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

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

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The following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report.

Overview

Host Inc. operates as a self-managed and self-administered REIT that owns properties and conducts operations through Host L.P., of which Host Inc. is the sole general partner and in which it holds approximately 99% of its common OP units as of December 31, 2015. The remainder of Host L.P.’s common OP units are owned by various unaffiliated limited partners. Host Inc. has the exclusive and complete responsibility for Host L.P.’s day-to-day management and control.

Host Inc. is the largest lodging REIT in NAREIT’s composite index and one of the largest owners of luxury and upper upscale hotel properties. As of February 19, 2016, we own 105 hotels in the United States and internationally and have minority ownership interests in an additional 17 hotels through joint ventures in the United States, Europe and the Asia/Pacific region. These hotels are operated primarily under brand names that are among the most respected and widely recognized in the lodging industry. The majority are located in central business districts of major cities, near airports and in resort/conference destinations that benefit from significant barriers to entry by competitors. We have a targeted focus for acquisitions in these locations, and have disposed of non-core assets outside of these locations or with lower growth prospects. While hotels in these markets still are subject to competitive pressures, we believe this strategy of combining quality assets with superior locations provides opportunities to achieve room rate and occupancy premiums in excess of our competitors.

Our customers fall into three broad groups: transient business, group business and contract business, which accounted for approximately 60%, 35%, and 5%, respectively, of our 2015 room sales. Transient business broadly represents individual business or leisure travelers. Business travelers make up the majority of transient demand at our hotels. Therefore, we will be significantly more affected by trends in business travel than trends in leisure demand. For a discussion of our customer categories, see “ – Our Customers”.

Understanding Our Performance

Our Revenues and Expenses. Our hotels are operated by third-party managers under long-term agreements, pursuant to which they typically earn base and incentive management fees based on the levels of revenues and profitability of each individual hotel. We provide operating funds, or working capital, which the managers use to purchase inventory and to pay wages, utilities, property taxes and other hotel-level expenses. We generally receive a cash distribution from our hotel managers each month, which distribution reflects hotel-level sales less property-level operating expenses (excluding depreciation).

Operations from our domestic portfolio account for approximately 96% of our total revenues and 4% relate to our international hotels. The following table presents the components of our hotel revenue as a percentage of our total revenue:


·	Rooms revenue. Occupancy and average daily room rate are the major drivers of rooms revenue. The business mix of the hotel (group versus transient and retail versus discount business) is a significant driver of room rates.	64	%

·	Food and beverage revenue. Food & beverage revenues consist of revenues from group functions, which may include banquet revenue and audio and visual revenues, as well as outlet revenues from the restaurants and lounges at our properties.	29	%

·	Other revenue. Occupancy, the nature of the property (e.g., resort, etc.) and its price point are the main drivers of other ancillary revenue, such as parking, golf course, spa, entertainment and other guest services. This category also includes retail and apartment rental revenue.	7	%

Hotel operating expenses represent approximately 98% of our total operating costs and expenses. The following table presents the components of our hotel operating expenses as a percentage of our total operating costs and expenses:


·	Rooms expense. These costs include housekeeping, reservation systems, room supplies, laundry services and front desk costs. Occupancy is the major driver of rooms expense. These costs can increase based on increases in salaries and wages, as well as on the level of service and amenities that are provided.	19	%

·	Food and beverage expense. These expenses primarily include food, beverage and the associated labor costs and will correlate closely with food and beverage revenues. Group functions with banquet sales and audio and visual components generally will have lower overall costs as a percentage of revenues than outlet sales.	24	%

·	Other departmental and support expenses. These expenses include labor and other costs associated with other ancillary revenue, such as parking, golf courses, spas, entertainment and other guest services, as well as labor and other costs associated with administrative departments, sales and marketing, repairs and minor maintenance and utility costs.	27	%

·	Management fees. Base management fees are computed as a percentage of gross revenue. Incentive management fees generally are paid when operating profits exceed certain threshold levels.	5	%

·	Other property-level expenses. These expenses consist primarily of real and personal property taxes, ground rent, equipment rent and property insurance. Many of these expenses are relatively inflexible and do not necessarily change based on changes in revenues at our hotels.	8	%

·	Depreciation and amortization expense. This is a non-cash expense that changes primarily based on the acquisition and disposition of hotel properties and the level of past capital expenditures.	15	%

The expense components listed above are based on those presented in our consolidated statements of operations. It also is worth noting that wage and benefit costs are spread among various line items. Taken separately, these costs represent approximately 56% of our hotel operating expenses.

Key Performance Indicators. Revenue per available room (“RevPAR”) is a commonly used measure within the hotel industry to evaluate hotel operations. RevPAR is defined as the product of the average daily room rate charged and the average daily occupancy achieved. RevPAR does not include food and beverage, parking, or other guest service revenues generated by the property. Although RevPAR does not include these ancillary revenues, it is considered the key indicator of core revenues for many hotels.

RevPAR changes that are driven by occupancy have different implications on overall revenue levels, as well as incremental operating profit, than do changes that are driven by average room rate. For example, increases in occupancy at a hotel will lead to increases in rooms revenues and ancillary revenues, such as food and beverage revenue, as well as additional incremental costs (including housekeeping services, utilities and room amenity costs). RevPAR increases due to higher room rates, however, will not result in additional room-related costs, with the exception of those charged as a percentage of revenue. As a result, changes in RevPAR driven by increases or decreases in average room rates have a greater effect on profitability than do changes in RevPAR caused by occupancy levels.

In discussing our operating results, we present RevPAR and certain other financial data for our hotels on a comparable hotel basis. Comparable hotels are those properties that we have owned for the entirety of the reporting periods being compared and which operations have been included in our consolidated results. Comparable hotels do not include the results of properties acquired or sold, or that incurred business interruption due to significant property damage or large scale capital improvements. We also present RevPAR separately for our comparable consolidated domestic and international (both on a nominal and constant dollar basis) hotels, as well as for our joint venture in Europe. We provide RevPAR results in constant currency due to the number of consolidated properties we have internationally and the effect that exchange rates have on our reporting. We use constant currency because we believe it is useful to investors as it provides clarity on how the hotels are performing in their local markets. For all other measures (net income, operating profit, EBITDA, FFO, etc.) our discussion refers to nominal US$, which is consistent with our financial statement presentation under U.S. generally accepted accounting principles (“GAAP”).

We also evaluate the performance of our business through certain non-GAAP financial measures. Each of these non-GAAP financial measures should be considered by investors as supplemental measures to GAAP performance measures such as total revenues, operating profit, net income and earnings per share. We provide a more detailed discussion of these non-GAAP financial measures, how management uses such measures to evaluate our financial condition and operating performance and a discussion of certain limitations of such measures in “—Non-GAAP Financial Measures.” Our non-GAAP financial measures include:

	●	NAREIT Funds From Operations (“FFO”) and Adjusted FFO per diluted share. We use NAREIT FFO and Adjusted FFO per diluted share as supplemental measures of company-wide profitability. NAREIT adopted FFO in order to promote an industry-wide measure of REIT operating performance. We also adjust NAREIT FFO for gains and losses on extinguishment of debt, acquisition costs and litigation gains or losses outside the ordinary course of business.

	●	Comparable Hotel EBITDA. Hotel EBITDA measures property-level results before debt service, depreciation and corporate expenses (as this is a property level measure) and is a supplemental measure of aggregate property-level profitability. We use Hotel EBITDA and associated margins to evaluate the profitability of our comparable hotels.

	●	EBITDA and Adjusted EBITDA. Earnings before interest expense, income taxes, depreciation and amortization (“EBITDA”) is a supplemental measure of our operating performance and facilitates comparisons between us and other lodging REITs, hotel owners who are not REITs and other capital-intensive companies. We also adjust EBITDA for gains and losses related to real estate transactions, impairment losses and litigation gains or losses outside the ordinary course of business (“Adjusted EBITDA”).

Summary of 2015 Operating Results

The following table reflects certain line items from our audited statements of operations and the significant operating statistics (in millions, except per share and hotel statistics):

Historical Income Statement Data:

							Change						Change
	2015			2014			2014 to 2015			2013			2013 to 2014
Total revenues	$	5,387		$	5,354			0.6	%	$	5,166			3.6	%
Net income		571			747			(23.6	)%		325			129.8	%
Operating profit		650			710			(8.5	)%		512			38.7	%
Operating profit margin under GAAP		12.1	%		13.3	%		(120	bps)		9.9	%		340	bps
Adjusted EBITDA	$	1,409		$	1,402			0.5	%	$	1,306			7.4	%

Diluted earnings per share	$	.74		$	.96			(22.9	)%	$	.42			128.6	%
NAREIT FFO per diluted share		1.49			1.57			(5.1	)%		1.26			24.6	%
Adjusted FFO per diluted share		1.54			1.50			2.7	%		1.31			14.5	%

Comparable Hotel Data:

	2015 Comparable Hotels (1)									2014 Comparable Hotels (1)
							Change									Change
	2015			2014			2014 to 2015			2014			2013			2013 to 2014
Comparable hotel revenues	$	5,076		$	4,915			3.3	%	$	4,973		$	4,740			4.9	%
Comparable hotel EBITDA		1,373			1,319			4.1	%		1,318			1,200			9.8	%
Comparable hotel EBITDA margin		27.05	%		26.85	%		20	bps		26.5	%		25.3	%		120	bps
Change in comparable hotel RevPAR - Constant US$ (2)		3.8	%								5.7	%
Change in comparable hotel RevPAR - Nominal US$ (2)		2.9	%								5.3	%
Change in comparable domestic RevPAR		3.8	%								5.4	%
Change in comparable international RevPAR - Constant US$ (2)		2.2	%								10.2	%
___________

(1)	Comparable hotel operating statistics for 2015 and 2014 are based on 96 comparable hotels as of December 31, 2015, while the comparable hotel operating statistics for 2014 and 2013 are based on 106 comparable hotels as of December 31, 2014.

(2)	For a discussion of our constant US$ and nominal US$ presentation, see “—Comparable Hotel Operating Statistics.”

Revenue per Available Room

In 2015, on a constant US$ basis, RevPAR at our comparable hotels increased 3.8% compared to 2014. For the first half of the year, solid lodging fundamentals drove RevPAR gains, particularly for our domestic portfolio, where RevPAR increased 4.4%. However, growth was constrained by disruption from on-going renovations at several of our comparable properties. As the year progressed, general uncertainty around the world economic outlook due to significantly depressed oil prices, a slowdown of the Chinese economy and the continued relative strength of the U.S. dollar put downward pressure on US GDP and lodging demand growth. At the same time, supply growth, which had remained at historic lows since the financial crisis of 2008/2009, now is closer to the historic cumulative average growth rate of approximately 2%, and higher in certain of our major markets, including New York. The effects of the uncertain economic outlook, coupled with new supply, had the largest impact on the fourth quarter operating results.

RevPAR growth in 2015 was primarily rate driven, as room rates improved 3.3% on a constant US$ basis and occupancy improved 40 basis points to 77.4%. Group revenue increased 4.1%, driven by a 1.1% increase in room nights coupled with a 3.0% increase in rates. Meanwhile, transient demand was hampered by reduced international travel and softening business travel. Transient revenues increased 4.0% for the year driven by a 3.5% increase in average rate and a 0.5% increase in room nights sold. Additionally, RevPAR was impacted negatively by 20 basis points due to the adoption on January 1, 2015 of the 11th Edition of the Uniform System of Accounts for the Lodging Industry (“USALI”), which reclassifies certain revenue and expense items. The 2014 results were not restated for this adoption of USALI and therefore impact our comparative operating results.

Comparable RevPAR at our domestic portfolio increased 3.8% for the year, driven by a 3.2% improvement in room rates. Our West coast properties in Seattle, San Francisco, Los Angeles and San Diego led our domestic portfolio with average RevPAR increases of 8.5%, as already high levels of demand and solid group business allowed for average room rate increases of approximately 7.2% and average occupancy exceeded 80%. Our New York market lagged the portfolio with a RevPAR decrease of 1.7% during the year primarily due to a recent influx of new supply, the impact of which will continue into 2016.

On a constant US$ basis, RevPAR at our comparable consolidated international hotels increased 2.2% in 2015, led by our Latin American properties, with a 9.1% increase in RevPAR, despite very difficult comparisons at the JW Marriott, Rio de Janeiro due to the World Cup in 2014. However, our Canadian properties underperformed as the Calgary Marriott was significantly impacted by the decline in oil prices and extensive renovations. Comparable RevPAR in constant euros for the Euro JV properties, which are unconsolidated, increased 4.2% for the full year, driven by a 4.1% increase in average rate.

Rooms

Rooms revenues increased 3.0% for the full year on a comparable hotel basis, reflecting the 3.8% increase in comparable RevPAR on a constant dollar basis, partially offset by currency translation effects for our international properties. At the same time, comparable rooms expenses remained constant, as the improvements in RevPAR were primarily rate driven, as opposed to occupancy, which will typically allow our operators to limit the growth in departmental costs, particularly wages and benefits, and improve overall profitability.

Food and Beverage

Food and beverage revenues at our comparable hotels increased 5.2% for 2015. The increase was driven primarily by a 5.9% growth in banquet and audio visual revenues, which provide higher overall operating margins than outlet revenue, as catered functions generally are more profitable. In addition, the adoption of the updated edition of USALI increased comparable food and beverage revenues by approximately 270 basis points. Overall food and beverage profitability strengthened in 2015 as food and beverage cost as a percentage of revenues decreased 140 basis points.

Operating Profit

Operating margins (calculated based on GAAP operating profit as a percentage of GAAP revenues) decreased 120 basis points for the full year 2015. These operating margins are affected significantly by several items, including operations from recently acquired hotels, dispositions, depreciation, impairments, and corporate expenses. In particular, for 2014, operating margins reflect a $69 million litigation gain due to the reversal of previously accrued expenses. Our comparable hotel EBITDA margins, which exclude these items,

increased 20 basis points to 27.05%. The improvements were driven by the increase in average room rate, as well as the 10.3% increase in comparable food and beverage profit described above.

Net Income and Adjusted FFO per Diluted Share

Net income for Host Inc. decreased $176 million in 2015 to $571 million as the improvements in operations were offset by a $141 million decline in gains on dispositions, an increase of $37 million of debt extinguishment costs, and the $69 million litigation reversal recognized in 2014. As a result, Host Inc.’s diluted income per common share declined $0.22 to $0.74. Adjusted FFO per Diluted Share, which excludes gains on dispositions, debt extinguishment costs, the reversal of the litigation accrual, as well as other real estate transactions, including depreciation, increased 2.7% to $1.54 per share. Net income, NAREIT and Adjusted FFO and the related per share measures benefited from the following:

	·	Adjusted EBITDA increased $7 million to $1.4 billion, reflecting improvement in hotel operations, partially offset by a decline due to the net effect of acquisitions and dispositions;

	·	a decrease in our weighted average interest rate which lowered our interest expense by $17 million (excluding debt extinguishment costs); and

	·	per share measures improved due to the purchase of 31.8 million shares during the second half of 2015. The anti-dilutive effect of these purchases is computed on a weighted average basis.

The trends and transactions described above for Host Inc. affected similarly the operating results for Host L.P., as the only significant difference between the Host Inc. and Host L.P. statements of operations relates to the treatment of income attributable to the outside partners of Host L.P. For the year, Host L.P.’s net income decreased $176 million to $571 million, and the diluted income per common unit decreased $0.23 to $0.76 per common unit.

2016 Outlook

For the lodging industry overall, several divergent factors have led to significant uncertainty for 2016. In the U.S., we continue to experience steady, albeit modest, GDP and business investment growth and a strong labor market. At the same time, inflation is expected to be constrained despite what is considered near-full employment due to significantly depressed oil prices and the relative strength of the U.S. dollar. Additionally, the slowdown in the Chinese economy, which had been the driving force for growth in emerging markets, has significantly hampered international growth, as well as dampening growth in the overall U.S. economy. We believe that the stronger growth in the U.S. economy will offset the slower international growth, leading to a modest improvement in demand for the lodging industry in 2016.

At the same time, we anticipate that supply growth will increase compared to recent years, and will be commensurate with historical levels of approximately 2% for the industry overall, although growth in the top 20 domestic markets is likely to exceed 3%. The higher growth rate is primarily driven by properties in the upscale and midscale segments, which, while not directly competitive with our portfolio, will have some effect on our portfolio. We continue to believe that our hotels in strong gateway markets will drive value in the long-term; however, supply growth is expected to cause some of these markets to continue to underperform in 2016. The increase in supply, coupled with low inflation expectations, is expected to constrain overall rate growth in the industry; therefore, despite occupancy being at near-peak levels, we anticipate only modest RevPAR growth in 2016.

Based on these factors, we anticipate year-over-year growth in RevPAR for our comparable hotels in constant dollars to increase 3% to 4% in 2016. We expect that 13 of our top 17 markets will exceed the high-end of this forecast based on advanced group bookings, less capital expenditure disruption and lower supply growth. However, other markets, particularly New York, will continue to be affected by increasing supply and a decrease in demand from international travel and are expected to underperform the portfolio.

While year-over-year RevPAR growth is difficult to project for 2016, we do anticipate that several of our strategic initiatives completed in 2015 will strengthen our bottom-line operating results. For 2016, we will benefit from a full year of operating results for our new acquisitions and significant hotel redevelopments, including The Phoenician, The Camby, The Axiom, The Logan, and the Houston Airport Marriott at George Bush Intercontinental. While the earnings growth partially will be offset by the loss of earnings from our recent sales, we anticipate that the overall impact of our capital allocation initiatives will be accretive to earnings, EBITDA and NAREIT and Adjusted FFO in 2016. Additionally, in 2015 we disposed of investments in 13 international properties (including non-controlling interests through our European and Asia/Pacific joint ventures). We also took advantage of the capital markets in 2015 to aggressively buy back our stock and refinance our debt, thereby lowering our weighted average annual interest rate by 110 basis points, further strengthening our balance sheet and investment grade rating.

As noted above, the current outlook for the lodging industry is uncertain; therefore, there can be no assurances that any increases in hotel revenues or earnings at our properties will continue for any number of reasons, including, but not limited to, slower than anticipated growth in the economy and changes in travel patterns. See Part I Item 1A. “Risk Factors.”

Strategic Initiatives

During 2015, acquisition opportunities were limited, as the extended recovery of the lodging industry and continued low interest rate environment led to premium pricing for lodging properties in our major markets. Conversely, this environment allowed us to execute on approximately $930 million of asset dispositions in 2015, and another $98 million through February 18, 2016 (including dispositions by our Asia/Pacific and European joint ventures), to further focus our portfolio on our major markets. We also were able to complete several value enhancement, redevelopment and return on investment initiatives, with targeted returns well in excess of our cost of capital. The proceeds generated from our hotel dispositions, coupled with cash from operations, allowed us to distribute $646 million to our stockholders through common dividends and to repurchase $675 million of our common stock.

During 2016, we intend to simplify our portfolio through the divestiture of certain international properties, while we focus on U.S. and European gateway markets. While we will continue to actively monitor single asset or portfolio acquisition opportunities, we believe that transactions that meet our investment criteria will continue to be restrained; therefore, our near-term priorities will be to continue to dispose of non-core assets and to opportunistically sell core assets, if appropriate. We also will explore our existing portfolio for capital investments that we believe will enhance the overall profitability and improve asset values over the long term. Depending on market conditions, we also intend to deliver value to our stockholders through a meaningful dividend and the continued execution of our stock repurchase program, while we expect to maintain our targeted leverage ratio of between 2.5x to 3.0x.

Portfolio

Acquisitions. On June 8, 2015, we acquired The Phoenician, a 643-room Luxury Collection resort, in Scottsdale, Arizona for $400 million. Located in a premium resort market with multiple demand generators for both transient and group business, the property features nine food and beverage outlets and approximately 83,500 square feet of indoor meeting space. The purchase also included two adjacent parcels of land totaling over nine acres that are zoned for residential development. We plan to undertake a comprehensive renovation over the next several years during the hotel’s seasonal, low-occupancy summer periods in order to minimize disruption. In connection with the acquisition, we entered into a long-term management agreement with Starwood to operate the hotel. During 2015, we also acquired the land under the Minneapolis Marriott City Center for $34 million.

Dispositions. We disposed of five non-core properties during 2015 for proceeds of approximately $180 million that were located in secondary or tertiary markets and were not consistent with our overall portfolio goals. We recorded gains on sale of approximately $60 million. In February 2016, subsequent to year end, we sold the San Diego Marriott Mission Valley for $76 million and recorded a gain on sale of approximately $48 million.

In September 2015, we announced our strategy to exit the Asia-Pacific market. During the fourth quarter 2015, and on February 4, 2016 we completed the sales of the Novotel Auckland Ellerslie, ibis Auckland Ellerslie, Novotel Queenstown Lakeside and Novotel Wellington hotels, New Zealand for NZ$180 million ($120 million), including the repayment of NZ$66 million ($44 million) of mortgage debt. We recorded gains on sale of approximately $30 million and $8 million in 2015 and the first quarter 2016, respectively. Additionally, our joint venture in Asia, in which we own a 25% interest, completed the sale of the Four Points by Sheraton Perth in Perth, Australia for A$91.5 million, including the repayment of A$43 million of mortgage debt. The Asia/Pacific JV recorded a gain on sale of approximately A$11 million ($8 million). We expect to sell our remaining properties in New Zealand

(three) and Australia (one) over the next six months but can provide no assurance on the timing or completion of such sales, due to the inherent uncertainty involved in the sales process.

On October 28, 2015, the Euro JV sold a portfolio of eight hotels, including the Sheraton Roma Hotel & Conference Center, The Westin Palace Milan, The Westin Europa & Regina, the Sheraton Warsaw Hotel & Towers, the Pullman Bercy Paris, the Le Méridien Grand Hotel Nuremberg, the Renaissance Brussels Hotel and the Brussels Marriott Executive Apartments, for approximately €420 million and repaid €185 million of mortgage debt secured by those properties. Additionally, in June 2015, the Euro JV Fund I sold the Crowne Plaza Hotel Amsterdam City Centre for €106 million, which included €3 million of FF&E reserve, and repaid the €44 million mortgage loan associated with the property. The Euro JV recorded gains on sale of approximately €121 million ($133 million). Our pro rata share of the gain is recorded in equity in earnings of affiliates.

Capital Investments

Value Enhancement. We seek to enhance the value of our portfolio by identifying and executing strategies to achieve the highest and best use of all aspects of our properties and matching each hotel within its specific market with the appropriate operator and brand, in order to optimize operating performance. This initiative may include new relationships with independent operators that may be an improved fit for smaller or unique properties, extending ground leases, and developing or disposing of underutilized land connected to our properties. We believe that the successful execution of these projects will create significant value for the company. During 2015, we successfully negotiated new franchise or management agreements at six properties, and currently have a total of 14 third-party managed hotels in our consolidated and joint venture portfolio. This included the following:

	●	We repositioned the Powell Hotel, acquired in January 2014, as the Axiom Hotel, operated by Kokua Hospitality. The hotel was closed during 2015 for extensive renovations and reopened in January 2016.

	●	We converted The Ritz-Carlton, Phoenix to an independent hotel operated by Destination Hotels. The property closed in July 2015 for extensive renovation work and reopened as The Camby Hotel in December 2015, as part of Marriott’s Autograph Collection.

	●	We rebranded the Four Seasons Philadelphia as an independent luxury hotel operated by Sage Hospitality. The property was closed in June 2015 in order to expedite the renovation and opened in December 2015 as The Logan Philadelphia, Curio – A Collection by Hilton.

	●	We selected Sage Hospitality as the operator for the Denver Marriott Tech Center Hotel. In the fourth quarter 2015, we began a transformational redevelopment that will include an extensive renovation of all guestrooms, a new lobby and lounge, and upgrades to the meeting space and food and beverage platforms. The renovation is expected to be completed in the fourth quarter of 2016.

	●	We selected HEI Hotels & Resorts as the operator for the Sheraton Parsippany Hotel and The Westin Indianapolis and Davidson Hotels & Resorts as the operator for the Chicago Marriott Suites O’Hare.

Capital Expenditures Projects. We continue to pursue opportunities to enhance asset value through select capital improvements, including projects that are designed specifically to increase the eco-efficiency of our hotels, incorporate elements of sustainable design and replace aging equipment and systems with more efficient technology. Capital expenditures have totaled approximately $2.7 billion over the past five years and, as a result, we believe that our properties are in a strong competitive position relative to their market competitors. During 2015, we completed renovations to 8,000 guestrooms, approximately 419,000 square feet of meeting space and approximately 208,000 square feet of public space.

	●	Redevelopment, Return on Investment and Acquisition Capital Expenditures. Redevelopment and ROI projects primarily consist of large-scale redevelopment projects that are designed to increase cash flow and improve profitability by capitalizing on changing market conditions and the favorable location of our properties. Additionally, in conjunction with the acquisition of a property, we prepare capital and operational improvement plans designed to maximize profitability, which we refer to as acquisition capital expenditures. Approximately $275 million was spent on redevelopment and return on investment projects, including acquisition capital expenditures, during 2015 compared to $112 million in 2014. Significant redevelopment and ROI capital expenditures during the year, in addition to the projects discussed above, included the following:

	o	Marriott Marquis San Diego Marina – In December 2014, the demolition of the existing conference center commenced in order to begin construction of the new $106 million Marriott Marquis San Diego Marina Exhibit Hall. Development is approximately 75% complete and is expected to be open in June 2016. Upon completion, the hotel will provide approximately 280,000 square feet of expanded and modernized space for conferences and events.

	o	Houston Airport Marriott – This $56 million project included the complete repositioning of the hotel and was substantially completed in December 2015. Guestrooms received a renovation of the soft and case goods and bathroom. We also closed two restaurants and created a new food and beverage outlet and lobby experience.

	o	Grand Hyatt Washington –A public space repositioning project completed in May 2015, which included the structural reconfiguration of the lobby, retail space, restaurant space and the atrium and added 14,000 square feet of meeting and public space.

	o	Newark Liberty International Airport Marriott – the renovation of all 591 rooms, which completed a multi-year redevelopment at the property that included the renovation of the lobby, meeting spaces and ballroom in previous years.

	o	We completed several sustainability projects, including the installation of an energy-efficient chiller plant at the Westin Los Angeles Airport, a steam to gas conversion at the New York Marriott Marquis, in which the hotel operates its own boiler plant rather than utilizing the local utility, and the installation of rooftop solar panels at the Hyatt Regency Maui Resort & Spa.

For 2016, we expect to spend between $180 million and $195 million for redevelopment and ROI projects, including acquisition capital expenditures, representing a 32% decrease from 2015. The projects for 2016 include:

	o	The Phoenician –We will begin a comprehensive two year renovation, which includes the renovation of all guestrooms in 2016, while the renovation of public space, spa and restaurants is scheduled for 2017.

	o	Hyatt Regency San Francisco Airport – The renovation commenced in November 2015 and includes the renovations of the guestrooms and bathrooms, the repositioning of the atrium into a new restaurant and lounge and conversion of existing restaurant and sports bar to approximately 15,000 square feet of additional meeting space.

	●	Renewal and Replacement Capital Expenditures. We spent $388 million and $324 million on renewal and replacement expenditures during 2015 and 2014, respectively. These expenditures are designed to ensure that our standards for product quality are maintained and to enhance the overall competitiveness of our properties in the marketplace. These projects included the renovation of nearly 6,400 rooms, 75,000 square feet of public space and 327,000 square feet of meeting space in 2015. Projects that were completed during 2015 included guestrooms at The Ritz-Carlton Golf Resort, Naples; guestrooms at Chicago Marriott Suites Downers Grove; the lobby and 3030 Ocean Restaurant and Bar at the Harbor Beach Marriott Resort & Spa; the Ritz-Carlton Amelia Island restaurant, lobby and lobby lounge; the View Lounge at the San Francisco Marriott Marquis; the Spa at the Orlando World Center Marriott; the Manchester Grand Hyatt San Diego 24 hour convenience “Market Place”; and the Pinot Restaurant at the Westin South Coast Plaza, Costa Mesa . Operations in the first half of 2015 also were significantly affected by the following major projects:

	o	Rooms renovations at the JW Marriott Washington D.C., San Antonio Marriott Riverwalk, JW Marriott Houston, New Orleans Marriott, The Westin Chicago River North and The Westin South Coast Plaza, Costa Mesa.

	o	A comprehensive lobby and room renovation at the Calgary Marriott Downtown Hotel.

	o	Lobby and meeting space renovations at The Westin Seattle, Boston Marriott Copley Place, and Hyatt Regency Cambridge

We expect that our investment in renewal and replacement expenditures in 2016 will total approximately $310 million to $325 million, representing an 18% decrease from 2015. These projects will include room renovations at The Ritz-Carlton, Tysons Corner, Harbor Beach Marriott Resort & Spa, and W Seattle and the renovation of the ballroom and event lawn at the Hyatt Regency Maui Resort and Spa.

Return of capital

Stock Repurchase Program and Dividends. As we have achieved our long term balance sheet objectives and expect to continue to generate cash from operations and sales of assets, Host Inc.’s Board of Directors announced a program to repurchase up to $500 million of common stock on April 30, 2015, and again on October 29, 2015, to repurchase up to an additional $500 million of common stock. The common stock may be purchased in the open market or through private transactions, including principal transactions with various financial institutions, like accelerated share repurchases, forwards, options and similar transactions, from time to time depending upon market conditions. The level of purchases also will depend upon operating results, funds generated by sales activity, dividends that may be required by tax gains generated by such sales and other investment options that may be available, including reinvesting in our portfolio or acquiring new hotels. The program does not obligate us to repurchase any specific number or any specific dollar amount of shares and may be suspended at any time at our discretion. During 2015, we repurchased 38.3 million

shares at an average price of $17.64 for a total purchase price of approximately $675 million. Approximately $325 million of the purchases were in the fourth quarter at an average price of $16.57 per share. At December 31, 2015, we have $325 million of repurchase capacity remaining under the second program.

During 2015, Host Inc.’s Board of Directors declared dividends of $0.80 per share with respect to Host Inc.’s common stock, an increase of 6.7% over the prior year. Accordingly, Host L.P. made a distribution of $0.8171952 per unit with respect to its common OP units for 2015. On February 16, 2016, the Board of Directors authorized a regular quarterly cash dividend of $0.20 per share on its common stock. The dividend will be paid on April 15, 2016, to stockholders of record on March 31, 2016. The amount of any future dividend will be determined by Host Inc.’s Board of Directors.

There can be no assurances that any future dividends or stock buybacks will match or exceed those set forth above for any number of reasons, including a decline in operations or an increase in liquidity needs. We believe that we have sufficient liquidity and access to the capital markets in order to meet our near-term debt maturities, fund our capital expenditures programs and take advantage of investment opportunities.

Financing transactions

As operations have improved in the past several years, we have executed successfully on our strategy to decrease our leverage as measured by our net debt to EBITDA ratio and to reduce our debt service obligations, leading to an increase in our interest coverage and fixed charge coverage ratios and an investment grade rating for Host L.P.’s senior notes. These improvements were due to stronger operations, successful acquisitions and other investments, the majority of which were completed with available cash and proceeds from equity issuances, and the repayment and refinancing of debt in order to extend maturity dates and obtain lower interest rates.

During 2015, we continued to take advantage of favorable market conditions and our investment grade rating to decrease our weighted average interest rate and extend our weighted average debt maturity. We issued $900 million of senior notes at an average interest rate of 4.2% and used the net proceeds, along with an additional draw on the revolver portion of our credit facility, to repay $1 billion of senior notes with an average interest rate of 5.9%. Additionally, in September 2015, we entered into a new $500 million term loan (“2015 Term Loan Facility”) by exercising the accordion feature of our existing credit facility. At closing, we drew $300 million under the 2015 Term Loan Facility, and drew the remaining $200 million on December 29, 2015. In 2015, holders of almost all of our 2.5% exchangeable debentures elected to exchange their Debentures for shares of Host Inc. common stock at the exchange value after we elected to call the securities for redemption. As a result, we issued 32 million shares of Host Inc. common stock upon exchange and redeemed approximately $1 million of Debentures for cash. Prior to the redemption of the Debentures, the shares had been included in the calculation of diluted earnings per share, NAREIT FFO per share and Adjusted FFO per share, to the extent they were dilutive.

At December 31, 2015, our weighted average interest rate is 3.7% and our weighted average debt maturity is 6 years. We have a balanced maturity schedule wherein not more than 21% of our outstanding debt, representing 4% of our U.S. GAAP gross asset value, is due in any given year. Additionally, we have approximately $702 million of available capacity under the revolver portion of our credit facility and a debt balance of $4 billion. Assuming the exercise of credit facility extensions, we have no significant debt maturities until 2019.

The following graph summarizes our aggregate debt maturities as of February 19, 2016:

	(1)	The term loan and credit facility agreements contain extension options that would extend the maturity of both instruments to 2019, subject to meeting certain conditions, including payment of a fee.

For a detailed discussion, see “—Liquidity and Capital Resources.” For a detailed discussion of our significant debt activities, see “Note 4. Debt” in the Notes to Consolidated Financial Statements.

Results of Operations

The following table reflects certain line items from our audited statements of operations (in millions, except percentages):

					Change					Change
	2015		2014		2014 to 2015			2013		2013 to 2014
Total revenues	$	5,387	$	5,354		0.6	%	$	5,166		3.6	%
Operating costs and expenses:
Property-level costs (1)		4,645		4,611		0.7			4,533		1.7
Corporate and other expenses (2)		94		43		118.6			121		(64.5	)
Gain on insurance settlements		2		10		(80.0	)		—	N/M
Operating profit		650		710		(8.5	)		512		38.7
Interest expense		234		214		9.3			304		(29.6	)
Gain on sale of assets		95		236		(59.7	)		33	N/M
Provision for income taxes		9		14		(35.7	)		21		(33.3	)
Income from continuing operations		571		747		(23.6	)		210		255.7
Income from discontinued operations		—		—	N/M				115	N/M

Host Inc.:
Net income attributable to non-controlling interests	$	13	$	15		(13.3	)	$	8		87.5
Net income attributable to Host Inc.		558		732		(23.8	)		317		130.9

Host L.P.:
Net income attributable to non-controlling interests	$	6	$	6		—		$	4		50.0
Net income attributable to Host L.P.		565		741		(23.8	)		321		130.8
___________

(1)	Amounts represent total operating costs and expenses from our consolidated statements of operations, less corporate and other expenses and the gain on insurance settlements.

(2)	2014 includes the reversal of the $69 million loss contingency related to the San Antonio Rivercenter litigation.

N/M=Not Meaningful

Statement of Operations Results and Trends

For 2015 and 2014, the following items have affected the year-over-year comparability of our operations.

	·	The results of hotels acquired or sold during the comparable periods (collectively, our “Recent Acquisitions and Dispositions”) had a significant impact on year-over-year comparisons. Our operations were affected by the sale of eight hotels in 2015 and five hotels during both 2014 and 2013. These dispositions were partially offset by the acquisition or new development of six hotels during this timeframe: The Phoenician acquired in June 2015, the Axiom Hotel acquired in January 2014, the YVE Hotel Miami acquired in August 2014, the ibis and Novotel Rio de Janeiro Parque Olimpico hotels, which opened in the fourth quarter of 2014 and the acquisition of the Hyatt Place Waikiki in 2013. For 2015, the net effect of our Recent Acquisitions and Dispositions was to reduce total revenues by $66 million, net income by $6 million, and Adjusted EBITDA by $27 million compared to 2014. For 2014, the net effect of our Recent Acquisitions and Dispositions was to reduce total revenues by $87 million, net income by $28 million, and Adjusted EBITDA by $45 million compared to 2013.

	·	In 2015 and 2013, our results were more significantly impacted by disruptive renovations than typical years. During 2015, disruptive renovation activity exceeded 2014, which reduced growth in net income and Adjusted EBITDA when compared to 2014. Conversely, in 2014, we had fewer disruptive renovations compared to 2013, which increased the year-over-year growth in net income and Adjusted EBITDA when compared to 2013.

	·	Our domestic hotel portfolio represents approximately 96% of our revenues and total assets. However, for international properties and our international joint ventures, we are exposed to currency exchange risks in the normal course of business. Due to the strengthening of the U.S. dollar, total revenues were affected negatively by approximately $35 million for 2015 and $18 million for 2014, each compared to the prior year. Additionally, currency fluctuations decreased net income approximately $7 million for 2015 and $4 million for 2014 and Adjusted EBITDA by $21 million for 2015 and $6 million for 2014, each compared to the prior year.

	·	On January 1, 2015, our operators adopted the 11th edition of USALI, which reclassifies certain hotel-level revenue and expense items. Reclassifications include, among other items, certain service charges, all of which are now reflected on a gross basis, and group rebates, which are now shown as a reduction to revenue. The 2014 and 2013 results were not restated for the changes and therefore impact our 2015 comparative operating results. For 2015, we estimate the adoption of USALI decreased rooms revenue growth by 20 basis points, increased comparable F&B revenues growth by approximately 270 basis points, decreased other revenue growth by 10 basis points and reduced comparable hotel EBITDA margins by 15 basis points. The adoption of USALI did not impact net income, comparable hotel EBITDA, or Adjusted EBITDA. Please see “-Comparable Hotel Operating Results” for further discussion.

The following table presents revenues in accordance with GAAP and includes both comparable and non-comparable hotels (in millions, except percentages):

					Change					Change
	2015		2014		2014 to 2015			2013		2013 to 2014
Revenues:
Rooms	$	3,465	$	3,452		0.4	%	$	3,317		4.1	%
Food and beverage		1,568		1,546		1.4			1,503		2.9
Other		354		356		(0.6	)		346		2.9
Total revenues	$	5,387	$	5,354		0.6		$	5,166		3.6

The increases in total revenues in 2015 and 2014 of $33 million and $188 million, respectively, were driven by increases of 3.3% and 4.9% in revenues for our comparable properties. For 2015 and 2014, total revenues were impacted by our non-comparable properties that were under renovation and our Recent Acquisitions and Dispositions, as discussed above. Additionally, fluctuation in currency exchange rates and the relative strength of the U.S. dollar reduced the increase in total revenues by 80 basis points in 2015 and 35 basis points in 2014.

Rooms. Rooms revenues increased $13 million and $135 million in 2015 and 2014, respectively, reflecting an increase in constant dollar RevPAR of 3.8% and 5.7%, respectively, at our comparable hotels. Currency fluctuations reduced year-over-year rooms revenues growth by 90 basis points in 2015 and 35 basis points in 2014. Year-over-year comparisons also reflect a net decrease of $49 million in 2015 and $53 million in 2014 due to Recent Acquisitions and Dispositions.

Food and beverage. F&B revenues increased $22 million and $43 million in 2015 and 2014, respectively. For our comparable hotels, F&B revenues increased 5.2% and 3.8%, respectively, for 2015 and 2014, driven by increases in banquet and audio visual revenues of 5.9% and 5.1% at our comparable hotels in 2015 and 2014, respectively. Year-over-year comparisons also reflect a net decrease of $18 million for 2015 and $28 million for 2014 due to Recent Acquisitions and Dispositions.

Other revenues. Other revenues decreased $2 million in 2015 primarily due to lower guest room telephone, internet, and spa and fitness center revenue, partially offset by an increase in attrition and cancellation fees. In 2014, other revenues increased $10 million, primarily due to lease revenue at the New York Marriott Marquis as a result of the retail development agreement with Vornado Realty Trust and increases in attrition and cancellation fees and parking revenue. Year-over-year comparisons also reflect a net increase of $1 million in 2015 and a net decrease of $6 million in 2014 due to Recent Acquisitions and Dispositions.

Property-level Operating Expenses

The following table presents consolidated property-level operating expenses in accordance with GAAP and includes both comparable and non-comparable hotels (in millions, except percentages):

					Change					Change
	2015		2014		2014 to 2015			2013		2013 to 2014
Expenses:
Rooms	$	902	$	924		(2.4	)%	$	894		3.4	%
Food and beverage		1,110		1,109		0.1			1,095		1.3
Other departmental and support expenses		1,295		1,264		2.5			1,249		1.2
Management fees		226		227		(0.4	)		222		2.3
Other property-level expenses		396		386		2.6			376		2.7
Depreciation and amortization		716		701		2.1			697		0.6
Total property-level operating expenses	$	4,645	$	4,611		0.7		$	4,533		1.7

Our operating costs and expenses, which consist of both fixed and variable components, are affected by a number of factors. Room expense is affected mainly by occupancy, which drives costs related to items such as housekeeping, reservation systems, room supplies, laundry services and front desk costs. Food and beverage expense correlates closely with food and beverage revenues, and is affected by occupancy and the mix of business between banquet and audio-visual and outlet sales. However, the most significant expense for both room expense and food and beverage expense is related to wages and employee benefits, which comprise approximately 56% of these expenses in any year. Other property-level expenses consist of property taxes, which are highly dependent on local taxing authorities, and property and general liability insurance, and do not necessarily change based on changes in revenues at our hotels. The overall increases in operating expenses in 2015 and 2014 are consistent with higher overall revenues at our properties. The year-over-year changes also reflect our Recent Acquisitions and Dispositions, as discussed below.

Rooms. Room expenses decreased $22 million during 2015 reflecting a decline in rooms expenses at our non-comparable hotels, and the effect of Recent Acquisitions and Dispositions. Rooms expenses at our comparable properties were flat in 2015, as improvements in hourly productivity offset wage rate growth of 2.4%. In 2014, rooms expenses increased $30 million, reflecting an increase of 4.8% at our comparable hotels, primarily driven by increases in wages and benefits, higher travel agent commissions and laundry and guest supply costs. Year-over-year comparisons also reflect a net decrease of $13 million in 2015 and $14 million in 2014 due to Recent Acquisitions and Dispositions.

Food and beverage. The increase in F&B expenses of $1 million in 2015 and $14 million in 2014 reflect year-over-year increases of 3.2% and 2.6% in comparable F&B expenses, respectively. Overall, F&B hourly productivity was improved, which has led to declines in F&B costs as a percentage of revenues in 2015 and 2014. Additionally, much of the revenue improvements were driven by increases in banquet and audio visual revenues, which have higher overall operating margins than outlet revenue. Year-over-year comparisons also reflect a net decrease of $12 million in 2015 and $21 million in 2014 due to Recent Acquisitions and Dispositions.

Other departmental and support expenses. Other departmental and support expenses increased $31 million and $15 million in 2015 and 2014, respectively. For 2015, the increase primarily reflects growth in non-controllable expenses including credit card fees and loyalty and reward programs. The increase in 2014 primarily was due to increases in credit card fees, wages and benefits, and sales and marketing costs. Year-over-year comparisons also reflect a net decrease of $13 million in 2015 and $21 million in 2014 due to Recent Acquisitions and Dispositions.

Management fees. Management fees, which generally are calculated as a percentage of revenues and operating profit, decreased 0.4% to $226 million for 2015 and increased 2.3% to $227 million for 2014. Base management fees for our comparable hotels, which are calculated as a percentage of total revenues, increased $0.5 million in 2015 and $8 million in 2014 due to the overall increase in our hotel revenues. For 2015, incentive management fees at our comparable properties increased 15.7% due to an increase in hotel operations and in the number of hotels earning incentive fees. In 2014, incentive management fees at our comparable hotels declined 4.1% reflecting the renegotiation of management agreements at three of our properties and declines at specific properties, which offset increases due to the overall improvement in operating profit that resulted in more properties incurring incentive management fees. Year-over-year comparisons also include a net decrease of $3 million in 2015 and $2 million in 2014 from Recent Acquisitions and Dispositions.

Other property-level expenses. These expenses generally do not vary significantly based on occupancy and include expenses such as property taxes and insurance. In 2015, other property-level expenses increased $10 million, or 2.6%. For 2015, other property-level expenses at our comparable hotels increased 3.5% due to an increase in property taxes and ground rent, partially offset by a decline in utilities and insurance expense. In 2014, other property-level expenses increased $10 million, or 2.7%, including an increase of 3.6% at our comparable hotels. For 2014, a 3.4% increase in property taxes was offset substantially by a decline in property insurance. The year-over-year changes also reflect a net decrease of $2 million in 2015 and $4 million in 2014 from our Recent Acquisitions and Dispositions.

Depreciation and amortization. Depreciation and amortization expense increased $15 million, or 2.1%, to $716 million in 2015 and increased $4 million, or 0.6% to $701 million in 2014. The increase in depreciation and amortization expense reflects the depreciation of our recent capital expenditures, partially offset by a decrease due to Recent Acquisitions and Dispositions.

Other Income and Expense

Corporate and other expenses. Corporate and other expenses include the following items (in millions):

	Year ended December 31,
	2015			2014			2013
General and administrative costs	$	87		$	82		$	87
Non-cash stock-based compensation expense		11			22			18
Litigation (recoveries) accruals and acquisition costs, net		(4	)		(61	)		16
Total corporate and other expenses	$	94		$	43		$	121

General and administrative costs primarily consist of wages and benefits, travel, corporate insurance, legal fees, audit fees, building rent and systems costs. Corporate expenses, excluding litigation (recoveries) accruals and acquisition costs, decreased 6% or $6 million, during 2015. For 2015, the decrease in the non-cash stock-based compensation expense reflects the decline in our stock price and a decline in the number of shares earned. In 2014, the increase reflects the increase in our share price during the year. Litigation (recoveries) accruals and acquisition costs in 2014 include $69 million for the reversal of the loss contingency upon the successful resolution of the litigation related to the ground lease for the San Antonio Marriott Rivercenter.

Gain on insurance settlements. We recorded a gain of $2 million in 2015 for the receipt of the final settlement related to the earthquake in Christchurch, New Zealand in February 2011. In 2014, we recorded a gain of $10 million related to the receipt of insurance proceeds for several of our properties in New York and Washington, D.C. which were affected by Hurricane Sandy in October 2012.

Interest expense. Interest expense increased $20 million, or 9.3%, in 2015 as compared to 2014, due to a $37 million increase in debt extinguishment costs, offset by the decline in our weighted average interest rate. Interest expense decreased $90 million, or 29.6%, in 2014, due to the repayment or refinancing of debt, which lowered our full year weighted average interest rates and overall debt balance, and a decrease of $32 million in total debt extinguishment costs compared to 2013. The following table presents certain components of interest expense (in millions):

	Year ended December 31, (1)
	2015		2014		2013
Cash interest expense(1)	$	168	$	186	$	239
Cash incremental interest expense (1)(2)		4		—		4
Non-cash interest expense		21		24		25
Cash debt extinguishment costs(1)		30		2		23
Non-cash debt extinguishment costs		11		2		13
Total interest expense	$	234	$	214	$	304
___________

(1)	Total cash interest expense paid was $214 million, $189 million, and $282 million in 2015, 2014 and 2013, respectively, which includes an increase due to the change in accrued interest of $12 million, $1 million and $16 million for 2015, 2014 and 2013, respectively.

(2)	Incremental interest expense reflects the cash interest expense for refinanced debt subsequent to the issuance of the new financing and prior to the repayment of the refinanced debt.

Gain (loss) on sale of assets. The following table presents the gains recognized on the sale of assets (in millions):

	Year ended December 31,
	2015		2014		2013
Delta Meadowvale Hotel & Conference Centre	$	2	$	—	$	—
Sheraton Needham		18		—		—
Park Ridge Marriott and Chicago Marriott O'Hare		36		—		—
Kansas City Airport Marriott		3		—		—
Novotel Auckland Ellerslie and ibis Auckland Ellerslie		10		—		—
Novotel Queenstown		20		—		—
89% interest in the Philadelphia Downtown Marriott		—		111		—
Greensboro High-Point Marriott Airport		—		3		—
Tampa Marriott Waterside Hotel & Marina		—		115		—
The Ritz-Carlton San Francisco (1)		4		3		—
Maui Timeshare land (2)		2		3		—
Land adjacent to Newport Beach Marriott Hotel & Spa		—		—		21
Land adjacent to Atlanta Perimeter Center (3)		—		—		11
Other		—		1		1
	$	95	$	236	$	33
___________

(1)	Represents the recognition of previously deferred gains related to the 2012 sale of The Ritz-Carlton San Francisco.

(2)	Represents amortization of the previously deferred gain related to the land contributed to the Maui JV.

(3)	Represents the recognition of the previously deferred gain related to an eminent domain claim by the State of Georgia of 2.9 acres of land for the highway expansion at the Atlanta Marriott Perimeter Center.

Equity in Earnings of Affiliates. The $44 million increase in equity in earnings of affiliates for 2015 primarily reflects the gain on sale of nine properties, compared to one property in 2014, by the Euro JV, partially offset the effect of the strengthening of the US Dollar, as well as the increase in sales of timeshare units by the Maui JV. In 2014, the increase reflects our portion on the gain on sale by the Euro JV in 2014 compared to an impairment charge in 2013, as well as the initial timeshare sales at our Maui JV.

Benefit (provision) for income taxes. We lease substantially all of our properties to consolidated subsidiaries designated as TRS for federal income tax purposes. The difference between hotel-level operating cash flow and the aggregate rent paid to Host L.P. by the TRS represents taxable income or loss, on which we record an income tax provision or benefit. The decrease in the tax provision in 2015 and 2014 from the prior year reflects a decrease in taxable income at the TRS due to an increase in rent expense in excess of the increase in operating profit from the hotels and a reduction of certain foreign taxes.

Income (loss) from discontinued operations. Discontinued operations consist of five hotels disposed of in 2013 and represents the results of operations and the gains or losses on the disposition of these hotels during the indicated periods. The following table summarizes the revenues, income before taxes, and the gain on disposals, net of tax, of the hotels which were reclassified to discontinued operations, which includes assets held for sale, and the results of sold hotels prior to their disposition for the periods presented (in millions):

	Year ended December 31, 2013
Revenues	$	104
Income before taxes		22
Gain on disposals, net of tax		97

Comparable Hotel Sales Overview

While management evaluates the performance of each individual hotel against its competitive set in a given market, we evaluate our overall portfolio operating results using three different criteria: geographic market, property type (i.e. urban, suburban, resort/conference or airport), and mix of business (i.e. transient, group or contract). As of December 31, 2015, 96 of our 107 owned hotels have been classified as comparable hotels. See “Comparable Hotel Operating Statistics” for a complete description of our comparable hotels.

2015 Compared to 2014

Comparable Hotel Sales by Geographic Market.

The following table sets forth performance information for our comparable hotels by geographic market as of December 31, 2015 and 2014:

Comparable Hotels by Market in Constant US$(1)

	As of December 31, 2015				Year ended December 31, 2015							Year ended December 31, 2014
Market	No. of Properties		No. of Rooms		Average Room Rate		Average Occupancy Percentage			RevPAR		Average Room Rate		Average Occupancy Percentage			RevPAR		Percent Change in RevPAR
Boston		4		3,185	$	228.47		79.6	%	$	181.85	$	218.31		77.4	%	$	168.89		7.7	%
New York		8		6,960		291.61		86.4			251.95		292.10		87.7			256.27		(1.7	)
Washington, D.C.		12		6,023		205.52		75.5			155.16		201.94		76.7			154.96		0.1
Atlanta		6		2,280		183.13		75.3			137.82		172.85		73.9			127.82		7.8
Florida		8		4,965		234.83		74.8			175.75		222.07		73.9			164.11		7.1
Chicago		6		2,392		202.05		75.7			152.87		194.78		75.0			146.17		4.6
Denver		3		1,340		158.75		67.4			106.92		152.42		67.3			102.54		4.3
Houston		3		1,142		204.14		69.4			141.65		223.38		68.5			153.01		(7.4	)
Phoenix		3		1,241		210.15		71.1			149.42		196.66		72.6			142.77		4.7
Seattle		3		1,774		204.17		78.8			160.84		188.57		78.8			148.62		8.2
San Francisco		5		3,701		239.00		83.5			199.56		224.15		82.4			184.78		8.0
Los Angeles		8		3,228		191.42		81.0			155.10		177.43		80.6			143.01		8.5
San Diego		4		3,331		195.57		82.3			160.98		182.90		80.5			147.30		9.3
Hawaii		3		1,682		323.10		88.7			286.48		324.57		84.1			273.08		4.9
Other		11		7,270		168.97		68.2			115.19		165.86		67.3			111.67		3.2
Domestic		87		50,514		221.62		77.6			172.00		214.74		77.1			165.65		3.8

Asia-Pacific		5		1,024	$	149.56		83.4	%	$	124.71	$	142.14		81.9	%	$	116.35		7.2	%
Canada		2		849		177.16		60.5			107.20		175.83		68.2			119.97		(10.6	)
Latin America		2		557		281.25		71.6			201.42		258.09		71.5			184.59		9.1
International		9		2,430		186.97		72.8			136.10		178.00		74.8			133.14		2.2
All Markets - Constant US$		96		52,944		220.11		77.4			170.34		213.10		77.0			164.15		3.8


Comparable Hotels in Nominal US$
	As of December 31, 2015				Year ended December 31, 2015							Year ended December 31, 2014
	No. of Properties		No. of Rooms		Average Room Rate		Average Occupancy Percentage			RevPAR		Average Room Rate		Average Occupancy Percentage			RevPAR		Percent Change in RevPAR
Asia-Pacific		5		1,024	$	149.56		83.4	%	$	124.71	$	169.55		81.9	%	$	138.79		(10.1	)%
Canada		2		849		177.16		60.5			107.20		203.55		68.2			138.89		(22.8	)
Latin America		2		557		281.25		71.6			201.42		335.90		71.5			240.25		(16.2	)
International		9		2,430		186.97		72.8			136.10		216.49		74.8			161.93		(16.0	)
Domestic		87		50,514		221.62		77.6			172.00		214.74		77.1			165.65		3.8
All Markets - Nominal US$		96		52,944		220.11		77.4			170.34		214.82		77.0			165.48		2.9
___________

(1)	For a discussion of our markets and constant US$ and nominal US$ presentation, see “—Comparable Hotel Operating Statistics.”

Our west coast markets continued to perform well in 2015, as San Francisco, Seattle, Los Angeles and San Diego all had RevPAR increases of between 8% and 9.3%. Our San Diego properties led our domestic portfolio, with a RevPAR increase of 9.3% as strong group demand allowed our operators to focus business towards the higher-rated transient and group business, leading to a 6.9% improvement in average daily rate. Similarly, strong transient demand coupled with solid group business has allowed our operators to focus on higher-rated transient customers in all of our west coast markets. At our Hawaiian properties, average occupancy increased 4.5 percentage points due to strong group and transient demand, while average rate declined 0.5.

The Boston market led our east coast markets as strong citywide demand, coupled with successful property specific promotional campaigns, led to increases in both transient and group demand. Conversely, in New York, new hotel supply coupled with a reduction in international demand as a result of a strong dollar has led to a RevPAR decline of 1.7%. We expect continued weakness for the New York market in 2016, as supply growth is expected to remain high. RevPAR grew just 0.1% in our DC Market due to the

absorption of new supply, a decline in citywide events during the second half of the year and significant renovation projects that were completed during the first half of 2015 at our Grand Hyatt, Washington DC and JW Marriott, Washington DC.

In our south and central markets, Atlanta and Florida outperformed the portfolio with RevPAR growth of 7.8% and 7.1%, respectively. In Atlanta, renovations completed last year at the Westin Buckhead Atlanta and Grand Hyatt Atlanta in Buckhead led to strong rate growth. In Florida, strong group demand led to the 5.7% rate improvement and average occupancy of approximately 75%. The Chicago market was generally in-line with the portfolio. During the first half of the year, the market outperformed the portfolio driven by strong city-wide demand. However, as the year progressed, group demand declined, leading our operators to rely on discounted transient business. RevPAR for our Houston properties declined 7.4% due to disruption in the oil markets during 2015, which significantly hampered demand, as well as increasing market supply and the renovation at the Houston Marriott Medical Center hotel.

On a constant dollar basis, our international markets experienced RevPAR growth of 2.2%, led by our Latin America properties with RevPAR growth of 9.1%, on a constant dollar basis, as strong group demand and renovations completed in 2014 led to improvements in our Mexico property, while the JW Marriott Rio de Janeiro benefited from the weak Real during the year; despite difficult comparisons to the World Cup in 2014. Our Canadian properties, in particular Calgary, were affected negatively by falling oil prices and disruption from renovations, which led to a RevPAR decrease of 10.6% for 2015.

Comparable Hotel Sales by Property Type.

The following table sets forth performance information for our comparable hotels by property type as of December 31, 2015 and 2014:

Comparable Hotels by Type in Nominal US$

	As of December 31, 2015				Year ended December 31, 2015							Year ended December 31, 2014
Property type (1)	No. of Properties		No. of Rooms		Average Room Rate		Average Occupancy Percentage			RevPAR		Average Room Rate		Average Occupancy Percentage			RevPAR		Percent Change in RevPAR
Urban		53		32,646	$	227.31		79.2	%	$	180.11	$	225.11		79.0	%	$	177.89		1.2	%
Suburban		23		8,627		181.93		72.4			131.64		170.64		71.6			122.15		7.8
Resort		12		7,751		262.67		73.0			191.85		253.83		71.9			182.60		5.1
Airport		8		3,920		161.31		81.7			131.80		150.15		82.5			123.91		6.4
All Types		96		52,944		220.11		77.4			170.34		214.82		77.0			165.48		2.9
___________

(1)	For a discussion of our property types, see “—Comparable Hotel Operating Statistics.”

Our suburban properties led the portfolio for the year with RevPAR growth of 7.8% driven by average rate growth of 6.6%. Continuing a trend from prior year, high occupancy and average room rate in urban markets has helped to drive demand in adjacent suburban markets. Our airport properties experienced RevPAR growth of 6.4%, driven by strong average rate growth at our west coast airport properties. The RevPAR improvement at our resort properties of 5.1% was driven by a 3.5% increase in average rate and improvement in occupancy of 110 basis points. Our urban properties lagged the portfolio, with a RevPAR increase of 1.2%, average rate increase of 1.0% and a 20 basis point growth in occupancy. Our urban properties were negatively affected by weakness in the Washington, D.C., New York, and Houston markets.

Hotel Sales by Business Mix.

Our customers fall into three broad categories: transient, group and contract business. The information below is derived from business mix results from 87 comparable hotels for which 2015 and 2014 business mix information is available. In 2015, overall revenue growth was due to both group and transient growth. Revenue from our transient business increased 4.0%, reflecting an increase of 3.5% in average rate and a slight increase in room nights sold. Non-qualified discount transient room nights increased 8.9%, while lower-rated special corporate and government segments decreased 2.7%. Overall, group revenues improved 4.1% compared to the prior year, consisting of a 3.0% average room rate increase coupled with a 1.1% growth in group room nights sold. Corporate group revenue growth of 5.4% and association group revenue growth of 4.5% was partially offset by government and leisure growth of 0.9%.

2014 Compared to 2013

Comparable Hotel Sales by Geographic Market.

As of December 31, 2014, 106 of our 114 owned hotels were classified as comparable hotels. See “Comparable Hotel Operating Statistics” for a complete description of our comparable hotels. The following table sets forth performance information for our comparable hotels by geographic market as of December 31, 2014 and 2013:

Comparable Hotels by Market in Constant US$(1)

	As of December 31, 2014				Year ended December 31, 2014							Year ended December 31, 2013
Market	No. of Properties		No. of Rooms		Average Room Rate		Average Occupancy Percentage			RevPAR		Average Room Rate		Average Occupancy Percentage			RevPAR		Percent Change in RevPAR
Boston		5		3,432	$	213.85		77.2	%	$	165.05	$	198.31		79.3	%	$	157.20		5.0	%
New York		9		7,224		286.93		87.1			249.86		278.77		86.8			241.86		3.3
Philadelphia		2		776		211.57		78.0			165.04		208.26		74.9			156.05		5.8
Washington, D.C.		12		6,016		201.94		76.7			154.96		202.69		75.0			152.09		1.9
Atlanta		6		2,280		172.85		73.9			127.82		164.58		73.3			120.57		6.0
Florida		6		2,511		218.49		78.0			170.47		207.93		75.6			157.12		8.5
Chicago		7		2,857		186.60		74.5			139.02		183.98		73.6			135.36		2.7
Denver		3		1,363		152.42		67.3			102.54		144.17		63.9			92.18		11.2
Houston		4		1,706		190.63		73.4			139.96		181.26		76.6			138.75		0.9
Phoenix		4		1,522		196.63		71.3			140.19		188.53		68.2			128.65		9.0
Seattle		3		1,774		188.57		78.8			148.62		168.60		78.1			131.71		12.8
San Francisco		5		3,701		224.15		82.4			184.78		199.66		80.3			160.41		15.2
Los Angeles		8		3,228		177.43		80.6			143.01		162.93		81.7			133.11		7.4
San Diego		5		4,691		193.17		80.0			154.54		186.14		78.2			145.59		6.1
Hawaii		2		1,256		378.37		81.7			309.29		353.41		82.0			289.89		6.7
Other		11		7,231		161.23		66.9			107.94		157.39		67.3			105.94		1.9
Domestic		92		51,568		211.82		77.3			163.73		202.55		76.7			155.27		5.4

Asia-Pacific		7		1,390	$	153.62		82.9	%	$	127.37	$	148.69		81.1	%	$	120.63		5.6	%
Canada		3		1,219		180.08		66.6			119.92		171.37		68.9			118.06		1.6
Latin America		4		1,075		257.33		68.3			175.82		217.40		65.6			142.55		23.3
International		14		3,684		189.58		73.3			138.98		173.79		72.6			126.14		10.2
All Markets - Constant US$		106		55,252		210.40		77.0			162.07		200.72		76.4			153.32		5.7

Comparable Hotels in Nominal US$
	As of December 31, 2014				Year ended December 31, 2014							Year ended December 31, 2013
	No. of Properties		No. of Rooms		Average Room Rate		Average Occupancy Percentage			RevPAR		Average Room Rate		Average Occupancy Percentage			RevPAR		Percent Change in RevPAR
Asia-Pacific		7		1,390	$	153.62		82.9	%	$	127.37	$	152.79		81.1	%	$	123.95		2.8	%
Canada		3		1,219		180.08		66.6			119.92		183.53		68.9			126.43		(5.1	)
Latin America		4		1,075		257.33		68.3			175.82		238.71		65.6			156.52		12.3
International		14		3,684		189.58		73.3			138.98		184.92		72.6			134.22		3.5
Domestic		92		51,568		211.82		77.3			163.73		202.55		76.7			155.27		5.4
All Markets - Nominal US$		106		55,252		210.40		77.0			162.07		201.43		76.4			153.86		5.3

(1)	For a discussion of our markets and constant US$ and nominal US$ presentation, see “—Comparable Hotel Operating Statistics.”

RevPAR improvements were led by properties in our west coast markets, including San Francisco and Seattle, where comparable RevPAR increased 15.2% and 12.8%, respectively. Both markets benefited from already high levels of demand and solid group business, allowing for significant rate improvements for both group and transient business. Our hotels in these markets also benefited from post-renovation improvements.

Additionally, our Los Angeles and San Diego markets experienced a 7.4% and 6.1% growth in RevPAR, respectively. The Los Angeles RevPAR growth was driven by an 8.9% improvement in rate, the result of strong group and transient demand which allowed for a reduction in discounted room nights. The RevPAR growth at our San Diego hotels was due to a combination of rate growth of 3.8% and an increase in occupancy of 1.8 percentage points. Steady transient demand at these hotels led to a favorable business mix shift to higher-rated transient segments. With average occupancy over 80% for full year 2014, our Hawaii hotels experienced a 7.1% increase in average rate, as the business mix shifted to higher-rated leisure travelers, including customers previewing the new timeshare project adjacent to the Hyatt Regency Maui Resort & Spa.

In comparison, our east coast properties lagged the portfolio, primarily reflecting results in New York and Washington, D.C., where recent new supply has limited RevPAR growth to 3.3% and 1.9%, respectively. Our Boston market generally was in-line with the portfolio, with RevPAR improvement of 5.0%. This improvement reflected an increase in rate of 7.8%, offset by a decrease in occupancy of 2.1 percentage points, partially due to less favorable comparisons due to the World Series events in 2013. Our Florida market outperformed for the year, with an increase in comparable RevPAR of 8.5% compared to 2013 due to the combination of an increase in average room rate of 5.1% and an increase in occupancy of 2.5 percentage points, as our resort properties performed well, benefiting from an increase in both transient and group business.

Our Central markets were led by our Denver properties, as comparable RevPAR increased 11.2%, driven by a mix of strong citywide demand driving a 5.7% increase in rate, as well as an increase in occupancy of 3.3 percentage points. Our Chicago and Houston markets underperformed, with RevPAR increases of 2.7% and 0.9%, respectively. The Chicago market was affected by severe winter weather and a decrease in citywide events, while the Houston market was affected by renovation activity at some of our larger properties and the decline in oil prices.

Our international markets experienced a strong growth in RevPAR of 10.2%, led by our Latin American properties with RevPAR growth of 23.3%, on a constant US$ basis, as the JW Marriott Hotel Rio de Janeiro benefited from the FIFA World Cup and the JW Marriott Hotel Mexico City benefited from the rooms renovation completed in 2013. Our Canadian properties, in particular in Calgary, were affected negatively by falling oil prices and renovations.

Comparable Hotel Sales by Property Type.

The following table sets forth performance information for our comparable hotels by property type as of December 31, 2014 and 2013:

Comparable Hotels by Type in Nominal US$

	As of December 31, 2014				Year ended December 31, 2014							Year ended December 31, 2013
Property type (1)	No. of Properties		No. of Rooms		Average Room Rate		Average Occupancy Percentage			RevPAR		Average Room Rate		Average Occupancy Percentage			RevPAR		Percent Change in RevPAR
Urban		56		34,536	$	225.22		78.5	%	$	176.83	$	217.29		78.1	%	$	169.66		4.2	%
Suburban		28		9,807		165.80		71.5			118.60		156.26		70.7			110.51		7.3
Resort/Conference		11		5,570		258.09		73.6			189.95		244.50		72.5			177.23		7.2
Airport		11		5,339		144.66		81.1			117.32		133.71		79.9			106.82		9.8
All Types		106		55,252		210.40		77.0			162.07		201.43		76.4			153.86		5.3
___________

(1)	For a discussion of our property types, see “—Comparable Hotel Operating Statistics.”

For 2014, our airport properties led the portfolio for the year with RevPAR growth of 9.8%, driven by strong rate growth at our west coast airport properties. Our urban properties experienced RevPAR growth of 4.2%, as some of our more concentrated urban markets, such as New York and Washington, D.C., experienced slower growth due to increased supply. The RevPAR improvements at our suburban properties of 7.3% was driven by an increase in rates of 6.1%, as high occupancy levels in urban markets has helped drive demand in adjacent suburban markets. An increase in leisure travel and corporate group demand in 2014 led to a 7.2% increase in RevPAR at our resort properties, reflecting a 5.6% increase in rate growth and improvement in occupancy of more than 1 percentage point.

Hotel Sales by Business Mix.

The information below is derived from business mix results from comparable hotels for which 2014 and 2013 business mix information is available. In 2014, overall revenue growth was due to both group and transient growth. Group business was inconsistent throughout the year, with strong growth in the first and third quarters offset by slow growth in the second quarter and a slight decline in the fourth quarter. The inconsistency primarily can be attributed to timing of holidays throughout the year, as well as significant renovation activity in the fourth quarter. Overall, group revenues improved 5.6% compared to the prior year, consisting of a 2.8% average room rate increase coupled with a 2.7% growth in group room nights sold. Corporate and association group revenue increased

by a combined 5.0%, while other groups revenue, both leisure and government groups, grew by a combined 7.4%. During 2014, transient revenues increased 5.1% when compared to 2013, reflecting an increase in average room rate of 4.9%, and a 0.2% increase in nights sold. The transient average room rate increase resulted from a combination of segment price increases and an increasingly favorable shift to higher-rated retail customers.

Liquidity and Capital Resources

Liquidity and Capital Resources of Host Inc. and Host L.P. The liquidity and capital resources of Host Inc. and Host L.P. are derived primarily from the activities of Host L.P., which generates the capital required by our business from hotel operations, the incurrence of debt, the issuance of OP units or the sale of properties. Host Inc. is a REIT and its only significant asset is the ownership of partnership interests of Host L.P.; therefore, its financing and investing activities are conducted through Host L.P., except for the issuance of its common and preferred stock. Proceeds from stock issuances by Host Inc. are contributed to Host L.P. in exchange for OP units. Additionally, funds used by Host Inc. to pay dividends or to repurchase stock are provided by Host L.P. Therefore, while we have noted those areas in which it is important to distinguish between Host Inc. and Host L.P., we have not included a separate discussion of liquidity and capital resources as the discussion applies both to Host Inc. and Host L.P.

Overview. We look to maintain a capital structure and liquidity profile with an appropriate balance of cash, debt and equity in order to provide financial flexibility given the inherent volatility in the lodging industry. We believe this strategy will result in a lower overall cost of capital, allow us to complete opportunistic investments and acquisitions and will position us to manage potential declines in operations throughout the lodging cycle. As operations have improved in the past several years, we have decreased our leverage as measured by our net debt-to-EBITDA ratio and reduced our debt service obligations, leading to an increase in our fixed charge coverage ratio.

We intend to use available cash predominantly for acquisitions or other investments in our portfolio to the extent that they meet our return requirements. If we are unable to find appropriate investment opportunities, we will consider other uses of any available cash, such as a return of capital through dividends or common stock repurchases, the level of which will be determined by our operations and other market factors. Significant factors we review to determine the level and timing of common stock repurchases include the current stock price compared to our determination of the underlying value of our assets, current and forecasted operating results and the completion of hotel sales.

We have structured our debt profile to maintain a balanced maturity schedule and minimize the number of assets that are encumbered by mortgage debt. We have access to multiple types of financing as approximately 91% of our debt consists of senior notes and borrowings under our credit facility, none of which are collateralized by specific hotel properties. Our senior unsecured debt is rated investment grade by Moody’s Investor Services, Fitch Ratings and Standard & Poor’s Rating Service, which has allowed us to borrow capital at lower rates than previously achieved. In 2015, we refinanced $1 billion of senior notes, closed on a $500 million term loan, exchanged our $400 million of Debentures for common stock and repaid $35 million of mortgage debt. Additionally, 96% of our hotels (as measured by revenues) are unencumbered by mortgage debt.

We believe that we have sufficient liquidity and access to the capital markets to take advantage of opportunities to enhance our portfolio, withstand declines in operating cash flow, pay near-term debt maturities and fund our capital expenditures programs. We may continue to access the capital markets if favorable conditions exist in order to further enhance our liquidity and to fund cash needs. The table below details our significant cash flows for the three years ended December 31 (in millions):

	2015			2014			2013
Cash and cash equivalents, beginning of year	$	684		$	861		$	417
Increase (decrease) in cash and cash equivalents		(445	)		(177	)		444
Cash and cash equivalents, end of year	$	239		$	684		$	861
Operating activities
Cash provided by operating activities	$	1,171		$	1,150		$	1,019
Investing activities
Acquisitions and investments		(442	)		(216	)		(259	)
Dispositions and return of capital from investments		383			539			643
Capital expenditures		(663	)		(436	)		(436	)
Financing activities
Issuances of senior notes		898			—			400
Issuances of mortgage debt		—			4			150
Issuance of credit facility term loan		500			—			—
Net draws (repayments) on credit facility revolver		120			(221	)		186
Repurchase of senior notes, including exchangeable debentures		(1,001	)		(150	)		(801	)
Mortgage debt and other prepayments and scheduled maturities		(35	)		(384	)		(411	)
Common stock repurchase		(675	)		—			—
Host Inc.:
Common stock issuance		2			4			303
Dividends on common stock		(646	)		(469	)		(313	)
Host L.P.:
Common OP unit issuance		2			4			303
Distributions on common OP units		(654	)		(475	)		(317	)

Cash Requirements. We use cash for acquisitions, capital expenditures, debt payments, operating costs, corporate and other expenses, as well as dividends and distributions to stockholders and unitholders. As a REIT, Host Inc. is required to distribute to its stockholders at least 90% of its taxable income, excluding net capital gain, on an annual basis. Funds used by Host Inc. to pay dividends are provided by Host L.P. Our primary sources of cash include cash from operations, proceeds from the sale of assets, borrowings under our credit facility and debt and equity issuances. Assuming the exercise of credit facility extensions, we have no significant debt maturities until 2019.

Capital Resources. We depend primarily on external sources of capital to finance future growth, including acquisitions. As a result, the liquidity and debt capacity provided by our credit facility and the ability to issue senior unsecured debt are key components of our capital structure. Our financial flexibility (including our ability to incur debt, make distributions and make investments) is contingent on our ability to maintain compliance with the financial covenants of such indebtedness, which include, among other things, the allowable amounts of leverage, interest coverage and fixed charges.

If, at any time, we determine that market conditions are favorable, after taking into account our liquidity requirements, we may cause Host L.P. to issue senior notes or debentures exchangeable for shares of Host Inc. common stock. Given our total debt level and maturity schedule, we also will continue to redeem or refinance senior notes and mortgage debt from time to time, taking advantage of favorable market conditions. In February 2016, Host Inc.’s Board of Directors authorized repurchases of up to $500 million of senior notes and mortgage debt other than in accordance with its terms. We may purchase senior notes for cash through open market purchases, privately negotiated transactions, a tender offer or, in some cases, through the early redemption of such securities pursuant to their terms. Repurchases of debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. Any refinancing or retirement before the maturity date will affect earnings and NAREIT FFO per diluted share as a result of the payment of any applicable call premiums and the acceleration of previously deferred financing costs. In addition, while we intend to use any available cash predominantly for acquisitions or other investments in our hotel portfolio, to the extent we do not identify appropriate investments, we may elect in the future to use available cash for other purposes, including share repurchases, subject to market conditions. Accordingly, in light of our priorities in managing our capital structure and liquidity profile and given prevailing conditions and relative pricing in the capital markets, we may, at any time, subject to applicable securities laws, be considering, or be in discussions with respect to the repurchase or issuance of exchangeable debentures and/or senior notes or the repurchase or sale of common stock. Any such transactions may, subject to applicable securities laws, occur simultaneously.

We continue to explore potential acquisitions and anticipate that any such future acquisitions will be funded primarily by proceeds from sales of properties, but also potentially from equity offerings of Host Inc., issuances of OP units by Host L.P., incurrence of debt, available cash or advances under our credit facility. Given the nature of these transactions, we can make no assurances that we will be successful in acquiring any one or more hotels that we may review, bid on or negotiate to purchase. We may acquire additional properties through various structures, including transactions involving single assets, portfolios, joint ventures and acquisitions of the securities or assets of other REITs.

Counterparty Credit Risk. We are subject to counterparty credit risk, which relates to the ability of counterparties to meet their contractual payment obligations or the potential non-performance of counterparties to deliver contracted commodities or services at the contracted price. We assess the ability of our counterparties to fulfill their obligation to determine the impact, if any, of counterparty bankruptcy or insolvency on our financial condition. We are exposed to credit risk with respect to cash held at various financial institutions, access to our credit facility and amounts due or payable under our derivative contracts. Our credit exposure in each of these cases is limited. Our exposure with regard to our cash and the $702 million available capacity under the revolver portion of our credit facility is mitigated, as the credit risk is spread among a diversified group of investment grade financial institutions. At December 31, 2015, the exposure risk related to our derivative contracts totaled $17 million and the counterparties were investment grade financial institutions.

Sources and Uses of Cash. In 2015, our primary sources of cash included cash from operations, proceeds from asset sales, debt issues and returns from equity investments. Our primary uses of cash during the year consisted of acquisitions, capital expenditures, operating costs, debt repayments and repurchases, common stock repurchases and distributions to equity holders. We anticipate that our sources and uses of cash will be similar during 2016.

Cash Provided by Operations. Our cash provided by operations for 2015 increased $21 million to $1,171 million compared to 2014 reflecting improved operations at our hotels.

Cash Used in Investing Activities. Approximately $736 million of cash was used in investing activities during 2015 compared to $93 million in 2014. In addition to the acquisition, investment and disposition activity detailed in the charts below, we spent approximately $663 million on capital expenditures, compared to $436 million in 2014. Our renewal and replacement capital expenditures for 2015 were approximately $388 million, which reflects an increase of approximately 20% from 2014 levels. Our renewal and replacement capital expenditures generally are funded by the furniture, fixture and equipment funds established at certain of our hotels (typically 5% of property revenues) and by our available cash. We also spent approximately $275 million in 2015 on ROI/redevelopment projects and acquisition capital expenditures, which reflects an increase of approximately 145% compared to 2014 levels. Additionally, we have capitalized certain internal costs and interest expense associated with our capital expenditures projects in accordance with GAAP. These capitalized costs were $13 million, $14 million and $11 million for 2015, 2014 and 2013, respectively.

The following tables summarize significant investment activities and dispositions that have been completed as of February 19, 2016 (in millions):

Transaction Date		Description of Transaction	Investment
Acquisitions/Investments
December	2015	Acquisition of land under Minneapolis City Center Marriott	$	(34	)
June	2015	Acquisition of The Phoenician		(400	)
January-December	2014	Investment in Maui JV		(40	)
January-December	2014	Development costs for two hotels in Rio de Janeiro		(13	)
January-December	2014	Investment in Euro JV(1)		(21	)
August	2014	Acquisition of b2 miami downtown hotel(2)		(58	)
January	2014	Acquisition of The Powell Hotel(3)		(75	)
		Total acquisitions/investments	$	(641	)
___________

	(1)	Includes contribution of $14 million to fund the acquisition of the Sheraton Berlin Grand Hotel Esplanade (formerly Grand Hotel Esplanade) by the Euro JV.

	(2)	The b2 miami downtown hotel was renovated and reopened as the YVE Hotel Miami.

	(3)	The Powell Hotel was renovated and reopened as the Axiom Hotel.

Transaction Date		Description of Transaction	Net Proceeds(1)		Sales Price
Dispositions/Return on Investments
February	2016	Disposition of San Diego Marriott Mission Valley	$	76	$	76
February	2016	Disposition of Novotel Wellington		13		22
January - December	2015	Distribution from Euro JV		115		115
October - November	2015	Disposition of three hotels in New Zealand		61		98
August	2015	Disposition of Kansas City Airport Marriott		9		9
June	2015	Disposition of Park Ridge Marriott and Chicago Marriott O'Hare		88		89
June	2015	Disposition of Sheraton Needham		53		54
March	2015	Disposition of Delta Meadowvale Hotel & Conference Centre		32		33
December	2014	Disposition of Dayton Marriott		18		21
December	2014	Disposition of Greensboro-High Point Marriott Airport		16		19
October	2014	Disposition of Tampa Marriott Waterside Hotel & Marina		189		199
April	2014	Distribution from Euro JV		17		17
February	2014	Disposition of Courtyard Nashua		9		10
January	2014	Sale of 89% interest in the Philadelphia Marriott Downtown(2)	290			270
		Total dispositions	$	986	$	1,032
___________

(1)	Proceeds are net of mortgage debt repayments, FF&E replacement funds paid by the purchasers and retained at the hotels, transfer taxes and other sales costs.

(2)	Sale price represents the 89% interest in the hotel that was sold. Net proceeds also include our 11% portion of the proceeds received from the $230 million mortgage loan issued by the joint venture at closing.

Cash Used in Financing Activities. Net cash used in financing activities was $865 million for 2015, as compared to $1,226 million in 2014. During 2015, debt activity resulted in a net debt issuance of approximately $482 million compared to debt repayments of $751 million in 2014. Additionally, in 2015, we repurchased approximately $675 million of common stock and cash dividends paid during the year increased $177 million, or 38%, in 2015 to $646 million.

The following table summarizes significant debt issuances, net of deferred financing costs, that have been completed as of February 19, 2016 (in millions):

Transaction Date		Description of Transaction	Net Proceeds
Debt Issuances
December	2015	Borrowings on the $500 million 2015 Term Loan Facility	$	200
June - December	2015	Net draw on revolver portion of credit facility		120
October	2015	Proceeds from the issuance of $400 million 4.5% Series F senior notes		395
September	2015	Borrowings on the $500 million 2015 Term Loan Facility		297
May	2015	Proceeds from the issuance of $500 million 4% Series E senior notes		495
		Total issuances	$	1,507

The following table presents significant debt repayments, including prepayment premiums, that have been completed as of February 19, 2016 (in millions):

			Transaction
Transaction Date		Description of Transaction	Amount
Cash Repayments
February	2016	Repayment of NZ$14 million mortgage loan on the Novotel Wellington	$	(9	)
November	2015	Redemption of $500 million of 6% Series V senior notes		(515	)
October - November	2015	Repayment of NZ$52 million mortgage loan on three New Zealand hotels		(35	)
June	2015	Redemption of $500 million of 5 7/8% Series X senior notes		(515	)
January - October	2014	Net repayment on revolver portion of credit facility		(221	)
October	2014	Redemption of Dulles Airport industrial revenue bond		(12	)
June	2014	Redemption of Philadelphia Airport Marriott industrial revenue bond		(40	)
June	2014	Redemption of Newark Liberty International Airport Marriott industrial revenue bond		(32	)
February	2014	Repayment of mortgage loan on the Ritz-Carlton, Naples and Newport Beach Marriott		(300	)
February	2014	Redemption of $150 million of 6 3/4% Series Q senior notes		(152	)
		Total cash repayments	$	(1,831	)

Non-cash Debt Transaction
July - October	2015	Exchange of Debentures for common stock	$	(399	)

Equity/Capital Transactions. The following table summarizes significant equity transactions that have been completed as of February 19, 2016 (in millions):

			Transaction
Transaction Date		Description of Transaction	Amount
Equity of Host Inc.
January	2016	Dividend payment (1)(2)	$	(150	)
January-December	2015	Dividend payment (1)(2)		(646	)
May - December	2015	Repurchase of 38.3 million shares of Host Inc. common stock		(675	)
January-December	2014	Dividend payments (2)		(469	)
		Cash payments on equity transactions	$	(1,940	)

Non-cash Equity Transaction
July - October	2015	Issuance of approximately 32 million common shares of Host Inc. for the exchange of the Debentures (3)	$	399
___________

(1)	Our dividend payment for the fourth quarter of 2015 was made in January 2016, but accrued at December 31, 2015.

(2)	In connection with the dividends, Host L.P. made distributions of $152 million in 2016, $654 million in 2015 and $475 million in 2014 to its common unit holders.

(3)	In connection with the exchange, Host L.P. issued approximately 31.3 million common OP units to Host Inc.

Financial Condition

As of December 31, 2015, our total debt was approximately $4 billion, of which 65% carried a fixed rate of interest. Total debt was comprised of the following (in millions):

	As of December 31,
	2015		2014
Series V senior notes, with a rate of 6% due November 2020	$	—	$	495
Series X senior notes, with a rate of 5⅞% due June 2019		—		493
Series Z senior notes, with a rate of 6% due October 2021		297		296
Series B senior notes, with a rate of 5¼% due March 2022		347		346
Series C senior notes, with a rate of 4¾% due March 2023		445		445
Series D senior notes, with a rate of 3¾% due October 2023		397		397
Series E senior notes, with a rate of 4% due June 2025		495		—
Series F senior notes, with a rate of 4½% due February 2026		395		—
2009 Exchangeable Senior Debentures, with a rate of 2½% due October 2029		—		386
Total senior notes		2,376		2,858
Credit facility revolver		295		198
2014 Credit facility term loan due June 2017		499		499
2015 Credit facility term loan due September 2020		497		—
Mortgage debt (non-recourse), with an average interest rate of 4.7% and 5.0% at December 31, 2015 and 2014, respectively, maturing through January 2024		350		402
Total debt	$	4,017	$	3,957

Aggregate debt maturities at December 31, 2015 are as follows (in millions):

	Senior notes
	and			Mortgage debt
	credit facility			and other		Total
2016	$	—		$	163	$	163
2017		500			—		500
2018		298			36		334
2019		—			—		—
2020		500			—		500
Thereafter		2,400			150		2,550
		3,698			349		4,047
Deferred financing costs		(29	)		—		(29	)
Unamortized (discounts) premiums, net		(2	)		—		(2	)
Capital lease obligations		—			1		1
	$	3,667		$	350	$	4,017

Senior Notes. The following summary is a description of the material provisions of the indentures governing our various senior notes issued by Host L.P., to which we refer collectively as the senior notes indenture. We pay interest on each series of our outstanding senior notes semi-annually in arrears at the respective annual rates indicated on the table above. Under the terms of our senior notes indenture, our senior notes are equal in right of payment with all of Host L.P.’s unsubordinated indebtedness and senior to all subordinated obligations of Host L.P.

Pledges and Guarantees. Under the senior notes indenture, all Host L.P. subsidiaries which guarantee Host L.P. debt are required to similarly guarantee debt issuances under the indenture. Also, to the extent the equity of any subsidiaries of Host L.P. is pledged to secure borrowings under the credit facility, such collateral likewise is required to secure senior note issuances under the senior notes indenture. While the credit facility currently does not include any subsidiary guarantees or pledges of equity interests, such guarantees or pledges subsequently will be required in the event that Host L.P.’s leverage ratio exceeds 6.0x for two consecutive fiscal quarters at a time that Host L.P. does not have an investment grade long-term unsecured debt rating. In the event that such guarantee and pledge requirement is triggered, the guarantees and pledges would ratably benefit the credit facility, as well as the senior notes issued under the senior notes indenture and certain hedging and bank product arrangements with lenders that are parties to the credit facility. If triggered, the guarantees and pledges only would be required by certain U.S. and Canadian subsidiaries of Host

L.P. and a substantial portion of our subsidiaries would not provide guarantees or pledges of equity interests. Further, if at any time our leverage ratio falls below 6.0x for two consecutive fiscal quarters or Host L.P. has an investment grade long-term unsecured debt rating, such guarantees and pledges may be released.

Senior Notes Indenture Covenants

Covenants for Senior Notes Issued After We Attained an Investment Grade Rating

On October 14, 2015, we completed an underwritten public offering of $400 million aggregate principal amount of Series F senior notes bearing interest at a rate of 4.5% per year due in 2026. The Series F senior notes are not redeemable prior to 90 days before the February 1, 2026 maturity date, except at a price equal to 100% of their principal amount, plus a make-whole premium as set forth in the senior notes indenture, plus accrued and unpaid interest to the applicable redemption date.

On May 15, 2015, we completed an underwritten public offering of $500 million aggregate principal amount of Series E senior notes bearing interest at a rate of 4% per year due in 2025. The Series E senior notes are not redeemable prior to 90 days before the June 15, 2025 maturity date, except at a price equal to 100% of their principal amount, plus a make-whole premium as set forth in the senior notes indenture, plus accrued and unpaid interest to the applicable redemption date.

Series E and F senior notes were issued under a new senior notes indenture and have covenants customary for investment grade debt, primarily limitations on our ability to incur debt. There are no restrictions on our ability to pay dividends. These senior notes have covenants similar to our Series D senior notes, but are different than the covenants applicable to our prior series of senior notes issued before our investment grade rating.

Under the terms of the Series D, E and F senior notes, Host L.P.’s ability to incur indebtedness is subject to restrictions and the satisfaction of various conditions, including the achievement of an EBITDA-to-interest coverage ratio of at least 1.5x by Host L.P. As calculated, this ratio excludes from interest expense items such as call premiums and deferred financing charges that are included in interest expense on Host L.P.’s consolidated statement of operations. In addition, the calculation is based on Host L.P.’s pro forma results for the four prior fiscal quarters, giving effect to certain transactions, such as acquisitions, dispositions and financings, as if they had occurred at the beginning of the period. Other covenants limiting Host L.P.’s ability to incur indebtedness include maintaining total indebtedness of less than 65% of adjusted total assets (using undepreciated real estate book values), maintaining secured indebtedness of less than 40% of adjusted total assets (using undepreciated real estate book values) and maintaining total unencumbered assets of at least 150% of the aggregate principal amount of outstanding unsecured indebtedness of Host L.P. and its subsidiaries. So long as Host L.P. maintains the required level of interest coverage and satisfies these and other conditions in the senior notes indenture, it may incur additional debt.

We are in compliance with all of the financial covenants applicable to our Series D, E and F senior notes. The following table summarizes the financial tests contained in the senior notes indenture for our Series D, E and F senior notes and our actual credit ratios as of December 31, 2015:

			Covenant Requirement
Unencumbered assets tests	491	%	Minimum ratio of 150%
Total indebtedness to total assets	21	%	Maximum ratio of 65%
Secured indebtedness to total assets	2	%	Maximum ratio of 40%
EBITDA-to-interest coverage ratio	9.1	x	Minimum ratio of 1.5x

Covenants for Senior Notes Issued Before We Attained an Investment Grade Rating

Currently, our senior notes have an investment grade rating from both Moody's and Standard & Poor's. As a result, many of the restrictive covenants contained in the senior notes indenture and the supplemental indentures for our prior series of senior notes are not applicable, as they do not apply for so long as such series of notes maintain an investment grade rating from both Moody's and Standard & Poor's. The following primary covenants continue to apply to our existing senior notes (other than our Series D, E and F senior notes):

	●	restrict our ability to sell all or substantially all of our assets or merge with or into other companies; and

	●	require us to make an offer to repurchase the existing senior notes then currently outstanding upon the occurrence of a change of control.

If our senior notes no longer are rated investment grade by either or both of Moody's and Standard & Poor's, then the following covenants and other restrictions will be reinstated for our senior notes (but will not apply to the Series D, E and F senior notes which have different covenants):

	●	our ability to incur indebtedness and make distributions will be subject to restrictions and the satisfaction of various conditions, including the achievement of an EBITDA-tointerest coverage ratio of at least 2.0x. We will be able to make distributions to enable Host Inc. to pay dividends on its preferred stock, if any, under the senior notes indenture when our EBITDA-to-interest coverage ratio is above 1.7 to 1.0. This ratio is calculated in accordance with the terms of our senior notes indenture applicable to our non-investment grade senior notes based on pro forma results for the four prior fiscal quarters, giving effect to transactions such as acquisitions, dispositions and financings, as if they had occurred at the beginning of the period. Interest expense excludes items such as the gains and losses on the extinguishment of debt, deferred financing charges related to the senior notes or the credit facility, amortization of debt premiums or discounts that were recorded at acquisition of a loan in order to establish the debt at fair value, and, during the year ended December 31, 2015, approximately $13 million of non-cash interest, which represents interest expense recorded as a result of the implementation in 2009 of an accounting requirement relating to our outstanding Exchangeable Senior Debentures. These amounts are included in interest expense on our consolidated statements of operations;

	●	other covenants limiting our ability to incur indebtedness and make distributions would include maintaining total indebtedness of less than 65% of adjusted total assets (using undepreciated real estate book values), excluding intangible assets, and maintaining secured indebtedness and subsidiary indebtedness of less than 45% of adjusted total assets. So long as we maintain the required level of interest coverage and satisfy these and other conditions in the senior notes indenture applicable to our existing senior notes, we may make preferred or common OP unit distributions and incur additional debt, including debt incurred in connection with an acquisition. Even if we are below the coverage levels otherwise required to incur debt and make distributions when our senior notes no longer are rated investment grade, we still will be permitted to incur certain types of debt, including (i) credit facility debt, (ii) refinancing debt, (iii) up to $400 million of mortgage debt, which proceeds would be used to repay debt under the credit facility (and permanently reduce our ability to borrow under the credit facility by such amount), and (iv) up to $150 million of other debt. We also will be permitted to make distributions of estimated taxable income that are necessary to maintain Host Inc.'s REIT status;

	●	a requirement to maintain unencumbered assets, based on undepreciated book values, of not less than 125% of the aggregate amount of senior note debt, plus other debt not secured by mortgages. This coverage requirement must be maintained at all times and is distinct from the coverage requirements necessary to incur debt or make distributions discussed above (which consequences, where we fall below the coverage level, are limited to restricting our ability to incur new debt or make distributions, but which would not otherwise cause a default under our senior notes indenture); and

	●	our ability to make distributions on, redeem or repurchase our OP units; permit payment or distribution restrictions on certain of our subsidiaries; sell assets; enter into transactions with affiliates; and create certain liens will be restricted.

The following summarizes the actual credit ratios for our senior notes (other than the Series D, E and F senior notes) as of December 31, 2015 and the covenant requirements contained in the senior notes indenture that would be applicable at such times as our senior notes no longer are rated investment grade by either of Moody’s or Standard & Poor’s. Even if we were to lose the investment grade rating, we would be in compliance with all of our financial covenants under the senior notes indenture:

			Covenant Requirement
Unencumbered assets tests	499	%	Minimum ratio of 125%
Total indebtedness to total assets	21	%	Maximum ratio of 65%
Secured indebtedness to total assets	1	%	Maximum ratio of 45%
EBITDA-to-interest coverage ratio	9.2	x	Minimum ratio of 2.0x

	*	Because of differences in the calculation methodology between our Series D, Series E and Series F senior notes and our other senior notes, our actual ratios as reported can be slightly different.

Exchangeable Debentures. In 2009 Host L.P. issued $400 million of 2½% exchangeable senior debentures. In October 2015, Host L.P. gave notice that it would redeem all of its currently outstanding Debentures at a cash redemption price of 100% of the principal amount, plus accrued interest. At the time, the Debentures were exchangeable and the exchange price was equivalent to a Host Inc. share price of $12.45. Based on Host Inc.’s then current stock price, the exchange value of the Debentures exceeded the cash redemption price and holders of all but $1 million of the Debentures elected to exchange their Debentures for shares of Host Inc. common stock at the exchange value rather than receive the redemption price at par. As a result, we issued 32 million shares of Host Inc. common stock upon exchange (including $8.7 million of Debentures that had elected to exchange in July 2015) and redeemed approximately $1 million of Debentures for cash.

Credit Facility. On June 27, 2014, we entered into a senior revolving credit facility with Bank of America, N.A., as administrative agent, JPMorgan Chase Bank, N.A., as syndication agent, and certain other agents and lenders. The credit facility allows for revolving borrowings in an aggregate principal amount of up to $1 billion, including a foreign currency subfacility for Canadian dollars, Australian dollars, New Zealand dollars, Japanese yen, Euros, British pound sterling and, if available to the lenders, Mexican peso, of up to the foreign currency equivalent of $500 million, subject to a lower amount in the case of New Zealand dollar and Mexican peso borrowings. The credit facility also provides a subfacility of up to $100 million for swingline borrowings in U.S. dollars, Canadian dollars, Euros or British pounds sterling and a subfacility of up to $100 million for issuances of letters of credit. Host L.P. also has the option to increase the aggregate principal amount of the credit facility by up to $500 million, subject to obtaining additional loan commitments and satisfaction of certain conditions. The credit facility has an initial scheduled maturity of June 2018, with two six-month renewal options, subject to certain conditions, including the payment of an extension fee and the accuracy of representations and warranties.

Credit Facility Term Loan. The June 2014 credit facility contained a term loan facility of $500 million, which replaced and refinanced the term loan under our prior facility of like amount. The term loan facility contains an option for us to increase the aggregate principal amount of the term loan facility by up to $500 million in the future, subject to obtaining additional loan commitments and the satisfaction of the other conditions specified in the credit facility. The term loan facility has an initial scheduled maturity of June 2017, with two one-year renewal options, subject to certain conditions, including the payment of an extension fee and the accuracy of representations and warranties.

The term loan does not require any scheduled amortization payments prior to maturity. The term loan otherwise is subject to the same terms and conditions as those in the credit facility regarding subsidiary guarantees and pledges of security interests in subsidiaries, operational covenants, financial covenants and events of default (as discussed below).

Amended and Restated Credit Facility. On September 10, 2015, Host L.P. entered into an amendment and restatement of its existing $1 billion revolving loan facility and $500 million term loan bank credit facility with Bank of America, N.A., as administrative agent, for the purpose of adding a new $500 million delayed draw term loan facility (the “2015 Term Loan Facility”). The 2015 Term Loan Facility was established through an exercise of the option under the existing credit facility to increase the amount of the facility by up to $500 million. The restatement also included the opportunity to add an additional $500 million of commitments which may be used for revolving credit facility borrowings and/or term loans, subject to obtaining additional loan commitments and the satisfaction of the other conditions specified in the restatement.

Host L.P. drew $300 million under the 2015 Term Loan Facility on September 10, 2015, and the remaining $200 million balance was drawn on December 29, 2015. Borrowings under the 2015 Term Loan Facility were used to repay amounts outstanding under the revolver portion of the credit facility.

The 2015 Term Loan Facility will mature in September 2020. The maturity dates of the revolving loan facility and the existing term loan facility under the existing credit facility remain unchanged. Neither the revolving loan facility, the 2014 Term Loan Facility nor the 2015 Term Loan Facility require any scheduled amortization payments prior to maturity. The 2015 Term Loan Facility is otherwise subject to terms and conditions similar to those in the existing credit facility regarding subsidiary guarantees and pledges of security interests in subsidiaries, operational covenants, financial covenants and events of acceleration, all of which remain unchanged under the restatement.

Collateral and Guarantees. The credit facility does not currently include any subsidiary guarantees or pledges of equity interests in our subsidiaries or any other security, and the guarantees and pledges are required only in the event that Host L.P.’s leverage ratio exceeds 6.0x for two consecutive fiscal quarters at a time that Host L.P. does not have an investment grade long-term unsecured debt rating. In the event that such guarantee and pledge requirement is triggered, the guarantees and pledges would ratably benefit the credit facility, as well as the notes outstanding under Host L.P.’s senior notes indenture, interest rate and currency hedges and certain other hedging and bank product arrangements with lenders that are parties to the credit facility. Even when triggered, the guarantees and pledges only would be required by certain U.S. and Canadian subsidiaries of Host L.P. and a substantial portion of our subsidiaries would provide neither guarantees nor pledges of equity interests. Further, if at any time our leverage ratio falls below 6.0x for two consecutive fiscal quarters or Host L.P. has an investment grade long-term unsecured debt rating, such guarantees and pledges may be released.

Prepayments. Voluntary prepayments of revolver borrowings and term loans under the credit facility are permitted in whole or in part without premium or penalty. The loans under the credit facility are required to be prepaid in the event that asset sales reduce adjusted total assets (using undepreciated real estate book values) to below $10 billion if we do not reinvest the proceeds of those asset sales in new properties. At December 31, 2015, we have adjusted total assets, as defined in our credit facility, of $19 billion.

Financial Covenants. The credit facility contains covenants concerning allowable leverage, fixed charge coverage and unsecured interest coverage. We are permitted to make borrowings and maintain amounts outstanding under the credit facility so long

as our leverage ratio is not in excess of 7.25x, our unsecured coverage ratio is not less than 1.75x and our fixed charge coverage ratio is not less than 1.25x. The financial covenants for the credit facility do not apply when there are no borrowings under the credit facility. Hence, so long as there are no amounts outstanding thereunder and the term loans are repaid, we would not be in default if we do not satisfy the financial covenants and we do not lose the potential to draw under the revolver portion of the credit facility in the future if we were ever to regain compliance with the financial covenants. These calculations are performed based on pro forma results for the prior four fiscal quarters, giving effect to transactions such as acquisitions, dispositions and financings as if they had occurred at the beginning of the period. Under the terms of the credit facility, interest expense excludes items such as the gains and losses on the extinguishment of debt, deferred financing charges related to the senior notes or the credit facility, amortization of debt premiums or discounts that were recorded at issuance of a loan in order to establish its fair value and non-cash interest expense due to the implementation in 2009 of accounting standards relating to our exchangeable debentures, all of which are included in interest expense on our consolidated statement of operations. Additionally, total debt used in the calculation of our leverage ratio is based on a “net debt” concept, pursuant to which cash and cash equivalents in excess of $100 million are deducted from our total debt balance.

We are in compliance with all of our financial covenants under the credit facility. The following table summarizes the financial tests contained in the credit facility as of December 31, 2015:

			Covenant Requirement for all years
Leverage ratio	2.8	x	Maximum ratio of 7.25x
Fixed charge coverage ratio	7.0	x	Minimum ratio of 1.25x
Unsecured interest coverage ratio (1)	10.5	x	Minimum ratio of 1.75x
___________

(1)	If at any time our leverage ratio is above 7.0x, our minimum unsecured interest coverage ratio will be reduced to 1.5x.

Interest and Fees. We pay interest on revolver borrowings under the credit facility at floating rates equal to LIBOR plus a margin. The margin ranges from 87.5 to 155 basis points (depending on Host L.P.’s unsecured long-term debt rating). We also pay a facility fee ranging from 12.5 to 30 basis points, depending on our rating and regardless of usage. Based on Host L.P.’s unsecured long-term debt rating as of December 31, 2015, we are able to borrow at a rate of LIBOR plus 100 basis points and pay a facility fee of 20 basis points. Interest on the term loans consists of floating rates equal to LIBOR plus a margin ranging from 90 to 175 basis points (depending on Host L.P.’s unsecured long-term debt rating). Based on Host L.P.’s long-term debt rating as of December 31, 2015, our applicable margin on LIBOR loans under the 2014 Term Loan is 112.5 basis points, for an all-in interest rate of 1.55%. Our applicable margin on the 2015 Term Loan for LIBOR loans is 110 basis points.

Other Covenants and Events of Default. The credit facility contains restrictive covenants on customary matters. Certain covenants are less restrictive at any time that our leverage ratio is below 6.0x, as currently is the case. In particular, at any time that our leverage ratio is below 6.0x, we will not be subject to limitations on capital expenditures, and the limitations on acquisitions, investments, dividends and distributions contained in the credit facility will be superseded by the generally less restrictive corresponding covenants in our senior notes indenture to the extent applicable, while our senior notes maintain an investment grade rating. Additionally, the credit facility’s restrictions on incurrence of debt and the payment of dividends and distributions generally are consistent with our senior notes indenture. These provisions, under certain circumstances, limit debt incurrence to debt incurred under the credit facility or in connection with a refinancing, and limit dividend payments to those necessary to maintain Host Inc.’s tax status as a REIT.

The credit facility also includes usual and customary events of default for facilities of this nature, and provides that, upon the occurrence and continuance of an event of default, payment of all amounts due under the credit facility may be accelerated and the lenders’ commitments may be terminated. In addition, upon the occurrence of certain insolvency or bankruptcy related events of default, all amounts due under the credit facility will automatically become due and payable and the lenders’ commitments automatically will terminate.

Mortgage and Other Debt. As of December 31, 2015, we had mortgage debt secured by seven hotels, which represent 4% of our total revenues in 2015. All of our mortgage debt is recourse solely to specific assets, except in instances of fraud, misapplication of funds and other customary recourse provisions. As of December 31, 2015, secured debt represented approximately 9% of our total debt and our aggregate secured debt had an average interest rate of 4.7% and an average maturity of 4.0 years.

The following table summarizes our outstanding debt and scheduled amortization and maturities related to mortgage and other debt as of December 31, 2015 (in millions):

	Balance as of
	December 31,
	2015		2016		2017		2018		2019		2020		Thereafter
Mortgage Debt
Harbor Beach Marriott Resort and Spa, 4.75%, due 1/1/2024	$	150	$	—	$	—	$	—	$	—	$	—	$	150
New Zealand hotel portfolio, 5.85%, due 2/18/2018 (1)		36		—		—		36		—		—		—
Hyatt Regency Reston, 3.35%, due 7/1/16 (2)		100		100		—		—		—		—		—
Hilton Melbourne South Wharf, 6.07%, due 11/23/2016 (3)		63		63		—		—		—		—		—
Capital leases		1		1		—		—		—		—		—
Total mortgage debt	$	350	$	164	$	—	$	36	$	—	$	—	$	150
___________

(1)	The floating interest rate is equal to the 3-month New Zealand Bank Bill Rate plus 66 basis points plus an additional commitment fee of 44 basis points per annum. In addition, we entered into a swap agreement that fixes 75% of the loan at an all-in rate of 6.85%. The rate shown reflects the rate in effect at December 31, 2015.

(2)	This floating rate mortgage is based on LIBOR plus 310 basis points. The rate shown reflects the rate in effect at December 31, 2015.

(3)	The floating interest rate is equal to the 3-month BBSY plus 230 basis points. In addition, we entered into separate agreements that fix 75% of the loan at an all-in rate of 6.7% and that cap the remaining 25% at an all-in interest rate of 9.9%. The rate shown reflects the rate in effect at December 31, 2015.

Mortgage Debt of Consolidated and Unconsolidated Partner Interests. For the entities that we consolidate in our financial statements that have third party non-controlling partnership interests, the portion of mortgage debt included in the above table that is attributable to the non-controlling interests, based on their percentage of ownership of the ventures, is approximately $91 million. Additionally, we have non-controlling interests in partnerships and joint ventures that are not consolidated and are accounted for under the equity method. The portion of the mortgage and other debt of these partnerships and joint ventures attributable to us, based on our ownership percentage thereof, was $347 million at December 31, 2015. This debt balance primarily is attributable to our approximate one-third ownership interest in the Euro JV. The mortgage debt related to the hotels owned by our Euro JV contains operating covenants that could result in the joint venture being required to escrow cash from operations or to make principal payments without penalty. The debt of our European and Asia/Pacific joint ventures is non-recourse to us. In addition, we have jointly and/or severally guaranteed construction loans incurred by our Maui timeshare and Hyatt Place Nashville joint ventures. See “—Off-Balance Sheet Arrangements and Contractual Obligations.”

Distribution/Dividend. Host Inc.’s policy on common dividends generally is to distribute, over time, 100% of its taxable income, which primarily is dependent on our results of operations, as well as gains and losses on property sales. Host Inc. paid a regular quarterly cash dividend of $0.20 per share on its common stock on January 15, 2016 to stockholders of record as of December 31, 2015. The $0.20 per share dividend represents Host Inc.’s intended regular quarterly dividend for the next several quarters, subject to Board approval. While Host Inc. intends to use available cash predominantly for acquisitions or other investments in its portfolio, to the extent that we do not identify appropriate investments, it may elect in the future, subject to market conditions, to use available cash for other purposes, such as common stock repurchases or increased dividends, which dividends could be in excess of taxable income. Any special dividend would be subject to approval by Host Inc.’s Board of Directors.

Funds used by Host Inc. to pay dividends are provided through distributions from Host L.P. As of December 31, 2015, Host Inc. is the owner of approximately 99% of Host L.P.’s common OP units. The remaining common OP units are owned by various unaffiliated limited partners. Each OP unit may be offered for redemption by the holders for cash or, at the election of Host Inc., Host Inc. common stock based on the then current conversion ratio. The current conversion ratio is 1.021494 shares of Host Inc. common stock for each OP unit.

Investors should take into account the 1% non-controlling position of Host L.P. OP units when analyzing dividend payments by Host Inc. to its stockholders, as these holders of OP units share, on a pro rata basis, in amounts being distributed by Host L.P. to holders of its corresponding OP units. For example, if Host Inc. paid a $1 per share dividend on its common stock, it would be based on the payment of a $1.021494 per common unit distribution by Host L.P. to Host Inc., as well as to the other common OP unitholders.

Off-Balance Sheet Arrangements and Contractual Obligations

Off-Balance Sheet Arrangements. We are party to various transactions, agreements or other contractual arrangements with unconsolidated entities (which we refer to as “off-balance sheet arrangements”), pursuant to which we have certain contingent liabilities and/or guarantees. Contingencies included on our balance sheet are discussed in Part II Item 8. “Financial Statements and Supplementary Data – Note 16. “Guarantees and Contingencies.” As of December 31, 2015, we are party to the following material off-balance sheet arrangements:

European Joint Venture. The Euro JV consists of two separate funds, with our partners being APG Strategic Real Estate Pool NV, an affiliate of a Dutch Pension Fund, and Jasmine Hotels Pte Ltd, an affiliate of the real estate investment company of the Government of Singapore Investment Corporation Pte Ltd (“GIC RE”). We serve as the general partner for the joint venture and have a combined general and limited partner interest of 32.1% with respect to Euro JV Fund I and 33.4% with respect to Euro JV Fund II. Due to the ownership structure and substantive participating rights of the non-Host limited partners, including approval over financing, acquisitions and dispositions, and annual operating and capital expenditures budgets, the Euro JV is not consolidated in our financial statements. As of December 31, 2015, the total assets of the Euro JV are approximately €1.6 billion.

Our investment and partners’ funding as of December 31, 2015 is as follows:

	Host's Net Investment				Total Partner Funding
	Euros (in millions)		US$ (in millions)		Euros (in millions)		% of Total Commitment
Euro JV Fund I	€	125	$	135	€	463	67%(1)
Euro JV Fund II		106		116		301		67%
	€	231	$	251	€	764
___________

(1)	The remaining commitment is limited to investments in the current portfolio of hotels, including capital expenditures and debt repayments.

In July 2015, the Euro JV Fund II partners amended the Euro JV partnership agreement to extend the commitment period for Euro JV Fund II by one year to June 27, 2016. The commitment period of Euro JV Fund I for acquisitions expired in December 2015. As asset manager of the Euro JV funds, we earn an asset management fee based on the amount of equity commitments and equity invested, which fees in 2015, 2014 and 2013 were approximately $11 million, $16 million and $15 million, respectively.

The following table sets forth operating statistics for the Euro JV comparable hotels as of December 31, 2015 and 2014:

	Comparable Euro JV Hotels in Constant Euros (1)
							Change
	2015			2014			2014 to 2015
Average room rate	€	218.87		€	210.30			4.1	%
Average occupancy		78.2	%		78.1	%		10	bps
RevPAR	€	171.14		€	164.24			4.2	%
___________

(1)	The presentation above includes the operating performance for the 9 properties consisting of 3,499 rooms in the joint venture with comparable results. The table excludes nine hotels sold in 2015, one hotel sold in 2014, and one hotel acquired in 2014 as the Euro JV did not own these hotels for the entirety of the periods presented. See “-Comparable Hotel Operating Statistics.”

The operating statistics of the hotels are presented in constant Euros, the functional currency of the Euro JV, in order to present the results of the hotels without the effects of foreign currency exchange rates. The functional currency of the hotel owned in the United Kingdom is the British pound sterling. For the year ended December 31, 2015, the Euro JV’s comparable hotel RevPAR in constant euros increased by 4.2%, which resulted in total revenue increase of 2.5%, on a constant euro basis.

For 2015, 2014 and 2013, our portion of the earnings (losses) of the Euro JV was €51 million ($57 million), €17 million ($21 million) and €(9) million, ($(12) million), respectively, and is included in equity in earnings (losses) of affiliates on our statements of operations. The earnings in 2015 include €39 million ($43 million) related to our portion of the gains recognized on the sale of nine properties, discussed below. The earnings in 2014 include €3 million ($4 million) related to our portion of the gains recognized on the sale of one property. The loss in 2013 includes €11 million ($15 million) related to our portion of a €33 million impairment expense related to the Sheraton Roma Hotel & Conference Center, which has been sold. In addition to the US GAAP impairment analysis performed for each of the properties at the partnership level, we also reviewed our investment in the Euro JV for other-than-temporary impairment and determined that no additional impairment expense was necessary in 2015 or 2014.

Cash flows from operating activities of the Euro JV were €78 million, €69 million and €36 million for 2015, 2014 and 2013, respectively. Future cash flows from operations primarily are expected to continue to be used to invest in the portfolio through capital expenditures, to fund other investments or distributions to partners.

During 2015, the Euro JV distributed €328.5 million to its partners, of which Host’s share was €107 million ($115 million). Ninety-two percent of the 2015 distributions were funded by proceeds from the hotel dispositions described below, while the remainder was funded by cash from operations. During 2014, the Euro JV distributed €37 million to its partners, of which Host’s share was €12 million ($17 million), which distributions were funded with net proceeds from the hotel disposition described below. During 2015, 2014 and 2013, the Euro JV invested approximately €23 million, €21 million and €32 million, respectively, in capital expenditures projects. The Euro JV expects to spend between €15 million and €25 million on capital expenditures in 2016, none of which capital expenditures are expected to require additional partner contributions.

During 2015, the Euro JV sold nine properties for €526 million and repaid €229 million of mortgage loans secured by the properties. During 2014, the Euro JV sold one property for £33 million and repaid the £21 million mortgage loan secured by the property. Net proceeds from the hotel sales were distributed to the partners and were used for other partnership investments.

In 2014, the Euro JV acquired a 90% interest in the 394-room Grand Hotel Esplanade Berlin (renamed the Sheraton Berlin Grand Hotel Esplanade). The hotel was acquired based on an aggregate gross value of €81 million, and the partnership assumed €48 million of mortgage and other long-term debt. The net assets acquired were funded by partner contributions.

The Euro JV has €734 million of mortgage debt, all of which is non-recourse to us. A default of the Euro JV mortgage debt does not trigger a default under any of our debt. In addition to the repayment of mortgage debt in conjunction with the hotel dispositions described above, the Euro JV refinanced €174 million of mortgage debt in 2015, reducing its weighted average interest rate to 2.6%, a reduction of 90 basis points compared to year end 2014.

The following presents our portion of the Euro JV debt maturities as of December 31, 2015 (in USD):

We have entered into four foreign currency forward sale contracts in order to hedge the foreign currency exposure resulting from the eventual repatriation of our net investment in the Euro JV. The forward purchases will occur between January 2016 and September 2017. We have hedged €177 million (approximately $208 million), of our investment through these contracts and have designated draws under our credit facility in Euros. For additional detail on the foreign currency forward sale contracts and our exposure to changes in foreign currency exchange rates, see Part II Item 7A. “—Quantitative and Qualitative Disclosures about Market Risk.”

Asia/Pacific Joint Venture. We have a 25% interest in the Asia/Pacific JV with RECO Hotels JV Private Limited, an affiliate of GIC RE. The agreement may be terminated by either partner at any time, which would trigger the liquidation of the JV. Due to the ownership structure and the substantive participating rights of the non-Host limited partner, including approval over financing, acquisitions and dispositions, and annual operating and capital expenditures budgets, the Asia/Pacific JV is not consolidated in our financial statements. The commitment period for equity contributions to the Asia/Pacific JV expired in March 2012.

As of December 31, 2015, the partners have invested approximately $96 million (of which our share was $24 million) in a separate joint venture in India with Accor S.A. and InterGlobe Enterprises Limited, in which the Asia/Pacific JV holds a 36% interest. This joint venture owns five operating properties and is developing two additional properties in India, totaling approximately 1,750 rooms. Two of the properties opened in Bangalore in 2012, one opened in Chennai in 2014 and two opened in New Delhi in 2015. The two properties that are under various stages of development are located in Chennai. The hotels currently are and will be managed by AccorHotels under the Pullman, ibis and Novotel brands.

On October 14, 2015, the Asia/Pacific JV sold the Four Points by Sheraton Perth for A$91.5 million and repaid A$43 million of mortgage debt. The JV recorded a gain on sale of approximately A$11 million ($8 million).

Maui Joint Venture. We have a 67% ownership interest in a joint venture with an affiliate of HV Global Group, a subsidiary of Interval Leisure Group (“Interval”), to develop, sell and operate a 131-unit vacation ownership project in Maui, Hawaii adjacent to our Hyatt Regency Maui Resort & Spa (the “Maui JV”). Our ownership is a non-controlling interest as a result of the significant economic rights held by the Interval member, which also is the managing member. The project opened in December 2014 with total development costs of approximately $195 million, which was partially funded with a $110 million construction loan. The construction loan is jointly and severally guaranteed by us and Hyatt Hotels Corporation, and with member contributions. As of December 31, 2015, $44 million was outstanding on the construction loan. We have contributed approximately $87 million to the Maui JV, which includes the contribution of land valued at $36 million. During 2015 and 2014, the Maui JV recognized $76 million and $54 million in sales of timeshare units. We recognized earnings of $9 million and $3 million in 2015 and 2014, respectively, which includes our portion of the net income of the partnership as well as a portion of the deferred gain on the contribution of the land.

Hyatt Place Joint Venture. We own a 50% interest in the 255-room Hyatt Place Nashville Downtown in Tennessee, which was developed for $43 million through a joint venture with White Lodging Services. The joint venture holds a $31 million loan, for which the partners have jointly and/or severally guaranteed 50% or the value. We invested approximately $6 million for our investment in the joint venture. Due to the significant control rights of our partner, we do not consolidate the joint venture in our financial statements.

For additional discussion on each of our joint venture investments see Part II Item 8. Financial Statements and Supplementary Data – Note 3. “Investments in Affiliates.”

Contractual Obligations. The table below summarizes our obligations for principal and estimated interest payments on our debt, future minimum lease payments on our operating and capital leases, projected capital expenditures and other long-term liabilities, each as of December 31, 2015 (in millions):

	Payments due by period
			Less than						More than
	Total		1 year		1 to 3 years		3 to 5 years		5 years
Long-term debt obligations (1)	$	5,007	$	307	$	1,098	$	751	$	2,851
Capital lease obligations		1		1		—		—		—
Operating lease obligations		1,715		44		84		78		1,509
Purchase obligations (2)		513		463		50		—		—
Other long-term liabilities reflected on the balance sheet (3)		9		—		—		—		9
Total	$	7,245	$	815	$	1,232	$	829	$	4,369
___________

(1)	The amounts shown include amortization of principal, debt maturities and estimated interest payments. Interest payments have been reflected based on the weighted average interest rate.

(2)	Our only purchase obligations consist of commitments for capital expenditures at our hotels. Under our contracts, we have the ability to defer some of these expenditures into later years.

(3)

The amounts shown include deferred management fees and the estimated amount of tax expense. Under terms of our management agreements, we have deferred payment of management fees to our hotel managers for two of our properties that have not achieved the required income thresholds for payment of owner’s priority to us. The timing of the payments, if any, is based on future operations, the termination of the management agreement or the sale of the hotel, and is, therefore, not determinable. The estimated amount of tax expense relates to uncertain tax liabilities.

Tax Sharing Arrangements. Under tax sharing agreements with former affiliated companies (such as Marriott International, Inc., HMS Host and Barceló Crestline Corporation), we are obligated to pay certain taxes (federal, state, local and foreign, including any related interest and penalties) relating to periods in which the companies were affiliated with us. For example, a taxing authority could adjust an item deducted by a former affiliate during the period that such former affiliate was owned by us. This adjustment could result in a tax liability that we may be obligated to pay under the tax sharing agreement. Additionally, under the partnership agreement between Host Inc. and Host L.P., Host L.P. is obligated to pay certain taxes (federal, state, local and foreign, including any related

interest and penalties) incurred by Host Inc., as well as any liabilities the IRS may successfully assert against Host Inc. We do not expect any amounts paid under these tax sharing arrangements to be material.

Tax Indemnification Agreements. As a result of certain federal and state income tax considerations of the former owners of two hotels currently owned by Host L.P., we have agreed to restrictions on selling such hotels, or repaying or refinancing the mortgage debt, for varying periods. One of these agreements expires in 2028 and the other in 2031.

Guarantees. We have entered into certain guarantees, which consist of commitments we have made to third parties for leases or debt, that are not recorded on our books due to various dispositions, spin-offs and contractual arrangements, but that we have agreed to pay in the event of certain circumstances, including default by an unrelated party. We consider the likelihood of any material payments under these guarantees to be remote. For a discussion of the largest guarantees (by dollar amount) see “Item 8. Financial Statements and Supplementary Data - Note 16. Guarantees and Contingencies.”

Critical Accounting Policies

Our consolidated financial statements have been prepared in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. While we do not believe the reported amounts would be materially different, application of these policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. We evaluate our estimates and judgments, including those related to the impairment of long-lived assets, on an ongoing basis. We base our estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances. All of our significant accounting policies are disclosed in the notes to our consolidated financial statements. For a detailed discussion of the following critical accounting policies that require us to exercise our business judgment or make significant estimates see “Item 8. Financial Statements and Supplementary Data - Note 1. Summary of Significant Accounting Policies:”

	·	Business Combinations;

	·	Property and Equipment – Impairment testing;

	·	Property and Equipment – Other-than-Temporary Impairment of an Investment;

	·	Property and Equipment – Classification of Assets as “Held for Sale”;

	·	Depreciation and Amortization Expense;

	·	Derivative Instruments;

	·	Basis of Presentation and Principles of Consolidation;

	·	Foreign Currency Translation;

	·	Income Taxes – Deferred Tax Assets and Liabilities. Additionally, see “Item 8. Financial Statements and Supplementary Data - Note 6. Income Taxes” for more information; and

	·	Share based payments. Additionally, see “Item 8. Financial Statements and Supplementary Data - Note 8. Employee Stock Plans” for more information.

Application of New Accounting Standards

In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The new standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The standard is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. We adopted ASU 2015-03 effective December 31, 2015 and reclassified deferred financing costs, net, from total assets to net of debt in the liabilities section of our balance sheet. Adoption of this standard affects only the presentation of our balance sheets.

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis. The ASU amends the consolidation guidance for variable interest entities (VIEs) and general partners' investments in limited partnerships and modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities. The ASU is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted.

In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which affects virtually all aspects of an entity’s revenue recognition. The new standard sets forth five prescribed steps to determine the timing and amount of revenue to be recognized to appropriately depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effectiveness of ASU No. 2014-09 to reporting periods beginning after December 15, 2017 and permitted early application for annual reporting periods beginning after December 15, 2016. We have not yet completed our assessment of the effect of the new standard on our financial statements, including possible transition alternatives.

Our Customers

Our customers fall into three broad groups: transient business, group business and contract business. Similar to the majority of the lodging industry, we further categorize business within these broad groups based on characteristics they have in common as follows:

Transient business broadly represents individual business or leisure travelers. Business travelers make up the majority of transient demand at our hotels. Therefore, we will be significantly more affected by trends in business travel than trends in leisure demand. The four key subcategories of the transient business group are:

	●	Retail: This is the benchmark rate that a hotel publishes and offers to the general public. It typically is the rate charged to travelers that do not have access to negotiated or discounted rates. It includes the “rack rate,” which typically is applied to rooms during high demand periods and is the highest rate category available. Retail room rates will fluctuate more freely depending on anticipated demand levels (e.g. seasonality and weekday vs. weekend stays).

	●	Non-Qualified Discount: These include special rates offered by the hotels, including packages, advance-purchase discounts and promotional offers. These also include rooms booked through online travel agencies (OTAs).

	●	Special Corporate: This is a negotiated rate offered to companies and organizations that provide significant levels of room night demand to the hotel or to hotel brands generally. These rates typically are negotiated annually at a discount to the anticipated retail rate. In addition, this category includes rates offered at the prevailing per diem for approved government travel.

	●	Qualified Discount: This category encompasses all discount programs, such as AAA and AARP discounts, rooms booked through wholesale channels, frequent guest program redemptions, and promotional rates and packages offered by a hotel.

Group business represents clusters of guestrooms booked together, usually with a minimum of 10 rooms. The three key sub-categories of the group business category are:

	●	Association: group business related to national and regional association meetings and conventions.

	●	Corporate: group business related to corporate meetings (e.g., product launches, training programs, contract negotiations, and presentations).

	●	Other: group business predominately related to social, military, education, religious, fraternal and youth and amateur sports teams, otherwise known as SMERF business.

Contract business refers to blocks of rooms sold to a specific company for an extended period of time at significantly discounted rates. Airline crews are typical generators of contract demand for our airport hotels. Additionally, contract rates may be utilized by hotels that are located in markets that are experiencing consistently lower levels of demand.

Comparable Hotel Operating Statistics

To facilitate a year-to-year comparison of our operations, we present certain operating statistics (i.e., RevPAR, average daily rate and average occupancy) and operating results (revenues, expenses, hotel EBITDA and associated margins) for the periods included in this report on a comparable hotel basis to enable our investors to better evaluate our operating performance.

Because these statistics and operating results relate only to our hotel properties, they exclude results for our non-hotel properties and other real estate investments. We define our comparable hotels as properties:

	(i)	that are owned or leased by us and the operations of which are included in our consolidated results, whether as continuing operations or discontinued operations, for the entirety of the reporting periods being compared; and

	(ii)	that have not sustained substantial property damage or business interruption, or undergone large-scale capital projects (as further defined below) during the reporting periods being compared.

The hotel business is capital-intensive and renovations are a regular part of the business. Generally, hotels under renovation remain comparable hotels. A large scale capital project that would cause a hotel to be excluded from our comparable hotel set is an extensive renovation of several core aspects of the hotel, such as rooms, meeting space, lobby, bars, restaurants and other public spaces. Both quantitative and qualitative factors are taken into consideration in determining if the renovation would cause a hotel to be removed from the comparable hotel set, including unusual or exceptional circumstances such as: a reduction or increase in room count, rebranding, a significant alteration of the business operations, or the closing of the hotel during the renovation.

We do not include an acquired hotel in our comparable hotel set until the operating results for that hotel have been included in our consolidated results for one full calendar year. For example, we acquired The Phoenician in June 2015. The hotel will not be included in our comparable hotel set until January 1, 2017. Hotels that we sell are excluded from the comparable hotel set once the transaction has closed. Similarly, hotels are excluded from our comparable hotel set from the date that they sustain substantial property damage or business interruption or commence a large-scale capital project. In each case, these hotels are returned to the comparable hotel set when the operations of the hotel have been included in our consolidated results for one full calendar year after completion of the repair of the property damage or cessation of the business interruption, or the completion of large-scale capital projects, as applicable.

Of the 107 hotels that we owned on December 31, 2015, 96 have been classified as comparable hotels. The operating results of the following hotels that we owned as of December 31, 2015 are excluded from comparable hotel results for these periods:

	●	Novotel Rio de Janeiro Parque Olimpico and ibis Rio de Janeiro Parque Olimpico (opened in the fourth quarter of 2014);

	●	The Phoenician (acquired in June 2015);

	●	YVE Hotel Miami (acquired as the b2 miami downtown hotel in August 2014);

	●	Axiom Hotel (acquired as the Powell Hotel in January 2014);

	●	The Camby Hotel (previously The Ritz-Carlton, Phoenix), removed in the third quarter of 2015 (business interruption due to rebranding, including closure of the hotel in July 2015 for extensive renovation work);

	●	Sheraton Santiago Hotel & Convention Center and San Cristobal Tower, Santiago, removed in the second quarter of 2015 (business interruption due to extensive guestroom renovation and reconfiguration, which requires temporary closure of a significant portion of the guestrooms);

	●	The Logan (previously the Four Seasons Philadelphia), removed in the first quarter of 2015 (business interruption due to rebranding, including closure of the hotel in order to expedite renovation efforts);

	●	Houston Airport Marriott at George Bush Intercontinental, removed in the first quarter of 2015 (business interruption due to complete repositioning of the hotel, including guest room renovations and the closure of two restaurants to create a new food and beverage outlet and lobby experience); and

	●	Marriott Marquis San Diego Marina, removed in the first quarter of 2015 (business interruption due to the demolition of the existing conference center and new exhibit hall).

The operating results of 13 hotels disposed of in 2015 and 2014 are not included in comparable hotel results for the periods presented herein.

As of December 31, 2014, 106 of our 114 hotels were classified as comparable. The operating results of the following hotels that we owned as of December 31, 2014 are excluded from comparable hotel results for these periods:

	●	Novotel Rio de Janeiro Parque Olimpico and ibis Rio de Janeiro Parque Olimpico (opened in the fourth quarter of 2014);

	●	YVE Hotel Miami (acquired as the b2 Miami downtown hotel in August 2014);

	●	Axiom Hotel (acquired as the Powell Hotel in January 2014);

	●	The Ritz-Carlton, Naples, removed in the third quarter of 2013 (business interruption due to the closure of the hotel during extensive renovations that were substantially completed in October 2013, including renovations of 450 rooms, including 35 suites, restaurant, façade and windows);

	●	Hyatt Place Waikiki Beach (acquired in May 2013);

	●	Novotel Christchurch Cathedral Square (business interruption due to the closure of the hotel following an earthquake in February 2011 and the subsequent extensive renovations, which hotel reopened in August 2013); and

	●	Orlando World Center Marriott, removed in the third quarter of 2012 (business interruption due to extensive renovations that were substantially completed in July 2013, including façade restoration, the shutdown of the main pool and a complete

		restoration and enhancement of the hotel, including new water slides and activity areas, new pool dining facilities and the renovation of one tower of guestrooms, meeting space and restaurants).

We evaluate the operating performance of our comparable hotels based on both market and property type. These divisions are generally consistent with groupings recognized in the lodging industry.

Our markets consist of the following:

Domestic

	●	Boston –Greater Boston Metropolitan area;

	●	New York – Greater New York Metropolitan area, including northern New Jersey;

	●	Philadelphia – Philadelphia Metropolitan area;

	●	Washington D.C. – Metropolitan area, including the Maryland and Virginia suburbs;

	●	Atlanta – Atlanta Metropolitan area;

	●	Florida – All Florida locations;

	●	Chicago – Chicago Metropolitan area;

	●	Denver – Denver Metropolitan area;

	●	Houston – Houston Metropolitan area;

	●	Phoenix – Phoenix Metropolitan area, including Scottsdale;

	●	Seattle – Seattle Metropolitan area;

	●	San Francisco – Greater San Francisco Metropolitan area, including San Jose;

	●	Los Angeles – Greater Los Angeles area, including Orange County;

	●	San Diego –San Diego Metropolitan area;

	●	Hawaii – All Hawaii locations; and

	●	Other – Select cities in California, Indiana, Louisiana, Minnesota, Missouri, Ohio, Tennessee, and Texas;

International

	●	Asia-Pacific –Australia and New Zealand;

	●	Canada – Toronto and Calgary; and

	●	Latin America –Brazil, Chile and Mexico.

Our property types consist of the following:

	●	Urban—Hotels located in primary business districts of major cities;

	●	Suburban—Hotels located in office parks or smaller secondary markets;

	●	Resort/conference—Hotels located in resort/conference destinations such as Arizona, Florida, Hawaii and Southern California; and

	●	Airport—Hotels located at or near airports.

Constant US$, Nominal US$, and Constant Euros

Operating results denominated in foreign currencies are translated using the prevailing exchange rates on the date of the transaction, or monthly based on the weighted average exchange rate for the period. For comparative purposes, we also present the RevPAR results for 2014 assuming the results of our foreign operations were translated using the same exchange rates that were effective for the comparable periods in 2015, thereby eliminating the effect of currency fluctuation for the year-over-year comparisons. We believe this presentation is useful to investors as it provides clarity with respect to the growth in RevPAR in the local currency of the hotel consistent with the manner in which we would evaluate our domestic portfolio. However, the effect of changes in foreign currency has been reflected in the actual results of net income, EBITDA, earnings per diluted share and Adjusted

FFO per diluted share. Nominal US$ results include the effect of currency fluctuations consistent with our financial statement presentation.

We also present RevPAR results for our joint venture in Europe in constant Euros using the same methodology as used for the constant US$ presentation.

Non-GAAP Financial Measures

We use certain “non-GAAP financial measures,” which are measures of our historical financial performance that are not calculated and presented in accordance with GAAP, within the meaning of applicable SEC rules. These measures are as follows: (i) EBITDA and Adjusted EBITDA, as a measure of performance for Host Inc. and Host L.P., (ii) Funds From Operations (“FFO”) and FFO per diluted share (both NAREIT and Adjusted), as a measure of performance for Host Inc., and (iii) comparable hotel property level operating results, as a measure of performance for Host Inc. and Host L.P.

We calculate NAREIT FFO per diluted share in accordance with standards established by NAREIT, which may not be comparable to measures calculated by other companies that do not use the NAREIT definition of FFO or do not calculate FFO per diluted share in accordance with NAREIT guidance. In addition, although FFO per diluted share is a useful measure when comparing our results to other REITs, it may not be helpful to investors when comparing us to non-REITs. We also calculate Adjusted FFO per diluted share, which measure is not in accordance with NAREIT guidance and may not be comparable to measures calculated by other REITs. EBITDA and Adjusted EBITDA, as presented, also may not be comparable to measures calculated by other companies. This information should not be considered as an alternative to net income, operating profit, cash from operations or any other operating performance measure calculated in accordance with GAAP. Cash expenditures for various long-term assets (such as renewal and replacement capital expenditures), interest expense (for EBITDA and Adjusted EBITDA purposes only) and other items have been and will be made and are not reflected in the EBITDA, Adjusted EBITDA, NAREIT FFO per diluted share and Adjusted FFO per diluted share presentations. Management compensates for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our consolidated statement of operations and cash flows include interest expense, capital expenditures, and other excluded items, all of which should be considered when evaluating our performance, as well as the usefulness of our non-GAAP financial measures. Additionally, NAREIT FFO per diluted share, Adjusted FFO per diluted share, EBITDA and Adjusted EBITDA should not be considered as a measure of our liquidity or indicative of funds available to fund our cash needs, including our ability to make cash distributions. In addition, NAREIT FFO per diluted share and Adjusted FFO per diluted share do not measure, and should not be used as a measure of, amounts that accrue directly to stockholders’ benefit. The following discussion defines these terms and presents why we believe they are useful measures of our performance.

EBITDA and Adjusted EBITDA

EBITDA

Earnings before Interest Expense, Income Taxes, Depreciation and Amortization (“EBITDA”) is a commonly used measure of performance in many industries. Management believes EBITDA provides useful information to investors regarding our results of operations because it helps us and our investors evaluate the ongoing operating performance of our properties after removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization). Management also believes the use of EBITDA facilitates comparisons between us and other lodging REITs, hotel owners that are not REITs and other capital-intensive companies. Management uses EBITDA to evaluate property-level results and as one measure in determining the value of acquisitions and dispositions and, like FFO and Adjusted FFO per diluted share, it is widely used by management in the annual budget process and for compensation programs.

Adjusted EBITDA

Historically, management has adjusted EBITDA when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted EBITDA, when combined with the primary GAAP presentation of net income, is beneficial to an investor’s complete understanding of our operating performance. Adjusted EBITDA also is a relevant measure in calculating certain credit ratios. We adjust EBITDA for the following items, which may occur in any period, and refer to this measure as Adjusted EBITDA:

	●	Real Estate Transactions – We exclude the effect of gains and losses, including the amortization of deferred gains, recorded on the disposition or acquisition of depreciable assets and property insurance gains in our consolidated statement of operations because we believe that including them in Adjusted EBITDA is not consistent with reflecting the ongoing performance of our assets. In addition, material gains or losses from the depreciated book value of the disposed assets could be less important to investors given that the depreciated asset book value often does not reflect its market value (as noted below for FFO).

	●	Equity Investment Adjustments – We exclude the equity in earnings (losses) of unconsolidated investments in partnerships and joint ventures as presented in our consolidated statement of operations because it includes our pro rata portion of depreciation, amortization and interest expense, which are excluded from EBITDA. We include our pro rata share of the Adjusted EBITDA of our equity investments as we believe this more accurately reflects the performance of our investments. The pro rata Adjusted EBITDA of equity investments is defined as the EBITDA of our equity investments adjusted for any gains or losses on property transactions multiplied by our percentage ownership in the partnership or joint venture.

	●	Consolidated Partnership Adjustments – We deduct the non-controlling partners’ pro rata share of the Adjusted EBITDA of our consolidated partnerships as this reflects the non-controlling owners’ interest in the EBITDA of our consolidated partnerships. The pro rata Adjusted EBITDA of non-controlling partners is defined as the EBITDA of our consolidated partnerships adjusted for any gains or losses on property transactions multiplied by the non-controlling partners’ positions in the partnership or joint venture.

	●	Cumulative Effect of a Change in Accounting Principle – Infrequently, the Financial Accounting Standards Board (“FASB”) promulgates new accounting standards that require the consolidated statement of operations to reflect the cumulative effect of a change in accounting principle. We exclude these one-time adjustments because they do not reflect our actual performance for that period.

	●	Impairment Losses – We exclude the effect of impairment expense recorded because we believe that including them in Adjusted EBITDA is not consistent with reflecting the ongoing performance of our remaining assets. In addition, we believe that impairment expense, which is based on historical cost book values, is similar to gains (losses) on dispositions and depreciation expense, both of which also are excluded from EBITDA.

	●	Acquisition Costs – Under GAAP, costs associated with completed property acquisitions are expensed in the year incurred. We exclude the effect of these costs because we believe they are not reflective of the ongoing performance of the company.

	●	Litigation Gains and Losses – Effective April 1, 2013, we have excluded the effect of gains or losses associated with litigation recorded under GAAP that we consider outside the ordinary course of business, which is consistent with the definition of Adjusted FFO that we adopted effective January 1, 2011. We believe that including these items is not consistent with our ongoing operating performance.

In unusual circumstances, we also may adjust EBITDA for gains or losses that management believes are not representative of our current operating performance. For example, in 2013, management excluded the $11 million gain from the eminent domain claim for land for which we received the cash proceeds in 2007, but, pending the resolution of certain contingencies, was not recognized until 2013. Typically, gains from the disposition of non-depreciable property are included in the determination of Adjusted EBITDA.

The following table provides a reconciliation of net income to Adjusted EBITDA (in millions):

Reconciliation of Net Income to EBITDA and Adjusted EBITDA for Host Inc. and Host L.P.

	Year ended December 31,
	2015			2014
Net income (1)	$	571		$	747
Interest expense		234			214
Depreciation and amortization		716			695
Income taxes		9			14
EBITDA (1)		1,530			1,670
Gain on dispositions (2)		(93	)		(233	)
Gain on property insurance settlement		(2	)		(1	)
Acquisition costs		1			2
Litigation gain(3)		—			(61	)
Non-cash impairment loss		—			6
Equity investment adjustments:
Equity in earnings of affiliates		(70	)		(26	)
Pro rata Adjusted EBITDA of equity investments		68			68
Consolidated partnership adjustments:
Pro rata Adjusted EBITDA attributable to non-controlling partners in other consolidated partnerships		(25	)		(23	)
Adjusted EBITDA (1)	$	1,409		$	1,402
___________

(1)	Net Income, EBITDA, Adjusted EBITDA, NAREIT FFO and Adjusted FFO include a gain of $2 million and $3 million for the years ended December 31, 2015 and 2014, respectively, for the sale of the portion of land attributable to individual units sold by the Maui timeshare joint venture.

(2)	Reflects the sale of eight hotels in 2015, the sale of an 89% controlling interest in one hotel in 2014, and the sale of four hotels in 2014.

(3)

We exclude the net effect of litigation recoveries/gains or losses that we consider outside of the ordinary course of business from our determination of Adjusted EBITDA and Adjusted FFO. For 2014, the amounts primarily reflect activity for the litigation concerning the ground lease for the San Antonio Marriott Rivercenter started in 2005. Over time, we had accrued litigation losses totaling $69 million for this litigation. On October 3, 2014, the final motion for rehearing by Keystone-Texas Property Holding Corporation to the Texas Supreme Court was denied. As a result, in the third quarter of 2014, we reversed the $69 million loss contingency, which is included as a reduction to corporate expense in net income. Consistent with our definition of Adjusted EBITDA and Adjusted FFO, we have excluded $59 million of the gain, as the related accrual for this amount was similarly excluded in prior years. We are including $10 million of the gain in Adjusted EBITDA and Adjusted FFO, which represents periodic interest accrued on the judgments since 2010, as this amount was included as a reduction in Adjusted EBITDA and Adjusted FFO in prior years.

NAREIT FFO, NAREIT FFO per Diluted Share and Adjusted FFO per Diluted Share. We present NAREIT FFO and NAREIT FFO per diluted share as non-GAAP measures of our performance in addition to our earnings per share (calculated in accordance with GAAP). We calculate NAREIT FFO per diluted share as our NAREIT FFO (defined as set forth below) for a given operating period, as adjusted for the effect of dilutive securities, divided by the number of fully diluted shares outstanding during such period in accordance with NAREIT guidelines. NAREIT defines FFO as net income (calculated in accordance with GAAP), excluding gains (losses) from sales of real estate, the cumulative effect of changes in accounting principles, real estate-related depreciation, amortization and impairments and adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect our pro rata share of the FFO of those entities on the same basis.

We believe that NAREIT FFO per diluted share is a useful supplemental measure of our operating performance and that the presentation of NAREIT FFO per diluted share, when combined with the primary GAAP presentation of earnings per share, provides beneficial information to investors. By excluding the effect of real estate depreciation, amortization, impairments and gains and losses from sales of real estate, all of which are based on historical cost accounting and which may be of lesser significance in evaluating current performance, we believe such measures can facilitate comparisons of operating performance between periods and with other REITs, even though NAREIT FFO per diluted share does not represent an amount that accrues directly to holders of our common stock. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. As noted by NAREIT in its April 2002 “White Paper on Funds From Operations,” since real estate values historically have risen or fallen with market conditions, many industry investors have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. For these reasons, NAREIT adopted the FFO metric in order to promote an industry-wide measure of REIT operating performance.

We also present Adjusted FFO per diluted share when evaluating our performance because management believes that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance. Management historically has made the adjustments detailed below in evaluating our performance, in our

annual budget process and for our compensation programs. We believe that the presentation of Adjusted FFO per diluted share, when combined with both the primary GAAP presentation of earnings per share and FFO per diluted share as defined by NAREIT, provides useful supplemental information that is beneficial to an investor’s complete understanding of our operating performance. We adjust NAREIT FFO per diluted share for the following items, which may occur in any period, and refer to this measure as Adjusted FFO per diluted share:

	●	Gains and Losses on the Extinguishment of Debt – We exclude the effect of finance charges and premiums associated with the extinguishment of debt, including the acceleration of the write off of deferred financing costs from the original issuance of the debt being redeemed or retired and incremental interest expense incurred during the refinancing period. We also exclude the gains on debt repurchases and the original issuance costs associated with the retirement of preferred stock. We believe that these items are not reflective of our ongoing finance costs.

	●	Acquisition Costs –Under GAAP, costs associated with completed property acquisitions are expensed in the year incurred. We exclude the effect of these costs because we believe they are not reflective of the ongoing performance of the company.

	●	Litigation Gains and Losses – We exclude the effect of gains or losses associated with litigation recorded under GAAP that we consider outside the ordinary course of business. We believe that including these items is not consistent with our ongoing operating performance.

In unusual circumstances, we also may adjust NAREIT FFO for gains or losses that management believes are not representative of our current operating performance. For example, in 2013, management excluded the $11 million gain from the eminent domain claim for land for which we received the cash proceeds in 2007, but, pending the resolution of certain contingencies, was not recognized until 2013. Typically, gains from the disposition of non-depreciable property are included in the determination of NAREIT and Adjusted FFO.

The following table provides a reconciliation of net income to NAREIT FFO and Adjusted FFO (separately and on a per diluted share basis) for Host Inc. (in millions, except per share amounts):

Host Inc. Reconciliation of Net Income

to NAREIT and Adjusted Funds From Operations per Diluted Share

	Year ended December 31,
	2015			2014
Net income (1)	$	571		$	747
Less: Net income attributable to non-controlling interests		(13	)		(15	)
Net income attributable to Host Inc.		558			732
Adjustments:
Gain on dispositions, net of taxes (2)		(93	)		(232	)
Gain on property insurance settlement		(2	)		(1	)
Depreciation and amortization		712			692
Non-cash impairment loss		—			6
Equity investment adjustments:
Equity in earnings of affiliates		(70	)		(26	)
Pro rata FFO of equity investments		45			51
Consolidated partnership adjustments:
FFO adjustment for non-controlling partnerships		(9	)		(9	)
FFO adjustments for non-controlling interests of Host L.P.		(7	)		(6	)
NAREIT FFO (1)		1,134			1,207
Adjustments to NAREIT FFO:
Loss on debt extinguishment		45			4
Acquisition costs		1			3
Litigation gain (3)		—			(61	)
Adjusted FFO (1)	$	1,180		$	1,153

For calculation on a per share basis:

Adjustments for dilutive securities (4):
Assuming conversion of Exchangeable Senior Debentures	$	22		$	27
Diluted NAREIT FFO	$	1,156		$	1,234
Diluted Adjusted FFO	$	1,202		$	1,180

Diluted weighted average shares outstanding-EPS		752.9			786.8
Assuming conversion of Exchangeable Senior Debentures		25.4			—
Diluted weighted average shares outstanding - NAREIT FFO and Adjusted FFO		778.3			786.8
NAREIT FFO per diluted share	$	1.49		$	1.57
Adjusted FFO per diluted share	$	1.54		$	1.50
___________

(1-3)	Refer to the corresponding footnote on the Reconciliation of Net Income to EBITDA and Adjusted EBITDA for Host Inc. and Host L.P.

(4) Earnings per diluted share and NAREIT FFO and Adjusted FFO per diluted share are adjusted for the effects of dilutive securities. Dilutive securities may include shares granted under comprehensive stock plans, preferred OP units held by non-controlling partners, exchangeable debt securities and other non-controlling interests that have the option to convert their limited partnership interests to common OP units. No effect is shown for securities if they are anti-dilutive.

Comparable Hotel Property Level Operating Results. We present certain operating results for our hotels, such as hotel revenues, expenses, EBITDA and EBITDA margin, on a comparable hotel, or “same store,” basis as supplemental information for investors. Our comparable hotel results present operating results for hotels owned during the entirety of the periods being compared without giving effect to any acquisitions or dispositions, significant property damage or large scale capital improvements during these periods. We present comparable hotel EBITDA to help us and our investors evaluate the ongoing operating performance of our comparable properties after removing the impact of our capital structure (primarily interest expense), and its asset base (primarily depreciation and amortization). Other corporate-level costs and expenses are also removed to arrive at property-level results. We believe these property-level results provide investors with supplemental information into the ongoing operating performance of our comparable hotels. We eliminate depreciation and amortization because, even though depreciation and amortization are property-level expenses, these non-cash expenses, which are based on historical cost accounting for real estate assets, implicitly assume that the value of real estate assets diminishes predictably over time. As noted earlier, because real estate values historically have risen or fallen with market conditions, many industry investors have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.

As a result of the elimination of corporate-level costs and expenses and depreciation and amortization, the comparable hotel operating results we present do not represent our total revenues, expenses or operating profit and these comparable hotel operating results should not be used to evaluate our performance as a whole. Management compensates for these limitations by separately considering the impact of these excluded items to the extent they are material to operating decisions or assessments of our operating performance. Our consolidated statements of operations include such amounts, all of which should be considered by investors when evaluating our performance.

We present these hotel operating results on a comparable hotel basis because we believe that doing so provides investors and management with useful information for evaluating the period-to-period performance of our hotels and facilitates comparisons with other hotel REITs and hotel owners. In particular, these measures assist management and investors in distinguishing whether increases or decreases in revenues and/or expenses are due to growth or decline of operations at comparable hotels (which represent the vast majority of our portfolio) or from other factors, such as the effect of acquisitions or dispositions. While management believes that presentation of comparable hotel results is a “same store” supplemental measure that provides useful information in evaluating our ongoing performance, this measure is not used to allocate resources or to assess the operating performance of these hotels, as these decisions are based on data for individual hotels and are not based on comparable portfolio hotel results. For these reasons, we believe that comparable hotel operating results, when combined with the presentation of GAAP operating profit, revenues and expenses, provide useful information to investors and management.

The following table presents certain operating results and statistics for our comparable hotels for the periods presented herein:

Comparable Hotel Results for Host Inc. and Host L.P. (1)

(in millions, except hotel statistics)

	Year ended December 31,
	2015			2014
Number of hotels		96			96
Number of rooms		52,944			52,944
Percent change in comparable hotel RevPAR - Constant US$		3.8	%	—
Percent change in comparable hotel RevPAR - Nominal US$		2.9	%		—
Operating profit margin (2)		12.1	%		13.3	%
Comparable hotel EBITDA margin (2)		27.05	%		26.85	%
Comparable hotel revenues
Room	$	3,293		$	3,197
Food and beverage (3)		1,500			1,426
Other		283			292
Comparable hotel revenues (4)		5,076			4,915
Comparable hotel expenses
Room	$	854		$	854
Food and beverage (5)		1,054			1,022
Other		130			148
Management fees, ground rent and other costs		1,665			1,572
Comparable hotel expenses (6)		3,703			3,596
Comparable hotel EBITDA		1,373			1,319
Non-comparable hotel results, net (7)		87			135
Depreciation and amortization		(716	)		(701	)
Interest expense		(234	)		(214	)
Provision for income taxes		(9	)		(14	)
Gain on sale of property and corporate level income/expense		70			222
Net income	$	571		$	747
___________

(1)

The adoption of the 11th edition of the Uniform System of Accounts for the Lodging Industry (“USALI”) on January 1, 2015 has impacted our comparative operating results. The impact of USALI in 2015 reduced comparable RevPAR growth by approximately 20 basis points, reduced comparable hotel EBITDA margins by approximately 15 basis points, and increased comparable food and beverage revenue growth by approximately 270 basis points. These changes did not affect net income, comparable hotel EBITDA, or Adjusted EBITDA.

(2)	Operating profit margins are calculated by dividing the applicable operating profit by the related revenue amount. GAAP operating profit margins are calculated using amounts presented in the consolidated statements of operations. Comparable hotel EBITDA margins are calculated using amounts presented in the above table.

(3)	The reconciliation of total food and beverage sales per the consolidated statements of operations to the comparable food and beverage sales is as follows (as discussed above, 2014 amounts have not been adjusted for the adoption of the 11th edition of USALI):

	Year ended December 31,
	2015			2014
Food and beverage sales per the consolidated statements of operations	$	1,568		$	1,546
Non-comparable hotel food and beverage sales		(107	)		(156	)
Food and beverage sales for the property for which we record rental income		39			36
Comparable food and beverage sales	$	1,500		$	1,426

(4)	The reconciliation of total revenues per the consolidated statements of operations to the comparable hotel revenues is as follows (as discussed above, 2014 amounts have not been adjusted for the adoption of the 11th edition of USALI):

	Year ended December 31,
	2015			2014
Revenues per the consolidated statements of operations	$	5,387		$	5,354
Non-comparable hotel revenues		(373	)		(495	)
Hotel revenues for the property for which we record rental income, net		62			56
Comparable hotel revenues	$	5,076		$	4,915

(5)	The reconciliation of total food and beverage expenses per the consolidated statements of operations to the comparable food and beverage expenses is as follows (as discussed above, 2014 amounts have not been adjusted for the adoption of the 11th edition of USALI):

	Year ended December 31,
	2015			2014
Food and beverage expenses per the consolidated statements of operations	$	1,110		$	1,109
Non-comparable hotel food and beverage expenses		(80	)		(109	)
Food and beverage expenses for the property for which we record rental income		24			22
Comparable food and beverage expenses	$	1,054		$	1,022

(6)	The reconciliation of operating costs and expenses per the consolidated statements of operations to the comparable hotel expenses is as follows (as discussed above, 2014 amounts have not been adjusted for the adoption of the 11th edition of USALI):

	Year ended December 31,
	2015			2014
Operating costs and expenses per the consolidated statements of operations	$	4,737		$	4,644
Non-comparable hotel expenses		(286	)		(360	)
Hotel expenses for the property for which we record rental income		62			56
Depreciation and amortization		(716	)		(701	)
Corporate and other expenses		(94	)		(43	)
Comparable hotel expenses	$	3,703		$	3,596

(7)	Non-comparable hotel results, net, includes the following items: (i) the results of operations of our non-comparable hotels and sold hotels, which operations are included in our consolidated statements of operations as continuing operations, (ii) gains on property insurance settlements, and (iii) the results of our office buildings.

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