What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-14 compared with 2022-02-15 · 115 added, 159 removed, 186 unchanged (60% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

A discussion regarding our financial condition and results of operations for year-end 2020 compared to year-end 2019 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2020, as filed with the SEC on April 2, 2021 (“2020 Form 10-K”).

A discussion regarding our financial condition and results of operations for year-end 2021 compared to year-end 2020 can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 15, 2022 (“2021 Form 10-K”).

BUSINESS AND OVERVIEW

We are a worldwide operator, franchisor, and licensor of hotel, residential, and timeshare properties in 139 countries and territories under 30 brand names.

We are a worldwide operator, franchisor, and licensor of hotel, residential, timeshare, and other lodging properties in 138 countries and territories under 30 brand names.

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

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& Canada and (2) International.

We earn base management fees and, under many agreements, incentive management fees from the properties that we manage, and we earn franchise fees on the properties that others operate under franchise agreements with us.

In most markets, base management and franchise fees typically consist of a percentage of property-level revenue, or certain property-level revenue in the case of franchise fees, while incentive management fees typically consist of a percentage of net house profit after a specified owner return.

For our hotels in the Middle East and Africa, Asia Pacific excluding China, and Greater China regions, incentive management fees typically consist of a percentage of gross operating profit without adjustment for a specified owner return.

Net house profit is calculated as gross operating profit (also referred to as “house profit”) less non-controllable expenses such as property insurance, real estate taxes, and furniture, fixtures, and equipment (FF&E) reserves.

Additionally, we earn franchise fees for use of our intellectual property, including fees from our co-brand credit card, timeshare, and residential programs.

Terms of our management agreements vary, but our management fees generally consist of base management fees and incentive management fees.

Base management fees are typically calculated as a percentage of property-level revenue.

Incentive management fees are typically calculated as a percentage of a hotel profitability measure, and, in many cases (particularly in our U.S.

& Canada, Europe, and Caribbean & Latin America regions), are subject to a specified owner return.

Under our franchise agreements, franchise fees are typically calculated as a percentage of property-level revenue or a portion thereof.

Additionally, we earn franchise fees for the use of our intellectual property, such as fees from our co-branded credit card, timeshare, and residential programs.

On September 23, 2016, we completed the acquisition of Starwood Hotels & Resorts Worldwide, LLC, formerly known as Starwood Hotels & Resorts Worldwide, Inc.

(“Starwood”), through a series of transactions, after which Starwood became an indirect wholly-owned subsidiary of the Company.

We refer to the Starwood business and brands that we acquired as “Legacy-Starwood.”

Performance Measures

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ADR, which we calculate by dividing property room revenue by total rooms sold, measures average room price and is useful in assessing pricing levels.

RevPAR, occupancy, and ADR statistics are on a systemwide basis for comparable properties, unless otherwise stated.

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

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& Canada properties and 1,548 comparable International properties.

The RevPAR, ADR, and occupancy comparisons between 2021 and 2019, which we discuss under the “Impact of COVID-19” caption below, reflect properties that are defined as comparable as of December 31, 2021, even if in 2019 they were not open and operating for the full year or did not meet all the other criteria listed above.

Impact of COVID-19

COVID-19 continues to have a material impact on our business and industry.

However, the recovery of both global demand and ADR continued in 2021, led primarily by robust leisure demand, which we expect to continue in 2022, and travelers who continue to embrace multi-purpose trips, mixing remote work and vacation time.

The spread of COVID-19 variants, such as Delta and Omicron, constrained the pace of the recovery in the latter half of 2021 and continues to constrain the pace of recovery in the beginning of 2022.

Business transient and group demand continued to slowly improve in 2021 when

compared to 2020, though this demand still remains meaningfully below pre-pandemic 2019 levels.

Although we have seen delays in the recovery of business transient and group demand as a result of the emergence of COVID-19 variants, we expect this demand to gradually strengthen from current levels as more workers return to the office and travel again.

We have been encouraged by the swift improvement in ADR, which in the 2021 second half returned to pre-pandemic 2019 levels in certain U.S.

and International markets and are optimistic about sustaining strong ADR in 2022.

However, we believe COVID-19 will continue to have a material negative impact on our future results for a period of time that we are currently unable to predict.

Comparable systemwide constant dollar RevPAR in 2021 compared to 2020 improved 67.7 percent in our U.S.

RevPAR, occupancy, and ADR comparisons between 2022 and 2019, which we discuss under the “Business Trends” caption below, reflect properties that are defined as comparable as of December 31, 2022, September 30, 2022, June 30, 2022, or March 31, 2022 (as applicable), even if in 2019 they were not open and operating for the full year or did not meet all the other criteria listed above.

Unless otherwise stated, all comparisons to pre-pandemic or 2019 are comparing to the same time period each year.

Business Trends

We continued to see strong global RevPAR improvement throughout 2022 despite Greater China continuing to be significantly negatively impacted by COVID-19 through the end of the 2022 fourth quarter.

While RevPAR recovery at the beginning of 2022 was dampened due to the emergence of COVID-19 variants, RevPAR quickly improved, resulting in 2022 third quarter worldwide RevPAR exceeding 2019 levels for the first time since the pandemic began.

By the 2022 fourth quarter,

worldwide RevPAR exceeded 2019 levels by 4.6 percent, reflecting ADR growth of 12.8 percent, partially offset by a decline in occupancy of 5.1 percentage points compared to 2019 levels.

The global recovery continued across all customer segments, led by robust leisure demand as well as strengthening group demand, which was higher than 2019 levels in certain regions during the 2022 fourth quarter.

Business transient demand also continued to improve during 2022, although it continued to lag behind 2019 levels.

RevPAR in 2022 compared to 2021 improved 46.5 percent in our U.S.

& Canada segment, 66.2 percent in our International segment, and 51.0 percent worldwide.

Comparable systemwide constant dollar RevPAR in 2021 compared to pre-pandemic 2019 levels declined 32.5 percent in our U.S.

& Canada segment, 46.6 percent in our International segment, and 36.5 percent worldwide, with improvement in the decline each succeeding quarter during 2021 for each of our segments and worldwide.

Worldwide comparable systemwide occupancy and constant dollar ADR were down only 11.9 percentage points and 2.3 percent, respectively, in the 2021 fourth quarter compared to the 2019 fourth quarter, leading to RevPAR 19.0 percent below pre-pandemic 2019 levels.

& Canada, demand continued to recover in 2021, driven by strong leisure demand particularly at our luxury and resort hotels and in tertiary markets.

Occupancy peaked in the 2021 third quarter before decreasing slightly in the 2021 fourth quarter primarily due to seasonality.

Urban destinations, where we have a large presence in the U.S.

& Canada, experienced meaningful improvement in demand in 2021, though they continue to lag the recovery.

In other parts of the world, RevPAR continues to vary greatly by geographic market, and demand is heavily impacted by the number of COVID-19 cases, vaccination rates, and the nature and degree of government restrictions.

In the 2021 fourth quarter, the decline of comparable systemwide constant dollar RevPAR when compared to pre-pandemic 2019 levels improved compared to the decline seen in the 2021 third quarter in all our International regions except for Greater China, which remained flat as a result of strict government restrictions in response to COVID-19 outbreaks in several regions.

We continue to take measures to mitigate the negative financial and operational impacts of COVID-19 for our hotel owners and our own business.

At the corporate level, we remain focused on managing our corporate general and administrative costs and are being disciplined with respect to our capital expenditures and other investment spending.

Share repurchases and cash dividends remain suspended until our leverage ratios further improve, although assuming there is no meaningful setback in the global recovery from COVID-19, we could restart some level of capital returns in the second half of 2022 and more meaningful levels of capital returns in 2023 and beyond.

In 2021, we substantially completed restructuring plans to achieve cost savings specific to our company-operated properties.

In addition, we continue to work with owners and franchisees by adjusting renovation requirements for certain properties, deferring certain hotel initiatives, and supporting owners and franchisees who are working with their lenders to utilize FF&E reserves to meet working capital needs.

We continue to evaluate the availability of stimulus tax credits under the Coronavirus Aid, Relief, and Economic Security Act, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 enacted as part of the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021 (“ARPA”), and other legislation.

As of February 1, 2022, we have received Employee Retention Tax Credit (“ERTC”) refunds from the U.S.

Treasury totaling $170 million, including $119 million in 2020 and $51 million in 2021, of which we passed through $94 million and $48 million, respectively, to the related hotels that we manage on behalf of owners.

We have received from the U.S.

Treasury substantially all expected ERTC refunds based on applications that we have submitted as of February 1, 2022.

Additionally, as of December 31, 2021, we have received or expect to receive, through Medicare tax offsets and payments from the U.S.

Treasury pursuant to ARPA, a total of $35 million as reimbursement for the cost of health coverage continuation provided to eligible former associates and furloughed or part-time associates (and their eligible enrolled dependents) in accordance with requirements under the Consolidated Omnibus Budget Reconciliation Act of 1985 for the period of April 1, 2021 to September 30, 2021.

Finally, in 2021, we received subsidies totaling $28 million from German government COVID-19 assistance programs for certain of our leased hotels and equity method investments in Germany.

The impact of COVID-19 on the Company remains fluid, as does our corporate and property-level response.

We expect to continue to assess the situation and may implement additional measures to adapt our operations and plans to address the implications of COVID-19 on our business.

The overall operational and financial impact is highly dependent on the breadth and duration of COVID-19 and could be affected by other factors we are not currently able to predict.

RevPAR in 2022 compared to pre-pandemic 2019 levels declined 4.0 percent worldwide, with improvement in the decline each succeeding quarter during 2022 for each of our segments and worldwide.

& Canada, RevPAR declined only 0.8 percent in 2022 compared to 2019, due to a decline in occupancy of 6.0 percentage points, partially offset by ADR growth of 8.1 percent.

In the 2022 fourth quarter, U.S.

& Canada RevPAR improved 5.2 percent compared to the same period in 2019, due to ADR growth of 11.1 percent, partially offset by a decline in occupancy of 3.7 percentage points.

The decline in occupancy as compared to 2019 improved sequentially in each quarter of 2022, reflecting strong demand recovery in many markets within the U.S.

Internationally, RevPAR declined 11.9 percent in 2022 compared to 2019, due to a decline in occupancy of 12.2 percentage points, partially offset by ADR growth of 7.0 percent.

In the 2022 fourth quarter, International RevPAR improved 3.4 percent compared to the same period in 2019, due to ADR growth of 17.3 percent, partially offset by a decline in occupancy of 8.3 percentage points.

In the 2022 fourth quarter, RevPAR remained significantly below 2019 levels in Greater China, but exceeded pre-pandemic 2019 levels in the Caribbean & Latin America, Europe, Middle East & Africa, and Asia Pacific excluding China regions, driven by strengthening demand, especially from cross-border guests and meaningful growth in ADR.

Although COVID-19’s negative impact on our business has significantly decreased and we saw strong global RevPAR improvement in 2022, our business is subject to the effects of changes in global and regional conditions and these conditions can change rapidly.

We continue to monitor global economic conditions, and although we are not currently seeing signs of a slowdown in lodging demand, the lodging booking window is short and trends can change quickly.

Starwood Data Security Incident

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The Starwood reservations database is no longer used for busi ness operations.

We are currently unable to estimate the range of total possible financial impact to the Company from the Data Security Incident in excess of the expenses already incurred.

We are currently unable to reasonably estimate the range of total possible financial impact to the Company from the Data Security Incident in excess of the expenses already recorded.

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

Although our insurance program includes coverage designed to limit our exposure to losses such as those related to the Data Security Incident, that insurance may not be sufficient or available to cover all of our expenses or other losses (including fines and penalties) related to the Data Security Incident.

Although our insurance program includes coverage designed to limit our exposure to losses such as those related to the Data Security Incident, that insurance may not be sufficient or available to cover all of our expenses or other losses (including monetary payments to regulators and/or litigants) related to the Data Security Incident.

In addition, certain expenses by their nature (such as, for example, expenses related to enhancing our cybersecurity program) are not covered by our insurance program.

We expect to incur significant expenses associated with the Data Security Incident in future periods, primarily related to legal proceedings and regulatory investigations (including possible additional fines and penalties), increased expenses and capital investments for information technology and information security and data privacy, and increased expenses for compliance activities and to meet increased legal and regulatory requirements.

See Note 7 for additional information related to expenses incurred in 2021, insurance recoveries, and legal proceedings and governmental investigations related to the Data Security Incident.

We expect to incur significant expenses associated with the Data Security Incident in future periods in excess of the amounts already recorded, primarily related to legal proceedings and regulatory investigations (including possible additional monetary payments to regulators and/or litigants as well as costs associated with compliance with any settlements or resolutions of matters).

See Note 7 for additional information related to legal proceedings and governmental investigations related to the Data Security Incident.

System Growth and Pipeline

In 2021, our system grew from 7,642 properties (1,423,044 rooms) at year-end 2020 to 7,989 properties (1,479,179 rooms) at year-end 2021, reflecting gross additions of 517 properties (86,372 rooms) and deletions of 171 properties (30,236 rooms), including 88 properties from a primarily select-service portfolio which left our system in the 2021 first quarter.

Approximately 50 percent of our 2021 gross room additions are located outside U.S.

In 2022, our system grew from 7,989 properties (1,479,179 rooms) at year-end 2021 to 8,288 properties (1,525,407 rooms) at year-end 2022, reflecting gross additions of 394 properties (65,376 rooms) and deletions of 94 properties (19,079 rooms), including the impact of the Company’s decision to suspend its operations in Russia.

Approximately 61 percent of our 2022 gross room additions were located outside U.S.

& Canada, and 27 percent were conversions from competitor brands.

At year-end 2021, we had roughly 485,000 rooms in our development pipeline, which includes more than 202,000 hotel rooms under construction and approximately 19,000 hotel rooms approved for development but not yet under signed contracts.

At year-end 2022, we had more than 496,000 hotel rooms in our development pipeline, which includes approximately 199,000 hotel rooms under construction and roughly 22,300 hotel rooms approved for development but not yet under signed contracts.

Over half of the rooms in our development pipeline are outside U.S.

In 2021, we signed management and franchise agreements for 599 properties, representing approximately 92,000 rooms, of which more than half of the rooms are located outside U.S.

Contracts signed in 2021 reflected the Company’s strength in the luxury tier, with 40 properties signed (resulting in a total of nearly 50,000 luxury rooms in our development pipeline at year-end 2021), as well as strong momentum in all-inclusive resort signings, with 22 properties signed in 2021.

In addition, in 2021, longer stay brands, which include Element Hotels, Residence Inn, and TownePlace Suites, accounted for 37 percent of the Company's rooms signings in U.S.

Conversions accounted for 27 percent of rooms signings in 2021.

In 2022, we expect total gross rooms growth to approach 5.0 percent and net rooms growth of 3.5 to 4.0 percent.

In 2022, we signed 726 new management and franchise agreements, representing nearly 108,000 rooms, of which approximately half of the rooms are located outside U.S.

Our Select hotel brands continued to be a key growth driver globally with 523 hotel properties signed during 2022.

In particular, our longer stay brands, which include Element Hotels, Residence Inn, and TownePlace Suites, accounted for 30 percent of the Company’s signings in 2022.

In addition, contracts signed in 2022 reflected the Company’s strength in the luxury tier, with 42 luxury hotel agreements signed, representing nearly 8,000 rooms.

Conversions accounted for nearly 20 percent of rooms signings in 2022.

In 2023, we expect total gross rooms growth of approximately 5.5 percent and net rooms growth of 4.0 to 4.5 percent, including approximately 1.1 percent from the anticipated addition of rooms associated with the City Express brand acquisition discussed in Note 3, which are not reflected in the development pipeline discussed above.

Properties and Rooms

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Timeshare — — 93 22,745 — — — — 93 22,745

Yacht — — 1 149 — — — — 1 149

Total 1,989 560,551 6,122 937,683 64 15,692 113 11,481 8,288 1,525,407

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CONSOLIDATED RESULTS

Our results in 2021 continued to be impacted by COVID-19.

See the “Impact of COVID-19” section above for more information about the impact to our business during 2021, and the discussion below for additional analysis of our consolidated results of operations for 2021 compared to 2020.

Our consolidated results in 2022 improved significantly compared to 2021 due to the continued recovery in lodging demand from the impacts of COVID-19.

The discussion below presents an additional analysis of our consolidated results of operations for 2022 compared to 2021.

($ in millions) 2022 2021 Change 2022 vs.

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Net fee revenues $ 3,989 $ 2,619 $ 1,370 52 %

The increase in base management fees primarily reflected higher RevPAR due to the ongoing recovery in lodging demand from the impacts of COVID-19.

The increase in franchise fees primarily reflected higher RevPAR due to the ongoing recovery in lodging demand from the impacts of COVID-19, higher co-brand credit card fees ($102 million), unit growth ($89 million), and higher residential branding fees ($39 million).

The increase in incentive management fees primarily reflected higher profits at certain managed hotels due to the ongoing recovery in lodging demand from the impacts of COVID-19.

The increase in base management fees primarily reflected higher RevPAR and unit growth, partially offset by net unfavorable foreign exchange rates ($25 million).

The increase in franchise fees primarily reflected higher RevPAR, higher co-branded credit card fees ($119 million) and unit growth ($109 million), partially offset by net unfavorable foreign exchange rates ($17 million).

The increase in incentive management fees primarily reflected higher profits at certain managed hotels and unit growth, partially offset by net unfavorable foreign exchange rates ($16 million).

In 2022, we earned incentive management fees from 61 percent of our managed properties worldwide, compared to 47 percent in 2021.

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In addition, 58 percent of our total incentive management fees in 2022 came from our International managed properties versus 71 percent in 2021.

Contract investment amortization changed primarily due to lower impairments of investments in management and franchise contracts.

Owned, Leased, and Other

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Owned, leased, and other - direct expenses 1,074 734 340 46 %

Owned, leased, and other, net $ 62 $ (109) $ 171 nm*

* Percentage change is not meaningful.

Owned, leased, and other revenue, net of direct expenses increased primarily due to net stronger results at our owned and leased properties driven by the ongoing recovery in lodging demand from the impacts of COVID-19, higher termination fees of $20 million, and $18 million of subsidies under German government COVID-19 assistance programs for certain of our leased hotels.

Owned, leased, and other, net $ 293 $ 62 $ 231 373 %

Owned, leased, and other revenue, net of direct expenses, increased primarily due to net stronger results at our owned and leased properties, partially offset by an estimated monetary payment related to a portfolio of 12 leased hotels in the U.S.

& Canada ($31 million) and lower termination fees ($18 million).

Cost Reimbursements

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Reimbursed expenses 15,141 10,322 4,819 47 %

Cost reimbursements, net $ 120 $ 17 $ 103 nm*

* Percentage change is not meaningful.

Cost reimbursements, net $ 276 $ 120 $ 156 130 %

Cost reimbursements, net (cost reimbursement revenue, net of reimbursed expenses) varies due to timing differences between the costs we incur for centralized programs and services and the related reimbursements we receive from hotel owners and franchisees.

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See Note 2 for more information about the accounting for cost reimbursements, including our Loyalty Program.

The increase in cost reimbursements, net primarily reflects higher revenues, net of expenses, for our centralized programs and services.

This increase is partially offset by higher expenses for our Loyalty Program.

The increase in cost reimbursements, net primarily reflects higher revenues, net of expenses, for our centralized programs and services as well as our insurance program.

Other Operating Expenses

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General, administrative, and other 891 823 68 8 %

Restructuring and merger-related charges 8 267 (259) (97) %

Restructuring, merger-related charges, and other 12 8 4 50 %

Depreciation, amortization, and other expenses decreased primarily due to lower impairment charges.

See Note 8 for more information about the operating lease impairment charges.

General, administrative, and other expenses increased primarily due to higher compensation costs compared to our 2020 cost reduction measures, which included reducing compensation, implementing reduced work weeks for many of our corporate associates, and furloughing a substantial number of associates, as well as higher legal expenses ($34 million).

The increase was partially offset by a lower provision for credit losses ($76 million) and a favorable litigation settlement ($18 million).

Restructuring and merger-related charges decreased primarily due to the prior year increase to the put option liability discussed in Note 7 ($243 million) and 2020 restructuring charges ($56 million), partially offset by the 2020 partial reversal of the liability related to the ICO fine, which was reduced to £18.4 million in October 2020 ($39 million).

General, administrative, and other expenses increased primarily due to higher administrative and compensation costs.

Non-Operating Income (Expense)

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Gains and other income, net $ 11 $ 10 $ 1 10 %

Loss on extinguishment of debt (164) — (164) nm*

Loss on extinguishment of debt — (164) 164 100 %

Interest expense (403) (420) 17 4 %

Interest income 26 28 (2) (7) %

Equity in losses (24) (141) 117 83 %

* Percentage change is not meaningful.

In the 2021 third quarter, we recorded a loss on extinguishment of debt due to the Tender Offer discussed in Note 9.

Interest expense changed, primarily due to lower Credit Facility and commercial paper average borrowings and interest rates, partially offset by higher interest on Senior Note issuances, net of maturities.

Equity in losses changed, primarily due to 2020 impairment losses ($77 million) and the ongoing recovery in lodging demand from the impacts of COVID-19.

Equity in earnings (losses)

18 (24) 42 175 %

The loss on extinguishment of debt in 2021 was due to the September 2021 tender offer in which we purchased and retired $1 billion aggregate principal amount of our 5.750 percent Series EE Notes maturing May 1, 2025.

Interest expense decreased primarily due to lower average debt balances driven by Senior Notes maturities and repurchases.

Equity in earnings (losses) changed, primarily due to our share of the gains on the sales of properties ($23 million) and higher profits related to our equity method investments.

($ in millions) 2022 2021 Change 2022 vs.

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$ (756) $ (81) $ (675) (833) %

Our tax provision in 2021, compared to our tax benefit in 2020, primarily reflected the increase in operating income ($256 million), lower tax benefit from impairment charges ($64 million) and the prior year tax benefit from the Sheraton Grand Chicago put option reserve ($61 million).

The change was partially offset by the current year release of tax reserves due to favorable audit resolutions during 2021 ($43 million) and a current year tax benefit from the loss on extinguishment of debt ($42 million).

Our tax provision increased in 2022, compared to our tax provision in 2021, primarily due to the increase in operating income ($422 million), the prior year release of tax reserves due to favorable audit resolutions ($143 million), the prior year tax benefit from the loss on extinguishment of debt ($42 million), and the current year tax expense from the completion of prior years’ tax audits ($27 million).

BUSINESS SEGMENTS

Our segment results in 2021 continued to be impacted by COVID-19.

See the “Impact of COVID-19” section above for more information about the impact to our business during 2021 and the discussion below for additional analysis of the operating results of our reportable business segments.

Our segment results in 2022 improved significantly compared to 2021 due to the continued recovery in lodging demand from the impacts of COVID-19.

The following discussion presents an additional analysis of the operating results of our reportable business segments.

($ in millions) 2022 2021 Change 2022 vs.

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Segment revenues 3,486 2,254 1,232 55 %

Segment profit (loss) 258 (222) 480 216 %

Segment profit 794 258 536 208 %

Properties Rooms

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& Canada segment profit increased primarily due to the following:

• $666 million of higher gross fee revenues, primarily reflecting higher comparable systemwide RevPAR driven by increases in both occupancy and ADR as well as higher profits at certain managed hotels due to the ongoing recovery in lodging demand from the impacts of COVID-19, unit growth, and higher residential branding fees, partially offset by lower fees from properties that were terminated;

• $906 million of higher gross fee revenues, primarily reflecting higher comparable systemwide RevPAR driven by increases in both ADR and occupancy, higher profits at certain managed hotels, and unit growth;

• $83 million of higher cost reimbursement revenue, net of reimbursed expenses;

• $117 million of lower depreciation, amortization, and other expenses, primarily reflecting lower operating lease impairment charges;

• $84 million of lower equity in losses, primarily reflecting prior year impairment charges ($60 million) and lower losses recorded by investees due to the ongoing recovery in lodging demand from the impacts of COVID-19;

• $62 million of higher owned, leased, and other revenue, net of direct expenses, primarily reflecting net stronger results at owned and leased properties due to the ongoing recovery in lodging demand from the impacts of COVID-19;

• $55 million of lower general, administrative, and other expenses, primarily reflecting lower provision for credit losses ($34 million) and a favorable litigation settlement ($18 million);

• $53 million of lower contract investment amortization costs, primarily reflecting lower contract impairment charges;

• $28 million of lower restructuring and merger-related charges.

• $62 million of higher owned, leased, and other revenue, net of direct expenses, primarily reflecting stronger results at owned and leased properties, partially offset by an estimated monetary payment related to a portfolio of 12 leased hotels in U.S.

& Canada ($31 million);

partially offset by:

• $23 million of higher general, administrative, and other expenses, primarily reflecting a favorable litigation settlement in 2021 ($18 million).

International

International 2021 segment profit, compared to the 2020 segment loss, primarily reflected:

• $230 million of higher gross fee revenues, primarily reflecting higher comparable systemwide RevPAR driven by increases in both occupancy and ADR as well as higher profits at certain managed hotels due to the ongoing recovery in lodging demand from the impacts of COVID-19, unit growth, and higher residential branding fees;

• $108 million of higher owned, leased, and other revenue, net of direct expenses, primarily reflecting net stronger results at owned and leased properties due to the ongoing recovery in lodging demand from the impacts of COVID-19, subsidies under German government COVID-19 assistance programs for certain of our leased hotels, and higher termination fees;

International segment profit increased primarily due to the following:

• $349 million of higher gross fee revenues, primarily reflecting higher comparable systemwide RevPAR driven by increases in both ADR and occupancy in all regions except Greater China, higher profits at certain managed hotels, and unit growth, partially offset by net unfavorable foreign exchange rates ($56 million);

• $141 million of higher owned, leased, and other revenue, net of direct expenses, primarily reflecting net stronger results at owned and leased properties, partially offset by lower termination fees ($16 million);

• $35 million of higher cost reimbursement revenue, net of reimbursed expenses;

• $27 million of lower general, administrative, and other expenses primarily reflecting lower provision for credit losses;

• $18 million of lower equity in losses primarily due to the ongoing recovery in lodging demand from the impacts of COVID-19.

STOCK-BASED COMPENSATION

See Note 5 for more information.

NEW ACCOUNTING STANDARDS

We do not expect that accounting standard updates issued to date and that are effective after December 31, 2021 will have a material effect on our Financial Statements.

partially offset by:

• $28 million of higher general, administrative, and other expenses, primarily reflecting higher compensation costs.

LIQUIDITY AND CAPITAL RESOURCES

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

At year-end 2021, our long-term debt had a weighted average interest rate of 3.4 percent and a weighted average maturity of approximately 6.5 years.

Including the effect of interest rate swaps, the ratio of our fixed-rate long-term debt to our total long-term debt was 0.8 to 1.0 at year-end 2021.

In response to the negative impact COVID-19 had on our cash from operations in 2021 and 2020, which we expect to continue to be negatively impacted, we remain focused on preserving our financial flexibility and managing our debt maturities.

We also remain focused on managing our corporate general and administrative costs and our capital expenditures and other investment spending.

Share repurchases and dividends remain suspended until our leverage ratios further improve, although assuming there is no meaningful setback in the global recovery from COVID-19, we could restart some level of capital returns in the second half of 2022 and more meaningful levels of capital returns in 2023 and beyond.

In 2021, we issued $1.8 billion aggregate principal amount of senior notes, redeemed all $400 million aggregate principal amount of our Series N Notes, and repurchased and retired $1 billion aggregate principal amount of our Series EE Notes maturing in 2025, which we discuss further under the “Sources of Liquidity - Senior Notes Issuances, Redemptions, and Repurchases” section below and in Note 9.

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.

We currently believe the Credit Facility, our cash on hand, and our access to capital markets remain adequate to meet our liquidity requirements.

Sources of Liquidity

Our Credit Facility

Our Credit Facility provides for up to $4.5 billion of aggregate borrowings for general corporate needs, including working capital, capital expenditures, letters of credit, acquisitions, and to support our commercial paper program if and when we resume issuing commercial paper.

Borrowings under the Credit Facility generally bear interest at LIBOR (the London Interbank Offered Rate) plus a spread, based on our public debt rating.

In the 2022 fourth quarter, we amended and restated our $4.5 billion multicurrency revolving credit agreement (the “Credit Facility”).

Available borrowings under the Credit Facility support our commercial paper program and general corporate needs.

Borrowings under the Credit Facility generally bear interest at SOFR (the Secured Overnight Financing Rate) plus a spread based on our public debt rating.

We also pay quarterly fees on the Credit Facility at a rate based on our public debt rating.

We classify outstanding borrowings under the Credit Facility and outstanding commercial paper borrowings (if any) as long-term based on our ability and intent to refinance the outstanding borrowings on a long-term basis.

The Credit Facility expires on June 28, 2024.

As of December 31, 2021, we had total outstanding borrowings under the Credit Facility of $1.1 billion and remaining borrowing capacity of $3.4 billion.

We entered into amendments to the Credit Facility in April 2020 and January 2021 (the “Credit Facility Amendments”), as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as amended.

The debt leverage covenant in the Credit Facility, which is tested each quarter and was waived pursuant to the Credit Facility Amendments through and including the fourth quarter of 2021, resumes beginning with the quarter ending March 31, 2022.

The Credit Facility Amendments adjusted the required leverage levels for this covenant when it is re-imposed (starting at 5.50 to 1.00 for the test period ending on March 31, 2022 and gradually stepping down to 4.00 to 1.00 over the succeeding five fiscal quarters, as further described in the Credit Facility).

The Credit Facility Amendments also amended certain other terms of the Credit Facility, including reducing the rate floor for the LIBOR Daily Floating Rate and the Eurocurrency Rate.

We classify outstanding borrowings under the Credit Facility and outstanding commercial paper borrowings as long-term based on our ability and intent to refinance the outstanding borrowings on a long-term basis.

The Credit Facility expires on December 14, 2027.

The Credit Facility contains certain covenants, including a single financial covenant that limits our maximum leverage (consisting of the ratio of Adjusted Total Debt to EBITDA, each as defined in the Credit Facility) to not more than 4.5 to 1.0.

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.

Senior Notes Issuances, Redemptions, and Repurchases

In January 2022, we made a $404 million cash payment of principal and interest to retire, at maturity, all of our outstanding Series Q Notes.

In September 2021, we completed a tender offer (the “Tender Offer”) and purchased and retired $1 billion aggregate principal amount of our 5.750 percent Series EE Notes maturing May 1, 2025.

We used the net proceeds from our Series II Notes offering described below and cash on hand to complete the repurchase of such Series EE Notes, including the payment of accrued interest and other costs incurred.

As a result of the Tender Offer, in the 2021 third quarter, we recorded a loss of $164 million in the “Loss on extinguishment of debt” caption of our Income Statements.

In September 2021, we issued $700 million aggregate principal amount of 2.750 percent Series II Notes due October 15, 2033 (the “Series II Notes”).

We will pay interest on the Series II Notes in April and October of each year, commencing in April 2022.

We received net proceeds of approximately $693 million from the offering of the Series II Notes, after deducting the underwriting discount and estimated expenses.

We used the net proceeds to fund the Tender Offer, as further described above.

In August 2021, we redeemed all $400 million aggregate principal amount of our Series N Notes due in October 2021.

In March 2021, we issued $1.1 billion aggregate principal amount of 2.850 percent Series HH Notes due April 15, 2031 (the “Series HH Notes”).

We pay interest on the Series HH Notes in April and October of each year.

We received net proceeds of approximately $1,089 million from the offering of the Series HH Notes, after deducting the underwriting discount and estimated expenses, which were made available for general corporate purposes, including the repayment of a portion of our outstanding borrowings under the Credit Facility .

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.

We believe the Credit Facility, and our access to capital markets, together with cash we expect to generate from operations, remain adequate to meet our liquidity requirements.

Commercial Paper

Due to changes to our credit ratings as a result of the impact of COVID-19 on our business, we currently are not issuing commercial paper.

As a result, we have had to rely more on borrowings under the Credit Facility and issuance of senior notes, which carry higher interest costs than commercial paper.

Cash, cash equivalents, and restricted cash totaled $1,421 million at December 31, 2021, an increase of $527 million from year-end 2020, primarily due to net cash provided by operating activities ($1,177 million) and Credit Facility borrowings, net of repayments ($150 million), partially offset by Senior Notes repayments, net of issuances ($368 million), capital and technology expenditures ($183 million), cash paid for debt extinguishment costs associated with the Tender Offer ($155 million), and financing outflows for employee stock-based compensation withholding taxes ($90 million).

We issue commercial paper in the U.S.

Because we do not have purchase commitments from buyers for our commercial paper, our ability to issue commercial paper is subject to market demand.

We do not expect that fluctuations in the demand for commercial paper will affect our liquidity, given our borrowing capacity under the Credit Facility and access to capital markets.

Cash from Operations

Net cash provided by operating activities decreased by $462 million in 2021 compared to 2020, primarily due to net cash inflow from our Loyalty Program in 2020 and higher cash paid for income taxes, partially offset by higher net income recorded in 2021 (adjusted for non-cash items and the loss on extinguishment of debt).

Cash inflow from our Loyalty Program in 2020 included $920 million of cash received from the prepayment of certain future revenues under the amendments to our existing U.S.-issued co-brand credit card agreements, which reduced in 2021 and will in the future reduce the amount of cash we receive from these card issuers.

Net cash provided by operating activities increased by $1,186 million in 2022 compared to 2021, primarily due to higher net income (adjusted for non-cash items and the prior year loss on extinguishment of debt), partially offset by higher cash paid for income taxes and working capital changes driven by accounts receivable timing.

Cash inflow from our Loyalty Program in 2020 included $920 million of cash received from the prepayment of certain future revenues under the 2020 amendments to our existing U.S.-issued co-branded credit card agreements, which reduced in both 2021 and 2022, and will in the future reduce, the amount of cash we receive from these card issuers.

We expect such reductions to end by year-end 2023.

Our ratio of current assets to current liabilities was 0.5 to 1.0 at year-end 2022 and 0.6 to 1.0 at year-end 2021.

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We made capital and technology expenditures of $332 million in 2022 and $183 million in 2021.

Capital expenditures in 2021 increased by $48 million compared to 2020, primarily reflecting higher spending on our new headquarters.

We expect capital expenditures and other investments will total approximately $600 million to $700 million for 2022, including capital and technology expenditures, loan advances, contract acquisition costs, and other investing activities (including approximately $250 million for maintenance capital spending and our new headquarters).

Capital and technology expenditures in 2022 increased by $149 million compared to 2021, primarily reflecting higher spending on improvements to our worldwide technology systems.

We expect capital expenditures and other investments will total approximately $850 million to $1 billion for 2023, including capital and technology expenditures, loan advances, contract acquisition costs, and other investing activities (including approximately $300 million for maintenance capital spending).

This estimate also includes $100 million of investment spending related to the City Express brand acquisition discussed in Note 3, which we currently expect to close in the first half of 2023, and approximately $160 million of renovation spending on hotels that we expect to sell after renovations are complete.

Over time, we have sold lodging properties, both completed and under development, subject to long-term management agreements.

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We monitor the status of the capital markets and regularly evaluate the potential impact of changes in capital market conditions on our business operations.

We have made, and expect to continue making, selective and opportunistic investments to add units to our lodging business, which may include property acquisitions and renovations, new construction, loans, guarantees, and equity investments.

Over time, we seek to minimize capital invested in our business through asset sales subject to long-term management or franchise agreements.

Dispositions.

Property and asset sales generated $12 million cash proceeds in 2021 and $260 million in 2020.

Loan Activity.

From time to time, we make loans to owners of hotels that we operate or franchise.

Loan collections, net of loan advances, amounted to $27 million in 2021, compared to net advances of $33 million in 2020.

Loan collections, net of loan advances, amounted to $3 million in 2022, compared to net collections of $27 million in 2021.

At year-end 2022, we had $162 million of senior, mezzanine, and other loans outstanding, compared to $153 million outstanding at year-end 2021.

Financing Activities Cash Flows

Debt decreased by $238 million in 2021, to $10,138 million at year-end 2021 from $10,376 million at year-end 2020.

See “Sources of Liquidity,” caption in this “Liquidity and Capital Resources” section and Note 9 for additional information on the Senior Note and Credit Facility transactions in 2021.

Debt decreased by $74 million in 2022, to $10,064 million at year-end 2022 from $10,138 million at year-end 2021, primarily due to lower outstanding Credit Facility borrowings ($1,050 million), the maturity of our Series Q Notes ($399 million), the maturity of our Series DD Notes ($224 million), and the redemption of our Series L Notes ($173 million), partially offset by the issuance of our Series JJ Notes ($983 million) and higher outstanding commercial paper borrowings ($868 million).

See Note 9 for additional information on the Senior Notes issuance and redemption.

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

At year-end 2022, our long-term debt had a weighted average interest rate of 4.1 percent and a weighted average maturity of approximately 5.8 years.

Including the effect of interest rate swaps, the ratio of our fixed-rate long-term debt to our total long-term debt was 0.9 to 1.0 at year-end 2022.

See the “Our Credit Facility,” caption in this “Liquidity and Capital Resources” section for more information on our Credit Facility.

Share Repurchases and Dividends.

We did not repurchase any shares of our common stock in 2021.

At year-end 2021, 17.4 million shares remained available for repurchase under Board approved authorizations.

We also did not declare any cash dividends in 2021.

We do not anticipate repurchasing additional shares or declaring cash dividends until our leverage ratios further improve.

Assuming there is no meaningful setback in the global recovery from COVID-19, we could restart some level of capital returns in the second half of 2022 and more meaningful levels of capital returns in 2023 and beyond.

We repurchased 16.8 million shares of our common stock for $2.6 billion in 2022.

Year-to-date through February 10, 2023, we repurchased 2.5 million shares for $400 million.

For additional information, see “Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities” in Part II, Item 5.

Our Board of Directors declared the following quarterly cash dividends in 2022:

(1) $0.30 per share declared on May 2, 2022 and paid on June 30, 2022 to stockholders of record on May 16, 2022;

(2) $0.30 per share declared on August 4, 2022 and paid on September 30, 2022 to stockholders of record on August 18, 2022;

and (3) $0.40 per share declared on November 10, 2022 and paid on December 30, 2022 to stockholders of record on November 23, 2022.

Our Board of Directors declared a cash dividend of $0.40 per share on February 10, 2023, payable on March 31, 2023 to stockholders of record on February 24, 2023.

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

Material Cash Requirements

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Since our contracts with owners require reimbursement for these amounts, these obligations are expected to have minimal impact on our net income and cash flow.

NEW ACCOUNTING STANDARDS

We do not expect that accounting standard updates issued to date and that are effective after December 31, 2022 will have a material effect on our Financial Statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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and (2) changes in the estimate, or selection of a different estimate methodology could have a material effect on our consolidated results of operations or financial condition.

Management has discussed the development and selection of its critical accounting policies and estimates with the Audit Committee of our Board of Directors.

While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information available when the estimate or assumption was made.

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See Note 2 for further information related to our critical accounting policies and estimates, which are as follows:

Loyalty Program , including how we estimate the breakage of hotel points, credit card points, and free night certificates, the volume of points and free night certificates that will be issued under our co-brand credit card agreements, the amount of consideration to which we will be entitled under our co-brand credit card agreements, and the stand-alone selling prices of goods and services provided under our co-brand credit card agreements.

Loyalty Program , including how we estimate the breakage of hotel points, credit card points, and free night certificates, the volume of points and free night certificates that will be issued under our co-branded credit card agreements, the amount of consideration to which we will be entitled under our co-branded credit card agreements, and the stand-alone selling prices of goods and services provided under our co-branded credit card agreements.

Changes in these estimates could result in material changes to our liability for guest loyalty program and Loyalty Program revenue.

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During the 2022 fourth quarter, we conducted our annual goodwill impairment test and no impairment charges were recorded.

The estimated fair values of all our reporting units significantly exceeded their carrying values at the date of their most recent estimated fair value determination.

The estimated fair values of all our reporting units significantly exceeded their carrying amounts at the date of their most recent estimated fair value determination.

Intangibles and Long-Lived Assets , including how we evaluate the fair value of intangibles and long-lived assets and when we record impairment losses on intangibles and long-lived assets.

During 2022, we evaluated our intangibles and long-lived asset groups for impairment and did not record any material impairment charges.

The estimated fair values of all our indefinite-lived intangible assets significantly exceeded their carrying values at the date of their most recent estimated fair value determination.

Investments , including information on how we evaluate the fair value of investments and when we record impairment losses on investments.

During 2021, we evaluated our investments for impairment and did not record any material impairment charges.

The estimated fair values of all our indefinite-lived intangible assets significantly exceeded their carrying amounts at the date of their most recent estimated fair value determination.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis