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 of which it holds approximately 99% of its common OP units as of December 31, 2016. 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 20, 2017, we own 96 hotels in the United States and internationally and have minority ownership interests in an additional 18 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.

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 2016 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 97% of our total revenues and 3% 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.	30%

•	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 attrition and cancellation, parking, golf course, spa, entertainment and other guest services. This category also includes retail and apartment rental revenue.	6%

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.	23%

•	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.	28%

•	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 2016 Operating Results

The following table reflects certain line items from our audited statements of operations and the significant operating statistics for the three years ended December 31, 2016 (in millions, except per share and hotel statistics):

Historical Income Statement Data:

							Change						Change
	2016			2015			2015 to 2016			2014			2014 to 2015
Total revenues	$	5,430		$	5,350			1.5	%	$	5,321			0.5	%
Net income		771			565			36.5	%		741			(23.8	)%
Operating profit		684			631			8.4	%		694			(9.1	)%
Operating profit margin under GAAP		12.6	%		11.8	%		80	bps		13.0	%		(120	bps)
Adjusted EBITDA	$	1,471		$	1,409			4.4	%	$	1,402			0.5	%

Diluted earnings per share	$	1.02		$	.74			37.8	%	$	.96			(22.9	)%
NAREIT FFO per diluted share		1.69			1.49			13.4	%		1.57			(5.1	)%
Adjusted FFO per diluted share		1.69			1.54			9.7	%		1.50			2.7	%

Comparable Hotel Data:

	2016 Comparable Hotels (1)									2015 Comparable Hotels (1)
							Change									Change
	2016			2015			2015 to 2016			2015			2014			2014 to 2015
Comparable hotel revenues	$	4,908		$	4,776			2.8	%	$	4,977		$	4,825			3.2	%
Comparable hotel EBITDA		1,364			1,289			5.8	%		1,345			1,294			3.9	%
Comparable hotel EBITDA margin		27.8	%		27.0	%		80	bps		27.0	%		26.8	%		20	bps
Change in comparable hotel RevPAR - Constant US$ (2)		2.7	%								3.7	%
Change in comparable hotel RevPAR - Nominal US$ (2)		2.5	%								2.9	%
Change in comparable domestic RevPAR		2.5	%								3.8	%
Change in comparable international RevPAR - Constant US$ (2)		7.8	%								2.2	%
___________

(1)	Comparable hotel operating statistics for 2016 and 2015 are based on 88 comparable hotels as of December 31, 2016, while the comparable hotel operating statistics for 2015 and 2014 are based on 95 comparable hotels as of December 31, 2015.

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

Revenue per Available Room

In 2016, on a constant US$ basis, RevPAR at our comparable hotels increased 2.7% compared to 2015, representing the seventh consecutive year of positive RevPAR growth. Throughout the year, increased group and leisure business helped push occupancy to near record levels for our Company. However, reduced corporate profits and political and economic uncertainty led to a slowdown in corporate transient demand, limiting growth in average rates, as the business mix shifted from higher-rated corporate demand to lower-rated discount business. During the first half of the year, we also benefited from less disruption from renovations at several of our comparable properties. At the same time, supply growth exceeded historic cumulative average growth, particularly in many of our major markets, including New York, Houston and Boston. Softening inbound travel from international markets due to the relative strength of the U.S. dollar also put pressure on demand in our major markets. These trends, coupled with increased price transparency from online travel agencies, have inhibited room rate growth.

RevPAR growth in 2016 was both rate and occupancy driven, as room rates improved 1.0% on a constant US$ basis and occupancy improved 130 basis points to 78.5%. Group revenue increased 4.5%, driven by a 2.1% increase in room nights coupled with a 2.4% increase in rates. Meanwhile, transient demand was hampered by softening business travel and reduced international travel. Transient revenues increased 1.2% for the year driven by a 0.7% increase in average rate and a 0.5% increase in room nights sold.

Comparable RevPAR at our domestic portfolio increased 2.5% for the year, driven by a 130 basis point improvement in occupancy and a 0.8% improvement in room rates. Los Angeles, Washington, D.C., and San Diego led our domestic portfolio with RevPAR increases of 8.8%, 6.7%, and 5.5%, respectively, driven by improvements in both occupancy and room rates in each of the markets. Our New York and Houston markets lagged the portfolio with RevPAR decreases of 3.0% and 1.1%, respectively, during the year primarily due to the recent influx of new supply, the impact of which will continue into 2017.

On a constant US$ basis, RevPAR at our comparable consolidated international hotels outperformed our portfolio in 2016 with an increase of 7.8%, led by our Latin American properties, which recorded a 15.2% increase in RevPAR. Our Rio de Janeiro properties benefited from the 2016 Olympics and Paralympics, while the JW Marriott Hotel Mexico City also experienced strong improvement in average rate. Our Canadian properties outperformed driven by increased group business in both Calgary and Toronto. Comparable RevPAR in constant euros for the unconsolidated Euro JV properties decreased 2.0% for the year. The decrease was due to slow economic growth and an uncertain political climate that reduced demand, particularly at the joint venture’s properties in Brussels and Paris, where operations have yet to return to levels seen prior to the terrorist attacks in those cities.

Rooms

Total rooms revenues increased 0.8% for the full year, reflecting the 2.7% increase in comparable RevPAR on a constant dollar basis, partially offset by lost revenue from our 2016 and 2015 hotel dispositions and currency translation effects for our international

properties. Total room expenses decreased by 1.0%, primarily reflecting hotel sales as well as our focus on cost controls. Comparable room revenues increased 2.9% for the full year, while comparable room expenses increased only 1.4%, as operators were able to drive profitability through improved productivity.

Food and Beverage

Food and beverage revenues increased 2.0% for 2016, reflecting the 1.7% increase at our comparable hotels. The increase was driven primarily by growth in banquet and audio visual revenues, which provide higher overall operating margins than outlet revenue, as catered functions generally are more profitable. Total food and beverage expenses and comparable hotel food and beverage expenses increased a moderate 0.4% and 0.3%, respectively, which allowed for strong profitability growth.

Operating Profit

Operating margins (calculated based on GAAP operating profit as a percentage of GAAP revenues) increased 80 basis points for the full year 2016. These operating margins are affected significantly by several items, including dispositions, depreciation, and corporate expenses. Our comparable hotel EBITDA margins, which exclude these items, also increased 80 basis points to 27.8%. The improvements in both GAAP operating profit margins and comparable hotel EBITDA margins were driven by improvement in higher margin group business throughout the year, coupled with increases in attrition and cancellation fees, decreases in utility and insurance costs and the ability of our operators to improve productivity. We have focused on improving productivity at some of our largest hotels over the past two years by initiating time and motion studies. These studies have resulted in hotel managers establishing tighter labor model standards and improved and expanded forecasting tools, which allow managers to more effectively schedule labor based on demand and to minimize excess staffing, thereby reducing costs.

Net Income, Adjusted EBITDA and Adjusted FFO per Diluted Share

Net income for Host Inc. increased $206 million in 2016 to $771 million due primarily to the improvements in operations, a $158 million increase in gains on dispositions, and a decrease in interest expense, including a decrease of $41 million of debt extinguishment costs, partially offset by an increase in income tax expense and a decline in equity in earnings of affiliates, as the Euro JV sold nine hotels in 2015. We also recorded a gain of $12 million for proceeds received for the disruption of operations at the New Orleans Marriott caused by the 2010 Deepwater Horizon oil spill. As a result, Host Inc.’s diluted income per common share improved 37.8% to $1.02. Adjusted FFO per Diluted Share, which excludes gains on dispositions, debt extinguishment costs, and other real estate transactions, including depreciation, increased 9.7% to $1.69 per share. Net income, NAREIT and Adjusted FFO and the related per share measures benefited from the following:

	•	Adjusted EBITDA increased $62 million to $1,471 million, reflecting improvement in hotel operations, despite a net reduction due to property transactions, including the European joint venture’s 2015 hotel dispositions;

	•	Per share measures improved due to the purchase of 52 million shares during 2016 and 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 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 increased $206 million to $771 million, and the diluted income per common unit increased 38.2% to $1.05 per common unit.

2017 Outlook

There is cautious optimism for the United States economy in 2017. In 2016, GDP growth slowed to approximately 1.6% while business investment declined slightly as uncertainty weighed on confidence and corporate demand. However, several economic indicators, including improving corporate profitability and strengthening consumer confidence, point to the potential for continued and possibly stronger growth this year. Additionally, the new administration and Congress have signaled or proposed several initiatives, such as a decrease in corporate taxation, lower regulatory burdens and an increase in infrastructure spending that may result in increased business investment, although the timing of any increases remains uncertain. At the same time, there is an expectation that U.S. monetary policy will tighten in 2017, leading to an increase in interest rates and further strengthening for the U.S. dollar, which could lead to continued softening of international travel to the United States.

Based on these trends, we anticipate that U.S. travel demand will remain stable in the near-term. Strengthening consumer confidence and strong employment numbers have the potential to buoy the transient travel segment. Additionally, demand for our

lodging portfolio of upper-upscale properties in major markets is highly correlated to business investment, which we anticipate will strengthen in 2017. However, supply growth significantly accelerated in 2016, and this trend is expected to continue into 2017. In particular, the markets in which we own a significant number of our hotels have experienced above-average supply growth during this cycle. The continued increase in supply will limit our managers’ ability to grow room rate in the near-term and could lead to slight declines in occupancy. Additionally, rate growth is inhibited by the increasing popularity of online sharing sites such as Airbnb as well as online booking sites which increase price transparency.

As a result of these trends, we anticipate that we will continue to experience high levels of occupancy in 2017. In January 2017, comparable RevPAR increased 7.4% for the month, on a constant U.S. dollar basis, primarily driven by the performance of the Washington, D.C. market, which benefited from the Presidential inauguration and Women’s March. However, the continued pressures from increased supply are expected to inhibit rate growth, leading to limited RevPAR improvement for the remainder of the year. As a result, we anticipate RevPAR growth for our comparable hotels on a constant dollar basis of between 0.0% and 2.0% for the full year 2017. Additionally, comparisons between our 2016 and 2017 results will be affected by our recent dispositions, as in 2016 we recognized revenues of $166 million, net income (excluding gain on sale) of $21 million, and Adjusted EBITDA of $37 million for the ten properties sold in 2016 and one property sold year-to-date 2017.

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

We have executed on nearly $500 million of asset dispositions in 2016, and another $172 million through February 20, 2017. We also were able to complete several value enhancement, redevelopment and return on investment initiatives. The proceeds generated from our hotel dispositions, coupled with cash from operations, allowed us to distribute a total of $814 million to our stockholders through common dividends and common stock repurchases. Subsequent to year end we acquired the Don CeSar for $214 million.

For 2017, we intend to continue our disciplined approach to capital allocation to strengthen our portfolio and deliver stockholder value. We intend to take advantage of our strong capital position and overall scale to acquire upper-upscale, luxury, and high-quality select-service properties, through single asset or portfolio acquisitions, that we believe have sustainable competitive advantages to drive long-term value. At the same time, we will opportunistically sell assets. We also continue to critically analyze our portfolio to take advantage of the inherent value of our real estate holdings for its highest and best use, such as the 2016 acquisition of the ground lease at our Key Bridge Marriott, located along the Potomac River overlooking Washington, D.C. We anticipate that the level of capital intensive redevelopment projects will decline compared to 2016. We intend to deliver value to our stockholders through a meaningful dividend, and, depending on market conditions, may also execute on our recently authorized 2017 stock repurchase program, while looking to maintain our investment grade rating.

Portfolio

Acquisitions. In July 2016, we purchased the ground lease at the Key Bridge Marriott for $54 million. The land is located along the Potomac River, overlooking Washington, D.C., and we currently are exploring further development and value enhancement opportunities for the asset.

On February 16, 2017, we purchased The Don CeSar and the related Beach House Suites in St. Pete Beach, Florida for $214 million and selected Davidson Hotels & Resorts as manager. The hotel has been recognized for excellence by Historic Hotels of America, with 347 rooms and suites along the Florida Gulf coast, award-winning dining options and over 38,000 square feet of meeting space.

Dispositions. We continue to strategically dispose of assets that we believe will experience lower growth and/or higher capital expenditures requirements. During 2016, we disposed of 10 properties for proceeds of approximately $467 million and recorded a gain on sale of $243 million. Since we announced our strategy to exit the Asia-Pacific market in September 2015, we have sold all seven of our New Zealand hotels for a total of approximately NZ$257 million ($174 million), including the repayment of NZ$105 million ($72 million) of mortgage debt. Subsequent to year end, we sold the JW Marriott Desert Springs Resort & Spa for $172 million, including the $12 million FF&E fund retained at the hotel.

Capital Investments

Value Enhancement. We intend 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. 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. During 2016, we reached an agreement to franchise the Westin Cincinnati and selected HEI Hotels & Resorts as the operator. Including the selection of independent managers at six of our properties in 2015, we currently have 16 third-party managed hotels in our consolidated and joint venture portfolio.

Capital Expenditures Projects. We continue to pursue opportunities to enhance asset value through select capital improvements, including projects that are designed 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 2016, we completed renovations to 5,000 guestrooms, approximately 385,000 square feet of meeting space and approximately 182,000 square feet of public space.

	•	Redevelopment and Return on Investment Expenditures. These projects are designed to increase cash flow and improve profitability by capitalizing on changing market conditions and the favorable location of our properties. Approximately $226 million was spent on redevelopment and return on investment projects during 2016 compared to $275 million in 2015. Significant projects included the following:

	o	Hyatt Regency San Francisco Airport – We completed a comprehensive renovation of all of the guestrooms and over 60,000 square feet of meeting and public space, including the renovation and conversion of a restaurant into an additional 15,000 square feet of meeting space.

	o	Denver Marriott Tech Center – A transformational renovation, including newly designed guestrooms, additional meeting and public space, and a new concept restaurant. The project includes sustainability features such as LED lighting in guestrooms and public spaces, new energy-efficient HVAC units in guestrooms and high efficiency hot water and boiler plant upgrades.

	o	The Phoenician - The significant renovation project is expected to be completed over a two-year period. The first phase, completed in 2016, included a redesign of the guest rooms and canyon suites and updates to the façade. The second phase is expected to be completed in 2017 and includes a complete redesign and renovation of the main public areas, pools, restaurant and newly constructed spa and fitness building.

	o	Marriott Marquis San Diego Marina –The property now features 280,000 square feet of meeting space following completion of the construction of a 152,000 square foot exhibit hall encompassing ballrooms, grand foyers and outdoor event space overlooking the marina.

For 2017, we expect to spend between $90 million and $115 million for redevelopment and ROI projects, representing a 54% decrease from 2016.

	•	Renewal and Replacement Capital Expenditures. We spent $293 million and $383 million on renewal and replacement expenditures during 2016 and 2015, 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. Projects that were completed during 2016 included rooms renovations at The Ritz-Carlton, Marina del Rey, Houston Marriott Medical Center, Coronado Island Marriott Resort & Spa, W Seattle and The Ritz-Carlton, Tysons Corner. We also renovated a 40,000 square foot ballroom at the Hyatt Regency Reston, the ballroom at Marina del Rey Marriott and a restaurant at each of the Manchester Grand Hyatt San Diego and The Ritz-Carlton, Amelia Island. At the Hyatt Regency Maui Resort & Spa, we renovated over 65,000 square feet of meeting and public space, including a restaurant, the ballroom and event lawn.

We expect that our investment in renewal and replacement expenditures in 2017 will total approximately $275 million to $300 million. These projects will include phase two of a rooms renovation at the Toronto Marriott Downtown Eaton Centre Hotel, a rooms renovation at San Francisco Marriott Fisherman’s Wharf, meeting space renovations at JW Marriott Atlanta Buckhead and a ballroom renovation at New Orleans Marriott.

Return of capital

Stock Repurchase Program and Dividends. Host Inc.’s Board of Directors authorized a new stock repurchase program for 2017 under which we can repurchase up to $500 million of common stock. The common stock may be purchased from time to time,

depending upon market conditions, and repurchases may be made in the open market or through privately negotiated transactions or by other means, including through one or more trading plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The number of shares to be purchased also will depend upon operating results, funds generated by sales activity, dividends that may be required by those sales and investment options that may be available, including reinvesting in the portfolio or acquiring new hotels, as well as maintaining our strong leverage position. The program does not obligate us to repurchase any specific number of shares and may be suspended at any time at our discretion. The program replaces the previous stock repurchase program that expired on December 31, 2016. During 2016, we repurchased 13.8 million shares at an average price of $15.79 for a total purchase price of approximately $218 million. Approximately 0.7 million of the purchases were in the fourth quarter at an average price of $15.82 per share.

During 2016, Host Inc.’s Board of Directors declared dividends of $0.85 per share with respect to Host Inc.’s common stock, an increase of 6.3% over the prior year. Accordingly, Host L.P. made a distribution of $0.868270 per unit with respect to its common OP units for 2016. On February 21, 2017, 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 17, 2017, to stockholders of record on March 31, 2017. 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

We 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 2016, we repaid $137 million of mortgage debt and had net repayments under the revolver portion of our credit facility of $82 million. At December 31, 2016, our weighted average interest rate is 3.8% and our weighted average debt maturity is 5.2 years. We have a debt balance of $3.6 billion and a balanced maturity schedule wherein not more than 23% of our outstanding debt, representing 4% of our U.S. GAAP gross asset value, is due in any given year. 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 21, 2017:

	(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 for the three years ended December 31, 2016 (in millions, except percentages):

					Change					Change
	2016		2015		2015 to 2016			2014		2014 to 2015
Total revenues	$	5,430	$	5,350		1.5	%	$	5,321		0.5	%
Operating costs and expenses:
Property-level costs (1)		4,655		4,627		0.6			4,594		0.7
Corporate and other expenses(2)		106		94		12.8			43		118.6
Gain on insurance and business interruption settlements		15		2		650.0			10		(80.0	)
Operating profit		684		631		8.4			694		(9.1	)
Interest expense		154		227		(32.2	)		207		9.7
Gain on sale of assets		253		95		166.3			236		(59.7	)
Provision for income taxes		40		9		344.4			14		(35.7	)

Host Inc.:
Net income attributable to non- controlling interests		9		7		28.6			9		(22.2	)
Net income attributable to Host Inc.		762		558		36.6			732		(23.8	)

Host L.P.:
Net loss attributable to non- controlling interests		—		—	—				—	—
Net income attributable to Host L.P.		771		565		36.5			741		(23.8	)
___________

(1)	Amounts represent total operating costs and expenses from our consolidated statements of operations, less corporate and other expenses and the gain on insurance and business interruption 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 2016 and 2015, 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 ten hotels in 2016, eight hotels in 2015 and five hotels in 2014. These dispositions were partially offset by the acquisition or new development of five 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 and the ibis and Novotel Rio de Janeiro Parque Olimpico hotels, which opened in the fourth quarter of 2014. The table below presents the effects on earnings from our Recent Acquisitions and Dispositions (in millions, increase (decrease)):

	2016		2015			Change 2015 to 2016			2014		Change 2014 to 2015
Total Revenues:
Acquisitions	$	146	$	77		$	69		$	13	$	64
Dispositions		58		214			(156	)		353		(139	)
Total Revenues	$	204	$	291		$	(87	)	$	366	$	(75	)
Net income (excluding gain on sale):
Acquisitions	$	18	$	(1	)	$	19		$	2	$	(3	)
Dispositions		10		25			(15	)		27		(2	)
Net income (excluding gain on sale)	$	28	$	24		$	4		$	29	$	(5	)

	•	In 2016, we had fewer disruptive renovations compared to 2015, which benefited the year-over-year growth in net income when compared to 2015. Additionally, in 2016, we had a full year of operations for four hotels that had been closed for portions of 2015 for redevelopment. Conversely, in 2015, our results were significantly more impacted by disruptive renovations than in 2014, which reduced growth in net income when compared to the prior year.

	•	Our domestic hotel portfolio represents approximately 97% of our revenues and assets. However, for international properties and our international joint ventures, we are exposed to currency exchange risks in the normal course of business. We further reduced our currency exchange risk in 2016 through the disposition of six international properties. The table below presents the overall currency impact for the years ended December 31, 2016 and 2015 (in millions, increases (decrease)):

	Year ended December 31,
	2016 Compared to 2015			2015 Compared to 2014
Total revenues	$	(7	)	$	(35	)
Net income (excluding gain on sale)		—			(7	)
Adjusted EBITDA		(2	)		(21	)

	•	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 now are reflected on a gross basis, and group rebates, which now are reflected as a reduction to revenue. The 2014 results were not restated for these 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.

The following table presents revenues in accordance with GAAP and includes both comparable and non-comparable hotels for the three years ended December 31, 2016 (in millions, except percentages):

					Change					Change
	2016		2015		2015 to 2016			2014		2014 to 2015
Revenues:
Rooms	$	3,492	$	3,465		0.8	%	$	3,452		0.4	%
Food and beverage		1,599		1,568		2.0			1,546		1.4
Other		339		317		6.9			323		(1.9	)
Total revenues	$	5,430	$	5,350		1.5		$	5,321		0.5

The increases in total revenues in 2016 of $80 million and $29 million in 2015 were driven by increases of 2.8% and 3.2% in revenues for our comparable properties, respectively. Total revenues were impacted by our non-comparable properties that were under renovation and our Recent Acquisitions and Dispositions. Additionally, fluctuation in currency exchange rates and the relative strength of the U.S. dollar reduced the increase in total revenues by 15 basis points in 2016 and 80 basis points in 2015.

Rooms. Rooms revenues increased $27 million and $13 million in 2016 and 2015, respectively, reflecting an increase in constant dollar RevPAR of 2.7% and 3.7%, respectively, at our comparable hotels. Currency fluctuations reduced year-over-year rooms revenues growth by 15 basis points in 2016 and 90 basis points in 2015. Year-over-year comparisons also reflect a net decrease of $81 million in 2016 and $49 million in 2015 due to Recent Acquisitions and Dispositions.

Food and beverage. F&B revenues increased $31 million and $22 million in 2016 and 2015, respectively. For our comparable hotels, F&B revenues increased 1.7% and 5.1%, respectively, for 2016 and 2015, driven by increases in banquet and audio visual revenues of 2.0% and 5.7% at our comparable hotels in 2016 and 2015, respectively. Year-over-year comparisons also reflect a net decrease of $20 million for 2016 and $18 million for 2015 due to Recent Acquisitions and Dispositions.

Other revenues. Other revenues increased $22 million, or 6.9%, in 2016. For our comparable hotels, other revenues increased 7.1% primarily driven by amenity fees revenue and attrition and cancellation fees. In 2015, other revenues decreased $6 million, primarily due to lower guest room telephone, internet, and spa and fitness center revenue, partially offset by an increase in attrition and cancellation fees.

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 for the three years ended December 31, 2016 (in millions, except percentages):

					Change					Change
	2016		2015		2015 to 2016			2014		2014 to 2015
Expenses:
Rooms	$	893	$	902		(1.0	)%	$	924		(2.4	)%
Food and beverage		1,114		1,110		0.4			1,109		0.1
Other departmental and support expenses		1,306		1,295		0.8			1,264		2.5
Management fees		236		226		4.4			227		(0.4	)
Other property-level expenses		382		386		(1.0	)		377		2.4
Depreciation and amortization		724		708		2.3			693		2.2
Total property-level operating expenses	$	4,655	$	4,627		0.6		$	4,594		0.7

Our operating costs and expenses, which consist of both fixed and variable components, are affected by a number of factors. Rooms 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 expenses correlate 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 and food and beverage is 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.

Rooms. Rooms expense decreased $9 million during 2016 and $22 million in 2015, reflecting the effect of Recent Acquisitions and Dispositions. Rooms expense at our comparable properties increased 1.4% in 2016 driven by increases in wages, benefits and group travel agent commissions. In 2015, rooms expense at our comparable properties was flat, as improvements in hourly productivity offset wage rate growth of 2.4%. Year-over-year comparisons also reflect a net decrease of $23 million in 2016 and $13 million in 2015 due to Recent Acquisitions and Dispositions.

Food and beverage. The increase in F&B expenses of $4 million in 2016 and $1 million in 2015 reflect year-over-year increases of 0.3% and 3.1% 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 2016 and 2015. 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 $18 million in 2016 and $12 million in 2015 due to Recent Acquisitions and Dispositions.

Other departmental and support expenses. Other departmental and support expenses increased $11 million and $31 million in 2016 and 2015, respectively. For 2016, the increase primarily reflects increases in hourly wages and loyalty and reward program expenses, offset by a 6.4% decrease in administrative and general costs and an 8.1% decrease in utilities expense. The increase in 2015 primarily reflects growth in non-controllable expenses, including credit card fees and loyalty and reward programs. Year-over-year comparisons also reflect a net decrease of $25 million in 2016 and $13 million in 2015 due to Recent Acquisitions and Dispositions.

Management fees. Management fees, which generally are calculated as a percentage of revenues and operating profit, increased 4.4% for 2016 and decreased 0.4% for 2015. At our comparable hotels, base management fees, which are calculated as a percentage of total revenues, increased 1.0% in 2016 and 0.2% in 2015, and incentive management fees increased 14.8% in 2016 and 12.1% in 2015. The increase in both base and incentive management fees at our comparable hotels reflects the improvements in hotel operations. Year-over-year comparisons also include a net decrease of $6 million in 2016 and $3 million in 2015 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. Other property-level expenses decreased $4 million, or 1.0%, in 2016, and increased $9 million, or 2.4%, in 2015. Other property-level expenses at our comparable hotels increased 2.1% and 3.5% for 2016 and 2015, respectively. Both reflect an increase in property taxes and ground rent, partially offset by a decline in utilities and insurance expense, while the year-over-year changes for total other property-level expenses also reflect a net decrease of $6 million in 2016 and $2 million in 2015 from our Recent Acquisitions and Dispositions.

Depreciation and amortization. Depreciation and amortization expense increased $16 million, or 2.3%, to $724 million in 2016 and increased $15 million, or 2.2%, to $708 million in 2015. The increases in depreciation and amortization expense reflect 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,
	2016			2015			2014
General and administrative costs	$	95		$	87		$	82
Non-cash stock-based compensation expense		12			11			22
Litigation (recoveries)/accruals and acquisition costs, net		(1	)		(4	)		(61	)
Total	$	106		$	94		$	43

General and administrative costs primarily consist of wages and benefits, travel, corporate insurance, legal fees, audit fees, building rent and systems costs. The 2016 corporate and other expenses include approximately $10 million of severance costs to be paid to our prior chief executive officer. For 2015, corporate expenses, excluding litigation (recoveries) accruals and acquisition costs, decreased 6% or $6 million, as 2014 included a $69 million reversal of a loss contingency upon the successful resolution of the litigation related to the ground lease for the San Antonio Marriott Rivercenter. Additionally, the decrease in the non-cash stock-based compensation expense in 2015 reflects the decline in our stock price and a decline in the number of shares earned.

Gain on insurance and business interruption settlements. We received $12 million of business interruption proceeds in 2016 from a facility funded by BP for the disruption of operations at the New Orleans Marriott caused by the 2010 Deepwater Horizon oil spill. In 2015, we recorded a gain of $2 million for the receipt of the final settlement related to the earthquake in Christchurch, New Zealand in February 2011.

Interest expense. Interest expense decreased $73 million, or 32.2%, in 2016 as compared to 2015, due to the reduction of debt extinguishment costs as well as a reduction in the overall debt balance. Interest expense increased $20 million, or 9.7%, in 2015, due to a $37 million increase in debt extinguishment costs, offset by the decline in our weighted average interest rate. The following table presents certain components of interest expense (in millions):

	Year ended December 31,
	2016		2015		2014
Cash interest expense(1)	$	147	$	161	$	179
Cash incremental interest expense (1)(2)		—		4		—
Non-cash interest expense		7		21		24
Cash debt extinguishment costs(1)		—		30		2
Non-cash debt extinguishment costs		—		11		2
Total interest expense	$	154	$	227	$	207
___________

(1)	Total cash interest expense paid was $144 million, $207 million, and $182 million in 2016, 2015 and 2014, respectively, which includes an increase (decrease) due to the change in accrued interest of $(3) million, $12 million and $1 million for 2016, 2015 and 2014, 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 on sale of assets. The following table presents the gains recognized on the sale of assets (in millions):

	Year ended December 31,
	2016		2015		2014
San Diego Marriott Mission Valley	$	47	$	—	$	—
Manhattan Beach Marriott		48		—		—
Sheraton Santiago Hotel & Convention Center and San Cristobal Tower, Chile		19		—		—
Atlanta Marriott Perimeter Center		39		—		—
Seattle Airport Marriott		69		—		—
Four hotels in New Zealand		21		—		—
Delta Meadowvale Hotel & Conference Centre		—		2		—
Sheraton Needham		—		18		—
Park Ridge Marriott and Chicago Marriott O'Hare		—		36		—
Kansas City Airport Marriott		—		3		—
Three hotels in New Zealand		—		30		—
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		4		3
Maui Timeshare land (2)		2		2		3
Other		4		—		1
	$	253	$	95	$	236
___________

(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.

Equity in Earnings of Affiliates. Equity in earnings of affiliates primarily reflects our interest in the operations of the Euro JV and our domestic joint ventures owning three hotels and a vacation ownership project. Upon adoption of ASU No. 2015-02, Amendments to the Consolidation Analysis on January 1, 2016, the results of the Fort Lauderdale Marriott Harbor Beach Resort & Spa no longer are consolidated and now are included in equity in earnings of affiliates. We applied the standard retrospectively. For additional information see “Item 8. Financial Statements and Supplementary Data - Note 1. Summary of Significant Accounting Policies.” The decrease in equity in earnings of affiliates in 2016 and the increase in 2015 primarily reflects the gain on sale of nine properties in 2015 by the Euro JV. The increase in equity in earnings in 2015 also reflects an increase in sales of timeshare units by the Maui JV, partially offset by the effect of the strengthening of the U.S. dollar on our international joint venture operations.

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 tax provision in 2016

primarily relates to domestic and foreign corporate income taxes on hotel operations and $9 million for capital gain tax on the sale of our two properties in Chile. The decrease in 2015 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.

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, 2016, 88 of our 96 owned hotels have been classified as comparable hotels. See “Comparable Hotel Operating Statistics” for a complete description of our comparable hotels.

2016 Compared to 2015

Comparable Hotel Sales by Geographic Market.

The following table sets forth performance information for our comparable hotels by geographic market as of December 31, 2016 and 2015:

Comparable Hotels by Market in Constant US$(1)

	As of December 31, 2016				Year ended December 31, 2016							Year ended December 31, 2015
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	$	231.16		80.2	%	$	185.42	$	228.47		79.6	%	$	181.85		2.0	%
New York		8		6,960		280.29		87.2			244.36		291.61		86.4			251.95		(3.0	)
Washington, D.C.		12		6,023		212.11		78.0			165.53		205.52		75.5			155.16		6.7
Atlanta		5		1,939		193.33		78.0			150.86		189.83		75.7			143.73		5.0
Florida		8		4,559		228.28		73.3			167.41		226.52		74.5			168.84		(0.8	)
Chicago		6		2,392		203.33		77.4			157.43		202.05		75.7			152.87		3.0
Denver		2		735		179.94		73.5			132.25		175.63		72.8			127.88		3.4
Houston		3		1,143		196.50		71.3			140.14		204.14		69.4			141.65		(1.1	)
Phoenix		3		1,241		215.97		71.1			153.51		210.15		71.1			149.42		2.7
Seattle		2		1,315		221.43		78.7			174.27		216.74		80.7			174.96		(0.4	)
San Francisco		4		2,912		261.08		83.2			217.23		253.52		83.2			210.81		3.0
Los Angeles		7		2,843		202.53		83.1			168.24		191.74		80.7			154.70		8.8
San Diego		3		2,981		206.98		84.2			174.35		201.70		82.0			165.31		5.5
Hawaii		3		1,682		330.98		90.6			299.86		323.10		88.7			286.48		4.7
Other		11		7,270		173.57		70.8			122.96		168.97		68.2			115.19		6.7
Domestic		81		47,180		226.07		79.0			178.61		224.23		77.7			174.18		2.5

Asia-Pacific		1		384	$	210.27		89.6	%	$	188.39	$	211.25		89.5	%	$	189.09		(0.4	)%
Canada		2		849		170.79		64.0			109.29		171.84		60.5			103.98		5.1
Latin America		4		963		217.01		63.8			138.35		188.71		63.6			120.06		15.2
International		7		2,196		198.82		68.5			136.15		188.26		67.1			126.27		7.8
All Markets - Constant US$		88		49,376		225.01		78.5			176.71		222.83		77.2			172.04		2.7

Comparable Hotels in Nominal US$
	As of December 31, 2016				Year ended December 31, 2016							Year ended December 31, 2015
	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		1		384	$	210.27		89.6	%	$	188.39	$	213.04		89.5	%	$	190.69		(1.2	)%
Canada		2		849		170.79		64.0			109.29		177.16		60.5			107.20		1.9
Latin America		4		963		217.01		63.8			138.35		206.48		63.6			131.37		5.3
International		7		2,196		198.82		68.5			136.15		197.89		67.1			132.73		2.6
Domestic		81		47,180		226.07		79.0			178.61		224.23		77.7			174.18		2.5
All Markets		88		49,376		225.01		78.5			176.71		223.21		77.2			172.33		2.5
___________

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

Our top performing domestic markets for the year were Los Angeles and Washington, D.C. Our Los Angeles properties led our domestic portfolio with an overall RevPAR increase of 8.8%, primarily due to rate growth of 5.6%, as strong group demand enabled our operators to drive rate growth. Our Washington, D.C. market benefited year over year from the 2015 renovations and strong citywide group demand, resulting in rate growth of 3.2% combined with a 250 basis point increase in occupancy.

Many of our other west coast markets also outperformed the portfolio, including San Diego, Hawaii and San Francisco. The MLB All-Star game and Comic-Con led to an increase in city-wide room nights and strong group business at our San Diego properties. At our Hawaiian properties, strong group and transient demand in the market due to a combination of the Zika virus threat in the Caribbean and South America, terrorism concerns in Europe and lower airfare prices all led to RevPAR growth of 4.7%. RevPAR growth at our properties in San Francisco was due solely to rate growth of 3.0%, primarily due to Super Bowl demand earlier this year, while occupancy remained flat as many of our properties were negatively impacted by the construction at the Moscone Convention Center (which will continue until 2018). The Phoenix market was in line with our portfolio as average rate increased 2.8% and occupancy remained flat. Meanwhile, in Seattle, RevPAR was affected negatively by rooms renovation at the W Seattle where occupancy declined by 840 basis points, and difficult comparisons to 2015 when the city hosted the U.S. Golf Association Open Championship.

In the southern and central U.S., our Atlanta, Chicago and Denver markets outperformed our portfolio due to a combination of rate improvement and an increase in occupancy. In Atlanta and Denver, our properties benefited from a number of citywide events during the year, while our Chicago properties benefited from completed renovations and strong group demand. Meanwhile, RevPAR at our Florida and Houston hotels underperformed our portfolio. Concerns over the spread of the Zika virus contributed to declines in both group and leisure travel at our Florida properties. Our Houston properties continued to be affected by disruption in the oil markets and increasing market supply.

On the east coast, our Boston and New York hotels underperformed our portfolio. In Boston, there were fewer citywide events, with weakening demand from the financial services and pharmaceutical sectors. In New York, supply growth has continued to negatively impact our hotels, as well as the strong U.S. dollar, resulting in a decline in European travel, trends we expect to continue into 2017.

On a constant dollar basis, our international markets experienced RevPAR growth of 7.8%, led by our Latin American properties with double digit RevPAR growth of 15.2% due to the 2016 Olympics and Paralympics in Brazil and the Formula 1 and NFL events in Mexico.

Comparable Hotel Sales by Property Type.

The following table sets forth performance information for our comparable hotels by property type as of December 31, 2016 and 2015:

Comparable Hotels by Type in Nominal US$

	As of December 31, 2016				Year ended December 31, 2016							Year ended December 31, 2015
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		52		32,655	$	227.71		80.4	%	$	182.97	$	227.69		79.0	%	$	179.76		1.8	%
Suburban		19		6,947		195.55		73.2			143.18		189.12		72.1			136.35		5.0
Resort		11		7,102		269.97		72.7			196.32		263.97		72.3			190.79		2.9
Airport		6		2,672		158.03		85.5			135.14		153.18		82.3			126.01		7.2
All Types		88		49,376		225.01		78.5			176.71		223.21		77.2			172.33		2.5
___________

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

Our airport properties led the portfolio for the year, driven by a combination of strong rate growth of 3.2% and an increase in occupancy of 330 basis points. In particular, the Newark Airport had an increase in occupancy of 13.9 percentage points due to lower occupancy in 2015 when the hotel was completing renovations, and Westin Los Angeles Airport had rate growth of 11.8% due to new crew business. Our suburban properties also outperformed the portfolio driven by rate growth of 3.4%, as high occupancy levels in urban markets helped drive demand toward adjacent suburban markets. Improvements in occupancy at our urban properties resulted in RevPAR growth of 1.8%, while average rate remained flat. Our resort properties outperformed the portfolio with rate growth of 2.3% and a slight increase in occupancy of 40 basis points, driven by our California and Hawaii resorts.

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 88 comparable hotels for which 2016 and 2015 business mix information is available. In 2016, overall revenue growth was due to both group and transient growth. Overall, group revenues improved 4.5% compared to the prior year, consisting of a 2.4% average room rate increase coupled with a 2.1% growth in group room nights sold. Our hotels were able to drive group business through higher-rated association business, which led to a 7.5% increase in revenue. Corporate group revenue increased 5.8% while government and leisure group declined 2.9%. Revenue from our transient business increased 1.2%, reflecting an increase of 0.7% in average rate and 0.5% in room nights sold. Special corporate rooms declined 3.6%, as weakness in corporate business travel resulted in a negative mix shift, as operators replaced higher rated corporate business with lower rated business, such as contract, discount or government.

2015 Compared to 2014

Comparable Hotel Sales by Geographic Market.

As of December 31, 2015, 95 of our 106 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, 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		7		4,315		232.30		73.9			171.58		219.44		73.0			160.18		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		86		49,864		221.23		77.6			171.59		214.43		77.1			165.33		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$		95		52,294		219.72		77.3			169.93		212.77		77.0			163.82		3.7


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		86		49,864		221.23		77.6			171.59		214.43		77.1			165.33		3.8
All Markets - Nominal US$		95		52,294		219.72		77.3			169.93		214.52		77.0			165.17		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%. 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 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 5.9% rate improvement and average occupancy of approximately 74%. 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 at 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		11		7,101		263.97		72.3			190.79		255.46		71.2			181.91		4.9
Airport		8		3,920		161.31		81.7			131.80		150.15		82.5			123.91		6.4
All Types		95		52,294		219.72		77.3			169.93		214.52		77.0			165.17		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 4.9% was driven by a 3.3% 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 affected negatively by weakness in the Washington, D.C., New York, and Houston markets.

Hotel Sales by Business Mix.

The information below is derived from business mix results from 86 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 9.3%, while lower-rated special corporate and government segments decreased 2.6%. Overall, group revenues improved 3.9% compared to the prior year, consisting of a 2.9% average room rate increase coupled with a 0.9% growth in group room nights sold. Corporate group revenue growth of 5.8% and association group revenue growth of 3.9% was offset partially by government and leisure growth of 0.2%.

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. Over 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. If we are unable to find appropriate investment opportunities, we will consider other uses, such as a return of capital through dividends or common stock repurchases, the amounts of which will be determined by our operations and other market factors. Significant factors we review to determine the amount and timing of common stock repurchases include the current stock price compared to our determination of the underlying value of our assets, current and forecast operating results and the completion of hotel sales.

We have structured our debt profile to maintain a balanced maturity schedule and to minimize the number of assets that are encumbered by mortgage debt. We have access to multiple types of financing as approximately 98% 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 2016, we did not issue any senior notes or incur any mortgage debt and repaid $137 million of mortgage debt. Additionally, only one of our hotels is encumbered 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):

	2016			2015			2014
Cash and cash equivalents, beginning of year	$	221		$	666		$	839
Increase (decrease) in cash and cash equivalents		151			(445	)		(173	)
Cash and cash equivalents, end of year	$	372		$	221		$	666
Operating activities
Cash provided by operating activities	$	1,303		$	1,159		$	1,140
Investing activities
Acquisitions and investments		(68	)		(442	)		(216	)
Dispositions and return of capital from investments		490			383			539
Capital expenditures		(519	)		(658	)		(428	)
Financing activities
Issuances of senior notes		—			898			—
Issuances of mortgage debt		—			—			4
Issuance of credit facility term loan		—			500			—
Net draws (repayments) on credit facility revolver		(82	)		120			(221	)
Repurchase of senior notes, including exchangeable debentures		—			(1,001	)		(150	)
Mortgage debt and other prepayments and scheduled maturities		(137	)		(35	)		(384	)
Common stock repurchase		(218	)		(675	)		—
Host Inc.:
Common stock issuance		4			2			4
Dividends on common stock		(596	)		(646	)		(469	)
Host L.P.:
Common OP unit issuance		4			2			4
Distributions on common OP units		(603	)		(654	)		(475	)

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 2017, Host Inc.’s Board of Directors authorized repurchases of up to $250 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 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, 2016, the exposure risk related to our derivative contracts totaled $12 million and the counterparties were investment grade financial institutions.

Sources and Uses of Cash. In 2016, our primary sources of cash included cash from operations, proceeds from asset sales, draws on our credit facility and returns from equity investments. Our primary uses of cash during the year consisted of acquisitions, capital expenditures, operating costs, debt repayments, common stock repurchases and distributions to equity holders. We anticipate that our sources and uses of cash will be similar during 2017.

Cash Provided by Operations. Our cash provided by operations for 2016 increased $144 million to $1,303 million compared to 2015, reflecting improved operations at our hotels and a decrease in cash interest and debt extinguishment costs.

Cash Used in Investing Activities. Approximately $115 million of cash was used in investing activities during 2016 compared to $732 million in 2015. In addition to the acquisition and disposition activity detailed in the charts below, we spent approximately $519 million on capital expenditures, compared to $658 million in 2015. Our renewal and replacement capital expenditures for 2016 were approximately $293 million, which reflects a decrease of approximately 23% from 2015 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 $226 million in 2016 on ROI/redevelopment capital expenditures, which reflects a decrease of approximately 18% compared to 2015 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 $10 million, $13 million and $14 million for 2016, 2015 and 2014, respectively. Cash provided by investing activities totaled $503 million and $394 million in 2016 and 2015, respectively, and consisted of proceeds from the sale of ten hotels in 2016 and eight hotels in 2015, as well as the return of investment from joint ventures in both 2016 and 2015.

The following tables summarize significant acquisitions, dispositions and return of investments in affiliates through February 20, 2017 (in millions):

Transaction Date		Description of Transaction	Investment
Acquisitions
February	2017	Acquisition of The Don CeSar	$	(214	)
June - July	2016	Acquisition of the Key Bridge Marriott ground lease		(54	)
December	2015	Acquisition of land under Minneapolis City Center Marriott		(34	)
June	2015	Acquisition of The Phoenician		(400	)
		Total acquisitions	$	(702	)

Transaction Date		Description of Transaction	Net Proceeds(1)		Sales Price
Dispositions/Return of Investments in Affiliates
January	2017	Disposition of JW Marriott Desert Springs Resort & Spa	$	160	$	172
September	2016	Disposition of Novotel Christchurch Cathedral Square and ibis Christchurch		26		31
August	2016	Distribution from Hyatt Place Nashville JV		14	N/A
June	2016	Disposition of Atlanta Marriott Perimeter Center		68		71
June	2016	Disposition of Seattle Airport Marriott		90		97
June	2016	Disposition of Sheraton Santiago Hotel & Convention Center and San Cristobal Tower, Chile		89		95
May	2016	Disposition of Manhattan Beach Marriott		78		82
February - March	2016	Disposition of Novotel Wellington and ibis Wellington		44		45
February	2016	Disposition of San Diego Marriott Mission Valley		72		76
February	2016	Distribution from Asia/Pacific JV		9		9
January - December	2015	Distribution from Euro JV		115	N/A
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
		Total	$	1,008
___________

(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.

Cash Used in Financing Activities. Net cash used in financing activities was $1,037 million for 2016, as compared to $857 million in 2015. Cash used in financing activities in 2016 primarily consisted of the repayment of mortgage debt secured by the Hyatt Regency Reston and the New Zealand hotels that were sold, the net repayment on the revolver portion of the credit facility of $82 million, the repurchase of approximately $218 million of common stock and the payment of cash dividends of $596 million.

The following table summarizes significant debt issuances, net of deferred financing costs, that have been completed as of February 20, 2017 (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 20, 2017 (in millions):

			Transaction
Transaction Date		Description of Transaction	Amount
Debt Repayments
January - December	2016	Net repayment on the revolver portion of credit facility	$	(82	)
September	2016	Repayment of NZ$23 million mortgage loan on Novotel and ibis Christchurch		(17	)
April	2016	Repayment of mortgage loan on the Hyatt Regency Reston hotel		(100	)
February - March	2016	Repayment of NZ$30 million mortgage loan on Novotel and ibis Wellington		(20	)
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	)
		Total cash repayments	$	(1,284	)
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 20, 2017 (in millions):

			Transaction
Transaction Date		Description of Transaction	Amount
Equity of Host Inc.
January	2017	Dividend payment (1)(2)	$	(185	)
January - December	2016	Dividend payments (2)		(596	)
January - December	2016	Repurchase of 13.8 million shares of Host Inc. common stock		(218	)
January - December	2015	Dividend payments (2)		(646	)
May - December	2015	Repurchase of 38.3 million shares of Host Inc. common stock		(675	)
		Cash payments on equity transactions	$	(2,320	)
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 2016 was made in January 2017, but accrued at December 31, 2016.

(2)	In connection with the dividends, Host L.P. made distributions of $187 million in 2017, $603 million in 2016 and $654 million in 2015 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, 2016, our total debt was approximately $3.6 billion, of which 65% carried a fixed rate of interest. Total debt was comprised of the following (in millions):

	As of December 31,
	2016		2015
Series Z senior notes, with a rate of 6% due October 2021	$	297	$	297
Series B senior notes, with a rate of 5¼% due March 2022		347		347
Series C senior notes, with a rate of 4¾% due March 2023		446		445
Series D senior notes, with a rate of 3¾% due October 2023		398		397
Series E senior notes, with a rate of 4% due June 2025		496		495
Series F senior notes, with a rate of 4½% due February 2026		396		395
Total senior notes		2,380		2,376
Credit facility revolver		209		295
2014 Credit facility term loan due June 2017		500		499
2015 Credit facility term loan due September 2020		497		497
Mortgage debt (non-recourse), with an average interest rate of 3.4% and 4.7% at December 31, 2016 and 2015, respectively, maturing through November 2017		63		200
Total debt	$	3,649	$	3,867

Aggregate debt maturities at December 31, 2016 are as follows (in millions):

	Senior notes
	and			Mortgage debt
	credit facility			and other		Total
2017	$	500		$	62	$	562
2018		211			—		211
2019		—			—		—
2020		500			—		500
2021		300			—		300
Thereafter		2,100			—		2,100
		3,611			62		3,673
Deferred financing costs		(23	)		—		(23	)
Unamortized (discounts) premiums, net		(2	)		—		(2	)
Capital lease obligations		—			1		1
	$	3,586		$	63	$	3,649

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 indentures, 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 indentures. 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

No senior notes were issued in 2016. 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.

The 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 we attained 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, 2016:

	Actual Ratio			Covenant Requirement
Unencumbered assets tests		526	%	Minimum ratio of 150%
Total indebtedness to total assets		19	%	Maximum ratio of 65%
Secured indebtedness to total assets	<1		%	Maximum ratio of 40%
EBITDA-to-interest coverage ratio		10.1	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 are no longer 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, and amortization of debt premiums or discounts that were recorded at acquisition of a loan in order to establish the debt at fair value. 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, 2016 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:

	Actual Ratio*			Covenant Requirement
Unencumbered assets tests		532	%	Minimum ratio of 125%
Total indebtedness to total assets		19	%	Maximum ratio of 65%
Secured indebtedness to total assets	<1		%	Maximum ratio of 45%
EBITDA-to-interest coverage ratio		10.1	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 September 10, 2015, we entered into the third amended and restated senior revolving credit and term loan facility with Bank of America, N.A., as administrative agent, JPMorgan Chase Bank, N.A., as syndication agent, Wells Fargo Bank, N.A., Deutsche Bank Securities Inc., The Bank of Nova Scotia, The Bank of New York Mellon, Credit Agricole Corporate & Investment Bank and Goldman Sachs Bank USA as co-documentation agents, and certain other agents and lenders. The credit facility allows for revolving borrowings in an aggregate principal amount of up to $1 billion. The revolver also includes a foreign currency

subfacility for Canadian dollars, Australian dollars, New Zealand dollars, Japanese yen, Euros and British pound sterling and, if available to the lenders, Mexican pesos of up to the foreign currency equivalent of $500 million, subject to a lower amount in the case of New Zealand dollar and Mexican pesos borrowings. The credit facility also provides a term loan facility of $1 billion (which we have fully utilized), 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 revolving credit facility and/or term loan facility of the credit facility by up to $500 million, subject to obtaining additional loan commitments and satisfaction of certain conditions.

The revolving credit facility has an initial scheduled maturity of June 2018, with the option for Host L.P. to extend the term for two additional six-month terms, subject to certain conditions, including the payment of an extension fee and the accuracy of representations and warranties, and $500 million of term loans have an initial scheduled maturity of June 2017, with an option for Host L.P. to extend the term for two additional years, subject to similar conditions. A second $500 million of term loans will mature in September 2020.

Neither the revolving credit facility nor the term loans, as applicable, requires any scheduled amortization payments prior to maturity. The term loans otherwise are 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).

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, 2016, 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, 2016:

			Covenant Requirement for all years
Leverage ratio	2.4	x	Maximum ratio of 7.25x
Fixed charge coverage ratio	7.8	x	Minimum ratio of 1.25x
Unsecured interest coverage ratio (1)	10.9	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, 2016, 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, 2016, our applicable margin on LIBOR loans under the 2014 Term Loan is 112.5 basis points. 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 automatically will become due and payable and the lenders’ commitments automatically will terminate.

Mortgage and Other Debt. As of December 31, 2016, we had mortgage debt secured by one hotel, which represents 1% of our total revenues in 2016. 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, 2016, secured debt represented approximately 2% of our total debt and our aggregate secured debt had an average interest rate of 3.4% and an average maturity of less than one year.

The following table summarizes our outstanding debt and scheduled amortization and maturities related to mortgage and other debt as of December 31, 2016 (in millions):

	Balance as of
	December 31,
	2016		2017		2018		2019		2020		2021		Thereafter
Mortgage Debt
Hilton Melbourne South Wharf, 3.4%, due 11/22/2017 (1)	$	62	$	62	$	—	$	—	$	—	$	—	$	—
Capital leases		1		1		—		—		—		—		—
Total mortgage debt	$	63	$	63	$	—	$	—	$	—	$	—	$	—
___________

(1)	The floating interest rate is equal to the 3-month BBSY plus 230 basis points. The rate shown reflects the rate in effect at December 31, 2016.

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 $16 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 $392 million at December 31, 2016. 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 unconsolidated joint ventures, with the exception of the Maui timeshare joint venture, is non-recourse to us. We have jointly and severally guaranteed a construction loan incurred by our Maui timeshare joint venture. See “—Off-Balance Sheet Arrangements and Contractual Obligations.”

Distribution/Dividend. Host Inc.’s policy on common dividends generally is to distribute, over time, at least 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 and a special cash dividend of $0.05 per share on its common stock on January 17, 2017 to stockholders of record as of December 30, 2016. The $0.20 per share dividend represents Host Inc.’s intended regular quarterly cash 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, we 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, 2016, 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, 2016, 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 APG and 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, 2016, the book value of the total assets of the Euro JV are approximately €1.5 billion.

Our investment and partners’ funding as of December 31, 2016 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	€	122	$	128	€	463	67%(1)
Euro JV Fund II		94		99		301		67%
	€	216	$	227	€	764
___________

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

In June 2016, the Euro JV Fund II partners amended the Euro JV partnership agreement to extend the equity commitment period for Euro JV Fund II to June 27, 2017. 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 invested, which in 2016, 2015 and 2014 aggregated approximately $8 million, $11 million and $16 million, respectively.

The following table sets forth operating statistics for the Euro JV comparable hotels as of December 31, 2016 and 2015:

	Comparable Euro JV Hotels in Constant Euros (1)
	2016			2015			Change
Average room rate	€	213.47		€	206.18			3.5	%
Average occupancy		73.7	%		77.9	%		(420	bps)
RevPAR	€	157.30		€	160.55			(2.0	)%
___________

(1)	The presentation above includes the operating performance for all 10 properties in the joint venture consisting of 3,896 rooms. 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 without the effects of foreign currency exchange rates. The functional currency of the hotels owned in the United Kingdom and Sweden is the British pound sterling and Swedish krona, respectively. For the year ended December 31, 2016, the Euro JV’s comparable hotel RevPAR in constant euros decreased by 2.0%, which resulted in a decrease of total revenues of 1.4%.

For 2016, 2015 and 2014, our portion of the earnings of the Euro JV was €7 million ($8 million), €51 million ($57 million) and €17 million ($21 million), respectively, and is included in equity in earnings of affiliates on our consolidated statements of operations. The earnings in 2015 and 2014 include €39 million ($43 million) and €3 million ($4 million) recognized on the sale of nine properties and one property, respectively,

Cash flows from operating activities of the Euro JV were €62 million, €78 million and €69 million for 2016, 2015 and 2014, 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 2016, the Euro JV distributed €47 million to its partners, of which Host’s share was €15 million ($18 million). The 2016 distributions were funded with the above mentioned cash from operations. 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 with cash from operations. The Euro JV invested approximately €23 million in both 2016 and 2015 and €21 million in 2014, in capital expenditures projects. The Euro JV expects to spend between €20 million and €30 million on capital expenditures in 2017, none of which 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. Net proceeds from the hotel sales were distributed to the partners and were used for other partnership investments.

The Euro JV has €707 million of 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. During 2016, the Euro JV completed amendments to two of its mortgage loan agreements, extending their maturity and reducing the overall weighted average interest rate by 20 basis points.

The following presents our portion of the Euro JV debt maturities as of December 31, 2016 (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 May 2017 and January 2018. We have hedged €177 million (approximately $199 million) of our investment via 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 has expired. Certain funding commitments remain, however, related to its existing investments in India.

As of December 31, 2016, the partners have invested approximately $103 million (of which our share was $26 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 in Delhi, Bangalore and Chennai and two additional properties in the final stages of completion in Chennai, totaling approximately 1,750 rooms. 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). During 2016, we received distributions of approximately $9 million from the Asia/Pacific JV primarily related to the sale of the Four Points by Sheraton Perth.

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”), that owns a 131-unit vacation ownership development 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. Since 2012, we have contributed approximately $87 million to the Maui JV, which includes the contribution of land valued at $36 million. As of December 31, 2016, approximately $9 million was outstanding on the joint venture’s construction loan, which is jointly and severally guaranteed by us and Hyatt Hotels Corporation. During 2016, 2015 and 2014, the Maui JV recognized $55 million, $76 million and $54 million, respectively, of sales of timeshare units. We recognized earnings of $9 million, $11 million and $5 million in 2016, 2015 and 2014, respectively, which includes our portion of the net income of the joint venture as well as a portion of the deferred gain from the contribution of the land.

Hyatt Place Joint Venture. We own a 50% interest in a joint venture with White Lodging Services that owns the 255-room Hyatt Place Nashville Downtown in Tennessee. In August 2016, the joint venture refinanced its $31 million construction loan with a new $60 million mortgage loan due August 2019 with two 12-month extension options. The loan bears interest at 1-month USD LIBOR plus 300 basis points, or 3.8%, at December 31, 2016. Upon repayment of the construction loan, the partners were released of their

guarantee on such loan. During 2016, the joint venture also made distributions to its partners, of which we received $17 million. Due to the significant control rights of our partner, we do not consolidate the joint venture in our financial statements.

Harbor Beach Joint Venture. We own a 49.9% interest in a joint venture with R/V-C Association that owns the 650-room Fort Lauderdale Marriott Harbor Beach Resort & Spa in Florida. The joint venture has approximately $149 million of mortgage debt that is non-recourse to us. Due to significant control rights of our partner, we do not consolidate the joint venture in our financial statements. During 2016, we received approximately $6 million of distributions from the joint venture as a result of excess cash from operations.

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, 2016 (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)	$	4,475	$	693	$	455	$	1,025	$	2,302
Capital lease obligations		1		1		—		—		—
Operating lease obligations		1,461		43		79		75		1,264
Purchase obligations (2)		239		216		23		—		—
Other long-term liabilities reflected on the balance sheet (3)		30		3		—		6		21
Total	$	6,206	$	956	$	557	$	1,106	$	3,587
___________

(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, obligations to third-parties related to prior property transactions and the estimated amount of tax expense related 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 February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 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. Specifically, as a result of the elimination of the presumption that a general partner should consolidate a limited partnership, and that these partnerships should be evaluated under the VIE or Voting Interest model, we re-evaluated the VIE determination of our non-wholly-owned partnerships. We adopted this standard on January 1, 2016, and applied the changes retrospectively. As a result, we no longer consolidate the partnership that owns the Fort Lauderdale Marriott Harbor Beach Resort & Spa, of which we are the managing partner and hold 49.9% of the partnership interests, due to the voting rights of the third-party owner. Accordingly, the operations, assets and liabilities of the hotel no longer are included in our consolidated financial statements. Instead, we have included our interest in the hotel based on the carrying amount on January 1, 2015 in advances to and investments in affiliates and our portion of the hotel’s earnings are recorded to equity in earnings of affiliates, with no cumulative-effect adjustment. As a result of the adoption of this ASU, total assets and total liabilities at December 31, 2015 were reduced by $128 million and $150 million, respectively. In addition, for the years ended December 31, 2015 and 2014, total revenues were reduced by $37 million and $33 million, respectively. Net income decreased by $6 million for both years ended December 31, 2015 and 2014. The deconsolidation of this entity had no effect on the total equity of Host Inc. stockholders, total Host L.P. capital or net income attributable to Host Inc. or Host L.P.

Additionally, three partnerships now are considered VIE’s, as the general partner maintains control over the decisions that most significantly impact the partnerships; however, this consideration did not change the consolidation determination. This conclusion includes the operating partnership, Host L.P., which is consolidated by Host Inc., of which Host Inc. is the general partner and holds 99% of the limited partner interests. Host Inc.’s sole significant asset is its investment in Host L.P. and, consequently, substantially all of Host Inc.’s assets and liabilities represent assets and liabilities of Host L.P. All of Host Inc.’s debt is an obligation of Host L.P. and may be settled only with assets of Host L.P. We also determined that our consolidated partnership that owns the Houston Airport Marriott at George Bush Intercontinental, of which we are the general partner and hold 85% of the partnership interests, is a VIE. The total assets of this VIE at December 31, 2016 are $60 million and consist of cash and property and equipment. Liabilities for the VIE total $3 million and consist of accounts payable and deferred revenue. The unconsolidated partnership that owns the Philadelphia Marriott Downtown, of which we hold 11% of the limited partner interests, also is a VIE. The carrying amount of this investment at December 31, 2016 is $(6) million and is included in advances to and investments in affiliates. The mortgage debt held by this VIE is non-recourse to us.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The new standard sets forth steps to determine the timing and amount of revenue to be recognized to depict the transfer of goods or services in an amount that reflects the consideration that the entity expects in exchange. In March, April, May and December 2016, the FASB issued ASUs

Nos. 2016-08, 2016-10, 2016-12 and 2016-20, respectively, all related to Revenue from Contracts with Customers (Topic 606), which further clarify the application of the standard. 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. The new standards can be applied retrospectively or under a modified retrospective approach. Based on our assessment of this standard, it will not materially affect the amount or timing of revenue recognition for revenues from room, food and beverage, and other hotel level sales; however, it may allow for earlier gain recognition for certain sale transactions under which we have continuing involvement. Upon adoption, we expect to implement these standards using a modified retrospective approach with a cumulative effect recognized and no prior period restatements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which affects aspects of accounting for lease agreements. Under the new standard, all leases, including operating leases, will require recognition of the lease assets and lease liabilities by lessees on the balance sheet. However, the effect on the statement of operations and the statement of cash flows largely is unchanged. The standard is effective for fiscal years beginning after December 15, 2018, with early application permitted. The standard requires a modified retrospective approach, with restatement of the periods presented in the year of adoption. The primary impact of the new standard will be to the treatment of our 26 ground leases, which represent approximately 85% of all of our operating lease payments. While we have not completed our analysis, we believe that the application of this standard will result in the recording of a right of use asset and the related lease liability of between $400 million and $500 million for the ground leases, although changes in discount rates, ground lease terms or other variables may have a significant effect on this calculation. As noted above, we expect that the adoption of this standard will have minimal impact on our income statement.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which is intended to simplify accounting for share-based payment transactions and will affect the classification of certain share-based awards and related income tax withholdings. The standard is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. As a result of the standard, we anticipate that the majority of our share-based payment awards granted in 2017 will be deemed equity-classified awards, and the excess tax benefits or deficiencies that are incurred based on the difference between the intrinsic value of the award and the grant-date fair value will be recognized as income tax expense or benefit on the income statement. However, we do not anticipate that the implementation of this standard will have a material effect on our financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires that, on the statement of cash flows, amounts generally described as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning and ending total amounts thereof. Upon adoption of this standard, amounts included in restricted cash and furniture, fixtures and equipment replacement fund on our consolidated balance sheet will be included with cash and cash equivalents on the statement of cash flows. These amounts totaled $175 million and $156 million for the years ended December 31, 2016 and 2015, respectively. The adoption of this standard will not change our balance sheet presentation. The standard is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. We plan to adopt this standard beginning January 1, 2017.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The standard adopts a two-step approach, wherein, if substantially all of the fair value of the gross assets acquired is concentrated in a single (group of similar) identifiable asset(s), then the transaction would be considered an asset purchase. As a result of the standard, we anticipate that the majority of our hotel purchases will be considered asset purchases as opposed to business combinations, although the determination will be made on a transaction-by-transaction basis. This standard will be applied on a prospective basis and, therefore, it does not affect the accounting for any of our previous transactions. The standard is effective for annual periods beginning after December 15, 2017, with early adoption permitted.

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 Don CeSar in February 2017. The hotel will not be included in our comparable hotel set until January 1, 2019. 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 96 hotels that we owned on December 31, 2016, 88 have been classified as comparable hotels. The operating results of the following hotels that we owned as of December 31, 2016 are excluded from comparable hotel results for these periods:

	•	The Denver Marriott Tech Center, removed in the first quarter of 2016 (business disruption due to extensive renovations, including conversion of 64 rooms to 41 suites, conversion of the concierge lounge into three meeting rooms, and the repositioning of the public space and food and beverage areas);

	•	The Hyatt Regency San Francisco Airport, removed in the first quarter of 2016 (business disruption due to extensive renovations, including all guestrooms and bathrooms, meeting space, the repositioning of the atrium into a new restaurant and lounge, and conversion of the existing restaurant to additional meeting space);

	•	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);

	•	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);

	•	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 Phoenician (acquired in June 2015 and, beginning in second quarter 2016, business disruption due to extensive renovations, including all guestrooms and suites, a redesign of the lobby and public areas, renovation of pools, recreation areas and a restaurant and a re-configured spa and fitness center); and

	•	Axiom Hotel (acquired as the Powell Hotel in January 2014, then closed during 2015 for extensive renovations and reopened in January 2016).

The operating results of 18 hotels disposed of in 2016 and 2015 are not included in comparable hotel results for the periods presented herein. In 2017, the following hotels will be excluded from our comparable hotel results because they have undergone large-scale capital projects during the comparable periods reported: the Denver Marriott Tech Center; the Hyatt Regency San Francisco Airport; Marriott Marquis San Diego Marina; The Phoenician; and Axiom Hotel. We also will exclude the JW Marriott Desert Springs Resort & Spa, which we sold in January, and the Don CeSar, which we acquired in February, along with any hotels acquired or sold during 2017.

As of December 31, 2015, 95 of our 106 hotels were classified as comparable. 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).

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;

	•	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, Ohio, Pennsylvania, Tennessee, and Texas.

International

	•	Asia-Pacific –Australia;

	•	Canada – Toronto and Calgary; and

	•	Latin America –Brazil 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 2015 assuming the results of our foreign operations were translated using the same exchange rates that were effective for the comparable periods in 2016, 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.

Similarly, Adjusted EBITDA, NAREIT FFO and Adjusted FFO per diluted share include adjustments for the pro rata share of our equity investments and non-controlling partners in consolidated partnerships. Our equity investments primarily consist of our approximate one-third interest in a European joint venture, a 25% interest in an Asian joint venture, a 67% ownership in a joint venture that owns a vacation ownership property in Hawaii and interests ranging from 11% to 50% in three partnerships that each own one hotel. Due to the voting rights of the outside owners, we do not control and, therefore, do not consolidate these entities. The non-controlling partners in consolidated partnerships primarily consist of the approximate 1% interest in Host LP held by outside partners and interests ranging from 15% to 48% held by outside partners in three partnerships each owning one hotel for which we do control the entity and, therefore, consolidate its operations. These pro rata results for Adjusted EBITDA were calculated as set forth in the definition below under “Equity Investment Adjustments” and ”Consolidated Partnership Adjustments.” Similar adjustments were made in the calculation of both NAREIT FFO and Adjusted FFO per diluted share. Readers should be cautioned that the pro rata results presented in these measures for consolidated and non-consolidated partnerships may not accurately depict the legal and economic implications of our investments in these entities. 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,
	2016			2015
Net income (1)	$	771		$	565
Interest expense		154			227
Depreciation and amortization		724			708
Income taxes		40			9
EBITDA (1)		1,689			1,509
Gain on dispositions (2)		(250	)		(93	)
Gain on property insurance settlement		(1	)		(2	)
Acquisition costs		—			1
Equity investment adjustments:
Equity in earnings of affiliates		(21	)		(76	)
Pro rata Adjusted EBITDA of equity investments		65			81
Consolidated partnership adjustments:
Pro rata Adjusted EBITDA attributable to non-controlling partners in other consolidated partnerships		(11	)		(11	)
Adjusted EBITDA (1)	$	1,471		$	1,409
___________

(1)

Net Income, EBITDA, Adjusted EBITDA, NAREIT FFO and Adjusted FFO include a gain of $2 million for each of the years ended December 31, 2016 and 2015, respectively, for the sale of the portion of land attributable to individual units sold by the Maui timeshare joint venture. Additionally, in 2016, these line items include $12 million for the reimbursement of operating losses at the New Orleans Marriott due to the 2010 Deepwater Horizon oil spill.

(2)	Reflects the sale of ten hotels in 2016 and the sale of eight hotels in 2015.

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,
	2016			2015
Net income (1)	$	771		$	565
Less: Net loss attributable to non-controlling interests		(9	)		(7	)
Net income attributable to Host Inc.		762			558
Adjustments:
Gain on dispositions (2)		(250	)		(93	)
Tax on dispositions		9			—
Gain on property insurance settlement		(1	)		(2	)
Depreciation and amortization		720			704
Equity investment adjustments:
Equity in earnings of affiliates		(21	)		(76	)
Pro rata FFO of equity investments		48			55
Consolidated partnership adjustments:
FFO adjustment for non-controlling partnerships		(4	)		(5	)
FFO adjustments for non-controlling interests of Host L.P.		(6	)		(7	)
NAREIT FFO (1)		1,257			1,134
Adjustments to NAREIT FFO:
Loss on debt extinguishment		—			45
Acquisition costs		—			1
Adjusted FFO (1)	$	1,257		$	1,180

For calculation on a per share basis:

Adjustments for dilutive securities (3):
Assuming conversion of Exchangeable Senior Debentures	$	—		$	22
Diluted NAREIT FFO	$	1,257		$	1,156
Diluted Adjusted FFO	$	1,257		$	1,202

Diluted weighted average shares outstanding - EPS		743.7			752.9
Assuming conversion of Exchangeable Senior Debentures		—			25.4
Diluted weighted average shares outstanding - NAREIT FFO and Adjusted FFO		743.7			778.3
NAREIT FFO per diluted share	$	1.69		$	1.49
Adjusted FFO per diluted share	$	1.69		$	1.54
___________

(1-2)	Refer to the corresponding footnote on the Reconciliation of Net Income to EBITDA and Adjusted EBITDA for Host Inc. and Host L.P.

(3) 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.

(in millions, except hotel statistics)

	Year ended December 31,
	2016			2015
Number of hotels		88			88
Number of rooms		49,376			49,376
Change in comparable hotel RevPAR -
Constant US$		2.7	%		—
Nominal US$		2.5	%		—
Operating profit margin (1)		12.6	%		11.8	%
Comparable hotel EBITDA margin (1)		27.8	%		27.0	%
Food and beverage profit margin (1)		30.3	%		29.2	%
Comparable hotel food and beverage profit margin (1)		30.6	%		29.7	%
Comparable hotel revenues
Room	$	3,194		$	3,105
Food and beverage (2)		1,430			1,406
Other		284			265
Comparable hotel revenues (3)		4,908			4,776
Comparable hotel expenses
Room		817			806
Food and beverage (4)		993			989
Other		99			122
Management fees, ground rent and other costs		1,635			1,570
Comparable hotel expenses (5)		3,544			3,487
Comparable hotel EBITDA		1,364			1,289
Non-comparable hotel results, net (6)		150			144
Depreciation and amortization		(724	)		(708	)
Interest expense		(154	)		(227	)
Provision for income taxes		(40	)		(9	)
Gain on sale of property and corporate level income/expense		175			76
Net income	$	771		$	565
___________

(1)	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 margins are calculated using amounts presented in the above table.

(2)	The reconciliation of total food and beverage sales per the consolidated statements of operations to the comparable food and beverage sales is as:

	Year ended December 31,
	2016			2015
Food and beverage sales per the consolidated statements of operations	$	1,599		$	1,568
Non-comparable hotel food and beverage sales		(169	)		(162	)
Comparable food and beverage sales	$	1,430		$	1,406

(3)	The reconciliation of total revenues per the consolidated statements of operations to the comparable hotel revenues is as follows:

	Year ended December 31,
	2016			2015
Revenues per the consolidated statements of operations	$	5,430		$	5,350
Non-comparable hotel revenues		(522	)		(574	)
Comparable hotel revenues	$	4,908		$	4,776

(4)	The reconciliation of total food and beverage expenses per the consolidated statements of operations to the comparable food and beverage expenses is as follows:

	Year ended December 31,
	2016			2015
Food and beverage expenses per the consolidated statements of operations	$	1,114		$	1,110
Non-comparable hotel food and beverage expenses		(121	)		(121	)
Comparable food and beverage expenses	$	993		$	989

(5)	The reconciliation of operating costs and expenses per the consolidated statements of operations to the comparable hotel expenses is as follows:

	Year ended December 31,
	2016			2015
Operating costs and expenses per the consolidated statements of operations	$	4,746		$	4,719
Non-comparable hotel expenses		(372	)		(430	)
Depreciation and amortization		(724	)		(708	)
Corporate and other expenses		(106	)		(94	)
Comparable hotel expenses	$	3,544		$	3,487

(6)	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 insurance settlements and business interruption proceeds, and (iii) the results of our office buildings.

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