Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement

All statements in this report are made as of the date this Form 10-Q is filed with the U.S. Securities and Exchange Commission (the “SEC”). 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 possible effects on our business of the coronavirus pandemic and efforts to contain it (“COVID-19”), including the performance of the Company’s hotels; Revenue per Available Room (“RevPAR”), occupancy and other demand and recovery trends and expectations; the nature and impact of contingency plans, restructuring plans and cost reduction plans; rooms growth; our expectations regarding the receipt of certain credits and refunds under certain U.S. federal legislation; our expectations regarding our ability to meet our liquidity requirements; our expectations regarding COVID-19’s impact on our cash from operations; our capital expenditures and other investment spending expectations; other statements throughout this report that are preceded by, followed by, or include the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “foresees,” or similar expressions; and similar statements concerning anticipated future events and expectations that are not historical facts.

We caution you that these statements are not guarantees of future performance and are subject to numerous evolving risks and uncertainties that we may not be able to accurately predict or assess, including the risks and uncertainties we describe below and other factors we describe from time to time in our periodic filings with the SEC. Risks that could affect our results of operations, liquidity and capital resources, and other aspects of our business discussed in this Form 10-Q include the duration and scope of COVID-19, including the availability and distribution of effective vaccines or treatments; the pandemic’s short and longer-term impact on the demand for travel, transient and group business, and levels of consumer confidence; actions governments, businesses and individuals have taken or may take in response to the pandemic, including limiting, banning, or cautioning against travel and/or in-person gatherings or imposing occupancy or other restrictions on lodging or other facilities; the impact of the pandemic and actions taken in response to the pandemic on global and regional economies, travel, and economic activity, including the duration and magnitude of the pandemic’s impact on unemployment rates and consumer discretionary spending; the ability of our owners and franchisees to successfully navigate the impacts of COVID-19; the pace of recovery when the pandemic subsides and any dislocations in recovery as a result of resurgences of the pandemic; general economic uncertainty in key global markets and a worsening of global economic conditions or low levels of economic growth; the effects of steps we and our property owners and franchisees have taken and may continue to take to reduce operating costs and/or enhance certain health and cleanliness protocols at our hotels; the impacts of our employee furloughs and reduced work week schedules, our voluntary transition program and our other restructuring activities; competitive conditions in the lodging industry and in the labor market; relationships with customers and property owners; the availability of capital to finance hotel growth and refurbishment; the extent to which we experience adverse effects from data security incidents; and changes in tax laws in countries in which we earn significant income.

As discussed in this Form 10-Q, COVID-19 is materially impacting our operations and financial results. COVID-19, and the volatile regional and global economic conditions stemming from it, and additional or unforeseen effects from the COVID-19 pandemic, could also give rise to or aggravate the other risk factors that we identify within Part II, Item 1A of this report, which in turn could materially adversely affect our business, liquidity, financial condition, and results of operations. Further, COVID-19 may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not consider to present significant risks to our operations.

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 discuss our operations in the following reportable business segments: U.S. & Canada and 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 capital spending reserves. Additionally, we earn franchise fees for use of our intellectual property, including fees from our co-brand credit card, timeshare, and residential programs.

Starwood Data Security Incident

On November 30, 2018, we announced a data security incident involving unauthorized access to the Starwood reservations database (the “Data Security Incident”). The Starwood reservations database is no longer used for business 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. 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. 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 6 for additional information related to expenses incurred in the 2021 third quarter and 2021 first three quarters, insurance recoveries, and legal proceedings and governmental investigations related to the Data Security Incident.

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. 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 (including rooms in hotels temporarily closed due to issues related to COVID-19), 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. Comparisons to the 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.

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, 2020 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. The RevPAR 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 September 30, 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 during the 2021 third quarter, led primarily by robust leisure demand. The spread of the COVID-19 Delta variant constrained the pace of the recovery in the 2021 third quarter beginning in August, particularly for business transient travel. We began to see improving trends for business transient demand again at the beginning of the 2021 fourth quarter and expect such demand could continue to gradually strengthen as more workers return to the office and travel again. Group demand continued to improve during the 2021 third quarter compared to the 2021 second quarter, though it still remains below pre-pandemic 2019 levels. We are encouraged by the swift improvement in ADR, which in the 2021 third quarter returned to pre-pandemic 2019 levels in certain U.S. and International markets, and are optimistic about the continued global recovery. Although the recovery of global lodging demand is underway, 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.

Worldwide comparable systemwide RevPAR improved 118.4 percent in the 2021 third quarter compared to the 2020 third quarter. In the 2021 first three quarters, worldwide comparable systemwide RevPAR improved 42.2 percent compared to the 2020 first three quarters, reflecting the combination of year-over-year RevPAR growth in the 2021 second and third quarters and year-over-year RevPAR declines in the 2021 first quarter as most regions, with the exception of Greater China, had a solid start in 2020 and COVID-19 only began to have a significant impact worldwide late in the 2020 first quarter. Compared to pre-pandemic levels for the same periods in 2019, comparable systemwide RevPAR declined 19.9 percent and 38.1 percent in our U.S. & Canada segment, 40.7 percent and 52.9 percent in our International segment, and 25.8 percent and 42.3 percent worldwide in the 2021 third quarter and first three quarters, respectively. Overall, worldwide comparable systemwide occupancy and constant dollar ADR in the 2021 third quarter increased compared to both the 2021 first and second quarters, and worldwide comparable systemwide constant dollar ADR was down only 4.4 percent in the 2021 third quarter compared to the 2019 third quarter. In the U.S. & Canada, demand grew in the 2021 third quarter, compared to the 2021 second quarter, driven by strong leisure demand at our luxury and resort hotels and in tertiary markets. Occupancy peaked in July before decreasing slightly in August and September due to seasonality as well as the COVID-19 Delta variant. Urban destinations, where we have a large presence in the U.S. & Canada, continue to lag the recovery, though they also saw demand rise during the 2021 third quarter compared to the 2021 second quarter. 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 third quarter, comparable systemwide RevPAR improved compared to the 2021 second quarter in all our regions except for Greater China where the recovery was temporarily constrained beginning in August 2021 as a result of 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 limiting our corporate general and administrative costs and are being disciplined with respect to our capital expenditures and other investment spending. As previously announced, share repurchases and cash dividends have been suspended until business conditions further improve and until permitted under our Credit Facility. As of September 30, 2021, we have substantially completed restructuring plans to achieve cost savings specific to our company-operated properties. In addition, we continue to work with owners and franchisees to minimize their cash outlays while also focusing on guest experience. The steps we continue to take include adjusting renovation requirements for certain properties; deferring certain hotel initiatives and accountability for brand standard audits for hotel owners and franchisees; supporting owners and franchisees who are working with their lenders to utilize furniture, fixtures, and equipment (FF&E) reserves to meet working capital needs; and waiving required FF&E funding through 2021. We also continue to limit the reimbursed expenses we incur on behalf of our owners and franchisees to provide centralized programs and services, such as the Loyalty Program, reservations, marketing and sales, which we generally collect through cost reimbursement revenue on the basis of hotel revenue or program usage.

We have seen industry labor shortages causing challenges in hiring or re-hiring for certain property-level positions primarily in certain high-demand U.S. markets, and in response we have enhanced our recruitment and retention efforts.

We continue to evaluate the availability of stimulus tax credits under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the Taxpayer Certainty and Disaster Tax Relief Act of 2020 enacted as part of the Consolidated Appropriations Act, 2021 (“Relief Act”), the American Rescue Plan Act of 2021 (“ARPA”), and other legislation. As of October 22, 2021, 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. In 2020 and 2021, we passed through $94 million and $23 million, respectively, of these refunds 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 October 22, 2021. Additionally, as of September 30, 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 (“COBRA”) for the period of April 1, 2021 to September 30, 2021. Finally, in the 2021 first three quarters, we received subsidies totaling $22 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.

System Growth and Pipeline

At the end of the 2021 third quarter, our system had 7,892 properties (1,463,692 rooms), compared to 7,642 properties (1,423,044 rooms) at year-end 2020 and 7,579 properties (1,413,654 rooms) at the end of the 2020 third quarter. The increase compared to year-end 2020 reflects gross additions of 397 properties (65,932 rooms) and deletions of 148 properties (25,281 rooms), including 88 properties from a primarily select-service portfolio which left our system in the 2021 first quarter. Approximately 23 percent of our 2021 first three quarters gross room additions were conversions. We expect full-year 2021 total gross rooms growth of approximately 6.0 percent and net rooms growth of approximately 3.5 percent.

At the end of the 2021 third quarter, we had nearly 477,000 rooms in our development pipeline, which includes more than 206,000 hotel rooms under construction and roughly 25,000 hotel rooms approved for development but not yet under signed contracts. Over half of the rooms in our development pipeline are outside U.S. & Canada.

Properties and Rooms

At September 30, 2021, we operated, franchised, and licensed the following properties and rooms:

			Managed												Franchised/Licensed												Owned/Leased												Total
			Properties						Rooms						Properties						Rooms						Properties						Rooms						Properties						Rooms
U.S. & Canada			700						226,835						4,930						704,785						26						6,483						5,656						938,103
International			1,323						334,068						782						159,532						39						9,288						2,144						502,888
Timeshare			—						—						92						22,701						—						—						92						22,701
Total			2,023						560,903						5,804						887,018						65						15,771						7,892						1,463,692

Lodging Statistics

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 September 30, 2021 and Change vs. Three Months Ended September 30, 2020
			RevPAR												Occupancy															Average Daily Rate
			2021						vs. 2020						2021						vs. 2020									2021						vs. 2020
Comparable Company-Operated Properties
U.S. & Canada			$	115.57					258.3		%				56.8		%				36.3		%	pts.						$	203.46					29.1		%
Greater China			$	67.15					(1.8)		%				54.6		%				(6.8)		%	pts.						$	122.94					10.5		%
Asia Pacific excluding China			$	34.57					37.1		%				33.2		%				9.1		%	pts.						$	104.22					(0.6)		%
Caribbean & Latin America			$	81.73					257.1		%				46.4		%				28.2		%	pts.						$	175.95					40.6		%
Europe			$	104.65					215.8		%				47.1		%				28.8		%	pts.						$	222.03					22.5		%
Middle East & Africa			$	72.42					90.7		%				50.8		%				24.2		%	pts.						$	142.46					(0.1)		%
International - All (1)			$	68.32					64.2		%				46.3		%				12.3		%	pts.						$	147.63					20.5		%
Worldwide (2)			$	89.88					140.8		%				51.1		%				23.3		%	pts.						$	175.96					31.0		%
Comparable Systemwide Properties
U.S. & Canada			$	100.19					134.7		%				63.5		%				27.1		%	pts.						$	157.78					34.7		%
Greater China			$	63.41					(4.0)		%				52.7		%				(7.8)		%	pts.						$	120.28					10.3		%
Asia Pacific excluding China			$	40.46					37.6		%				36.1		%				10.9		%	pts.						$	112.14					(4.1)		%
Caribbean & Latin America			$	70.07					317.5		%				45.7		%				29.8		%	pts.						$	153.41					45.2		%
Europe			$	92.75					177.7		%				46.7		%				26.3		%	pts.						$	198.64					21.0		%
Middle East & Africa			$	68.19					93.3		%				50.3		%				23.8		%	pts.						$	135.45					2.1		%
International - All (1)			$	67.53					76.3		%				45.9		%				14.9		%	pts.						$	147.04					19.2		%
Worldwide (2)			$	90.32					118.4		%				58.2		%				23.4		%	pts.						$	155.21					30.6		%

			Nine Months Ended September 30, 2021 and Change vs. Nine Months Ended September 30, 2020
			RevPAR												Occupancy															Average Daily Rate
			2021						vs. 2020						2021						vs. 2020									2021						vs. 2020
Comparable Company-Operated Properties
U.S. & Canada			$	84.70					50.1		%				43.7		%				15.2		%	pts.						$	193.80					(1.9)		%
Greater China			$	67.33					49.8		%				55.8		%				15.4		%	pts.						$	120.73					8.4		%
Asia Pacific excluding China			$	34.38					(14.6)		%				32.3		%				2.3		%	pts.						$	106.51					(20.8)		%
Caribbean & Latin America			$	68.54					39.9		%				40.0		%				13.0		%	pts.						$	171.46					(5.5)		%
Europe			$	54.26					32.4		%				28.2		%				5.6		%	pts.						$	192.41					6.1		%
Middle East & Africa			$	68.11					35.0		%				46.3		%				12.0		%	pts.						$	147.14					(0.1)		%
International - All (1)			$	56.24					27.5		%				41.3		%				9.2		%	pts.						$	136.23					(1.1)		%
Worldwide (2)			$	69.24					39.2		%				42.4		%				11.9		%	pts.						$	163.35					—		%
Comparable Systemwide Properties
U.S. & Canada			$	76.20					47.9		%				53.4		%				16.1		%	pts.						$	142.59					3.4		%
Greater China			$	64.10					46.8		%				54.3		%				14.4		%	pts.						$	118.03					7.9		%
Asia Pacific excluding China			$	37.29					(10.9)		%				33.7		%				3.3		%	pts.						$	110.55					(19.6)		%
Caribbean & Latin America			$	56.61					45.2		%				38.4		%				13.5		%	pts.						$	147.39					(5.7)		%
Europe			$	47.88					26.3		%				27.8		%				4.5		%	pts.						$	172.23					5.6		%
Middle East & Africa			$	62.93					36.0		%				45.3		%				11.7		%	pts.						$	139.07					1.0		%
International - All (1)			$	52.14					25.7		%				38.9		%				8.5		%	pts.						$	133.90					(1.7)		%
Worldwide (2)			$	68.94					42.2		%				49.1		%				13.8		%	pts.						$	140.51					2.2		%

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

(2)Includes U.S. & Canada and International - All.

CONSOLIDATED RESULTS

Our results in the 2021 third quarter and 2021 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 2021 third quarter and 2021 first three quarters, and the discussion below for additional analysis of our consolidated results of operations for the 2021 third quarter compared to the 2020 third quarter and for the 2021 first three quarters compared to the 2020 first three quarters.

Fee Revenues

			Three Months Ended																								Nine Months Ended
($ in millions)			September 30, 2021						September 30, 2020						Change 2021 vs. 2020												September 30, 2021						September 30, 2020						Change 2021 vs. 2020
Base management fees			$	190					$	87					$	103					118		%				$	452					$	341					$	111					33		%
Franchise fees			533						279						254						91		%				1,270						876						394						45		%
Incentive management fees			53						31						22						71		%				141						43						98						228		%
Gross fee revenues			776						397						379						95		%				1,863						1,260						603						48		%
Contract investment amortization			(21)						(48)						27						56		%				(56)						(94)						38						40		%
Net fee revenues			$	755					$	349					$	406					116		%				$	1,807					$	1,166					$	641					55		%

The increases in base management and franchise fees in the 2021 third quarter and 2021 first three quarters primarily reflected higher RevPAR due to the ongoing recovery in lodging demand from the impacts of COVID-19, unit growth ($33 million and $72 million, respectively), higher co-brand credit card fees ($33 million and $65 million, respectively), and higher residential branding fees ($15 million and $31 million, respectively).

The increases in incentive management fees in the 2021 third quarter and the 2021 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 changes in contract investment amortization in the 2021 third quarter and the 2021 first three quarters are primarily due to lower impairments of investments in management and franchise contracts.

Owned, Leased, and Other

			Three Months Ended																								Nine Months Ended
($ in millions)			September 30, 2021						September 30, 2020						Change 2021 vs. 2020												September 30, 2021						September 30, 2020						Change 2021 vs. 2020
Owned, leased, and other revenue			$	241					$	116					$	125					108		%				$	536					$	445					$	91					20		%
Owned, leased, and other - direct expenses			204						134						70						52		%				507						527						(20)						(4)		%
Owned, leased, and other, net			$	37					$	(18)					$	55					306		%				$	29					$	(82)					$	111					135		%

Owned, leased, and other revenue, net of direct expenses increased in the 2021 third quarter primarily due to net stronger results driven by the ongoing recovery in lodging demand from the impacts of COVID-19. The increase in the 2021 first three quarters primarily reflected net stronger results driven by the ongoing recovery in lodging demand from the impacts of COVID-19, higher termination fees of $26 million, and $18 million of subsidies under German government COVID-19 assistance programs for certain of our leased hotels.

Cost Reimbursements

			Three Months Ended																								Nine Months Ended
($ in millions)			September 30, 2021						September 30, 2020						Change 2021 vs. 2020												September 30, 2021						September 30, 2020						Change 2021 vs. 2020
Cost reimbursement revenue			$	2,950					$	1,789					$	1,161					65		%				$	7,068					$	6,788					$	280					4		%
Reimbursed expenses			2,917						1,683						1,234						73		%				7,005						6,801						204						3		%
Cost reimbursements, net			$	33					$	106					$	(73)					(69)		%				$	63					$	(13)					$	76					585		%

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, primarily driven by our Loyalty Program. 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 2021 third quarter primarily reflects Loyalty Program activity, including higher program expenses and lower net revenue as a result of higher redemption costs. The increase in cost reimbursements, net in the 2021 first three quarters primarily reflects higher revenues for our centralized programs and services, partially offset by the Loyalty Program activity discussed above.

Other Operating Expenses

			Three Months Ended																								Nine Months Ended
($ in millions)			September 30, 2021						September 30, 2020						Change 2021 vs. 2020												September 30, 2021						September 30, 2020						Change 2021 vs. 2020
Depreciation, amortization, and other			$	64					$	53					$	11					21		%				$	166					$	275					$	(109)					(40)		%
General, administrative, and other			212						131						81						62		%				610						579						31						5		%
Restructuring and merger-related charges			4						1						3						300		%				8						5						3						60		%

Depreciation, amortization, and other expenses decreased in the 2021 first three quarters primarily due to prior year operating lease impairment charges.

General, administrative, and other expenses increased in the 2021 third quarter primarily due to higher compensation costs compared to our 2020 cost reduction measures, which included reducing executive compensation, implementing reduced work weeks for many of our corporate associates, and furloughing a substantial number of associates. The increase in the 2021 first three quarters primarily reflected higher compensation costs compared to our 2020 cost reduction measures discussed above and higher legal expenses ($19 million), partially offset by a lower provision for credit losses ($75 million).

Non-Operating Income (Expense)

			Three Months Ended																								Nine Months Ended
($ in millions)			September 30, 2021						September 30, 2020						Change 2021 vs. 2020												September 30, 2021						September 30, 2020						Change 2021 vs. 2020
Gains and other income, net			$	—					$	2					$	(2)					(100)		%				$	6					$	3					$	3					100		%
Loss on extinguishment of debt			(164)						—						(164)						nm*						(164)						—						(164)						nm*
Interest expense			(107)						(113)						6						5		%				(323)						(333)						10						3		%
Interest income			8						6						2						33		%				22						20						2						10		%
Equity in losses			(4)						(20)						16						80		%				(24)						(54)						30						56		%

• 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 8.

Interest expense changed in the 2021 first three quarters, primarily due to lower Credit Facility and commercial paper average borrowings and interest rates, offset by higher interest on Senior Note issuances, net of maturities.

Equity in losses changed in both the 2021 third quarter and the 2021 first three quarters, primarily due to the ongoing recovery in lodging demand from the impacts of COVID-19.

Income Taxes

			Three Months Ended																								Nine Months Ended
($ in millions)			September 30, 2021						September 30, 2020						Change 2021 vs. 2020												September 30, 2021						September 30, 2020						Change 2021 vs. 2020
(Provision) benefit for income taxes			$	(58)					$	(27)					$	(31)					(115)		%				$	(1)					$	49					$	(50)					(102)		%

Our tax provision changed in the 2021 third quarter, compared to our tax provision in the 2020 third quarter, primarily due to the increase in operating income ($66 million). The change was partially offset by a current year tax benefit from the loss on extinguishment of debt ($42 million).

Our tax provision changed in the 2021 first three quarters, compared to our tax benefit in the 2020 first three quarters, primarily due to the increase in operating income ($174 million) and a lower tax benefit from impairment charges ($37 million). The change was partially offset by the current year release of tax reserves due to the favorable resolution of Legacy-Starwood tax audits ($118 million) and a current year tax benefit from the loss on extinguishment of debt ($42 million).

BUSINESS SEGMENTS

Our segment results in the 2021 third quarter and 2021 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 2021 third quarter and 2021 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, 2021						September 30, 2020						Change 2021 vs. 2020												September 30, 2021						September 30, 2020						Change 2021 vs. 2020
U.S. & Canada
Segment revenues			$	3,006					$	1,586					$	1,420					90		%				$	7,055					$	6,485					$	570					9		%
Segment profit			485						66						419						635		%				972						188						784						417		%
International
Segment revenues			621						359						262						73		%				1,534						1,185						349						29		%
Segment profit (loss)			86						11						75						682		%				142						(179)						321						179		%

			Properties																								Rooms
			September 30, 2021						September 30, 2020						vs. September 30, 2020												September 30, 2021						September 30, 2020						vs. September 30, 2020
U.S. & Canada			5,656						5,501						155						3		%				938,103						920,282						17,821						2		%
International			2,144						1,987						157						8		%				502,888						470,617						32,271						7		%

U.S. & Canada

Third Quarter

U.S. & Canada 2021 third quarter segment profit increased primarily due to:

•$277 million of higher gross fee revenues, primarily reflecting higher comparable systemwide RevPAR driven by increases in both ADR and occupancy as well as higher profits at certain managed hotels due to the ongoing recovery in lodging demand from the impacts of COVID-19 and unit growth;

• $52 million of higher cost reimbursement revenue, net of reimbursed expenses;

• $32 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;

• $28 million of lower contract investment amortization, primarily reflecting lower contract impairment charges; and

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

First Three Quarters

U.S. & Canada 2021 first three quarters segment profit increased primarily due to:

•$381 million of higher gross fee revenues, primarily reflecting higher comparable systemwide RevPAR driven by increases in both occupancy and ADR and 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;

• $128 million of higher cost reimbursement revenue, net of reimbursed expenses;

• $109 million of lower depreciation, amortization, and other expenses, primarily reflecting prior year operating lease impairment charges;

• $47 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;

• $40 million of lower general, administrative, and other expenses, primarily reflecting lower provision for credit losses and reserves for guarantee funding;

• $35 million of lower contract investment amortization, primarily reflecting lower contract impairment charges; and

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

International

Third Quarter

International 2021 third quarter segment profit increased primarily due to:

• $67 million of higher gross fee revenues, primarily reflecting higher comparable systemwide RevPAR driven by increases in both ADR and occupancy due to the ongoing recovery in lodging demand from the impacts of COVID-19; and

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

partially offset by:

• $18 million of higher general, administrative, and other expenses.

First Three Quarters

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

• $149 million of higher gross fee revenues, due to higher profits at certain managed hotels and higher comparable systemwide RevPAR driven by an increase in occupancy due to the ongoing recovery in lodging demand from the impacts of COVID-19, unit growth, and higher residential branding fees;

• $63 million of higher cost reimbursement revenue, net of reimbursed expenses;

• $60 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, higher termination fees, and subsidies under German government COVID-19 assistance programs for certain of our leased hotels; and

• $28 million of lower general, administrative, and other expenses, primarily reflecting lower provision for credit losses.

STOCK-BASED COMPENSATION

See Note 4 for more information.

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 2021 third quarter, our long-term debt had a weighted average interest rate of 3.4 percent and a weighted average maturity of approximately 6.7 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 the end of the 2021 third quarter.

In response to the negative impact COVID-19 had on our cash from operations in 2020 and in the 2021 first three quarters, which we expect to continue to be negatively impacted, we remain focused on preserving our financial flexibility and managing our debt maturities. We remain focused on limiting our corporate general and administrative costs, reimbursed expenses we incur on behalf of our owners and franchisees, and our capital expenditures and other investment spending. Share repurchases and dividends remain suspended until business conditions further improve and until permitted under our Credit Facility. In the 2021 first three quarters, 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 8.

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 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 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 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, 2021, we had total outstanding borrowings under the Credit Facility of $0.8 billion and remaining borrowing capacity of $3.7 billion.

The Credit Facility contains certain covenants, including a financial covenant that limits our maximum Leverage Ratio (as defined in the Credit Facility, and generally consisting of the ratio of Adjusted Total Debt to EBITDA, each as defined in the Credit Facility, and subject to additional adjustments as described therein). On April 13, 2020, we entered into an amendment to the Credit Facility (the “First Credit Facility Amendment”) under which the covenant governing the permitted Leverage Ratio is waived through and including the first quarter of 2021 (the “Covenant Waiver Period”), and the required leverage levels for such covenant are adjusted once re-imposed at the end of the Covenant Waiver Period (starting at 5.50 to 1.00 when the leverage test is first re-imposed and gradually stepping down to 4.00 to 1.00 over the succeeding seven fiscal quarters, as further described in the Credit Facility). The First Credit Facility Amendment also imposes a monthly-tested minimum liquidity covenant for the duration of the Covenant Waiver Period and makes certain other amendments to the terms of the Credit Facility, including increasing the interest and fees payable on the Credit Facility for the duration of the Covenant Waiver Period, tightening certain existing covenants and imposing additional covenants for the duration of the Covenant Waiver Period, including restricting dividends and share repurchases.

On January 26, 2021, we entered into two more amendments to the Credit Facility (the “New Credit Facility Amendments,” and together with the First Credit Facility Amendment, the “Credit Facility Amendments”), which extend the Covenant Waiver Period through and including the fourth quarter of 2021 (which waiver period may end sooner at our election), revise the required leverage levels for such covenant when it is re-imposed at the end of the Covenant Waiver Period (starting at 5.50 to 1.00 when the leverage test is first re-imposed and gradually stepping down to 4.00 to 1.00 over the succeeding five fiscal quarters, as further described in the Credit Facility), and increase the minimum liquidity amount under the liquidity covenant that is tested monthly for the duration of the Covenant Waiver Period. The New Credit Facility Amendments also make certain other amendments to the terms of the Credit Facility, including reducing the rate floor for the LIBOR Daily Floating Rate and the Eurocurrency Rate.

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, including the liquidity covenant under the Credit Facility.

Senior Notes Issuances, Redemptions, and Repurchases

On September 8, 2021, we announced a tender offer (the “Tender Offer”) to purchase certain of our Senior Notes, and on September 23, 2021, we purchased and retired $1 billion aggregate principal amount of our 5.750 percent Series EE Notes maturing May 1, 2025. Because the Tender Offer was oversubscribed as of the early tender time on September 22, 2021, only Series EE Notes were accepted for purchase and no additional Senior Notes were accepted for purchase in the Tender Offer after September 22, 2021. 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.

On September 22, 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.

On August 9, 2021, we redeemed all $400 million aggregate principal amount of our Series N Notes due in October 2021.

On March 5, 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 will pay interest on the Series HH Notes in April and October of each year, commencing in October 2021. We received net proceeds of approximately $1.089 billion 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.

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.

Uses of Cash

Cash, cash equivalents, and restricted cash totaled $797 million at September 30, 2021, a decrease of $97 million from year-end 2020, primarily reflecting Senior Notes repayments, net of issuances ($368 million), cash paid for debt extinguishment costs associated with the Tender Offer ($155 million), Credit Facility repayments, net of borrowings ($150 million), capital and technology expenditures ($114 million), and financing outflows for employee stock-based compensation withholding taxes ($85 million), partially offset by net cash provided by operating activities ($745 million).

Net cash provided by operating activities decreased by $878 million in the 2021 first three quarters compared to the 2020 first three quarters, primarily due to the prepaid cash received under the amendments to our co-brand credit card agreements in the 2020 first three quarters, partially offset by the net income recorded in the 2021 first three quarters (adjusted for non-cash items and the loss on extinguishment of debt).

Our ratio of current assets to current liabilities was 0.5 to 1.0 at the end of the 2021 third quarter. We have significant borrowing capacity under our Credit Facility should we need additional working capital.

Capital Expenditures and Other Investments

We made capital and technology expenditures of $114 million in the 2021 first three quarters and $97 million in the 2020 first three quarters. We expect capital expenditures and other investments will total approximately $525 million to $550 million for the 2021 full year, including capital and technology expenditures, loan advances, contract acquisition costs, and other investing activities (including approximately $180 million for maintenance capital spending and our new headquarters).

Share Repurchases

We did not repurchase any shares of our common stock in the 2021 first three quarters. As of September 30, 2021, 17.4 million shares remained available for repurchase under Board approved authorizations. We do not anticipate repurchasing additional shares until business conditions further improve, and are prohibited from doing so for the duration of the Covenant Waiver Period under our Credit Facility, with certain exceptions.

Dividends

We did not declare any cash dividends in the 2021 first three quarters. We do not anticipate declaring cash dividends until business conditions further improve, and are prohibited from doing so for the duration of the Covenant Waiver Period under our Credit Facility.

Contractual Obligations and Off-Balance Sheet Arrangements

As of the end of the 2021 third quarter, there have been no significant changes to our “Contractual Obligations” table, “Other Commitments” table, or “Letters of Credit” paragraph in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2020 Form 10-K, other than the changes in debt described in the “Sources of Liquidity” section above. See Note 8 for more information on our total debt.

At September 30, 2021, 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 $349 million.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed those policies and estimates that we believe are critical and require the use of complex judgment in their application in our 2020 Form 10-K. We have made no material changes to our critical accounting policies or the methodologies or assumptions that we apply under them.