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Item 7. Management’s Discussion and Analysis

2023-02-09 compared with 2022-02-16 · 165 added, 255 removed, 334 unchanged (56% of the section changed)

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COVID-19 Pandemic

The COVID-19 pandemic has significantly impacted the global economy and strained the hospitality industry since the beginning of 2020.

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 fluctuated 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 years ended December 31, 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 cannot determine when the global economy will fully recover.

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.

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

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, yielding further negative effects on our operations.

While the restrictions and the reduction in travel resulted in the suspensions of operations at certain hotels throughout 2020, reopenings significantly outpaced new suspensions and resuspensions during 2021, with approximately 360 hotels suspended for some period of time during the year ended December 31, 2021.

Nearly all of the hotels that suspended operations at some point since the start of the pandemic had reopened as of December 31, 2021.

The COVID-19 pandemic significantly affected the global economy and strained the hospitality industry beginning in 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;

however, as of December 31, 2022, most of the countries we operate in had eased or completely lifted such restrictions.

While the pandemic negatively affected certain of our results for the years ended December 31, 2022 and 2021, we have experienced strong signs of recovery since early 2021, with comparable system-wide RevPAR in the third and fourth quarters of 2022 exceeding levels achieved in the same periods in 2019.

Although all periods included in our consolidated financial statements presented in this Form 10-K were impacted by the COVID-19 pandemic, none of these periods are considered comparable, and no periods affected by the pandemic are expected to be comparable to future periods.

Hilton is one of the largest hospitality companies in the world, with 7,165 properties comprising 1,127,430 rooms in 123 countries and territories as of December 31, 2022.

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our luxury hotel brands, Waldorf Astoria Hotels & Resorts, LXR Hotels & Resorts and Conrad Hotels & Resorts;

our emerging lifestyle hotel brands, 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 and Tapestry Collection by Hilton;

our lifestyle hotel brands, Canopy by Hilton, Curio Collection by Hilton, Tapestry Collection by Hilton, Tempo by Hilton and Motto by Hilton;

our full service hotel brands, Signia by Hilton, Hilton Hotels & Resorts and DoubleTree by Hilton;

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

our all-suites hotel brands, Embassy Suites by Hilton, Homewood Suites by Hilton and Home2 Suites by Hilton;

our new premium economy brand, Spark by Hilton, launched in January 2023;

and our timeshare brand, Hilton Grand Vacations.

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We analyze our operations and business by both operating segments and geographic regions.

Our operations consist of two reportable segments that are based on similar products or services:

(i) management and franchise and (ii) ownership.

Our operations consist of two reportable segments that are based on similar products and services:

(i) management and franchise;

and (ii) ownership.

The management and franchise segment provides services, including hotel management and licensing of our IP.

This segment generates its revenue from:

Revenues from this segment include:

(i) management and franchise fees charged to third-party hotel owners;

(ii) licensing fees from HGV and strategic partnerships, including co-branded credit card arrangements, for the right to use our IP;

(ii) licensing fees from our strategic partners, including co-branded credit card providers, and HGV for the right to use our IP;

and (iii) fees for managing hotels in our ownership segment.

As a manager of hotels, we typically are responsible for supervising or operating the hotel in

exchange for management fees.

As a manager of hotels, we typically are responsible for supervising or operating the hotel in exchange for management fees.

As a franchisor of hotels, we charge franchise fees in exchange for the use of one of our brand names and related commercial services, such as our reservation system, marketing and information technology services, while a third party manages or operates such franchised hotels.

The ownership segment primarily derives earnings from providing nightly hotel room sales, food and beverage sales and other services at our consolidated owned and leased hotels.

The ownership segment primarily derives revenues from nightly hotel room sales, food and beverage sales and other services at our consolidated owned and leased hotels.

Geographically, we conduct business through three distinct geographic regions:

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System Growth and Development Pipeline

Our strategic objectives include the continued expansion of our global portfolio and fee-based business.

As we enter into new management and franchise contracts, we expand our business with minimal or no capital investment by us as the manager or franchisor, since the capital required to build and maintain hotels is typically provided by the third-party owner of the hotel with whom we contract to provide management services or license our IP.

Our strategic objectives include the continued expansion of our global hotel network, as well as of our fee-based business.

As we enter into new management and franchise contracts, we expand our business with limited or no capital investment by us as the manager or franchisor, since the capital required to build and maintain hotels is typically provided by the third-party owner of the hotel with whom we contract to provide management services or license our IP.

Prior to approving the addition of new hotels to our management and franchise development pipeline, we evaluate the economic viability of the hotel based on its geographic location, the credit quality of the third-party owner and other factors.

By increasing the number of management and franchise contracts with third-party owners, over time we expect to increase revenues, overall return on invested capital and cash available to support our business needs.

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.

See further discussion on our cash management policy, as detailed in "—Liquidity and Capital Resources."

We are focused on the growth of our business by expanding our share of the global hospitality industry through our development pipeline, which includes hotels that we expect to add to our system in the future.

See further discussion on our cash management policy, as detailed in "—Liquidity and Capital Resources." 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 growth strategy, which have included and may continue to include delays in openings and new development.

In addition to our current hotel portfolio, we are focused on the growth of our business by expanding our global hotel network through our development pipeline, which represents hotels that we expect to add to our system in the future.

The following table summarizes our development activity:

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(1) Rounded to the nearest hundred.

(2) Represents net unit growth for the year ended December 31, 2021 of 5.6 percent.

(3) Hotels in our system are under development throughout 115 countries and territories, including 28 countries and territories where we do not currently have any existing hotels.

(2) Represents room additions, net of rooms removed from our system, during the period, which contributed to net unit growth for the year ended December 31, 2022 of 4.7 percent.

(3) Hotels in our system were under development throughout 118 countries and territories, including 30 countries and territories where we did not currently have any existing hotels.

(4) In our development pipeline, as of December 31, 2022, 205,400 of the rooms were under construction and 243,500 of the rooms were located outside of the U.S.

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

Nearly all of the rooms in our development pipeline will be in our management and franchise segment.

We do not consider any individual development project to be material to us.

In June 2016, the U.K.

held a referendum in which voters approved an exit from the E.U.

(commonly referred to as "Brexit").

In December 2020, the U.K.

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 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.

withdrawal from the E.U.

will have and how it will ultimately affect our business.

While our results as of and for the year ended December 31, 2021 were not materially affected by Brexit specifically, we will continue to monitor the potential impact of Brexit on our business in future periods.

Principal Components and Factors Affecting our Results of Operations

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Under our long-term franchise contracts with hotel owners, franchisees typically pay us franchise fees that include:

(i) monthly royalty fees, generally based on a percentage of the hotel's monthly gross room revenue, and, in some cases, a percentage of gross food and beverage revenues and other revenues, as applicable and (ii) application, initiation and other fees for when new hotels enter the system, when there is a change of ownership of a hotel or when contracts with properties already in our system are extended.

Consideration to incentivize hotel owners to enter into franchise contracts with us is amortized over the life of the applicable contract as a reduction to franchise and licensing fees.

Our non-hotel licensing agreements are predominantly with HGV and strategic partners, including co-branded credit card providers.

(i) monthly royalty fees, generally based on a percentage of the hotel's monthly gross room revenue, and, in some cases, may also include a percentage of gross food and beverage revenues and other revenues, as applicable;

and (ii) application, initiation and other fees for when new hotels enter the system, when there is a change of ownership of a hotel or when contracts with properties already in our system are extended.

Consideration provided to incentivize hotel owners to enter into franchise contracts with us is amortized over the life of the applicable contract as a reduction to franchise and licensing fees.

Our non-hotel licensing agreements, for which we receive licensing fees, are predominantly with strategic partners, including co-branded credit card providers, and HGV.

• Base and incentive management fees.

Represents fees earned in connection with the management of hotels.

Terms of our management contracts vary, but our fees generally consist of a base fee, which is typically based on a percentage of the hotel's monthly gross revenue and, when applicable, an incentive fee, which is typically based on the hotel's operating profits, normally over a one-calendar year period, and, in some cases, may be subject to a stated return threshold to the hotel owner.

Terms of our management contracts vary, but our fees generally consist of a base fee, which is typically based on a percentage

of the hotel's monthly gross revenue and, when applicable, an incentive fee, which is typically based on a percentage of the hotel's operating profits, normally over a one-calendar year period, and, in some cases, may be subject to a stated return threshold to the hotel owner.

Outside of the U.S., our fees are often more dependent on hotel profitability measures, either because of a single management fee structure where the entire fee is an incentive fee, or because our two-tier fee structure is more heavily weighted toward the incentive fee than the base fee.

Consideration to incentivize hotel owners to enter into management contracts with us is amortized over the life of the applicable contract as a reduction to base and other management fees.

Consideration provided to incentivize hotel owners to enter into management contracts with us is amortized over the life of the applicable contract as a reduction to base and other management fees.

• Owned and leased hotels.

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A majority of our food and beverage sales and other ancillary goods and services are provided to customers who are also occupying rooms at our hotels.

As a result, occupancy affects all components of our owned and leased hotel revenues.

As a result, occupancy affects all components of our owned and leased hotels revenues.

• Other revenues.

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• Other revenues from managed and franchised properties.

Represents amounts that are contractually reimbursed to us by property owners, either directly as costs are incurred or indirectly through program fees billed and collected in advance related to certain costs and expenses supporting the operations of the related properties.

The direct reimbursements by property owners are for payroll and related costs if the property employees are legally our responsibility, and certain other operating costs of the managed and franchised properties' operations.

We have no legal responsibility for the employees or the liabilities associated with operating franchised properties or certain of our managed properties.

Represents amounts that are contractually reimbursed to us by hotel owners, either directly as costs are incurred or indirectly through monthly program fees related to certain costs and expenses supporting the operations of the related properties.

The direct reimbursements by hotel owners are primarily for payroll and related costs if the property employees are legally employed by us and certain other operating costs of the managed properties' operations.

We have no legal responsibility for the employees or the liabilities associated with operating franchised properties or certain of our managed properties, predominately those located outside of the U.S.

Revenues and expenses for these direct reimbursements have no net effect on operating income (loss) or net income (loss).

The monthly program fee that is paid by hotel franchisees and property owners of hotels that we manage is based on the underlying hotel's sales or usage and relates to the costs of our brands and shared services, including:

The monthly program fee that is paid by hotel franchisees and property owners of hotels that we manage is based on the underlying hotel's sales or usage, as reimbursement for the costs related to our:

(i) advertising and marketing programs;

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and (iii) quality assurance programs.

party owners of hotels we manage that participate in the program, as well as co-branded credit card providers.

Other revenues from managed and franchised properties also includes revenues related to our Hilton Honors guest loyalty program, which are primarily derived from payments from hotel franchisees and third-party owners of hotels we manage that participate in the program, as well as co-branded credit card providers.

We are contractually required to use these fees that we collect solely for these programs.

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• Consumer demand and global economic conditions .

Consumer demand for our products and services is closely linked to the performance of the general economy and is sensitive to business and personal discretionary spending levels.

Consumer demand for our products and services, as well as the products and services of the third parties from which we earn licensing fees, is closely linked to the performance of the general economy and is sensitive to business and personal discretionary spending levels.

Among other factors, declines in consumer demand due to adverse general economic conditions, risks reducing or otherwise negatively affecting travel patterns, lower consumer confidence and adverse political conditions can reduce the amount of management and franchise fee revenues we are able to generate and/or reduce the revenues and profitability of the operations of our owned and leased hotels.

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As a result of the COVID-19 pandemic, several of these factors, as well as health and safety concerns, had a significant effect on global economic conditions and consumer demand for our products and services;

however, we have experienced significant recovery in demand during 2022.

Also, declines in hotel profitability during an economic downturn directly affect the incentive portion of our management fees, which is based on hotel profitability measures.

As a result, changes in consumer demand and general business cycles have historically subjected, are currently subjecting and could in the future subject our revenues to significant volatility.

• Contracts with third-party owners and franchisees and relationships with developers .

We depend on our long-term management and franchise contracts with third-party hotel owners and hotel franchisees for our management and franchise fee revenues.

The success and sustainability of our management and franchise business depends on our ability to perform under our management and franchise contracts and maintain good relationships with third-party owners and franchisees.

• Contracts with third-party hotel owners and franchisees and relationships with developers .

We depend on our long-term management and franchise contracts with third-party hotel owners and hotel franchisees for our management and

franchise fee revenues.

Our relationships with these third parties allow us to maintain our current presence as contracts mature and also generate new incremental opportunities for property development that can support our growth.

Growth and maintenance of our hotel system and earning fees related to hotels in development are dependent on the ability of developers and owners to access capital for the development, maintenance and renovation of properties.

We believe that we have good relationships with our third-party owners, franchisees and developers and are committed to the continued growth and development of these relationships.

We believe that we generally have good relationships with our third-party hotel owners, franchisees and developers and are committed to the continued growth and development of these relationships.

These relationships exist with a diverse group of owners, franchisees and developers and are not significantly concentrated with any one particular third party.

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(i) amortization of intangible assets that were recorded at their fair value at the time of the 2007 transaction whereby we became a wholly owned subsidiary of affiliates of Blackstone Inc.

(the "Merger"), which primarily include values assigned to management and franchise contracts, leases and our Hilton Honors guest loyalty program intangible asset;

(the "Merger"), which primarily include values assigned to management contracts, leases and our Hilton Honors guest loyalty program intangible asset;

(ii) amortization of capitalized software costs;

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• Other expenses from managed and franchised properties.

Represents certain costs and expenses that are contractually reimbursed to us by property owners for payroll and related costs for properties that we manage where the property employees are legally our responsibility, or paid from program fees collected from properties for certain other operating costs of the managed and franchised properties' operations, including those related to our brands and shared services programs.

Represents certain costs and expenses that are contractually reimbursed to us by hotel owners for payroll and related costs for properties that we manage where the property employees are legally employed by us, or paid from program fees collected from properties for certain other operating costs of the managed properties' operations, including those related to our brands and shared services programs.

We are contractually required to use these fees solely for these programs.

We have no legal responsibility for the employees or the liabilities associated with operating franchised properties or certain of our managed hotels.

We have no legal responsibility for the employees or the liabilities associated with operating franchised properties or certain of our managed hotels, predominately those located outside of the U.S.

Other expenses from managed and franchised properties also includes expenses for the operation of our Hilton Honors guest loyalty program.

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• Changes in depreciation and amortization expenses.

We capitalize costs associated with certain software development projects and, as those projects are completed and placed into service, amortization expenses will increase.

As the finite-lived intangible assets that were recorded at the Merger become fully amortized, amortization expenses will decrease.

Additionally, changes in depreciation expenses may be driven by renovations of existing hotels, acquisition or development of new hotels, the disposition of existing hotels or corporate facilities through sale, closure or lease termination, lease renewals, expenditures related to our corporate facilities or changes in estimates of the useful lives of our assets.

As we place new assets into service, we will be required to recognize additional depreciation expenses on those assets.

If we are required to recognize impairment losses related to our depreciable assets or finite-lived intangible assets, the related depreciation or amortization expenses, respectively, will decrease.

We capitalize costs associated with certain software development projects and, as those projects are completed and placed into service, amortization expense will increase.

As the finite-lived intangible assets that were recorded at the Merger become fully amortized, amortization expense will decrease.

Additionally, changes in depreciation expense may be driven by renovations of existing hotels, acquisition or development of new hotels, the disposition of existing hotels or corporate facilities through sale, closure or lease termination, lease renewals, expenditures related to our corporate facilities or changes in estimates of the useful lives of our assets.

As we place new assets into service, we will be required to recognize additional depreciation expense on those assets.

If we are required to recognize impairment losses related to our depreciable assets or finite-lived intangible assets, the related depreciation or amortization expense, respectively, will decrease.

Effect of foreign currency exchange rate fluctuations

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We hedge foreign currency exchange-based cash flow variability of certain of our fees using forward contracts designated as hedging instruments.

We also hold short-term forward contracts to offset exposure to fluctuations in certain of our foreign currency denominated cash balances, primarily related to our intercompany financing arrangements, and we have not currently elected to designate these forward contracts as hedging instruments.

We also hold short-term forward contracts to offset exposure to fluctuations in certain of our foreign currency denominated cash balances and intercompany financing arrangements, and we have not currently elected to designate these forward contracts as hedging instruments.

The hospitality industry is seasonal in nature.

The periods during which our properties experience higher or lower levels of demand vary from property to property, depending principally upon their location, type of property and competitive mix within the specific location.

Based on historical results, we generally expect our revenues to be lower in the first quarter of each year than in each of the three subsequent quarters.

While results were less predictable as a result of COVID-19 and related travel restrictions, based on historical results, we generally expect our revenues to be lower in the first quarter of each year than in each of the three subsequent quarters.

Key Business and Financial Metrics Used by Management

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Of the 7,085 hotels in our system as of December 31, 2022, 5,797 hotels were classified as comparable hotels.

Our 1,253 non-comparable hotels included 70 hotels, or approximately one percent of the total hotels in our system, that were removed from the comparable group during the last twelve months because they sustained substantial property damage, business interruption, underwent large-scale capital projects or comparable results were otherwise not available.

Our 1,288 non-comparable hotels included 272 hotels, or less than four percent of the total hotels in our system, that were removed from the comparable group during the last twelve months because they 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.

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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.

Occupancy measures the utilization of our hotels' available capacity.

Occupancy measures the utilization of available capacity at a hotel or group of hotels.

Management uses occupancy to gauge demand at a specific hotel or group of hotels in a given period.

Occupancy levels also help us determine achievable ADR pricing levels as demand for hotel rooms increases or decreases.

Occupancy levels also help management determine achievable ADR pricing levels as demand for hotel rooms increases or decreases.

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

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References to occupancy, ADR and RevPAR are presented on a comparable basis, based on the comparable hotels as of December 31, 2022, and references to ADR and RevPAR are presented on a currency neutral basis, unless otherwise noted.

As such, comparisons of these hotel operating statistics for the years ended December 31, 2021 and 2020 or 2019, use the foreign currency exchange rates used to translate the results of the Company's foreign operations within its financial statements for the year ended December 31, 2021.

As such, comparisons of these hotel operating statistics for the years ended December 31, 2022 and 2021 or 2019 use the foreign currency exchange rates used to translate the results of the Company's foreign operations within its consolidated financial statements for the year ended December 31, 2022.

EBITDA and Adjusted EBITDA

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Adjusted EBITDA is calculated as EBITDA, as previously defined, further adjusted to exclude certain items, including gains, losses, revenues and expenses in connection with:

(i) asset dispositions for both consolidated and unconsolidated equity investments;

(i) asset dispositions for both consolidated and unconsolidated investments;

(ii) foreign currency transactions;

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We believe that EBITDA and Adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons:

(i) these measures are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions and (ii) these measures are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry.

(i) these measures are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions;

and (ii) these measures are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry.

Additionally, these measures exclude certain items that can vary widely across different industries and among competitors within our industry.

For instance, interest expense and income taxes are dependent on company specifics, including, among other things, capital structure and operating jurisdictions, respectively, and, therefore, could vary significantly across companies.

Depreciation and amortization expenses, as well as amortization of contract acquisition costs, are dependent upon company policies, including the method of acquiring and depreciating assets and the useful lives that are used.

For Adjusted EBITDA, we also exclude items such as:

(i) FF&E replacement reserves for leased hotels to be consistent with the treatment of capital expenditures for property and equipment, where payments for such capitalized assets are depreciated over their useful lives;

(i) FF&E replacement reserves for leased hotels to be consistent with the treatment of capital expenditures for property and equipment, where depreciation of such capitalized assets is reported within depreciation and

amortization expenses;

(ii) share-based compensation, as this could vary widely among companies due to the different plans in place and the usage of them;

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RevPAR $ 101.90 42.5 %

During the year ended December 31, 2021, while the COVID-19 pandemic continued to negatively impact our business and our hotel operating statistics, we experienced significant improvement in our results as compared to the prior year, due to an upward trend in travel and tourism with the easing of many COVID-19 restrictions and the distribution of COVID-19 vaccinations.

All regions showed improvement in RevPAR during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

experienced relatively consistent recovery throughout 2021, with occupancy for the year down 13.8 percentage points from 2019.

While the recoveries of the Europe and Americas (excluding U.S.) regions were outpaced by other regions early in 2021, the easing of travel restrictions, and, in Europe, a more expansive vaccination program, accelerated their recovery later in the year, resulting in improvement in operating statistics consistent with system-wide results for the full year.

Of all regions, MEA recovered the most during the year with regard to RevPAR when compared to 2019.

In Asia Pacific, a fluctuating recovery due to prolonged COVID-19 and travel restrictions in certain countries on both domestic and international travel resulted in a more modest increase in RevPAR for the year when compared to the other regions.

Our system-wide RevPAR and ADR for the year ended December 31, 2021 were down 30.0 percent and 9.9 percent, respectively, compared to the same period in 2019 on a comparable and currency neutral basis.

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 the beginning of 2021.

In line with our recovery, although some hotels did suspend operations during the year ended December 31, 2021, reopenings significantly outpaced suspensions.

As such, the operations of only approximately 360 hotels, primarily located in the U.S.

and Europe, were suspended for some period of time during the year ended December 31, 2021, as compared to approximately 1,280 hotels during the year ended December 31, 2020.

Nearly all of the hotels that suspended operations at some point since the start of the pandemic had reopened as of December 31, 2021.

Additionally, while most hotels, 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 improved during 2021 and system-wide occupancy during the three months ended December 31, 2021 increased 20.7 percentage points as compared to the same period in 2020.

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

We experienced significant improvement in our results during the year ended December 31, 2022 with the continued recovery of the travel and hospitality industry from the COVID-19 pandemic and the rebound of cross-border international travel.

On a regional basis, the Europe region had the most significant improvement when compared to 2021, with continental Europe leading the region with meaningful increases in both ADR and occupancy.

Further, despite the impact of the limited demand in China due to prolonged travel restrictions, the remainder of the APAC region demonstrated a strong recovery, particularly during the second half of the year.

Overall, leisure transient was the primary driver of improved performance during the year, but all customer segments, including business and group travel, contributed to our recovery.

On a system-wide basis, our recovery was particularly strong during the second half of 2022, driven by an upward trend in both ADR and occupancy.

The third quarter of 2022 was the first period since the beginning of the pandemic that system-wide RevPAR on a comparable and currency neutral basis exceeded system-wide RevPAR for the same period in 2019, and system-wide RevPAR for the fourth quarter of 2022 also exceeded the same period in 2019.

During the year ended December 31, 2022 as compared to 2019, RevPAR was down 1.3 percent due to a decrease in occupancy of 6.2 percentage points, partially offset by an increase in ADR of 7.8 percent.

All regions showed improvement in ADR during the year ended December 31, 2022 when compared to 2019, with the exception of Asia Pacific, primarily as a result of limitations on travel in China.

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

Year Ended December 31,

(in millions)

Net income (loss) $ 407 $ (720)

Net income $ 1,257 $ 407

Interest expense 415 397

Income tax expense (benefit) 153 (204)

Income tax expense 477 153

Depreciation and amortization expenses 162 188

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Loss on sales of assets, net — 7

Loss on foreign currency transactions 7 27

Loss on debt extinguishments 69 48

Loss (gain) on foreign currency transactions (5) 7

Loss on debt extinguishment — 69

FF&E replacement reserves 54 48

Share-based compensation expense 162 193

Reorganization costs — 41

Impairment losses — 258

Amortization of contract acquisition costs 38 32

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Adjusted EBITDA $ 2,599 $ 1,629

(1) Amounts for the years ended December 31, 2021 and 2020 include costs recognized for certain legal settlements, severance not related to the reorganization activities undertaken in response to the COVID-19 pandemic and other items.

The amount for the year ended December 31, 2020 also includes losses related to the disposal of an investment and the settlement of a debt guarantee for a franchised hotel and a gain related to the reimbursement by a third party for taxes owed resulting from the sale of a hotel in a prior period.

(1) Amount for the year ended December 31, 2022 was less than $1 million and includes net losses (gains) related to certain of Hilton's investments in unconsolidated affiliates.

Amount for the year ended December 31, 2021 includes costs recognized for certain legal settlements.

All periods include severance and other items.

Year Ended December 31, Percent Change

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Total management fees $ 490 $ 274 78.8

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

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

However, during 2021, we experienced increases in fees recognized, as compared to fees recognized during 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 1,245 managed and franchised hotels with suspended operations for some period of time during the year ended December 31, 2020, compared to approximately 345 managed and franchised hotels during the year ended December 31, 2021.

Nearly all of the managed and franchised hotels that suspended operations at some point since the start of the pandemic were reopened as of December 31, 2021.

For the year ended December 31, 2021, RevPAR increased 62.3 percent at our comparable franchised properties and 55.2 percent at our comparable managed properties as a result of increased occupancy of 18.3 percentage points and 12.7 percentage points, respectively, and increased ADR of 13.4 percent and 12.3 percent, respectively.

Including new development and ownership type transfers, from January 1, 2020 to December 31, 2021, we added over 730 managed and franchised properties on a net basis, providing an additional 105,000 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 $97 million during the year ended December 31, 2021, 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 consumer spending and travel and tourism during the period.

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

During the year ended December 31, 2022, revenue recognized from fees increased primarily as a result of improved demand for travel and tourism, including the ability and desire of our customers to travel, due to the ongoing recovery that began in early 2021 from the negative impacts of the COVID-19 pandemic.

Accordingly, on a comparable basis, franchise and management fees increased as a result of increases in RevPAR of 34.8 percent and 69.0 percent at our comparable franchised and managed properties, respectively.

These increases were a result of increased occupancy of 8.7 percentage points and 15.0 percentage points, respectively, and increased ADR of 18.0 percent and 27.1 percent, respectively.

Further, as new hotels enter our system, we expect such hotels to increase our franchise and management fees.

Including new development and ownership type transfers, from January 1, 2021 to December 31, 2022, we added over 670 franchised and managed properties on a net basis, providing an additional 105,300 rooms to our management and franchise segment, which also contributed to the increases in franchise and management fees.

The rise in travel and tourism and increased overall consumer spending during the year ended December 31, 2022 also contributed to a significant increase in licensing and other fees from our strategic partnerships and HGV.

Increased fees from our strategic partnerships resulted from new cardholder acquisitions, as well as increased cardholder spend under our co-branded credit card arrangements and increased fees from HGV resulted from increased timeshare revenues, which, in addition to the recovery from the pandemic, were attributable to the increase in timeshare properties in our system during the period.

Incentive management fees increased as they are based on hotels' operating profits, which have improved from the prior year as a result of increased demand in line with the recovery from the COVID-19 pandemic and higher revenues driving higher managed hotel profits.

Year Ended December 31, Percent Change

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(in millions)

Owned and leased hotels $ 598 $ 421 42.0

The increase in owned and leased hotel revenues during the year ended December 31, 2021 was primarily attributable to the ongoing recovery from the COVID-19 pandemic and the resulting increase in occupancy across our owned and leased hotels.

Although the operations of approximately 15 and 35 of our owned and leased hotels were suspended for some period of time during the years ended December 31, 2021 and 2020, respectively, as a result of the COVID-19 pandemic, all of these hotels were reopened before December 31, 2021.

The increase in owned and leased hotel revenues during the year ended December 31, 2021 included a $7 million increase as a result of favorable fluctuations in foreign currency exchange rates and, on a currency neutral basis, a $130 million increase and $40 million increase from our comparable and non-comparable owned and leased hotels, respectively.

The increase in revenues from our comparable owned and leased hotels was the result of increased RevPAR of 45.3 percent, primarily due to increased occupancy of 9.5 percentage points and ADR of 4.7 percent, as well as a $27 million increase in COVID-19 relief subsidies from international governments that were recognized as revenues.

The increase in revenues from our non-comparable owned and leased hotels, which included five leased hotels that exited our system or transferred to our management and franchise segment on December 31, 2021, included a $10 million increase, on a currency neutral basis, in COVID-19 relief subsidies from international governments.

Additionally, the overall increase, on a currency neutral basis, of $40 million in revenues from our non-comparable owned and leased hotels was net of an $11 million decrease from properties that were sold or for which the lease agreements were terminated in 2020 and mid-2021, with most of these properties transferring to our management and franchise segment.

Owned and leased hotels revenues $ 1,076 $ 598 79.9

The increase in owned and leased hotels revenues included increases of $489 million and $74 million, on a currency neutral basis, from our comparable and non-comparable owned and leased hotels, respectively, which were partially offset by an $85 million decrease as a result of unfavorable fluctuations in foreign currency exchange rates.

The currency neutral increase in revenues from our comparable leased hotels was primarily the result of increased RevPAR of 168.2 percent, due to increases in occupancy of 30.8 percentage points and ADR of 34.1 percent, reflective of the ongoing recovery from the COVID-19 pandemic, which was particularly strong during 2022 in Europe where the majority of our leased properties are located.

The currency neutral increase in revenues from our non-comparable owned and leased hotels, which also benefited from an increase in RevPAR, was partially offset by a $35 million decrease, on a currency neutral basis, from properties which were sold or for which the lease agreements were terminated during 2021.

Year Ended December 31, Percent Change

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Other revenues $ 102 $ 79 29.1

The increase in other revenues during the year ended December 31, 2021 was primarily due to increased revenues from our purchasing operations related to improved hotel demand resulting from the rise in travel and tourism during 2021.

The increase in other revenues was primarily due to increased revenues from our purchasing operations related to improved hotel demand resulting from the rise in travel and tourism during 2022.

Operating Expenses

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(in millions)

Owned and leased hotels

Owned and leased hotels expenses

$ 999 $ 679 47.1

The increase in owned and leased hotel expenses during the year ended December 31, 2021 included a $19 million increase as a result of unfavorable fluctuations in foreign currency exchange rates and, on a currency neutral basis, a $46 million

increase and a $6 million decrease from our comparable and non-comparable owned and leased hotels, respectively.

Our owned and leased hotels had increases in certain operating expenses as a result of increased occupancy during 2021, including variable rent costs, which are generally based on a percentage of hotel revenues or profits, partially offset by decreased expenses related to FF&E replacement reserves due to timing of costs and spending on improvement projects incurred at our leased properties.

The decrease in expenses from our non-comparable owned and leased hotels, which included five leased hotels that exited our system or transferred to our management and franchise segment on December 31, 2021, also included a $16 million decrease, on a currency neutral basis, from properties that were sold or for which the lease agreements were terminated in 2020 and mid-2021, with most of these properties transferring to our management and franchise segment.

The increase in owned and leased hotels expenses included increases of $358 million and $49 million, on a currency neutral basis, from our comparable and non-comparable owned and leased hotels, respectively, which were partially offset by a $87 million decrease as a result of favorable fluctuations in foreign currency exchange rates.

The currency neutral increase in expenses from our non-comparable owned and leased hotels was net of a $30 million currency neutral decrease from properties which were sold or for which the lease agreements were terminated during 2021.

Our owned and leased hotels had currency neutral increases in certain operating expenses as a result of increased occupancy, including labor costs, utilities and variable rent, which is generally based on a percentage of hotel revenues or profits, which increased in line with the recovery from the COVID-19 pandemic.

Additionally, we incurred increased expenses related to FF&E replacement reserves, which are generally computed as a percentage of hotel revenues.

Year Ended December 31, Percent Change

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General and administrative expenses 382 405 (5.7)

Reorganization costs — 41 (100.0)

Impairment losses — 258 (100.0)

Other expenses 60 45 33.3

The decrease in depreciation and amortization expenses was due to a decrease in amortization expenses, primarily resulting from the full amortization of:

(i) certain management and franchise contract intangible assets that were recorded at the time of the Merger during 2020 and (ii) certain capitalized software costs during both periods.

The increase in general and administrative expenses was primarily due to increased share-based compensation expense as a result of expenses recognized during the year ended December 31, 2021 for all of the outstanding performance shares, which were probable of achievement as of December 31, 2021.

Share-based compensation expense recognized during the year ended December 31, 2020 included the reversal of expense recognized in prior years as a result of the determination that the performance conditions of our then-outstanding performance shares were no longer probable of achievement, partially offset by expense recorded in December 2020 as a result of the modification of our then-outstanding performance shares.

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

Also, for the year ended December 31, 2021, payroll expenses for our corporate workforce increased, as furloughs and reduced pay in 2020 yielded lower comparable costs reflected in general and administrative expenses.

Partially offsetting these increases was a decrease in bad debt expense, which was in line with the improvement we experienced with respect to the timing and volume of payments from hotel owners throughout 2021, as compared to 2020.

During the year ended December 31, 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 year ended December 31, 2020, we recognized $258 million of impairment losses, primarily related to our ownership segment, including $104 million on our ownership reporting unit's goodwill, along with certain assets associated with specific owned and leased hotels.

Additionally, $15 million was on management contract acquisition costs as a result of 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 and expenses related to performance guarantees that were recognized during the year ended December 31, 2020.

The decrease in depreciation and amortization expenses was primarily due to a decrease in amortization expense, driven by the full amortization of certain software project costs during 2021 and 2022.

The decrease in general and administrative expenses was primarily due to continued cost control and decreased share-based compensation expense, as well as costs recognized during the year ended December 31, 2021 for certain legal settlements, for which no such expenses were recognized during 2022.

The increase in other expenses was primarily due to higher volume in our purchasing operations related to improved hotel demand.

Non-operating Income and Expenses

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Interest expense $ (415) $ (397) 4.5

Loss on foreign currency transactions

(7) (27) (74.1)

Loss on debt extinguishments (69) (48) 43.8

Other non-operating income (loss), net

23 (2) NM (1)

Income tax benefit (expense) (153) 204 NM (1)

Gain (loss) on foreign currency transactions

Loss on debt extinguishment — (69) (100.0)

Other non-operating income, net

Income tax expense (477) (153) NM (1)

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

The decrease in interest expense during the year ended December 31, 2021 included the decrease resulting from the issuances of new senior unsecured notes and the use of such proceeds for the redemptions 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 senior secured revolving credit facility (the "Revolving Credit Facility") by June 2021, while it was fully drawn for the period from March 2020 to December 2020.

For the year ended December 31, 2021, our variable interest expense also decreased due to declines in the variable interest rate on our senior secured term loan facility (the "Term Loan").

These decreases in interest expense during the year ended December 31, 2021 were partially offset by an increase due to the issuances of new senior unsecured notes in April 2020.

The increase in interest expense included increases related to the interest rate increase on the variable rate senior secured term loan facility (the "Term Loan") during the period and the amortization of previously dedesignated interest rate swaps.

These increases were partially offset by a decrease related to our senior secured revolving credit facility (the "Revolving Credit Facility"), which was partially drawn during 2021, but was fully repaid as of June 30, 2021 with no outstanding balance for the remainder of 2021 or at all during 2022, as well as a decrease resulting from the February 2021 issuance of new senior unsecured notes and the use of such proceeds for the redemption of previously outstanding senior unsecured notes, which reduced the weighted average interest rate on our outstanding senior unsecured notes.

"Debt" in our consolidated financial statements for additional information on our indebtedness and the associated interest rates.

The loss on foreign currency transactions during both the years ended December 31, 2021 and 2020 included the impact of changes in foreign currency exchange rates related to our operations conducted in functional currencies other than our reported currency, as well as changes in foreign currency exchange rates on certain intercompany financing arrangements, including short-term cross-currency intercompany loans.

Additionally, the loss recognized during the year ended December 31, 2020, included losses related to the liquidation of investments in foreign entities that were reclassified out of accumulated other comprehensive loss.

Loss on debt extinguishments for the years ended December 31, 2021 and 2020 related to the redemptions of senior notes and included redemption premiums of $55 million and $31 million, respectively, and the accelerated recognition of unamortized deferred financing costs of $14 million and $17 million, respectively.

"Debt" in our consolidated financial statements for additional information on these redemptions.

Other non-operating income (loss), net consists of interest income, equity in earnings (losses) from unconsolidated affiliates, certain income and costs related to our defined employee benefit plans and other non-operating gains and losses.

The change in other non-operating income (loss), net during the year ended December 31, 2021 included an $8 million increase related to our employee benefit plans, primarily as a result of a decrease in interest cost and an increase in the expected investment gains from our plan assets.

The year ended December 31, 2020 included other non-operating losses related to a debt guarantee for a franchised hotel and the disposal of an investment, offset by a gain related to the reimbursement by a third party for taxes owed resulting from the sale of a hotel in a prior period.

The increase in income tax expense during the year ended December 31, 2021 was primarily attributable to the increase in income before income taxes, which was partially offset by benefits recognized as a result of tax rate changes.

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

Loss on debt extinguishment related to the February 2021 redemption of senior unsecured notes and included a redemption premium of $55 million and the accelerated recognition of unamortized deferred financing costs on those senior unsecured notes of $14 million.

Other non-operating income, net consists of interest income, equity in earnings (losses) from unconsolidated affiliates, certain components of net periodic pension cost or credit related to our employee defined benefit pension plans and other non-operating gains and losses.

The increase in other non-operating income, net was primarily due to an $11 million gain recognized during the year ended December 31, 2022 resulting from the remeasurement of certain investments in unconsolidated affiliates, as well as an increase in interest income due to increases in interest rates during the period.

The increase in income tax expense was primarily attributable to the increase in income before income taxes.

Further, during the year ended December 31, 2021, we recognized tax benefits as a result of the change in tax rate implemented as part of the United Kingdom's Finance Act 2021.

For additional information, see Note 12:

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Refer to Note 17:

"Business Segments" in our 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.

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

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

Refer to "—Revenues" and "—Operating Expenses" for further discussion of the increases in revenues and operating expenses at our owned and leased hotels, which are correlated with our ownership segment revenues and segment operating losses.

Although, we saw significant

improvement in revenues from our ownership segment during 2021 as compared to 2020, due to the nature of the fixed rent commitments and other fixed operating costs at our leased hotels, our ownership segment continued to experience an operating loss for the year ended December 31, 2021.

Refer to "—Revenues" and "—Operating Expenses" for further discussion of the increases in revenues and operating expenses at our owned and leased hotels, the net of which are correlated with our ownership segment revenues and segment operating income (loss).

Liquidity and Capital Resources

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

In response to the global crisis resulting from the COVID-19 pandemic, we took certain proactive measures in 2020 to help our business withstand the negative impact on our business from the crisis.

These measures included securing our liquidity position to be able to meet our obligations for the foreseeable future, including issuing senior notes, drawing down the available borrowing capacity of our $1.75 billion Revolving Credit Facility and consummating the April 2020 pre-sale of Hilton Honors points to American Express for $1.0 billion in cash (the "Honors Points Pre-Sale").

Further, in February 2021, we issued the 3.625% Senior Notes due 2032 to continue to extend debt maturities and reduce our cost of debt by repaying the outstanding 5.125% Senior Notes due 2026.

Based on our continued recovery and expectations of the foreseeable demands on our available cash and our liquidity in future periods, we had fully repaid the outstanding debt balance on the Revolving Credit Facility by June 2021.

While our accounts receivable balance as of December 31, 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 we have considered these payment trends in developing our estimates of expected future credit losses.

However, during the year ended December 31, 2021, we experienced relative improvement with respect to the timing of customer payments and overall cash flow from operations when compared to 2020.

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;

• costs, other than compensation and rent as noted separately below, associated with the operations of owned and leased hotels, including, but not limited to, utilities and operating supplies;

• corporate expenses;

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• lease payments under our finance and operating leases, which include minimum lease payments that are estimated to be approximately $47 million and $147 million, respectively, in 2023;

• costs, other than compensation and rent as noted separately, associated with the operations of owned and leased hotels, including, but not limited to, utilities and operating supplies;

• committed contract acquisition costs;

• capital expenditures for required renovations and maintenance at the hotels within our ownership segment.

• capital and maintenance expenditures for required renovations and maintenance at the hotels within our ownership segment;

• dividends as declared;

• share repurchases.

Our known long-term liquidity requirements primarily consist of funds necessary to pay for:

4 unchanged sentences

• corporate capital and information technology expenditures;

• dividends as declared;

• share repurchases;

• commitments to owners in our management and franchise segment made in the normal course of business for which we are reimbursed by these owners through program fees to operate our marketing, sales and brands programs.

Additionally, in circumstances where we have the opportunity to support our strategic objectives by growing our global footprint, we may provide performance or debt guarantees or loan commitments, as necessary, for hotels that we currently or plan to manage or franchise, as applicable, as well as letters of credit that support hotel financing or other obligations of hotel owners.

In March 2022, we resumed share repurchases, which we had previously suspended in an effort to preserve cash during the COVID-19 pandemic.

Since they were resumed, as of December 31, 2022, we had repurchased approximately 12.3 million shares of our common stock for $1,608 million.

As of December 31, 2022, approximately $3.1 billion remained available for share repurchases under our stock repurchase program.

In June 2022, we resumed payment of regular quarterly cash dividends, which we had also previously suspended in an effort to preserve cash during the pandemic.

In circumstances where we have the opportunity to support our strategic objective of growing our global hotel network, we may provide performance or debt guarantees or loan commitments, as necessary, to owners of certain hotels that we currently or in the future will manage or franchise, as applicable, as well as letters of credit that support hotel financing or other obligations of hotel owners.

"Commitments and Contingencies" in our consolidated financial statements for additional information on these commitments that were outstanding as of December 31, 2022.

We formally suspended share repurchases in March 2020, given the economic environment and our efforts to preserve cash, and no share repurchases have been made since then.

However, the stock repurchase program remains authorized by our board of directors, with approximately $2.2 billion remaining available for share repurchases under the program, and we may resume share repurchases in the future at any time, depending on market conditions, our capital needs and other factors.

Additionally, we suspended dividend payments in 2020, but we expect that both share repurchases and dividend payments will be reinstated in future periods and result in uses of liquidity.

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.

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.

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 December 31, 2022, cash generated from our operations and, as needed, the use of the available capacity of our Revolving Credit Facility.

Additionally, we have continued access to debt markets and expect to be able to obtain financing, if necessary.

Additionally, we have continued access to debt markets and expect to be able to obtain financing as a source of liquidity as required and to extend maturities of existing borrowings, as necessary.

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 other compensation costs, taxes and compliance costs and other commitments for the foreseeable future based on current conditions.

The objectives of our cash management policy are to maintain the availability of liquidity while minimizing operational costs.

The objectives of our cash management policy are maintaining the availability of liquidity and minimizing operational costs.

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.

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Net cash provided by operating activities $ 1,681 $ 109 NM (1)

Net cash used in investing activities (57) (107) (46.7)

Net cash provided by (used in) financing activities (1,793) 2,032 NM (1)

Net cash used in investing activities (123) (57) NM (1)

Net cash used in financing activities (1,765) (1,793) (1.6)

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

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Operating Activities

As we recover from the negative impacts of the pandemic and our system-wide RevPAR increases, we are returning to a position where cash flows are being generated from our operations.

The decrease in cash flows from operating activities during the year ended December 31, 2021 as compared to the year ended December 31, 2020, was primarily attributable to the $1.0 billion of cash received in connection with the Honors Points Pre-Sale during 2020.

Excluding the impact of this transaction, cash flows from operating activities increased during the year ended December 31, 2021 when compared to 2020, 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 60.8 percent due to the recovery from the COVID-19 pandemic, as well as the decrease in cash paid for interest of $74 million, primarily as a result of the senior notes issuances and redemptions in December 2020 and February 2021;

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

This increase was partially offset by a $150 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, as well as an increase in cash paid for income taxes of $102 million, primarily due to an increase in income before income taxes.

The increase in cash provided by operating activities was primarily due to the increase in cash inflows generated from our management and franchise segment, largely as a result of an increase in RevPAR at our comparable managed and franchised properties of 41.2 percent.

Additionally, there was a $119 million decrease in payments of contract acquisition costs based on the timing of certain strategic hotel developments supporting our net unit growth.

The increase in cash provided by operating activities was partially offset by a $208 million increase in cash paid for income taxes primarily due to the increase in income before income taxes.

In April 2020, we pre-sold Hilton Honors points to American Express and, before the end of the second quarter of 2022, all of those points had been used by American Express.

As such, American Express resumed purchasing Hilton Honors points with cash in connection with a co-branded credit card arrangement with them, which contributed approximately $400 million to the increase in our operating cash flows during the year ended December 31, 2022.

We expect American Express to continue to purchase points with cash under the co-branded credit card arrangement in future periods.

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 and continued to limit investment spending throughout 2021;

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

Net cash used in investing activities primarily included:

(i) capitalized software costs that were related to various systems initiatives for the benefit of both our hotel owners and our overall corporate operations;

(ii) capital expenditures for property and equipment related to our corporate facilities and the renovation of certain hotels in our ownership segment;

and (iii) equity and debt financing that we provided to unconsolidated affiliates and owners of hotels that we currently or in the future will manage or franchise to support our strategic objectives.

During the year ended December 31, 2022, net cash used in investing activities was partially offset by the net cash inflows resulting from our undesignated derivative financial instruments that we have in place to hedge against changes in foreign currency exchange rates, primarily as a result of the British pound depreciating against the USD during the year ended December 31, 2022.

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 year ended December 31, 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 year ended December 31, 2021.

Additionally, during the year ended December 31, 2020, we had a net additional $1.0 billion of senior notes borrowings, as compared to the year ended December 31, 2021.

Further, cash outflows decreased $338 million in 2021 as a result of decreases in share repurchases and dividend payments, as both programs remained suspended after their suspension was initiated in 2020.

Net cash used in financing activities during the year ended December 31, 2022 primarily related to the return of capital to shareholders, including share repurchases, which resumed in March 2022, and quarterly dividend payments, which resumed in June 2022, after both programs were suspended in 2020.

Net cash used in financing activities during the year ended December 31, 2021 primarily comprised the full repayment of the $1.69 billion outstanding debt balance on our Revolving Credit Facility, as well as the debt issuance costs and redemption premiums associated with the issuance of new senior unsecured notes and the use of such proceeds for the redemption of previously outstanding senior unsecured notes.

Debt and Borrowing Capacity

As of December 31, 2021, our total indebtedness, excluding unamortized deferred financing costs and discount, was approximately $8.9 billion, and we had letters of credit of $60 million outstanding on our Revolving Credit Facility.

For additional information on our total indebtedness, including financing transactions executed during the years ended December 31, 2021 and 2020, availability under our Revolving Credit Facility and guarantees on our debt, refer to Note 9:

As of December 31, 2022, our total indebtedness, excluding the deduction for unamortized deferred financing costs and discount, was approximately $8.8 billion, and we had $60 million of letters of credit outstanding under our Revolving Credit Facility, resulting in an available borrowing capacity of $1,690 million.

In January 2023, we amended the credit agreement governing our Revolving Credit Facility to increase the borrowing capacity from $1.75 billion to $2.0 billion, $250 million of which is available in the form of letters of credit, and, based on the terms of the agreement, we expect the extended maturity date to be January 2028.

As of February 3, 2023, after considering $60 million letters of credit outstanding and no borrowings outstanding, we had an available borrowing capacity on the Revolving Credit Facility of $1,940 million .

For additional information on our total indebtedness, including any applicable guarantees, refer to Note 8:

"Debt" in our 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.

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

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 is expected to continue to do so for an indeterminate period of time;

however, during the year ended December 31, 2021, we returned to a position where we were generating cash flows from our core operations.

During 2020, we took precautions to secure our cash position, as discussed above, and, with our business recovering during 2021, 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.

Summarized Guarantor Financial Information

Hilton Domestic Operating Company Inc.

("HOC") is the issuer of the following senior notes, collectively referred to as the Senior Notes:

• 5.375% Senior Notes due 2025;

• 4.875% Senior Notes due 2027;

• 5.750% Senior Notes due 2028;

• 3.750% Senior Notes due 2029;

• 4.875% Senior Notes due 2030;

• 4.000% Senior Notes due 2031;

• 3.625% Senior Notes due 2032.

HOC is 100 percent owned directly by Hilton Worldwide Parent LLC ("HWP"), which, in turn, is 100 percent owned directly by Hilton Worldwide Holdings Inc.

(the "Parent").

The Senior Notes are guaranteed jointly and severally on a senior unsecured basis by the Parent, HWP and substantially all of the Parent's direct and indirect wholly owned domestic restricted subsidiaries, except for HOC (together, the "Guarantors").

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 December 31, 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.

The indentures that govern the Senior Notes provide that any Guarantor may be released from its guarantee so long as:

(i) the subsidiary is sold or sells all of its assets;

(ii) the subsidiary is released from its guarantee under our senior secured credit facilities;

(iii) the subsidiary is declared "unrestricted" for covenant purposes;

or (iv) the requirements for legal defeasance or covenant defeasance or to discharge the indenture have been satisfied, in each case in compliance with applicable provisions of the indentures.

Neither HOC nor any of the Guarantors has any reporting obligation under the Exchange Act in respect of the Senior Notes;

however, we are supplementally providing the information set forth below.

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

December 31, 2021

(in millions)

Total current assets

Intangible assets, net 8,794

Total intangibles and other assets

TOTAL ASSETS 10,342

LIABILITIES AND EQUITY (DEFICIT)

Total current liabilities

Long-term debt 8,541

Total liabilities

Total Hilton stockholders' deficit (3,834)

TOTAL LIABILITIES AND EQUITY (DEFICIT) 10,342

Year Ended December 31, 2021

(in millions)

Revenues $ 1,483

Other revenues from managed and franchised properties

Total revenues $ 4,330

Expenses $ 449

Other expenses from managed and franchised properties

Total expenses $ 3,488

Operating income $ 844

Interest expense (380)

Income tax expense (128)

Net income 285

Net income attributable to Hilton stockholders 285

Critical Accounting Estimates

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refer to Note 2:

"Basis of Presentation and Summary of Significant Accounting Policies" in our consolidated financial statements for information on our significant accounting policies.

"Basis of Presentation and Summary of Significant Accounting Policies" in our consolidated financial statements for

information on our significant accounting policies.

Management has discussed the development and selection of the following critical accounting estimates with the Audit Committee of the board of directors:

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• perform a quantitative analysis to identify both the existence of impairment and the amount of the impairment loss.

The estimated fair value is based on internal projections of expected future cash flows and operating plans, as well as market conditions relative to the operations of our reporting units and brands.

Changes in our estimates and assumptions, or changes in the factors that we consider that would affect them, such as those described above, that were used in our impairment testing could result in impairment losses, which could be material.

The estimated fair value is based on internal projections of expected future cash flows and operating plans, as well as market conditions relative to the operations of the reporting unit or brand, as applicable.

Changes in the estimates and assumptions used in our impairment analysis, or changes in the factors that we consider that would affect these estimates and assumptions, such as those described above, could result in impairment losses, which could be material.

Impairment of Certain Finite-Lived Assets

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Judgment is required when developing projections of future revenues and expenses based on estimated performance over the expected useful life of the asset group.

Forward-looking estimates of future performance are based on historical operating results, as well as various internal projections and external sources;

Forward-looking estimates of future performance are based on historical operating results, adjusted for current and expected future market conditions, as well as various internal projections and external sources;

• determine the asset group fair value when required.

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The discount rate applied to forward-looking projections takes into account market-specific considerations.

Hilton Honors

We record a point redemption liability for amounts received from properties participating in our Hilton Honors guest loyalty program and strategic partners in an amount equal to the estimated cost per point of the future redemption obligation.

We engage third-party actuaries annually to assist in determining the fair value of the future reward redemption obligation using statistical formulas that project future point redemptions based on factors that require judgment, including an estimate of points that will eventually be redeemed, which includes an estimate of breakage (i.e., points that will never be redeemed), and the cost of reimbursing properties and other third parties.

The cost of the points expected to be redeemed includes further estimates of available room nights, occupancy rates, room rates and any changes to the program, including devaluation or appreciation of points based on changes in the number of points required to redeem a reward.

Any amounts received from strategic partners related to the issuance of points that are in excess of the actuarial determined cost per point are recorded as deferred revenue in our consolidated balance sheets and recognized as revenue upon point redemption.

We record a point redemption liability for amounts received from properties participating in our Hilton Honors guest loyalty program and from strategic partners affiliated with the loyalty program, in an amount equal to the estimated cost per point of the future redemption obligation.

We engage third-party actuaries annually to assist in determining the fair value of the future reward redemption obligation using a discount rate and statistical formulas that project future point redemptions based on factors that require judgment, including:

(i) an estimate of points that will eventually be redeemed, which includes an estimate of breakage (i.e., points that will never be redeemed);

(ii) the expectation of when such points will be redeemed;

and (iii) the cost of reimbursing properties and other third parties when points are redeemed.

The cost of the points expected to be redeemed includes further estimates of available room nights, occupancy rates, room rates and any changes to the Hilton Honors program, including devaluation or appreciation of points based on changes in the number of points required to redeem a reward.

Any amounts received related to the issuance of points that are in excess of the actuarial determined cost per point are recorded as deferred revenue in our consolidated balance sheets and recognized as revenue upon point redemption.

We recognize revenue for point redemptions in the amount we expect to retain in excess of the cost per point, inclusive of estimated breakage, and limit the revenue recognized to an amount that is probable to not result in a significant reversal in the cumulative revenue recognized when breakage occurs.

In addition to the Hilton Honors fees we receive from hotel owners to operate the program, we earn fees from strategic partnerships, including co-branded credit card arrangements, for the use of our IP license and the issuance of Hilton Honors points.

In addition to the Hilton Honors fees we receive from hotel owners to operate the program, we earn fees from strategic partnerships, including co-branded credit card arrangements, for a license to use our IP and the issuance of Hilton Honors points.

The allocation of the overall fees from the strategic partnerships between the IP license and the Hilton Honors points is based on their estimated standalone selling prices.

The estimated standalone selling price of the IP license is determined using a relief-from-royalty valuation method incorporating statistical formulas based on factors that require significant judgment, including estimates of credit card usage, an appropriate royalty rate and a discount rate to be applied to the projected cash flows.

The estimated standalone selling price of the IP license is determined using a relief-from-royalty valuation method incorporating statistical formulas based on factors that require significant judgment, including estimates of the usage of the strategic partner's goods or services, an appropriate royalty rate and a discount rate applied to the projected cash flows.

The estimated standalone selling price of the future reward redemptions of Hilton Honors points under the strategic partnerships is calculated using a discounted cash flow analysis with the same assumptions as the point redemption liability discussed above, adjusted for an appropriate margin.

Due to the impact of the COVID-19 pandemic on our business and the extension of our temporary suspension of the expiration of Hilton Honors points through December 31, 2022, we reassessed the expected redemption rate of our Hilton Honors points.

As a result, we adjusted our estimates of breakage to include, among other factors, the anticipated point expirations that will occur on December 31, 2022.

Changes in our estimates and assumptions that are used to determine our estimated cost per point could result in material changes in the balances of our liability for guest loyalty program and deferred revenues in our consolidated balance sheets, and changes in estimates and assumptions that are used to determine the allocation of the fees from strategic partnerships between the IP license fee and the Hilton Honors points and revenue recognized on point redemptions could result in material changes to our licensing fees and other revenues from managed and franchised properties recognized during the period in our consolidated statements of operations.

Changes in our estimates and assumptions that are used to determine our estimated cost per point and the allocation of fees from strategic partnerships between the IP license fee and the Hilton Honors points could result in material changes in the balances of our liability for guest loyalty program and deferred revenues in our consolidated balance sheets.

Further, the estimates and assumptions used for the allocation of fees could result in material changes to our licensing fees and other revenues from managed and franchised properties recognized in our consolidated statements of operations.

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying values and the tax basis of assets and liabilities using currently enacted tax rates.

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When determining the amount of tax benefit to be recognized, we assume, among other items, the position will be examined, the examiner will have all relevant information and the evaluation of the position will be based on its technical merits.

Further, estimates based on a tax position’s technical merits and amounts we would ultimately accept in a negotiated settlement with the tax authorities are used to measure the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.

Further, estimates based on the technical merits of each evaluated tax position and the amounts we would ultimately accept in a negotiated settlement with the tax authorities are used to measure the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.

Changes to these assumptions and estimates can lead to an additional income tax benefit (expense), which could materially affect our consolidated financial statements.

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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-K

Item 7. Management’s Discussion and Analysis