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. This discussion focuses on our financial condition and results of operations for the year ended December 31, 2019 as compared to the year ended December 31, 2018. For a discussion and analysis of the year ended December 31, 2018, compared to the same period in 2017 please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part II Item 7 of our Annual Report on Form 10‑K for the year ended December 31, 2018, filed with the SEC on February 26, 2019.

Overview

Host Inc. operates as a self-managed and self-administered REIT that owns hotels 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, 2019. 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 hotels. As of February 20, 2020, we own 80 hotels in the United States, Canada and Brazil and have minority ownership interests in an additional 10 hotels through joint ventures in the United States and in India. These hotels are operated primarily under brand names that are among the most respected and widely recognized in the lodging industry. Most of our hotels 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 61%, 35%, and 4%, respectively, of our 2019 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 by 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 98% of our total revenues and 2% relate to our five hotels in Canada and Brazil. The following table presents the components of our hotel revenues as a percentage of our total revenues:


•	Rooms revenues. Occupancy and average daily room rate are the major drivers of rooms revenues. The business mix of the hotel (group versus transient and retail versus discount business) is a significant driver of room rates.	63%

•	Food and beverage revenues. Food & beverage revenues consist of revenues from group functions, which may include banquet revenues and audio and visual revenues, as well as outlet revenues from the restaurants and lounges at our hotels.	30%

•	Other revenues. Occupancy, the nature of the hotel (e.g., resort) and its price point are the main drivers of other ancillary revenues, such as attrition and cancellation fees, resort and destination fees, parking, golf courses, spas, entertainment and other guest services. This category also includes other rental revenues.	7%

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


•	Rooms expenses. These costs include housekeeping, reservation systems, room supplies, laundry services and front desk costs. Occupancy is the major driver of rooms expenses. 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 expenses. These expenses primarily include food, beverage and the associated labor costs and will correlate closely with food and beverage revenues. Group functions with banquet sales and audio and visual components generally will have lower overall costs as a percentage of revenues than outlet sales.	24%

•	Other departmental and support expenses. These expenses include labor and other costs associated with other ancillary revenues, such as parking, golf courses, spas, entertainment and other guest services, as well as labor and other costs associated with administrative departments, brand standard costs, sales and marketing, repairs and minor maintenance and utility costs.	28%

•	Management fees. Base management fees are computed as a percentage of gross revenues. Incentive management fees generally are paid when operating profits exceed certain thresholds.	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 hotels and the amounts of historical capital expenditures.	14%

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 58% of our rooms, food and beverage, and other departmental and support expenses.

Key Performance Indicators. The following key performance indicators commonly are used in the hospitality industry and we believe provide useful information to management and investors in order to compare our performance with the performance of other REITS:

	•	hotel occupancy is a volume indicator based on the percentage of available room nights that are sold;

	•	average daily rate (“ADR”) is a price indicator calculated by dividing rooms revenues by the number of rooms sold;

	•	revenues per available room (“RevPAR”) is used 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 hotel. Although RevPAR does not include these ancillary revenues, it is considered a key indicator of core revenues for many hotels; and

	•	total revenues per available room (“Total RevPAR”) is a summary measure of hotel results calculated by dividing the sum of rooms, food and beverage and other ancillary service revenues by room nights available to guests for the period. It includes ancillary revenues that are not included in the calculation of RevPAR.

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 revenues, 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, except those charged as a percentage of revenues. 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 on a comparable hotel basis. Comparable hotels are those hotels that we have owned for the entirety of the reporting periods being compared and which operations have been included in our consolidated results. Beginning January 1, 2020, comparable hotels will also include hotels immediately upon acquisition, on a pro forma basis, which will include operating results for periods prior to our ownership, based on actual results obtained from the manager. 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. We provide RevPAR results in constant currency due to the consolidated hotels that we own in Canada and Brazil 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 the presentation of our financial statements 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 to promote an industry-wide measure of REIT operating performance. We also adjust NAREIT FFO for gains and losses on extinguishment of debt, certain 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, EBITDAre and Adjusted EBITDAre. 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. NAREIT adopted EBITDA for real estate (“EBITDAre”) in order to promote an industry-wide measure of REIT operating performance. We also adjust EBITDAre for property insurance gains, certain acquisition costs and litigation gains or losses outside the ordinary course of business (“Adjusted EBITDAre”).

Summary of 2019 Operating Results

The following table reflects certain line items from our audited consolidated statements of operations and the significant operating statistics for the two years ended December 31, 2019 (in millions, except per share and hotel statistics):

Historical Income Statement Data:

	2019			2018
Total revenues	$	5,469		$	5,524		(1.0	)%
Net income		932			1,151		(19.0	)%
Operating profit		799			530		50.8	%
Operating profit margin under GAAP		14.6	%		9.6	%	500	bps
EBITDAre	$	1,538		$	1,562		(1.5	)%
Adjusted EBITDAre	$	1,534		$	1,562		(1.8	)%

Diluted earnings per share	$	1.26		$	1.47		(14.3	)%
NAREIT FFO per diluted share		1.70			1.77		(4.0	)%
Adjusted FFO per diluted share		1.78			1.77		0.6	%

Comparable Hotel Data:

	2019 Comparable Hotels (1)
	2019			2018			Change
Comparable hotel revenues	$	4,397		$	4,356			0.9	%
Comparable hotel EBITDA		1,275			1,266			0.7	%
Comparable hotel EBITDA margin		29.0	%		29.05	%		(5	bps)
Change in comparable hotel Total RevPAR - Constant US$ (2)		1.0	%
Change in comparable hotel RevPAR - Constant US$ (2)		(0.6	)%
Change in comparable hotel RevPAR - Nominal US$ (2)		(0.7	)%
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(1)	Comparable hotel operating statistics for 2019 and 2018 are based on 72 comparable hotels as of December 31, 2019 .

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

Revenues

Total revenues declined $55 million, or 1.0%, compared to 2018, as the net effect of our acquisitions and dispositions led to a reduction of $116 million in revenues, or 2.1%, for the year, which was only partially offset by improvements in our comparable hotel performance. Comparable hotel revenues increased $41 million, or 0.9%, driven by growth in food and beverage (“F&B”) and other revenues. By contrast, comparable hotel rooms revenues declined as RevPAR at our comparable hotels decreased 0.6% compared to 2018, on a constant US$ basis, due to an 80 basis point decline in occupancy to 78.9%, partially offset by a slight increase in ADR. Comparable Total RevPAR, which also includes food and beverage and other revenues, increased 1.0% year-to-date on a constant US$ basis as comparable hotel food and beverage revenues increased 1.7%, driven by strong banquet and audio/visual sales. Our comparable hotel other revenues growth of 15.3% was driven by an increase in attrition and cancellation fees and resort and destination fees (see “Statement of Operations Results and Trends”).

The strongest markets for 2019 were Phoenix and Florida Gulf Coast, which had comparable hotel Total RevPAR increases of 8.7% and 7.4%, respectively. In Phoenix, the improvement in Total RevPAR was due to transient growth of 8.4% and an increase in food and beverage revenues of 4.1%. In particular, Total RevPAR at The Phoenician improved by 20.5%, as the hotel reopened two restaurants after completing renovations during the year and benefited from strong leisure demand. In Florida Gulf Coast, group performance increased by 14.1%, which drove the 9.2% increase in food and beverage revenues. The Don CeSar and the Ritz-Carlton Golf Resort also benefited from recently completed renovations. The Atlanta, Denver, and Washington, D.C. (Central Business District “CBD”) markets also outperformed the portfolio, with comparable hotel Total RevPAR increases of 5.0%, 4.8%, and 3.2%, respectively. In Atlanta, the improvements were the result of the Super Bowl in February 2019 and an increase in transient occupancy, most notably at The Whitley, Atlanta Buckhead which completed room renovations earlier this year. In Denver and Washington, D.C. (CBD), the improvements were due to stronger group contributions which helped drive a 13.2% and 5.3% increase in food and beverage revenues, respectively. Our Denver hotels benefited from an increase in ADR of 4.3%. These strong performances were offset by comparable hotel Total RevPAR declines at our Seattle and New York hotels of 6.7% and 5.2%, respectively. The decline in Seattle was driven by new supply and fewer city-wide events, which resulted in a decline in group revenue of 26.1%. The decline in New York was due to continued increases in supply and relative weak demand in the Times Square submarket.

On a constant US$ basis, Total RevPAR at our comparable consolidated hotels in Canada and Brazil increased 5.8% in 2019, primarily due to an increase in occupancy of 1,270 basis points at our hotels in Brazil, as well as an increase in food and beverage revenues of 21.1% at those hotels.

Operating Profit

Operating profit margins (calculated based on GAAP operating profit as a percentage of GAAP revenues) increased 500 basis points for 2019, largely due to a decrease in depreciation expense resulting from $260 million of impairment expense recorded in 2018. Margins also were positively impacted by highly profitable other revenues growth from cancellation, attrition, resort and destination fees. Operating profit margins under GAAP also are affected significantly by several items, including dispositions, depreciation expense and corporate expenses. Our comparable hotel EBITDA margins, which exclude these items, declined 5 basis points to 29.0%. Downward pressure on margins was due to the decline in comparable hotel RevPAR and increasing labor costs due to tightening labor markets, which was partially offset by the operating guarantees provided by Marriott related to the Marriott transformational capital program discussed below and realized benefits from the Marriott and Starwood merger, including lower allocated costs for required programs and services, reduced charge-out rate for loyalty program expenses and lower group travel agent commissions.

Net Income, Adjusted EBITDAre and Adjusted FFO per Diluted Share

Net income for Host Inc. decreased $219 million in 2019 to $932 million primarily due to a $562 million decrease in other gains/(losses), partially offset by a decrease of $246 million of impairment expense in 2019. The net effect of our acquisitions and dispositions increased net income by $54 million, while the sale of our interest in the Euro JV in 2018 reduced net income by $14 million. These results led to a decrease in diluted earnings per common share for Host Inc. of 14.3% to $1.26. Adjusted EBITDAre, which excludes, among other items, gain on sale of assets and impairment expense, decreased $28 million to $1,534 million. An increase in Adjusted EBITDAre from our comparable hotels was offset by the net effect of our acquisitions and dispositions of consolidated hotels which reduced Adjusted EBITDAre by $18 million. Additionally, the sale of our interest in the Euro JV in 2018 reduced Adjusted EBITDAre by $45 million in 2019. Adjusted FFO per diluted share, which excludes gain on sale of assets and other real estate transactions, including depreciation and impairment, increased $0.01, or 0.6%, in 2019, as the reduction in Adjusted EBITDAre was offset by a reduction in interest expense (excluding debt extinguishment costs) and a decline in the weighted average shares outstanding as a result of the execution of our stock repurchase plan.

The trends and transactions described above for Host Inc. affected similarly the operating results for Host L.P., as the only significant difference between the Host Inc. and Host L.P. statements of operations relates to the treatment of income attributable to the unaffiliated limited partners of Host L.P.

2020 Outlook

2020 will prove a challenging year for the lodging industry due to a number of economic, political, and global issues. Consensus forecasts anticipate real GDP growth of 1.9%, implying slower economic momentum. Consumer confidence and labor markets remain strong, which have the potential to bolster the leisure travel segment. However, business investment growth, which historically has been highly correlated to RevPAR growth for upper-upscale properties in major markets, continues to decelerate. Additionally, the strong labor market will drive increases in wages and benefits that will challenge operators to maintain margins. These conflicting economic indicators, combined with election year uncertainty and continued trade instability, will weigh on growth potential in the lodging industry this year. In addition, the coronavirus outbreak in China and other countries is expected to have an economic and travel impact in the U.S., particularly for gateway cities such as New York and San Francisco, though the timing and severity of the effect is uncertain.

The long economic growth cycle in the U.S. also has encouraged development of new supply, which is forecast to be above the long-term average for 2020. Although growth in the upper upscale segment is expected to remain modest, some of our markets, such as New York and Boston, will continue to see above-average supply growth, which has made it more challenging for our operators to maintain high levels of occupancy and to grow average rates. Therefore, constrained lodging demand and targeted supply growth are expected to limit overall RevPAR growth for our portfolio for 2020.

We expect that these broad industry and individual market trends will result in comparable RevPAR growth on a constant dollar basis of between 0.0% and 1.0% for the full year 2020. We expect the slight increase in RevPAR to be driven by increased group revenues, as our portfolio is expected to benefit from a more favorable citywide convention calendar, leading to continued F&B growth. We expect leisure travel to support transient revenues, as loyalty program redemptions remain strong, while business travel is expected to remain subdued. In addition, we anticipate above-inflationary growth in hotel-level operating expenses, driven by expected wage and benefit increases of approximately 5%, which will result in lower operating margins. Year-over-year comparisons also will be affected by changes in our portfolio due to acquisitions and dispositions.

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 hotels 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

For 2020, we intend to continue our disciplined approach to capital allocation to strengthen our portfolio and deliver stockholder value through multiple levers. These levers may include, over time, acquiring hotels, investing in our portfolio, buying back stock (depending on market conditions) or returning capital through a meaningful quarterly dividend. We intend to take advantage of our strong capital position and overall scale to acquire upper-upscale and luxury 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 hotels when market conditions permit, including the pursuit of exiting our remaining international markets to focus on our domestic portfolio. We also continue to critically analyze our portfolio to seek to take advantage of the inherent value of our real estate for its highest and best use.

Acquisitions. On February 14, 2019, we acquired the 429-room 1 Hotel South Beach for $610 million. The resort is the centerpiece of a mixed-use complex that features an additional 155 luxury condominium units whose owners may participate in a rental program with our hotel. The resort features over 600 linear feet of direct beach access, 160,000 square feet of meeting space, eight food and beverage outlets, a spa, a gym, four elevated pools with ocean views, and 23,000 square feet of luxury retail space.

Dispositions. We completed the sale of 14 hotels in 2019 for net proceeds of approximately $1,192 million. These sales primarily represented the disposition of relatively lower Total RevPAR properties and/or properties that had near-term capital expenditures needs.

Financing transactions. On September 26, 2019, we issued $650 million of 3.375% Series H senior notes due December 2029 for proceeds of approximately $640 million, net of discounts, underwriting fees and expenses. The Series H senior notes have been designated as green bonds, as an amount equal to the net proceeds have been allocated to eligible green projects. Interest is payable semi-annually in arrears on June 15 and December 15, commencing December 15, 2019. The net proceeds were used, together with cash on hand, to redeem our $300 million 6% Series Z senior notes due 2021 and our $350 million 5.25% Series B senior notes due 2022, including a prepayment premium of $50 million.

Additionally, in August 2019, we amended and restated our credit facility agreement, expanding the revolver capacity from $1 billion to $1.5 billion, extending the maturity dates of both the revolver and outstanding term loans, and decreasing interest rates by 10 basis points compared to the previous facility. During the year, we had net repayments of $56 million under the revolver portion of our credit facility.

We believe that our ability to maintain an investment grade balance sheet and well-laddered maturity schedule is an important factor in our investment strategy. Through our transactions in 2019, we were able to lower our weighted average interest rate to 3.8% at December 31, 2019, compared to 4.4% at December 31, 2018, and extended our weighted average debt maturity to 5.4 years. We have a debt balance of $3.8 billion and a balanced maturity schedule wherein not more than 26% of our outstanding debt, representing 5% of our U.S. GAAP gross asset value, is due in any given year. We have no significant debt maturities until 2023.

For a detailed discussion, see “—Liquidity and Capital Resources.” For a detailed discussion of our significant debt activities, see Part II Item 8 “Financial Statements and Supplementary Data – Note 5. Debt” in the Notes to Consolidated Financial Statements.

Capital 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. During 2019, we spent approximately $558 million on capital expenditures, of which $336 million represented return on investment (“ROI”) capital expenditures and $222 million represented renewal and replacement projects.

In collaboration with Marriott, we initiated a transformational capital program in 2018 on 17 properties that is expected to occur over a four-year period. We believe these investments will make these hotels more competitive in their respective markets and will enhance long-term performance through increases in RevPAR and market yield index. To accelerate this process, we agreed to invest amounts in excess of the FF&E reserves required under our management agreements, or approximately an average of $175 million per year, which amounts are included in the forecast range of 2020 capital expenditures reflected below. In exchange, Marriott has provided additional priority returns on the agreed upon investments and operating profit guarantees of $84 million, before reductions for incentive management fees, over the four years to offset expected business disruption.

Of the 17 properties included in the program, we have substantially completed the projects at the Coronado Island Marriott Resort & Spa, New York Marriott Downtown, San Francisco Marriott Marquis, and Santa Clara Marriott and work is underway at an additional six properties. Approximately 43% of the total estimated costs of the transformational capital program have been spent as of December 31, 2019. In 2020, we expect to substantially complete additional projects at the JW Marriott Atlanta Buckhead, Minneapolis Marriott City Center and San Antonio Marriott Rivercenter.

In 2020, we also have several projects scheduled to be completed or initiated that seek to add value to our existing portfolio over time. These include:

	•	AC by Marriott Scottsdale North – using an underutilized parking lot alongside The Westin Kierland Resort & Spa, we have begun developing a 165-room select-service hotel that will be branded as an AC by Marriott and is expected to open in the second quarter of 2020;

	•	Additional villas at the Andaz Maui at Wailea Resort – development and construction of 19 additional two-bedroom, luxury villas at the Andaz Maui is underway and expected to be completed in 2021; and

	•	Expansions at the Orlando World Center Marriott – development and construction of a 2.3-acre waterpark and a 60,000 gross square-foot meeting space expansion is expected to commence in the second quarter of 2020 and be completed in the first half of 2021 and 2022, respectively.

For 2020, we expect capital expenditures of $550 million to $650 million, which includes approximately $180 million to $200 million for the Marriott transformation program discussed above. This total spend consists of $310 million to $360 million of ROI projects and $240 million to $290 million of renewal and replacement projects.

Share Repurchases and Dividends. On August 5, 2019, Host Inc.’s Board of Directors authorized an increase in its share repurchase program from $500 million to $1 billion. In 2019, we repurchased 27.8 million shares at an average price of $17.37 per share, exclusive of commissions, for a total of $482 million. Of these repurchases, 4.7 million shares at an average price of $17.39 per share, exclusive of commissions, were made in the fourth quarter of 2019 for a total of $82 million. At December 31, 2019, we had $518 million available for repurchase under the program. Subsequent to year end, we purchased an additional 7.5 million shares at an average price of $16.90 per share, exclusive of commissions, for a total of $127 million through February 22, 2020, pursuant to our trading plan designed to comply with Rule 10b5-1 under the Securities Exchange Act. Following these transactions, we have $391 million available for repurchase under the program.

During 2019, Host Inc.’s Board of Directors declared dividends of $0.85 per share with respect to Host Inc.’s common stock. Accordingly, Host L.P. made distributions of $0.8682699 per unit with respect to its common OP units for 2019. On February 19, the Board of Directors authorized a regular quarterly cash dividend of $.20 per share on its common stock. The dividend will be paid on April 15, 2020 to stockholders of record on March 31, 2020. The amount of any future dividends will be determined by Host Inc.’s Board of Directors.

There can be no assurances that any future dividends 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.

Results of Operations

The following table reflects certain line items from our audited consolidated statements of operations for the two years ended December 31, 2019 (in millions, except percentages):

	2019		2018
Total revenues	$	5,469	$	5,524	(1.0	)%
Operating costs and expenses:
Property-level costs (1)		4,568		4,897	(6.7	)
Corporate and other expenses		107		104	2.9
Gain on insurance and business interruption settlements		5		7	(28.6	)
Operating profit		799		530	50.8
Interest expense		222		176	26.1
Other gains/(losses)		340		902	(62.3	)
Provision for income taxes		30		150	(80.0	)

Host Inc.:
Net income attributable to non-controlling interests		12		64	(81.3	)
Net income attributable to Host Inc.		920		1,087	(15.4	)

Host L.P.:
Net income attributable to non-controlling interests		2		52	(96.2	)
Net income attributable to Host L.P.		930		1,099	(15.4	)
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(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.

Statement of Operations Results and Trends

For 2019 and 2018, the results of hotels acquired or sold during the comparable periods impacted year-over-year comparisons. Our operations were affected by the disposition of 14 hotels in 2019 and four hotels in 2018, as well as the sale of the New York Marriott Marquis retail and theater commercial units and related signage areas of the hotel in 2018 (“Marriott Marquis Retail”). These dispositions were offset by the acquisition of four hotels during this timeframe: the 1 Hotel South Beach in February 2019 and the Andaz Maui at Wailea Resort, Grand Hyatt San Francisco, and Hyatt Regency Coconut Point Resort and Spa acquired in March 2018. The table below presents the net (reduction)/increase of revenues and earnings due to the results of hotels acquired or sold during the comparable periods, collectively the “Property Transactions” (in millions):

	2019		2018		Net (reduction)/increase
Total Revenues:
Acquisitions	$	363	$	171	$	192
Dispositions		244		552		(308	)
Total Revenues	$	607	$	723	$	(116	)
Net income (excluding gain on sale):
Acquisitions	$	59	$	21	$	38
Dispositions		43		27		16
Net income (excluding gain on sale)	$	102	$	48	$	54

The following table presents revenues in accordance with GAAP and includes both comparable and non-comparable hotels for the two years ended December 31, 2019 (in millions, except percentages):

	2019		2018
Revenues:
Rooms	$	3,431	$	3,547	(3.3	)%
Food and beverage		1,647		1,616	1.9
Other		391		361	8.3
Total revenues	$	5,469	$	5,524	(1.0	)

Rooms. Total rooms revenues decreased $116 million, or 3.3%, in 2019. The net effect of our Property Transactions was a decrease in rooms revenues of $104 million, or 2.9%, in 2019. The decline in rooms revenues also reflects a decrease at our comparable hotels of $19 million, or 0.7%, in 2019, driven by a decline in occupancy.

Food and beverage. Total F&B revenues increased $31 million, or 1.9%, in 2019. For our comparable hotels, F&B revenues increased $22 million, or 1.7%, as banquet and audio/visual revenues increased 2.5% driven by improved revenue contribution per group room night. The net effect of our Property Transactions was an increase of $1 million, or 0.1%, in 2019.

Other revenues. Total other revenues increased $30 million, or 8.3%, in 2019. For our comparable hotels, other revenues increased $38 million, or 15.3%, primarily due to an increase in attrition and cancelation fees, resort and destination fees and golf and spa revenue. The net effect of our Property Transactions decreased other revenues $13 million, or 3.7%, in 2019.

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 two years ended December 31, 2019 (in millions, except percentages):

	2019		2018
Expenses:
Rooms	$	873	$	918	(4.9	)%
Food and beverage		1,120		1,103	1.5
Other departmental and support expenses		1,295		1,302	(0.5	)
Management fees		239		243	(1.6	)
Other property-level expenses		365		387	(5.7	)
Depreciation and amortization		676		944	(28.4	)
Total property-level operating expenses	$	4,568	$	4,897	(6.7	)

Our operating costs and expenses, which consist of both fixed and variable components, are affected by several factors. Rooms expenses are 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 are affected by occupancy and the mix of business between banquet and audio-visual and outlet sales. However, the most significant expense for the rooms, food and beverage, and other departmental and support expenses, is wages and employee benefits, which comprise approximately 58% of these expenses in any year. During 2019, these expenses increased approximately 2.9% due to higher hourly wage rate and benefit cost increases. The increase in wages and benefits accelerated during the second half of the year, reflecting tight labor markets, a trend we expect to continue for 2020. 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 expenses decreased $45 million, or 4.9%, during 2019. The net effect of our Property Transactions decreased rooms expenses by $43 million, or 4.6%. The decline in rooms expenses at our comparable properties of $4 million, or 0.7%, reflects the decrease in occupancy offset by higher wages and benefits expenses.

Food and beverage. The increase in F&B expenses of $17 million, or 1.5%, in 2019, reflects the year-over-year increase of $18 million, or 2.1%, in comparable F&B expenses and an increase of $5 million, or 5.5% of F&B expenses at our non-comparable renovation hotels. F&B wages and benefits growth was offset by improved productivity, costs of goods sold as a percent of revenues and controllable operating expenses. The net effect of our Property Transactions decreased F&B expenses by $7 million, or 0.6%.

Other departmental and support expenses. Other departmental and support expenses decreased $7 million, or 0.5% in 2019. On a comparable hotel basis, other departmental and support expenses increased $31 million, or 3.0%. The increase primarily reflects increases in wages and benefits costs. The net effect of our Property Transactions decreased other departmental expenses by $36 million, or 2.7%.

Management fees. Total management fees decreased $4 million, or 1.6%, in 2019. At our comparable hotels, base management fees, which are calculated as a percentage of total revenues, were flat. Incentive management fees, generally which are based on the amount of operating profit at each property after we receive a priority return on our investment, increased $1 million, or 1.0%, at our comparable hotels. The net effect of our Property Transactions decreased management fees by $7 million, or 1.9%.

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 $22 million, or 5.7%, in 2019. Other property-level expenses at our comparable hotels decreased $13 million, or 4.5%. The decrease reflects the receipt of operating profit guarantees from Marriott under the transformational capital program, in addition to benefits from synergies of the Marriott merger with Starwood Hotels. The net effect of our Property Transactions decreased other property-level expenses by $6 million, or 1.5%.

Depreciation and amortization. Depreciation and amortization expense decreased $268 million, or 28.4%, to $676 million, as a result of impairment expenses of $260 million recorded in 2018.

Other Income and Expenses

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

	Year ended December 31,
	2019		2018
General and administrative costs	$	92	$	90
Non-cash stock-based compensation expense		15		14
Total	$	107	$	104

General and administrative costs primarily consist of wages and benefits, travel, corporate insurance, legal fees, audit fees, building rent and systems costs. In both 2019 and 2018, corporate and other expenses include costs associated with a significant transformation of our corporate information systems platform, the implementation of which was completed in the second quarter of 2019.

Gain on insurance and business interruption settlements**.** In 2019, we received $27 million of property insurance proceeds related to Hurricane Irma, that occurred in 2017, resulting in a gain of $4 million. In 2018, we received $7 million of business interruption insurance proceeds related to Hurricane Irma.

Interest income. Interest income increased $17 million, or 113.3%, in 2019 due to a higher cash balance throughout the year and an increase in interest rates.

Interest expense**.** Interest expense increased $46 million, or 26.1%, in 2019 as compared to 2018, due to prepayment premiums on the repayment of the Series Z and Series B Senior Notes and the accelerated recognition of interest expense associated with refinancing these senior notes and our credit facility. However, the increase was partially offset by a lower overall weighted average interest rate due to the refinancings. The following table presents certain components of interest expense (in millions):

	Year ended December 31,
	2019		2018
Cash interest expense(1)	$	159	$	169
Cash incremental interest expense (1)(2)		1		—
Non-cash interest expense		6		7
Cash debt extinguishment costs(1)		50		—
Non-cash debt extinguishment costs		6		—
Total interest expense	$	222	$	176
___________

(1)	Total cash interest expense paid was $219 million and $171 million in 2019 and 2018, respectively, which includes an increase (decrease) due to the change in accrued interest of $9 million and $2 million for 2019 and 2018, respectively.

(2)	Incremental interest 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.

Other gains/(losses). The following table presents the gains recognized on the sale of assets and other (in millions):

	Year ended December 31,
	2019			2018
Atlanta Marriott Suites Midtown, Costa Mesa Marriott, Scottsdale Marriott at McDowell Mountains, and Scottsdale Marriott Old Town	$	151		$	—
The Westin Indianapolis		33			—
Courtyard Chicago Downtown/River North and Residence Inn Arlington Pentagon City		98			—
The Westin Mission Hills and Newport Beach Marriott Bayview		60			—
Euro JV		—			238
New York Marriott Marquis Retail		—			386
JW Marriott Hotel Mexico City		—			163
Key Bridge Marriott		—			119
Maui Timeshare land (1)		1			1
Other		(3	)		(5	)
	$	340		$	902
___________

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

Benefit (provision) for income taxes. We lease substantially all 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 2019 income tax provision related to hotel operations at our TRS was approximately equal to the 2018 income tax provision related to hotel operations. The 2018 income tax provision also included approximately $109 million of Mexico corporate income tax related to the sale of the JW Marriott Mexico City hotel and U.S. and state corporate income tax on capital gains generated by certain of our 2018 dispositions.

Comparable Hotel Sales Overview

While management evaluates the performance of each individual hotel against its competitive set in a given market, we also evaluate our overall portfolio operating results by geographic location and by mix of business (i.e. transient, group or contract). As of December 31, 2019, 72 of our 80 owned hotels have been classified as comparable hotels. See “Comparable Hotel Operating Statistics” for a complete description of our comparable hotels.

201****9 Compared to 201****8

Comparable Hotel Sales by Location.

The following table sets forth performance information for our comparable hotels by location as of December 31, 2019 and 2018:

Comparable Hotels by Location in Constant US$(1)

	As of December 31, 2019				Year ended December 31, 2019									Year ended December 31, 2018
Location	No. of Properties		No. of Rooms		Average Room Rate		Average Occupancy Percentage			RevPAR		Total RevPAR		Average Room Rate		Average Occupancy Percentage			RevPAR		Total RevPAR		Percent Change in RevPAR			Percent Change in Total RevPAR
Maui/Oahu		3		1,682	$	375.46		88.2	%	$	331.08	$	502.37	$	361.68		90.3	%	$	326.71	$	493.57		1.3	%		1.8	%
Jacksonville		1		446		372.94		73.5			274.07		613.80		364.02		74.0			269.32		601.08		1.8			2.1
New York		3		4,259		286.36		84.8			242.96		359.92		295.37		87.5			258.44		379.73		(6.0	)		(5.2	)
Phoenix		3		1,654		292.50		71.9			210.32		476.62		275.28		72.2			198.75		438.50		5.8			8.7
Washington, D.C. (CBD)		5		3,238		245.82		81.5			200.27		288.52		245.96		80.4			197.70		279.59		1.3			3.2
San Diego		3		3,288		249.41		79.4			198.02		360.49		247.94		82.4			204.31		353.53		(3.1	)		2.0
Florida Gulf Coast		3		940		266.42		74.1			197.37		365.12		260.27		71.3			185.67		339.90		6.3			7.4
Los Angeles		4		1,726		228.14		86.5			197.26		294.81		228.36		87.8			200.45		296.47		(1.6	)		(0.6	)
Boston		3		2,715		237.24		81.7			193.83		268.74		239.17		81.3			194.41		263.15		(0.3	)		2.1
San Francisco/San Jose		5		2,360		238.69		78.9			188.31		259.04		229.16		82.6			189.38		260.50		(0.6	)		(0.6	)
Philadelphia		2		810		217.01		85.7			185.91		305.37		209.57		85.0			178.20		298.53		4.3			2.3
Seattle		2		1,315		225.12		82.4			185.50		250.12		240.44		83.5			200.65		268.07		(7.6	)		(6.7	)
Chicago		4		1,816		207.67		76.2			158.19		222.83		213.77		78.4			167.70		228.22		(5.7	)		(2.4	)
Orange County		2		925		195.76		79.1			154.82		258.78		196.84		79.6			156.66		256.14		(1.2	)		1.0
Atlanta		4		1,682		190.59		79.8			152.11		241.34		187.23		77.2			144.60		229.76		5.2			5.0
New Orleans		1		1,333		187.65		79.0			148.30		216.97		181.73		80.1			145.64		210.62		1.8			3.0
Northern Virginia		3		1,252		208.94		70.9			148.19		255.14		203.28		72.4			147.10		260.69		0.7			(2.1	)
San Antonio		1		512		188.01		77.1			144.93		197.57		193.98		75.3			146.16		196.74		(0.8	)		0.4
Miami		2		843		161.84		80.0			129.50		178.68		160.37		80.4			128.90		178.75		0.5			—
Houston		4		1,716		177.93		72.0			128.14		185.48		176.25		72.3			127.50		188.90		0.5			(1.8	)
Denver		3		1,340		173.47		72.9			126.48		190.45		166.34		75.1			124.93		181.69		1.2			4.8
Orlando		1		2,004		184.12		67.9			125.02		302.71		184.98		70.4			130.17		297.31		(4.0	)		1.8
Other		5		1,924		173.54		80.9			140.44		202.58		169.08		79.8			134.88		197.83		4.1			2.4
Domestic		67		39,780		235.37		79.2			186.42		296.89		234.34		80.2			187.93		294.25		(0.8	)		0.9

International		5		1,499		153.01		70.9			108.44		160.74		152.76		66.2			101.19		151.91		7.2			5.8
All Locations - Constant US$		72		41,279		232.68		78.9			183.59		291.94		231.88		79.7			184.78		289.08		(0.6	)		1.0

Comparable Hotels in Nominal US$
	As of December 31, 2019				Year ended December 31, 2019									Year ended December 31, 2018
	No. of Properties		No. of Rooms		Average Room Rate		Average Occupancy Percentage			RevPAR		Total RevPAR		Average Room Rate		Average Occupancy Percentage			RevPAR		Total RevPAR		Percent Change in RevPAR			Percent Change in Total RevPAR
International		5		1,499	$	153.01		70.9	%	$	108.44	$	160.74	$	158.60		66.2	%	$	105.06	$	157.44		3.2	%		2.1	%
Domestic		67		39,780		235.37		79.2			186.42		296.89		234.34		80.2			187.93		294.25		(0.8	)		0.9
All Locations		72		41,279		232.68		78.9			183.59		291.94		232.06		79.7			184.92		289.28		(0.7	)		0.9

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

Hotel Sales by Business Mix.

The majority of our customers fall into three broad categories: transient, group and contract business. The information below is derived from business mix results from 72 comparable hotels for which 2019 and 2018 business mix information is available. In 2019, overall revenue results for our comparable hotels was driven by increases in transient and contract revenue, partially offset by a decrease in group revenue. Transient revenues increased 0.8% compared to the prior year, with room nights up 1.3% and average rate decreased 0.5% as properties attempted to replace the group volume loss through aggressive pricing. Business transient travel revenues for 2019 decreased 6.7% due to a 6.2% decrease in occupancy and a 0.6% decrease in average rate. Contract business revenues increased 1.9% for the year, reflecting an average rate increase of 5.2% while room nights sold decreased 3.1%. Group revenues decreased 3.3% as demand was down 4.3% driven by weaker citywide conventions and a decline in association business.

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 hotels. Host Inc. is a REIT and its only significant asset is the ownership of general and limited partner 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 common and preferred 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 its 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 below applies to both 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 to provide financial flexibility given the inherent volatility of the lodging industry. This strategy has resulted in a lower overall cost of capital, allowing us to complete opportunistic investments and acquisitions and positions 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 our current stock price compared to our determination of the underlying value of our assets, appropriate leverage levels, current and forecast operating results, the completion of hotel sales and cash-on-hand.

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. Currently, none of our consolidated hotels are encumbered by mortgage debt. We have access to multiple types of financing as substantially all our debt consists of senior notes and borrowings under our credit facility, none of which are collateralized by specific hotels. We believe that we have sufficient liquidity and access to capital markets in order to take advantage of opportunistic acquisitions and investments 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 capital markets if favorable conditions exist to enhance our liquidity and to fund cash needs.

Cash Requirements. We use cash for acquisitions, capital expenditures, debt payments, operating costs, and corporate and other expenses, as well as for dividends and distributions to stockholders and Host L.P. limited partners and stock and OP unit repurchases. As a REIT, Host Inc. is required to pay dividends to its stockholders in an amount equal to at least 90% of its taxable income, excluding net capital gain, on an annual basis. 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. We have no significant debt maturities until 2023.

Capital Resources. As of December 31, 2019, we had $1,573 million of cash and cash equivalents, $176 million in our FF&E escrow reserve and $1.5 billion of available capacity remaining under the revolver portion of the credit facility. 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, pay dividends, make distributions and make investments) is contingent on our ability to maintain compliance with the financial covenants of our credit facility and senior notes, 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 considering our liquidity requirements, we may cause Host L.P. to issue senior notes or debentures exchangeable for shares of Host Inc. common stock. Given the total amount of our debt and our maturity schedule, we will continue to redeem or refinance senior notes from time to time, taking advantage of favorable market conditions. In July 2019, Host Inc.’s Board of Directors authorized repurchases of up to $1.0 billion of senior notes other than in accordance with their respective terms, of which the entire amount remains available under this authority. 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 accelerated expensing of previously deferred and capitalized 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 that we do not identify appropriate investments, we may decide in the future to use available cash for other purposes, including share repurchases, subject to market conditions. Accordingly, considering 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 our common stock. Any such transactions may, subject to applicable securities laws, occur simultaneously.

Two programs currently are in place relating to repurchases and/or sales of common stock. On May 25, 2018, we entered into a two-year distribution agreement with J.P. Morgan Securities LLC, BNY Mellon Capital Markets, LLC, Deutsche Bank Securities Inc., Goldman Sachs & Co. LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Morgan Stanley & Co. LLC, as sales agents, through which we may issue and sell, from time to time, shares of common stock having a combined aggregate offering price of up to $500 million. The sales will be made in “at the market” offerings under SEC rules, including sales made directly on the NYSE. We may sell shares of common stock under this program from time to time based on market conditions, although we are not under an obligation to sell any shares. No shares were sold during 2019 or 2018 and the program expires in May 2020. Additionally, in February 2017, Host Inc.’s Board of Directors authorized a program to repurchase up to $500 million of Host Inc. common stock, and on August 5, 2019, authorized an increase in the program to $1 billion. The common stock may be purchased from time to time depending upon market conditions and may be purchased in the open market or through private transactions or by other means, including principal transactions with various financial institutions, like accelerated share repurchases, forwards, options, and similar transactions and through one or more trading plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The plan does not obligate us to repurchase any specific number or any specific dollar amount of shares and may be suspended at any time at our discretion. For details of our repurchases under this program, see “—Strategic Initiatives” above. No repurchases were made in 2018.

We continue to explore potential acquisitions and dispositions. We anticipate that any such future acquisitions will be funded primarily by proceeds from sales of hotels, 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 or that we will be successful in disposing of any one or more of our hotels. We may acquire additional hotels or dispose of hotels through various structures, including transactions involving single assets, portfolios, joint ventures, acquisitions of the securities or assets of other REITs or distributions of hotels to our stockholders.

Sources and Uses of Cash. In 2019, our primary sources of cash included cash from operations, proceeds from asset sales, and proceeds from the issuance of debt. Our primary uses of cash during the year consisted of acquisitions, capital expenditures, operating costs, debt repayments, repurchases of common stock and distributions to equity holders. We anticipate that our sources and uses of cash will be similar during 2020.

Cash Provided by Operations. Our cash provided by operations for 2019 decreased $50 million to $1,250 million compared to 2018 due primarily to the payments of 2018 U.S. federal and state corporate income tax in the first quarter of 2019 related to the gains generated by the sale of certain assets on which we elected to pay taxes rather than distribute to our stockholders.

Cash Provided by/Used in Investing Activities. Approximately $58 million of cash was provided by investing activities during 2019 compared to $100 million provided in 2018. In addition to the acquisition and disposition activity detailed in the charts below, we spent approximately $558 million on capital expenditures, compared to $474 million in 2018. This includes certain internal costs and interest expense associated with our capital expenditures projects that have been capitalized in accordance with GAAP. These capitalized costs were $12 million, $11 million and $8 million for 2019, 2018, and 2017, respectively.

The following tables summarize significant acquisitions, dispositions and return of investments in affiliates from January 1, 2018 through February 20, 2020 (in millions):

Transaction Date		Description of Transaction	Investment(1)
Acquisitions
February	2019	Acquisition of 1 Hotel South Beach	$	(610	)
March	2018	Acquisition of Portfolio of 3 Hyatt Hotels		(1,000	)
		Total acquisitions	$	(1,610	)
___________

(1)	Effective January 1, 2018, we adopted Accounting Standards Update No. 2018-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. As a result, the acquisitions above were considered asset acquisitions and we capitalized $2 million of acquisition costs in 2019 and $17 million in 2018, which are not included in the above chart.

Transaction Date		Description of Transaction	Net Proceeds (1)		Sales Price
Dispositions/Return of Investment
January	2020	Proceeds from loan issued to Chicago Marriott Suites O'Hare purchaser(2)	$	28	$	—
October	2019	Disposition of Sheraton San Diego Hotel & Marina and Hyatt Regency Cambridge		296		297
August	2019	Disposition of Atlanta Marriott Suites Midtown, Costa Mesa Marriott, Scottsdale Marriott at McDowell Mountains, and Scottsdale Marriott Old Town		247		256
August	2019	Disposition of The Westin Indianapolis		116		120
August	2019	Disposition of Chicago Marriott Suites O'Hare(2)		7		39
July	2019	Disposition of Courtyard Chicago Downtown/River North and Residence Inn Arlington Pentagon City		141		150
June	2019	Disposition of Washington Dulles Airport Marriott		9		11
April and June	2019	Disposition of The Westin Mission Hills and Newport Beach Marriott Bayview		100		107
January	2019	Disposition of The Westin New York Grand Central		276		302
December	2018	Disposition of our approximate 33% interest in the Euro JV (3)		496		496
September	2018	Disposition of JW Marriott Hotel Mexico City (4)		180		183
September	2018	Disposition of New York Marriott Marquis Retail		429		442
September	2018	Disposition of W New York Union Square		159		171
May	2018	Disposition of W New York on Lexington Avenue		181		190
January	2018	Disposition of Key Bridge Marriott		181		190
		Total	$	2,846
___________

(1)	Proceeds are net of transfer taxes, other sales costs and FF&E replacement funds deposited directly to the property or hotel manager by the purchaser.

(2)	In connection with the sale of the Chicago Marriott Suites O’Hare, we extended a $28 million bridge loan to the purchaser. The disposition proceeds shown are net of the bridge loan. The loan was repaid in January 2020.

(3)	Represents our portion of the gross asset value of the Euro JV of approximately €700 million ($800 million), net of debt, before payment of taxes.

(4)	In January 2019, we paid $66 million to the non-controlling partner of the JW Marriott Hotel Mexico City, representing its share of proceeds from the partnership, net of taxes.

Cash Used in Financing Activities. Net cash used in financing activities was $1,315 million for 2019, as compared to $748 million in 2018. Cash used in financing activities in 2019 primarily consisted of the repurchase of common stock, repayment of senior notes and our credit facility, including prepayment premiums, and dividend payments, while cash provided by financing activities included the issuance of the Series H Senior Notes. In 2018, cash used in financing activities primarily included repayments on our credit facility and dividend payments, while there was no cash provided by financing activities in 2018.

The following table summarizes significant issuances, net of deferred financing costs and issuance discounts, that have been completed from January 1, 2018 through February 20, 2020 (in millions):

Transaction Date		Description of Transaction	Net Proceeds
Debt Issuances
September	2019	Proceeds from the issuance of $650 million 3⅜% Series H senior notes	$	640
		Total issuances	$	640

The following table presents significant debt repayments, including prepayment premiums, that have been completed from January 1, 2018 through February 20, 2020 (in millions):

			Transaction
Transaction Date		Description of Transaction	Amount
Debt Repayments
October	2019	Redemption of $300 million of 6% Series Z senior notes	$	(323	)
October	2019	Redemption of $350 million of 5¼% Series B senior notes		(377	)
September	2019	Net repayment on the revolver portion of credit facility		(56	)
January - December	2018	Net repayment on the revolver portion of credit facility		(102	)
		Total cash repayments	$	(858	)

Equity/Capital Transactions. The following table summarizes significant equity transactions that have been completed from January 1, 2018 through February 20, 2020 (in millions):

			Transaction
Transaction Date		Description of Transaction	Amount
Equity of Host Inc.
January - February	2020	Repurchase of 7.5 million shares of Host Inc. common stock	$	(127	)
January	2020	Dividend payment (1)(2)		(178	)
January - December	2019	Dividend payment (2)		(623	)
May - December	2019	Repurchase of 27.8 million shares of Host Inc. common stock		(482	)
January - December	2018	Dividend payments (2)		(629	)
		Cash payments on equity transactions	$	(2,039	)
___________

(1)	Our dividend payment for the fourth quarter of 2019 was made in January 2020, but was accrued at December 31, 2019.

(2)	In connection with the dividend payments, Host L.P. made distributions of $180 million in 2020, $630 million in 2019 and $636 million in 2018 to its common unit holders.

Financial Condition

As of December 31, 2019, our total debt was approximately $3.8 billion, of which 74% carried a fixed rate of interest. Total debt was comprised of the following (in millions):

	As of December 31,
	2019			2018
Series Z senior notes, with a rate of 6% due October 2021	$	—		$	299
Series B senior notes, with a rate of 5¼% due March 2022		—			348
Series C senior notes, with a rate of 4¾% due March 2023		447			447
Series D senior notes, with a rate of 3¾% due October 2023		398			398
Series E senior notes, with a rate of 4% due June 2025		497			497
Series F senior notes, with a rate of 4½% due February 2026		397			397
Series G senior notes, with a rate of 3⅞% due April 2024		397			396
Series H senior notes, with a rate of 3⅜% due December 2029		640			—
Total senior notes		2,776			2,782
Credit facility revolver(1)		(8	)		51
Credit facility term loan due January 2024		498			499
Credit facility term loan due January 2025		499			499
Other debt, with an average interest rate of 5.6% and 8.8% at December 31, 2019 and 2018, respectively, maturing through February 2024		29			6
Total debt	$	3,794		$	3,837

(1)	There were no outstanding credit facility borrowings at December 31, 2019. Amount shown represents deferred financing costs related to the credit facility revolver.

Aggregate debt maturities at December 31, 2019 are as follows (in millions):

	Senior notes
	and
	credit facility			Other debt		Total
2020	$	—		$	23	$	23
2021		—			—		—
2022		—			—		—
2023		850			—		850
2024		900			5		905
Thereafter		2,050			—		2,050
		3,800			28		3,828
Deferred financing costs		(28	)		—		(28	)
Unamortized discounts, net		(7	)		—		(7	)
Finance lease obligations		—			1		1
	$	3,765		$	29	$	3,794

Senior Notes. The following summary is a description of the material provisions of the indentures governing the 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.

Guarantees. Under the senior notes indentures, all Host L.P. subsidiaries which guarantee other Host L.P. debt are required to similarly guarantee debt issuances under the indenture. Currently, there are no such guarantees.

Senior Notes Indenture Covenants

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

On September 26, 2019, we completed an underwritten public offering of $650 million aggregate principal amount of Series H senior notes bearing interest at a rate of 3⅜% due in 2029. The Series H senior notes are not redeemable prior to 90 days before the December 15, 2029 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. These senior notes have covenants similar to our Series D, Series E, Series F and Series G senior notes.

The Series D, E, F, G and H senior notes were issued after we attained an investment grade rating and have covenants customary for investment grade debt, primarily limitations on our ability to incur additional debt. There are no restrictions on our ability to pay dividends. These covenants 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, F, G and H senior notes, Host L.P.’s ability to incur debt 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 audited 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 debt include maintaining total debt of less than 65% of adjusted total assets (using undepreciated real estate book values), maintaining secured debt 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 debt 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, F, G and H senior notes. The following table summarizes the financial tests contained in the senior notes indenture for our Series D, E, F, G and H senior notes and our actual credit ratios as of December 31, 2019:

			Covenant Requirement
Unencumbered assets test	529	%	Minimum ratio of 150%
Total indebtedness to total assets	19	%	Maximum ratio of 65%
Secured indebtedness to total assets	0	%	Maximum ratio of 40%
EBITDA-to-interest coverage ratio	9.9	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 Moody's, Standard & Poor's and Fitch Ratings. 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 Series C senior notes, which are our only remaining senior notes issued before we attained an investment grade rating:

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

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

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

	•	our ability to incur debt 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 to establish the debt at fair value. These amounts are included in interest expense on our audited consolidated statements of operations;

	•	other covenants limiting our ability to incur debt and make distributions would include maintaining total debt of less than 65% of adjusted total assets (using undepreciated real estate book values), excluding intangible assets, and maintaining secured debt and subsidiary debt of less than 45% of adjusted total assets (using undepreciated real estate book values). 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 always must be maintained 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 Series C senior notes as of December 31, 2019 and the covenant requirements contained in the senior notes indenture that would be applicable at such times as our senior notes no longer are rated investment grade by either of Moody’s or Standard & Poor’s. Even if we were to lose the investment grade rating, we would be in compliance with all of our financial covenants under the senior notes indenture:

			Covenant Requirement
Unencumbered assets test	529	%	Minimum ratio of 125%
Total indebtedness to total assets	19	%	Maximum ratio of 65%
Secured indebtedness to total assets	0	%	Maximum ratio of 45%
EBITDA-to-interest coverage ratio	9.9	x	Minimum ratio of 2.0x
___________

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

Credit Facility. On August 1, 2019, we entered into the fifth amended and restated senior revolving credit and term loan facility, with Bank of America, N.A., as administrative agent, JPMorgan Chase Bank, N.A and Wells Fargo Bank, N.A. as co-syndication agents, and certain other agents and lenders. The credit facility allows for revolving borrowings in an aggregate principal amount of up to $1.5 billion. The revolver also includes a foreign currency subfacility for Canadian dollars, Australian dollars, Euros, British pounds 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 Mexican peso borrowings. The credit facility also provides for the existing term loan facility of $1 billion (which is fully utilized), a subfacility of up to $100 million for swingline borrowings in currencies other than U.S. dollars and a subfacility of up to $100 million for issuances of letters of credit. Host L.P. also has the option to add in the future $500 million of commitments which may be used for additional revolving credit facility borrowings and/or term loans, subject to obtaining additional loan commitments (which we have not currently obtained) and the satisfaction of certain conditions.

The revolving credit facility has an initial scheduled maturity date of January 11, 2024, which date may be extended by up to a year by the exercise of up to two 6-month extension options, each of which is subject to certain conditions, including the payment of an extension fee and the accuracy of representations and warranties. One $500 million term loan tranche has an initial maturity date of January 11, 2024, which date may be extended up to a year by the exercise of one 1-year extension option, which is subject to certain conditions, including the payment of an extension fee; and the second $500 million term loan tranche has a maturity date of January 9, 2025, which date may not be extended.

Neither the revolving credit facility nor the term loans, as applicable, requires any scheduled amortization payments prior to maturity. The term loans are subject to the same terms and conditions as those in the credit facility regarding subsidiary guarantees, operational covenants, financial covenants and events of default (as discussed below).

Guarantees. Similar to our senior note indentures, the credit facility requires all Host L.P. subsidiaries which guaranty Host L.P. debt to similarly guarantee obligations under the credit facility. Currently, there are no such guarantees.

Prepayments. Voluntary prepayments of revolver borrowings and term loans under the credit facility are permitted in whole or in part without premium or penalty, however the new credit facility removed the requirement under the prior agreement that 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 less than $10 billion if we do not reinvest the proceeds of those sales in new hotels.

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. Thus, 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 ever were 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, all of which are included in interest expense on our audited consolidated statements 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, 2019:

			Covenant Requirement for all years
Leverage ratio	1.6	x	Maximum ratio of 7.25x
Fixed charge coverage ratio	6.7	x	Minimum ratio of 1.25x
Unsecured interest coverage ratio (1)	10.1	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 77.5 to 145 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, 2019, we are able to borrow at a rate of LIBOR plus 90 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 85 to 165 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, 2019, our applicable margin on LIBOR loans under both term loans is 100 basis points. Borrowings under our revolver and the $1 billion outstanding in term loans constitute our primary obligations denominated in LIBOR. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear whether LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. There currently is no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. As such, the potential effect of any such event on our cost of capital cannot yet be determined. Our credit facility provides that in the event LIBOR no longer is published, we and Bank of America, N.A., as administrative agent, will amend the credit facility to provide for a comparable successor rate or, in the absence of an amendment, borrowings will be deemed converted to base rate borrowing at the higher of the federal funds rate plus ½ of 1% or the “prime rate” announced by Bank of America, N.A.

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. 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 that 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 Debt of Unconsolidated Partner Interests. We own non-controlling interests in joint ventures that are not consolidated and that are accounted for under the equity method. The portion of the mortgage and other debt of these joint ventures attributable to us, based on our ownership percentage thereof, was $145 million at December 31, 2019. The debt of our unconsolidated joint ventures is non-recourse to us. 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 on gains and losses on hotel sales. However, for 2018, we elected to pay U.S. federal and applicable state corporate income tax of approximately $77 million on capital gains generated by the sale of certain domestic and foreign assets rather than distribute the capital gain to our stockholders. 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 15, 2020 to stockholders of record as of December 31, 2019. The $0.20 per share regular dividend represents Host Inc.’s intended regular quarterly cash dividend for the next several quarters, subject to Board of Directors 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 to increase the amount of our dividends, which dividends could be in excess of taxable income. Any special dividend will be subject to approval by Host Inc.’s Board of Directors.

Funds used by Host Inc. to pay dividends are provided by distributions from Host L.P. As of December 31, 2019, 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 limited partners 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 consider 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 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 OP unit distribution by Host L.P. to Host Inc., as well as to the other common OP unitholders.

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 obligations 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 and access to our credit facility. Our credit exposure in each of these cases is limited, as the credit risk is spread among a diversified group of investment grade financial institutions.

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 17. Legal Proceedings, Guarantees and Contingencies.” As of December 31, 2019, we are party to the following material off-balance sheet arrangements:

Asia/Pacific Joint Venture. We have a 25% interest in an Asia/Pacific JV with RECO Hotels JV Private Limited, an affiliate of the Government of Singapore Investment Corporation Pte Ltd. The agreement may be terminated by either partner at any time, which would trigger the liquidation of the joint venture. 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, 2019, the Asia/Pacific JV has invested approximately $107 million (of which our share is $27 million) in a separate joint venture in India with Accor S.A. and InterGlobe Enterprises Limited, in which it holds a 36% interest. This joint venture owns seven hotels and an office building in Delhi, Bangalore and Chennai, totaling approximately 1,720 rooms. The hotels are managed by AccorHotels under the Pullman, ibis and Novotel brands.

Maui Joint Venture. We own a 67% interest in a joint venture with an affiliate of HV Global Group, a subsidiary of Marriott Vacations Worldwide Corporation, 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 because of the significant economic rights held by the unaffiliated 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. During 2019, 2018 and 2017, the Maui JV recognized $37 million, $42 million and $54 million, respectively, of sales of timeshare units.

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. The joint venture has a $60 million mortgage loan that is non-recourse to us. Due to the significant participating rights of our partner, we do not consolidate the joint venture in our financial statements. During 2019, we received approximately $2 million of distributions from the joint venture as the hotel generated excess cash from operations.

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 $150 million of mortgage debt that is non-recourse to us. Due to the significant participating rights of our partner, we do not consolidate the joint venture in our financial statements. During 2019, we received approximately $9 million of distributions from the joint venture as the hotel generated excess cash from operations.

For additional discussion of each of our joint venture investments, see Part II Item 8. “Financial Statements and Supplementary Data – Note 4. 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 finance leases, projected capital expenditures and other long-term liabilities, each as of December 31, 2019 (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)	$	4,597	$	166	$	284	$	1,956	$	2,191
Finance lease obligations		1		1		—		—		—
Operating lease obligations		1,773		39		76		72		1,586
Purchase obligations (2)		787		445		331		11		—
Other long-term liabilities reflected on the balance sheet (3)		12		4		3		—		5
Total	$	7,170	$	655	$	694	$	2,039	$	3,782
___________

(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 purchase obligations consist of commitments for capital expenditures at our hotels. Under our contracts, we can 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 Indemnification Agreements. Because 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 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.

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 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”:

	•	Asset Acquisitions and Business Combinations; and

	•	Property and Equipment – Impairment testing.

Application of New Accounting Standards

On January 1, 2019, we adopted Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) Topic 842, Leases, which affects aspects of accounting for lease agreements. Under the new standard, all leases pursuant to which we are the lessee, including operating leases, are recognized as lease assets and lease liabilities on the balance sheet. However, the adoption did not materially affect our audited statements of operations or statements of cash flows. For lease agreements in which we are the lessor, we have analyzed the impact of the standard and determined that there was no material impact to the recognition, measurement, or presentation of these rental revenues. Rooms revenues, which constitute the majority of our revenues, result from what are considered short term leases. Additionally, we earn rental revenues from retail and office leases at our properties, all of which are included in other revenues. We adopted the standard using the effective date transition method with a cumulative-effect adjustment in the period of adoption. The standard provided several optional practical expedients for use in transition. We elected to use what the

FASB has deemed the “package of practical expedients,” which allowed us to not reassess our previous conclusions about lease identification, lease classification and the accounting treatment for initial direct costs, and we elected to not reassess previous conclusions about land easements. Consequently, financial information will not be updated and disclosures required under the new standard will not be provided for dates and periods prior to January 1, 2019. Upon adoption, we recognized a right of use (“ROU”) asset and a related lease liability of $619 million and $628 million, respectively, with the prior year’s straight-line rent liability of $9 million reducing the ROU asset.

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 rates offered to the transient business group are:

	•	Retail: This is the benchmark rate that a hotel publishes and offers to the 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: This category includes special rates offered by the hotels, including packages, advance-purchase discounts and promotional offers. It also includes 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 at significantly discounted rates. Airline crews are typical generators of contract demand for our airport hotels. Contract rates may be utilized by hotels that are 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., Total RevPAR, 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 in order to enable our investors to better evaluate our operating performance.

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

	(i)	that are owned or leased by us and the operations of which are included in our consolidated results 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 1 Hotel South Beach in February 2019, therefore it is not included in our comparable hotel set. 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 80 hotels that we owned on December 31, 2019, 72 have been classified as comparable hotels. The operating results of the following hotels that we owned as of December 31, 2019 are excluded from comparable hotel results for these periods:

	•	Andaz Maui at Wailea Resort (acquired in March 2018);

	•	Grand Hyatt San Francisco (acquired in March 2018);

	•	Hyatt Regency Coconut Point Resort and Spa (acquired in March 2018);

	•	1 Hotel South Beach (acquired in February 2019);

	•	The Ritz-Carlton, Naples, removed in the second quarter of 2018 (business disruption due to extensive renovations, including restoration of the façade that required closure of the hotel for over two months, coordinated with renovation and expansion of restaurant areas and renovation to the spa and ballrooms);

	•	San Francisco Marriott Marquis, removed in the third quarter of 2018 (business disruption due to renovations of guestrooms, ballrooms, meeting space, and extensive renovations of the main lobby);

	•	San Antonio Marriott Rivercenter, removed in the second quarter of 2019 (business disruption due to renovations of guestrooms, conversion of public areas into meeting space, and an extensive repositioning of the lobby area); and

	•	Minneapolis Marriott City Center, removed in the fourth quarter of 2019 (business disruption due to renovations of guestrooms, ballroom, meeting space, and redesign of the lobby).

The operating results of 18 hotels disposed of in 2019 and 2018 are not included in comparable hotel results for the periods presented herein.

2020 Comparable Hotel Definition Change

Effective January 1, 2020, we will adjust our definition of comparable hotels to include recent acquisitions on a pro forma basis assuming they have comparable operating environments. Operating results for acquisitions in the current and prior year will be reflected for full calendar years, to include results for periods prior to our ownership. We believe this will provide investors a better understanding of underlying growth trends for our current portfolio. As a result, the 1 Hotel South Beach is expected to be included in the comparable hotel set for the year ended December 31, 2020. Additionally, the following hotels are expected to be excluded from the comparable hotel set for the year ended December 31, 2020, due to large-scale capital projects occurring during the comparable periods reported: the San Francisco Marriott Marquis, the San Antonio Marriott Rivercenter, the Minneapolis Marriott City Center, the New York Marriott Marquis, the Hyatt Regency Maui Resort & Spa and the JW Marriott Atlanta Buckhead. We will also exclude any hotels sold during 2020.

Constant US$ and Nominal US$

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 the prior year assuming the results of our foreign operations were translated using the same exchange rates that were effective for the comparable periods in the current year, 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 way 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, Adjusted EBITDAre, 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.

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, EBITDAre and Adjusted EBITDAre 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 EBITDAre and 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 EBITDAre and FFO or do not calculate FFO per diluted share in accordance with NAREIT guidance. In addition, although EBITDAre and FFO per diluted share are useful measures when comparing our results to other REITs, they 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 EBITDAre, 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, EBITDAre, and Adjusted EBITDAre purposes only) and other items have been and will be made and are not reflected in the EBITDA, EBITDAre, Adjusted EBITDAre, 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 statements 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, EBITDAre and Adjusted EBITDAre should not be considered as measures 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 measures of, amounts that accrue directly to stockholders’ benefit.

Similarly, EBITDAre, Adjusted EBITDAre, NAREIT FFO and Adjusted FFO per diluted share include adjustments for the pro rata share of our equity investments and NAREIT FFO and Adjusted FFO include adjustments for non-controlling partners in consolidated partnerships. Our equity investments consist of interests ranging from 11% to 67% in seven domestic and international partnerships that own a total of 10 hotels and a vacation ownership development. 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 unaffiliated limited partners and a 15% interest held by an unaffiliated limited partner in one hotel for which we do control the entity and, therefore, consolidate its operations. These pro rata results for NAREIT FFO and Adjusted FFO per diluted share, EBITDAre and Adjusted EBITDAre are calculated as set forth below. Readers should be cautioned that the pro rata results presented in these measures for consolidated partnerships (for NAREIT FFO and Adjusted FFO per diluted share) and equity investments may not accurately depict the legal and economic consequences 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, EBITDAre and Adjusted EBITDAre

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.

EBITDAre and Adjusted EBITDAre

We present EBITDAre in accordance with NAREIT guidelines, as defined in its September 2017 white paper “Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate,” to provide an additional performance measure to facilitate the evaluation and comparison of our results with other REITs. NAREIT defines EBITDAre as net income (calculated in accordance with GAAP) excluding interest expense, income tax, depreciation and amortization, gains or losses on disposition of depreciated property (including gains or losses on change of control), impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate, and adjustments to reflect the entity’s pro rata share of EBITDAre of unconsolidated affiliates.

We make additional adjustments to EBITDAre 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. We believe that the presentation of Adjusted EBITDAre, when combined with the primary GAAP presentation of net income, is beneficial to an investor’s understanding of our operating performance. Adjusted EBITDAre also is similar to what is used in calculating certain credit ratios for our credit facility and senior notes. We adjust EBITDAre for the following items, which may occur in any period, and refer to this measure as Adjusted EBITDAre:

	•	Property Insurance Gains – We exclude the effect of property insurance gains reflected in our consolidated statements of operations because we believe that including them in Adjusted EBITDAre is not consistent with reflecting the ongoing performance of our assets. In addition, property insurance gains could be less important to investors given that the depreciated asset book value written off in connection with the calculation of the property insurance gain often does not reflect the market value of real estate assets.

	•	Acquisition Costs – Under GAAP, costs associated with completed property acquisitions that are considered business combinations 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 EBITDAre for gains or losses that management believes are not representative of the Company’s current operating performance. The last such adjustment was a 2013 exclusion of a gain from an eminent domain claim.

The following table provides a reconciliation of EBITDA, EBITDAre, and Adjusted EBITDAre to net income, the financial measure calculated and presented in accordance with GAAP that we consider the most directly comparable:

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

(in millions)

	Year ended December 31,
	2019			2018
Net income	$	932		$	1,151
Interest expense		222			176
Depreciation and amortization		662			684
Income taxes		30			150
EBITDA		1,846			2,161
Gain on dispositions (1)		(334	)		(903	)
Non-cash impairment expense		14			260
Equity investment adjustments:
Equity in earnings of Euro JV (2)		—			(14	)
Equity in earnings of affiliates other than Euro JV		(14	)		(16	)
Pro rata EBITDAre of Euro JV (2)		—			45
Pro rata EBITDAre of equity investments other than Euro JV		26			29
EBITDAre		1,538			1,562
Adjustments to EBITDAre:
Gain on property insurance settlement		(4	)		—
Adjusted EBITDAre	$	1,534		$	1,562
___________

(1)	Reflects the sale of 14 hotels in 2019 and four hotels, the New York Marriott Marquis Retail and the European Joint Venture in 2018.

(2)	Represents our share of earnings from our Euro JV. Our approximate one-third non-controlling interest was sold on December 21, 2018.

FFO Measures

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. Effective January 1, 2019, we adopted NAREIT’s

definition of FFO included in NAREIT’s Funds From Operations White Paper – 2018 Restatement. The adoption did not result in a change in the way we calculate NAREIT FFO. NAREIT defines FFO as net income (calculated in accordance with GAAP) excluding depreciation and amortization related to certain real estate assets, gains and losses from the sale of certain real estate assets, gains and losses from change in control, impairment write-downs of certain real estate assets and investments and adjustments for consolidated partially-owned entities and unconsolidated affiliates. Adjustments for consolidated partially-owned entities and unconsolidated affiliates 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, impairment expense and gains and losses from sales of depreciable 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 Funds From Operations White Paper – 2018 Restatement, the primary purpose for including FFO as a supplemental measure of operating performance of a REIT is to address the artificial nature of historical cost depreciation and amortization of real estate and real estate-related assets mandated by GAAP. For these reasons, NAREIT adopted the FFO metric in order to promote a uniform 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 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 that are considered business combinations 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. The last such adjustment was in 2017. Because of the reduction of corporate income tax rates from 35% to 21% caused by the Tax Cuts and Jobs Act, we remeasured our domestic deferred tax assets as of December 31, 2017 and recorded a one-time adjustment to reduce the deferred tax assets and increase the provision for income taxes by approximately $11 million.

The following table provides a reconciliation of the differences between our non-GAAP financial measures, NAREIT FFO and Adjusted FFO (separately and on a per diluted share basis), and net income, the financial measure calculated and presented in accordance with GAAP that we consider most directly comparable:

Host Inc. Reconciliation of Net Income to

NAREIT and Adjusted Funds From Operations per Diluted Share

(in millions, except per share amount)

	Year ended December 31,
	2019			2018
Net income	$	932		$	1,151
Less: Net income attributable to non-controlling interests		(12	)		(64	)
Net income attributable to Host Inc.		920			1,087
Adjustments:
Gain on dispositions (1)		(334	)		(903	)
Tax on dispositions		(6	)		113
Gain on property insurance settlement		(4	)		—
Depreciation and amortization		657			680
Non-cash impairment expense		6			260
Equity investment adjustments:
Equity in earnings of affiliates		(14	)		(30	)
Pro rata FFO of equity investments		20			53
Consolidated partnership adjustments:
FFO adjustment for non-controlling partnerships		—			50
FFO adjustments for non-controlling interests of Host L.P.		(3	)		(2	)
NAREIT FFO		1,242			1,308
Adjustments to NAREIT FFO:
Loss on debt extinguishment		57			—
Loss attributable to non-controlling interests		(1	)		—
Adjusted FFO	$	1,298		$	1,308

For calculation on a per share basis (2):

Diluted weighted average shares outstanding - EPS, NAREIT FFO and Adjusted FFO		731.1			740.6
Diluted earnings per common share	$	1.26		$	1.47
NAREIT FFO per diluted share	$	1.70		$	1.77
Adjusted FFO per diluted share	$	1.78		$	1.77
___________

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

(2)

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 limited partners, exchangeable debt securities and other non-controlling interests that have the option to convert their limited partner 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, food and beverage profits and EBITDA (and the related margins) 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 incurred 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 also are removed to arrive at property-level results. We believe these property-level results provide investors with supplemental information about 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 real estate industry investors have considered presentation of historical cost accounting for operating results to be insufficient by themselves.

Because of the elimination of corporate-level costs and expenses, gains or losses on dispositions and depreciation and amortization, the comparable hotel operating results we present do not represent our total revenues, expenses, operating profits or net income and should not be used to evaluate the performance of our company 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 audited 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. These measures assist management and investors with the determination of 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 each of these hotels, as these decisions are based on data for individual hotels and are not based on comparable hotel results. For these reasons, we believe that comparable hotel operating results, when combined with the presentation of GAAP operating profits, 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,
	2019			2018
Number of hotels		72			72
Number of rooms		41,279			41,279
Change in comparable hotel Total RevPAR -
Constant US$		1.0	%		—
Nominal US$		0.9	%		—
Change in comparable hotel RevPAR -
Constant US$		(0.6	)%		—
Nominal US$		(0.7	)%		—
Operating profit margin (1)		14.6	%		9.6	%
Comparable hotel EBITDA margin (1)		29.0	%		29.05	%
Food and beverage profit margin (1)		32.0	%		31.7	%
Comparable hotel food and beverage profit margin (1)		33.2	%		33.5	%

Net income	$	932		$	1,151
Depreciation and amortization		676			944
Interest expense		222			176
Provision for income taxes		30			150
Gain on sale of property and corporate level income/expense		(278	)		(843	)
Non-comparable hotel results, net (2)		(307	)		(312	)
Comparable hotel EBITDA	$	1,275		$	1,266

	Year ended December 31, 2019											Year ended December 31, 2018
				Adjustments											Adjustments
	GAAP Results			Non-comparable hotel results, net (2)			Depreciation and corporate level items			Comparable Hotel Results		GAAP Results			Non-comparable hotel results, net (2)			Depreciation and corporate level items			Comparable Hotel Results
Revenues
Room	$	3,431		$	(666	)	$	—		$	2,765	$	3,547		$	(763	)	$	—		$	2,784
Food and beverage		1,647			(304	)		—			1,343		1,616			(295	)		—			1,321
Other		391			(102	)		—			289		361			(110	)		—			251
Total revenues		5,469			(1,072	)		—			4,397		5,524			(1,168	)		—			4,356
Expenses
Room		873			(172	)		—			701		918			(213	)		—			705
Food and beverage		1,120			(223	)		—			897		1,103			(224	)		—			879
Other		1,899			(375	)		—			1,524		1,932			(426	)		—			1,506
Depreciation and amortization		676			—			(676	)		—		944			—			(944	)		—
Corporate and other expenses		107			—			(107	)		—		104			—			(104	)		—
Gain on insurance and business interruption settlements		(5	)		5			—			—		(7	)		7			—			—
Total expenses		4,670			(765	)		(783	)		3,122		4,994			(856	)		(1,048	)		3,090
Operating Profit - Comparable Hotel EBITDA	$	799		$	(307	)	$	783		$	1,275	$	530		$	(312	)	$	1,048		$	1,266
___________

(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)	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 leased office buildings and other non-hotel income.

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