What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-27 compared with 2021-07-29 · 139 added, 130 removed, 280 unchanged (49% of the section changed)

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In some cases, you can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "could," "seeks," "projects," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words.

Such forward-looking statements are subject to various risks and uncertainties including, among others, risks inherent to the hospitality industry, macroeconomic factors beyond our control, risks related to the impact of the COVID-19 pandemic, including as a result of new strains and variants of the virus, competition for hotel guests and management and franchise contracts, risks related to doing business with third-party hotel owners, performance of our information technology systems, growth of reservation channels outside of our system, risks of doing business outside of the U.S.

Such forward-looking statements are subject to various risks and uncertainties including, among others, risks inherent to the hospitality industry, macroeconomic factors beyond our control, such as challenges due to labor shortages and supply chain disruptions, risks related to the impact of the COVID-19 pandemic, including as a result of new strains and variants of the virus and uncertainty of acceptance of the COVID-19 vaccines and their effectiveness, competition for hotel guests and management and franchise contracts, risks related to doing business with third-party hotel owners, performance of our information technology systems, growth of reservation channels outside of our system, risks of doing business outside of the U.S.

and our indebtedness.

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Our Asia Pacific region began experiencing the effects of the COVID-19 pandemic in January 2020, while the pronounced negative results and suspensions of hotel operations in the Americas and Europe, Middle East and Africa ("EMEA") regions did not begin until mid-March 2020.

Since the beginning of the pandemic, the pervasiveness and severity of travel restrictions and stay-at-home directives have varied by country and state and have fluctuated with COVID-19 infection surges and contractions, as well as the distribution of COVID-19 vaccinations, which commenced in late 2020, and the emergence of new strains and variants of the virus.

As such, the pandemic had a material adverse impact on our results for the three and six months ended June 30, 2021 and 2020 when compared to periods prior to the onset of the pandemic, and although all periods were significantly impacted by the pandemic, none of these periods are considered comparable, and no periods affected by the pandemic are expected to be comparable to future periods.

We are still unable to predict when normal economic activity and business operations will fully resume.

Since the beginning of the pandemic, the pervasiveness and severity of travel restrictions and stay-at-home directives have varied by country and state, fluctuating based on a number of factors, including:

(i) COVID-19 infection surges and contractions;

(ii) the emergence of new strains and variants of the virus;

and (iii) the distribution of COVID-19 vaccinations, which commenced in late 2020.

The pandemic had a material adverse impact on our results for the three and nine months ended September 30, 2021 and 2020 when compared to periods prior to the onset of the pandemic, and although all periods were significantly impacted by the pandemic, none of these periods are considered comparable, and no periods affected by the pandemic are expected to be comparable to future periods.

Although we have observed signs of economic recovery, we are still unable to predict the time required for a widespread sustainable economic recovery to take hold on a global scale.

Accordingly, given the ongoing nature of the pandemic, the ultimate impact that it will have on the Company’s business, financial performance and results of operations remains uncertain.

However, during recent months, the broader distribution of COVID-19 vaccinations and the easing of travel and other restrictions have generated renewed travel and tourism activities in many markets around the globe.

Additionally, although the restrictions and reduction in travel resulted in the suspensions of operations at certain hotels throughout 2020 and the operations of approximately 300 hotels were suspended for some period of time during the six months ended June 30, 2021, reopenings have significantly outpaced suspensions during 2021 and only 95 hotels remained suspended as of July 21, 2021.

Although certain restrictions have been reinstated with the spread of new variants of the virus, the broader distribution of COVID-19 vaccinations in early 2021 and the overall easing of travel and other restrictions have generated renewed interest in travel and tourism activities in many markets around the globe.

However, the continued spreading of COVID-19 and its related variants could result in travel and other restrictions being implemented or reinstated in the affected areas, where our hotels may be located, in future periods.

While the restrictions and the reduction in travel resulted in the suspensions of operations at certain hotels throughout 2020, and the operations of approximately 335 hotels were suspended for some period of time during the nine months ended September 30, 2021, reopenings have significantly outpaced suspensions during 2021, and only 69 hotels remained suspended as of October 20, 2021.

We expect nearly all of our hotel properties that were suspended for some period of time as a result of the pandemic to be open by the end of 2021.

Hilton is one of the largest hospitality companies in the world, with 6,676 properties comprising 1,050,331 rooms in 119 countries and territories as of June 30, 2021.

Hilton is one of the largest hospitality companies in the world, with 6,758 properties comprising 1,061,686 rooms in 122 countries and territories as of September 30, 2021.

Our premier brand portfolio includes:

our luxury and lifestyle hotel brands, Waldorf Astoria Hotels & Resorts, LXR Hotels & Resorts, Conrad Hotels & Resorts, Canopy by Hilton, Tempo by Hilton and Motto by Hilton;

our full service hotel brands, Signia by Hilton, Hilton Hotels & Resorts, Curio Collection by Hilton,

DoubleTree by Hilton, Tapestry Collection by Hilton and Embassy Suites by Hilton;

our full service hotel brands, Signia by Hilton, Hilton Hotels & Resorts, Curio Collection by Hilton, DoubleTree by Hilton, Tapestry Collection by Hilton and Embassy Suites by Hilton;

our focused service hotel brands, Hilton Garden Inn, Hampton by Hilton, Tru by Hilton, Homewood Suites by Hilton and Home2 Suites by Hilton;

and our timeshare brand, Hilton Grand Vacations.

As of June 30, 2021, we had more than 118 million members in our award-winning guest loyalty program, Hilton Honors.

As of September 30, 2021, we had 123 million members in our award-winning guest loyalty program, Hilton Honors.

Segments and Regions

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The Americas region includes North America, South America and Central America, including all Caribbean nations.

Although the U.S., which represented 71 percent of our system-wide hotel rooms as of June 30, 2021, is included in the Americas region, it is often analyzed separately and apart from the Americas region and, as such, it is presented separately within the analysis herein.

Although the U.S., which represented 71 percent of our system-wide hotel rooms as of September 30, 2021, is included in the Americas region, it is often analyzed separately and apart from the Americas region and, as such, it is presented separately within the analysis herein.

The EMEA region includes Europe, which represents the western-most peninsula of Eurasia stretching from Iceland in the west to Russia in the east, and the Middle East and Africa ("MEA"), which represents the Middle East and all African nations, including the Indian Ocean island nations.

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While these objectives have not changed as a result of the COVID-19 pandemic, the current economic environment has posed certain challenges to the execution of our strategy, which have included and may continue to include delays in openings and new development.

During the six months ended June 30, 2021, we added over 220 hotels, consisting of over 36,300 rooms, to our system, contributing to nearly 30,900 net additional hotel rooms.

As of June 30, 2021, we had nearly 2,590 hotels in our development pipeline that we expect to add to our system in the future, representing 401,000 rooms under construction or approved for development throughout 115 countries and territories, including 30 countries and territories where we do not currently have any existing hotels.

During the nine months ended September 30, 2021, we added 320 hotels, consisting of over 51,000 rooms, to our system, contributing to nearly 42,100 net additional hotel rooms.

As of September 30, 2021, we had more than 2,620 hotels in our development pipeline that we expect to add to our system in the future, representing 404,000 rooms under construction or approved for development throughout 114 countries and territories, including 27 countries and territories where we do not currently have any existing hotels.

Nearly all of the rooms in the development pipeline are within our management and franchise segment.

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reached a new bilateral trade and cooperation deal governing their future relationship (the "EU-UK Trade and Cooperation Agreement"), which was fully implemented from May 1, 2021.

While our results as of and for the three and six months ended June 30, 2021 were not materially affected by Brexit specifically, the final outcomes are not yet certain.

In addition, while the EU-UK Trade and Cooperation Agreement provides clarity in respect of the intended future relationship between the U.K.

and some detailed matters of trade and cooperation, it

remains unclear what general long-term economic, financial, trade and legal implications the U.K.

and some detailed matters of trade and cooperation, it remains unclear what general long-term economic, financial, trade and legal implications the U.K.

withdrawal from the E.U.

will have and how it will ultimately affect our business.

Brexit measures could potentially disrupt the markets we serve and cause tax and foreign currency exchange rate volatility, which could have adverse effects on our business.

We will continue to monitor the potential impact of Brexit on our business in future periods.

While our results as of and for the three and nine months ended September 30, 2021 were not materially affected by Brexit specifically, we will continue to monitor the potential impact of Brexit on our business in future periods.

Key Business and Financial Metrics Used by Management

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and (iii) have not sustained substantial property damage, business interruption, undergone large-scale capital projects or for which comparable results were not available.

Of the 6,619 hotels in our system as of June 30, 2021, 5,617 hotels were classified as comparable hotels.

Of the 6,699 hotels in our system as of September 30, 2021, 5,572 hotels were classified as comparable hotels.

Our 1,127 non-comparable hotels included 66 hotels, or less than one percent of the total hotels in our system, that were removed from the comparable group during the last twelve months because they have sustained substantial property damage, business interruption, underwent large-scale capital projects or comparable results were otherwise not available.

When considering business interruption in the context of our definition of comparable hotels, no hotel that had completely or partially suspended operations on a temporary basis at any time as a result of the COVID-19 pandemic was excluded from the definition of comparable hotels on that basis alone.

Despite these temporary suspensions of hotel operations, we believe that including these hotels within our hotel operating statistics of occupancy, average daily rate ("ADR") and revenue per available room ("RevPAR") reflects the underlying results of our business for the three and six months ended June 30, 2021 and 2020.

Occupancy represents the total number of room nights sold divided by the total number of room nights available at a hotel or group of hotels for a given period.

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ADR represents hotel room revenue divided by the total number of room nights sold for a given period.

ADR measures average room price attained by a hotel, and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels.

ADR measures the average room price attained by a hotel, and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels.

ADR is a commonly used performance measure in the industry, and we use ADR to assess pricing levels that we are able to generate by type of customer, as changes in rates charged to customers have different effects on overall revenues and incremental profitability than changes in occupancy, as described above.

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RevPAR is also a useful indicator in measuring performance over comparable periods for comparable hotels.

References to RevPAR, ADR and occupancy are presented on a comparable basis, and references to RevPAR and ADR are presented on a currency neutral basis, unless otherwise noted.

As such, comparisons of these hotel operating statistics for the three and six months ended June 30, 2021 and 2020 use the exchange rates for the three and six months ended June 30, 2021, respectively.

References to RevPAR, ADR and occupancy are presented on a comparable basis, based on the comparable hotels as of September 30, 2021, and references to RevPAR and ADR are presented on a currency neutral basis, unless otherwise noted.

As such, comparisons of these hotel operating statistics for the three and nine months ended September 30, 2021 and 2020 use the exchange rates used to translate the results of the Company's foreign operations within its financial statements for the three and nine months ended September 30, 2021, respectively, and for the three months ended September 30, 2021 and 2019, use the

exchange rates used to translate the results of the Company's foreign operations within its financial statements for the three months ended September 30, 2021.

EBITDA and Adjusted EBITDA

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and (iv) other items, such as amounts related to debt restructurings and retirements and reorganization and related severance costs, that are not core to our operations and are not reflective of our operating performance.

EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with GAAP.

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

EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be considered as alternatives, either in isolation or as a substitute, for net income (loss) or other measures of financial performance or liquidity, including cash flows, derived in accordance with GAAP.

Further, EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered as other methods of analyzing our results as reported under GAAP.

Some of these limitations are:

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The hotel operating statistics by region for our system-wide comparable hotels were as follows:

Three Months Ended Change Six Months Ended Change

June 30, 2021 2021 vs.

2020 June 30, 2021 2021 vs.

Three Months Ended Change Nine Months Ended Change

September 30, 2021 2021 vs.

2020 September 30, 2021 2021 vs.

Occupancy 67.9 % 23.4 % pts.

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RevPAR $ 90.39 98.7 % $ 70.15 47.6 %

During the three and six months ended June 30, 2021, the COVID-19 pandemic continued to negatively impact our business and our hotel operating statistics.

However, we experienced improvement in our results as compared to previous periods during the COVID-19 pandemic, particularly during the three months ended June 30, 2021, as a result of an upward trend in travel and tourism with the easing of COVID-19 restrictions.

The negative impact of the COVID-19 pandemic affected the Asia Pacific region in January 2020, before spanning to the U.S., Americas (excluding the U.S.), Europe and MEA regions in mid-March 2020.

Therefore, the results for the six months ended June 30, 2021 and 2020 for the U.S., Americas (excluding the U.S.), Europe and MEA regions are less comparable than the Asia Pacific region and reflect less improvement, if any, in RevPAR between the two periods, as those regions were not affected for the entirety of the six months ended June 30, 2020.

Although all regions showed significant improvement compared to the three months ended June 30, 2020, Europe's recovery was outpaced by the other regions during the six months ended June 30, 2021 due to continued COVID-19 restrictions and travel barriers across the region.

The three months ended June 30, 2020 reflected the lowest occupancy and RevPAR of any period for all regions since the start of the pandemic.

During the three and nine months ended September 30, 2021, the COVID-19 pandemic continued to negatively impact our business and our hotel operating statistics.

However, during the nine months ended September 30, 2021, we experienced significant improvement in our results, due to an upward trend in travel and tourism with the easing of many COVID-19 restrictions and the more expansive distribution of COVID-19 vaccinations.

Further, in addition to all regions showing improvement in RevPAR during the three months ended September 30, 2021 as compared to the same period in 2020, almost all regions showed sequential improvement in RevPAR during the period from the three months ended June 30, 2021.

While the recoveries of the Europe and Americas Non-US regions were outpaced by other regions in prior periods during 2021, the easing of travel restrictions, and, for Europe, a more expansive vaccination program, accelerated their recovery during the three months ended September 30, 2021, resulting in improved operating statistics more consistent with system-wide results.

In Asia Pacific, stronger prior year results and a fluctuating recovery due to prolonged COVID-19 and travel restrictions in certain countries, particularly China, Australia and New Zealand, resulted in a more muted increase in RevPAR in the quarter when compared to the other regions.

Further, as a result of the pandemic, certain hotels suspended operations at various times throughout 2020, but the majority of those hotels were reopened by 2021.

Overall, we are recovering from the negative impact of the pandemic and while some hotels suspended operations during the six months ended June 30, 2021, reopenings significantly outpaced suspensions.

In line with our recovery, although some hotels did suspend operations during the nine months ended September 30, 2021, reopenings significantly outpaced suspensions.

As such, the operations of only approximately 335 hotels, primarily located in the U.S.

and Europe, were suspended for some period of time during the six months ended June 30, 2021, as compared to approximately 1,205 hotels during the six months ended June 30, 2020.

Further, as of June 30, 2021, the number of hotels with suspended operations was the fewest as of any period end since the start of the pandemic, with more than 98 percent of our global hotel properties open.

And while most properties, including those that reopened following suspensions of their operations, experienced significantly lower occupancy during 2020 and 2021 as

compared to periods prior to the onset of the pandemic, we experienced sequential monthly improvement in occupancy, ADR and RevPAR on a system-wide basis during the six months ended June 30, 2021.

and Europe, were suspended for some period of time during the nine months ended September 30, 2021, as compared to approximately 1,270 hotels during the nine months ended September 30, 2020.

Ninety-nine percent of our global hotel properties were open as of September 30, 2021.

Additionally, while most properties, including those that reopened following suspensions of their operations, experienced significantly lower occupancy during 2020 and early 2021 as compared to periods prior to the onset of the pandemic, system-wide occupancy has steadily improved during the year.

Further, our system-wide RevPAR and ADR for the three months ended September 30, 2021 was

down 18.8 percent and 2.5 percent, respectively, compared to the same period in 2019 on a comparable and currency neutral basis.

The table below provides a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA:

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

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Interest expense 98 116 302 316

Income tax benefit (1) (12) (36) (47)

Income tax expense (benefit) 100 (33) 64 (80)

Depreciation and amortization expenses 46 90 143 269

EBITDA 484 92 768 10

Loss on sale of assets, net 8 — 8 —

Loss (gain) on foreign currency transactions — 12 (1) 16

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Amortization of contract acquisition costs 9 7 23 22

Net other expenses from managed and franchised properties

Net other expenses (revenues) from managed and franchised properties

(62) 44 57 281

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Adjusted EBITDA $ 519 $ 224 $ 1,117 $ 638

(1) Includes severance not related to the reorganization activities undertaken in response to the COVID-19 pandemic and other items.

The three and six months ended June 30, 2020 also include losses related to the disposal of an investment and the settlement of a debt guarantee for a franchised hotel.

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

(1) The three and nine months ended September 30, 2021 and 2020 include costs recognized for certain legal settlements.

The nine months ended September 30, 2020 also includes losses related to the disposal of an investment and the settlement of a debt guarantee for a franchised hotel.

All periods include severance not related to the reorganization activities undertaken in response to the COVID-19 pandemic and other items.

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2021 2020 2021 vs.

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(in millions) (in millions)

Franchise and licensing fees $ 369 $ 132 NM (1)

$ 611 $ 471 29.7

Franchise and licensing fees $ 451 $ 241 87.1 $ 1,062 $ 712 49.2

Base and other management fees $ 49 $ 24 NM (1)

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Incentive management fees

21 (5) NM (1)

Total management fees $ 75 $ 31 NM (1)

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

The COVID-19 pandemic began to significantly impact our franchise and licensing fees and management fees in March 2020.

The increases in fees that were recognized in 2021, as compared to fees recognized during the same periods in 2020, were driven by an upward trend in travel and tourism in 2021 resulting from increased confidence and desire to travel by our customers, as COVID-19 vaccinations were distributed more broadly and COVID-19 restrictions began to ease.

Additionally, there were decreases in the number of hotels that had suspended operations as a result of the pandemic during the respective periods, with approximately 1,170 managed and franchised hotels with suspended operations for some period of time during the six months ended June 30, 2020, while only approximately 285 managed and franchised hotels had suspended operations for some period of time during the six months ended June 30, 2021.

As of June 30, 2021, all but approximately 100 of these hotels had reopened.

For the three months ended June 30, 2021, RevPAR increased 218.1 percent at our comparable franchised properties and 308.3 percent at our comparable managed properties, as a result of increases in occupancy of 38.3 percentage points and 29.5 percentage points, respectively, and increased ADR of 24.2 percent and 46.2 percent, respectively.

For the six months ended June 30, 2021, RevPAR increased 29.6 percent at our comparable franchised properties and 6.5 percent at our comparable

managed properties as a result of increased occupancy of 14.8 percentage points and 6.5 percentage points, respectively, partially offset by decreased ADR of 5.0 percent and 10.9 percent, respectively.

Including new development and ownership type transfers, from January 1, 2020 to June 30, 2021, we added nearly 570 managed and franchised properties on a net basis, providing an additional 79,700 rooms to our management and franchise segment.

As new hotels were part of our system for full periods and as they recovered from the negative impact of the COVID-19 pandemic, such hotels increased our franchise and management fees during the periods, and we expect this trend to continue in future periods.

Additionally, licensing and other fees increased $48 million and $28 million during the three and six months ended June 30, 2021, respectively, primarily due to increases in licensing fees from HGV and our strategic partnerships, which were the result of increases in timeshare revenues and higher co-branded credit cardholder spend, respectively, both resulting from the rise in travel and tourism during the periods.

Incentive fees increased during the periods as they are based on hotels' operating profits, which have improved from the prior year as a result of increased demand at our properties.

Incentive fees during the three months ended June 30, 2020 were negative due to the reversal in that period of certain incentive fees that were recognized during the three months ended March 31, 2020, as a result of revisions of the estimates of the expected operating profit for certain managed hotels during that reporting period.

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

The COVID-19 pandemic began to significantly impact our franchise and licensing fees and total management fees in March 2020.

However, during 2021, we are experiencing increases in fees recognized, as compared to fees recognized during the same periods in 2020, driven by an upward trend in travel and tourism resulting from increased desire to travel by our customers, as COVID-19 vaccinations were distributed more broadly and COVID-19 restrictions eased in many areas.

Additionally, there were decreases in the number of hotels that had suspended operations as a result of the pandemic during the respective periods, with approximately 1,235 managed and franchised hotels with suspended operations for some period of time during the nine months ended September 30, 2020, compared to approximately 320 managed and franchised hotels during the nine months ended September 30, 2021.

As of September 30, 2021, all but 87 of these hotels had reopened.

For the three months ended September 30, 2021, RevPAR increased 93.8 percent at our comparable franchised properties and 119.2 percent at our comparable managed properties as a result of increased occupancy of 22.3 percentage points and 18.6 percentage points, respectively, and increased ADR of 30.7 percent and 38.7 percent, respectively.

For the nine months ended September 30, 2021, RevPAR increased 51.5 percent at our comparable franchised properties and 36.2 percent at our

comparable managed properties as a result of increased occupancy of 17.3 percentage points and 10.6 percentage points, respectively, and increased ADR of 7.5 percent and 3.1 percent, respectively.

Including new development and ownership type transfers, from January 1, 2020 to September 30, 2021, we added 650 managed and franchised properties on a net basis, providing an additional 91,000 rooms to our management and franchise segment.

As new hotels were part of our system for full periods and were part of the recovery from the negative impact of the COVID-19 pandemic, such hotels increased our franchise and management fees during the periods, and we expect this trend to continue in future periods.

Additionally, licensing and other fees increased $33 million and $61 million during the three and nine months ended September 30, 2021, respectively, primarily due to increases in licensing fees from our strategic partnerships and HGV, which were the result of increased co-branded credit cardholder spend and timeshare revenues, respectively, both resulting from the rise in travel and tourism during the periods.

Incentive management fees increased during the periods as they are based on hotels' operating profits, which have improved from the prior year as a result of increased demand at our properties.

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2021 2020 2021 vs.

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

As a result of the COVID-19 pandemic, the operations of approximately 15 and 35 of our owned and leased hotels were suspended for some period of time during the six months ended June 30, 2021 and 2020, respectively, and, as of June 30, 2021, all of these hotels had reopened.

The increase in owned and leased hotel revenues during the three months ended June 30, 2021 was primarily attributable to a $73 million increase in revenues from our comparable owned and leased hotels that was due to an increase in RevPAR of 492.6 percent, resulting from increases in occupancy and ADR of 21.8 percentage points and 14.1 percent, respectively, as well as the decrease in the number of these hotels that had suspended operations during the periods.

Additionally, the increase included a $23 million increase in COVID-19 relief subsidies from international governments.

Although the three months ended June 30, 2021 reflected signs of recovery from the COVID-19 pandemic, we still experienced a decrease in revenues from owned and leased hotels during the six months ended June 30, 2021, as the majority of our owned and leased hotels did not suspend operations or otherwise sustain negative results because of the pandemic until March 2020.

Revenues from our comparable owned and leased hotels decreased $41 million during the six months ended June 30, 2021, due to reduced RevPAR of 40.8 percent, resulting from decreases in occupancy and ADR of 7.6 percentage points and 19.0 percent, respectively.

However, the decrease in revenues during the six months ended June 30, 2021 was partially offset by a $28 million increase in COVID-19 relief subsidies from international governments and an $11 million increase due to favorable foreign currency exchange rates.

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

The increases in owned and leased hotel revenues during the three and nine months ended September 30, 2021 were primarily attributable to increases in revenues from our comparable owned and leased hotels, particularly as a result of the ongoing recovery from the COVID-19 pandemic.

Further, although the operations of approximately 15 and 35 of our owned and leased hotels were suspended for some period of time during the nine months ended September 30, 2021 and 2020, respectively, as a result of the COVID-19 pandemic, all of these hotels were reopened before the three months ended September 30, 2021, with no additional suspensions during the period.

The increase during the three months ended September 30, 2021 was primarily attributable to an $84 million and $20 million increase, on a currency neutral basis, from our comparable and non-comparable owned and leased hotels, respectively.

with no significant impact from fluctuations in foreign currency exchange rates.

The increase from our comparable owned and leased hotels was primarily the result of increased RevPAR of 151.1 percent, due to increases in occupancy and ADR of 25.2 percentage points and 23.0 percent, respectively.

The increase during the nine months ended September 30, 2021 included an $11 million increase as a result of favorable fluctuations in foreign currency exchange rates and, on a currency neutral basis, a $34 million increase from our comparable owned and leased hotels, only partially offset by a $4 million decrease from our non-comparable owned and leased hotels.

The increase from our comparable owned and leased hotels was the result of increased RevPAR of 9.8 percent, primarily due to increased occupancy of 3.4 percentage points, partially offset by decreased ADR of 2.6 percent, as well as a $22 million increase in COVID-19 relief subsidies from international governments.

The decrease in revenues from our non-comparable owned and leased hotels included a $10 million decrease, on a currency neutral basis, from properties that were sold or for which the lease agreements were terminated, with most of the properties transferring to our management and franchise segment during 2021 and 2020.

The increase in revenues from the remaining non-comparable owned and leased hotels included a $7 million increase in COVID-19 relief subsidies from international governments.

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2021 2020 2021 vs.

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(in millions) (in millions)

Other revenues $ 21 $ 10 NM (1)

$ 38 $ 33 15.2

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

For the three months ended June 30, 2021, other revenues increased primarily due to increased revenue from our purchasing operations related to improving hotel demand resulting from the rise in travel and tourism during the period.

Other revenues $ 18 $ 19 (5.3) $ 56 $ 52 7.7

For the nine months ended September 30, 2021, other revenues increased primarily due to increased revenue from our purchasing operations related to improving hotel demand resulting from the rise in travel and tourism during the period.

Operating Expenses

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2021 2020 2021 vs.

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$ 200 $ 144 38.9 $ 452 $ 478 (5.4)

The changes in our owned and leased hotel expenses primarily reflect the changes in occupancy during the three and six months ended June 30, 2021, as discussed in "—Revenues," which drove food and beverage expenses and certain of the variable operating costs of the hotels.

Additionally, there were changes in rent expense for our leased hotels, particularly variable rent expense, which is generally based on hotel performance, consistent with the changes in owned and leased hotel revenues.

F urther, although the operations of certain owned and leased hotels were suspended for some period of time during the six months ended June 30, 2021 and 2020, and most remaining open hotels were operating with low occupancy, particularly during the three months ended June 30, 2020, certain fixed costs of maintaining these hotels, such as fixed rent and certain minimum maintenance and utility costs, could not be reduced at the same rate that those hotels' revenues may have decreased.

The changes during the three and six months ended June 30, 2021 also included increases in owned and leased hotel expenses of $7 million and $20 million, respectively, as a result of unfavorable foreign currency exchange rates.

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

The increase in owned and leased hotel expenses during the three months ended September 30, 2021 was primarily related to our comparable owned and leased hotels and reflects the increase in occupancy during the period, as discussed in "—Revenues," which drove increased food and beverage expenses and certain operating costs of the hotels.

The decrease for the nine months ended September 30, 2021 included decreases of $34 million and $15 million, on a currency neutral basis, from our comparable and non-comparable owned and leased hotels, respectively, which were partially offset by a $23 million increase as a result of unfavorable fluctuations in foreign currency exchange rates.

Despite the increase in occupancy during the period, our owned and leased hotels had decreases in certain operating expenses, as well as expenses related to FF&E replacement reserves due to reduced required FF&E spending during the period at our leased properties.

Additionally, expenses from our non-comparable owned and leased hotels included an $11 million decrease due to properties being sold or lease agreements terminated, with most of the properties transferring to our management and franchise segment during 2021 and 2020.

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2021 2020 2021 vs.

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General and administrative expenses 107 66 62.1 302 189 59.8

Reorganization costs — 38 (100.0) — 38 (100.0)

Reorganization costs — — NM (1)

Impairment losses — 9 (100.0) — 136 (100.0)

Other expenses 12 21 (42.9) 31 48 (35.4)

The decreases in depreciation and amortization expenses were due to decreases in amortization expenses, primarily resulting from certain management and franchise contract intangible assets that were recorded at the Merger becoming fully amortized during 2020.

The increases in general and administrative expenses were primarily due to increased share-based compensation expense as a result of expenses recognized during the three and six months ended June 30, 2021 for all of the outstanding performance shares, which were probable of achievement as of June 30, 2021, while the expenses recognized during the three and six months ended June 30, 2020 were net of the reversal of expenses recognized in prior periods as a result of the determination that the performance conditions of the performance shares that were originally awarded in 2018 and 2019 were no longer probable of achievement.

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

The increases in general and administrative expenses were primarily due to increased share-based compensation expense as a result of expenses recognized during the three and nine months ended September 30, 2021 for all of the outstanding performance shares, which were probable of achievement as of September 30, 2021, while the expenses recognized during the three and nine months ended September 30, 2020 were net of the reversal of expenses recognized in prior periods as a result of the determination that the performance conditions of the performance shares that were originally awarded in 2018, 2019 and 2020 were no longer probable of achievement.

"Share-Based Compensation" in our unaudited condensed consolidated financial statements for additional information.

During the three and six months ended June 30, 2020, we recognized reorganization costs related to activities undertaken in response to the COVID-19 pandemic, primarily relating to reductions in our workforce and the associated costs.

During the three months ended June 30, 2020, we recognized impairment losses of $6 million for operating lease ROU assets, and, during the six months ended June 30, 2020, we recognized impairment losses of $51 million, $21 million and $46 million for operating lease ROU assets, property and equipment, net and other intangible assets, net, respectively, related to our leased hotel properties.

Additionally, during the three and six months ended June 30, 2020, we recognized impairment losses of $9 million related to management contract acquisition costs.

These impairment losses were due to a decline in results and expected future performance at the related hotels as a result of the COVID-19 pandemic.

Other expenses decreased primarily as a result of expenses related to performance guarantees being recognized during the three and six months ended June 30, 2020.

Additionally, the decrease during the six months ended June 30, 2021 included decreased expenses from our purchasing operations.

Also contributing to the increase for the three and nine months ended September 30, 2021 was an increase in payroll expenses, primarily resulting from our corporate workforce that was retained during 2021 after completion of our reorganization activities, of which a significant portion was on reduced pay or furlough for a six month period during the nine months ended September 30, 2020.

During the nine months ended September 30, 2020, we recognized reorganization costs related to activities undertaken in response to the COVID-19 pandemic, primarily relating to reductions in our workforce and associated costs.

During the three and nine months ended September 30, 2020, we recognized impairment losses of $3 million and $24 million for property and equipment, respectively, including $2 million and $4 million, respectively, for finance lease ROU assets.

During the nine months ended September 30, 2020, we also recognized impairment losses of $51 million and $46 million for operating lease ROU assets and other intangible assets, respectively.

All of these impairment losses were related to our leased hotel properties.

Additionally, during the three and nine months ended September 30, 2020, we recognized impairment losses of $6 million and $15 million related to management contract acquisition costs.

These impairment losses

were due to a decline in results and expected future performance at the related hotels as a result of the COVID-19 pandemic, as well as actual and expected early terminations of the related management contracts.

Other expenses decreased primarily as a result of expenses related to the settlement of a dispute with an owner of a managed hotel that were recognized during the three and nine months ended September 30, 2020 and, during the nine months ended September 30, 2021, as a result of expenses related to performance guarantees that were recognized during 2020.

Non-operating Income and Expenses

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2021 2020 2021 vs.

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16 (20) NM (1)

Income tax benefit (expense)

(100) 33 NM (1)

Income tax benefit

1 12 (91.7) 36 47 (23.4)

(64) 80 NM (1)

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

The changes in interest expense during the three and six months ended June 30, 2021 included the increase in interest expense due to the issuances of the 2025 Senior Notes and the 2028 Senior Notes in April 2020, as well as decreases resulting from the issuances of new senior unsecured notes and extinguishments of existing senior unsecured notes in December 2020 and February 2021, which reduced the weighted average interest rates on our outstanding senior unsecured notes.

Additionally, our variable interest expense decreased during the three and six months ended June 30, 2021 due to declines in the variable interest rate on our Term Loan, as well as significant principal repayments that were made on the Revolving Credit Facility during the periods, while no such payments were made during 2020 after our full draw down on the Revolving Credit Facility in March 2020.

The decreases in interest expense during the three and nine months ended September 30, 2021 included the decreases resulting from the issuances of new senior unsecured notes and the use of such proceeds for extinguishments of existing senior unsecured notes in December 2020 and February 2021, which reduced the weighted average interest rates on our outstanding senior unsecured notes.

Additionally, we repaid the entire outstanding balance on the Revolving Credit Facility as of June 30, 2021, while it was fully drawn for the period from March 2020 to December 2020.

For the nine months ended September 30, 2021, our variable interest expense also decreased due to declines in the variable interest rate on our Term Loan;

however, the decrease in interest expense during the nine months ended September 30, 2021 was partially offset by an increase due to the issuances of the 2025 Senior Notes and the 2028 Senior Notes in April 2020.

"Debt" in our unaudited condensed consolidated financial statements for additional information on our indebtedness.

The gains and losses on foreign currency transactions included changes in foreign currency exchange rates on certain intercompany financing arrangements, including short-term cross-currency intercompany loans.

The changes were the result of various currencies, but primarily the Australian dollar.

Loss on debt extinguishment for the six months ended June 30, 2021 related to the redemption of the 2026 Senior Notes and included a redemption premium of $55 million and the accelerated recognition of unamortized deferred financing costs on the 2026 Senior Notes of $14 million.

The changes were the result of various currencies, but primarily the Australian dollar and, for the three and nine months ended September 30, 2020, the euro.

Additionally, during the three and nine months ended September 30, 2020, we recognized losses related to the liquidation of investments in foreign entities that were reclassified out of accumulated other comprehensive loss.

Loss on debt extinguishment for the nine months ended September 30, 2021 related to the redemption of the 2026 Senior Notes and included a redemption premium of $55 million and the accelerated recognition of unamortized deferred financing costs on the 2026 Senior Notes of $14 million.

"Debt" in our unaudited condensed consolidated financial statements for additional information.

Other non-operating loss, net for the three and six months ended June 30, 2020 primarily included losses related to the disposal of an investment and the settlement of a debt guarantee for a franchised hotel.

The decreases in income tax benefit during the three and six months ended June 30, 2021 were primarily attributable to changes in income before income taxes, partially offset by benefits recognized as a result of the tax rate change implemented as part of the U.K.

Finance Act and increases in tax benefits recognized for net operating losses generated in 2021 in certain foreign jurisdictions.

The change in other non-operating income (loss), net primarily resulted from losses related to the disposal of an investment and the settlement of a debt guarantee for a franchised hotel recognized during the nine months ended September 30, 2020.

The increases in income tax expense during the three and nine months ended September 30, 2021 were primarily attributable to the increase in income before income taxes.

Additionally, during the nine months ended September 30, 2021, the increase in expense was partially offset by benefits recognized as a result of tax rate changes and increased tax benefits recognized for net operating losses generated in 2021 in certain foreign jurisdictions.

For additional information, see Note 7:

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"Business Segments" in our unaudited condensed consolidated financial statements for reconciliations of revenues for our reportable segments to consolidated amounts and of segment operating income to consolidated income (loss) before income taxes.

We primarily evaluate our business segment operating performance using segment operating income (loss), without allocating other revenues and other expenses from managed and franchised properties, other revenues, other expenses or general and administrative expenses.

Refer to "—Revenues" for further discussion of the increases in revenues from our managed and franchised properties, which are correlated to our management and franchise segment revenues and segment operating income.

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Liquidity and Capital Resources

As of June 30, 2021, we had total cash and cash equivalents of $1,127 million, including $83 million of restricted cash and cash equivalents.

As of September 30, 2021, we had total cash and cash equivalents of $1,387 million, including $99 million of restricted cash and cash equivalents, increasing $260 million from June 30, 2021, primarily driven by cash flows from operations during the three months ended September 30, 2021.

The majority of our restricted cash and cash equivalents are related to cash collateral and cash held for FF&E reserves.

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Further, in February 2021, we issued the 2032 Senior Notes to continue to extend debt maturities and reduce our cost of debt by repaying the 2026 Senior Notes.

Based on our continued recovery and expectations of the foreseeable demands on our available cash and our liquidity in future periods, we fully repaid the $1,690 million outstanding debt balance on the Revolving Credit Facility during the six months ended June 30, 2021, including $1,190 million in June 2021.

Based on our continued recovery and expectations of the foreseeable demands on our available cash and our liquidity in future periods, we fully repaid the $1.7 billion outstanding debt balance on the Revolving Credit Facility during the nine months ended September 30, 2021.

Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating and other expenditures, including costs associated with the management and franchising of hotels, corporate expenses, payroll and compensation costs, taxes and compliance costs, interest payments on our outstanding indebtedness, contract acquisition costs and capital expenditures for required renovations and maintenance at the hotels within our ownership segment.

While our accounts receivable balance as of June 30, 2021 is less than periods prior to the start of the pandemic, we are generally experiencing slower payment of certain fees due to us.

As such, we have considered the implications of these delayed payment trends in developing our estimates of expected future credit losses.

However, during the current period, we experienced some improvement with respect to the timing of customer payments in comparison to previous periods impacted by the pandemic.

While our accounts receivable balance as of September 30, 2021 is somewhat less than periods prior to the start of the pandemic, we are generally experiencing slower payment of certain fees due to us, and have considered these payment trends in developing our estimates of expected future credit losses.

During the second and third quarter of 2021, we experienced relative improvement with respect to the timing of customer payments and overall cash flow from operations, particularly in comparison to periods impacted by the pandemic in 2020.

Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities, capital improvements to the hotels within our ownership segment, commitments to owners in our management and franchise segment and corporate capital and information technology expenditures.

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Although the COVID-19 pandemic has caused us to temporarily change our cash management strategy, we have a long-term investment policy that is focused on the preservation of capital and maximizing the return on new and existing investments and returning available capital to stockholders through dividends and share repurchases, which we expect to reimplement at some time in the future.

Within the framework of our investment policy, we currently intend to continue to finance our business activities primarily with cash on our balance sheet as of June 30, 2021, cash generated from our operations and, as needed, the use of the available capacity of our Revolving Credit Facility.

Within the framework of our investment policy, we currently intend to continue to finance our business activities primarily with cash on our balance sheet as of September 30, 2021, cash generated from our operations and, as needed, the use of the available capacity of our Revolving Credit Facility.

After considering our approach to liquidity and our available sources of cash, we believe that our cash position and sources of liquidity will meet anticipated requirements for operating and other expenditures, including corporate expenses, payroll and related benefits, taxes and compliance costs and other commitments for the foreseeable future based on current conditions.

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We may from time to time issue or incur or increase our capacity to incur new debt and/or purchase our outstanding debt through underwritten offerings, open market transactions, privately negotiated transactions or otherwise.

Issuances or incurrence of new debt (or an increase in our capacity to incur new debt) and/or purchases or retirement of outstanding debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors.

Issuances or incurrence of new debt (or an increase in our capacity to incur new debt) and/or purchases or retirement of outstanding debt, if

any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors.

The amounts involved may be material.

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The following table summarizes our net cash flows:

Six Months Ended Percent

June 30, Change

Nine Months Ended Percent

September 30, Change

2021 2020 2021 vs.

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Operating Activities

The change in cash flows from operating activities was primarily attributable to the $1.0 billion of cash received in connection with the Honors Points Pre-Sale during the six months ended June 30, 2020.

Excluding the impact of this transaction, cash flows provided by (used in) operating activities were flat during the six months ended June 30, 2021, as the increase in cash inflows generated from our properties, largely as a result of an increase in system-wide RevPAR related to recovery from the COVID-19 pandemic, and the decreases in cash paid for interest and income taxes, were offset by a $92 million increase in payments of contract acquisition costs that, despite the current challenging conditions, continue our strategic investment in growing our system by adding hotels to our management and franchise segment.

As we recover from the negative impacts of the pandemic and our system-wide RevPAR increases, we are returning to a position, particularly during the three months ended September 30, 2021, where cash flows are being generated from our operations.

During the nine months ended September 30, 2021, the change in cash flows from operating activities was primarily attributable to the $1.0 billion of cash received in connection with the Honors Points Pre-Sale during the nine months ended September 30, 2020.

Excluding the impact of this transaction, cash flows from operating activities increased during the nine months ended September 30, 2021 primarily due to the increase in cash inflows generated from our management and franchise segment, largely as a result of an increase in managed and franchised RevPAR of 48.2 percent due to the recovery from the COVID-19 pandemic.

This increase was only partially offset by a $123 million increase in payments of contract acquisition costs, which reflects our strategic investment in growing our system by adding hotels to our management and franchise segment.

Investing Activities

Net cash used in investing activities primarily related to capitalized software costs that were related to various systems initiatives for the benefit of both our hotel owners and our overall corporate operations and to capital expenditures for property and equipment related to our corporate facilities and the renovation of certain hotels in our ownership segment.

Beginning in March 2020, we took steps to temporarily reduce such expenditures in response to the COVID-19 pandemic;

however, we expect such costs to increase in future periods, aligned to our recovery from the pandemic.

Beginning in March 2020, we took steps to temporarily reduce such expenditures in response to the COVID-19 pandemic and have continued to deliberately govern investment spending through 2021;

however, we expect such costs to continue to increase in future periods, aligned to our recovery from the pandemic.

Financing Activities

The change in cash flows from financing activities was primarily attributable to our Revolving Credit Facility, which we fully drew down during the six months ended June 30, 2020 in response to the COVID-19 pandemic, resulting in net cash inflows of $1.5 billion, while we fully repaid the $1.69 billion outstanding debt balance during the six months ended June 30, 2021.

Additionally, during the six months ended June 30, 2020, we had an additional net $1.0 billion of senior notes borrowings as compared to the six months ended June 30, 2021.

Further, cash outflows decreased $338 million as a result of decreases in share repurchases and dividend payments, as both programs remained suspended during the six months ended June 30, 2021.

The change in cash flows from financing activities was primarily attributable to our Revolving Credit Facility, which we fully drew down during the nine months ended September 30, 2020 in response to the COVID-19 pandemic, resulting in net cash inflows of $1.5 billion, while we fully repaid the $1.7 billion outstanding debt balance during the nine months ended September 30, 2021.

Additionally, during the nine months ended September 30, 2020, we had a net additional $1.0 billion of senior notes borrowings, as compared to the nine months ended September 30, 2021.

Further, cash outflows decreased $338 million as a result of decreases in share repurchases and dividend payments, as both programs remained suspended after their suspension was initiated in March 2020.

Debt and Borrowing Capacity

As of June 30, 2021, our total indebtedness, excluding unamortized deferred financing costs and discount, was approximately $8.9 billion.

For additional information on our total indebtedness, including financing transactions executed during the six months ended June 30, 2021, availability under our Revolving Credit Facility and guarantees on our debt, refer to Note 5:

As of September 30, 2021, our total indebtedness, excluding unamortized deferred financing costs and discount, was approximately $8.9 billion.

For additional information on our total indebtedness, including financing transactions executed during the nine months ended September 30, 2021, availability under our Revolving Credit Facility and guarantees on our debt, refer to Note 5:

"Debt" in our unaudited condensed consolidated financial statements.

If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required to reduce capital expenditures or issue additional equity securities.

If we are unable to generate sufficient cash flows from operations in the future to service our debt, we may be required to reduce capital expenditures or issue additional equity securities.

Our ability to make scheduled principal payments and to pay interest on our debt depends on our future operating performance, which is subject to general conditions in or affecting the hospitality industry that may be beyond our control.

The COVID-19 pandemic negatively impacted our cash flows from operations as compared to periods prior to the onset of the pandemic, and will continue to do so for an indeterminate period of time.

During 2020, we took precautions to secure our cash position, as discussed above, and, with our business recovering during the current period, we were able to repay outstanding debt borrowings on our Revolving Credit facility and we expect to be able to meet our current obligations.

During 2020, we took precautions to secure our cash position, as discussed above, and, with our business recovering during the current year, we were able to repay outstanding debt borrowings on our Revolving Credit facility and we expect to be able to meet our current obligations.

Furthermore, we do not have any material indebtedness outstanding that matures prior to May 2025.

Contractual Obligations

During the six months ended June 30, 2021, we issued the 2032 Senior Notes, redeemed the 2026 Senior Notes and fully repaid the $1,690 million outstanding debt balance on our Revolving Credit Facility.

During the nine months ended September 30, 2021, we issued the 2032 Senior Notes, redeemed the 2026 Senior Notes and fully repaid the $1.7 billion outstanding debt balance on our Revolving Credit Facility.

Otherwise, there were no material changes to our contractual obligations from what we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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The indentures that govern the Senior Notes provide that any subsidiary of the Company that provides a guarantee of our senior secured credit facilities will guarantee the Senior Notes.

As of June 30, 2021, none of our foreign subsidiaries or domestic subsidiaries owned by foreign subsidiaries or our non-wholly owned subsidiaries guaranteed the Senior Notes.

As of September 30, 2021, none of our foreign subsidiaries or domestic subsidiaries owned by foreign subsidiaries or our non-wholly owned subsidiaries guaranteed the Senior Notes.

The guarantees are full and unconditional, subject to certain customary release provisions.

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The following tables present summarized financial information for HOC, along with the Parent and all other Guarantors, on a combined basis:

June 30, 2021

September 30, 2021

(in millions)

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TOTAL LIABILITIES AND EQUITY (DEFICIT) 10,307

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

(in millions)

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The preparation of our unaudited condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures.

We have discussed the policies and estimates that we believe are critical and require the use of complex judgment in their application in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and, during the six months ended June 30, 2021, there were no material changes to those previously disclosed.

We have discussed the policies and estimates that we believe are critical and require the use of complex judgment in their application in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and, during the nine months ended September 30, 2021, there were no material changes to those previously disclosed.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis