2018 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. 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 17. 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

2018 Compared to 2017

In 2018, across our North American Full-Service segment, we added 44 properties (10,454 rooms) and 20 properties (6,923 rooms) left our system.

North American Full-Service segment profits decreased by $85 million, primarily due to the following:

  • $119 million of lower cost reimbursement revenue, net of reimbursed expenses;
     
  • $45 million of higher base management and franchise fees, primarily reflecting $23 million from unit growth, $18 million from RevPAR growth, and $5 million of higher residential branding fees, partially offset by $10 million of lower fees from properties that were terminated;
     
  • $8 million of higher incentive management fees, primarily driven by net higher profits at managed hotels;
     
  • $24 million of lower owned, leased, and other revenue, net of direct expenses, primarily reflecting $60 million of lower owned and leased profits attributable to properties sold, partially offset by $24 million of higher termination fees and $15 million of net stronger results at our remaining owned and leased properties;
     
  • $13 million of lower general, administrative, and other expenses, primarily due to administrative cost savings largely due to synergies associated with the Starwood Combination;
     
  • $1 million of lower gains and other income, net, primarily due to the 2017 gain on the sale of the Charlotte Marriott City Center of $24 million, partially offset by the 2018 gain on the sale of two properties of $22 million; and
     
  • $1 million of higher equity in earnings, primarily due to our $10 million share of the 2018 gain on an equity method investee’s sale of a property, partially offset by our $6 million share of the 2017 gain on an equity method investee’s sale of a property.
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 $437 million, primarily due to the following:

  • $38 million of higher cost reimbursement revenue, net of reimbursed expenses;
     
  • $301 million of higher base management and franchise fees, primarily reflecting $292 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;
     
  • $60 million of higher owned, leased, and other revenue, net of direct expenses, primarily reflecting $67 million of higher Legacy-Starwood owned and leased profits;
     
  • $39 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.
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