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Item 7. Management’s Discussion and Analysis

2024-02-07 compared with 2023-02-09 · 186 added, 187 removed, 312 unchanged (54% of the section changed)

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COVID-19 Pandemic

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.

Although our results for the year ended December 31, 2022 included a strong recovery from the pandemic when compared to the same periods in 2020 and 2021, the Omicron variant of COVID-19 limited the recovery of certain regions and segments of our business during the beginning of that period.

As such, the results for the year ended December 31, 2023 reflect improvement in comparison to the year ended December 31, 2022, when considering the pandemic.

While certain regions and customer segments, particularly business and group travel, continue to recover from the impacts of the pandemic, our global growth when comparing 2023 to 2022 is more normalized than it was during the height of the pandemic and our subsequent recovery.

Additionally, given the impacts of the pandemic on prior periods, the improvement in our results during the year ended December 31, 2023 is not necessarily indicative of future performance or future growth patterns.

Hilton is one of the largest hospitality companies in the world, with 7,530 properties comprising 1,182,937 rooms in 126 countries and territories as of December 31, 2023.

Our premier brand portfolio includes:

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

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.

Our premier brand portfolio includes luxury, lifestyle, full service, focused service and all-suites hotel brands, as well as our timeshare brands.

As of December 31, 2023, we had 180 million members in our award-winning guest loyalty program, Hilton Honors, a 19 percent increase from December 31, 2022.

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

(i) management and franchise;

and (ii) ownership.

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

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

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

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

(ii) licensing fees from our strategic partners, including co-branded credit card providers, and HGV;

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 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.

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 reservations system, marketing and information technology services, while a third party manages or operates such franchised 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:

We conduct business in three distinct geographic regions:

(i) the Americas;

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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 69 percent of our system-wide hotel rooms as of December 31, 2022, 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 region and all African nations, including the Indian Ocean island nations.

Europe and MEA are often analyzed separately and, as such, are presented separately within the analysis herein.

The Asia Pacific region includes the eastern and southeastern nations of Asia, as well as India, Australia, New Zealand and the Pacific Island nations.

Although the U.S., which represented 67 percent of our system-wide hotel rooms as of December 31, 2023, 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 our hotel operating statistics in "—Results of Operations." 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 region and all African nations, including the Indian Ocean island nations.

Europe and MEA are often analyzed separately and, as such, are presented separately within our hotel operating statistics in "—Results of Operations." The Asia Pacific region includes the eastern and southeastern nations of Asia, as well as India, Australia, New Zealand and the Pacific Island nations.

System Growth and Development Pipeline

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.

Our strategic objectives include the continued expansion of our global hotel network, in particular 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, renovate and maintain hotels is typically provided by the third-party owners 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.

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.

See further discussion on our cash management policy in "—Liquidity and Capital Resources." The current economic environment, including elevated levels of inflation and interest rates, 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.

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(1) Rounded to the nearest hundred.

(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 will be in our management and franchise segment.

(2) Represents room additions, net of rooms removed from our system.

Net unit growth for the year ended December 31, 2023 was 4.9 percent.

(3) The hotels in our development pipeline were under development throughout 118 countries and territories, including 30 countries and territories where we had no existing hotels.

(4) Of the total rooms in our development pipeline, 216,600 were under construction and 259,800 were located outside of the U.S.

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

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

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• Franchise and licensing fees .

Represents fees earned in connection with the licensing of one of our brands, as well as fees from licensing agreements to use our IP.

Represents fees earned in connection with licensing our IP, including our brands.

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, 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.

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 hotels 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.

Our non-hotel license 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 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 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.

Terms of our management contracts vary, but our fees typically consist of a base management fee, which is generally based on a percentage of the hotel's monthly gross operating revenue and, when applicable, an incentive management fee, which is generally 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 management fee, or because our two-tier fee structure is more heavily weighted toward the incentive management fee than the base management fee.

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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Transient guests are individual travelers who are traveling for business or leisure.

Group guests are traveling for group events that reserve rooms for meetings, conferences or social functions, which may be sponsored by corporate, social, military, educational, religious or other organizations or associations.

Group business usually includes a block of room accommodations, as well as other ancillary services, such as meetings facilities and catering and banquet services.

Group guests are travelers who are traveling for group events that reserve rooms for meetings, conferences or social functions, and may be sponsored by corporate, social, military, educational, religious or other organizations or associations.

Group business usually includes a block of room accommodations, as well as other ancillary services, such as meeting facilities and catering and banquet services.

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.

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• Other revenues.

Represents revenues generated by the incidental support of hotel operations for owned, leased, managed and franchised hotels, including our purchasing operations, and other operating income.

Represents revenues primarily generated by our purchasing operations.

• Other revenues from managed and franchised 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.

Represents amounts that are contractually reimbursed to us by property 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 managed hotel employees are legally employed by us.

We have no legal responsibility for the employee liabilities related to certain of our managed properties, predominately those located outside of the U.S., where we are not the legal employer, as well as the employees or the liabilities associated with operating franchised properties.

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, as reimbursement for the costs related to our:

(i) advertising and marketing programs;

(ii) internet, technology and reservation systems;

and (iii) quality assurance programs.

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.

For the indirect reimbursements, Hilton collects monthly program fees from our managed and franchised properties, which are based on the underlying hotel's sales or usage.

The program fees serve as reimbursement for the costs related to the operation of our marketing, sales and brand programs and shared services.

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

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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.

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 geopolitical conditions can reduce the amount of management and franchise fees we are able to generate and/or reduce the revenues and profitability of the operations of our owned and leased hotels.

Further, competition for hotel guests and the supply of hotel services affect our ability to sustain or increase rates charged to customers of our hotels.

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.

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

• 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.

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 hotel owners and franchisees.

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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.

These relationships

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

Principal Components

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Food and beverage costs include costs for wait and kitchen staff and food and beverage inventory.

Other support expenses include:

costs associated with property-level management;

sales and marketing;

operating hotel spas;

operating telephones, parking and other guest recreation;

entertainment;

and other services.

Other support expenses include costs associated with property-level management, utilities, sales and marketing, operating hotel spas, operating telephones, parking and other guest recreation, entertainment and other services.

Property expenses include property taxes, repairs and maintenance, rent and insurance.

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These are non-cash expenses that primarily consist of:

(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 contracts, leases and our Hilton Honors guest loyalty program intangible asset;

(ii) amortization of capitalized software costs;

and (iii) depreciation and amortization of property and equipment, including our finance lease right-of-use ("ROU") assets, such as buildings and furniture and equipment that are used in corporate operations or at our consolidated owned and leased hotels.

(i) amortization of capitalized software costs;

(ii) depreciation and amortization of property and equipment, including our finance lease right-of-use ("ROU") assets, such as buildings and furniture and equipment that are used in corporate operations or at our consolidated owned and leased hotels;

and (iii) 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").

As of January 1, 2021 the only remaining finite-lived intangible assets resulting from the Merger related to leases, international management contracts and our Hilton Honors guest loyalty program.

The assets related to the international management contracts and Hilton Honors, which both had useful lives of 16 years, were fully amortized during the year ended December 31, 2023.

• General and administrative.

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travel and entertainment expenses;

bad debt expenses for uncollectible management, franchise and other fees;

credit losses for estimated uncollectible management, franchise and other fees;

and administrative and related expenses.

• Other expenses .

Consists of expenses incurred by our purchasing operations and other ancillary businesses, along with other operating expenses of the business.

Primarily consists of expenses incurred by our purchasing operations.

• Other expenses from managed and franchised properties.

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.

Represents certain costs and expenses that are contractually reimbursed to us by property owners, primarily for (i) payroll and related costs for hotels that we manage where the employees are legally employed by us and (ii) expenses related to our marketing, sales, brands and shared services programs.

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

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These expenses include personnel costs, rent, property taxes, insurance and utilities.

If we are unable to decrease these costs significantly or rapidly when demand for our hotels decreases, the resulting decline in our revenues can have an adverse effect on our net cash flows, margins and profits.

This effect can be especially pronounced during periods of economic contraction or slow economic growth, including that which resulted from the COVID-19 pandemic.

This effect can be especially pronounced during periods of economic contraction or slow economic growth.

Economic downturns generally affect the results of our ownership segment more significantly than the results of our management and franchise segment due to the high fixed costs associated with operating an owned or leased hotel.

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Additionally, the general and administrative expenses of operating a global business also include fixed personnel costs, rent, property taxes, insurance and utilities.

The effectiveness of any cost-cutting efforts related to owning and leasing hotels or corporate operations is limited by the amount of inherent fixed costs.

However, we have taken steps to reduce our fixed costs to levels we believe are appropriate to maximize profitability and respond to expected future market conditions, while continuing to optimize value for the experiences of our customers, owners and Hilton employees, supporting the long-term sustainability of our brands and business.

The effectiveness of any cost-cutting efforts related to owning and leasing hotels or corporate operations is limited by the

amount of inherent fixed costs.

However, we have taken steps to manage our fixed costs to levels we believe are appropriate to maximize profitability and respond to market conditions, while continuing to optimize value for the experiences of our customers, owners and Hilton employees, which supports the long-term sustainability of our brands and business.

• Changes in depreciation and amortization expenses.

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

As of December 31, 2023, the only remaining finite-lived intangible assets that resulted from the Merger were those related to leases, as included in other intangible assets.

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.

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As a result, we are required to translate the results of those operations, assets and liabilities from their functional currency into USD at market-based foreign currency exchange rates for each reporting period.

When comparing our results of operations between periods, there may be material portions of the changes in our revenues or expenses that are derived from fluctuations in foreign currency exchange rates experienced between those periods.

When comparing our results of operations between reporting periods, there may be material portions of the changes in our revenues or expenses that are derived from fluctuations in foreign currency exchange rates experienced between those periods.

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

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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.

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.

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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(ii) have not undergone a change in brand or ownership type during the current or comparable periods reported;

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

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

Of the 7,438 hotels in our system as of December 31, 2023, 5,906 hotels were classified as comparable hotels.

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.

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"), if they would have otherwise been included, reflects the underlying results of our business for the years ended December 31, 2022 and 2021.

Our 1,532 non-comparable hotels as of December 31, 2023 included 359 hotels, or less than five percent of the total hotels in our system, that were removed from the comparable group during the last twelve months because they underwent large-scale capital projects, sustained substantial property damage, encountered business interruption or comparable results were otherwise not available.

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

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

Occupancy levels also

help management determine achievable Average Daily Rate ("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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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.

Revenue per Available Room ("RevPAR")

RevPAR is calculated by dividing hotel room revenue by the total number of room nights available to guests 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, 2023, 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, 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.

As such, comparisons of these hotel operating statistics for the years ended December 31, 2023 and 2022 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, 2023.

EBITDA and Adjusted EBITDA

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(viii) amortization of contract acquisition costs;

(ix) the net effect of reimbursable costs included in other revenues and other expenses from managed and franchised properties;

(ix) the net effect of our cost reimbursement revenues and expenses included in other revenues and other expenses from managed and franchised properties;

and (x) other items.

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.

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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 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;

(iii) the net effect of our cost reimbursement revenues and reimbursed expenses, as we contractually do not operate the related programs to generate a profit over the terms of the respective contracts;

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

and (iii) other items that are not reflective of our operating performance, such as amounts related to debt restructurings and debt retirements and reorganization and related severance costs, to enhance period-over-period comparisons of our ongoing operations.

Further, Adjusted EBITDA excludes the net effect of our cost reimbursement revenues and expenses, as we contractually do not operate the related programs to generate a profit over the terms of the respective contracts.

The direct reimbursements from hotel owners are typically reimbursed as the costs are incurred and have no net effect on net income (loss).

The fees we recognize related to the indirect reimbursements may be recognized before or after the related expenses are incurred, causing timing differences between the costs incurred and the related reimbursement from hotel owners, with the net effect impacting net income (loss) in the reporting period.

However, the expenses incurred related to the indirect reimbursements are expected to equal the revenues earned from the indirect reimbursements over time, and, therefore, the net

effect of our cost reimbursement revenues and expenses is not used by our management team to evaluate our operating performance or make day-to-day operating decisions.

EBITDA and Adjusted EBITDA are not recognized terms under U.S.

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• other companies in our industry may calculate EBITDA and Adjusted EBITDA differently, limiting their usefulness as comparative measures.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business, return to our stockholders through share repurchases and dividends or as measures of cash that will be available to us to meet our obligations.

Results of Operations

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RevPAR $ 113.90 12.6 %

Americas (excluding U.S.)

Occupancy 72.2 % 2.1 % pts.

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RevPAR $ 119.22 7.2 %

Americas (excluding U.S.)

Occupancy 69.4 % 5.4 % pts.

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RevPAR $ 79.61 58.7 %

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.

All regions showed improvement in RevPAR during the year ended December 31, 2023 driven by both ADR, including the impact of inflation, and occupancy gains.

Additionally, our group business showed the highest percentage improvement in RevPAR during the year of all of our customer segments, with RevPAR from both business and leisure travelers also improving.

The growth in ADR and occupancy in the U.S.

and Americas (excluding U.S.) during the period was led by returning group and business travelers;

however, as travel patterns continued to normalize from the impacts of the pandemic, the growth year over year was less pronounced than prior year improvements.

Additionally, Canada removed all COVID-19 travel restrictions in the fourth quarter of 2022, which contributed to the increase in RevPAR for 2023.

Europe was led by group business and benefited from inbound travel, and our hotels in the United Kingdom drove the increase in RevPAR from business and leisure travel.

The RevPAR improvement in MEA was driven by increased ADR across all customer segments, particularly from group business in the first half of the year and steady business and leisure improvements throughout the year.

APAC led year-over-year RevPAR improvement on a regional basis, primarily due to business travelers and the removal of cross-border travel and COVID-19 restrictions since the latter half of 2022, particularly in Japan and China.

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

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EBITDA 2,303 2,311

Loss on sales of assets, net — 7

Loss (gain) on foreign currency transactions 16 (5)

Loss on debt extinguishment — 69

Loss on investments in unconsolidated affiliate (1)

FF&E replacement reserves 63 54

Share-based compensation expense 169 162

Impairment losses

Amortization of contract acquisition costs 43 38

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Adjusted EBITDA $ 3,089 $ 2,599

(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.

(1) Amount includes losses recognized related to equity and debt financing that we had previously provided to an unconsolidated affiliate with underlying investments in certain hotels that we currently manage or franchise;

refer to Note 5:

Loss on Investments in Unconsolidated Affiliate in our consolidated financial statements for additional information.

(2) Amount for the year ended December 31, 2022 was less than $1 million.

Amounts for both periods include net losses (gains) related to certain of Hilton's investments in unconsolidated affiliates, other than the loss included separately in "loss on investments in unconsolidated affiliate," net losses (gains) on asset dispositions, severance and other items.

Amount for the year ended December 31, 2023 also includes expenses recognized in connection with the amendment of our senior secured term loan facilities (the "Term Loans").

Year Ended December 31, Percent Change

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Total management fees $ 616 $ 490 25.7

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.

The increases in franchise fees and management fees were primarily the result of increases in RevPAR at our comparable franchised and managed hotels, respectively.

During the year ended December 31, 2023, RevPAR at our comparable franchised and managed hotels increased 9.1 percent and 23.2 percent, respectively, due to increased occupancy of 3.1 percentage points and 9.6 percentage points, respectively, and increased ADR of 4.4 percent and 6.1 percent, respectively, which included increases due to inflation.

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.

Including new development and ownership type transfers, from January 1, 2022 to December 31, 2023, we added 664 franchised and managed properties on a net basis, providing an additional 102,100 rooms to our management and franchise segment, which also contributed to the increases in franchise and management fees.

Additionally, licensing fees increased as a result of increases in fees from our strategic partnerships and HGV.

Increased fees from our strategic partnerships primarily resulted from new cardholder acquisitions and increased cardholder spend under our co-branded credit card arrangements.

Increased fees from HGV resulted from increased timeshare revenues, inclusive of the impact of adding new timeshare properties to our system during the period, including those acquired by HGV from third-party companies.

Incentive management fees increased as they are based on hotels' operating profits, which generally improved from the prior year as increased consumer demand drove higher revenues, elevated margins and, ultimately, higher managed hotel profits.

Year Ended December 31, Percent Change

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Owned and leased hotels revenues $ 1,244 $ 1,076 15.6

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.

The $168 million increase in owned and leased hotel revenues included a $165 million currency neutral increase and a $3 million increase resulting from favorable fluctuations in foreign currency exchange rates.

Revenues from our comparable owned and leased hotels increased $206 million, on a currency neutral basis, due to the increase in RevPAR at our comparable owned and leased hotels of 36.1 percent, which is reflective of the ongoing easing of travel restrictions in the latter half of 2022, which carried improved performance into 2023, particularly in Japan, as well as improved performance in the U.K.

The increase in RevPAR was due to increases in occupancy of 11.9 percentage points and ADR of 13.9 percent, which included an increase due to inflation.

The $41 million currency neutral decrease in revenues from our non-comparable owned and leased hotels included decreases from properties that exited our system after December 31, 2021, as well as the impact of properties undergoing renovations during the period and the business interruption that occurred at our leased hotel in Israel due to the ongoing military conflict.

Year Ended December 31, Percent Change

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Other revenues $ 178 $ 102 74.5

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.

The increase in other revenues was primarily due to increased vendor rebates for purchases made directly by managed and franchised properties and other third parties and other revenues from our purchasing operations, including increased procurement volume from properties outside of our system that participate in our purchasing programs.

Operating Expenses

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$ 1,141 $ 999 14.2

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.

The $142 million increase in owned and leased hotels expenses included a $143 million increase on a currency neutral basis, which was partially offset by a $1 million decrease resulting from favorable fluctuations in foreign currency exchange rates.

Expenses from our comparable owned and leased hotels increased $137 million, on a currency neutral basis, as a result of increased occupancy and cost inflation both driving higher labor costs, utilities and other operating expenses, as well as an increase in rent expense.

The net increase in owned and leased hotels expenses from our non-comparable owned and leased hotels included increased expenses for FF&E replacement reserves related to hotels undergoing renovations and decreases from properties that exited our system after December 31, 2021, as well as from the business interruption that occurred at our leased hotel in Israel.

Year Ended December 31, Percent Change

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General and administrative expenses 408 382 6.8

Impairment losses

Other expenses 112 60 86.7

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.

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

The decrease in depreciation and amortization expenses was primarily due to a decrease in amortization expense, driven by the full amortization of:

(i) certain intangible assets in 2023 that were recorded at the time of the Merger and (ii) certain software project costs during 2023 and 2022.

The decrease in amortization expense was partially offset by an increase related to software additions between the periods.

The increase in general and administrative expenses was primarily due to an increase in costs related to payroll and other compensation costs.

We recognized $38 million of impairment losses during the year ended December 31, 2023 on assets associated with certain leased hotels;

Fair Value Measurements in our consolidated financial statements for additional information.

The increase in other expenses was primarily due to costs associated with higher procurement volume from our purchasing operations, including for properties outside of our system that participate in our purchasing programs.

Non-operating Income and Expenses

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Gain (loss) on foreign currency transactions

Loss on debt extinguishment — (69) (100.0)

(16) 5 NM (1)

Loss on investments in unconsolidated affiliate

(92) — NM (1)

Other non-operating income, net

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

Income tax expense (541) (477) 13.4

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

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 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.

In November 2023, we amended the credit agreement governing our Term Loans, which resulted in an increase to the weighted average fixed spread on the overall variable rate on the Term Loans, and increased the outstanding balance by $500 million, both of which contributed to the increase in interest expense.

The increase in interest expense also resulted from an increase in one-month SOFR, the benchmark for the Term Loans' interest rate, as well as an increase in variable rent for our finance leases, which is generally based on a percentage of hotel revenues or profits, which increased as discussed in "—Revenues." These increases were partially offset by a decrease in interest expense due to the net effect of the amortization of gains (losses) from accumulated other comprehensive loss related to interest rate swaps that we used to mitigate floating interest rate risk, including swaps that were dedesignated in prior periods.

"Debt" in our consolidated financial statements for additional information on the interest rates on our indebtedness, which includes discussion of the Term Loans amendment.

The net gains and losses on foreign currency transactions are a result of changes in foreign currency exchange rates, including on certain intercompany financing arrangements, such as short-term cross-currency intercompany loans, as well as transactions denominated in foreign currencies.

The loss on investments in unconsolidated affiliate included:

(i) a $44 million other-than-temporary impairment loss on our investment in one of our third-party unconsolidated affiliates (the "Fund"), which has underlying investments in certain hotels that we currently manage or franchise, and (ii) $48 million of credit losses on financing receivables provided to the Fund.

"Loss on Investments in Unconsolidated Affiliate" and Note 11:

"Fair Value Measurements" in our consolidated financial statements for additional information.

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:

"Income Taxes" in our consolidated financial statements.

The decrease in other non-operating income, net included the impact of an increase in the interest cost component of our net periodic pension cost, offset by an increase in our interest income, both resulting from increases in interest rates.

Additionally, the year ended December 31, 2023 included $10 million of fees incurred in connection with the Term Loans amendment, while the year ended December 31, 2022 included an $11 million gain resulting from the remeasurement of certain investments in unconsolidated affiliates;

the loss related to our investment in the Fund is presented separately in "loss on investments in unconsolidated affiliate" in our consolidated statement of operations, as discussed above.

The increase in income tax expense was primarily attributable to increases in uncertain tax position reserves related to our guest loyalty program.

Segment Results

As of December 31, 2023, our management and franchise segment included 800 managed and 6,679 franchised properties, respectively, consisting of 1,165,446 total rooms, and our ownership segment included 51 hotels consisting of 17,491 total rooms.

Refer to Note 18:

"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, the net of which are correlated with our ownership segment revenues and segment operating income (loss).

For the year ended December 31, 2023, refer to "—Revenues" for further discussion of the increase in our franchise and licensing fees and total management fees, which are correlated to our management and franchise segment revenues and segment operating income, as well as for further discussion of the increase in revenues from our owned and leased hotels, which are correlated to our ownership segment revenues.

In addition, refer to "—Operating Expenses" for further discussion of the increase in operating expenses at our owned and leased hotels, which, when netted with our ownership segment revenues and management fees charged by our management and franchise segment, results in our ownership segment operating income (loss).

Liquidity and Capital Resources

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• lease payments under our finance and operating leases, which include minimum lease payments that are estimated to be approximately $41 million and $153 million, respectively, in 2024;

• 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;

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

• committed contract acquisition costs;

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• 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.

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.

During the year ended December 31, 2023, we repurchased approximately 15.6 million shares of our common stock for $2.3 billion.

As of December 31, 2023, approximately $3.8 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.

In circumstances where we have the opportunity to support our strategic objectives, we may provide guarantees or other commitments, as necessary, to owners of hotels that we currently or in the future will manage or franchise or other third parties.

"Commitments and Contingencies" in our consolidated financial statements for additional information on our commitments that were outstanding as of December 31, 2023.

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 as a source of liquidity as required and to extend maturities of existing borrowings, as necessary.

Within the framework of our investment policy, we intend to finance our business activities primarily with cash on our balance sheet as of December 31, 2023, cash generated from our operations and, as needed, the use of the available capacity of our senior secured revolving credit facility (the "Revolving Credit Facility").

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, if 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.

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(in millions)

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

Net cash provided by operating activities $ 1,946 $ 1,681 15.8

Net cash used in investing activities (305) (123) NM (1)

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Operating Activities

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.

Cash flows from operating activities were primarily generated from management and franchise fee revenue and operating income from our owned and leased hotels.

The increase during the period was primarily due to the increase in cash inflows generated from our management and franchise segment, largely as a result of the 12.1 percent increase in RevPAR at our comparable managed and franchised properties.

The increase in cash inflows generated by operating activities was partially offset by a $152 million increase in payments of contract acquisition costs due to the timing of certain strategic hotel developments supporting our growth, as well as an $89 million increase in the net cash outflows related to income tax payments.

In April 2020, we pre-sold Hilton Honors points to American Express and, in 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 to the increase in our operating cash flows during the year ended December 31, 2023.

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 included:

Net cash used in investing activities primarily included cash flows related to:

(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.

(ii) capital expenditures for property and equipment related to corporate property and the renovation of certain hotels in our ownership segment, which increased between the periods due to the timing of certain corporate and hotel capital expenditure projects;

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

Additionally, our investing activities include the net cash inflows and outflows related to our undesignated derivative financial instruments that we have in place to hedge against the impact of fluctuations in foreign currency exchange rates on certain of our intercompany loan and cash balances, which were primarily the result of changes in the exchange rates for the Pound Sterling ("GBP") to the U.S.

Financing Activities

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.

Net cash used in financing activities during both the years ended December 31, 2023 and 2022 primarily related to the return of capital to stockholders, including dividends, which resumed in the second quarter of 2022, as well as share repurchases, which resumed in March 2022, after both programs were suspended in 2020.

The increase in net cash used in financing activities was partially offset by the increase in net cash inflows related to additional borrowings on the Term Loans of $500 million, as well as those related to settlements of our interest rate swap with a financing component for which we receive a variable rate and pay a fixed rate, due to the increase in the variable interest rate.

Debt and Borrowing Capacity

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:

As of December 31, 2023, our total indebtedness, excluding the deduction for unamortized deferred financing costs and discounts, was approximately $9.3 billion.

No debt amounts were outstanding under our senior secured revolving credit facility as of December 31, 2023, which had an available borrowing capacity of $1,913 million after considering $87 million of outstanding letters of credit.

For additional information on our total indebtedness and guarantees on our debt, refer to Note 9:

"Debt" in our consolidated financial statements.

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On an ongoing basis, we evaluate these estimates and judgments based on historical experiences and various other factors that we believe reflect the current circumstances.

While we believe our estimates, assumptions and judgments are reasonable, they are based on information presently available.

While we believe our estimates, assumptions and judgments are reasonable, they are based on information available when they are made.

Actual results may differ significantly from these estimates due to changes in judgments, assumptions and conditions as a result of unforeseen events or otherwise, which could have a material effect on our financial position or results of operations.

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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 qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit or brand intangible asset is less than its carrying value.

Factors we consider when making this determination include assessing the overall effect of trends in the hospitality industry and the general economy, regional performance and expectations and historical experience;

Factors we consider when making this determination include assessing historical trends and the overall effect of current trends in and future expectations of the hospitality industry and the general economy and regional performance;

• decide whether to bypass the qualitative assessment and perform a quantitative assessment.

Factors we consider when making this determination include changes in the Company or general economic conditions since the previous quantitative assessment was performed, the amount by which the fair value exceeded the carrying value at that time and the period of time that has passed since such quantitative assessment;

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

Factors we consider when making this determination include negative changes in the Company or general economic conditions since the previous quantitative assessment was performed, the amount by which the fair value exceeded the carrying value at the time of the previous assessment and the period of time that has passed since such quantitative assessment;

• perform a quantitative analysis to identify both the existence and the amount of an 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 the reporting unit or brand, as applicable.

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Impairment of Certain Finite-Lived Assets

We evaluate the carrying value of our specifically identifiable lease intangible assets, operating and finance lease ROU assets and property and equipment for indicators of impairment, and, if such indicators exist, we perform an analysis to determine the recoverability of the determined asset group, by comparing the expected undiscounted future cash flows to the net carrying value of the asset group.

We evaluate the carrying value of our specifically identifiable lease intangible assets, operating and finance lease ROU assets and property and equipment for indicators of impairment.

As part of the process, we exercise judgment to:

• determine if there are indicators of impairment present.

• determine the projected undiscounted future cash flows when indicators of impairment are present.

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, 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.

• determine the projected undiscounted future cash flows when indicators of impairment are present to determine whether an asset group is recoverable by comparing the expected undiscounted future cash flows to the net carrying value of that asset group.

Judgment is required when developing projections of future revenues and expenses to determine the undiscounted cash flows, which are based on estimated performance over the expected useful life of the asset group.

Forward-looking estimates of 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 an asset group is determined not to be recoverable.

In determining the fair value, we often use internally-developed discounted cash flow models, appraisals, recent similar transactions in the market and, if appropriate and available for a specific asset group, current estimated net sales proceeds from pending offers.

Assumptions used in the discounted cash flow models include estimating cash flows, which may require us to adjust for specific market conditions, as well as capitalization rates, which are based on location, property or asset type, market-specific dynamics and overall economic performance.

The discounted cash flow models include the undiscounted cash flows, as discussed above, which may require us to adjust for specific market conditions, and a discount rate to determine the present value of those cash flows.

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

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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.

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

(ii) an estimate of when such points will be redeemed;

and (iii) an estimate of the cost of reimbursing managed and franchised properties and other third parties for redemptions.

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.

Any amounts received related to the issuance of points that are in excess of the cost per point, as determined by an actuary, are recorded as deferred revenue in our consolidated balance sheet 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.

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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.

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.

We regularly review our deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets that we believe will not be ultimately realized.

In performing this review, we make estimates and assumptions regarding projected future taxable income, the expected timing of reversals of existing temporary differences and the implementation of tax planning strategies.

A change in these assumptions may increase or decrease our valuation allowance resulting in an increase or decrease in our effective tax rate, which could materially affect our consolidated financial statements.

We regularly review our deferred tax assets to assess their potential realization and establish valuation allowances for portions of such assets that we believe will not be ultimately realized.

In performing this review, we consider all positive and negative evidence available, including, but not limited to, estimates and assumptions regarding projected future taxable income, the expected timing of reversals of existing temporary differences and the implementation of tax planning strategies, all of which require significant use of judgment.

A change in these assumptions may increase or decrease our valuation allowances

resulting in an increase or decrease in our effective tax rate, respectively, which could materially affect our consolidated financial statements.

Refer to Note 13:

"Income Taxes" for information on the balances of our deferred tax assets and respective valuation allowances as of December 31, 2023.

We use a prescribed more-likely-than-not recognition threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return if there is uncertainty in income taxes recognized in the consolidated financial statements.

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 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.

We record the benefits of income tax positions by recognizing the largest amount of income tax benefit more-likely-than-not to be realized upon resolution.

Estimating this benefit involves, but is not limited to, interpreting complex tax laws in the multiple jurisdictions where we operate, evaluating the technical merits of each tax position and assessing amounts we would ultimately accept in a negotiated settlement with the tax authorities, if applicable.

The complexities and judgment involved in estimating the Company's income tax positions could result in payments materially different than the liabilities previously recognized for such expected payments.

Additionally, as new information becomes available (e.g., legislative changes or administrative rulings) changes in the Company's judgment and assumptions could result in adjustments to our existing income tax position recognition.

Changes to these assumptions and estimates may increase or decrease our existing liabilities, resulting in additional income tax expense or benefit, respectively, which could materially affect our consolidated financial statements.

Legal Contingencies

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What changed 10-K

Item 7. Management’s Discussion and Analysis