17 May 2018 Americas/United States Equity Research Travel & Leisure

Hilton Grand Vacations Inc. (HGV) Rating OUTPERFORM Price (15-May-18, US$) 38.87 INITIATION Target price (US$) 48.00 52-week price range (US$) 47.30 - 34.05 Market cap(US$ m) 3,763 Plenty of Time Left on This Vacation Enterprise value (US$ m) 4,234 Target price is for 12 months. ■ Outperform Rating: We are initiating coverage of Hilton Grand Vacations Research Analysts (HGV) with an Outperform rating and a $48 target price, implying 23% upside Cameron McKnight potential. HGV is a top-tier timeshare company, with a very concentrated model. 212 325 6608 [email protected] ■ Buying into Timeshare: We are positive on the improved industry structure, Ben Combes, CFA return profile, and strong growth prospects. We expect more consolidation 212 538 2383 and limited supply growth. We expect sales to benefit from strong consumer [email protected] confidence and the continued shift of consumer spend to travel and leisure. ■ The Debate: We point to strong growth prospects, lower volatility through the cycle, leading returns and cash conversion, long-term investment in new owners, recent underperformance, and an undemanding valuation. Bears argue HGV already has the best margins and efficiency ratios, additional investment will weigh on cash flow, the company is well liked, and it has already taken significant market share. ■ Growth Drivers: We expect a 19% EBITDA CAGR in 2017-19, versus 13% for the group. HGV is harvesting one of the industry’s largest inventory books and new owner bases – a significant source of future sales. HGV is also investing for 2021+; it has significant white space and opportunity for unit growth and a monopoly Japanese business that drives a unique sourcing channel versus peers. ■ Valuation: HGV currently trades at 8.3x 2019E EBITDA, below peers. Our $48 target price is based on 10x 2019E EBITDA, a slight premium to peers. ■ Key Risks: Sales and default rates are dependent on the U.S. consumer. Consumer financing income depends on favorable securitization markets. Florida, Hawaii, and Las Vegas concentration is a risk. Share price performance Financial and valuation metrics

5 0 Year 12/17A 12/18E 12/19E 12/20E EPS (CS adj.) (US$) 1.66 3.01 3.18 3.51 4 5 Prev. EPS (US$) - - - - 4 0 P/E (x) 23.4 12.9 12.2 11.1 3 5 P/E rel. (%) 111.9 74.1 77.4 77.5 3 0 Revenue (US$ m) 1,661.0 1,954.5 2,054.4 2,261.4 Ju l- 1 7 O ct - 1 7 Jan - 1 8 A p r - 1 8 EBITDA (US$ m) 362.0 497.2 515.7 560.4 OCFPS (US$) 3.59 -1.88 1.45 1.87 H GV.N S& P 5 0 0 IN D EX P/OCF (x) 11.7 -20.7 26.8 20.8 On 15-May-2018 the S&P 500 INDEX closed at 2711.45 EV/EBITDA (current) 11.5 8.4 8.1 7.4 Daily May15, 2017 - May15, 2018, 05/15/17 = US$36.14 Net debt (US$ m) 244 471 191 -130 ROIC (%) 46.13 40.20 31.97 27.56 Quarterly EPS Q1 Q2 Q3 Q4 2017A 0.48 0.43 0.41 0.34 Number of shares (m) 96.82 IC (current, US$ m) 762.00 2018E 0.30 1.19 0.67 0.86 BV/share (Next Qtr., US$) 4.7 EV/IC (x) 4.8 2019E 0.75 0.76 0.82 0.85 Net debt (Next Qtr., US$ m) 402.6 Dividend (current, US$) - Net debt/tot eq (Next Qtr.,%) 86.7 Source: Company data, Thomson Reuters, Credit Suisse estimates

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. 17 May 2018

Hilton Grand Vacations Inc. (HGV) Price (15 May 2018): US$38.87; Rating: OUTPERFORM; Target Price: 48.00; Analyst: Cameron McKnight Income Statement 12/17A 12/18E 12/19E 12/20E Company Background Revenue (US$ m) 1,661.0 1,954.5 2,054.4 2,261.4 Hilton Grand Vacations Inc. is a timeshare company that markets EBITDA 362 497 516 560 and sells vacation ownership intervals (VOIs), manages resorts in Depr. & amort. (27) (34) (28) (28) leisure and urban destinations, and operates a points-based EBIT (US$) 335 463 488 532 vacation club. Net interest exp (27) (28) (28) (28) PBT (US$) 305 430 452 496 Blue/Grey Sky Scenario Income taxes 15 (111) (117) (130) Profit after tax 320 319 334 367 Other NPAT adjustments 128 (1) (1) (1) Cash Flow 12/17A 12/18E 12/19E 12/20E Cash flow from operations 356 (187) 144 185 CAPEX (35) (50) (48) (48) Free cashflow to the firm 321 (237) 96 137 Cash flow from investments (87) (62) (64) (64) Net share issue(/repurchase) 0 (112) 0 0 Dividends paid 0 0 0 0 Cashflow from financing activities (61) 22 200 200 Changes in Net Cash/Debt 208 (227) 280 321 Balance Sheet (US$) 12/17A 12/18E 12/19E 12/20E Cash & cash equivalents 246 16 296 617 Account receivables 112 117 117 117 Other current assets 51 13 240 501 Total fixed assets 238 245 265 285 Investment securities - - - - Total assets 2,384 2,555 3,320 4,152 Total current liabilities 552 714 714 714 Shareholder equity 518 385 938 1,557 Total liabilities and equity 2,384 2,555 3,320 4,152 Net debt 244 471 191 (130) Per share 12/17A 12/18E 12/19E 12/20E Our Blue Sky Scenario (US$) 53.00 No. of shares (wtd avg) 99 99 99 99 11% higher 2018 and 2019 EBITDA from stronger organic sales CS adj. EPS 1.66 3.01 3.18 3.51 growth and slightly lower default rates if US consumer / travel spend Prev. EPS (US$) accelerates, and/or leads from Hilton and HGV's Japanese business Dividend (US$) 0.00 0.00 0.00 0.00 increase. Assuming no multiple expansion, with 10x EV/EBITDA Free cash flow per share 3.23 (2.39) 0.97 1.38 multiple on 2019E yields $53/sh Earnings 12/17A 12/18E 12/19E 12/20E Sales growth (%) 4.9 17.7 5.1 10.1 EBIT growth (%) (9.2) 38.3 5.3 9.2 Our Grey Sky Scenario (US$) 33.00 Net profit growth (%) (12.1) 81.0 5.4 10.3 2% and 15% lower 2018 and 2019 EBITDA from a mild consumer EPS growth (%) (12.3) 81.0 5.6 10.3 recession where sales growth decelerates in 18 and is down in 19; EBITDA margin (%) 21.8 25.4 25.1 24.8 and higher consumer loan defaults. 2019 EBITDA margins drop, EBIT margin (%) 20.2 23.7 23.7 23.5 with some offset from cost cuts. Assume multiple contraction from Pretax margin (%) 18.4 22.0 22.0 21.9 10x to 8.5x, yields $33/sh Net margin (%) 9.9 15.3 15.3 15.4 Share price performance Valuation 12/17A 12/18E 12/19E 12/20E EV/EBITDA (x) 11.5 8.4 8.1 7.4 P/E (x) 23.4 12.9 12.2 11.1 5 0 Returns 12/17A 12/18E 12/19E 12/20E 4 5 ROIC (%) 46.1 40.2 32.0 27.6 Gearing 12/17A 12/18E 12/19E 12/20E 4 0 Net debt/equity (%) 47.1 122.4 20.4 (8.3) 3 5 Quarterly EPS Q1 Q2 Q3 Q4 2017A 0.48 0.43 0.41 0.34 3 0 2018E 0.30 1.19 0.67 0.86 Ju l- 1 7 O ct - 1 7 Jan - 1 8 A p r - 1 8 2019E 0.75 0.76 0.82 0.85 H GV.N S& P 5 0 0 IN D EX

On 15-May-2018 the S&P 500 INDEX closed at 2711.45 Daily May15, 2017 - May15, 2018, 05/15/17 = US$36.14

Source: Company data, Thomson Reuters, Credit Suisse estimates

Hilton Grand Vacations Inc. (HGV)2 17 May 2018

Table of contents

Key Charts 4

Executive Summary 5

Business Description 7

Investment Highlights 11 1. Strong Growth Outlook...... 11 2. Strong Track Record ...... 14 3. Significant FCF Generation and Strong Returns...... 16 4. Specific, Tangible Catalysts ...... 18

Valuation and Target Price 19

Risks to Rating and Target Price 21

Company Financials 22

HOLT and PEER Analysis 24

Hilton Grand Vacations Inc. (HGV)3 17 May 2018

Key Charts

Figure 1: HGV vs Timeshare Industry Sales Figure 2: Comparable Sales Center Efficiency

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates. *8 of HGV’s Sales Centers are in Japan, 8 are in the US, VAC had 19 active sales centers in 2016.

Figure 3: Industry Leading CFROI® Figure 4: Leading Cash Conversion

Source: Company data, Credit Suisse estimates, CS HOLT® Source: Company data, Credit Suisse estimates

Figure 5: Inventory Sources & Economics Figure 6: Key Financials

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Hilton Grand Vacations Inc. (HGV)4 17 May 2018

Executive Summary Plenty of Time Left on This Vacation: We are initiating coverage of Hilton Grand Vacations (HGV) with an Outperform rating and a $48 target price (23% potential upside). HGV spun out of Hilton Worldwide (HLT) in January 2017. We are constructive on the timeshare business and HGV’s differentiated business model, leading returns, and multiple embedded growth drivers. HGV has recently underperformed its close peer and currently trades at a 0.6x discount. Our proprietary Credit Suisse HOLT valuation analysis implies the market is discounting a more bearish scenario than we expect. In our view, the stock price implies an overly bearish view on HGV’s reinvestment in projects and the stage of the economic cycle. Buying into Timeshare: We like the timeshare business, given industry consolidation, strong consumer confidence, the shift of consumer spending to travel and leisure, and its value proposition. While multiples have increased, we think there’s still room to move— valuations are not at peak levels, the industry is improving and still fragmented, companies benefit from tax reform, and macro conditions are supportive. The Debate: We point to strong growth prospects, with a differentiated business model and multiple levers; lower volatility through the cycle; leading returns and cash conversion; long-term investment in new owners; recent underperformance; and an undemanding valuation. Bears argue HGV is well liked, already has the best margins and efficiency ratios, that additional investment will weigh on near-term cash flow, and it has already more than doubled market share since 2009, making outperformance harder. Why We Like HGV: (1) Strong growth prospects and potential upside to estimates, with a unique business model and levers such as strong unit growth opportunities, its link to Hilton’s network, and its monopoly Japanese business; (2) less expected downside in a recession, with less sensitivity to consumer financing defaults and an inbuilt buffer from its new owner and inventory bank; and (3) high underlying cash conversion and CFROI® while trading at a below-average multiple. Strong Growth Prospects: HGV has historical investment it can harvest and is also reinvesting for growth. HGV has a significant and growing base of new owners, which are a strong source of future sales and important for medium-term sustainability, and a large, existing inventory base, at 4.7 years. HGV runs a concentrated model, with material white space in its network. Long-term guidance excludes unit growth. HGV has access to a lot of new inventory through its third-party development network and has some natural development opportunities at existing Hilton hotels. The monopoly Japanese business is a unique source of leads and customers. Investment in Growth Is a Positive: HGV’s stock is down 7% in 2018 to date (vs SPX +1.4%) on investor concerns around inventory spending and potentially from noise in 2018 estimates from new accounting standards. HGV announced almost $400mm of project spending for 2018, which took the Street by surprise and has prompted some investors to rotate out. In our view, reinvestment in new units is critical to future growth, and returns are likely higher than aggressively repurchasing stock. Moreover, we think HGV is prudently front-loading its development activity in case interest rates rise. Stock Is Discounting an Overly Bearish View on the Cycle: Intuitively, we think the stock is currently discounting the view that investment nine years into a recovery doesn’t make sense. With respect, “peak cycle” is a call we could have made in 2014, 2015, and 2016, and we believe that forward indicators for timeshare are strong and that consumer spending growth remains healthy in 2018. Lower Volatility Through the Cycle: Relative to peers, we think HGV should have high insulation in a downturn, with a significant bank of new owners and inventory to draw on, differentiated customer sources, and a concentrated marketing network, which should help

Hilton Grand Vacations Inc. (HGV)5 17 May 2018

margins. HGV’s average customer is relatively high income. Importantly, we estimate HGV has lower sensitivity to consumer default rates, given its smaller financing business. Leading Returns and Cash Generation: High returns and underlying cash conversion stem from its high margins, significant third-party inventory model, and management fees. HGV is expected to convert 5% of revenues and 25% of EBITDA to levered free cash flow in 2020. HGV’s 12.4% CFROI leads its close peers, given its different business model. However, our proprietary CS HOLT analysis suggests the market is discounting sector- average returns. Catalysts: We expect the stock to work as details on new growth projects are announced through the year and HGV continues to deliver strong reported results. Positive Risk-Reward: HGV currently trades at 8.3x 2019E EBITDA, below its closest peer. Our $48 target price is based on 10x 2019E EBITDA, a slight premium to peers, given HGV’s return and growth profile and unique drivers.

Hilton Grand Vacations Inc. (HGV)6 17 May 2018

Business Description HGV is a leading timeshare company with 48 resorts across the mainland U.S., Hawaii, Mexico, the Caribbean, and new investment in Asia. HGV has two core businesses – the selling and financing of timeshare purchases and resort management. HGV was a pioneer of capital-light, third-party resort development, which now represents 52% of its timeshare sales. ■ HGV has a high-quality customer base, with an average household income of $113,000, above the industry average of $90,000, and an average FICO score of 743. ■ HGV has carved out a discrete niche in the higher-end segment, with a very well established Japanese timeshare business. Of HGV’s owners, 20% are Japanese residents with interests in its Hawaii properties. ■ HGV has 100-year branding, marketing, and licensing agreement with Hilton Hotels (HLT) that is purely variable and gives HGV full access to HLT’s database and the 70mm sign-ups in Hilton’s loyalty program. HGV sources approximately 60% of its leads through the Hilton Hotels network. ■ Figure 7 shows HGV and its peers in terms of sales volume and the positioning of its resorts. Figure 8 compares key industry metrics.

Figure 7: HGV and Its Peers in Terms of Sales Volume and Resort Positioning

Chainscale 4 Luxury VAC 3 HGV

Upper ILG Upscale 2 WYN

Upscale 1 BXG

Upper Midscale 0 $0 $500 $1,000 $1,500 $2,000 $2,500 System Wide Sales (US$mm)

Source: Company data, Credit Suisse estimates.

Figure 8: Key Timeshare Industry Metrics

Timeshare Metrics WYN VAC HGV ILG BXG System Wide Sales (2017) 2143 803 1225 486 617 Capital Light Sales (% Fee Based) 3%* NA 56% NA 54%

Owners (k) 878 400 288 250 213 Units Managed (k) 25 14 8 7 7 Resorts Managed 221 65 48 43 48 Average Sales Transaction ($k) NA NA $25.0 $16.6 $13.7

Average FICO 727 743 741 713 724 Average Annual Default Rate 10.3% 3.6% 4.1% 4.5% 8.5%

Average Household Income ($k) NA $155 $113 $161 $77

Source: Company data, Credit Suisse estimates.

Hilton Grand Vacations Inc. (HGV)7 17 May 2018

■ Selling and financing timeshare is HGV’s largest earnings driver, at 72% of revenues and 63% of EBITDA. HGV sells interests in its 48 vacation properties, known as intervals. An interval is generally a week’s use of a given property. Intervals can be exchanged into points for use within HGV’s resort network. ■ HGV’s timeshare model is not a pure points model but a mix of real estate and points. HGV’s owners buy a specific week at a specific resort and have booking priority for that interval. The point value of that interval can be used to make bookings elsewhere in the HGV network, outside the owner’s home resort and week. ■ HGV was a pioneer of capital-light, third-party resort development, which now represents 52% of its timeshare sales. HGV has two main inventory sources, each with different economics, as shown in Figure 9.

Figure 9: HGV’s Inventory Sources and Economics Source % of Sales in 2016 Description Sales of VOIs on behalf of third party developers in return for Fee-For-Service 56% sales, marketing and brand fees. Typically commission fees are based as a percent of total sales. Inventory that is owned by the company, developed by a third Owned/Non-Fee 44% party for the company, or acquired through the secondary market.

Source: Company data, Credit Suisse estimates.

■ HGV has a material consumer financing business, which represents approximately 19% of EBITDA. Through this business, HGV funds consumers’ purchases of timeshare interests in its properties, except those developed by third-party developers. HGV earns an interest spread of roughly 8% on its consumer finance business, driven by the difference between the 11% it charges consumers and the 3% average rate at which it securitizes its receivables. ■ HGV’s resort management business operates 48 resorts, under three- to five-year contracts, with automatic renewal on an additional one- to three-year term. None of HGV’s contracts have ever failed to renew. It drives about 37% of total EBITDA, with 57% margins. This business is a source of growing and highly recurring revenues, with growth driven by meaningful growth in new owners in the HGV network. ■ Figure 10 lays out the Timeshare Ownership model and main revenue and expense items.

Hilton Grand Vacations Inc. (HGV)8 17 May 2018

Figure 10: Timeshare Ownership Model Timeshare Drivers (in Millions) 2016A 2017A 2018E 2019E 2020E Number of Tours 306,141 330,865 351,668 379,801 413,983 %y/y 8% 6% 8% 9% Volume Per Guest 3,596 3,657 3,800 3,895 4,011 %y/y 2% 4% 2% 3% Contract Sales 1,172 1,225 1,362 1,539 1,721 %y/y 5% 11% 13% 12% Sales of VOIs, Net (Owned) 508 498 746 809 916 Fee-For-Service 501 544 539 533 583 Financing 134 147 162 177 198 Resort & Club Management 316 337 364 375 388 Total Segment Revenues* 1459 1526 1810 1894 2085

Cost of Sales 152 132 231 220 251 % of Owned Sales 30% 27% 31% 27% 27% Sales & Marketing 489 541 591 646 723 % of Contract Sales 42% 44% 43% 42% 42% Fee-Based Marketing Fees 122 145 144 140 152 % of Fee-For-Service 24% 27% 27% 26% 26% Financing 32 43 42 47 53 % of Financing 24% 29% 26% 26% 27% Management Costs 151 165 167 171 176 % of Management 48% 49% 46% 46% 45% Total Segment Expenses 946 1,026 1,175 1,224 1,354

License Fee Expense 80 87 93 105 117 % of Revenues 5% 6% 5% 6% 6%

Adjusted EBITDA 393 362 497 516 560 % y/y -8% 37% 4% 9% % Margin 27% 24% 27% 27% 27% Source: Company data, Credit Suisse estimates.

■ System sales represents total sales across all inventory, driven by the number of property tours and sales per tour guest. Of sales, 52% generate pure commissions from selling inventory developed by third parties, and the remaining 48% of sales are in-house – product that HGV has developed itself, bought on the secondary market, or bought from a third-party developer just before completion. About 60% of in-house sales are financed by HGV. ■ The product is very sales and marketing intensive. Sales and marketing costs (including fee-based marketing expense) represent about 54% of timeshare sales. We estimate that not much of the costs are fixed, as most of it is spent on providing the tours, hotel stays, or salesforce compensation. ■ About 60% of sales are to new owners. This is material, as new owners are a source of growth for the important resort management business but also a future source of additional sales. We estimate selling costs for new owners are about 2.5x the cost of selling to an existing owner. ■ We're estimating 11% annualized revenue growth (excluding cost reimbursements) and 19% EBITDA growth over the next two years. Our summary estimates are laid out in Figure 11.

Hilton Grand Vacations Inc. (HGV)9 17 May 2018

Figure 11: Industry-High EBITDA Margin (In Millions) 2016A 2017A 2018E 2019E 2020E Vacation Ownership 1,009 1,042 1,284 1,342 1,499 Financing 134 147 162 177 198 Resort & Club Management 316 337 364 375 388 Cost Reimbursements 126 135 144 160 176 Total Revenue 1,585 1,661 1,954 2,054 2,261 %y/y * 5% 19% 5% 10%

Vacation Ownership 237 222 320 336 375 Financing 102 104 120 131 145 Resort & Club Management 189 205 229 236 244 Corporate & License Fee (135) (169) (172) (187) (203) Adjusted EBITDA 393 362 497 516 560 % y/y -8% 37% 4% 9% % Margin 27% 24% 27% 27% 27%

Source: Company data, Credit Suisse estimates.

Figure 12: Key Financials for HGV

(In Millions) 2016A 2017A 2018E 2019E 2017-19 CAGR Peer CAGR Revenue 1,585 1,661 1,954 2,054 11% 9% Adj. EBITDA 393 362 497 516 19% 13% Margin 27% 24% 27% 27% 350 bps 167 bps Adj. EPS $1.90 $1.66 $3.01 $3.18 38% 20%

Source: Company data, Credit Suisse estimates, * Margin CAGR represents Total Margin Expansion.

Hilton Grand Vacations Inc. (HGV) 10 17 May 2018

Investment Highlights We think HGV is very well positioned within the timeshare industry. There are several positives that we see with the HGV story. 1. Strong Growth Outlook HGV is posting some of the highest contract sales growth rates in Timeshare, with 9% sales growth in 2017 (pre-ASC606 adjustment) and guidance of 8-10% in 2018. We expect HGV to generate an 11% and 19% revenue and EBITDA CAGR over 2018/19. In addition to strong industry dynamics and a healthy upper-income consumer, there are multiple company-specific growth drivers, notably: ■ Significant Existing Investment in New Owners: Sales to new, versus existing, owners are a significant source of future sales. HGV has invested in significant customer acquisition over the past eight years, with industry-leading net owner growth. This is likely a material source of future sales. − HGV has grown its owner/member base by 54% and 94,000 members over the past five years and by 22% and 49,000 members over the past two years. − This is real investment, as the marketing cost associated with a new customer is 2.5x that of an existing owner – it is margin dilutive in the short term, especially on third-party sales. − We expect approximately 60% of HGV’s timeshare sales in 2018 to be made to new owners/customers. This is roughly in-line with Bluegreen and well above the 33-35% new owner sales mix for VAC and WYN in 2016. − HGV estimates that 60% of the lifetime value of an owner is after the initial timeshare purchase, with 37% of the lifetime value being the initial purchase and 40% represented by the second follow-up or top-up purchase. − Continued high new owner mix should help drive 5% p.a. member growth in HGV’s membership program in 2018/19. We expect resort and club management EBITDA to grow 7.5% p.a. in 2018/19. − Approximately 18% of HGV’s new owners are Millennials. With the oldest Millennials now starting to form families and progress in their careers, this cohort of new owners should be a source of future sales. − Importantly, we believe HGV has optimized and maintained its business mix and marketing efficiency such that it can continue investing in new owners. For some of HGV’s competitors, a material mix-shift toward new owner growth could be margin dilutive. ■ Significant Existing Investment in Inventory: Inventory is generally considered the lifeblood of timeshare sales, and industry contacts consider that low inventory levels can be very disruptive to sales. Given high customer acquisition costs for timeshare, having available inventory to close a sale is very important. − HGV has an industry-leading inventory base on which to draw – with 4.7 years of inventory on hand, half of which is off its balance sheet. − HGV made a decision in 2008/9 to strategically invest in new inventory, spending $400mm in 2008. In our view, that investment is now paying off with meaningful inventory on which to draw and fuel future sales. − Importantly, almost half of HGV’s inventory is off balance sheet and third-party development product. Owned inventory that sits on HGV’s balance sheet represents only 2.7 years of sales.

Hilton Grand Vacations Inc. (HGV) 11 17 May 2018

− Available inventory is important in both deeded and hybrid sales models, as customers need to perceive there will be choice and likely availability when they book. In our view, alignment of inventory and sales offices is also important.

Figure 13: Comparable Inventory Base Within Timeshare

Contract Sales Mix and Years HGV BXG VAC ILG WYN % Owned in 2016 44% 51% 100% 100% 97% % Fee-For-Service in 2016 56% 49% NA NA 3% Avg. Years of Inventory on Hand 5 4 1 to 2 2 4 to 5

Source: Company data, Credit Suisse estimates.

■ Continued Growth in Hilton Hotels (HLT) Network: HLT’s hotels and its loyalty program are a critical source of leads. These are provided through HGV’s 100-year branding and licensing agreement with HLT. Given timeshare is a product that is sold, not bought, qualified lead generation is critical. − Of HGV’s leads, 60% are generated through the Hilton network – on site at one of Hilton’s hotels or through directed marketing efforts. − Hilton Hotels (HLT) is one of the fastest growing hotel brands, and its loyalty program is one of the largest and said to be one of the fastest growing. − Hilton’s total rooms grew 6% in the past year, and 6% p.a. room growth is in consensus estimates in the coming two years. This expansion of the Hilton network increases the number of hotels at which potential customers come into contact with the Hilton brand and its loyalty program. Importantly, unit growth increases the size of Hilton’s customer database to which HLT and HGV can market. − HLT’s loyalty program, Hilton Honors, has now signed up 70mm members. This compares with Marriott at 100mm sign-ups (which is the combination of the Marriott Rewards and Starwood Preferred Guest programs), Choice Hotels at 36mm, and Wyndham at 56mm. − HLT’s loyalty program has signed up 26mm members in the past three years, from 44mm sign-ups in 2014 to 70mm currently. ■ Increased Penetration in Some Key Markets: In our view, HGV is relatively under- penetrated in the United States compared with other timeshare operators – both in terms of sales centers and timeshare inventory. We think there’s adequate room for unit growth. − As shown in Figure 14, HGV has eight sales centers in the U.S. This is less than half its peers. Its sales centers are large and generate significantly higher contract sales per center than peers. This higher productivity is one driver of HGV’s marketing efficiency and strong 26% EBITDA margins. − In our view, there could be an opportunity for HGV to selectively expand its sales centers in the United States, in-line with additional inventory development. − HGV has noted that its U.S. ownership base comprises mainly California residents, and there could be opportunity to expand the geographic distribution of its owner base. − Likewise, HGV’s resort portfolio has a very heavy skew to Florida, Hawaii, and Las Vegas. These three markets represent 80% of HGV’s units, the highest concentration in the group. All are strong, traditional timeshare markets. − HGV management has noted in the past that it is interested in exploring development opportunities in the Caribbean, Mexico, and Arizona – all big timeshare markets where HGV currently has no presence.

Hilton Grand Vacations Inc. (HGV) 12 17 May 2018

Figure 14: Comparable Sales Centers Across Timeshare Company Sales Centers 2017 Contract Sales Sales Per Center ($mm) HGV 16 $ 1,225 $ 77 VAC 25 $ 803 $ 32 BXG 25 $ 617 $ 25 ILG 22 $ 486 $ 22 WYN 100 $ 2,143 $ 21

Source: Company data, Credit Suisse estimates.

*8 of HGV’s Sales Centers are in Japan, 8 are in the US, VAC had 19 active sales centers in 2016.

■ Japan and Asian Expansion Opportunity: HGV was the first mover in the Japanese market, having built a significant base of Japanese owners of Hawaiian timeshare units over the past ten years. HGV is undertaking two developments in Japan and is looking at China and Korea. − HGV announced its first Japan development in Okinawa, which will likely generate its first sales in around 2021. HGV recently announced a second, much smaller development in Odawara, which will generate sales sooner and can be scaled up. We expect HGV is pursuing additional Japanese opportunities, which could generate sales sooner if they are conversions versus greenfield developments. − Japanese residents now represent 20% of HGV’s total ownership base, with eight HGV sales centers in Japan. − We believe HGV’s success in the Japanese market, and early-stage development there, is likely a beachhead for expansion into Asia. HGV has noted that it believes the Chinese market is viable, with plenty of potential inventory and 40-50mm qualified buyers. HGV has also noted South Korea is a potential new market. − We note that VAC’s Asia-Pacific timeshare business is not yet profitable, although it is early in its life cycle. VAC has only three properties in Asia-Pacific at this stage, and it is not using a beachhead like HGV is with its outbound Japanese business. ■ Deployment of Free Cash Flow: HGV is highly cash generative and in 2017 converted approximately 50% of EBITDA to underlying free cash flow ($180-200mm guidance). HGV recently announced a $400mm growth investment program. − Now that it is a separate company, HGV is no longer bound to dividend free cash up to its parent and has more flexibility in assessing additional investments and opportunities. − HGV recently announced $400mm of free cash flow to be deployed into new growth projects over 2018. In the past, HGV had made it clear that it intended to reinvest for growth, versus passively repurchasing stock in 2018/19. − HGV has consistently proven it can earn strong returns by virtue of its very efficient linkage with Hilton Hotels, its concentrated model, and its fee-for-service development model. − In our view, HGV is reinvesting in growth rather than focusing on the short term and opting to simply repurchase stock. − We expect the recently announced capital program to be a mix of all different forms of investment, including fee-for-service development, hybrid projects, conversions, and new builds. − Continuing to take equity stakes in later-stage, existing third-party developments makes sense, in our view, as returns are likely more immediate and risk is relatively low. Returns on greenfield inventory development have a longer tail.

Hilton Grand Vacations Inc. (HGV) 13 17 May 2018

− Importantly, HGV’s concentrated and real estate centric model means that the availability of premium inventory in key markets like Hawaii and New York is important, and investing in sequel projects is important in sustaining sales momentum in some key markets. Development lead times in these markets can be long. − Moreover, an important element of HGV’s outperformance and strong sales growth in the past ten years was that it invested in new inventory through the 2008/9 recession. If one were to take the view that another slowdown or recession could be coming, HGV could be well positioned coming into the recovery, given lead times. − The upcoming investment is adequately financed from cash on hand and 2019 internal free cash flow. − Importantly, HGV management’s long-term financial targets (2019 revenue and EBITDA targets of $1.85bn and $455mm) are same store and assume no unit growth or incremental returns on growth capital. ■ Ballpark: $400mm of incremental investment could yield $1.5-2.0bn of additional total contract sales, versus $1.0bn per annum today. At 26% EBITDA margins, this could translate into additional $400-500mm of EBITDA, which might be spread over seven to eight years. This would imply potential annual EBITDA of $50-70mm per annum on a 2019 total company run rate of $500mm. ■ New Third-Party Development Opportunities: HGV management has noted that it has an abundance of third-party development offers and has had to knock back many potential deals. − Third-party development is extremely capital-efficient and highly scalable and allows for easier and lower-risk expansion into new geographies. − HGV has made it clear that it wants to pursue deals where it has the sales and marketing infrastructure and bandwidth to back up the development – i.e., ensure growth is sustainable. − If one were to take the view that another slowdown or recession could be coming, along with higher interest rates, HGV may well be presented with more potential third-party development opportunities. − We haven’t done any detailed work on benchmarking returns on timeshare development versus other real estate, but HGV has noted that its developers keep around $0.40-0.45 of every $1 on every contract sale in addition to the revenue generated from the financing segment. Likewise, we don’t have a view on whether the dearth of potential deals has been driven or exacerbated by extremely low interest rates and high global liquidity as well as strong national housing markets. 2. Strong Track Record HGV’s management team has a strong track record of growth, outperformance during the recession, and delivery on promises. ■ HGV Significantly Outperformed During Recession: As shown in Figure 15, HGV’s sales were basically flat during the height of the 2008/09 recession. This compared with the broader industry that saw sales fall 40% from peak to trough in the recession. It was at this point the company continued meaningfully investing in inventory and developed the third-party development model.

Hilton Grand Vacations Inc. (HGV) 14 17 May 2018

Figure 15: HGV vs Timeshare Industry Sales

US Timeshare Sales (US$bn) HGV Timeshare Sales (US$bn) $12 $1.2

$10 $1.0

$8 $0.8 US Timeshare Industry

$6 $0.6

$4 $0.4

Hilton Grand Vacations $2 $0.2

$0 $0.0 1985 1990 1995 2000 2005 2010 2015

Source: Company data, Credit Suisse estimates.

■ Long Record of Above-Industry Growth: As seen in Figure 15, HGV’s sales growth has significantly outperformed the broader timeshare industry over the past ten years. − Over this time period, HGV’s market share increased from 5% to 12%. − In our view, this growth stemmed from its development of the third-party development model, its entry into the Japanese outbound timeshare market, and its heavy investment in inventory and net owner growth over the past ten years. ■ Delivery on 2017 Goals Bolsters Credibility: HGV has delivered on several of the goals outlined to the Street over 2017. This bolsters management’s credibility and supports the stock’s multiple. In our view, this is important, as HGV is only 15 months old as a separate, public company, and the timeshare segment has become more investable for a wider group of investors. − Examples of goals delivered in 2017 include the recent announcement of a greenfield timeshare development in Japan and HGV’s minority investment in its third-party Las Vegas development, Elara. − A year ago, management laid out a three-year financial plan, in which it is targeting 5-6% annual revenue growth and 4-6% EBITDA growth. The consensus is now above management’s 2019 revenue and EBITDA targets of $1.85bn and $455mm. These targets assume no unit growth or incremental returns on growth capital. ■ Innovation: HGV has a strong track record of innovation, which in our view supports the case for further growth and realizing management’s goals. In particular: − Capital-Light, Third-Party Development: HGV is one of two timeshare developers to use the third-party model and led its creation in 2008/9. − Entry into Japan: HGV developed the outbound Japanese timeshare market, which has become a meaningful sales driver with Japanese residents currently representing 20% of owners. This discrete market has differentiated HGV’s sourcing and likely provides it with a beachhead for future expansion in Asia. − Concentrated Sales Model: HGV has developed a very concentrated sales model, with eight key sales centers and meaningful economies of scale. HGV’s contract

Hilton Grand Vacations Inc. (HGV) 15 17 May 2018

sales per sales center and per employee are well above its close timeshare peers and drive its industry-high 26% EBITDA margins. 3. Significant FCF Generation and Strong Returns ■ Industry-Leading Industry Cash Flow Return on Investment (CFROI): As shown in Figure 16, HGV’s Cash Flow Return on Investment (CFROI) is extremely strong and materially above peers. HGV’s CFROI expanded from 10.4% to 12.4% in recent years as it adopted the capital-light third-party development model, increased margins, maintained a high-quality customer base, and reduced default rates.

Figure 16: Industry-Leading CFROI

Source: Company data, Credit Suisse estimates.

Figure 17: HGV’s Asset-Light Model Is Highly Cash Generative 2017A HGV WYN VAC BXG Adjusted EBITDA 362 1,326 294 148 Levered Free Cash Flow 309 631 104 52

FCF as % of EBITDA 85% 48% 35% 35%

Source: Company data, Credit Suisse estimates, Note: HGV’s free cash flow is steady-state guidance of $180-200mm.

■ Significant Capital Light Revenue Base Drives Leading CFROI: Approximately 60% of revenues are capital light, with 15% of total revenues from management fees and 75% of total timeshare sales from capital-light inventory sources. We like the third-party development model: − We expect 52% of 2018 timeshare sales to be from third-party developers. HGV is one of only two timeshare companies with a material third-party development business. − HGV has deep relationships with eight-plus third-party resort developers. HGV’s third-party development model has been in place since 2009 and is proven. − In our view, the third-party model isn’t easily replicated by peers, given:  The depth of relationships with developers and their lenders and investors,  HGV’s well-developed and comprehensive third-party development process and package, and  The short-term earnings and margin compression peers would endure from materially shifting from development into third-party sales.

Hilton Grand Vacations Inc. (HGV) 16 17 May 2018

− Importantly, the third-party development model is scalable and can effectively facilitate unit growth into new markets and jurisdictions, where local third-party developers likely have a significant edge in terms of real estate availability and valuation, local regulation, and demand conditions. ■ Significant Recurring Revenue Streams: Almost 60% of segment EBITDA is from high-margin, recurring revenue sources: 39% from the HGV’s high-margin resort and club management business and 20% from the interest spread on financing customers’ timeshare purchases. − HGV earns approximately 57% segment margins on resort management and 72% on financing – well above the 22% segment margin on timeshare sales. − HGV’s resort and club management business earns annual membership fees from its timeshare owners and management fees from each of its timeshare resorts. HGV’s 48 resort management contracts are subject to a three- to five-year initial term with an automatic one- to three-year renewal and have a 100% renewal rate. − We expect resort and club management EBITDA to grow 7% in 2018 and 3% in 2019. Importantly, this directly stems from HGV’s investment in growing its base of owners and members. − HGV’s financing business is low growth, relatively high return, and quite stable. We expect 7% growth in the loan book in 2018 and 8% growth in 2019. − While the financing business is dependent on interest rate spreads and an open securitization market, it is relatively stable on a three- to five-year view:  Its receivables are generally outstanding for six to seven years, and spreads on the existing loan book are locked.  If spreads on new loans compressed by 100 basis points, it would take six to seven years for the full 2% drop in adjusted EBITDA to flow through.  Interest rates charged by independent timeshare lenders are comparable with HGV’s rates – at around 11-12%. ■ Capital-Light Project Investment: HGV recently bought minority equity stakes in two third-party resorts. In our view, this is a clever, capital-light, and lower-risk way of deploying growth capital, immediately earning returns and helping third-party development partners hit their financial targets. − Established projects are already cash flow positive – so no delay in earning returns. Importantly, minority investments toward the end of a project’s development life enable HGV to earn some development-like returns without taking development risk or tying up material capital. In other words, they enable HGV to participate in owned economics and receive dividends and cash flow but without the inventory drag from on balance sheet development. − HGV’s minority investments are still sufficiently small that their minority interest isn’t large enough that financial transparency on the overall business is reduced. ■ Significant Free Cash Flow Generation: HGV is highly cash generative and converted approximately 50% of EBITDA to underlying free cash flow, based on HGV’s guidance of $180-200mm of average annual free cash flow. We attribute HGV’s high cash conversion to its (1) third-party development model and industry-leading CFROI, (2) high operating margins, and (3) low default rate. − Through its third-party development model, HGV earns immediate sales commissions on sales of third-party developments, which are slightly above 50% of total contract sales. Whereas 65% of owned inventory sales are financed, sales commissions are immediately booked to revenue, EBITDA, and cash.

Hilton Grand Vacations Inc. (HGV) 17 17 May 2018

− HGV’s 26% consolidated EBITDA margin is the highest in its closest peer group, running above ILG and VAC’s 19-20% margins. This difference is mainly driven by its concentrated sales model and growth in its high-margin resort management business. − It has a low default rate. HGV’s default rate on its timeshare receivables is among the lowest in the industry at 3.7%. Higher default rates weigh on conversion of contract sales to revenue and conversion of EBITDA to cash. 4. Specific, Tangible Catalysts We see several specific and tangible catalysts for HGV’s expected earnings growth to be realized and for its multiple to expand. This is important, as our thesis on HGV is not simply that it’s a great operator and should trade at a premium. Specific catalysts include: ■ Deployment of Free Cash into Additional Growth Projects and Initiatives: We expect management to announce additional detail on its capital plans and specific growth initiatives. ■ Delivery of Financial Results in 1H 2018: That at least meet Street expectations and give investors greater confidence that expected revenue and earnings growth can be realized. While we think investor expectations are high, HGV is still a relatively new story for investors, and the timeshare investor base is still relatively narrow. In our view, another three or four quarters of earnings growth and delivery on growth initiatives should increase investor confidence. ■ Continued Growth in Hilton’s Network: Hilton’s room base is growing at 5% per annum, and its loyalty program has added 26mm sign-ups in the past three years. This growth helps HGV’s customer sourcing.

Hilton Grand Vacations Inc. (HGV) 18 17 May 2018

Valuation and Target Price HGV currently trades at 8.3x 2019E EBITDA and a 12.2x P/E. This is a 7% discount to its closest peer on EV/EBITDA and 6% on P/E. We expect 19% and 38% EBITDA and EPS CAGR in 2018 and 19. We think a premium to peers is warranted, given HGV’s significant CFROI, strong business model, and high net owner growth. Our $48 target price is based on 10x 2019E EBITDA, in-line with closest peer VAC.

Figure 18: HGV Target Price Price Target

Current Stock Px $38.87

TARGET

EBITDA - 2019E 516 Target Multiple 10.0 x Enterprise Value 5,157 Net Debt (402) Equity Value 4,755 Shares Out 100 Target Price $48.00 Upside to current stock price 23%

Source: Company data, Credit Suisse estimates.

Figure 19: HGV Valuation Metrics Current Valuation Metrics 2017 2018E 2019E 2020E

Stock Price $38.87 Diluted Shares Out 100 Market Cap 3,887 3,887 3,887 3,887 Net Debt (Last Reported) 402 402 402 402 Enterprise Value 4,289 4,289 4,289 4,289 EBITDA 362 497 516 560 EV / EBITDA 11.8 x 8.6 x 8.3 x 7.7 x

Unlevered Free Cash Flow 321 (228) 99 140 EV / uFCF 13.4 x -18.8 x 43.1 x 30.5 x Unlevered FCF Yield 7.5% -5.3% 2.3% 3.3%

Net Income 165 299 315 347 P/E 23.6 x 13.0 x 12.4 x 11.2 x

Levered Free Cash Flow 309 (244) 80 121 FCF Multiple 12.6 x -15.9 x 48.7 x 32.2 x Levered FCF Yield 7.9% -6.3% 2.1% 3.1%

Source: Company data, Credit Suisse estimates.

Hilton Grand Vacations Inc. (HGV) 19 17 May 2018

Catalysts: We see several specific catalysts for HGV’s valuation premium and our target price to be realized: 1. Deployment of free cash into additional growth projects and initiatives, 2. HGV reporting results that meet or beat expectations and give greater confidence in expected growth, and 3. Continued growth in Hilton’s network. Comps: Our comparable company valuation analysis is set out in Figure 20. We think HGV deserves a premium to peers, given its return profile, margins, business mix, and growth prospects.

Figure 20: Comps Analysis

EV/EBITDA P/E EBITDA Margin EBITDA Growth EPS Growth

Company 2018E 2019E 2018E 2019E 2018E 2019E 2018E 2019E 2018E 2019E HGV 8.6x 8.3x 12.9x 12.2x 27% 27% 37% 4% 81% 6%

VAC 10.7x 8.9x 16.0x 13.0x 23% 25% 11% 19% 16% 23%

WYN1 11.2x 10.5x 14.4x 13.2x 30% 30% 9% 7% 52% 9%

BXG 8.6x 7.6x 14.3x 12.6x 22% 23% 7% 12% -23% 14%

Group Avg. 9.8x 8.8x 14.4x 12.8x 26% 26% 16% 10% 31% 13%

Source: Company data, Credit Suisse estimates.

1)WYN Multiple Represents the Entire Company.

Hilton Grand Vacations Inc. (HGV) 20 17 May 2018

Risks to Rating and Target Price 1. Health of U.S. Consumer: HGV and the timeshare product are highly discretionary, with sales and default rates highly dependent on the health of the U.S. consumer. Employment, wage growth, personal cost and housing inflation, and job security are all key to the health of the U.S. consumer. 2. Dependence on Asset-Backed Security Market: HGV is dependent on financing customers’ timeshare purchases, with approximately 60% of in-house dollar sales volume vendor financed. It is highly dependent on the asset-backed security market, as HGV’s return profile is contingent on factoring its loan book and not carrying loans on its balance sheet. If the market were to stall or shut down, as it did in 2008/9, HGV could have to wind back financing and therefore sales activity. 3. Higher Interest Rates: If interest rates were to start increasing, the spreads on HGV’s financing business could compress. HGV’s financing business represents approximately 20% of EBITDA. It earns 70% margins and high returns on capital. Given its receivables have a six- to seven-year duration, there is relatively little one- to three-year sensitivity to changes in interest spreads. 4. Travel and Accommodation Alternative: While we think AirBNB, VRBO, and other online vacation portals are complementary products, it is possible they develop into substitutes and end up competing with HGV for the consumer’s travel budget. 5. Competition: HGV could face greater competition serving the higher-income consumer, or its closer competitors could start developing a third-party development business. 6. Secondary Sales: The development of a viable, liquid, secondary market in timeshare sales could undermine the primary pricing structure and potentially open up meaningful, alternative consumer financing sources for timeshare purchases. 7. Geographic Expansion: Expansion of sales offices and timeshare product into under-penetrated areas such as California could be met with increased competition or require further inventory investment. 8. Regulation: While the timeshare industry is already heavily regulated at the state level, additional federal and/or state regulation could hurt sales and/or profitability. 9. Business Concentration: Meaningful concentration in Florida exposes HGV to disruption and damage from weather events. 10. Japanese Economy: HGV has a material Japanese outbound timeshare business, with 20% of its owners Japanese residents. As such, the Japanese economy can bear on future sales trends.

Hilton Grand Vacations Inc. (HGV) 21 17 May 2018

Company Financials

Figure 21: HGV Income Statement

US$mm, except per share data, Year End Dec 31 2015 2016 2017 1Q18 2Q18E 3Q18E 4Q18E 2018E 2019E 2020E

INCOME STATEMENT

Revenue Sales of VOIs, net 492 508 498 78 295 163 210 746 809 916 Fee for Service 457 500 544 125 135 138 141 539 533 583 Financing 127 134 147 38 41 40 43 162 177 198 Resort and Club Management 125 143 158 39 38 40 54 171 183 196 Rental and Ancillary Services 164 173 179 51 48 46 48 193 192 192 Cost Reimbursements 110 126 135 36 36 36 36 144 160 176 Total Revenues 1,475 1,584 1,661 367 594 462 532 1,954 2,054 2,261 % y/y na 5% -6% 39% 11% 24% 18% 5% 10%

Segments Real Estate Sales 329 237 222 17 142 69 92 320 336 375 Financing 102 104 27 32 30 32 120 131 145 Resort and Club Management 162 189 205 59 53 54 63 229 236 244 Segment Adjusted EBITDA 491 528 531 103 227 153 186 669 702 763

Unconsolidated Affiliate - - (2) (2) (2) (2) (2) (8) (8) (8) License Fee Expense 74 80 87 23 23 23 24 93 105 117 Corporate / G&A 57 55 84 20 23 19 25 87 90 94 Adjusted EBITDA 360 393 362 62 183 113 140 497 516 560 26% 27% 23.7% 19% 32.8% 26.4% 28.2% 27.5% 27% 27% Other Adjustment Items 4 35 10 2 - - - 2 2 2 Stock Compensation 8 15 5 5 5 5 19 19 19 Forex Gains - (1) ------Other Loss, Net 1 3 1 - - - 1 - - EBITDA 356 349 335 54 178 108 135 475 495 539

Depreciation and Amortization 22 24 27 8 8 9 9 34 28 28 Operating Income (EBIT) 334 325 308 46 170 99 126 441 467 511 % margin 23% 21% 19% 13% 29% 21% 24% 23% 23% 23%

Allocated Parent Interest Expense 42 29 ------Interest Expense - - 27 7 7 7 7 28 28 28 Equity in Earnings from Unconsol Affil - 2 1 1 1 2 5 8 8 Other Loss, net 3 1 ------Pre Tax Income 292 293 278 38 162 91 117 408 431 475

Income Tax Expense (118) (125) 15 (10) (44) (25) (32) (111) (117) (130) Tax Rate 40% 43% -5% 26% 27% 27% 27% 27% 27% 27%

Net Income 174 168 293 28 118 66 85 297 313 346

After Tax Adjustment 20 (128) 1 - - - 1 1 1

Adjusted Net Income 188 165 30 118 66 85 299 315 347

Earnings Per Share (Diluted) $ 1.70 $ 2.95 $ 0.28 $ 1.19 $ 0.67 $ 0.86 $ 2.99 $ 3.16 $ 3.49 Diluted Shares Out 99 99 100 99 99 99 99 99 99

Adj. Earnings Per Share (Diluted) $ 1.90 $ 1.66 $ 0.30 $ 1.19 $ 0.67 $ 0.86 $ 3.01 $ 3.18 $ 3.51 Diluted Shares Out 99 99 100 99 99 99 99 99 99 Source: Company data, Credit Suisse estimates.

Hilton Grand Vacations Inc. (HGV) 22 17 May 2018

Figure 22: HGV Balance Sheet

US$mm, except per share data, Year End Dec 31 2015 2016 2017 1Q18 2Q18E 3Q18E 4Q18E 2018E 2019E 2020E

BALANCE SHEET

ASSETS Cash 4 48 246 85 84 123 16 16 296 617 Restricted Cash 75 103 51 69 68 100 13 13 240 501 Accounts Receivable, Net 89 123 112 117 117 117 117 117 117 117 Timeshare Financing Receivables, Net 976 1,025 1,071 1,074 1,096 1,118 1,141 1,141 1,299 1,480 Inventory 412 513 509 564 613 720 802 802 882 931 Property and Equipment, Net 51 256 238 235 239 242 245 245 265 285 Investment in Unconsolidated Affiliate - - 41 37 37 37 37 37 37 37 Intangible Assets, Net 74 70 72 73 73 73 73 73 73 73 Other Assets 43 42 44 111 111 111 111 111 111 111 Total assets 1,724 2,180 2,384 2,365 2,439 2,642 2,555 2,555 3,320 4,152 204 171 765 832 LIABILITIES Accounts Payable, Accrued Expenses and Other 208 231 339 296 296 296 296 296 296 296 Advanced Deposits 96 103 104 92 92 92 92 92 92 92 Allocated Parent Debt 634 ------Debt - 490 482 479 479 480 480 480 482 484 Non-Recourse Debt 502 694 583 544 549 740 740 740 940 1,140 Deferred Revenues 103 106 109 326 326 326 326 326 326 326 Deferred Income Tax Liabilities 287 389 249 228 232 234 236 236 246 257 Total Liabilities 1,830 2,013 1,866 1,965 1,974 2,168 2,171 2,171 2,382 2,595

EQUITY Total Shareholder's Equity (106) 167 518 400 464 474 385 385 938 1,557

Total Liabilities and Stockholders' Equity 1,724 2,180 2,384 2,365 2,439 2,642 2,555 2,555 3,320 4,152 Source: Company data, Credit Suisse estimates.

Figure 23: HGV Cash Flow

US$mm, except per share data, Year End Dec 31 2015 2016 2017 1Q18 2Q18E 3Q18E 4Q18E 2018E 2019E 2020E

CASH FLOW -- GAAP Classification

Adjusted EBITDA 360 393 362 62 183 113 140 497 516 560 Inventory Spending, Net (101) 4 (55) (49) (107) (82) (293) (80) (49) Cash Taxes (118) (23) (125) (31) (41) (23) (29) (123) (108) (119) Cash Interest 1 (22) (6) (7) (7) (7) (26) (26) (26) Loan Loss Provision 49 58 12 12 12 13 49 68 77 Timeshare Receivables (98) (104) (15) (34) (34) (36) (119) (226) (258) Other Working Capital - 121 90 - - - 90 - - Other (63) 62 (32) (50) (90) (90) (262) - -

Operating Cash Flow 131 158 356 25 15 (136) (91) (187) 144 185

Capex (26) (35) (14) (12) (12) (12) (50) (48) (48) JV Investment - (40) (5) - - - (5) - - Acquisitions ------Other (8) (12) 5 (4) (4) (4) (7) (16) (16)

Investing Cash Flow (34) (87) (14) (16) (16) (16) (62) (64) (64)

Non-Recourse Debt 190 (108) (39) - 191 - 152 200 200 Corporate Debt 190 (10) (3) - - - (3) - - Buybacks - - (112) - - - (112) - - Dividends ------Equity Issue ------Other (460) (5) ------Financing Cash Flow (80) (123) (154) - 191 - 37 200 200

Change in Cash 44 146 (143) (1) 39 (107) (212) 280 321

Source: Company data, Credit Suisse estimates.

Hilton Grand Vacations Inc. (HGV) 23 17 May 2018

HOLT and PEER Analysis

Figure 24: HOLT CFROI and Market Expectations Figure 25: Peer Analysis

Source: Company data, Credit Suisse estimates, HOLT. Source: Company data, Credit Suisse estimates.

Hilton Grand Vacations Inc. (HGV) 24 17 May 2018

Companies Mentioned (Price as of 15-May-2018) Bluegreen Vacations Corporation (BXG.N, $19.47, NEUTRAL[V], TP $22.0) Choice Hotels (CHH.N, $79.35) Hilton Grand Vacations Inc. (HGV.N, $38.87, OUTPERFORM, TP $48.0) Hilton Worldwide Holdings (HLT.N, $83.02) Hyatt Hotels (H.N, $80.36) ILG Inc. (ILG.OQ, $33.61) Marriott International (MAR.OQ, $138.86) Marriott Vacation Worldwide Corporation (VAC.N, $116.82, OUTPERFORM, TP $146.0) Wyndham Worldwide Corporation (WYN.N, $110.66, NEUTRAL, TP $116.0)

Disclosure Appendix Analyst Certification I, Cameron McKnight, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Hilton Grand Vacations Inc. (HGV.N)

HGV.N Closing Price Target Price Closing Price HGV.N Date (US$) (US$) Rating 48 13-Mar-18 45.80 R 46 * Asterisk signifies initiation or assumption of coverage. 44

42

40

38 15- Mar- 2018 30- Mar- 2018 14- Apr- 2018 29- Apr- 2018 14- May- 2018

REST RICT ED

3-Year Price and Rating History for Marriott Vacation Worldwide Corporation (VAC.N)

VAC.N Closing Price Target Price Target Price Closing Price VAC.N Date (US$) (US$) Rating 04-Feb-16 48.82 66.00 O * 140 26-Feb-16 60.92 73.00 22-Jul-16 76.42 92.00 120 13-Dec-16 87.67 NC 100 * Asterisk signifies initiation or assumption of coverage. 80 Effective July 3, 2016, NC denotes termination of coverage. 60

01- Jul- 2016 01- Jan- 2017 01- Jul- 2017 01- Jan- 2018

O U T PERFO RM N O T CO V ERED N O T RA T ED

Hilton Grand Vacations Inc. (HGV) 25 17 May 2018

3-Year Price and Rating History for Wyndham Worldwide Corporation (WYN.N)

WYN.N Closing Price Target Price Target Price Closing Price WYN.N Date (US$) (US$) Rating 135 04-Feb-16 64.60 63.00 N * 13-Dec-16 76.92 NC 110 * Asterisk signifies initiation or assumption of coverage. Effective July 3, 2016, NC denotes termination of coverage. 85

60 01- Jul- 2016 01- Jan- 2017 01- Jul- 2017 01- Jan- 2018

N EU T RA L N O T CO V ERED

As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and Asia stocks (excluding Japan and Australia), ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark (India - S&P BSE Sensex Index); prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors. Credit Suisse's distribution of stock ratings (and banking clients) is:

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Hilton Grand Vacations Inc. (HGV) 26 17 May 2018

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Target Price and Rating Valuation Methodology and Risks: (12 months) for Bluegreen Vacations Corporation (BXG.N) Method: We derive our target price of $22 using a 8.5x multiple to 2019 EBITDA. Our Neutral rating is a based on return expectations over the next 12 months, relative to our coverage group. Risk: Risks to our $22 target price and Neutral rating include; Health of the US consumer, state of asset-backed security markets, interest rate environment, disintermediation from travel and accommodation alternatives, competition, regulation, geographic concentration, sensitivity of middle-income consumers. Target Price and Rating Valuation Methodology and Risks: (12 months) for Hilton Grand Vacations Inc. (HGV.N) Method: Our $48 price target is based on 10x 2019E EBITDA. Our Outperform rating is a based on return expectations over the next 12 months, relative to our coverage group. Risk: Risks to our $48 target price and Outperform rating include; (1) Health of US Consumer. HGV and the timeshare product are highly discretionary, with sales and default rates highly dependent on the health of the US consumer. Employment, wage growth, personal cost and housing inflation, and job security are all key to the health of the US consumer. (2) Dependent on asset backed security market. HGV is dependent on financing customers’ timeshare purchases, with approximately 60% of in-house dollar sales volume vendor financed. It is highly dependent on the asset backed security market, as HGV’s return profile is contingent on factoring its loan book and not carrying loans on its balance sheet. If the market were to stall or shut down, as it did in 2008/9, HGV could have to wind back financing and therefore sales activity. Target Price and Rating Valuation Methodology and Risks: (12 months) for Marriott Vacation Worldwide Corporation (VAC.N) Method: Our $146 Target Price is based on 9.75x EV/EBITDA Multiple on 2020E EBITDA discounted back. Our Outperform rating is a based on return expectations over the next 12 months, relative to our coverage group. Risk: Risks to our $146 TP and Outperform rating include: (1) Health of US Consumer. VAC and the timeshare product are highly discretionary, with sales and default rates highly dependent on the health of the US consumer. Employment, wage growth, personal cost and housing inflation, and job security are all key to the health of the US consumer. (2) Dependent on asset backed security market. VAC is dependent on financing customers’ timeshare purchases, with approximately 60% of in-house dollar sales volume vendor financed. It is highly dependent on the asset backed security market, as VAC’s return profile is contingent on factoring its loan book and not carrying loans on its balance sheet. If the market were to stall or shut down, as it did in 2008/9, VAC could have to wind back financing and therefore sales activity. Target Price and Rating Valuation Methodology and Risks: (12 months) for Wyndham Worldwide Corporation (WYN.N) Method: We derive our target price of $116 using a 10.6x multiple to 2019E EBITDA. Our Neutral rating is a based on return expectations over the next 12 months, relative to our coverage group. Risk: Key industry risks to our $116 target price and Neutral rating are: Industry risks: (1) the strength of the US consumer, as timeshare is a discretionary and big-ticket item; and (2) the state of asset backed security markets, as customer finance is an important source of recurring income. Company-specific risks: (1) rising default rates; and (2) economic sensitivity of average-income consumers.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): BXG.N, VAC.N, WYN.N, HGV.N, ILG.OQ Credit Suisse provided investment banking services to the subject company (BXG.N, VAC.N, WYN.N, HGV.N) within the past 12 months.

Hilton Grand Vacations Inc. (HGV) 27 17 May 2018

Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non-investment- banking, securities-related: VAC.N, WYN.N Credit Suisse has managed or co-managed a public offering of securities for the subject company (BXG.N, VAC.N, WYN.N, HGV.N) within the past 12 months. Within the past 12 months, Credit Suisse has received compensation for investment banking services from the following issuer(s): BXG.N, VAC.N, WYN.N, HGV.N Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (BXG.N, VAC.N, WYN.N, HGV.N, ILG.OQ) within the next 3 months. 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Hilton Grand Vacations Inc. (HGV) 28 17 May 2018

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Hilton Grand Vacations Inc. (HGV) 29