2017 Annual Report

Financial Information

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PART II

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

BUSINESS SEGMENTS

The following discussion presents an analysis of the results of operations of our reportable business segments: North American Full-Service, North American Limited-Service, and Asia Pacific. In the 2017 first quarter, our Asia Pacific operating segment met the applicable accounting criteria to be a reportable segment. Our Europe, Middle East and Africa, and Caribbean and Latin America operating segments do not individually meet the criteria for separate disclosure as reportable segments, and accordingly we have not included those operations in this discussion of our Business Segments. See Footnote 18 “Business Segments” to our Financial Statements for other information about each segment, including revenues and a reconciliation of segment profits to net income.

Our 2016 results in this section do not include any Legacy-Starwood results for the period between the Merger Date and the end of the 2016 third quarter, as we did not allocate any Legacy-Starwood results to our segments for the eight days ended September 30, 2016.

North American Full-Service

Financial Table

2017 Compared to 2016

In 2017, across our North American Full-Service segment, we added 55 properties (13,056 rooms) and 12 properties (2,912 rooms) left our system.

North American Full-Service segment profits increased by $405 million, primarily due to the following:

  • $305 million of higher base management and franchise fees, primarily reflecting $297 million of higher Legacy-Starwood fees, $14 million from Legacy-Marriott unit growth, and $8 million of stronger RevPAR at Legacy-Marriott hotels, partially offset by $17 million of lower Legacy-Marriott residential branding fees;
     
  • $45 million of higher incentive management fees, primarily driven by $31 million of higher Legacy-Starwood fees and higher net house profits at Legacy-Marriott managed hotels;
     
  • $61 million of higher owned, leased, and other revenue, net of direct expenses, primarily reflecting $63 million of higher Legacy-Starwood owned and leased profits;
     
  • $44 million of higher depreciation, amortization, and other expenses, primarily reflecting higher depreciation and amortization on Legacy-Starwood assets;
     
  • $22 million of higher gains and other income, net, primarily due to the gain on the sale of a North American Full-Service hotel in the 2017 second quarter; and
     
  • $16 million of higher equity in earnings, primarily due to higher earnings by Legacy-Starwood investees.

Cost reimbursements revenue and expenses for our North American Full-Service segment properties totaled $12,391 million in 2017, compared to $9,126 million in 2016.

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.

North American Full-Service segment profits increased by $216 million, reflecting $110 million from the Starwood Combination and $106 million of higher Legacy-Marriott profits, primarily due to the following:

  • $58 million of higher Legacy-Marriott base management and franchise fees, primarily reflecting $30 million of stronger RevPAR and unit growth and $21 million of higher branding fees;
     
  • $17 million of higher Legacy-Marriott incentive management fees, primarily driven by higher net house profits at managed hotels;
     
  • $19 million of higher Legacy-Marriott owned, leased, and other revenue, net of direct expenses, primarily reflecting $10 million of favorable operating results at several properties and $6 million of lower pre-opening costs; and
     
  • $11 million of lower Legacy-Marriott general, administrative, and other expenses, 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.

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