Item 7A. Quantitative and Qualitative Disclosures about Market Risk

All information in this section applies to Host Inc. and Host L.P.

Interest Rate Sensitivity

Our future income, cash flows and fair values with respect to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We have no derivative financial instruments that are held for trading purposes. We use derivative financial instruments to manage, or hedge, interest rate risks. As of February 20, 2020, we do not have any interest rate derivatives outstanding.

The interest payments on 74% of our debt are fixed in nature. Valuations for mortgage debt and the credit facility are determined based on expected future payments, discounted at risk-adjusted rates. The senior notes are valued based on quoted market prices. If market rates of interest on our variable rate debt increase or decrease by 100 basis points, interest expense would increase or decrease, respectively, our earnings and cash flows by approximately $10 million in 2020. The table below presents scheduled maturities and related weighted average interest rates by expected maturity dates (in millions, except percentages):

	Expected Maturity Date
																					Fair
	2020			2021			2022			2023			2024			Thereafter			Total		Value
Liabilities
Debt:
Fixed rate (1)	$	20		$	(4	)	$	(4	)	$	847		$	402		$	1,544		$	2,805	$	2,981
Average interest rate		4.1	%		4.1	%		4.1	%		4.0	%		4.0	%		4.0	%

Variable rate (1)	$	(3	)	$	(3	)	$	(3	)	$	(2	)	$	500		$	500		$	989	$	1,000
Average interest rate (2)		2.8	%		2.8	%		2.8	%		2.8	%		2.8	%		2.8	%
Total debt																			$	3,794	$	3,981

(1)	The amounts are net of unamortized discounts and deferred financing costs; therefore, negative amounts prior to maturity represent the amortization of original issue discounts and deferred financing costs.

(2)	The interest rate for our floating rate payments is based on the rate in effect as of December 31, 2019. No adjustments are made for forecast changes in the rate.

Exchange Rate Sensitivity

We have currency exchange risk because of our hotel ownership in Brazil and Canada and our minority investment in a joint venture in India. We may utilize several strategies to mitigate the exposure of currency exchange risk for our portfolio, including (i) utilizing local currency denominated debt (including foreign currency draws on our credit facility), (ii) entering into forward or option foreign currency purchase contracts, or (iii) investing through partnership and joint venture structures. For 2019 and 2018, revenues from our consolidated foreign operations were $88 million and $107 million, respectively, or approximately 2% of our total revenues in both years. Over the past few years, we have strategically exited international markets, including the disposition of one hotel in Mexico in 2018 and one hotel in Australia in 2017. Additionally, in 2018, we sold our approximate 33% interest in the European joint venture. As a result, our prospective foreign currency exchange risk will have a minimal impact on our results of operations.

During 2019, upon the maturity of a foreign currency forward sale contract with a notional amount of CAD25 million ($19 million), for which we received immaterial proceeds, we entered into a new foreign currency forward sale contract with a notional amount of CAD25 million ($19 million) that matures in May 2020. Also in 2019, we entered into two additional foreign currency forward purchase contracts, each with a notional amount of CAD37.1 million ($28 million), maturing in March 2020. A portion of these derivatives have been designated as hedges of the foreign currency exposure of a net investment in a foreign operation, while the remaining notional amount serves as a natural hedge of intercompany loans. The foreign currency exchange agreements into which we have entered strictly are to hedge foreign currency risk and are not for trading purposes. The contracts are required to be measured at fair value on a recurring basis using significant other observable inputs. As of December 31, 2019, the fair value of these contracts was not material. These contracts are marked-to-market with changes in fair value recorded to other comprehensive income (loss) for contracts designated as a hedge of a net investment in a foreign operation, and through net income for contracts acting as a natural hedge of intercompany loans. The foreign currency forward sale contracts are valued based on the forward yield curve of the foreign currency to U.S. dollar forward exchange rate on the date of measurement. Pursuant to these contracts, we will sell the foreign currency amount, as applicable, and receive the U.S. dollar amount on the forward sale date. We also evaluate counterparty credit risk when we calculate the fair value of the derivatives. Also during 2019, we repaid $56 million outstanding under our credit facility, a portion of which was previously designated as a hedge of our net investments in foreign operations.

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