hgv-10q_20170930.htm

(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 was 99,088,973.

	September 30,		December 31,
	2017		2016
	(unaudited)
ASSETS
Cash and cash equivalents	$	226	$	48
Restricted cash		58		103
Accounts receivable, net of allowance for doubtful accounts of $10 and $6		104		123
Timeshare financing receivables, net		1,055		1,025
Inventory		475		513
Property and equipment, net		266		256
Investment in unconsolidated affiliate		41		—
Intangible assets, net		72		70
Other assets		51		42
TOTAL ASSETS (variable interest entities - $500 and $258)	$	2,348	$	2,180
LIABILITIES AND EQUITY
Liabilities:
Accounts payable, accrued expenses and other	$	324	$	231
Advanced deposits		102		103
Debt		484		490
Non-recourse debt		612		694
Deferred revenues		119		106
Deferred income tax liabilities		374		389
Total liabilities (variable interest entities - $484 and $245)		2,015		2,013
Commitments and contingencies - see Note 15
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
Additional paid-in capital		160		138
Accumulated retained earnings		172		28
Total equity		333		167
TOTAL LIABILITIES AND EQUITY	$	2,348	$	2,180

	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

	Nine Months Ended September 30,
	2017			2016
Operating Activities
Net income	$	144		$	130
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		21			17
Amortization of deferred financing costs and other		4			3
Provision for loan losses		45			37
Other loss, net		—			1
Gain on foreign currency transactions		(1	)		(2	)
Share-based compensation		13			—
Deferred income (benefit) taxes		(5	)		12
Equity in earnings from unconsolidated affiliate		(1	)		—
Net changes in assets and liabilities:
Accounts receivables, net		19			(28	)
Timeshare financing receivables, net		(75	)		(52	)
Inventory		38			(10	)
Other assets		(11	)		(7	)
Accounts payable, accrued expenses and other		96			17
Advanced deposits		(1	)		6
Deferred revenues		13			10
Other		—			(1	)
Net cash provided by operating activities		299			133
Investing Activities
Capital expenditures for property and equipment		(25	)		(16	)
Software capitalization costs		(12	)		(5	)
Investment in unconsolidated affiliate		(40	)		—
Net cash used in investing activities		(77	)		(21	)
Financing Activities
Issuance of non-recourse debt		350			—
Repayment of non-recourse debt		(428	)		(85	)
Repayment of debt		(7	)		—
Debt issuance costs		(5	)		(6	)
Allocated Parent debt activity		—			111
Net transfers to Parent		—			(114	)
Proceeds from stock option exercises		1			—
Net cash used in financing activities		(89	)		(94	)
Net increase in cash, cash equivalents and restricted cash		133			18
Cash, cash equivalents and restricted cash, beginning of period		151			79
Cash, cash equivalents and restricted cash, end of period	$	284		$	97


					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

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; and managing our points-based Hilton Grand Vacations Club exchange program (the “Club”). As of September 30, 2017, we had 48 timeshare properties, comprised of 8,101 units, located in the United States (“U.S.”) and Europe.

The unaudited condensed consolidated financial statements presented herein include 100 percent of our assets, liabilities, revenues, expenses and cash flows and all entities in which we have a controlling financial interest. Through the date of the spin-off, the unaudited condensed consolidated financial statements presented herein were prepared on a stand-alone basis and were derived from the unaudited consolidated financial statements and accounting records of Hilton.

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, included in our Annual Report on Form 10-K filed with the SEC on March 2, 2017.

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 of the interim periods. All material intercompany transactions and balances have been eliminated in consolidation.

We review our estimate of the expected redemption of expired prepaid discounted vacation packages (“packages”) on an ongoing basis. We only reduce the liability for expired packages when a package is redeemed or the likelihood of redemption is remote. This review considers factors such as historical experience, current business practices for pursuing individuals to redeem

expired packages and the sufficiency and reliability of data available following a change in those redemption 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 in the second quarter of 2017, we determined we then had sufficiently reliable updated information under current business practices to revise our estimate of expired packages that we expect to redeem. As a result during the second quarter of 2017, we changed our accounting estimate for expected redemptions of expired packages to relieve a portion of the remaining liability post expiration and recorded an $11 million reduction to the Advanced Deposits liability, with corresponding increases to Sales, marketing, brand and other fees revenue of $10 million 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 Accounting Standards Update (“ASU”) No. 2016-09 (“ASU 2016-09”), Compensation - Stock Compensation (Topic 718): Improvements 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 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 to the employee’s maximum individual tax rate without resulting in liability classification of the award, permitting entities 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. The adoption of ASU 2016-18 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 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”), Revenue from Contracts with Customers (Topic 606). This ASU supersedes the revenue recognition requirements in Revenue Recognition (Topic 605), and requires entities to recognize revenue

in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange 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 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 once our quantitative evaluation is complete and we commence quantifying the expected impacts later this year.

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

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 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 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 of $450 million. As of September 30, 2017 and December 31, 2016, we had $143 million and $509 million, respectively, of gross timeshare financing receivables securing the Timeshare Facility. We recognize interest income on our timeshare financing receivables as earned. We record an estimate of uncollectibility 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 of approximately $357 million of gross timeshare financing receivables and issued approximately $291 million of 2.66 percent notes and approximately $59 million 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.

($ in millions)	Securitized and Pledged			Unsecuritized			Total
Year
2017 (remaining)	$	19		$	28		$	47
2018		76			56			132
2019		75			60			135
2020		72			65			137
2021		67			70			137
Thereafter		197			408			605
		506			687			1,193
Less: allowance for loan loss		(29	)		(109	)		(138	)
	$	477		$	578		$	1,055

We evaluate this portfolio collectively, since we hold a large group of homogeneous timeshare financing receivables, which are individually immaterial. We monitor the credit quality of our receivables on an ongoing basis. There are no significant concentrations of credit risk with any individual counterparty or groups of counterparties. We use a technique referred to as static pool analysis as the basis for determining our loan loss reserve requirements 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.

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

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

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

We benefited from $4 million in costs of sales true-ups relating to VOI products for the nine months ended September 30, 2017, which resulted in a $4 million increase 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 are expenses incurred, recorded in Cost of VOI sales, related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects.

As of September 30, 2017 and December 31, 2016, we consolidated three and two variable interest entities (“VIEs”), respectively, that issued Securitized 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 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 months ended September 30, 2017 and 2016, we did not provide any financial or other support to any VIEs that we were not previously contractually required to provide, nor do we intend to provide such support in the future.

On July 18, 2017, 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 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. Our investment interest in and equity earned from BRE Ace LLC are included in the condensed consolidated balance sheets as Investment in unconsolidated affiliate and in the condensed consolidated statements of operations as Equity in earnings from unconsolidated affiliate, respectively.

BRE Ace LLC had debt of $207 million and non-recourse debt of $235 million as of September 30, 2017. The debt and non-recourse debt are secured by its assets and are without recourse to us. Our maximum exposure to loss as a result of our investment interest in BRE Ace LLC is primarily limited to the carrying amount of the investment which totals $41 million as of September 30, 2017, as well as receivables for commission and other fees earned under a fee-for-service arrangement. See Note 13: Related Party Transactions for additional information.

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

We were in compliance with all applicable financial covenants as of September 30, 2017.

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

The Timeshare Facility is a non-recourse obligation and is payable solely from the pool of timeshare financing receivables pledged as collateral and related assets.

In March 2017, 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 pledged as collateral to the debt.

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 million as of September 30, 2017 and December 31, 2016, 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 were as follows:

($ 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

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 based on prices in active debt markets. The estimated fair value of our Level 3 debt and non-recourse debt were 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 income or loss, which is subject to federal, foreign, state and local income taxes. The effective income tax rate for the nine months ended September 30, 2017 and 2016 was approximately 38 percent and 43 percent, respectively, which decreased primarily due to a decrease in cumulative installment sale interest liability.

The Company was a party to several intercompany asset transfers with Hilton prior to the spin-off. As required under U.S. tax regulations, the gain resulting from the intercompany transfer of these assets should be deferred 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 of the Company, which met the requirement of a recognition event. On the spin-off date, for the assets transferred, we recognized a stepped up tax basis, re-measured the asset by applying applicable tax rate changes and evaluated the realizability of the asset. This resulted in a reduction to our net deferred tax liability and an increase in our Additional paid-in capital of $9 million on our condensed consolidated balance sheet as of September 30, 2017.

We issue time-vesting restricted stock units (“RSUs”) and nonqualified stock 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. We recognized share-based compensation expense of $5 million and $2 million during the three months ended September 30, 2017 and 2016, respectively and $13 million and $7 million during the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, unrecognized compensation costs for unvested awards were approximately $13 million, which is expected to be recognized over a weighted average period of 2.0 years. As of September 30, 2017, there were 7,961,151 shares of common stock available for future issuance.

During the nine months ended September 30, 2017, we issued 530,674 RSUs with a weighted average grant date fair value of $29.15, 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.

During the nine months ended September 30, 2017, we issued 669,658 options with a grant date fair value of $8.66 and an exercise price of $28.30, 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, we had 169,926 options outstanding that were exercisable.

The following table presents the calculation of our basic and diluted 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 and 99,730,483, respectively and for the nine months ended September 30, 2017 is 98,916,894 and 99,530,534, respectively.

	Three Months Ended September 30,				Nine Months Ended September 30,
($ and shares outstanding in millions, except per share amounts)	2017		2016		2017		2016
Basic EPS:
Numerator:
Net Income⁽¹⁾	$	43	$	35	$	144	$	130
Denominator:
Weighted average shares outstanding		99		99		99		99
Basic EPS	$	0.43	$	0.35	$	1.45	$	1.31
Diluted EPS:
Numerator:
Net Income⁽¹⁾	$	43	$	35	$	144	$	130
Denominator:
Weighted average shares outstanding		100		99		100		99
Diluted EPS	$	0.43	$	0.35	$	1.44	$	1.31

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

For the nine months ended September 30, 2017, we excluded 224,783 share-based compensation awards 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 a 25 percent ownership interest in BRE Ace LLC. During the nine months ended September 30, 2017, we recorded $1 million in equity in earnings from unconsolidated affiliates, included in our condensed consolidated statements of operations. See Note 7: Investment in Unconsolidated Affiliate for additional information. In addition, we earn commissions and other fees related to a fee-for-service agreement to sell VOIs at Elara, by Hilton Grand Vacations. These amounts are summarized in the following table and included in our condensed consolidated statements of operations as of the date they became a related party.

Also related to the fee-for-service agreement, as of September 30, 2017 we have outstanding receivables of $29 million.

The performance of our operating segments is evaluated primarily based on adjusted earnings before interest expense, taxes, depreciation and amortization (“EBITDA”). We define Adjusted EBITDA as EBITDA which has been further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with: (i) asset dispositions; (ii) foreign currency transactions; (iii) debt restructurings/retirements; (iv) non-cash impairment losses; (v) reorganization costs, including severance and relocation costs; (vi) share-based and other compensation expenses; (vii) costs related to the spin-off; and (viii) other items. 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.

We do not include equity in earnings from unconsolidated affiliate in our measures of segment revenues. The following table presents revenues for our reportable segments reconciled to consolidated amounts:

	Three Months Ended September 30,						Nine Months Ended September 30,
($ in millions)	2017			2016			2017			2016
Revenues:
Real estate sales and financing⁽¹⁾	$	310		$	301		$	916		$	843
Resort operations and club management⁽²⁾		90			81			270			251
Total segment revenues		400			382			1,186			1,094
Cost reimbursements		34			33			102			94
Intersegment eliminations^(1)(2)(3)		(8	)		(8	)		(24	)		(20	)
Total revenues	$	426		$	407		$	1,264		$	1,168

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

	Three Months Ended September 30,						Nine Months Ended September 30,
($ in millions)	2017			2016			2017			2016
Adjusted EBITDA:
Real estate sales and financing⁽¹⁾	$	81		$	85		$	263		$	250
Resort operations and club management⁽¹⁾		50			42			153			139
Segment Adjusted EBITDA		131			127			416			389
General and administrative		(23	)		(24	)		(75	)		(61	)
Depreciation and amortization		(7	)		(6	)		(21	)		(17	)
License fee expense		(22	)		(22	)		(65	)		(61	)
Other loss, net		—			—			—			(1	)
Gain on foreign currency transactions		1			1			1			2
Allocated Parent interest expense⁽²⁾		—			(7	)		—			(20	)
Interest expense		(7	)		—			(21	)		—
Income tax expense		(28	)		(33	)		(87	)		(98	)
Equity in earnings from unconsolidated affiliate⁽³⁾		1			—			1			—
Other adjustment items		(3	)		(1	)		(5	)		(3	)
Net income	$	43		$	35		$	144		$	130

We have entered into certain arrangements with developers whereby we have committed 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, we were committed to purchase approximately $208 million of inventory and land over a period of five years. 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. During the nine months ended September 30, 2017 and 2016, we purchased $9 million and $11 million, respectively, of VOI inventory as required under our commitments. As of September 30, 2017, our remaining obligation pursuant to these arrangements was 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 legal matters where we believe an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made. 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, will not have a material effect on our condensed consolidated results of operations, financial position or cash flows.

On October 13, 2017, we acquired an 83-unit, ski-in mountain lodge 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.

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.

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 are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include, but are not limited to, statements related to our expectations regarding 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-historical statements. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words.

Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. You should not put undue reliance on any 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 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 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016 and in “Part II-Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 could cause our results to differ materially from those expressed in forward-looking statements. 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 to differ materially from those expressed in forward-looking statements. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

Except where the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Hilton Grand Vacations,” “HGV,” “the Company,” “we,” “us” and “our” refer to Hilton Grand Vacations Inc., together with its consolidated subsidiaries. Except where the context requires otherwise, references to our “properties” and “rooms” refer to the timeshare properties managed,

franchised, owned or leased by us. Of these properties and rooms, a portion are directly owned or leased by us or joint ventures in which we have an interest and the remaining properties and rooms are owned by third-party owners.

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 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”), Adjusted EBITDA and segment Adjusted EBITDA. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-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, we have 48 resorts, representing 8,101 units, which are located in iconic vacation destinations such as the Hawaiian Islands, New York City, Orlando and Las Vegas, and feature spacious, condominium-style accommodations with superior amenities and quality service. As of September 30, 2017, we have approximately 284,000 Hilton Grand Vacations Club (the “Club”) members. Club members have the flexibility to exchange their VOIs for stays at any Hilton Grand Vacations resort or any property in the Hilton system of 14 industry-leading brands across more than 5,000 properties, as well as numerous experiential vacation options, such as cruises and guided tours.

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

Our primary product is the marketing and selling of fee-simple VOIs deeded in perpetuity, developed either by us or by third parties. This ownership interest is an interest in real estate generally equivalent to one week annually at the timeshare resort where the VOI was purchased. Traditionally, timeshare operators have funded 100 percent of the investment necessary to acquire land and construct timeshare properties. In 2010, we began sourcing VOIs through fee-for-service and just-in-time agreements with third-party developers and have successfully transformed from a capital-intensive business to one that is highly capital-efficient. The fee-for-service agreements enable us to generate fees from the sales and marketing of the VOIs and Club memberships and from the management of the timeshare properties without requiring us to fund acquisition and construction costs. The just-in-time agreements enable us to source VOI inventory in a manner that allows us to correlate the timing of acquisition of the inventory 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 months ended September 30, 2017, sales from fee-for-service, just-in-time and developed inventory sources were 54 percent, 20 percent and 26 percent, respectively, of contract sales. See “-Real Estate Sales Metrics” for additional discussion of contract sales. Based on our trailing twelve months sales pace, we have access to approximately five years of future inventory, with capital efficient arrangements representing approximately 88 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 for members purchasing our developed and acquired inventory which generate interest income. Our loans 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 9 percent to 18 percent per annum.

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 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 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 cash deposits. For additional information see Note 4: 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.

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

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

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

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.

EBITDA, presented herein, is a financial measure that is not recognized under U.S. GAAP that reflects net income (loss), before interest expense, 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) asset dispositions; (ii) foreign currency transactions; (iii) debt restructurings/retirements; (iv) non-cash impairment losses; (v) reorganization costs, including severance and relocation costs; (vi) share-based and certain other compensation expenses; (vii) costs related to the spin-off; and (viii) other items.

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

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

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

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.

On July 18, 2017, we entered into an agreement with BRE Ace Holdings LLC, a Delaware limited liability company (“BRE Ace Holdings”), an affiliate of Blackstone and formed BRE Ace LLC. Pursuant to the agreement, we contributed $40 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 of our managed Florida properties were temporarily closed during the aftermath 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.

Three and Nine Months Ended September 30, 2017 Compared with the Three and Nine Months Ended September 30, 2016

We evaluate our business segment operating performance using segment Adjusted EBITDA, as described in Note 14: Business Segments in our unaudited condensed consolidated financial statements. We do not include equity in earnings from unconsolidated affiliate in our measures of segment revenues. For a discussion of our definition of EBITDA and Adjusted EBITDA, how management uses it to manage our business and material limitations on its usefulness, refer to “—Key Business and Financial Metrics and Terms Used by Management—EBITDA and Adjusted EBITDA.” The following table sets forth revenues and Adjusted EBITDA by segment, reconciled to consolidated amount, including net income, our most comparable U.S. GAAP financial measure:

	Three Months Ended September 30,						Variance					Nine Months Ended September 30,						Variance
($ in millions)	2017			2016			$		%			2017			2016			$			%
Revenues:
Real estate sales and financing	$	310		$	301		$	9		3.0	%	$	916		$	843		$	73			8.7	%
Resort operations and club management		90			81			9		11.1			270			251			19			7.6
Segment revenues		400			382			18		4.7			1,186			1,094			92			8.4
Cost reimbursements		34			33			1		3.0			102			94			8			8.5
Intersegment eliminations⁽¹⁾		(8	)		(8	)		—		—			(24	)		(20	)		(4	)		(20.0	)
Total revenues	$	426		$	407		$	19		4.7		$	1,264		$	1,168		$	96			8.2

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

	Three Months Ended September 30,						Variance						Nine Months Ended September 30,						Variance
($ in millions)	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 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

Real estate sales and financing segment revenues increase for the three months ended September 30, 2017, compared to the same period in 2016, primarily due to a $4 million increase in sales revenue, a $2 million increase in marketing revenue and a $4 million increased in financing revenues. The increase in sales revenue was primarily due to higher sales of VOIs, net, due to sales at our newly developed project beginning in the fourth quarter of 2016. The increase in marketing 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. Real estate sales and financing segment Adjusted EBITDA decreased by $4 million 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.

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 segment revenues increased for the three and nine months ended September 30, 2017, compared to the same periods in 2016, 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, in rental and ancillary services revenues as a result of higher transient room and club inventory rentals at our developed and fee-for-service properties. Resort operations and club management segment Adjusted EBITDA increased for the three and nine months ended September 30, 2017, compared to the same periods in 2016, primarily due to increases in revenues associated with the segment, partially offset by increases of $3 million and $9 million, respectively, in segment expenses.

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.

	Three Months Ended September 30,						Variance						Nine Months Ended September 30,						Variance
($ in millions, except Tour flow and VPG)	2017			2016			$			%			2017			2016			$			%
Sales of VOIs, net	$	145		$	130		$	15			11.5	%	$	406		$	359		$	47			13.1	%
Adjustments:
Fee-for-service sales⁽¹⁾		169			181			(12	)		(6.6	)		508			512			(4	)		(0.8	)
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
Tour flow		87,346			79,817			7,529			9.4			246,865			230,362			16,503			7.2
VPG	$	3,555		$	3,602		$	(47	)		(1.3	)	$	3,590		$	3,504		$	86			2.5

Contract sales increased for the three months ended September 30, 2017, compared to the same period in 2016, primarily due to an increase in tour flow which correlates to the increase in marketing expense. VPG 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.

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
($ in millions)	2017			2016			$			%			2017			2016			$			%
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
Less:
Marketing revenue and other fees		34			32			2			6.3			109			87			22			25.3
Sales revenue		238			234			4			1.7			698			654			44			6.7
Less:
Cost of VOI sales		40			44			(4	)		(9.1	)		107			110			(3	)		(2.7	)
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 revenue increased for the three months ended September 30, 2017, compared to the same period in 2016, primarily as a result of a $15 million increase in Sales of VOIs, net due to sales at our newly developed projects beginning in the fourth quarter of 2016, in Washington, DC 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 in contract sales volume and research and development costs to evaluate new markets.

Sales revenue increased for the nine months ended September 30, 2017, 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 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 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 in contract sales volume and research and development costs to evaluate new markets.

Real estate margin and real estate margin percentage decreased for the three months ended September 30, 2017, 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, compared to the same period 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.

	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.

	Three Months Ended September 30,						Variance					Nine Months Ended September 30,						Variance
($ in millions)	2017			2016			$		%			2017			2016			$		%
Club management revenue	$	22		$	21		$	1		4.8	%	$	63		$	60		$	3		5.0	%
Resort management revenue		15			12			3		25.0			45			38			7		18.4
Resort and club management revenues		37			33			4		12.1			108			98			10		10.2
Club management expense		7			5			2		40.0			18			15			3		20.0
Resort management expense		5			4			1		25.0			14			10			4		40.0
Resort and club management expenses		12			9			3		33.3			32			25			7		28.0
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 revenues increased for the three and nine months ended September 30, 2017, compared to the same periods in 2016, primarily due to (i) an increase 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 management 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, compared to the same periods in 2016, primarily due to the aforementioned increases in segment revenues, partially offset by an increase in segment expenses as a result of customer and company related initiatives. Resort and club management margin percentage decreased for the three and nine months ended September 30, 2017, compared to the same periods in 2016, primarily due to an increase in segment expenses as a result of customer and company related initiatives, partially offset by the aforementioned increases in segment revenues.

	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.

	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 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 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.

	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⁾

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 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 the cumulative installment sale interest liability.

Equity in earnings from unconsolidated affiliate relates to our 25 percent interest in BRE Ace LLC. See Note 7: Investment in unconsolidated affiliate in our unaudited condensed consolidated financial statements for additional information.

Prior to the fourth quarter of 2016, any net cash generated by our business has been transferred to Hilton, where it has been centrally managed. Transfers of cash to 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 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.

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 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, purchase commitments and costs associated with potential acquisitions and development projects.

We finance our business activities primarily with existing cash and cash equivalents, cash generated from our operations and through securitizations of our timeshare financing receivables. We believe that this cash will be adequate to meet anticipated requirements for operating expenses and other expenditures, including payroll and related benefits, legal costs and capital expenditures for the foreseeable future. The objectives of 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.

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

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, development of new phases of existing resorts and funding our working capital needs. Our cash flows from operations generally vary due to the following factors related to the sale of our VOIs: the degree to which our owners finance their purchase and our owners’ repayment of timeshare financing receivables; the timing of management and sales and marketing services provided; and cash outlays for VOI inventory acquisition and development. Additionally, cash flow from operations will also vary depending upon our sales mix of VOIs; over time, we generally receive more cash from the sale of an owned VOI as compared to that from a fee-for-service sale.

Net cash flows provided by operating activities increased by $166 million during the nine months ended September 30, 2017, compared to the same period in 2016, primarily as a result of improved operating results in the real estate sales and financing segment and increased sources of cash for 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 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.

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.

	Nine Months Ended September 30,						Variance
($ in millions)	2017			2016			$			%
Issuance of non-recourse debt	$	350		$	—		$	350		NM⁽¹⁾
Repayment of non-recourse debt		(428	)		(85	)		(343	)	NM⁽¹⁾
Repayment of debt		(7	)		—			(7	)	NM⁽¹⁾
Debt issuance costs		(5	)		(6	)		1			(16.7	)%
Allocated Parent debt activity		—			111			(111	)		(100.0	)
Net transfers to Parent⁽²⁾		—			(114	)		114			(100.0	)
Proceeds from stock option exercises		1			—			1		NM⁽¹⁾
Net cash used in financing activities	$	(89	)	$	(94	)	$	5			(5.3	)

The change in net cash used in financing activities for the nine months ended September 30, 2017, compared to the same period in 2016, 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 in debt issuance costs. The proceeds received from the non-recourse securitized debt were used to pay down a portion of 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.

The following table summarizes our significant contractual obligations as of September 30, 2017:

	Payments Due by Period
($ in millions)	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Debt⁽¹⁾	$	650	$	35	$	69	$	206	$	340
Non-recourse debt⁽¹⁾		652		147		348		100		57
Purchase commitments		208		3		196		9		—
Total contractual obligations	$	1,510	$	185	$	613	$	315	$	397

As of September 30, 2017, our contractual obligations relating to our operating leases have not materially changed from what was reported in our Annual Report on Form 10-K for the year ended December 31, 2016.

Our off-balance sheet arrangements as of September 30, 2017 consisted of $208 million of certain commitments with developers whereby we have committed to purchase vacation ownership units at a future date to be marketed and sold under the Hilton Grand Vacations brand. 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: Commitments and Contingencies in our unaudited condensed consolidated financial statements for a discussion of our off-balance sheet arrangements.

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

We are exposed to market risk from changes in interest rates, currency exchange rates and debt prices. 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.

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

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

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

The following table sets forth the contractual maturities, weighted average interest rates and the total fair values as of September 30, 2017, for our financial instruments that are materially affected by interest rate risk:

				Maturities by Period
($ in millions)	Weighted Average Interest Rate⁽¹⁾			2017		2018		2019		2020		2021		There- after		Total⁽²⁾		Fair Value
Assets:
Fixed-rate securitized timeshare financing receivables		11.901	%	$	19	$	76	$	75	$	72	$	67	$	197	$	506	$	595
Fixed-rate unsecuritized timeshare financing receivables		12.272	%		28		56		60		65		70		408		687		799
Liabilities:⁽³⁾
Fixed-rate debt		3.836	%		30		134		99		120		32		374		789		817
Variable-rate debt⁽⁴⁾		3.103	%		3		10		139		10		160		—		322		326

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

As of the end of the period covered by this Quarterly Report on Form 10-Q, we evaluated, 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 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 note 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 were effective and operating to provide reasonable assurance that we record, process, summarize and report the information we are required to disclose in the reports that we file or submit under the Exchange Act within the time periods specified in the rules and forms of the SEC, and to provide reasonable assurance that we accumulate and communicate such information to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions about required disclosure.

There were no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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 legal matters where we believe an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made. 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 will not have a material effect on our condensed consolidated results of operations, financial position or cash flows.

Set forth below are the material changes to the risk factors discussed in Item 1A of Part 1 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 from time to time) that negatively or disproportionately adversely affects either or both of these two properties, our revenues, our operating results and our financial performance could be materially adversely impacted.

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 2^nd day of November, 2017.

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)


Large Accelerated Filer	☐	Accelerated Filer	☐

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

Emerging Growth Company	☐

PART I - FINANCIAL INFORMATION

Item 1.		Financial Statements	2
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.		Controls and Procedures	34

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings		35
Item 1A.	Risk Factors		35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		37
Item 3.	Defaults Upon Senior Securities		37
Item 4.	Mine Safety Disclosures		37
Item 5.	Other Information		37
Item 6.	Exhibits		38
	Signatures

	December 31, 2016
($ in millions)	Securitized and Pledged		Unsecuritized		Total
Current	$	248	$	847	$	1,095
31 - 90 days past due		3		9		12
91 - 120 days past due		1		4		5
121 days and greater past due		1		32		33
	$	253	$	892	$	1,145

	September 30, 2017
($ in millions)	Securitized and Pledged			Unsecuritized			Total
Timeshare financing receivables	$	506		$	687		$	1,193
Less: allowance for loan loss		(29	)		(109	)		(138	)
	$	477		$	578		$	1,055

	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

	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

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

Exhibit No.		Description

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

10.1		Amended and Restate Limited Liability Company Agreement of BRE Ace LLC, a Delaware limited liability company, dated as of July 18, 2017 (incorporated by reference to Exhibit 10.1 to Hilton Grand Vacation Inc.’s Current Report on Form 8-K (File No. 001-37794) filed on July 21, 2017).

11.1		Statement regarding computation of earnings per share. See condensed consolidated statements of operations on page 3 of this Form 10-Q.

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

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

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

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

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		XBRL Taxonomy Label Linkbase Document.

101.PRE		XBRL Taxonomy Presentation Linkbase Document.


HILTON GRAND VACATIONS INC.

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


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