Earnings Call Transcript - HGV Q1 2021

Operator, Operator

Good morning, and welcome to the Hilton Grand Vacations First Quarter 2021 Earnings Conference Call. A telephone replay will be available for 7 days following the call. The dial-in number is 844-512-2921 and enter pin 13714033. I would now like to turn the call over to Mark Melnyk, Vice President of Investor Relations. Please go ahead.

Mark Melnyk, Vice President of Investor Relations

Thank you, operator, and welcome to the Hilton Grand Vacations First Quarter 2021 Earnings Call. Before we get started, please note that we prepared slides that are available to download from a link on our webcast and also on the main page of our website at investors.hgv.com. We may refer to these slides during the course of our call or question-and-answer session. As a reminder, our discussion this morning will include forward-looking statements. Actual results could differ materially from those indicated by these forward-looking statements, and these statements are effective only as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the factors that could cause actual results to differ, please see the Risk Factors section of our 10-Q, which we expect to file after the conclusion of this call and in any other applicable SEC filings. We'll also be referring to certain non-GAAP financial measures. You can find definitions and components of such non-GAAP numbers as well as reconciliations of non-GAAP and GAAP financial measures discussed today in our earnings press release and on our website at investors.hgv.com. As a reminder, our reported results for both periods in 2021 and 2020 reflect accounting rules under ASC 606, which we adopted in 2018. Under ASC 606, we're required to defer certain revenues and expenses related to sales made in the period when a project is under construction and then hold off on recognizing those revenues and expenses until the period when construction is completed. To help you make more meaningful period-to-period comparisons, you can find details of our current and historical deferrals and recognitions in table T1 of our earnings release. For ease of comparability and to simplify our discussion today, our comments on adjusted EBITDA and our real estate results will refer to results excluding the net impact of construction-related deferrals and recognitions for all reporting periods. Finally, unless otherwise noted, results today refer to first quarter 2021, and all comparisons are accordingly against first quarter of 2020. In a moment, Mark Wang, our President and Chief Executive Officer, will report highlights from the quarter in addition to an update of our current operations and company strategy. After Mark's comments, our Chief Financial Officer, Dan Mathewes, will go through the financial details for the quarter. Mark and Dan will then make themselves available for your questions. With that, let me turn the call over to our President and CEO, Mark Wang. Mark?

Mark Wang, President and CEO

Morning, everyone. I'm happy to share with you our first quarter results, which showed sequential improvements for the third straight quarter. We've seen a lot of progress over the past few months on vaccine rollouts, which has brought a steady recovery of domestic leisure travel trends, including in some of our largest markets. We saw sequential improvements in our key operating metrics each month of this quarter, leading into a strong March, and that trend continues into this month. This positive trend leaves us optimistic about our core business and even more excited about what the future holds regarding our recently announced transaction with Diamond Resorts, which I'll touch on more in a moment. Let me first get into some of our results for the quarter. In open markets, our total contract sales for the quarter were up 6% sequentially to $138 million. We saw a strong pace of improvement through the quarter with system-wide occupancy of nearly 70% for the month of March and a tour flow pace that more than doubled over the course of the quarter. Our reservation activity showed strong improvement, with net bookings per day in the first quarter more than doubling from what we saw in Q4 and nearing the same pace we had in 2019. The VPGs in our open markets remained strong and helped us capitalize on improved tour flow. Close rates were again the driver here at just over 20%. I think that's a testament not only to increased demand for travel and our high-quality HGV products but also to the process and execution improvements that our teams have made over the past year. The high flow-through of our VPG strength, coupled with our cost savings program, enabled us to drive significant margin expansion for the quarter to a level on par with those in the first quarter of 2019. As we move through the year, we'll face some difficult VPG growth comparisons, but our process improvements should allow us to sustain VPG levels this year above where we were in 2019. Turning to our markets, our regional markets rebounded strongly with contract sales for the quarter nearly 15% higher than 2019's levels. Our largest markets, Orlando and Las Vegas, have continued to make steady progress. Orlando grew 16% sequentially on a surge in bookings and activity and solid execution. In Las Vegas, despite the market's 50% capacity restrictions, our properties recovered to nearly 40% of their 2019 contract sales levels for the quarter, with a strong acceleration in March. With the recent announcement that the city of Las Vegas will lift capacity restrictions on June 1, we're optimistic that we'll see further improvements in trends. In Japan, our first quarter contract sales came in at 70% of 2019's levels. As we discussed last quarter, our tour flow in Japan has been impacted by a recent series of lockdowns and extensions of travel restrictions. Our teams did a great job of adapting to the environment. They focused on driving targeted tours through our network of local sales centers which, coupled with the strong reception of our recently launched project in Okinawa, produced strong VPGs with exceptional close rates. We believe that the restrictions in environment are likely to remain in place through the Olympics this coming summer. However, having a new local resort option in Okinawa should allow us to maintain our sales momentum. Turning to Hawaii, we've continued to ramp after reopening our properties at the end of the year. Waikoloa saw improvements in each month of the quarter and March recovered to more than 50% of 2019 sales levels with 70% occupancy rates on a strong improvement in domestic traffic. Oahu sales have ramped more slowly due to the travel restrictions I just mentioned, along with reduced air capacity limiting the arrivals of Japanese visitors to the islands. We've been working to fill some of that business with U.S. guests. As those restrictions are lifted and airlift returns, we expect to see improvements in occupancy and tour flow. Finally, we've been pleased with the traction that we've had in presales for our upcoming Maui project and expect to open that property and sales center for occupancy later this year. So to summarize, our drive to markets with no restrictions are showing strong momentum and are back above peak sales levels. We're very encouraged in our largest markets, which are making steady progress and are set to benefit from further loosening of capacity restrictions. Hawaii is expected to continue ramping and show sequential improvement with increased domestic travel, but we won't fully recover in that market until Japanese visitations resume, and we expect to have our urban resorts in New York and Chicago back in full operation in the second half of this year. Turning to our customer segmentation, we're really pleased with the behavior we're seeing out of both our owners and new buyers. From a recovery standpoint, owners are coming back more quickly. Tour flow levels have jumped higher each quarter since reopening, and we've continued to close nearly 1 out of every 3 owners who tour with us, driving strong contract sales. New buyers are returning at a slower pace but there's been some very positive signs in the quarter. Our new buyer close rates improved again from the fourth quarter to the highest level we've seen since the global financial crisis. We also saw another strong quarter of marketing package sales conversion rates, and we've seen improved activation of those packages as well. We're up over 60% since the start of the year, indicating that more people are committing to travel in the near term. Those activations drove the mix of booked packages to approach historical levels this quarter, which is a substantial improvement from the trends we've seen since the beginning of COVID. Our resort and club business also improved in the quarter as incremental activity drove growth in our revenue per member for the first time since the end of 2019. And the cost controls helped to drive growth in segment profits on a year-over-year basis with strong margin expansion. Looking ahead, we expect that our owner arrivals will reach 2019 levels in the second half of the year, supporting further improvements in activity levels, revenue and segment profit. Our NOG reflects 4 quarters of COVID-impacted results. Since our member base has grown each quarter since the initial fall off in Q2 of 2020, we expect to return to positive NOG in the quarters ahead, as we lap that fall off. Finally, in our rental and ancillary business, increased leisure activities drove strong sequential improvement in revenue and a return to positive segmented profitability. As we look further out, we remain optimistic about our rental trends with our rentals on the books in the back half of the year at nearly 150% of what we saw at the same point in the year during 2019. Overall, trends are moving in the right direction. We expect to continue seeing favorable buyer behavior, and vaccine rollouts should drive further improvements in our forward-looking activity. We expect this will drive improvements in our tour flow and support higher close rates, driving our contract sales. As Japan restrictions ease, we believe that Oahu will recover and set us up for a strong second half of the year. Most importantly, the positive trends that we're seeing make us very optimistic about our combination with Diamond Resorts. With respect to the timing of the proposed transaction with Diamond, things are proceeding as planned. We've filed our initial antitrust regulatory submission in the U.S. and internationally as well as our preliminary proxy a few weeks ago. We're currently in the process of arranging our permanent financing for the transaction, and we expect to complete that process, along with our regulatory requirements and shareholder approval in time for a targeted closing this summer. In the weeks since our announcement, I've had the opportunity to speak with many of our owners, shareholders and team members and have been struck by the level of enthusiasm around the transaction. I can tell you that we share that same level of enthusiasm. This transformational combination will bring us significant scale and product diversity with a complementary footprint that strengthens our regional presence and enables us to drive meaningful revenue and cost synergies, ensuring that we're well positioned to be the leader in the timeshare industry for years to come. We look forward to welcoming Diamond owners and team members to the HGV family and introducing our brand, culture, processes and level of service to the entire Diamond organization. While I can't say much about the results, I can say they continued to demonstrate very strong recovery trends. We think that the timing of this transaction, coupled with the recovery path that we're both seeing, should leave HGV very well positioned going forward to capitalize on the return of travel. To conclude, we're encouraged about the trends we're seeing and have a lot of momentum exiting the quarter. The U.S. has made steady progress with vaccinations, and many jurisdictions have solidified their plans to transition to a full reopening if they haven't done so already. While we are not completely out of the woods yet, we feel confident that as we move through the year, things will continue to improve and set us up for a strong exit to this year. At the same time, we're making progress toward closing the Diamond acquisition, and our teams have been working diligently to prepare to hit the ground running once we close the transaction and begin the integration process in earnest. It's been an extremely busy time for us here, but it's also been an extremely exciting time, and I look forward to what's to come. Before I turn it over to Dan, I'd like to give a special thanks to all of our corporate and operational teams who have been working tirelessly for the past several months on executing the Diamond transaction while simultaneously navigating this difficult environment. With that, Dan will walk you through our financial details. Dan?

Daniel Mathewes, Chief Financial Officer

Thank you, Mark, and good morning, everyone. As Melnyk mentioned in his introduction to our call, our results for the quarter included $32 million in sales deferrals impacting reported revenue and net deferrals of $18 million, impacting both adjusted EBITDA and net income. All references to consolidated net income, adjusted EBITDA and Real Estate segment results on this call for current and prior periods will exclude the impact of deferrals and recognitions. The complete accounting of our historical deferral and recognition activity can be found in excel format on the financial reporting section of our Investor Relations website. Let's review the results for the quarter. Total first quarter revenue was $267 million, up 15% sequentially from the fourth quarter. We saw sequential improvements in our real estate, club and resort management and rental and ancillary segment revenues, partially offset by lower financing revenue due to a smaller receivables portfolio balance. Q1 reported adjusted EBITDA was $60 million, reflecting sequential top line improvement and a material improvement in EBITDA margins from our cost-saving efforts. As we noted in our press release, however, there was also a $4 million COVID benefit in the quarter related to employee retention credits granted under government assistance programs in the U.S. and Japan that were included in adjusted EBITDA. Removing this benefit would put our comparable adjusted EBITDA for the quarter at $56 million. Net income for the quarter was $11 million. Within real estate, Q1 contract sales were $139 million or 57% of the prior year. Tour flow was 42% of the prior year. The VPG was up 33% year-over-year and improved sequentially by 8%. Close rates drove the VPG improvement and were very consistent with Q4. Our expectations remain that VPG will decelerate over the coming quarters as our owner mix normalizes, particularly as we lap very difficult comparisons from the strong VPGs produced in 2020. Owners continue to show signs of faster recovery than new buyers, and our mix of contract sales to owners remained similar to the fourth quarter at roughly 2/3 of the total. Our fee-for-service mix for the quarter was 40%. On the consumer lending side, our provision for bad debt was $16 million and our overall allowance on the balance sheet was $270 million or 18% of the gross financing receivables. Real estate, SMG&A was $63 million for the quarter and the real estate segment profit was $21 million. In our financing business, the first quarter segment profit was $24 million, with margins of 65% versus a profit of $31 million and margins of 71% last year. Profit was lower based on declining receivable balance versus last year, limiting portfolio income. Our gross receivables balance was $1.1 billion. Our average cash down payment year-to-date is 9.3%, and our portfolio average interest rate increased to 12.6% from 12.5% last year. Over the past 3 months, we have seen continued sequential improvement in our delinquency rate to 2.7% of our receivables portfolio versus 3.0% at the end of 2020 and only slightly ahead of the 2.5% at the end of 2019. Our annualized default rate was 6.6% versus 6.3% at the end of 2020. We still believe we are adequately reserved at this time, and we will continue to monitor our portfolio trends closely. Turning to our resort and club business. Our member count was up sequentially again to nearly 328,000 members. Although NOG was down 10 basis points as we annualized 4 full quarters of COVID-impacted trends. Revenue of $45 million was up 2% from the prior year as we saw improvement in our revenue per member during the quarter. Segment profit was $37 million with margins of 82% versus profit of $32 million and margins of 73% last year. Rental and ancillary revenues were $32 million, up 60% from Q4 due to an improvement in travel activity, including a sharp uptick in March trends that have continued into April. Looking ahead, as Mark mentioned, our current on-the-book arrivals for the remainder of the year are nearly 50% above what we saw at the same point in 2019. We've also seen a strong uptick in the pace of booking activity, with our first quarter daily bookings more than doubling from the rate we saw in the fourth quarter. Rental and ancillary expenses were $31 million in the quarter, and our expense controls allowed us to return to positive segment income during the quarter despite the increase in expenses related to unsold intervals. These developer maintenance fees will remain elevated in the near term from a combination of recently and soon-to-open projects, and will weigh on our margins, but we believe will be solidly profitable for the year. Bridging the gap between segment adjusted EBITDA and total adjusted EBITDA, corporate G&A was $16 million, down $3 million or 16% versus the prior year. License fees were $14 million and JV income was $3 million. Our adjusted free cash flow in the quarter was a positive $3 million, which included inventory spending of $23 million. As of March 31, our liquidity position consisted of $400 million of unrestricted cash, $139 million of availability under our revolving credit facility, and $450 million of capacity on our warehouse. We currently have $118 million in timeshare receivables available for collateralization. On the debt front, we had corporate debt of $1.2 billion and nonrecourse debt of $698 million. Turning to our credit metrics, at the end of Q1, our first lien net leverage for covenant compliant purposes stood at 2.75x. Our interest coverage ratio for covenant compliant purposes at the end of the quarter was 3.58x. We will now turn the call over to the operator and look forward to your questions.

Operator, Operator

Our first question comes from David Katz with Jefferies.

David Katz, Analyst

Number one, congrats on the quarter. I wanted to just look at all of the positive data points that you've discussed, and frankly, we've been hearing broadly. I'd like your help in just making sure, as we model the back half of the year or the remainder of the year, that we don't get too carried away. Just help us balance the puts and takes around tour flow and VPG, et cetera, and be thoughtful and circumspect and not model you too high. Frankly, because I think it's easy to see how positive all of this really stacks up.

Mark Wang, President and CEO

David, this is Mark. Yes. First, I think you've heard from our prepared remarks, we're really pleased with the quarter that really, for the first time in a long time, we can tell you that we're seeing a material recovery forming. But that being said, we do have some high comparisons on the VPG side, and we're going to be ramping up our new buyers. The inflection point for us really happened and coincided with the vaccine rollout in February; forward-looking bookings are very, very strong with low cancellations. All of this is making us feel like this is much more permanent. We've touched on the domestic travel focus of our business, and that’s going to bode well for us. Our drive-to-markets have already fully recovered. We do have some risk in Hawaii in the back half of the year. We're also going to be ramping new buyers. We saw a big surge in activations in our pipeline; it went up 60% from Q4 to the end of Q1. So new buyers are starting to come back, which is really good for us. But that will carry lower VPGs and higher costs as we bring them back into the system, but this is important for the long-term health of our business. We've got the urban markets where we have about a 10% exposure with New York and Chicago. We expect those to open in the back half of the year and again, they will be a lagger for us. All in all, I think we're very optimistic about what's happening. We need a few more light switches to go on. I don't know, Dan, if you have anything else you want to cover on that?

Daniel Mathewes, Chief Financial Officer

Yes. No, I think so. And David, thanks for the question. As Mark alluded to, definitely a very volatile environment. Things ebb and flow pretty rapidly. We did have quite a ramp in March. When I look at the balance of the year, what I would take into consideration is in Q1, we had some things really working our way. Clearly, cost control has been a discipline we've implemented forever and excessively, I would say, since COVID impacted us. You saw that in Q1. We diligently decided when to bring labor back. Labor in Q1 was depressed, and we're starting to bring more people back. So we did get a benefit on the margin side from that. Mark already alluded to the VPG benefit, which provides really solid flow through. As we bring the new buyers back, the VPG will scale down materially from where they are now because we view those levels to be elevated. From a margin perspective, I would not play the balance of the year as an expansion; it's probably more in line with where it is today. We had some benefit on the flow-through side from one-time items, such as the benefit from the CARES Act in the U.S. and a similar benefit in Japan. For real estate, it was about $3 million; all in, it was about $4 million. We also had favorable cost of products just based on the mix that we are selling. That mix is likely going to shift back to a more normalized one, so your cost of product will be closer to 27% rather than the 20% that we were able to print this quarter. All in, when we look at 2021 from a cadence perspective, we expect Q2 to be modestly better than Q1 because the trend we saw in March has continued into April. We believe we'll have a modestly better Q2, then you'll start to ramp in Q3 and sharper in Q4. By the end of Q4, we would not quite be back; we don't anticipate being back to 2019 levels, but about to hit that run rate. When thinking about how things are playing out, there are a lot of positives, but it's still very much back-end loaded. We're looking at 2021 being a recovery path year, and 2022 is where we really start hitting the ground and getting back to those 2019 levels. Hopefully, that's helpful.

Operator, Operator

Our next question comes from the line of Stephen Grambling with Goldman Sachs.

Stephen Grambling, Analyst

I guess one follow-up on those comments. Is there any rule of thumb to think about for how a point of conversion may correspond to basis points of margin improvement or impact to EBITDA?

Mark Wang, President and CEO

Yes, that's a valid question. I'm not sure we can provide an exact answer at this moment. I can tell you that our VPG increased by $1,000 compared to the first quarter of 2019. Considering the flow-through from that, we had approximately 28,000 tours in the first quarter, resulting in an additional $28 million in contract sales with the same number of tours. So, there is significant flow-through from that. We would be glad to follow up and provide a more precise figure on that, Stephen, but I don't have it right now unless Dan has more information.

Daniel Mathewes, Chief Financial Officer

No, Stephen, we'll circle back with you. The issue here is I don't want to give you a blanket rule of thumb just given the current environment because there are a lot of variables going in multiple directions. We've talked about the environment being a bit volatile. In our prepared remarks, Mark discussed Japan, right? Restrictions kick in, that has an impact. California is also a great example. In January in California, we had one tour. In March, it was 80% of the highest scores that we've ever experienced. That kind of volatility will offset the flow-through from a VPG lift, especially as we start to bring labor back at a more normalized level.

Stephen Grambling, Analyst

That's helpful. And then in the proxy you filed on the transaction, there was kind of a 5-year revenue and EBITDA outlook. You kind of gave some of the assumptions, it sounds like in response to David's questions. I guess, as we look a little bit further out, what else should we be thinking about in those estimates? It looks like, in particular, as we get a little bit further down the line, there could be a pretty big step-up in free cash flow and EBITDA. So is there anything else that we should be thinking through as it relates to the inventory progression longer term? And how maybe even that longer-term outlook could be pulled forward or what might alter the cadence of it?

Mark Wang, President and CEO

Yes. No, great question. The proxy disclosure for ourselves, I assume you're talking about the HGV stand-alone numbers. So the answer that I responded to David on is very consistent, right? 2021 is a recovery year, 2022 getting back to 2019 levels, then you have more normalized growth in the out years. The big sensitivity to that is obviously how this recovery plays out. Things are looking very positive right now. If you look at the rentals that we have on the books for the balance of the year, those are very strong. Packages are coming back. There are a lot of positive notes on that front. But that's a huge sensitivity. The other one is really inventory spend. This year, we have a contractual inventory amount of $225 million. All in, it will be most likely north of $250 million on inventory spend; the contractual amount gets cut in half next year, where they're closer to $110 million and then drop further the years out. In those proxy materials, the inventory spend assumption is consistent with what we've said on previous calls that on a more normalized rate, we'll be between $250 million and $300 million, probably closer to $300 million on average spend, which is what's built into those numbers. This is clearly a sensitivity too. We've discussed this on many occasions. However, there is an opportunity to potentially pause inventory, assuming the transaction closes. Ka Haku being the best example because it's in Waikiki and Diamond happens to have the Modern, which is also in Waikiki. Do we actually need to build that in the timeframe that the proxies suggest? You can see under the combined figures that it moves. The acquisition gives us an excellent opportunity to reassess inventory spend strategy.

Stephen Grambling, Analyst

Fair enough. And one last one, just on the acquisition. And I can't remember if you mentioned this on the last call about the acquisition itself, but Diamond had a lot of open marketing that they were pursuing historically. You don't really go through that channel. Any updated thoughts as you get further along the process in terms of how you think about altering the marketing channels? And anything else maybe you've learned as you've looked under the hood a little bit more here?

Mark Wang, President and CEO

Yes. We're excited about what we're seeing in Diamond. They are doing some really great work when you think about the performance that they've been achieving without a brand. Some of the open marketing that they're doing, we're doing ourselves in select markets. There are some select markets where they're performing very well. The biggest opportunity for us is our ability, once we put the brand across the legacy Diamond brand and then rebrand under Hilton Vacation Club. We should be able to improve performance, both from a closing and VPG standpoint. We think there's some real opportunity there. We also talked about some of the great work they're doing with their innovative events of a lifetime marketing that should create some really good lift internally for HGV's business. All in all, we think combining these two businesses is going to create some great synergies but also some great opportunities for revenue growth.

Operator, Operator

Our next question comes from the line of Patrick Scholes with Truist Securities.

Charles Scholes, Analyst

When I review the preliminary proxy statement for the Diamond deal, there are certainly some significant assumed EBITDA growth rates for the stand-alone company for next year and 2023. How should I consider which locations, states, or specific projects are really driving that exceptional growth rate?

Mark Wang, President and CEO

Yes, that's an interesting question. Patrick, it seems you're focusing on our developments in Maui and Cabo, where Diamond is performing well in both markets, which are more established. We have just opened there, and we see real potential to surpass our initial expectations in these areas. The improvements you've noticed are tied to synergy opportunities and our expanded distribution network, enabling us to utilize the Hilton platform more effectively and connect with new customers who were previously beyond our reach. Additionally, by implementing a more competitive entry-level pricing strategy, we expect to see growth across both customer segments.

Daniel Mathewes, Chief Financial Officer

Patrick, I think the only thing I'd add to that is, when you look at the proxy materials and how they evolve from '21 to '22, both the HGV stand-alone as well as the HGV adjusted Diamond financial forecast, it's the same mindset. 2021 is a recovery year. 2022, you get back to your 2019 levels-ish slightly better. You see the bumps when we open new properties. We believe there's a halo effect with Maui. Sesoko is doing really well now. Cabo is doing well. All those destinations are outpacing our expectations currently. We believe we'll continue with that. Locations such as New York, we think are still going to be in the recovery mode in 2022. We've seen a nice recovery in the destination locations such as Vegas and Orlando. We saw them perform better in Q1 than they have during COVID, but the core business that I think is still in the not full recovery, still recovering mode, it's going to be those urban markets, most notably New York and to a lesser degree, Chicago and D.C.

Brandt Montour, Analyst

I would like to follow up on Patrick's first question regarding the 2022 stand-alone HGV adjusted EBITDA number in the proxy. Your comments are clear, Dan. It seems that the overall profit recovery is approaching levels seen in 2019. My question is about how much of that recovery is contributed by properties that opened in 2020 and 2021, and I am trying to understand how much of the core business is anticipated to have fully recovered.

Daniel Mathewes, Chief Financial Officer

With regards to the core business and recovery, what I think you're going to see in 2022, it's going to take a little bit of time. Outside of the real estate real quick, it will take a little time for the portfolio to rebalance itself. Our portfolio balance went from a little north of $1.3 billion to now it's right about $1.1 billion. Our financing segment will continue to trail historicals in 2022. We have historically seen bumps when we open new properties, so we believe there's a halo effect with Maui. Sesoko is doing really well now. Cabo is doing well. All those destinations are outpacing our expectations currently. This recovery is not quite full yet; still recovering. We believe we're going to see that continue. We've also seen a nice recovery in destination locations such as Vegas and Orlando, but the core business is still going to be in recovery mode.

Mark Wang, President and CEO

Yes. When considering this opportunity, we believe there are over $125 million in cost synergies; however, the main driver for us will be the revenue synergies. The primary opportunity lies in rebranding to Hilton Vacation Club, which is the legacy business of Diamond. This change is expected to establish a higher level of trust and credibility, something that's difficult to achieve in a non-branded environment. We are making significant progress on this branding, collaborating closely with Hilton to finalize the standards. We anticipate starting the conversion of some properties later this year, focusing on those that are closest to meeting the current standards and are generating the majority of contract sales. We will also be rebranding all the sales centers and redesigning them. Our goal is to start selling the new product at the beginning of 2022. The real opportunity comes from enhanced owner sales and the potential to cross-sell between the two product lines. Furthermore, we are developing a new membership concept that will connect our programs, providing access to new markets, features, and expanding the value proposition with new tiering. These developments will significantly increase our revenue from both existing owners and new buyers. While this is a broad overview, I can't disclose specific details or components that contribute to this growth.

Operator, Operator

Our next question comes from the line of Ben Chaiken with Crédit Suisse.

Benjamin Chaiken, Analyst

I have two questions regarding the transaction. Can you remind us what percentage of the Diamond customers you believe fit into an income or FICO score that would make it sensible for them to purchase existing HGV products? Additionally, when considering the mid-scale or even economy brands at Hilton, do you have an idea of what percentage that represents of the Hilton loyalty-based member pipeline that you rely on to support your new owner growth?

Mark Wang, President and CEO

Sure. From a FICO score standpoint, Diamond has really improved their credit underwriting over the last 5 years under Apollo's sponsorship. Their FICO scores are just a bit below our current FICO scores, around $726 million compared to our $740 million, $750 million. They tend to trend closer to $100,000 on a household income, while we trend closer to $150,000. All in all, they're a good customer base. As far as the mid-scale and the database makeup of Hilton, we're not at liberty to provide specifics since they own it, and we have a license to use it. However, you can only imagine that as Hilton has grown over the last decade and look at their portfolio expansion, that our sense is that the percentages of customers moving into their loyalty base probably mirrors a lot of what their new brands have grown to. Hopefully, that's helpful.

Operator, Operator

We have reached the end of our question-and-answer session. I'd like to turn the call back over to Mr. Wang for any closing remarks.

Mark Wang, President and CEO

Thanks, everyone, for joining us this morning, and thanks again to all of our team members for their hard work and dedication to providing a safe and memorable experience to our guests when traveling with us. We look forward to speaking with you over the coming weeks and updating you on our next call. Have a great day.

Operator, Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.