What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-07-31 compared with 2024-05-01 · 133 added, 71 removed, 195 unchanged (51% of the section changed)

5 unchanged sentences

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;

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

our expectations regarding rooms growth;

10 unchanged sentences

& Canada, (2) Europe, Middle East & Africa (“EMEA”), (3) Greater China, and (4) Asia Pacific excluding China (“APEC”).

Our Caribbean & Latin America (“CALA”) operating segment does not meet the applicable criteria for separate disclosure as a reportable business segment, and as such, we include its results in “Unallocated corporate and other.”

Our Caribbean & Latin America (“CALA”) operating segment does not meet the applicable criteria for

separate disclosure as a reportable business segment, and as such, we include its results in “Unallocated corporate and other.”

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

5 unchanged sentences

Performance Measures

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.

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

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 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 at comparable properties, measures the utilization of a property’s available capacity.

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

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

ADR, which we calculate by dividing property level 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.

1 unchanged sentence

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

dollar basis.

We calculate constant dollar statistics by applying exchange rates for the current period to the prior comparable period.

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

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

We define our comparable properties as our properties that were open and operating under one of our hotel brands since the beginning of the last full calendar year (since January 1, 2023 for the current period) and have not, in either the current or previous year:

2 unchanged sentences

Business Trends

We saw solid global RevPAR improvement during the 2024 first quarter compared to the same period in 2023.

For the 2024 first quarter, worldwide RevPAR increased 4.2 percent compared to the 2023 first quarter, reflecting

ADR growth of 2.8 percent and occupancy improvement of 0.9 percentage points.

The increase in RevPAR was primarily driven by strong year-over-year demand growth in our International regions.

& Canada, where demand has normalized, RevPAR increased 1.5 percent in the 2024 first quarter, led by strong group business.

In EMEA, RevPAR growth of 10.1 percent in the 2024 first quarter was driven by strong demand in most countries across the region, reflecting strength across most customer segments.

In Greater China, RevPAR increased 6.0 percent with growth in demand and ADR.

In APEC, RevPAR grew 16.5 percent, driven by growth in leisure and business travel, including an increase in inbound travel into the region compared to the 2023 first quarter.

In CALA, RevPAR grew 11.6 percent, driven by strong leisure demand at resorts in the Caribbean and Mexico.

We saw solid global RevPAR growth during the 2024 second quarter and 2024 first half compared to the same periods in 2023.

For the 2024 second quarter, worldwide RevPAR increased 4.9 percent, reflecting ADR growth of 2.6 percent and occupancy improvement of 1.6 percentage points.

For the 2024 first half, worldwide RevPAR increased 4.5 percent, reflecting ADR growth of 2.7 percent and occupancy improvement of 1.2 percentage points.

The increase in RevPAR in the 2024 second quarter and 2024 first half was primarily driven by strong year-over-year demand growth in most of our regions.

& Canada, where demand has normalized, RevPAR increased 2.8 percent in the 2024 first half, led by strong group business.

In EMEA, RevPAR growth of 9.6 percent in the 2024 first half was driven by strong demand across the region.

In Greater China, RevPAR was relatively unchanged compared to the 2023 first half, as RevPAR growth in the 2024 first quarter was offset by a decline in RevPAR in the 2024 second quarter due to lower domestic demand and an increase in outbound travel.

In APEC, RevPAR increased 14.8 percent in the 2024 first half, driven by strong growth in ADR and occupancy from leisure and business travelers, including an increase in inbound demand into the region.

In CALA, RevPAR increased 10.3 percent in the 2024 first half, driven by strong demand throughout the region.

Starwood Data Security Incident

8 unchanged sentences

System Growth and Pipeline

At the end of the 2024 first quarter, our system had 8,861 properties (1,643,172 rooms), compared to 8,785 properties (1,597,380 rooms) at year-end 2023 and 8,353 properties (1,534,072 rooms) at the end of the 2023 first quarter.

In the 2024 first quarter, we added roughly 46,000 net rooms, including the addition of approximately 37,000 rooms from our exclusive, long-term strategic licensing agreement with MGM Resorts International.

At the end of the 2024 first quarter, we had over 3,400 hotels and nearly 547,000 rooms in our development pipeline, which includes roughly 27,000 rooms approved for development but not yet under signed contracts.

More than 202,000 rooms in the pipeline, or 37 percent, were under construction at the end of the 2024 first quarter.

At the end of the 2024 second quarter, our system had 8,969 properties (1,658,659 rooms), compared to 8,785 properties (1,597,380 rooms) at year-end 2023 and 8,590 properties (1,565,258 rooms) at the end of the 2023 second quarter.

In the 2024 first half, we added roughly 61,300 net rooms, including the addition of approximately 37,000 rooms from our exclusive, long-term strategic licensing agreement with MGM Resorts International.

At the end of the 2024 second quarter, we had approximately 3,500 hotels and more than 559,000 rooms in our development pipeline, which includes roughly 33,000 rooms approved for development but not yet under signed contracts.

Over 209,000 rooms in the pipeline, or 37 percent, were under construction at the end of the 2024 second quarter.

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

We currently expect full year 2024 net rooms growth of approximately 5.5 to 6.0 percent.

We currently expect full year 2024 net rooms growth of 5.5 to 6.0 percent.

Properties and Rooms

1 unchanged sentence

Properties Rooms

March 31, 2024 March 31, 2023 vs.

March 31, 2023 March 31, 2024 March 31, 2023 vs.

March 31, 2023

June 30, 2024 June 30, 2023 vs.

June 30, 2023 June 30, 2024 June 30, 2023 vs.

June 30, 2023

1,980 2,016 (36) (2) % 568,501 567,463 1,038 — %

6 unchanged sentences

Lodging Statistics

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

The following tables present 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 March 31, 2024 and Change vs.

Three Months Ended March 31, 2023

Three Months Ended June 30, 2024 and Change vs.

Three Months Ended June 30, 2023

RevPAR Occupancy Average Daily Rate

43 unchanged sentences

$ 185.33 2.6 %

Six Months Ended June 30, 2024 and Change vs.

Six Months Ended June 30, 2023

RevPAR Occupancy Average Daily Rate

2023 2024 vs.

Comparable Company-Operated Properties

& Canada $ 179.89 3.1 % 69.8 % 0.6 % pts.

$ 257.72 2.3 %

Europe $ 195.35 6.0 % 68.8 % 0.8 % pts.

$ 283.82 4.7 %

Middle East & Africa $ 133.70 14.3 % 67.7 % 3.4 % pts.

$ 197.43 8.5 %

Greater China $ 83.84 0.1 % 67.2 % 1.6 % pts.

$ 124.72 (2.2) %

Asia Pacific excluding China

$ 117.65 14.1 % 71.5 % 4.8 % pts.

$ 164.59 6.5 %

Caribbean & Latin America

$ 196.16 8.2 % 67.3 % 2.8 % pts.

$ 291.59 3.7 %

International - All (1)

$ 122.39 8.2 % 68.6 % 2.8 % pts.

$ 178.27 3.9 %

Worldwide (2)

$ 146.83 5.5 % 69.1 % 1.8 % pts.

$ 212.38 2.7 %

Comparable Systemwide Properties

& Canada $ 130.96 2.8 % 70.1 % 0.4 % pts.

$ 186.70 2.2 %

Europe $ 139.27 6.6 % 67.1 % 2.7 % pts.

$ 207.57 2.4 %

Middle East & Africa $ 123.62 15.5 % 66.7 % 3.3 % pts.

$ 185.36 9.8 %

Greater China $ 78.13 0.4 % 66.3 % 1.5 % pts.

$ 117.82 (1.8) %

Asia Pacific excluding China

$ 118.61 14.8 % 71.3 % 4.7 % pts.

$ 166.35 7.3 %

Caribbean & Latin America

$ 167.20 10.3 % 68.1 % 3.8 % pts.

$ 245.56 4.2 %

International - All (1)

$ 118.42 9.0 % 67.9 % 3.0 % pts.

$ 174.42 4.2 %

Worldwide (2)

$ 126.98 4.5 % 69.4 % 1.2 % pts.

$ 182.89 2.7 %

(1) Includes Europe, Middle East & Africa, Greater China, Asia Pacific excluding China, and Caribbean & Latin America.

2 unchanged sentences

CONSOLIDATED RESULTS

The discussion below presents an analysis of our consolidated results of operations for the 2024 first quarter compared to the 2023 first quarter.

The discussion below presents an analysis of our consolidated results of operations for the 2024 second quarter compared to the 2023 second quarter and for the 2024 first half compared to the 2023 first half.

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

Three Months Ended

Three Months Ended Six Months Ended

($ in millions)

March 31, 2024 March 31, 2023 Change 2024 vs.

June 30, 2024 June 30, 2023 Change 2024 vs.

2023 June 30, 2024 June 30, 2023 Change 2024 vs.

Base management fees $ 330 $ 318 $ 12 4 % $ 643 $ 611 $ 32 5 %

4 unchanged sentences

Net fee revenues $ 1,316 $ 1,228 $ 88 7 % $ 2,503 $ 2,340 $ 163 7 %

The increase in base management fees in the 2024 first quarter primarily reflected higher RevPAR.

The increase in franchise fees in the 2024 first quarter primarily reflected unit growth ($22 million), higher RevPAR, and higher non-RevPAR related franchise fees ($11 million).

Non-RevPAR related franchise fees of $208 million in the 2024 first quarter increased primarily due to higher co-branded credit card fees ($14 million).

The increase in incentive management fees in the 2024 first quarter primarily reflected higher profits at International managed hotels.

The increase in base management fees in the 2024 second quarter and 2024 first half primarily reflected higher RevPAR.

The increase in franchise fees in the 2024 second quarter and 2024 first half primarily reflected unit growth ($26 million and $48 million, respectively), higher RevPAR, and higher non-RevPAR related franchise fees ($28 million and $39 million, respectively).

Non-RevPAR related franchise fees of $234 million in the 2024 second quarter and $442 million in the 2024 first half increased primarily due to higher co-branded credit card fees ($15 million and $28 million, respectively).

In the 2024 second quarter, non-RevPAR related franchise fees also increased due to higher residential branding fees ($13 million).

Owned, Leased, and Other

Three Months Ended

Three Months Ended Six Months Ended

($ in millions)

March 31, 2024 March 31, 2023 Change 2024 vs.

June 30, 2024 June 30, 2023 Change 2024 vs.

2023 June 30, 2024 June 30, 2023 Change 2024 vs.

Owned, leased, and other revenue $ 395 $ 390 $ 5 1 % $ 752 $ 746 $ 6 1 %

2 unchanged sentences

Cost Reimbursements

Three Months Ended

Three Months Ended Six Months Ended

($ in millions)

March 31, 2024 March 31, 2023 Change 2024 vs.

June 30, 2024 June 30, 2023 Change 2024 vs.

2023 June 30, 2024 June 30, 2023 Change 2024 vs.

Cost reimbursement revenue $ 4,728 $ 4,457 $ 271 6 % $ 9,161 $ 8,604 $ 557 6 %

3 unchanged sentences

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

The decrease in cost reimbursements, net in the 2024 first quarter primarily reflected higher Loyalty Program expenses, as well as lower revenues, net of expenses, for our centralized programs and services.

The decrease in cost reimbursements, net in the 2024 second quarter and 2024 first half primarily reflected higher Loyalty Program expenses and lower revenues, net of expenses, for our other centralized programs and services, partially offset by lower expenses related to our insurance program.

Other Operating Expenses

Three Months Ended

Three Months Ended Six Months Ended

($ in millions)

March 31, 2024 March 31, 2023 Change 2024 vs.

June 30, 2024 June 30, 2023 Change 2024 vs.

2023 June 30, 2024 June 30, 2023 Change 2024 vs.

Depreciation, amortization, and other $ 47 $ 48 $ (1) (2) % $ 92 $ 92 $ — — %

1 unchanged sentence

Merger-related charges and other 8 38 (30) (79) % 16 39 (23) (59) %

General, administrative, and other expenses increased in the 2024 first quarter primarily due to higher compensation costs.

General, administrative, and other expenses increased in the 2024 first half primarily due to higher compensation costs.

Merger-related charges and other expenses decreased in the 2024 second quarter and 2024 first half primarily due to lower charges related to the Data Security Incident discussed in Note 5.

Non-Operating Income (Expense)

Three Months Ended

Three Months Ended Six Months Ended

($ in millions)

March 31, 2024 March 31, 2023 Change 2024 vs.

June 30, 2024 June 30, 2023 Change 2024 vs.

2023 June 30, 2024 June 30, 2023 Change 2024 vs.

Gains and other income, net $ 4 $ 2 $ 2 100 % $ 8 $ 5 $ 3 60 %

Interest expense (173) (140) (33) (24) % (336) (266) (70) (26) %

Interest income 10 15 (5) (33) %

Interest income 9 (1) 10 nm* 19 14 5 36 %

Equity in earnings 5 7 (2) (29) % 5 8 (3) (38) %

Interest expense increased in the 2024 first quarter primarily due to higher debt balances driven by Senior Notes issuances, net of maturities ($30 million).

Three Months Ended

* Percentage change is not meaningful.

Interest expense increased in the 2024 second quarter and 2024 first half primarily due to higher debt balances driven by Senior Notes issuances, net of maturities ($28 million and $58 million, respectively).

Three Months Ended Six Months Ended

($ in millions)

March 31, 2024 March 31, 2023 Change 2024 vs.

June 30, 2024 June 30, 2023 Change 2024 vs.

2023 June 30, 2024 June 30, 2023 Change 2024 vs.

Provision for income taxes $ (268) $ (238) $ (30) (13) % $ (431) $ (325) $ (106) (33) %

Provision for income taxes increased by $76 million in the 2024 first quarter primarily due to the prior year release of tax reserves ($103 million), which was mostly due to completion of a tax audit, partially offset by the decrease in operating income ($28 million).

Provision for income taxes increased by $30 million in the 2024 second quarter primarily due to the increase in pre-tax income ($18 million).

Provision for income taxes increased by $106 million in the 2024 first half primarily due to the prior year release of tax reserves ($103 million), which was mostly due to completion of a tax audit, and a shift in earnings to jurisdictions with higher tax rates ($22 million).

BUSINESS SEGMENTS

The following discussion presents an analysis of the operating results of our reportable business segments for the 2024 first quarter compared to the 2023 first quarter.

The following discussion presents an analysis of the operating results of our reportable business segments for the 2024 second quarter compared to the 2023 second quarter and for the 2024 first half compared to the 2023 first half.

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

Three Months Ended

Three Months Ended Six Months Ended

($ in millions)

March 31, 2024 March 31, 2023 Change 2024 vs.

June 30, 2024 June 30, 2023 Change 2024 vs.

2023 June 30, 2024 June 30, 2023 Change 2024 vs.

Segment net fee revenues

6 unchanged sentences

Segment net fee revenues

59 68 (9) (13) % 124 125 (1) (1) %

Segment profit 47 59 (12) (20) % 98 105 (7) (7) %

3 unchanged sentences

Properties Rooms

March 31, 2024 March 31, 2023 vs.

March 31, 2023 March 31, 2024 March 31, 2023 vs.

March 31, 2023

June 30, 2024 June 30, 2023 vs.

June 30, 2023 June 30, 2024 June 30, 2023 vs.

June 30, 2023

6,054 5,906 148 3 % 1,025,351 972,181 53,170 5 %

3 unchanged sentences

590 530 60 11 % 134,636 122,075 12,561 10 %

In the 2024 first quarter, net fee revenue grew across all segments, compared to the same period in 2023, primarily reflecting higher RevPAR and unit growth.

(See the Lodging Statistics and Properties and Rooms tables above for more information.) Segment profits also reflected higher general, administrative, and other expenses, primarily due to higher compensation costs, compared to the 2023 first quarter .

In the 2024 second quarter and 2024 first half, net fee revenue grew in U.S.

& Canada, EMEA, and APEC, compared to the same periods in 2023, primarily reflecting higher RevPAR and unit growth (see the Lodging Statistics and Properties and Rooms tables above for more information).

In Greater China, net fee revenue decreased in the 2024 second quarter, primarily due to lower demand.

Segment profits for all segments shown above reflected higher general, administrative, and other expenses primarily due to higher compensation costs compared to the 2023 second quarter and 2023 first half.

Additionally, U.S.

segment profit reflects $24 million of lower cost reimbursement revenue, net of reimbursed expenses compared to the 2023 first quarter .

& Canada segment profit reflected $6 million and $30 million of lower cost reimbursement revenue, net of reimbursed expenses compared to the 2023 second quarter and 2023 first half, respectively .

LIQUIDITY AND CAPITAL RESOURCES

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

At the end of the 2024 first quarter, our long-term debt had a weighted average interest rate of 4.5 percent and a weighted average maturity of approximately 5.3 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 2024 first quarter.

At the end of the 2024 second quarter, our long-term debt had a weighted average interest rate of 4.5 percent and a weighted average maturity of approximately 5.1 years.

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 2024 second quarter.

Sources of Liquidity

Our Credit Facility

We are party to a $4.5 billion multicurrency revolving credit agreement (the “Credit Facility”).

We are party to a $4.5 billion multicurrency revolving credit agreement (as amended, 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.

dollar borrowings under the Credit Facility 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.

11 unchanged sentences

Sources and Uses of Cash

Cash, cash equivalents, and restricted cash totaled $448 million at March 31, 2024, an increase of $82 million from year-end 2023, primarily due to Senior Notes issuances ($1,468 million) and net cash provided by operating activities ($779 million), partially offset by share repurchases ($1,144 million), net commercial paper repayments ($685 million), dividends paid ($151 million), financing outflows for employee stock-based compensation withholding taxes ($121 million), and capital and technology expenditures ($109 million).

Net cash provided by operating activities decreased by $108 million in the 2024 first quarter compared to the 2023 first quarter, primarily due to lower net income (adjusted for non-cash items) and working capital changes driven by accounts receivable timing.

Our ratio of current assets to current liabilities was 0.4 to 1.0 at the end of the 2024 first quarter.

Cash, cash equivalents, and restricted cash totaled $370 million at June 30, 2024, an increase of $4 million from year-end 2023, primarily due to net cash provided by operating activities ($1,551 million), Senior Notes issuances, net of repayments ($918 million), and net commercial paper issuances ($342 million), partially offset by share repurchases ($2,156 million), dividends paid ($330 million), capital and technology expenditures ($234 million), and financing outflows for employee stock-based compensation withholding taxes ($125 million).

Our ratio of current assets to current liabilities was 0.4 to 1.0 at the end of the 2024 second 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 $109 million in the 2024 first quarter and $95 million in the 2023 first quarter.

We made capital and technology expenditures of $234 million in the 2024 first half and $194 million in the 2023 first half.

We expect capital expenditures and other investments will total approximately $1.0 billion to $1.2 billion for the 2024 full year, including capital and technology expenditures, loan advances, contract acquisition costs, and other investing activities (including approximately $200 million for maintenance capital spending).

1 unchanged sentence

Share Repurchases and Dividends

We repurchased 4.8 million shares of our common stock for $1.2 billion in the 2024 first quarter.

Year-to-date through April 26, 2024, we repurchased 6.2 million shares for $1.5 billion.

We repurchased 4.1 million shares of our common stock for $1.0 billion in the 2024 second quarter.

Year-to-date through July 29, 2024, we repurchased 10.4 million shares for $2.5 billion.

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

On February 8, 2024, our Board of Directors declared a quarterly cash dividend of $0.52 per share, which was paid on March 29, 2024 to stockholders of record on February 22, 2024.

Our Board of Directors declared the following quarterly cash dividends in 2024 to date:

(1) $0.52 per share declared on February 8, 2024 and paid on March 29, 2024 to stockholders of record on February 22, 2024;

and (2) $0.63 per share declared on May 10, 2024 and paid on June 28, 2024 to stockholders of record on May 24, 2024.

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 2024 first quarter, there have been no material changes to our cash requirements as disclosed in our 2023 Form 10-K.

As of the end of the 2024 second quarter, there have been no material changes to our cash requirements as disclosed in our 2023 Form 10-K.

See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2023 Form 10-K for more information about our cash requirements.

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

At March 31, 2024, projected Deemed Repatriation Transition Tax payments under the 2017 Tax Cuts and Jobs Act totaled $243 million, of which $108 million is payable within the next 12 months from March 31, 2024.

At June 30, 2024, projected Deemed Repatriation Transition Tax payments under the 2017 Tax Cuts and Jobs Act totaled $135 million, which is payable within the next 12 months from June 30, 2024.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

6 unchanged sentences

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