Financial Information

PART II

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

North American Full-Service

2016 Compared to 2015

In 2016, across our North American Full-Service segment we added 424 properties (154,521 rooms), including 398 properties (147,623 rooms) from the Starwood Combination on the Merger Date, and two properties (213 rooms) left our system.

The table below presents the impact of the Starwood Combination starting from the Merger Date, with additional information on the factors attributable to our Legacy-Marriott brands discussed following the table.

The $106 million increase in segment profits for Legacy-Marriott operations was driven by $40 million of higher owned, leased, and other revenue, net of direct expenses, $37 million of higher base management and franchise fees, $17 million of higher incentive management fees, $11 million of lower general, administrative, and other expenses, $1 million of lower depreciation, amortization, and other expense, and $1 million of higher equity in earnings, partially offset by $1 million of lower gains and other income, net.

Higher base management and franchise fees for Legacy-Marriott operations were primarily due to $30 million of stronger RevPAR and unit growth. Increased incentive management fees for Legacy-Marriott operations were primarily driven by higher net house profits at managed hotels.

Higher owned, leased, and other revenue, net of direct expenses for Legacy-Marriott operations primarily reflected $21 million of higher branding fees, $10 million of favorable operating results at several properties, and $6 million of lower pre-opening costs.

Lower general, administrative, and other expenses for Legacy-Marriott operations were primarily due to $6 million of lower reserves for guarantee funding and $5 million of lower administrative costs.

Cost reimbursements revenue and expenses for our Legacy-Marriott North American Full-Service segment properties totaled $8,161 million in 2016, compared to $7,911 million in 2015.

2015 Compared to 2014

In 2015, across our North American Full-Service segment we added 57 properties (15,345 rooms), including 37 properties (9,590 rooms) from the Delta Hotels acquisition, and five properties (1,398 rooms) left our system.

For the twelve months ended December 31, 2015, compared to the twelve months ended December 31, 2014, RevPAR for comparable systemwide North American Full-Service properties increased by 4.6 percent to $136.95, occupancy for these properties increased by 0.6 percentage points to 73.1 percent, and average daily rates increased by 3.8 percent to $187.40.

The $37 million increase in segment profits, compared to 2014, was driven by $44 million of higher base management and franchise fees and $10 million of higher incentive management fees, partially offset by $6 million of lower owned, leased, and other revenue, net of direct expenses, $4 million of higher general, administrative, and other expenses, $4 million of lower gains and other income, net, and $3 million of higher depreciation, amortization, and other expense.

Base management and franchise fees were higher due to stronger RevPAR driven by rate and unit growth, partially offset by $5 million of contract modifications and terminations. Increased incentive management fees were primarily driven by higher net house profits at managed hotels.

Lower owned, leased, and other revenue, net of direct expenses primarily reflected $8 million of weaker performance at a North American Full-Service property under renovation.

General, administrative, and other expenses were higher due to $5 million from the Delta Hotels acquisition and $2 million in higher reserves for guarantee funding, partially offset by $3 million of other property expenses incurred in 2014.

Cost reimbursements revenue and expenses for our North American Full-Service segment properties totaled $7,911 million in 2015, compared to $7,465 million in 2014.