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Item 2. Management’s Discussion and Analysis

2025-11-04 compared with 2025-08-05 · 82 added, 74 removed, 236 unchanged (40% of the section changed)

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We undertake no obligation to publicly update or revise these statements, whether as a result of new information, future events or otherwise.

We make forward-looking statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report based on the beliefs and assumptions of our management and on information available to us through the date this Form 10-Q is filed with the SEC.

We make forward-looking statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this

report based on the beliefs and assumptions of our management and on information available to us through the date this Form 10-Q is filed with the SEC.

Forward-looking statements include information related to our development pipeline;

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our expectations regarding certain claims, legal proceedings, settlements or resolutions;

our expectations regarding additional payments to citizenM Holding BV and certain of its affiliates;

our expectations regarding additional payments to citizenM Holding BV and certain of its affiliates and the integration of the citizenM hotels into our system and platforms;

and other statements that are preceded by, followed by, or include the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “foresees,” or similar expressions;

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Under our asset-light business model, we typically manage or franchise hotels and other lodging offerings, rather than own them.

Terms of our management agreements vary, but we earn a management fee that is typically composed of a base management fee, which is a percentage of the revenues of the hotel, and an incentive

management fee, which is based on the profits of the hotel.

Terms of our management agreements vary, but we earn a management fee that is typically composed of a base management fee, which is a percentage of the revenues of the hotel, and an incentive management fee, which is based on the profits of the hotel.

In many cases (particularly in our U.S.

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Comparisons to prior periods are on a constant U.S.

dollar basis, which we calculate by applying exchange rates for the current period to the prior comparable period.

dollar basis, which we calculate by applying exchange rates for the current period to the prior

comparable period.

We believe constant dollar analysis provides valuable information regarding the performance of hotels in our system as it removes currency fluctuations from the presentation of such results.

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Business Trends

In the 2025 second quarter, worldwide RevPAR increased 1.5 percent, driven by ADR growth of 1.9 percent.

In the 2025 first half, worldwide RevPAR increased 2.8 percent, driven by ADR growth of 2.4 percent.

& Canada, RevPAR was unchanged in the 2025 second quarter and increased 1.6 percent in the 2025 first half, compared to the same periods in the prior year, reflecting strong demand at our luxury hotels, offset by weaker demand at our select service hotels largely driven by softness in government travel and weaker business transient demand.

In our International regions, RevPAR grew 5.3 percent in the 2025 second quarter and 5.7 percent in the 2025 first half, compared to the same periods in the prior year, reflecting higher demand in APEC, EMEA, and CALA.

In Greater China, RevPAR decreased 0.5 percent in the 2025 second quarter and 1.0 percent in the 2025 first half, reflecting soft macro-economic conditions and lower ADR.

In the 2025 third quarter, worldwide RevPAR increased 0.5 percent, driven by ADR growth of 0.9 percent.

In the 2025 first three quarters, worldwide RevPAR increased 2.0 percent, driven by ADR growth of 1.9 percent.

& Canada, RevPAR decreased 0.4 percent in the 2025 third quarter and increased 0.9 percent in the 2025 first three quarters, reflecting strong demand at our luxury hotels, offset by weaker business transient demand at our select service hotels largely driven by softness in government travel.

The RevPAR decrease in the 2025 third quarter was also driven by weaker group demand.

In our International regions, RevPAR grew 2.6 percent in the 2025 third quarter and 4.6 percent in the 2025 first three quarters, reflecting higher demand in APEC, EMEA, and CALA.

In Greater China, RevPAR was unchanged in the 2025 third quarter and decreased 0.6 percent in the 2025 first three quarters, reflecting soft macro-economic conditions.

Starwood Data Security Incident

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however, we do not believe this incident will impact our long-term financial health.

See Note 6 for additional information related to legal proceedings and investigations related to the Data Security Incident.

See Note 6 for additional information related to legal proceedings, investigations, and insurance recoveries related to the Data Security Incident.

System Growth and Pipeline

At the end of the 2025 second quarter, our system had 9,601 properties (1,735,819 rooms), compared to 9,361 properties (1,706,331 rooms) at year-end 2024 and 8,969 properties (1,658,659 rooms) at the end of the 2024 second quarter.

In the 2025 first half, we added roughly 29,500 net rooms.

At the end of the 2025 second quarter, we had approximately 3,900 properties and over 590,000 rooms in our development pipeline, which included over 37,000 rooms approved for development but not yet under signed contracts.

Our development pipeline included over 238,000 rooms, or 40 percent, that were under construction or in the process of converting to our system at the end of the 2025 second quarter.

At the end of the 2025 third quarter, our system had 9,721 properties (1,753,722 rooms), compared to 9,361 properties (1,706,331 rooms) at year-end 2024 and 9,068 properties (1,674,600 rooms) at the end of the 2024 third quarter.

In the 2025 first three quarters, we added roughly 47,400 net rooms.

At the end of the 2025 third quarter, we had approximately 3,900 properties and over 596,000 rooms in our development pipeline, which included nearly 36,000 rooms approved for development but not yet under signed contracts.

Our development pipeline included over 250,000 rooms, or 42 percent, that were under construction or in the process of converting to our system at the end of the 2025 third quarter.

Over half of the rooms in our quarter-end development pipeline are located outside U.S.

We currently expect full year 2025 net rooms growth to approach 5 percent, including the rooms associated with the citizenM brand acquisition discussed in Note 2, which are not reflected in the development pipeline discussed above.

Properties and Rooms

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Properties Rooms

June 30, 2025 June 30, 2024 vs.

June 30, 2024 June 30, 2025 June 30, 2024 vs.

June 30, 2024

September 30, 2025 September 30, 2024 vs.

September 30, 2024 September 30, 2025 September 30, 2024 vs.

September 30, 2024

1,961 1,999 (38) (2) % 565,482 572,731 (7,249) (1) %

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Systemwide statistics include data from our franchised properties, in addition to our company-operated properties.

Three Months Ended June 30, 2025 and Change vs.

Three Months Ended June 30, 2024

Three Months Ended September 30, 2025 and Change vs.

Three Months Ended September 30, 2024

RevPAR Occupancy Average Daily Rate

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$ 183.71 0.9 %

Six Months Ended June 30, 2025 and Change vs.

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2025 and Change vs.

Nine Months Ended September 30, 2024

RevPAR Occupancy Average Daily Rate

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Europe $ 241.03 3.4 % 72.8 % 2.4 % pts.

$ 299.19 0.2 %

Middle East & Africa $ 127.78 8.3 % 68.3 % 2.1 % pts.

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CONSOLIDATED RESULTS

The discussion below presents an analysis of our consolidated results of operations for the 2025 second quarter compared to the 2024 second quarter and for the 2025 first half compared to the 2024 first half.

The discussion below presents an analysis of our consolidated results of operations for the 2025 third quarter compared to the 2024 third quarter and for the 2025 first three quarters compared to the 2024 first three quarters.

Also see the “Business Trends” section above for further discussion.

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

($ in millions)

June 30, 2025 June 30, 2024 Change 2025 vs.

2024 June 30, 2025 June 30, 2024 Change 2025 vs.

September 30, 2025 September 30, 2024 Change 2025 vs.

2024 September 30, 2025 September 30, 2024 Change 2025 vs.

Base management fees $ 314 $ 312 $ 2 1 % $ 979 $ 955 $ 24 3 %

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Net fee revenues $ 1,309 $ 1,257 $ 52 4 % $ 3,927 $ 3,760 $ 167 4 %

The increase in base management fees in the 2025 second quarter and 2025 first half primarily reflected higher RevPAR and rooms growth ($7 million and $12 million for the second quarter and first half, respectively).

The increase in franchise fees in the 2025 second quarter and 2025 first half primarily reflected rooms growth ($25 million and $43 million, respectively).

Additionally, the increase in franchise fees in the 2025 first half reflected higher RevPAR and co-branded credit card fees ($20 million).

The increase in base management fees in the 2025 first three quarters primarily reflected higher RevPAR and rooms growth ($18 million).

The increase in franchise fees in the 2025 third quarter and 2025 first three quarters primarily reflected rooms growth ($25 million and $69 million, respectively) and higher co-branded credit card and other brand-related fees ($34 million and $85 million, respectively).

Owned, Leased, and Other

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

($ in millions)

June 30, 2025 June 30, 2024 Change 2025 vs.

2024 June 30, 2025 June 30, 2024 Change 2025 vs.

September 30, 2025 September 30, 2024 Change 2025 vs.

2024 September 30, 2025 September 30, 2024 Change 2025 vs.

Owned, leased, and other revenue $ 420 $ 381 $ 39 10 % $ 1,222 $ 1,133 $ 89 8 %

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Owned, leased, and other, net $ 94 $ 81 $ 13 16 % $ 272 $ 251 $ 21 8 %

Owned, leased, and other revenue, net of direct expenses, increased in the 2025 third quarter and 2025 first three quarters primarily due to the inclusion of results from the Sheraton Grand Chicago hotel, which was acquired in the fourth quarter of the prior year.

Cost Reimbursements

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

($ in millions)

June 30, 2025 June 30, 2024 Change 2025 vs.

2024 June 30, 2025 June 30, 2024 Change 2025 vs.

September 30, 2025 September 30, 2024 Change 2025 vs.

2024 September 30, 2025 September 30, 2024 Change 2025 vs.

Cost reimbursement revenue $ 4,760 $ 4,617 $ 143 3 % $ 14,347 $ 13,778 $ 569 4 %

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Over the long term, our centralized programs and services are not designed to impact our economics, either positively or negatively.

The decrease in cost reimbursements, net in the 2025 second quarter and 2025 first half primarily reflected higher expenses, net of revenues for many of our centralized programs and services and higher expenses related to our insurance program, partially offset by higher Loyalty Program revenues.

The increase in cost reimbursements, net in the 2025 third quarter and 2025 first three quarters primarily reflected lower expenses related to our insurance program and higher Loyalty Program revenues, partially offset by higher expenses, net of revenues for many of our centralized programs and services.

Other Operating Expenses

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

($ in millions)

June 30, 2025 June 30, 2024 Change 2025 vs.

2024 June 30, 2025 June 30, 2024 Change 2025 vs.

September 30, 2025 September 30, 2024 Change 2025 vs.

2024 September 30, 2025 September 30, 2024 Change 2025 vs.

Depreciation, amortization, and other $ 50 $ 45 $ 5 11 % $ 154 $ 137 $ 17 12 %

General, administrative, and other 234 276 (42) (15) % 724 785 (61) (8) %

Restructuring and merger-related charges

Restructuring and merger-related (recoveries) charges, and other

(40) 9 (49) (544) % (31) 25 (56) (224) %

General, administrative, and other expenses decreased in the 2025 second quarter and 2025 first half primarily due to lower compensation costs.

General, administrative, and other expenses decreased in the 2025 third quarter primarily due to lower guarantee reserves ($22 million).

General, administrative, and other expenses decreased in the 2025 first three quarters primarily due to lower compensation costs ($32 million) and lower guarantee reserves ($21 million).

Restructuring and merger-related (recoveries) charges, and other expenses changed in the 2025 third quarter and 2025 first three quarters primarily due to insurance recoveries related to the Data Security Incident discussed in Note 6.

Non-Operating Income (Expense)

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

($ in millions)

June 30, 2025 June 30, 2024 Change 2025 vs.

2024 June 30, 2025 June 30, 2024 Change 2025 vs.

September 30, 2025 September 30, 2024 Change 2025 vs.

2024 September 30, 2025 September 30, 2024 Change 2025 vs.

Gains and other income, net $ 3 $ 7 $ (4) (57) % $ 6 $ 15 $ (9) (60) %

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Equity in earnings 5 3 2 67 % 10 8 2 25 %

Interest expense increased in the 2025 second quarter and 2025 first half primarily due to higher debt balances driven by Senior Notes issuances, net of maturities ($36 million and $67 million, respectively).

Three Months Ended Six Months Ended

Interest expense increased in the 2025 third quarter and 2025 first three quarters primarily due to higher debt balances driven by Senior Notes issuances, net of maturities ($32 million and $100 million, respectively).

Three Months Ended Nine Months Ended

($ in millions)

June 30, 2025 June 30, 2024 Change 2025 vs.

2024 June 30, 2025 June 30, 2024 Change 2025 vs.

September 30, 2025 September 30, 2024 Change 2025 vs.

2024 September 30, 2025 September 30, 2024 Change 2025 vs.

Provision for income taxes $ (266) $ (202) $ (64) (32) % $ (656) $ (633) $ (23) (4) %

Provision for income taxes increased in the 2025 second quarter primarily due to a shift in earnings to jurisdictions with higher tax rates ($21 million).

Provision for income taxes decreased in the 2025 first half primarily due to the current year release of tax reserves ($91 million), partially offset by a shift in earnings to jurisdictions with higher tax rates ($36 million).

Provision for income taxes increased in the 2025 third quarter primarily due to higher pre-tax income ($54 million).

Provision for income taxes increased in the 2025 first three quarters primarily due to higher pre-tax income ($67 million) and a shift in earnings to jurisdictions with higher tax rates ($41 million), partially offset by the current year relea s e of tax reserves ($91 million).

BUSINESS SEGMENTS

The following discussion presents an analysis of the operating results of our reportable business segments for the 2025 second quarter compared to the 2024 second quarter and for the 2025 first half compared to the 2024 first half.

The following discussion presents an analysis of the operating results of our reportable business segments for the 2025 third quarter compared to the 2024 third quarter and for the 2025 first three quarters compared to the 2024 first three quarters.

Also see the “Business Trends” section above for further discussion.

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

($ in millions)

June 30, 2025 June 30, 2024 Change 2025 vs.

2024 June 30, 2025 June 30, 2024 Change 2025 vs.

September 30, 2025 September 30, 2024 Change 2025 vs.

2024 September 30, 2025 September 30, 2024 Change 2025 vs.

Segment net fee revenues

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Properties Rooms

June 30, 2025 June 30, 2024 vs.

June 30, 2024 June 30, 2025 June 30, 2024 vs.

June 30, 2024

September 30, 2025 September 30, 2024 vs.

September 30, 2024 September 30, 2025 September 30, 2024 vs.

September 30, 2024

6,383 6,090 293 5 % 1,060,795 1,030,074 30,721 3 %

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Greater China

663 572 91 16 % 184,614 168,692 15,922 9 %

APEC 659 606 53 9 % 148,079 137,568 10,511 8 %

In the 2025 first half, segment net fee revenues grew in U.S.

& Canada, EMEA, and APEC, compared to the same period in 2024, primarily driven by higher RevPAR and rooms growth (see the Lodging Statistics and Properties and Rooms tables above for more information).

In the 2025 first three quarters, segment net fee revenues grew in the U.S.

& Canada, EMEA, and APEC, compared to 2024, primarily due to rooms growth and higher RevPAR (see the Lodging Statistics and Properties and Rooms tables above for more information).

Additionally, U.S.

& Canada segment profits in the 2025 third quarter and 2025 first three quarters compared to the same periods in 2024 reflected higher cost reimbursement revenue, net of reimbursed expenses ($34 million and $28 million, respectively), higher owned, leased, and other revenue, net of direct expenses ($21 million and $24 million, respectively), and lower general, administrative, and other expenses ($19 million and $25 million, respectively).

Owned, leased, and other revenue, net of direct expenses increased primarily due to the inclusion of results from the Sheraton Grand Chicago hotel, which was acquired in the fourth quarter of the prior year.

General, administrative, and other expenses decreased primarily due to lower guarantee reserves.

LIQUIDITY AND CAPITAL RESOURCES

Our long-term financial objectives include maintaining diversified financing sources, optimizing the mix and maturity of our long-term debt, and reducing our working capital.

At the end of the 2025 second quarter, including the effect of interest rate swaps, our long-term debt had a weighted average interest rate of 4.5 percent, a weighted average maturity of approximately 5.6 years, and a ratio of fixed-rate to total long-term debt of 0.8 to 1.0.

At the end of the 2025 third quarter, including the effect of interest rate swaps, our total long-term debt (current and noncurrent) had a weighted average interest rate of 4.6 percent, a weighted average maturity of approximately 5.6 years, and a ratio of fixed-rate to total long-term debt of 0.9 to 1.0.

Sources of Liquidity

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Our outstanding public debt does not contain a corresponding financial covenant or a requirement that we maintain certain financial ratios.

We currently satisfy the covenants in our Credit Facility and

public debt instruments, including the leverage covenant under the Credit Facility, and do not expect the covenants will restrict our ability to meet our anticipated borrowing and liquidity needs.

We currently satisfy the covenants in our Credit Facility and public debt instruments, including the leverage covenant under the Credit Facility, and do not expect the covenants will restrict our ability to meet our anticipated borrowing and liquidity needs.

We monitor the status of the capital markets and regularly evaluate the effect that changes in capital market conditions may have on our ability to fund our liquidity needs.

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Sources and Uses of Cash

Cash, cash equivalents, and restricted cash totaled $692 million at June 30, 2025, an increase of $267 million from year-end 2024, primarily due to net cash provided by operating activities ($1,290 million), long-term debt issuances, net of repayments ($1,006 million), and net commercial paper issuances ($179 million), partially offset by share repurchases ($1,500 million), dividends paid ($357 million), capital and technology expenditures ($290 million), and financing outflows for employee stock-based compensation withholding taxes ($110 million).

Our ratio of current assets to current liabilities was 0.5 to 1.0 at the end of the 2025 second quarter.

Cash, cash equivalents, and restricted cash totaled $694 million at September 30, 2025, an increase of $269 million from year-end 2024, primarily due to long-term debt issuances, net of repayments ($2,479 million), net cash provided by operating activities ($2,383 million), and issuances of common stock for our employee stock purchase

plan ($92 million ) , partially offset by share repurchases ($2,300 million), net commercial paper repayments ($960 million), dividends paid ($539 million), capital and technology expenditures ($432 million), the citizenM asset acquisition ($349 million), and financing outflows for employee stock-based compensation withholding taxes ($111 million).

Our ratio of current assets to current liabilities was 0.5 to 1.0 at the end of the 2025 third quarter.

We have significant borrowing capacity under our Credit Facility should we need additional working capital.

Capital Expenditures and Other Investments

We made capital and technology expenditures of $290 million in the 2025 first half and $234 million in the 2024 first half.

We expect capital expenditures and other investments will total approximately $1,355 million to $1,455 million for the 2025 full year, including capital and technology expenditures, loan advances, contract acquisition costs, and other investing activities.

We made capital and technology expenditures of $432 million in the 2025 first three quarters and $408 million in the 2024 first three quarters.

We expect capital expenditures and other investments will total approximately $1,450 million for the 2025 full year, including capital and technology expenditures, loan advances, contract acquisition costs, and other investing activities.

This estimate includes $349 million of investment spending related to the citizenM brand acquisition discussed in Note 2, but excludes any additional potential property or brand acquisitions, which we cannot forecast with sufficient accuracy and which may be significant.

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Share Repurchases and Dividends

We repurchased 2.8 million shares of our common stock for $0.7 billion in the 2025 second quarter.

Year-to-date through July 30, 2025, we repurchased 6.4 million shares for $1.7 billion.

We repurchased 3.0 million shares of our common stock for $0.8 billion in the 2025 third quarter.

Year-to-date through October 30, 2025, we repurchased 9.7 million shares for $2.6 billion.

For additional information, see “Issuer Purchases of Equity Securities” in Part II, Item 2.

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(1) $0.63 per share declared on February 13, 2025 and paid on March 31, 2025 to stockholders of record on February 27, 2025;

and (2) $0.67 per share declared on May 9, 2025 and paid on June 30, 2025 to stockholders of record on May 23, 2025.

(2) $0.67 per share declared on May 9, 2025 and paid on June 30, 2025 to stockholders of record on May 23, 2025;

and (3) $0.67 per share declared on August 7, 2025 and paid on September 30, 2025 to stockholders of record on August 21, 2025.

We expect to continue to return cash to stockholders through a combination of share repurchases and cash dividends.

Material Cash Requirements

As of the end of the 2025 second quarter, other than with respect to our purchase of the citizenM brand discussed in Note 2, there have been no material changes to our cash requirements as disclosed in our 2024 Form 10-K.

See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of

Operations,” of our 2024 Form 10-K for more information about our cash requirements.

As of the end of the 2025 third quarter, other than with respect to potential earn-out payments related to our purchase of the citizenM brand discussed in Note 2, there have been no material changes to our cash requirements as disclosed in our 2024 Form 10-K.

See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2024 Form 10-K for more information about our cash requirements.

Also, see Note 7 for information on our long-term debt.

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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-Q

Item 2. Management’s Discussion and Analysis