGV and Hilton have been settled in connection with the spin-off.~~
The change in net cash ~~used in~~(used in) provided by financing activities for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2021, compared to the same period in ~~2016,~~2020, was primarily due to ~~our financing transactions that occurred in~~ the ~~first quarter of 2017. During the nine months ended September 30, 2017, we issued $350 million in non-recourse securitized debt and paid $5 million~~change in debt ~~issuance costs. The proceeds received from the~~borrowings for both our debt, revolving credit facility of $495 million, and non-recourse ~~securitized~~ debt, ~~were used to pay down a portion~~Timeshare Facility of $195 million, offset by fewer repayments on our ~~timeshare facility. We also paid $7 million of the principal amount of the senior secured term loan. See Note 8:~~ ~~Debt & Non -recourse~~ debt ~~in our unaudited condensed consolidated financial statements for further discussion. Additionally, following the spin-off date we no longer receive transfers from Hilton.~~facilities.

Contractual Obligations
The following table summarizes our significant contractual obligations as of ~~September 30, 2017:~~March 31, 2021:

Payments Due by Period

Payments Due by Period

($ in millions)

Total

Less Than 1
Year

1-3 Years

3-5 Years

More Than 5
Years

Total

Less Than 1
Year

1-3 Years

3-5 Years

More Than 5
Years

Debt⁽¹⁾

$
650

$
35

$
69

$
206

$
340

$
1,162

$
12

$
827

$
300

$
23

Non-recourse debt⁽¹⁾

652

147

348

100

57

706

145

328

151

82

Purchase commitments

208

3

196

9

—

Interest on debt⁽¹⁾

235

74

119

29

13

Operating leases

71

12

26

22

11

Inventory purchase commitments

453

227

172

43

11

Other commitments⁽²⁾

11

9

2

—

—

Total contractual obligations

$
1,510

$
185

$
613

$
315

$
397

$
2,638

$
479

$
1,474

$
545

$
140

^₍₁₎
Includes ~~principal, as well as estimated~~ interest ~~payments.~~on our debt and non-recourse debt. For our variable-rate debt, we have assumed a constant 30-day LIBOR rate of ~~1.23~~0.11 percent, subject to a 0.25 percent floor, as of ~~September 30, 2017.~~March 31, 2021.

₍₂₎
Primarily relates to commitments related to information technology and brand licensing under the normal course of business.
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, 2017,~~March 31, 2021, our ~~contractual obligations relating~~inventory-related purchase commitments totaled $453 million over 10 years and we expect to purchase $227 million of these commitments over the next twelve months.
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 ~~operating leases~~corporate credit rating. We have ~~not materially changed~~commitments from ~~what was reported~~surety providers in ~~our Annual Report on Form 10-K for~~ the ~~year ended December~~amount of $367 million as of March 31, ~~2016.~~2021 which primarily consist of escrow and construction related bonds.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements as of ~~September 30, 2017~~March 31, 2021 consisted of ~~$208~~$453 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~~our Hilton Grand Vacations ~~brand.~~brand and $11 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 ~~15:~~ 19: Commitments and Contingencies in our unaudited condensed consolidated financial statements for a discussion of our off-balance sheet arrangements.
~~Subsequent Events~~
~~On October 13, 2017, we acquired~~Guarantor Financial Information
Certain subsidiaries, which are listed on Exhibit 22 of this Quarterly Report on Form 10-Q, have guaranteed our obligations related to our senior unsecured notes (the “Notes”). The notes were issued in November 2016 with an ~~83-unit, ski-in mountain lodge~~aggregate principal balance of $300 million, an interest rate of 6.125 percent, and maturity in ~~Park City, Utah, known as “The Sunrise Lodge, a~~December 2024.
Our senior unsecured notes were co-issued by Hilton Grand Vacations ~~Club.”  Prior~~Borrower LLC and Hilton Grand Vacations Borrower Inc. (the “Issuers”) and are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Hilton Grand Vacations Inc. (the “Parent”), Hilton Grand Vacations Parent LLC (the “Intermediate Parent”), the Issuers, and each of the Issuer’s existing and future wholly owned domestic restricted subsidiaries (all entities that guarantee the Notes, collectively, the “Obligor group”).
The Notes rank equally in right of payment with all of our existing and future senior unsecured obligations, are senior in right of payment to any of our Guarantor’s subordinated indebtedness, and are subordinate to all existing and future liabilities of our entities that do not guarantee the ~~acquisition, HGV was providing marketing, sales~~Notes and ~~resort management services~~our secured indebtedness, including our senior secured credit facilities and securitized non-recourse debt.
The guarantee of each guarantor subsidiary is limited to a maximum amount, subject to applicable U.S. and non-U.S. laws. The guarantees can also be released upon the ~~seller Sunrise Park City, LLC under~~sale or transfer of a ~~fee-for-service agreement.~~  guarantor subsidiary’s capital stock or substantially all of its assets, becoming designated as an unrestricted subsidiary, or upon its consolidation into a co-Issuer or another subsidiary Guarantor.

The following tables provide summarized financial information of the Obligor group on a combined basis after elimination of (i) intercompany transactions and balances between the Parent and the subsidiary Guarantors and (ii) investments in and equity in the earnings of non-Guarantor subsidiaries and unconsolidated affiliates:
Summarized Financial Information

March 31,

December 31,

($ in millions)

2021

2020

Assets

Cash and cash equivalents

$
366

$
393

Restricted cash

76

69

Accounts receivable, net - due from non-guarantor subsidiaries

34

25

Accounts receivable, net - due from related parties

5

7

Accounts receivable, net - other

66

77

Timeshare financing receivables, net

232

207

Inventory

626

605

Property and equipment, net

490

490

Operating lease right-of-use assets, net

47

51

Intangible assets, net

80

81

Land and infrastructure held for sale

41

41

Other assets

97

74

Total assets

$
2,160

$
2,120

Liabilities

Accounts payable, accrued expenses and other - due from non-guarantor subsidiaries

$
34

$
25

Accounts payable, accrued expenses and other - other

244

235

Advanced deposits

114

117

Debt, net

1,156

1,159

Operating lease liabilities

61

65

Deferred revenues

310

254

Deferred income tax liabilities

118

137

Total liabilities

$
2,037

$
1,992

Three Months Ended March 31,

($ in millions)

2021

Total revenues - transactions with non-guarantor subsidiaries

$
2

Total revenues - other

209

Operating loss

(10
)
Net loss

(21
)
Subsequent Events
Management has evaluated all subsequent events through April 29, 2021, the date the unaudited condensed consolidated financial statements were available to be issued. The results of management’s analysis indicated no significant subsequent events have occurred that required consideration or adjustment to our disclosures in the unaudited financial statements.
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 the 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, ~~2016. Since the date of our Annual Report on Form 10-K, there have been no material changes to our critical accounting policies or the methods or assumptions we apply under them.~~2020.

ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in interest rates and currency exchange ~~rates and debt prices.~~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, ~~2016.~~2020.
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,~~Timeshare Facility, of which the ~~timeshare facility~~Timeshare Facility is without recourse to us. The interest ~~rate is~~rates are based on one-month LIBOR and we are most vulnerable to changes in this rate. We primarily use interest rate swaps as part of our interest rate risk management strategy for our variable-rate debt.
We intend to securitize timeshare financing receivables in the asset-backed financing market periodically. We expect to secure ~~fixed rate~~fixed-rate funding to match our ~~fixed rate~~fixed-rate timeshare financing receivables. However, if we have ~~floating rate~~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 continue to have variable-rate borrowings and continue to utilize ~~variable rate~~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 (loss), cash flows and financial position. ~~Hedging~~While we have entered into certain hedging transactions to address such potential risk, such transactions and any future 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~~weighted-average interest rates and the total fair values as of ~~September 30, 2017,~~March 31, 2021, for our financial instruments that are materially affected by interest rate risk:

Maturities by Period

Maturities by Period

($ in millions)

Weighted
Average
Interest
Rate⁽¹⁾

2017

2018

2019

2020

2021

There-
after

Total⁽²⁾

Fair
Value

Weighted
Average
Interest
Rate⁽¹⁾

2021

2022

2023

2024

2025

There-
after

Total⁽²⁾

Fair
Value

Assets:

Fixed-rate securitized timeshare
financing receivables

11.901
%

$
19

$
76

$
75

$
72

$
67

$
197

$
506

$
595

12.271
%

$
70

$
95

$
98

$
100

$
98

$
269

$
730

$
770

Fixed-rate unsecuritized timeshare
financing receivables

12.272
%

28

56

60

65

70

408

687

799

13.131
%

28

37

40

42

44

226

417

439

Liabilities:⁽³⁾

Fixed-rate debt

3.836
%

30

134

99

120

32

374

789

817

4.133
%

106

175

139

415

56

142

1,033

1,005

Variable-rate debt⁽⁴⁾

3.103
%

3

10

139

10

160

—

322

326

Variable-rate debt⁽⁴⁾

3.750
%

8

10

817

—

—

—

835

838

⁽¹⁾
~~Weighted average~~Weighted-average interest rate as of ~~September 30, 2017.~~March 31, 2021.
⁽²⁾
Amount excludes unamortized deferred financing costs.
⁽³⁾
Includes debt and non-recourse debt.
⁽⁴⁾
Variable-rate debt includes principal outstanding debt of ~~$193 million and non-recourse debt of $129~~$835 million as of ~~September 30, 2017.~~March 31, 2021. See Note 8: 11: Debt & Non-recourse ~~debt~~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 and VAT receivables denominated in Mexican pesos, 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 the Japanese yen to U.S. dollar would ~~increase~~change our gross timeshare financing receivables by less than $1.5 million. A 10 percent change in the foreign exchange rate of the Mexican peso to U.S. dollar would change our VAT receivables by approximately $1 million.

ITEM 4.
Controls and Procedures
Disclosure Controls and Procedures
AsOur 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 on Form 10-Q, we evaluated,~~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, ~~the effectiveness~~ of the ~~design and operation~~effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), and management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which by their nature, can provide only reasonable assurance about management’s control objectives. Our disclosure controls and procedures have been designed to provide reasonable assurance of achieving the desired control objectives. However, you should noteprocedures. Based on that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Based upon the foregoing 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 ~~and operating~~ to provide reasonable assurance that ~~we record, process, summarize and report the~~ information ~~we are~~ required to ~~disclose~~be disclosed by us in ~~the~~ reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in ~~the~~SEC rules and forms ~~of the SEC,~~ and ~~to provide reasonable assurance that we accumulate~~is accumulated and ~~communicate such information~~communicated to our management, including ~~our~~the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions ~~about~~regarding required disclosure.We will continue to assess the adequacy of our disclosure controls and procedures and make any appropriate changes given the various government mandates and orders of business closures and the resulting remote working conditions as a result of the COVID-19 pandemic.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the ~~period covered by this Quarterly Report on Form 10-Q~~three months ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We will continue to assess the effectiveness of our internal controls over financial reporting consistent with past practice, particularly in light of the various government mandates and orders of business closures and the resulting remote working conditions as a result of the COVID-19 pandemic.

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 ~~also identified certain other~~evaluated these legal matters ~~where~~and we believe an unfavorable outcome is either reasonably possible or remote and/or for which ~~no estimate of possible losses can be made.~~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, 2017~~March 31, 2021 will not have a material effect on our unaudited condensed consolidated ~~results of operations,~~ financial ~~position or cash flows.~~statements.
Item 1A.
Risk Factors
~~Set forth below are the material~~The following represents important changes and updates to the risk factors ~~discussed~~previously disclosed in Item 1A1A. of Part 1I of the Annual Report on Form 10-K for the year ended December 31, 2016. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed below and in Item 1A of Part 1 of the Annual Report on Form 10-K for the year ended December 31, 2016, which could materially and adversely affect our business, financial condition, results of operations and stock price. The risks described below and in the Annual Report on Form 10-K are not the only risks facing HGV. Additional risks and uncertainties not presently known to management or that management presently believes not to be material may also result in material and adverse effects on our business, financial condition, results of operations and stock price.
Partnership or joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on partners’ or co-venturers’ financial condition, disputes between us and our partners or co-venturers and our obligation to guaranty certain obligations beyond the amount of our investments.
We may co-invest in the future with other third parties through partnerships, joint ventures or other entities, acquiring non-controlling interests in, or sharing responsibility for managing the affairs, of a timeshare property, partnership, joint venture or other entity. For example, we recently entered into the Joint Venture Agreement with BRE Ace Holdings, an affiliate of Blackstone, pursuant to which we acquired a non-managing 25 percent interest in BRE Ace LLC, which owns a 1,201-key timeshare resort property and related operations, commonly known as “Elara, by Hilton Grand Vacations,” located in Las Vegas, Nevada (the “Elara Joint Venture.”) Consequently, with respect to any such third-party arrangements, we would not be in a position to exercise sole decision-making authority regarding the property, partnership, joint venture or other entity, and may, under certain circumstances, be exposed to risks not present if a third party were not involved, including the possibility that partners or co-venturers might become bankrupt or fail to fund their share of required capital contributions, and we may be forced to make contributions to maintain the value of the property. Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor the partner or co-venturer may have full control over the partnership or joint venture. We and our respective partners or co-venturers may each have the right to trigger a buy-sell right or forced sale arrangement, which could cause us to sell our interest, or acquire our partners’ or co-venturers’ interest, or to sell the underlying asset, either on unfavorable terms or at a time when we otherwise would not have initiated such a transaction. In addition, a sale or transfer by us to a third party of our interests in the partnership or joint venture may be subject to consent rights or rights of first refusal in favor of our partners or co-venturers, which would in each case restrict our ability to dispose of our interest in the partnership or joint venture. For example, our joint venture partner in the Elara Joint Venture generally has exclusive authority to manage the business and affairs of the Elara Joint Venture, and has the discretion to call for additional capital contributions at any time. In addition, it has certain rights to transfer or sell some or all of its interests in the Elara Joint Venture and/or the Property without our consent or, in certain situations, require us to sell our interests at the same time, while we are not permitted to sell or transfer our interest without their consent. Any or all of these factors could adversely affect the value of our investment, our ability to exit, sell or dispose of our investment at times that are beneficial to us, or our financial commitment to maintaining our interest in the joint ventures.
Our joint ventures may be subject to debt and the refinancing of such debt, and we may be required to provide certain guarantees or be responsible for the full amount of the debt in certain circumstances in the event of a default beyond the amount of our equity investment. Our joint venture partners may take actions that are inconsistent with the interests of the partnership or joint venture, or in violation of the financing arrangements and trigger our guaranty, which may expose us to substantial financial obligation and commitment that are beyond our ability to fund. In addition, partners or co-venturers may have economic or other business interests or goals that are inconsistent with our business interests or goals and may be in a position to take action or withhold consent contrary to our policies or objectives. In some instances, partners or co-venturers may have competing interests in our markets that could create conflict of interest issues. Disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers from focusing their time and effort on our business. Consequently, actions by or disputes with partners or co-venturers might result in subjecting assets owned by the partnership or joint venture to additional risk. In addition, we may, in certain circumstances, be liable for the actions of our third-party partners or co-venturers.

A significant percentage of our revenue is derived from our fee-for-service agreements with respect to two properties that are owned by a third party, and any termination of such arrangements could have a materially adverse impact on our revenues and financial results.
We derived approximately 20 percent and 14 percent of our revenues for the quarter and nine months ended September 30, 2017, respectively, from fee-for-service fees with respect two of our properties that are owned single third party and for which we have entered into fee-for-service agreements. If these fee-for-service agreements are terminated by the property owner, if one or both properties are sold to another party without the continuation of such arrangement, or if there is any occurrence or existence of any adverse economic development, adverse acts of natural or manmade disasters, or any other conditions (as more fully described in our Risk Factors contained in our Annual Report on Form 10-K for the year ended December 31, ~~2017, as updated~~2020 (our “2020 Form 10-K”). The risk factors discussed below and the risk factors included in our 2020 Form 10-K are important to understanding our business, operation, results of operations, financial condition, and prospects, especially during the current environment, and our statements generally in this Form 10-Q. Therefore, they 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.
In addition, the following risks and those risks described in our 2020 Form 10-K contain forward-looking statements, and they may not be the only risks facing the Company. The future business, results of operations and financial condition of the Company can be affected by the risk factors described in such reports and by other factors currently unknown, that management presently believes not to be material, that management has made certain forward looking projections, estimates or assumptions, or that may rapidly evolve, develop or change, including those that are caused, directly or indirectly, by the COVID-19 pandemic. Any one or more of such factors could, directly or indirectly, cause our actual financial condition and results of operations to vary materially from ~~time to time) that negatively~~past, or ~~disproportionately adversely affects either or both~~from anticipated future, financial condition and results of operations. Any of these ~~two properties,~~factors, in whole or in part, could materially and adversely affect our ~~revenues,~~business, results of operations and financial condition and the trading price of our common stock. Because of these factors affecting our 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.
Risks Relating to the Merger
The exchange ratio will not be adjusted for changes in our stock price.
The calculation of the number of shares of our common stock that Diamond common stockholders will receive as consideration in the Merger  (the “exchange ratio”) is pre-determined such that each share of Diamond common stock (other than Appraisal Shares (as defined in the Merger Agreement), treasury shares, and shares owned directly or indirectly by Diamond) is currently expected to be converted into the right to receive 0.32066 shares of our common stock in connection with the Merger (based on calculations as of April 9, 2021), subject to certain adjustments as a result of changes in certain liabilities and other items between signing and closing of the Merger. This exchange ratio will not be adjusted for changes in the market price of our common stock between the date of signing the Merger Agreement and completion of the Merger.
Changes in the price of our common stock before the closing of the Merger will affect the market value of our common stock that Diamond common stockholders will receive at the closing of the Merger. The price of our common stock at the closing of the Merger may vary from their prices on the date the Merger Agreement was executed and on the date of the special meeting of our stockholders held in connection with the issuance of HGV common stock in the Merger. As a result, the value represented by the exchange ratio will also vary.
These variations could result from changes in the business, operations or prospects of Diamond or HGV before or following the Merger, regulatory considerations, general market and economic conditions and other factors both within and beyond our and Diamond’s control. The Merger may be completed a considerable period after the date of the special meeting. Therefore, at the time of the special meeting, stockholders will not know with certainty the value of the shares of our common stock that will be issued upon completion of the Merger.

We are subject to various uncertainties and contractual restrictions, including the risk of litigation, while the Merger is pending, which may cause disruption and may make it more difficult to maintain relationships with employees, suppliers, vendors, customers or others.
Uncertainty about the effect of the Merger on relationships with our employees, suppliers, vendors, customers, or others may have an adverse effect on us. Although we intend to take steps designed to reduce any adverse effects, these uncertainties may impair Diamond’s and our ability to attract, retain and motivate key personnel until the Merger is completed and for a period of time thereafter, and could cause suppliers, vendors, customers, and others that deal with us to seek to change, not renew or discontinue existing business relationships with us.
Employee retention and recruitment may be challenging before the completion of the Merger, as employees and prospective employees may have uncertainty about their future roles with HGV after the Merger. If, despite our retention and recruiting efforts, key employees depart or prospective key employees are unwilling to accept employment with us because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with us, our business could be adversely affected.
The pursuit of the Merger and the preparation for the integration may place a significant burden on management and internal resources. The diversion of management’s attention away from day-to-day business concerns and any difficulties encountered in the transition and integration process could adversely affect our financial results.
In addition, the Merger Agreement restricts us and Diamond, without the other party’s consent, from making certain acquisitions and taking other specified actions until the Merger closes or the Merger Agreement terminates. These restrictions may prevent us and Diamond from pursuing otherwise attractive business opportunities and making other changes to our respective businesses before completion of the Merger or termination of the Merger Agreement.
One of the conditions to the closing of the Merger is the absence of any judgment, order, decree, statute, law, ordinance, rule or regulation, having been entered, enacted, promulgated, enforced or issued by any court or other governmental entity of competent jurisdiction or other legal restraint or prohibition that prevents the consummation of the Merger. Accordingly, while no litigation specific to the Merger has been commenced, it is possible that such litigation may commence, and in any such litigation if any of the plaintiffs is successful in obtaining an injunction prohibiting the consummation of the Merger, then such injunction may prevent the Merger from being completed, or delay it from being completed within the expected time frame.
Failure to complete the Merger could negatively impact our stock price and the future of our business and financial results.
If the Merger is not completed, our ongoing business may be adversely affected, and we may be subject to several risks, including the following:
•
being required to pay a termination fee to Diamond under certain circumstances as provided in the Merger Agreement;
•
having to pay certain costs relating to the Merger, such as legal, accounting, financial advisor and other fees and expenses;
•
our common stock price could decline to the extent that the current market price reflects a market assumption that the Merger will be completed; and
•
having had the focus of our senior management on the Merger instead of on pursuing other opportunities that could have been beneficial to us and our stockholders.
If the Merger is not completed, we cannot assure you that these risks will not materialize and will not materially adversely affect our business, financial results and stock price.

Our ability to complete the Merger is subject to certain closing conditions and the receipt of consents and approvals from government entities which may impose conditions that could adversely affect us or cause the Merger to be abandoned.
The Merger Agreement contains certain closing conditions, including, among others:
•
the accuracy of the representations and warranties of the other party contained in the Merger Agreement, subject to the qualifications described in more detail herein;
•
the other party having performed in all material respects all obligations required to be performed by it under the Merger Agreement;
•
the absence of a “material adverse effect” impacting the other party;
•
the approval of the stock issuance proposal by the affirmative vote of a majority of the votes cast by holders of our common stock at a stockholders’ meeting duly called and held for such purpose;
•
the absence of any judgment, order, law or other legal restraint by a court or other governmental entity of competent jurisdiction that prevents the consummation of the Merger;
•
the approval for listing by the NYSE of the shares of our common stock issuable in the Merger;
•
the termination or expiration of any applicable waiting period under the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;
•
the receipt of all authorizations, consents, orders or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, the Mexican Federal Economic Competition Commission under the Mexican Federal Economic Competition Law and the Federal Competition Authority under the Austrian Cartel Act and the Competition Act;
•
certain ancillary agreements having been delivered and not having been rescinded or repudiated by certain parties; and
•
the absence of defaults under Diamond’s unsecured notes and absence of defaults and sufficient availability under Diamond’s warehouse facilities.
We cannot assure you that the various closing conditions will be satisfied, or that any required conditions will not materially adversely affect us following the Merger or will not result in the abandonment or delay of the Merger.
Any delay in completing the Merger may reduce or eliminate the benefits that we expect to achieve.
The Merger is subject to a number of conditions beyond our control that may prevent, delay or otherwise materially adversely affect the completion of the Merger. We cannot predict whether and when these conditions will be satisfied. Any delay in completing the Merger could cause us not to realize some or all of the synergies that we expect to achieve if the Merger is successfully completed within the expected time frame.
Our directors and executive officers may have interests in the Merger that may be different from, or in addition to, the interests of our stockholders generally.
Certain of our directors and executive officers negotiated the terms of the Merger Agreement, and our board of directors unanimously recommended that our stockholders vote in favor of the proposals to be presented to our stockholders at the special meeting. These directors and executive officers may have interests in the Merger that are different from, or in addition to, those of our stockholders. These interests include the continued employment of our executive officers after the Merger, the continued service of all of our directors following the Merger, and other rights held by our directors and executive officers. Our stockholders should be aware of these interests when they consider our board of directors’ recommendation that they vote in favor of the stock issuance proposal and the other proposals to be voted upon at the special meeting.
Our board of directors was aware of these potential interests and considered them in making its recommendations to approve the stock issuance proposal and the other proposals to be voted upon at the special meeting.

The opinion obtained by our board of directors from its financial advisor does not and will not reflect changes in circumstances after the date of such opinion.
On March 9, 2021, BofA Securities, Inc. (“BofA Securities”) delivered an opinion to our board of directors that, as of the date of such opinion, and based upon and subject to the assumptions, limitations, qualifications and conditions described in BofA Securities’ opinion, the Merger consideration was fair, from a financial point of view, to HGV. Changes in the operations and prospects of Diamond or HGV, general market and economic conditions and other factors that may be beyond our control, and on which the opinions of BofA Securities was based, may alter our or Diamond’s value or the price at which shares of our common stock are traded by the time the Merger is completed. We have not obtained, and we do not expect to request, an updated opinion from our financial advisor. BofA Securities’ opinion does not speak to the time when the Merger will be completed or to any date other than the date of such opinion. As a result, the opinion does not and will not address the fairness, from a financial point of view, of the Merger consideration to be paid by us in the Merger pursuant to the Merger Agreement at the time the Merger is completed or at any time other than the date when opinion was rendered.
Risks if the Merger is Completed
We may not be able to integrate successfully and many of the anticipated benefits of combining us and Diamond may not be realized.
We entered into the Merger Agreement with the expectation that the Merger will result in various benefits, including, among other things, operating efficiencies. Achieving the anticipated benefits of the Merger is subject to a number of uncertainties, including whether the businesses of HGV and Diamond can be integrated in an efficient and effective manner.
It is possible that the integration process could take longer than anticipated and could result in the loss of valuable employees, the disruption of each company’s ongoing businesses, processes and systems or inconsistencies in standards, controls, procedures, practices, policies and compensation arrangements, any of which could adversely affect our ability to achieve the anticipated benefits of the Merger. Our results of operations could also be adversely affected by any issues attributable to Diamond’s operations that arise or are based on events or actions that occur before the closing of the Merger. We may have difficulty addressing possible differences in corporate cultures and management philosophies. The integration process is subject to a number of uncertainties, and no assurance can be given that the anticipated benefits will be realized or, if realized, the timing of their realization. Failure to achieve these anticipated benefits could result in increased costs or decreases in the amount of expected net income and could adversely affect our future business, financial condition, operating results and prospects.
Furthermore, we have agreed with Hilton Worldwide Inc. (“Hilton”) to develop a mutually agreeable plan pursuant to which the Diamond properties are to be operated during the integration period, and with respect to those Diamond properties that will not be converted to our brand. If we fail to develop such a plan with Hilton, such properties may remain subject to a number of restrictions related to how they are operated, and such restrictions may reduce the efficiencies anticipated in connection with the Merger.
We will take on additional indebtedness to finance the Merger, which could adversely affect our business, financial condition and results of operations, including by decreasing our business flexibility, as well as our ability to meet payment obligations under our indebtedness.
In connection with the completion of the Merger, we intend to significantly increase our level of indebtedness. Our increased level of debt, together with certain covenants and restrictions that will be imposed on us in connection with incurring this indebtedness, will, among other things: (a) require us to dedicate a larger portion of our cash flow from operations to servicing and repayment of debt; (b) reduce funds available for strategic initiatives and opportunities, dividends, share repurchases, working capital and other general corporate needs; (c) limit our ability to incur certain kinds or amounts of additional indebtedness, which could restrict our flexibility to react to changes in our business, industry and economic conditions and increase borrowing costs; (d) create competitive disadvantages relative to other companies with lower debt levels and (e) increase our vulnerability to the impact of adverse economic and industry conditions. These covenants and restrictions may limit how our business is conducted. We may not be able to maintain compliance with these covenants and restrictions and, if we fail to do so, we may not be able to obtain waivers thereto and/or amend these covenants and restrictions. Our failure to comply with the covenants and restrictions could result in an event of default,which, if not cured or waived, could result in our being required to repay such indebtedness before its due date or to have to negotiate amendments to or waivers thereof, which may have unfavorable terms or result in the incurrence of additional fees and expenses.

Our ability to make scheduled cash payments on and to refinance our indebtedness and to fund planned capital expenditures will depend on our ability to generate significant operating cash flow in the future, which, to a significant extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors, including the continued adverse impact of the COVID-19 pandemic on our business, that are beyond our control. We may not be able to maintain a sufficient level of cash flow from operating activities to permit us to pay the principal, premium, if any, and interest on our indebtedness.
In addition, our credit ratings will impact the cost and availability of future borrowings and, accordingly, our cost of capital. Our ratings will reflect each rating organization’s opinion of our financial strength, operating performance and ability to meet our debt obligations on a combined basis with Diamond. Downgrades in our ratings could adversely affect our businesses, cash flows, financial condition, operating results and share and debt prices, as well as our obligations with respect to our capital efficient inventory acquisitions.
Following the completion of the Merger, our vacation ownership business will depend on the quality and reputation of the brands associated with the portfolios of each of HGV and Diamond, and any deterioration in the quality or reputation of these brands could adversely affect our market share, reputation, business, financial condition and results of operations.
Following completion of the Merger, we intend to offer vacation ownership products and services under the Hilton Vacation Club brand, a new upscale HGV sub-brand that will consist of rebranded Diamond properties, all pursuant to the Amended and Restated License Agreement with Hilton ( the “A&R Hilton license agreement”). If the quality of any of these brands deteriorates, or the reputation of these brands declines, including as the result of actions by Hilton, our market share, reputation, business, financial condition or results of operations could be materially adversely ~~impacted.~~affected. See “Risks Related to our Relationship with Hilton” below.
The maintenance and refurbishment of vacation ownership properties depends on maintenance fees paid by the owners of VOIs.
The maintenance fees that are levied on owners of our and Diamond’s VOIs by property owners’ association boards are used to maintain and refurbish the vacation ownership properties, to maintain reserves for capital expenditures, and to keep the properties in compliance with applicable brand standards. Property owners’ association boards may elect to not levy sufficient maintenance fees, or owners of VOIs may fail to pay their maintenance fees for reasons such as financial hardship, dissatisfaction with the Merger or because of damage to their VOIs from natural disasters such as hurricanes. In these circumstances, not only could our and Diamond’s management fee revenue be adversely affected, but the vacation ownership properties could fall into disrepair and fail to comply with applicable brand standards. If a resort fails to comply with applicable brand standards, Hilton could terminate our right under the A&R Hilton license agreement to use its trademarks at the non-compliant resort, which could result in the loss of management fees, decreased customer satisfaction and impairment of our ability to market and sell products at the non-compliant locations. See “Risks Related to Our Relationship with Hilton” below.
If maintenance fees at our or Diamond’s resorts are required to be increased, our or Diamond’s products could become less attractive and our or Diamond’s business could be harmed.
The maintenance fees that are levied on owners of our and Diamond’s VOIs by property owners’ association boards may increase as the costs to maintain and refurbish the vacation ownership properties, to maintain reserves for capital expenditures, and to keep the properties in compliance with brand standards increase. A similar situation may arise with respect to fees imposed on owners of VOIs with respect to new properties added to our portfolio following the completion of the Merger. Increased maintenance fees could make our or Diamond’s products less desirable, which could have a negative impact on sales of our or Diamond’s products and could also cause an increase in defaults with respect to our or Diamond’s vacation ownership notes receivable portfolio.

We will incur substantial transaction costs in connection with the Merger.
We expect to incur a number of non-recurring expenses both before and after completing the Merger, including fees for third party legal, investment banking and advisory services, the costs and expenses of filing, printing and mailing our merger proxy statement and all filing and other fees paid to the SEC in connection with the Merger, obtaining necessary consents and approvals and combining the operations of the two companies. These fees and costs will be substantial. Additional unanticipated costs may be incurred in our integration of Diamond. Although it is expected that the elimination of certain duplicative costs, as well as the realization of other efficiencies related to the integration of the two businesses, will offset the incremental transaction related costs over time, this net benefit may not be achieved in the near term, or at all. Further, if the Merger is not completed, we would have to recognize these expenses without realizing the expected benefits of the Merger.
Our stockholders will have a reduced ownership and voting interest after the completion of the Merger and will exercise less influence over management of us as compared to currently.
Our stockholders currently have the right to vote in the election of the board of directors and on other matters affecting us. Upon the completion of the Merger, each Diamond stockholder who receives shares of our common stock will become our stockholder. It is currently expected that the former Diamond stockholders as a group will receive shares in the Merger constituting approximately 28% of the shares of our common stock on a fully diluted basis immediately after the completion of the Merger. As a result, our current stockholders as a group will own approximately 72% of the shares of our common stock on a fully diluted basis immediately after the completion of the Merger. Because of this, our stockholders will have less influence on the management and policies of the combined company than they now have on the management and policies of us prior to the Merger.
Our future results will suffer if we do not effectively manage our expanded operations following the completion of the Merger.
Following the completion of the Merger, the size of our business will increase significantly beyond the current size of either our or Diamond’s current operations. Our future success depends, in part, upon our ability to manage this expanded business, including in non-US jurisdictions where we do not currently have operations, which will pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. We may also need to obtain approvals of developers or HOAs in various instances to include additional resorts in the multi-resort trusts marketed, sold and managed by Diamond (the “Diamond Collections”) or increase maintenance fees or impose additional requirements in order to meet our brand and operating standards. There can be no assurances that we will be successful or that we will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the transactions. In addition, there will be increased compliance and regulatory risk as a result of the expanded size of our business.
We may not be able to retain our and/or Diamond personnel successfully after the Merger is completed.
The success of the Merger will depend in part on our ability to retain the talents and dedication of key employees currently employed by us and Diamond. It is possible that these employees may decide not to remain with us or Diamond, as applicable, while the Merger is pending or with us after the Merger is consummated.
If key employees terminate their employment, or if an insufficient number of employees are retained to maintain effective operations, our business activities may be adversely affected and management’s attention may be diverted from successfully integrating Diamond to hiring suitable replacements, all of which may cause our business to suffer. In addition, we may not be able to locate suitable replacements for any key employees who leave either company, or offer employment to potential replacements on reasonable terms.
We and Diamond may be subject to complaints, litigation or reputational harm due to dissatisfaction with, or concerns related to, the Merger from our current owners.
Our current owners may be concerned about the actual or perceived impact of the Merger on their VOIs, including related to a reduced quality of resorts and product offerings due to the increased size of the business and addition of new owners, or increase or change in HOA or other fees. Diamond’s current owners may have similar concerns related to a decline in the quality of product offerings or increase in fees as a result of the Merger and increase in size of the business. Complaints or litigation brought by existing owners following the completion of the Merger could harm our reputation, discourage potential new owners and adversely impact our results of operations.

Risks Related to Diamond’s Business
The COVID-19 pandemic has impacted, and will likely continue to have a significant adverse impact on, the business, financial condition and results of operations of Diamond for the foreseeable future.
Tourism and travel-related industries continue to face significant disruption as a result of the COVID-19 pandemic. It may be an extended period of time before the business operations of Diamond and its affiliates return to full operational capacity or occupancy, particularly if there remains lingering actual and/or perceived concern and perception of significant transmission and infection risk due to the COVID-19 pandemic. Diamond has implemented new social distancing, hygiene protocols, and enhanced cleaning measures at its resorts, sales centers, and corporate offices in accordance with guidelines from federal, state and local authorities. Diamond and its subsidiaries’ management implemented and trained team members on the “Diamond Standard of Clean.” These measures, which are intended to protect human life, may result in additional costs, operational inefficiencies, and fewer revenue opportunities.
As a result of the COVID-19 pandemic and the various governmental mandates and orders for business closure, Diamond temporarily closed operations at substantially all of their resorts and closed substantially all of their sales centers. With the lifting or easing of such restrictions in certain locations in the United States, Diamond has re-opened the majority of its resorts and sales centers, albeit at reduced capacity levels and revenue has not returned to pre-pandemic levels. However, any re-opening of the resorts may be delayed, interrupted or reversed depending on government orders or recommendations or based on assessments of the state of the pandemic. It may be an extended period of time before the resorts return to pre-pandemic operational capacity or occupancy, particularly if there remains lingering actual and/or perceived concern and perception of significant transmission and infection risk due to the COVID-19 pandemic.
Any sustained materially adverse impact on Diamond’s revenues, net income and other operating results due to the impact of the COVID-19 pandemic could cause Diamond to breach its operating and financial covenants under certain of its debt obligations, which may mean lenders have the right to terminate their commitments under certain debt agreements and declare outstanding loans immediately due and payable.
Diamond operates in a number of locations outside the United States and is subject to certain additional risks related to international operations that are not applicable to our current business.
Diamond manages resorts in and sells VOIs in countries outside of the United States, including in Mexico, Canada, the United Kingdom and several countries in the European Union, which are subject to a number of risks, including compliance with local regulations and laws, regulations restricting the sale of VOIs, compliance with anti-corruption laws and regulations such as the Foreign Corrupt Practices Act, exposure to local economic conditions, potential adverse changes in the political or economic relation of foreign countries with the United States, withholding and restrictions on taxes and fluctuations in foreign currency exchange rates. Diamond is and may in the future be subject to litigation in foreign jurisdictions.
In Mexico, the developer of certain of Diamond’s resorts have agreed to requirements that they consider themselves as Mexican nationals with respect to certain property and agree to not invoke the protection of their governments in matters relating to the property. Generally, rules in Mexico limit ownership of land near Mexico’s borders and beaches to Mexican citizens and companies, unless granted the right by the Mexican government. If the developer of Diamond’s resort in Mexico fails to comply with the agreement with the Mexican government, it would forfeit the land back to Mexico.
We do not currently have operations in several of the non-US jurisdictions in which Diamond operates and may lack knowledge or familiarity with the rules and regulations, as well as experience and resources, related to operating such business in these countries.

Interests in Diamond’s resorts are offered through a trust system, which is subject to a number of regulatory and other requirements.
The Diamond Collections located in the United States are alternatives to traditional deeded timeshare ownership, inasmuch as they create a network of available resort accommodations at multiple locations. For those United States-based Diamond Collections, title to the units available through the Diamond Collections is held in a trust or similar arrangement that is administered by an independent trustee (the “Collection Trustee”). A purchaser of a timeshare interest in a Collection does not receive a deeded interest in any specific resort or resort accommodation, but acquires a membership in the timeshare plan which is denominated by an annual or biennial allotment of points. Owners of Diamond’s timeshare interests are allowed to use their allocated points to reserve accommodations at the various component site(s)/participating resort(s) within the Diamond Collections, thereby giving the members greater flexibility to plan their vacations. Owners may also elect to reserve accommodations at resorts that are not part of their Collection through Diamond’s exchange programs.
The Diamond Collections are registered pursuant to, exempted from, or otherwise in compliance with, the applicable statutory requirements for the sale of timeshare plans in a growing number of jurisdictions. Such registrations and formal exemption determinations for the Diamond Collections confirm the substantial compliance with the filing and disclosure requirements of the respective timeshare statutes by the developer of the applicable Diamond Collection. It does not constitute the endorsement of the creation, sale, promotion or operation of the Diamond Collections by any regulatory body nor relieve the developer of a Diamond Collection or any affiliates of such developer of any duty or responsibility under other statutes or any other applicable laws. Registration under a respective timeshare act (or other applicable law) is not a guarantee or assurance of compliance with applicable law nor an assurance or guarantee of how any judicial body may interpret the Diamond Collections’ compliance therewith. A determination that specific provisions or operations of the Collections do not comply with relevant timeshare acts or applicable law may have a material adverse effect on the developer, the Collection Trustee and the related non-profit members association for each of the Diamond Collections.
Increased activity by third-party exit companies on Diamond and its owners may cause distractions and adversely impact our integration.
Diamond and other timeshare companies continue to be significantly targeted by organized activities of third parties that actively pursue timeshare owners claiming to provide timeshare interest transfers and/or “exit” services. Any increases in the level of participation by the Diamond owners in response to such overtures and/or delinquencies or defaults with respect to the timeshare loans owed by such owners may disrupt Diamond’s business, affect cash flow from collections on the timeshare loans, and generally adversely affect our integration plans of Diamond. In addition, exit companies may target HGV owners to a greater extent than they already do in light of the proposed Merger with Diamond.
Risks Related to Our Relationship with Hilton
Our future results may suffer if Hilton seeks to modify or terminate the A&R Hilton license agreement.
We are a party to a license agreement with Hilton under which we license substantially all of the trademarks, brand names and intellectual property used in our business. The A&R Hilton license agreement also permits us to utilize the Hilton Honors program, which is a valuable asset for lead generation. These assets are critical to our business and the modification or amendment the A&R Hilton license agreement or any exercise by Hilton of its termination or other rights under the A&R Hilton license agreement will materially impact our business. The termination or amendment of the A&R Hilton license agreement in whole or in part could result in the loss of the right of HGV to use the Hilton brands in our business as currently conducted as well as in connection with our post-combination business, and in related services offered by Hilton, including marketing channels and guest loyalty programs. The loss of such rights will materially harm our business and results of operations and impair our ability to market and sell our VOI products and maintain our competitive position, and will have a material adverse effect on our financial position, results of operations or cash flows. Further, it is likely to be very challenging for us to find or develop a comparable replacement for the Hilton brand and the A&R Hilton license agreement. In addition, we may incur liabilities if any such termination results from our alleged breach of the A&R Hilton license agreement.

If the A&R Hilton license agreement is terminated, we may lose our rights to certain brands developed by us in connection with the integration of the Diamond business.
Pursuant to the A&R Hilton license agreement, Hilton would be the sole owner of certain licensed marks related to new brands associated with the Diamond portfolio that are developed by us in connection with our post-combination business. If, following the completion of the Merger, we default under the A&R Hilton license agreement, we could lose the right to use one or more of such new brands. The loss of these rights and/or certain other related rights could materially adversely affect our ability to generate revenue and profits from the vacation ownership business associated with the Diamond portfolio. The termination of the A&R Hilton license agreement following completion of the Merger would materially harm our combined business and results of operations and impair our ability to market and sell our products and maintain our competitive position.
Our ability to integrate the Diamond business and otherwise expand our business and remain competitive could be harmed if Hilton does not consent to the use of their trademarks in connection with the conversion of Diamond properties and/or new resorts that we may acquire or develop in the future.
Under the terms of the A&R Hilton license agreement, we must obtain Hilton’s approval to use the Hilton brand names and trademarks in connection with the conversion of the Diamond properties to branded properties using the Hilton marks, as well as for the branding of timeshare properties that we acquire or develop in the future. If Hilton does not permit us to use its trademarks in connection with such conversion and integration, or our future development or acquisition plans, or if we cannot come to an agreement with Hilton on how to brand and operate Diamond properties that are not approved by Hilton, our ability to successfully integrate Diamond and otherwise expand our business and remain competitive may be materially adversely affected. The requirement to obtain approval for such conversion and integration of Diamond properties and any future expansion plans, or the need to identify and secure alternative solutions because we cannot obtain such approval, may delay implementation of our integration and/or expansion plans or cause us to incur additional expense related to the branding of our properties.
Our ability to integrate the Diamond business depends on our compliance with the A&R Hilton license agreement, including the “Separate Operations” provisions and certain prohibitions on doing business with competitors. While the parties intend to provide some revisions to the applicable requirements, strict compliance with such provisions will negatively impact the synergies and efficiencies related to the Diamond acquisition.
For now, we have agreed with Hilton to operate the Diamond business as a “Separate Operation” under the A&R Hilton license agreement. Complying with that requirement can be costly and difficult and will likely significantly diminish the efficiencies and synergies that are critical to our successful integration of the Diamond business. In addition, the A&R Hilton license agreement requires Hilton’s approval in connection with our anticipated conversion of the Diamond properties into our branded properties and/or Hilton Vacation Club or another new brand of properties, and the creation of any such new brand also requires Hilton’s consent. While we and Hilton have agreed to modify the Separate Operations requirements, with such modifications to be made in Hilton’s sole discretion, so as to allow us to achieve greater operating efficiency and synergy than currently provided for, any failure of the parties to do so will adversely impact such operating efficiency and synergy. In addition, any failure to obtain Hilton’s approval with respect to the creation of any new brand or the conversion of the Diamond properties into such new brand or existing branded properties will significantly harm our ability to integrate the Diamond business and its properties. If we cannot come to an agreement with Hilton on how to brand and operate Diamond properties that do not currently or will not in the future meet the Hilton brand standards, then we will be required to continue to operate them as separate operations.
In addition, the A&R Hilton license agreement contains a number of prohibitions on us entering into certain agreements and arrangements with competitors of Hilton. As a result of the Merger, we will assume Diamond’s contracts with third parties, a number which are with competitors of Hilton and are prohibited under the A&R Hilton license agreement. The A&R Hilton license agreement provides for a cure period for agreements or arrangements related to the Diamond business that would result in a violation or breach of provisions in the A&R Hilton license agreement. However, to the extent we are not able to terminate such agreements within the cure period or we are unable to obtain a waiver from Hilton, we may breach the A&R Hilton license agreement.

Item 2.
Unregistered Sales of ~~Equi~~tyEquity Securities and Use of Proceeds
None.
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5.
Other Information
None.

Item 6.
E~~xhibits~~Exhibits

Exhibit
No.

Description

2.1
Agreement and Plan of Merger, dated as of March 10, 2021, by and among Hilton Grand Vacations Inc., Hilton Grand Vacations Borrower LLC, Dakota Holdings, Inc., and certain stockholders named therein (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37794) filed on March 11, 2021).**
3.1

Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the ~~Company’s~~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 ~~Company’s~~Registrant’s Current Report on Form 8-K (File No. 001-37794) filed on March 17, 2017).
3.3
Certificate of Designation of Series A Junior Participating Preferred Stock of Hilton Grand Vacations Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37794) filed on April 16, 2020).

10.1

~~Amended and Restate Limited Liability Company Agreement of BRE Ace LLC, a Delaware limited liability company,~~Commitment Letter, dated as of ~~July 18, 2017~~March 10, 2021, by and among Hilton Grand Vacations Borrower LLC, Bank of America, N.A, BofA Securities, Inc., Deutsche Bank Securities Inc., Deutsche Bank AG Cayman Islands Branch and Barclays Bank PLC (incorporated by reference to Exhibit 10.1 to ~~Hilton Grand Vacation Inc.’s~~the Registrant’s Current Report on Form 8-K (File No. 001-37794) filed on ~~July 21, 2017)~~March 11, 2021).

~~11.1~~10.2

~~Statement regarding computation~~Amended and Restated License Agreement, dated as of ~~earnings per share. See condensed consolidated statements of operations~~March 10, 2021, by and between Hilton Worldwide Holdings Inc. and Hilton Grand Vacations Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on ~~page 3 of this~~ Form ~~10-Q.~~8-K (File No. 001-37794) filed on March 11, 2021).
10.3
Form of Performance and Service-Based Restricted Stock Unit Agreement (for all executive officers other than Mr. Wang)(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37794) filed on March 24, 2021). +
10.4
Form of Performance and Service-Based Restricted Stock Unit Agreement (for Mr. Wang)(incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-37794) filed on March 24, 2021). +
10.5
Separation, Waiver and Release Agreement, dated March 19, 2021, between Sherri Silver and Hilton Grand Vacations Inc.* +
10.6
Amendment No. 4 to the Credit Agreement, dated as of March 19, 2021, among Hilton Grand Vacations Parent LLC, Hilton Grand Vacations Borrower LLC, as borrower, Hilton Grand Vacations Inc., the guarantors party thereto, the lenders party thereto and Bank of America, N.A. as administrative agent, collateral agent, swing line lender and L/C issuer thereunder (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37794) filed on March 25, 2021).
10.7
Amendment No. 17 to Receivables Loan Agreement, effective as of December 18, 2020, by and among Hilton Grand Vacations Trust I LLC, as borrower, the financial institutions signatory thereto as managing agents, the financial institutions signatory thereto as conduit lenders, the financial institutions signatory thereto as committed lenders and Bank of America, N.A., as administrative agent.*
10.8
Amendment No. 18 to Receivables Loan Agreement, effective as of March 22, 2021, by and among Hilton Grand Vacations Trust I LLC, as borrower, the financial institutions signatory thereto as managing agents, the financial institutions signatory thereto as conduit lenders, the financial institutions signatory thereto as committed lenders and Bank of America, N.A., as administrative agent.*
22
List of Issuer Subsidiaries of Guaranteed Securities and Guarantor Subsidiaries(incorporated by reference to Exhibit 22 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-37794) filed on July 30, 2020).

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. *

Exhibit
No.
Description

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

Inline XBRL Instance ~~Document.~~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

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Calculation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

Inline XBRL Taxonomy Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Presentation Linkbase Document.

104

The cover page for the Company’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101

*
~~Denotes management contract or compensatory plan or~~Filed herewith.
**
Pursuant to Item 601(b)(2) of Regulation S-K, certain schedules have been omitted. HGV agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request.
+
Compensatory arrangement.

~~SIGNATURES~~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 229^ndth day of ~~November, 2017.~~April 2021.

HILTON GRAND VACATIONS INC.

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

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

55

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)

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


Large Accelerated Filer	☐☒	Accelerated Filer	☐

Non-Accelerated Filer	☒ ~~(Do not check if a smaller reporting company)~~☐	Smaller Reporting Company	☐

Emerging Growth Company	☐

	September 30, 2017									March 31, 2021
($ in millions)	Securitized and Pledged			Unsecuritized			Total			Securitized			Unsecuritized⁽¹⁾			Total
Timeshare financing receivables	$	506		$	687		$	1,193		$	730		$	417		$	1,147
Less: allowance for loan loss		(29	)		(109	)		(138	)
Less: allowance for financing receivables losses											(54	)		(153	)		(207	)
	$	477		$	578		$	1,055		$	676		$	264		$	940

PART I - FINANCIAL INFORMATION

Item 1.		Financial Statements	2
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	1925
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	3341
Item 4.		Controls and Procedures	3442

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings		3543
Item 1A.	Risk Factors		3543
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		3752
Item 3.	Defaults Upon Senior Securities		3752
Item 4.	Mine Safety Disclosures		3752
Item 5.	Other Information		3752
Item 6.	Exhibits		3853
	Signatures		55

	September 30,		December 31,		March 31,		December 31,
	2017		2016		2021		2020
	(unaudited)				(unaudited)
ASSETS
Cash and cash equivalents	$	226	$	48	$	400	$	428
Restricted cash		58		103		105		98
Accounts receivable, net of allowance for doubtful accounts of $10 and $6		104		123
Accounts receivable, net of allowance for doubtful accounts of $17 and $20						111		119
Timeshare financing receivables, net		1,055		1,025		940		974
Inventory		475		513		720		702
Property and equipment, net		266		256		501		501
Investment in unconsolidated affiliate		41		—
Operating lease right-of-use assets, net						48		52
Investments in unconsolidated affiliates						53		51
Intangible assets, net		72		70		80		81
Land and infrastructure held for sale						41		41
Other assets		51		42		115		87
TOTAL ASSETS (variable interest entities - $500 and $258)	$	2,348	$	2,180
TOTAL ASSETS (variable interest entities - $733 and $800)					$	3,114	$	3,134
LIABILITIES AND EQUITY
Liabilities:
Accounts payable, accrued expenses and other	$	324	$	231	$	260	$	252
Advanced deposits		102		103		114		117
Debt		484		490
Non-recourse debt		612		694
Debt, net						1,156		1,159
Non-recourse debt, net						698		766
Operating lease liabilities						63		67
Deferred revenues		119		106		336		262
Deferred income tax liabilities		374		389		118		137
Total liabilities (variable interest entities - $484 and $245)		2,015		2,013
Commitments and contingencies - see Note 15
Total liabilities (variable interest entities - $703 and $771)						2,745		2,760
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, 2017 and December 31, 2016		—		—
Common stock, $0.01 par value; 3,000,000,000 authorized shares, 99,088,973 issued and outstanding as of September 30, 2017 and 98,802,597 issued and outstanding as of December 31, 2016		1		1
Preferred stock, $0.01 par value; 300,000,000 authorized shares, NaN issued or outstanding as of March 31, 2021 and December 31, 2020						—		—
Common stock, $0.01 par value; 3,000,000,000 authorized shares, 85,537,477 shares issued and outstanding as of March 31, 2021 and 85,205,012 shares issued and outstanding as of December 31, 2020						1		1
Additional paid-in capital		160		138		194		192
Accumulated retained earnings		172		28		174		181
Total equity		333		167		369		374
TOTAL LIABILITIES AND EQUITY	$	2,348	$	2,180	$	3,114	$	3,134

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues
Sales of VOIs, net	$	145		$	130		$	406		$	359
Sales, marketing, brand and other fees		127			136			401			382
Financing		38			34			109			100
Resort and club management		37			33			108			98
Rental and ancillary services		45			41			138			135
Cost reimbursements		34			33			102			94
Total revenues		426			407			1,264			1,168
Expenses
Cost of VOI sales		40			44			107			110
Sales and marketing		171			157			492			443
Financing		11			8			32			24
Resort and club management		12			9			32			25
Rental and ancillary services		30			30			88			86
General and administrative		23			24			75			61
Depreciation and amortization		7			6			21			17
License fee expense		22			22			65			61
Cost reimbursements		34			33			102			94
Total operating expenses		350			333			1,014			921
Gain on foreign currency transactions		1			1			1			2
Allocated Parent interest expense		—			(7	)		—			(20	)
Interest expense		(7	)		—			(21	)		—
Equity in earnings from unconsolidated affiliate		1			—			1			—
Other loss, net		—			—			—			(1	)
Income before income taxes		71			68			231			228
Income tax expense		(28	)		(33	)		(87	)		(98	)
Net income	$	43		$	35		$	144		$	130
Earnings per share:⁽¹⁾
Basic	$	0.43		$	0.35		$	1.45		$	1.31
Diluted	$	0.43		$	0.35		$	1.44		$	1.31

	Three Months Ended March 31,
	2021			2020
Revenues
Sales of VOIs, net	$	33		$	56
Sales, marketing, brand and other fees		53			106
Financing		37			44
Resort and club management		45			44
Rental and ancillary services		32			52
Cost reimbursements		35			49
Total revenues		235			351
Expenses
Cost of VOI sales		3			14
Sales and marketing		82			157
Financing		13			13
Resort and club management		8			12
Rental and ancillary services		31			37
General and administrative		36			21
Depreciation and amortization		11			12
License fee expense		14			22
Impairment expense		1			—
Cost reimbursements		35			49
Total operating expenses		234			337
Interest expense		(15	)		(10	)
Equity in earnings from unconsolidated affiliates		2			3
Other (loss) gain, net		(1	)		2
(Loss) income before income taxes		(13	)		9
Income tax benefit (expense)		6			(1	)
Net (loss) income	$	(7	)	$	8
(Loss) earnings per share:
Basic	$	(0.08	)	$	0.09
Diluted	$	(0.08	)	$	0.09


					Additional		Accumulated
	Common Stock				Paid-in		Retained		Total
	Shares		Amount		Capital		Earnings		Equity
Balance as of December 31, 2016		99	$	1	$	138	$	28	$	167
Net income		—		—		—		144		144
Deferred intercompany transaction ⁽¹⁾		—		—		9		—		9
Activity related to share-based compensation		—		—		11		—		11
Other		—		—		2		—		2
Balance as of September 30, 2017		99	$	1	$	160	$	172	$	333

($ in millions)	Remaining Transaction Price		Recognition Period	Recognition Method
Advanced deposits	$	114	18 months	Upon customer stays
Club activation fees		62	7 years	Straight-line basis over average inventory holding period
Club Bonus Points		41	24 months	Upon redemption

($ in millions)	March 31, 2021
Fee-for-service commissions⁽¹⁾	$	22
Real estate and financing	12
Resort and club operations	27
Tax receivables	41
Other receivables⁽²⁾		9
Total	$	111

($ in millions)	March 31, 2021
Balance as of December 31, 2020	$	18
Current period provision for expected credit losses	1
Write-offs charged against the allowance		(5	)
Balance as of March 31, 2021	$	14

	December 31, 2016									December 31, 2020
($ in millions)	Securitized and Pledged			Unsecuritized			Total			Securitized			Unsecuritized⁽¹⁾			Total
Timeshare financing receivables	$	253		$	892		$	1,145		$	805		$	380		$	1,185
Less: allowance for loan loss		(9	)		(111	)		(120	)
Less: allowance for financing receivables losses											(63	)		(148	)		(211	)
	$	244		$	781		$	1,025		$	742		$	232		$	974

	September 30, 2016
($ in millions)	Securitized and Pledged			Unsecuritized			Total
Balance as of December 31, 2015	$	17		$	89		$	106
Write-offs		—			(27	)		(27	)
Provision for loan loss⁽¹⁾		(6	)		43			37
Balance as of September 30, 2016	$	11		$	105		$	116

	March 31, 2020
($ in millions)	Securitized			Unsecuritized			Total
Balance as of December 31, 2019	$	54		$	130		$	184
Provision for financing receivables losses⁽¹⁾		(6	)		43			37
Write-offs		—			(9	)		(9	)
Balance as of March 31, 2020	$	48		$	164		$	212

	Three Months Ended September 30,				Nine Months Ended September 30,				March 31,			December 31,
($ in millions)	2017		2016		2017		2016		2021			2020
Cost of VOI sales related to fee-for-service upgrades	$	8	$	18	$	28	$	42
Land									$	108		$	109
Building and leasehold improvements										250			250
Furniture and equipment										62			65
Construction in progress										216			208
										636			632
Accumulated depreciation										(135	)		(131	)
									$	501		$	501

($ in millions)	Debt		Non-recourse Debt		Total
Year
2017 (remaining)	$	3	$	30	$	33
2018		10		134		144
2019		10		228		238
2020		10		120		130
2021		160		32		192
Thereafter		300		74		374
	$	493	$	618	$	1,111

	September 30, 2017
			Hierarchy Level
($ in millions)	Carrying Amount		Level 1		Level 3
Assets:
Timeshare financing receivables⁽¹⁾	$	1,055	$	—	$	1,394
Liabilities:
Debt⁽²⁾		484		329		197
Non-recourse debt⁽²⁾		612		—		617

	Hierarchy Level
($ in millions)	Level 2		Level 3
Land held for sale	$	47	$	—
Infrastructure held for sale		—		5

($ in millions)	Operating Leases
Year
2021 (remaining)	$	12
2022		13
2023		13
2024		11
2025		11
Thereafter		11
Total future minimum lease payments	$	71
Less: imputed interest		(8	)
Present value of lease liabilities	$	63

Expected volatility⁽¹⁾	~~26.3~~34.2	%
Dividend yield⁽²⁾	—0	%
Risk-free rate⁽³⁾	~~2.3~~1.1	%
Expected term (in years)⁽⁴⁾	6.0

($ in millions)	2021 (remaining)		2022		2023		2024		2025		Thereafter		Total
Inventory purchase obligations	$	226	$	114	$	58	$	40	$	3	$	12	$	453
Other commitments⁽¹⁾		9		2		—		—		—		—		11
Total	$	235	$	116	$	58	$	40	$	3	$	12	$	464