What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-02 compared with 2022-11-03 · 109 added, 208 removed, 138 unchanged (70% 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.

Forward-looking statements include information related to the future effects on our business of the coronavirus pandemic (“COVID-19”);

Revenue per Available Room (“RevPAR”), average daily rate (“ADR”), occupancy and other future demand and recovery trends and expectations;

our expectations

regarding rooms growth;

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 future demand trends and expectations;

our expectations regarding rooms growth;

our expectations regarding our ability to meet our liquidity requirements;

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our expectations regarding future dividends and share repurchases;

our expectations regarding our acquisition of the City Express brand and the addition of the City Express hotels to our franchise system;

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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BUSINESS AND OVERVIEW

We are a worldwide operator, franchisor, and licensor of hotel, residential, and timeshare properties under numerous brand names at different price and service points.

Consistent with our focus on management, franchising, and licensing, we own very few of our lodging properties.

We are a worldwide operator, franchisor, and licensor of hotel, residential, timeshare, and other lodging properties under 31 brand names, including our newly added brand, City Express by Marriott ™ .

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

We discuss our operations in the following reportable business segments:

& 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.

Performance Measures

We believe RevPAR, which we calculate by dividing room sales for comparable properties by room nights available for the period, is a meaningful indicator of our performance because it measures the period-over-period change in room revenues for comparable properties.

We believe Revenue per Available Room (“RevPAR”), which we calculate by dividing room sales for comparable properties by room nights available for the period, is a meaningful indicator of our performance because it measures the period-over-period change in room revenues for comparable properties.

RevPAR may not be comparable to similarly titled measures, such as revenues, and should not be viewed as necessarily correlating with our fee revenue.

We also believe occupancy and ADR, which are components of calculating RevPAR, are meaningful indicators of our performance.

Occupancy, which we calculate by dividing occupied rooms by total rooms available (including rooms in hotels temporarily closed due to issues related to COVID-19), measures the utilization of a property’s available capacity.

We also believe occupancy and average daily rate (“ADR”), which are components of calculating RevPAR, are meaningful indicators of our performance.

Occupancy, which we calculate by dividing occupied rooms by total rooms available, measures the utilization of a property’s available capacity.

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

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We define our comparable properties as our properties that were open and operating under one of our brands since the beginning of the last full calendar year (since January 1, 2022 for the current period) and have not, in either the current or previous year:

(1) undergone significant room or public space renovations or expansions, (2) been converted between company-operated and franchised, or (3) sustained substantial property damage or business interruption, with the exception of properties closed or otherwise experiencing interruptions related to COVID-19, which we continue to classify as comparable.

RevPAR, occupancy, and ADR comparisons between 2022 and 2019, which we discuss under the “Impact of COVID-19” caption below, reflect properties that are defined as comparable as of 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.

Impact of COVID-19

While COVID-19 continues to negatively impact our business and industry, primarily in Greater China and Asia Pacific excluding China, we continued to see strong global RevPAR improvement in the 2022 third quarter.

For the first time since the pandemic began, quarterly worldwide RevPAR exceeded 2019 levels, with growth of 1.8 percent compared to the 2019 third quarter, reflecting ADR growth of 10.2 percent compared to pre-pandemic levels and rising occupancy.

In the 2022 third quarter, occupancy reached 69.2 percent, a decline of only 5.8 percentage points compared to the same period in 2019, which was an improvement from the 2022 second quarter decline of 7.1 percentage points and the 2022 first quarter decline of 13.7 percentage points compared to the same periods in 2019.

The global recovery continued across all customer segments, led by robust leisure demand and strengthening group demand.

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

RevPAR in the 2022 third quarter compared to the 2021 third quarter improved 28.5 percent in our U.S.

& Canada segment, 66.1 percent in our International segment, and 36.3 percent worldwide.

RevPAR in the 2022 first three quarters compared to the 2021 first three quarters increased 56.4 percent in our U.S.

& Canada segment, 77.2 percent in our International segment, and 60.9 percent worldwide.

& Canada, RevPAR improved 3.5 percent in the 2022 third quarter compared to the same period in 2019, due to ADR growth of 10.4 percent, partially offset by a decline in occupancy of 4.7 percentage points.

In the 2022 first three quarters, RevPAR declined 2.8 percent compared to the same period in 2019, due to a decline in occupancy of 6.9 percentage points, partially offset by ADR growth of 7.1 percent.

The decline in occupancy as compared to 2019 improved sequentially in each of the 2022 first three quarters, reflecting stronger demand in many markets across the region.

Internationally, RevPAR declined 2.4 percent in the 2022 third quarter compared to the same period in 2019, due to a decline in occupancy of 7.9 percentage points, partially offset by ADR growth of 9.8 percent.

In the 2022 first three quarters, RevPAR declined 16.3 percent compared to the same period in 2019, due to a decline in occupancy of 13.3 percentage points, partially offset by ADR growth of 3.8 percent.

In the 2022 third quarter, RevPAR remained constrained in Greater China and Asia Pacific excluding China, but exceeded pre-pandemic 2019 levels in the Caribbean & Latin America, Europe, and Middle East & Africa, driven by strengthening demand and an increase in cross-border travel.

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 property level, we continue to work with owners and franchisees by adjusting renovation requirements for certain properties.

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.

As lodging demand continues to recover from the lows seen in the early months of the pandemic, we have seen and continue to see industry-wide labor shortages causing challenges in hiring or re-hiring for certain positions, primarily in certain U.S.

In response, we have enhanced our recruitment and retention efforts and increased compensation where needed to maintain competitiveness.

As a result of these efforts, we have made good progress staffing our hotels despite the challenging labor market.

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

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

The overall operational and financial impact is highly dependent on the risk factors disclosed under the heading “Risks Relating to COVID-19” in Part I, Item 1A, “Risk Factors,” of our 2021 Form 10-K and could be affected by other factors we are not currently able to predict.

Business Trends

We saw strong global RevPAR improvement during the 2023 first quarter compared to the same period in 2022.

For the 2023 first quarter, worldwide RevPAR increased 34.3 percent compared to the 2022 first quarter, reflecting ADR growth of 11.3 percent and occupancy improvement of 11.2 percentage points.

The increase in

RevPAR was driven by improvement in all customer segments, including robust leisure demand as well as strengthening group and business transient demand as compared to the 2022 first quarter.

& Canada, RevPAR increased 25.6 percent in the 2023 first quarter compared to the 2022 first quarter, due to ADR growth of 10.1 percent and occupancy improvement of 8.2 percentage points.

The improvement in RevPAR reflected strong demand in many markets within the U.S.

& Canada, as compared to the 2022 first quarter, which was negatively impacted by the COVID-19 Omicron variant.

Internationally, RevPAR improved 63.1 percent in the 2023 first quarter compared to the 2022 first quarter, due to occupancy improvement of 18.3 percentage points and ADR growth of 16.4 percent.

The improvement in RevPAR was driven by strengthening demand, especially from cross-border guests, and meaningful growth in ADR in all regions, as compared to the 2022 first quarter, which in various geographic markets was heavily impacted by COVID-19 and government-imposed travel restrictions.

The lifting of travel restrictions throughout Asia Pacific, particularly in Greater China, significantly boosted 2023 first quarter demand in that region.

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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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 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), 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 5 for additional information related to legal proceedings and governmental investigations related to the Data Security Incident.

System Growth and Pipeline

At the end of the 2022 third quarter, our system had 8,162 properties (1,507,350 rooms), compared to 7,989 properties (1,479,179 rooms) at year-end 2021 and 7,892 properties (1,463,692 rooms) at the end of the 2021 third quarter.

The increase compared to year-end 2021 reflects gross additions of 249 properties (42,787 rooms) and deletions of 76 properties (14,595 rooms).

Approximately 25 percent of our 2022 first three quarters gross room additions were conversions from competitor brands.

At the end of the 2022 third quarter, we had more than 502,000 hotel rooms in our development pipeline, which includes approximately 204,800 hotel rooms under construction and roughly 33,300 hotel rooms approved for development but not yet subject to signed contracts.

At the end of the 2023 first quarter, our system had 8,353 properties (1,534,072 rooms), compared to 8,288 properties (1,525,407 rooms) at year-end 2022 and 8,048 properties (1,487,681 rooms) at the end of the 2022 first quarter.

The increase compared to year-end 2022 reflected gross additions of 79 properties (11,015 rooms) and deletions of 14 properties (2,351 rooms).

Approximately 53 percent of our 2023 first quarter gross room additions were located outside U.S.

& Canada, and 25 percent were conversions from competitor brands.

At the end of the 2023 first quarter, we had approximately 502,000 hotel rooms in our development pipeline, which includes roughly 200,000 hotel rooms under construction and more than 21,000 hotel rooms approved for development but not yet under signed contracts.

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

We currently expect full-year 2022 total gross rooms growth of approximately 4.5 percent and net rooms growth of approximately 3.0 percent, which includes the impact of the Company’s decision to suspend its operations in Russia and does not include the rooms associated with the City Express brand acquisition discussed in Note 7.

The decrease in our expectation for gross rooms growth in 2022, compared to our previous estimate, is primarily due to delayed openings in Greater China where COVID-19 restrictions have resulted in extended construction timelines.

We currently expect full-year 2023 total gross rooms growth of approximately 5.5 percent and net rooms growth of 4.0 to 4.5 percent.

Properties and Rooms

At September 30, 2022, we operated, franchised, and licensed the following properties and rooms:

At March 31, 2023, we operated, franchised, and licensed the following properties and rooms:

Managed Franchised/Licensed Owned/Leased Residential Total

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

Yacht — — 1 149 — — — — 1 149

Total 1,993 561,197 6,192 947,119 52 13,865 116 11,891 8,353 1,534,072

Lodging Statistics

The following tables present RevPAR, occupancy, and ADR statistics for comparable properties.

The following table presents RevPAR, occupancy, and ADR statistics for comparable properties.

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

Three Months Ended September 30, 2022 and Change vs.

Three Months Ended September 30, 2021

RevPAR Occupancy Average Daily Rate

2021 2022 vs.

Comparable Company-Operated Properties

& Canada $ 164.32 41.2 % 69.4 % 12.2 % pts.

$ 236.69 16.4 %

Greater China $ 67.48 5.3 % 59.3 % 4.3 % pts.

$ 113.87 (2.3) %

Asia Pacific excluding China $ 88.15 169.8 % 62.7 % 29.5 % pts.

$ 140.52 42.9 %

Caribbean & Latin America $ 111.98 42.8 % 59.1 % 12.9 % pts.

$ 189.46 11.8 %

Europe $ 188.55 93.1 % 73.3 % 24.5 % pts.

$ 257.08 28.6 %

Middle East & Africa $ 97.67 43.3 % 61.6 % 10.1 % pts.

$ 158.65 19.9 %

International - All (1)

$ 102.53 61.7 % 63.1 % 16.1 % pts.

$ 162.61 20.4 %

Worldwide (2)

$ 129.91 49.5 % 65.9 % 14.4 % pts.

$ 197.20 16.9 %

Comparable Systemwide Properties

& Canada $ 128.94 28.5 % 71.8 % 7.9 % pts.

$ 179.58 14.3 %

Greater China $ 64.78 8.2 % 58.3 % 5.4 % pts.

$ 111.12 (1.8) %

Asia Pacific excluding China $ 87.91 139.3 % 62.7 % 27.2 % pts.

$ 140.15 35.4 %

Caribbean & Latin America $ 96.11 45.0 % 57.5 % 12.6 % pts.

$ 167.27 13.4 %

Europe $ 156.10 90.3 % 72.0 % 25.0 % pts.

$ 216.92 24.1 %

Middle East & Africa $ 94.78 49.7 % 62.0 % 10.8 % pts.

$ 152.92 23.7 %

International - All (1)

$ 101.37 66.1 % 63.3 % 17.3 % pts.

$ 160.11 20.7 %

Worldwide (2)

$ 120.60 36.3 % 69.2 % 10.8 % pts.

$ 174.19 15.1 %

Nine Months Ended September 30, 2022 and Change vs.

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2023 and Change vs.

Three Months Ended March 31, 2022

RevPAR Occupancy Average Daily Rate

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CONSOLIDATED RESULTS

Our results in the 2022 third quarter and 2022 first three quarters 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 the 2022 third quarter and 2022 first three quarters, and the discussion below for additional analysis of our consolidated results of operations for the 2022 third quarter compared to the 2021 third quarter and for the 2022 first three quarters compared to the 2021 first three quarters.

Three Months Ended Nine Months Ended

($ in millions) September 30, 2022 September 30, 2021 Change

2021 September 30, 2022 September 30, 2021 Change

Our consolidated results in the 2023 first quarter improved significantly compared to the 2022 first quarter 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 the 2023 first quarter compared to the 2022 first quarter.

Three Months Ended

(in millions) March 31, 2023 March 31, 2022 Change 2023 vs.

Base management fees $ 293 $ 213 $ 80 38 %

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Net fee revenues $ 1,112 $ 791 $ 321 41 %

The increases in base management fees in the 2022 third quarter and 2022 first three quarters primarily reflected higher RevPAR due to the ongoing recovery in lodging demand from the impacts of COVID-19.

The increases in franchise fees in the 2022 third quarter and 2022 first three quarters primarily reflected higher RevPAR due to the ongoing recovery in lodging demand from the impacts of COVID-19, higher co-brand credit card fees ($25 million and $101 million, respectively), and unit growth ($29 million and $84 million, respectively).

The increases in incentive management fees in the 2022 third quarter and 2022 first three quarters 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 in the 2023 first quarter primarily reflected higher RevPAR.

The increase in franchise fees in the 2023 first quarter primarily reflected higher RevPAR, higher co-branded credit card fees ($21 million), and unit growth ($18 million).

The increase in incentive management fees in the 2023 first quarter primarily reflected higher profits at certain managed hotels.

Owned, Leased, and Other

Three Months Ended Nine Months Ended

($ in millions) September 30, 2022 September 30, 2021 Change

2021 September 30, 2022 September 30, 2021 Change

Three Months Ended

(in millions) March 31, 2023 March 31, 2022 Change 2023 vs.

Owned, leased, and other revenue $ 356 $ 262 $ 94 36 %

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Owned, leased, and other, net $ 75 $ 65 $ 10 15 %

Owned, leased, and other revenue, net of direct expenses, increased in the 2022 third quarter and the 2022 first three quarters primarily due to stronger results at our owned and leased properties driven by the ongoing recovery in lodging demand from the impacts of COVID-19, partially offset by lower termination fees ($23 million and $39 million, respectively) and an estimated monetary payment related to a portfolio of 12 leased hotels in the U.S.

& Canada ($19 million and $31 million, respectively).

Owned, leased, and other revenue, net of direct expenses, increased in the 2023 first quarter primarily due to stronger results at our owned and leased properties, partially offset by $29 million of subsidies received for certain of our leased hotels in the 2022 first quarter under German government COVID-19 assistance programs.

Cost Reimbursements

Three Months Ended Nine Months Ended

($ in millions) September 30, 2022 September 30, 2021 Change

2021 September 30, 2022 September 30, 2021 Change

Three Months Ended

(in millions) March 31, 2023 March 31, 2022 Change 2023 vs.

Cost reimbursement revenue $ 4,147 $ 3,146 $ 1,001 32 %

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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 increase in cost reimbursements, net in the 2022 third quarter primarily reflects higher revenues, net of expenses, for our centralized programs and services and higher Loyalty Program revenues, net of expenses.

The increase in cost reimbursements, net in the 2022 first three quarters primarily reflects higher revenues, net of expenses, for our centralized programs and services and lower expenses related to our insurance program, partially offset by Loyalty Program activity, primarily due to higher program expenses.

The increase in cost reimbursements, net in the 2023 first quarter primarily reflected Loyalty Program activity, primarily due to higher program revenues, as well as higher revenues, net of expenses, for our centralized programs and services.

Other Operating Expenses

Three Months Ended Nine Months Ended

($ in millions) September 30, 2022 September 30, 2021 Change

2021 September 30, 2022 September 30, 2021 Change

Three Months Ended

(in millions) March 31, 2023 March 31, 2022 Change 2023 vs.

Depreciation, amortization, and other $ 44 $ 48 $ (4) (8) %

General, administrative, and other 202 208 (6) (3) %

Restructuring, merger-related charges, and other 2 4 (2) (50) % 11 8 3 38 %

Depreciation, amortization, and other expenses decreased in the 2022 first three quarters, primarily due to lower impairment charges.

General, administrative, and other expenses increased in the 2022 first three quarters primarily due to higher compensation costs and higher administrative costs.

Merger-related charges and other 1 9 (8) (89) %

Non-Operating Income (Expense)

Three Months Ended Nine Months Ended

($ in millions) September 30, 2022 September 30, 2021 Change

2021 September 30, 2022 September 30, 2021 Change

Gains and other income, net $ 3 $ — $ 3 nm* $ 9 $ 6 $ 3 50 %

Loss on extinguishment of debt

— (164) 164 100 % — (164) 164 100 %

Three Months Ended

(in millions) March 31, 2023 March 31, 2022 Change 2023 vs.

Gains and other income, net $ 3 $ 4 $ (1) (25) %

Interest expense (126) (93) (33) (35) %

Interest income 15 5 10 200 %

Equity in earnings (losses) 1 (4) 5 125 % 18 (24) 42 175 %

* Percentage change is not meaningful.

The loss on extinguishment of debt in the 2021 third quarter 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 in the 2022 first three quarters, primarily due to lower average debt balances driven by Senior Notes maturities and repurchases.

Equity in earnings (losses) changed in the 2022 first three quarters primarily due to our share of the gains on the sales of properties held by equity method investees ($23 million) and the ongoing recovery in lodging demand from the impacts of COVID-19.

Three Months Ended Nine Months Ended

($ in millions) September 30, 2022 September 30, 2021 Change

2021 September 30, 2022 September 30, 2021 Change

Provision for income taxes $ (239) $ (58) $ (181) (312) % $ (538) $ (1) $ (537) nm*

* Percentage change is not meaningful.

Our tax provision changed in the 2022 third quarter, compared to our tax provision in the 2021 third quarter, primarily due to the increase in operating income ($108 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).

Our tax provision changed in the 2022 first three quarters, compared to our tax provision in the 2021 first three quarters, primarily due to the increase in operating income ($335 million), the prior year release of tax reserves due to the favorable resolution of Legacy-Starwood tax audits ($118 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).

Equity in earnings 1 2 (1) (50) %

Interest expense increased in the 2023 first quarter, primarily due to higher average debt balances driven by Senior Notes issuances.

Three Months Ended

(in millions) March 31, 2023 March 31, 2022 Change 2023 vs.

Provision for income taxes $ (87) $ (99) $ 12 12 %

Provision for income taxes decreased by $12 million in the 2023 first quarter, primarily due to the current year release of tax reserves ($103 million), which was mostly due to the completion of a prior year tax audit, partially offset by the increase in operating income ($86 million).

BUSINESS SEGMENTS

Our segment results in the 2022 third quarter and 2022 first three quarters 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 the 2022 third quarter and 2022 first three quarters and the discussion below for additional analysis of the operating results of our reportable business segments.

Three Months Ended Nine Months Ended

($ in millions) September 30, 2022 September 30, 2021 Change

2021 September 30, 2022 September 30, 2021 Change

Our segment results in the 2023 first quarter improved significantly compared to the 2022 first quarter 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 for the 2023 first quarter compared to the 2022 first quarter.

Three Months Ended

(in millions) March 31, 2023 March 31, 2022 Change 2023 vs.

Segment revenues $ 4,278 $ 3,271 $ 1,007 31 %

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Properties Rooms

September 30, 2022 September 30, 2021 vs.

September 30, 2021 September 30, 2022 September 30, 2021 vs.

September 30, 2021

March 31, 2023 March 31, 2022 vs.

March 31, 2022 March 31, 2023 March 31, 2022 vs.

March 31, 2022

& Canada 5,880 5,752 128 2 % 968,919 951,731 17,188 2 %

International 2,379 2,204 175 8 % 542,259 513,249 29,010 6 %

Third Quarter

& Canada quarterly segment profit increased, primarily due to the following:

• $171 million of higher gross fee revenues, primarily reflecting higher comparable systemwide RevPAR driven by increases in both ADR and occupancy and higher profits at certain managed hotels due to the ongoing recovery in lodging demand from the impacts of COVID-19, as well as unit growth;

• $17 million of higher cost reimbursement revenue, net of reimbursed expenses;

partially offset by:

• $27 million of lower owned, leased, and other revenue, net of direct expenses, primarily reflecting lower termination fees and an estimated monetary payment related to a portfolio of 12 leased hotels in the U.S.

& Canada ($19 million), partially offset by stronger results at owned and leased properties due to the ongoing recovery in lodging demand from the impacts of COVID-19.

First Three Quarters

& Canada 2022 first three quarters segment profit increased primarily due to:

• $720 million of higher gross fee revenues, primarily reflecting higher comparable systemwide RevPAR driven by increases in both ADR and occupancy and higher profits at certain managed hotels due to the ongoing recovery in lodging demand from the impacts of COVID-19, as well as unit growth, partially offset by lower residential branding fees;

• $103 million of higher cost reimbursement revenue, net of reimbursed expenses;

• $21 million of higher owned, leased, and other revenue, net of direct expenses, primarily reflecting stronger results at owned and leased properties due to the ongoing recovery in lodging demand from the impacts of COVID-19, partially offset by lower termination fees and an estimated monetary payment related to a portfolio of 12 leased hotels in the U.S.

& Canada ($31 million).

& Canada 2023 first quarter segment profit increased, primarily due to $183 million of higher gross fee revenues.

The increase in gross fee revenues primarily reflected higher comparable systemwide RevPAR driven by increases in both ADR and occupancy, higher profits at certain managed hotels, and unit growth.

International

Third Quarter

International quarterly segment profit increased primarily due to:

• $85 million of higher gross fee revenues, due to higher comparable systemwide RevPAR driven by increases in both ADR and occupancy in all regions except Greater China and higher profits at certain managed hotels due to the ongoing recovery in lodging demand from the impacts of COVID-19, partially offset by net unfavorable foreign exchange rates;

• $25 million of higher owned, leased, and other revenue, net of direct expenses, primarily reflecting stronger results at owned and leased properties due to the ongoing recovery in lodging demand from the impacts of COVID-19.

First Three Quarters

International 2022 first three quarters segment profit increased primarily due to:

• $255 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 and higher profits at certain managed hotels due to the ongoing recovery in lodging demand from the impacts of COVID-19, as well as unit growth, partially offset by net unfavorable foreign exchange rates;

• $120 million of higher owned, leased, and other revenue, net of direct expenses, primarily reflecting stronger results at owned and leased properties due to the ongoing recovery in lodging demand from the impacts of COVID-19, partially offset by lower termination fees;

• $38 million of higher cost reimbursement revenue, net of reimbursed expenses.

STOCK-BASED COMPENSATION

See Note 3 for more information.

International 2023 first quarter segment profit increased, primarily due to $114 million of higher gross fee revenues, partially offset by $11 million of lower owned, leased, and other revenue, net of direct expenses.

The increase in gross fee revenues primarily reflected higher profits at certain managed hotels and higher comparable systemwide RevPAR driven by increases in both occupancy and ADR in all regions, partially offset by net unfavorable foreign exchange rates.

The decrease in owned, leased, and other revenue, net of direct expenses primarily reflected subsidies received for certain of our leased hotels in the 2022 first quarter under German government COVID-19 assistance programs, partially offset by stronger results at owned and leased properties.

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 the end of the 2022 third quarter, our long-term debt had a weighted average interest rate of 3.9 percent and a weighted average maturity of approximately 6.0 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 the end of the 2022 third quarter.

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.

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.

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 2023 first quarter, our long-term debt had a weighted average interest rate of 4.2 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 the end of the 2023 first quarter.

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.

We are party to a $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 September 30, 2022, we had no outstanding borrowings under the Credit Facility.

We entered into amendments to the Credit Facility in April 2020 and January 2021 (the “Credit Facility Amendments”).

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, resumed beginning with the quarter that ended March 31, 2022.

The Credit Facility Amendments adjusted the required leverage levels for this covenant starting at 5.50 to 1.00 for the test period that ended 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.

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.

Cash, cash equivalents, and restricted cash totaled $1,068 million at September 30, 2022, a decrease of $353 million from year-end 2021, primarily due to share repurchases ($1,235 million), Credit Facility repayments, net of borrowings ($1,050 million), dividends paid ($195 million), capital and technology expenditures ($192 million), and financing outflows for employee stock-based compensation withholding taxes ($88 million), partially offset by net cash provided by operating activities ($1,922 million) and Senior Notes issuances, net of repayments ($411 million).

Net cash provided by operating activities increased by $1,177 million in the 2022 first three quarters compared to the 2021 first three quarters, primarily due to higher net income (adjusted for non-cash items and the prior year 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 both the 2021 and 2022 first three quarters, and will in the future reduce, the amount of cash we receive from these card issuers.

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, cash equivalents, and restricted cash totaled $571 million at March 31, 2023, an increase of $46 million from year-end 2022, primarily due to net cash provided by operating activities ($887 million), Senior Notes issuances, net of repayments ($493 million), and commercial paper issuances, net of repayments ($117 million), partially offset by share repurchases ($1,135 million), dividends paid ($124 million), capital and technology expenditures ($95 million), and financing outflows for employee stock-based compensation withholding taxes ($72 million).

Net cash provided by operating activities increased by $489 million in the 2023 first quarter compared to the 2022 first quarter, primarily due to higher net income (adjusted for non-cash items) 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 the 2023 first quarter and 2022 first quarter, 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 the end of the 2022 third quarter.

Our ratio of current assets to current liabilities was 0.5 to 1.0 at the end of the 2023 first 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 $192 million in the 2022 first three quarters and $114 million in the 2021 first three quarters.

We expect capital expenditures and other investments will total approximately $500 million for the 2022 full year, including capital and technology expenditures, contract acquisition costs, loan advances, and other investing activities (including approximately $200 million for maintenance capital spending and our new headquarters).

If the City Express brand acquisition discussed in Note 7 closes in 2022, we will have an additional $100 million of investment spending.

We made capital and technology expenditures of $95 million in the 2023 first quarter and $49 million in the 2022 first quarter.

We expect capital expenditures and other investments will total approximately $850 million to $1 billion for the 2023 full year, including capital and technology expenditures, loan advances, contract acquisition costs, and other investing activities (including approximately $250 million for maintenance capital spending).

This estimate also includes $100 million of investment spending related to the City Express brand acquisition discussed in Note 7, which closed on May 1, 2023.

Share Repurchases and Dividends

We purchased 6.2 million shares in the 2022 third quarter for $950 million.

Year-to-date through October 31, 2022, we repurchased 11.1 million shares for $1,700 million.

We repurchased 6.8 million shares of our common stock for $1.1 billion in the 2023 first quarter.

Year-to-date through April 28, 2023, we repurchased 8.2 million shares for $1.4 billion.

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

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;

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

We expect to continue to return cash to stockholders through share repurchases and dividends in the remainder of 2022.

On February 10, 2023, our Board of Directors declared a quarterly cash dividend of $0.40 per share, which was paid 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

As of the end of the 2022 third quarter, there have been no material changes to our cash requirements as disclosed in our 2021 Form 10-K.

As of the end of the 2023 first quarter, there have been no material changes to our cash requirements as disclosed in our 2022 Form 10-K.

See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2022 Form 10-K for more information about our cash requirements.

Also, see Note 6 for information on our long-term debt.

At September 30, 2022, projected Deemed Repatriation Transition Tax payments under the U.S.

tax legislation enacted on December 22, 2017, commonly referred to as the 2017 Tax Cuts and Jobs Act, totaled $336 million, of which $89 million is payable within the next 12 months from September 30, 2022.

At March 31, 2023, projected Deemed Repatriation Transition Tax payments under the U.S.

tax legislation enacted on December 22, 2017, commonly referred to as the 2017 Tax Cuts and Jobs Act, totaled $326 million, of which $84 million is payable within the next 12 months from March 31, 2023.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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We have discussed those policies and estimates that we believe are critical and require the use of complex judgment in their application in our 2022 Form 10-K.

have made no material changes to our critical accounting policies or the methodologies or assumptions that we apply under them.

We have made no material changes to our critical accounting policies or the methodologies or assumptions that we apply under them.

Quantitative and Qualitative Disclosures About Market Risk

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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