Financial Information

PART II

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

Investing Activities Cash Flows

Acquisition of a Business, Net of Cash Acquired. Cash outflows of $2,412 million in 2016 were due to the Starwood Combination. See Footnote 3 “Acquisitions and Dispositions” for more information.

Capital Expenditures and Other Investments. We made capital expenditures of $240 million in 2017, $199 million in 2016, and $305 million in 2015. Capital expenditures in 2017 increased by $41 million compared to 2016, primarily due to improvements to our worldwide systems and improvements to hotels acquired in the Starwood Combination. Capital expenditures in 2016 decreased by $106 million compared to 2015, primarily due to lower spending for our EDITION hotels.

We expect 2018 investment spending will total approximately $600 million to $700 million, including approximately $225 million for maintenance capital spending. Consolidated investment spending also includes other capital expenditures (including property acquisitions), loan advances, contract acquisition costs, and equity and other investments.

Over time, we have sold lodging properties, both completed and under development, subject to long-term management agreements. The ability of third-party purchasers to raise the debt and equity capital necessary to acquire such properties depends in part on the perceived risks inherent in the lodging industry and other constraints inherent in the capital markets. We monitor the status of the capital markets and regularly evaluate the potential impact of changes in capital market conditions on our business operations. In the Starwood Combination, we acquired various hotels and joint venture interests in hotels, many of which we have sold or are seeking to sell. We also expect to continue making selective and opportunistic investments to add units to our lodging business, which may include new construction, loans, guarantees, and noncontrolling equity investments.

Fluctuations in the values of hotel real estate generally have little impact on our overall business results because: (1) we own less than one percent of hotels that we operate or franchise; (2) management and franchise fees are generally based upon hotel revenues and profits rather than current hotel property values; and (3) our management agreements generally do not terminate upon hotel sale or foreclosure.

Dispositions. Property and asset sales generated $1,418 million cash proceeds in 2017 and $218 million in 2016. See Footnote 3 “Acquisitions and Dispositions” for more information on completed dispositions and planned dispositions.

Loan Activity. From time to time, we make loans to owners of hotels that we operate or franchise. Loan collections, net of loan advances, amounted to $94 million in 2017, compared to net collections of $35 million in 2016. At year-end 2017, we had $149 million of senior, mezzanine, and other loans outstanding, compared to $248 million outstanding at year-end 2016.

Equity and Cost Method Investments. Cash outflows of $63 million in 2017, $14 million in 2016, and $7 million in 2015 for equity and cost method investments primarily reflect our investments in several joint ventures.