Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

The following financial information is included on the pages indicated:

Host Hotels & Resorts, Inc. & Host Hotels & Resorts, L.P.

	Page
Reports of Independent Registered Public Accounting Firm (Host Hotels & Resorts, Inc.)	64
Report of Independent Registered Public Accounting Firm (Host Hotels & Resorts, L.P.)	67
Financial Statements of Host Hotels & Resorts, Inc.:	69
Consolidated Balance Sheets as of December 31, 2020 and 2019	69
Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019 and 2018	70
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2020, 2019 and 2018	71
Consolidated Statements of Equity for the Years Ended December 31, 2020, 2019 and 2018	72
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018	73
Financial Statements of Host Hotels & Resorts, L.P.:	75
Consolidated Balance Sheets as of December 31, 2020 and 2019	75
Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019 and 2018	76
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2020, 2019 and 2018	77
Consolidated Statements of Capital for the Years Ended December 31, 2020, 2019 and 2018	78
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018	79
Notes to Consolidated Financial Statements (Host Hotels & Resorts, Inc. and Host Hotels & Resorts, L.P.)	81

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors Host Hotels & Resorts, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Host Hotels & Resorts, Inc. and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule III (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013)

issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 8 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019, due to the adoption of Financial Accounting Standards Board’s Accounting Standard Codification (ASC) Topic 842, Leases.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosure to which it relates.

Evaluation of hotel property recoverability

As discussed in Notes 1 and 3 to the consolidated financial statements, property and equipment, less accumulated depreciation as of December 31, 2020, was $9,416 million. The Company assesses its property and equipment, primarily comprised of hotel properties, for impairment when events or changes in circumstances occur that indicate the carrying value may not be recoverable. Due to the impact of the COVID-19 pandemic on its operations, the Company performed recoverability assessments on all of its hotel properties. Recoverability of hotel properties is measured by performing a comparison of the carrying amount of each hotel property to its expected undiscounted future cash flows over its remaining useful life.

We identified the evaluation of hotel property recoverability as a critical audit matter. Subjective auditor judgment was required in evaluating the key assumptions used in the recoverability analysis. The key assumptions include the undiscounted future cash flows of each hotel property, and the Company’s intent and ability to hold each hotel property for a period that recovers the carrying value. A significant change to these assumptions could impact the Company’s determination of the recoverability of the carrying value of its hotel properties. Additionally, the audit effort associated with the evaluation of the undiscounted cash flows required specialized skills and knowledge because of the effects of the COVID-19 pandemic and the expected duration and financial impact of the resulting economic downturn.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the impairment process, including controls over the undiscounted future cash flows of the hotel properties, including the expected duration and financial impact of the economic downturn. We also tested certain internal controls related to the Company’s assessment of its intent and ability to hold each hotel property for a period that recovers the carrying value. We assessed the Company’s intent and ability to hold each hotel property for a period that recovers the carrying value by:

	—	examining documents to assess the Company’s plans, if any, to dispose of individual hotel properties,

	—	inquiring of the Company and obtaining written representations regarding status of potential plans, if any, to dispose of individual hotel properties,

	—	corroborating the Company’s plans with others in the organization who are responsible for, and have authority over, potential disposition activities, and

	—	inspecting listings of hotel properties for sale from external sources in order to identify information indicating a potential sale of any of the Company’s hotel properties.

We also involved valuation professionals with specialized skills and knowledge who assisted in assessing the undiscounted future cash flows of each hotel property by comparing the expected duration and financial impact of the economic downturn to publicly available market data.

/s/ KPMG LLP

We have served as the Company’s auditor since 2002.

McLean, Virginia

February 25, 2021

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors Host Hotels & Resorts, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Host Hotels & Resorts, Inc. and subsidiaries' (the “Company”) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule III (collectively, the “consolidated financial statements”), and our report dated February 25, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

McLean, Virginia

February 25, 2021

Report of Independent Regist****ered Public Accounting Firm

To the Partners of Host Hotels & Resorts, L.P. and Board of Directors of Host Hotels & Resorts, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Host Hotels & Resorts, L.P. and subsidiaries (the “Partnership”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), capital, and cash flows for each of the years in the three‑year period ended December 31, 2020, and the related notes and financial statement schedule III (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

Change in Accounting Principle

As discussed in Note 8 to the consolidated financial statements, the Partnership has changed its method of accounting for leases as of January 1, 2019, due to the adoption of Financial Accounting Standards Board’s Accounting Standard Codification (ASC) Topic 842, Leases.

Basis for Opinion

These consolidated financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of hotel property recoverability

	—	examining documents to assess the Company’s plans, if any, to dispose of individual hotel properties,

	—	inquiring of the Company and obtaining written representations regarding status of potential plans, if any, to dispose of individual hotel properties,

	—	corroborating the Company’s plans with others in the organization who are responsible for, and have authority over, potential disposition activities, and

	—	inspecting listings of hotel properties for sale from external sources in order to identify information indicating a potential sale of any of the Company’s hotel properties.

We have served as the Partnership’s auditor since 2002.

/s/ KPMG LLP

McLean, Virginia

February 25, 2021

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2020 and 2019

(in millions, except per share amounts)

	December 31, 2020			December 31, 2019

ASSETS
Property and equipment, net	$	9,416		$	9,671
Right-of-use assets		597			595
Due from managers		22			63
Advances to and investments in affiliates		21			56
Furniture, fixtures and equipment replacement fund		139			176
Other		360			171
Cash and cash equivalents		2,335			1,573
Total assets	$	12,890		$	12,305

LIABILITIES, NON-CONTROLLING INTERESTS AND EQUITY
Debt
Senior notes	$	3,065		$	2,776
Credit facility, including term loans of $997		2,471			989
Other debt		5			29
Total debt		5,541			3,794
Lease liabilities		610			606
Accounts payable and accrued expenses		71			263
Due to managers		64			—
Other		170			175
Total liabilities		6,456			4,838

Redeemable non-controlling interests - Host Hotels & Resorts, L.P.		108			142

Host Hotels & Resorts, Inc. stockholders’ equity:
Common stock, par value $.01, 1,050 million shares authorized, 705.4 million shares and 713.4 million shares issued and outstanding, respectively		7			7
Additional paid-in capital		7,568			7,675
Accumulated other comprehensive loss		(74	)		(56	)
Deficit		(1,180	)		(307	)
Total equity of Host Hotels & Resorts, Inc. stockholders		6,321			7,319
Non-redeemable non-controlling interests—other consolidated partnerships		5			6
Total equity		6,326			7,325
Total liabilities, non-controlling interests and equity	$	12,890		$	12,305

See Notes to Consolidated Financial Statements.

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31, 2020, 2019 and 2018

(in millions, except per common share amounts)

	Year ended December 31,
	2020			2019			2018
REVENUES
Rooms	$	976		$	3,431		$	3,547
Food and beverage		426			1,647			1,616
Other		218			391			361
Total revenues		1,620			5,469			5,524
EXPENSES
Rooms		362			873			918
Food and beverage		420			1,120			1,103
Other departmental and support expenses		686			1,295			1,302
Management fees		39			239			243
Other property-level expenses		312			365			387
Depreciation and amortization		665			676			944
Corporate and other expenses		89			107			104
Gain on insurance and business interruption settlements		—			(5	)		(7	)
Total operating costs and expenses		2,573			4,670			4,994
OPERATING PROFIT (LOSS)		(953	)		799			530
Interest income		8			32			15
Interest expense		(194	)		(222	)		(176	)
Other gains/(losses)		208			340			902
Loss on foreign currency transactions and derivatives		—			(1	)		—
Equity in earnings (losses) of affiliates		(30	)		14			30
INCOME (LOSS) BEFORE INCOME TAXES		(961	)		962			1,301
Benefit (provision) for income taxes		220			(30	)		(150	)
NET INCOME (LOSS)		(741	)		932			1,151
Less: Net (income) loss attributable to non-controlling interests		9			(12	)		(64	)
NET INCOME (LOSS) ATTRIBUTABLE TO HOST HOTELS & RESORTS, INC.	$	(732	)	$	920		$	1,087
Basic earnings (loss) per common share	$	(1.04	)	$	1.26		$	1.47
Diluted earnings (loss) per common share	$	(1.04	)	$	1.26		$	1.47

See Notes to Consolidated Financial Statements.

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Years Ended December 31, 2020, 2019 and 2018

(in millions)

	2020			2019			2018
NET INCOME (LOSS)	$	(741	)	$	932		$	1,151
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation and other comprehensive income (loss) of unconsolidated affiliates		(18	)		—			(13	)
Change in fair value of derivative instruments		(1	)		(1	)		1
Amounts reclassified from other comprehensive income (loss)		1			4			13
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX		(18	)		3			1
COMPREHENSIVE INCOME (LOSS)		(759	)		935			1,152
Less: Comprehensive (income) loss attributable to non-controlling interests		9			(12	)		(65	)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO HOST HOTELS & RESORTS, INC.	$	(750	)	$	923		$	1,087

See Notes to Consolidated Financial Statements.

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

Years Ended December 31, 2020, 2019 and 2018

(in millions)

			Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings / (Deficit)			Non-redeemable non-controlling Interests of Other Consolidated Partnerships			Total Equity			Redeemable non-controlling Interests of Host Hotels & Resorts, L.P.
739.1		Balance, December 31, 2017	$	7	$	8,097		$	(60	)	$	(1,071	)	$	29		$	7,002		$	167
—		Net income		—		—			—			1,087			52			1,139			12
—		Other changes in ownership		—		30			—			—			(9	)		21			(29	)
—		Foreign currency translation and other comprehensive income (loss) of unconsolidated affiliates		—		—			(13	)		—			1			(12	)		—
—		Change in fair value of derivative instruments		—		—			1			—			—			1			—
—		Amounts reclassified from Other Comprehensive Income		—		—			13			—			—			13			—
0.2		Common stock issuances		—		3			—			—			—			3			—
0.4		Comprehensive stock and employee stock purchase plans		—		11			—			—			—			11			—
—		Common stock dividends		—		—			—			(630	)		—			(630	)		—
0.7		Redemptions of limited partner interests for common stock		—		15			—			—			—			15			(15	)
—		Distributions to non-controlling interests		—		—			—			—			(1	)		(1	)		(7	)
—		Cumulative effect of accounting change		—		—			—			4			—			4			—
740.4		Balance, December 31, 2018	$	7	$	8,156		$	(59	)	$	(610	)	$	72		$	7,566		$	128
—		Net income		—		—			—			920			2			922			10
—		Other changes in ownership		—		(11	)		—			—			1			(10	)		13
—		Change in fair value of derivative instruments		—		—			(1	)		—			—			(1	)		—
—		Amounts reclassified from Other Comprehensive Income		—		—			4			—			—			4			—
0.6		Comprehensive stock and employee stock purchase plans		—		10			—			—			—			10			—
—		Common stock dividends		—		—			—			(617	)		—			(617	)		—
0.2		Redemptions of limited partner interests for common stock		—		2			—			—			—			2			(2	)
—		Distributions to non-controlling interests		—		—			—			—			(69	)		(69	)		(7	)
(27.8	)	Repurchase of common stock		—		(482	)		—			—			—			(482	)		—
713.4		Balance, December 31, 2019	$	7	$	7,675		$	(56	)	$	(307	)	$	6		$	7,325		$	142
—		Net loss		—		—			—			(732	)		(1	)		(733	)		(8	)
—		Other changes in ownership		—		22			—			—			—			22			(21	)
—		Foreign currency translation and other comprehensive income (loss) of unconsolidated affiliates		—		—			(18	)		—			—			(18	)		—
—		Change in fair value of derivative instruments		—		—			(1	)		—			—			(1	)		—
—		Amounts reclassified from Other Comprehensive Income		—		—			1			—			—			1			—
0.7		Comprehensive stock and employee stock purchase plans		—		15			—			—			—			15			—
—		Common stock dividends		—		—			—			(141	)		—			(141	)		—
0.2		Redemptions of limited partner interests for common stock		—		3			—			—			—			3			(3	)
—		Distributions to non-controlling interests		—		—			—			—			—			—			(2	)
(8.9	)	Repurchase of common stock		—		(147	)		—			—			—			(147	)		—
705.4		Balance, December 31, 2020	$	7	$	7,568		$	(74	)	$	(1,180	)	$	5		$	6,326		$	108

See Notes to Consolidated Financial Statements.

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2020, 2019 and 2018

(in millions)

	2020			2019			2018
OPERATING ACTIVITIES
Net income (loss)	$	(741	)	$	932		$	1,151
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization		665			676			944
Amortization of finance costs, discounts and premiums, net		8			6			7
Loss on extinguishment of debt		36			56			—
Stock compensation expense		17			15			14
Deferred income taxes		(165	)		7			4
Other gains		(208	)		(340	)		(902	)
Loss on foreign currency transactions and derivatives		—			1			—
Gain on property insurance settlement		—			(4	)		—
Equity in (earnings) losses of affiliates		30			(14	)		(30	)
Change in due from/to managers		96			3			13
Distributions from investments in affiliates		10			11			58
Changes in other assets		(33	)		7			(5	)
Changes in other liabilities		(22	)		(106	)		46
Net cash provided by (used in) operating activities		(307	)		1,250			1,300

INVESTING ACTIVITIES
Proceeds from sales of assets, net		281			1,192			1,605
Proceeds from loan receivable		28			—			—
Return of investments in affiliates		—			1			1
Advances to and investments in affiliates		(5	)		(6	)		(7	)
Acquisitions		—			(602	)		(1,025	)
Capital expenditures:
Renewals and replacements		(156	)		(222	)		(274	)
Return on investment		(343	)		(336	)		(200	)
Property insurance proceeds		—			31			—
Net cash provided by (used in) investing activities		(195	)		58			100

FINANCING ACTIVITIES
Financing costs		(11	)		(17	)		—
Issuances of debt		740			645			—
Draws on credit facility		2,245			—			360
Repayment of credit facility		(762	)		(56	)		(462	)
Repurchase/redemption of senior notes		(450	)		(650	)		—
Redemption of preferred equity units of Host L.P.		(22	)		—			—
Mortgage debt and other prepayments and scheduled maturities		—			—			(1	)
Debt extinguishment costs		(35	)		(50	)		—
Common stock repurchase		(147	)		(482	)		—
Dividends on common stock		(320	)		(623	)		(629	)
Distributions and payments to non-controlling interests		(3	)		(75	)		(8	)
Other financing activities		(4	)		(7	)		(8	)
Net cash provided by (used in) financing activities		1,231			(1,315	)		(748	)
Effects of exchange rate changes on cash held		(3	)		1			(5	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH		726			(6	)		647
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR		1,750			1,756			1,109
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR	$	2,476		$	1,750		$	1,756

See Notes to Consolidated Financial Statements.

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

Years Ended December 31, 2020, 2019 and 2018

(in millions)

Supplemental disclosure of cash flow information (in millions):

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the balance sheet to the amount shown on the statements of cash flows:

	2020		2019		2018
Cash and cash equivalents	$	2,335	$	1,573	$	1,542
Restricted cash (included in other assets)		2		1		1
Cash included in furniture, fixtures and equipment replacement fund		139		176		213
Total cash and cash equivalents and restricted cash shown on the statements of cash flows	$	2,476	$	1,750	$	1,756

Supplemental schedule of noncash investing and financing activities:

During 2020, 2019 and 2018, Host Inc. issued approximately 0.2 million, 0.2 million and 0.7 million shares of common stock, respectively, upon the conversion of Host L.P. units, or OP units, held by non-controlling interests valued at $3 million, $2 million and $15 million, respectively.

In connection with the sale of a parcel of land adjacent to The Phoenician hotel in 2020, we received as consideration a note receivable of $9 million. The proceeds received from the sale are net of this note receivable.

Non-cash consideration for the acquisition of the 1 Hotel South Beach in 2019 included the issuance of $23 million of preferred Host L.P. OP units and $3 million of common Host L.P. OP units.

In connection with the sale of the Chicago Marriott Suites O’Hare in 2019, we extended a $28 million bridge loan to the purchaser. The proceeds received from the sale are net of this loan.

See Notes to Consolidated Financial Statements.

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2020 and 2019

(in millions)

	December 31, 2020			December 31, 2019

ASSETS
Property and equipment, net	$	9,416		$	9,671
Right-of-use assets		597			595
Due from managers		22			63
Advances to and investments in affiliates		21			56
Furniture, fixtures and equipment replacement fund		139			176
Other		360			171
Cash and cash equivalents		2,335			1,573
Total assets	$	12,890		$	12,305

LIABILITIES, LIMITED PARTNERSHIP INTERESTS OF THIRD PARTIES AND CAPITAL
Debt
Senior notes	$	3,065		$	2,776
Credit facility, including term loans of $997		2,471			989
Other		5			29
Total debt		5,541			3,794
Lease liabilities		610			606
Accounts payable and accrued expenses		71			263
Due to managers		64			—
Other		170			175
Total liabilities		6,456			4,838

Limited partnership interests of third parties		108			142

Host Hotels & Resorts, L.P. capital:
General partner		1			1
Limited partner		6,394			7,374
Accumulated other comprehensive loss		(74	)		(56	)
Total Host Hotels & Resorts, L.P. capital		6,321			7,319
Non-controlling interests—consolidated partnerships		5			6
Total capital		6,326			7,325
Total liabilities, limited partnership interests of third parties and capital	$	12,890		$	12,305

See Notes to Consolidated Financial Statements.

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31, 2020, 2019 and 2018

(in millions, except per common unit amounts)

	Year ended December 31,
	2020			2019			2018
REVENUES
Rooms	$	976		$	3,431		$	3,547
Food and beverage		426			1,647			1,616
Other		218			391			361
Total revenues		1,620			5,469			5,524
EXPENSES
Rooms		362			873			918
Food and beverage		420			1,120			1,103
Other departmental and support expenses		686			1,295			1,302
Management fees		39			239			243
Other property-level expenses		312			365			387
Depreciation and amortization		665			676			944
Corporate and other expenses		89			107			104
Gain on insurance and business interruption settlements		—			(5	)		(7	)
Total operating costs and expenses		2,573			4,670			4,994
OPERATING PROFIT (LOSS)		(953	)		799			530
Interest income		8			32			15
Interest expense		(194	)		(222	)		(176	)
Other gains/(losses)		208			340			902
Loss on foreign currency transactions and derivatives		—			(1	)		—
Equity in earnings (losses) of affiliates		(30	)		14			30
INCOME (LOSS) BEFORE INCOME TAXES		(961	)		962			1,301
Benefit (provision) for income taxes		220			(30	)		(150	)
NET INCOME (LOSS)		(741	)		932			1,151
Less: Net (income) loss attributable to non-controlling interests		1			(2	)		(52	)
NET INCOME (LOSS) ATTRIBUTABLE TO HOST HOTELS & RESORTS, L.P.	$	(740	)	$	930		$	1,099
Basic earnings (loss) per common unit	$	(1.06	)	$	1.29		$	1.50
Diluted earnings (loss) per common unit	$	(1.06	)	$	1.29		$	1.50

See Notes to Consolidated Financial Statements.

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Years Ended December 31, 2020, 2019 and 2018

(in millions)

	2020			2019			2018
NET INCOME (LOSS)	$	(741	)	$	932		$	1,151
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation and other comprehensive income (loss) of unconsolidated affiliates		(18	)		—			(13	)
Change in fair value of derivative instruments		(1	)		(1	)		1
Amounts reclassified from other comprehensive income (loss)		1			4			13
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX		(18	)		3			1
COMPREHENSIVE INCOME (LOSS)		(759	)		935			1,152
Less: Comprehensive (income) loss attributable to non- controlling interests		1			(2	)		(53	)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO HOST HOTELS & RESORTS, L.P.	$	(758	)	$	933		$	1,099

See Notes to Consolidated Financial Statements.

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CAPITAL

Years Ended December 31, 2020, 2019 and 2018

(in millions)

			General Partner		Limited Partner			Accumulated Other Comprehensive Income (Loss)			Non-controlling Interests of Consolidated Partnerships			Total Capital			Limited Partnership Interests of Third Parties
723.5		Balance, December 31, 2017	$	1	$	7,032		$	(60	)	$	29		$	7,002		$	167
—		Net income		—		1,087			—			52			1,139			12
—		Other changes in ownership		—		30			—			(9	)		21			(29	)
—		Foreign currency translation and other comprehensive income (loss) of unconsolidated affiliates		—		—			(13	)		1			(12	)		—
—		Change in fair value of derivative instruments		—		—			1			—			1			—
—		Amounts reclassified from Other Comprehensive Income		—		—			13			—			13			—
0.2		Common OP unit issuances		—		3			—			—			3			—
0.4		Units issued to Host Inc. for the comprehensive stock and employee stock purchase plans		—		11			—			—			11			—
—		Distributions on common OP units		—		(630	)		—			—			(630	)		(7	)
0.7		Redemptions of limited partner interests for common stock		—		15			—			—			15			(15	)
—		Distributions to non-controlling interests		—		—			—			(1	)		(1	)		—
—		Cumulative effect of accounting change		—		4			—			—			4			—
724.8		Balance, December 31, 2018	$	1	$	7,552		$	(59	)	$	72		$	7,566		$	128
—		Net income		—		920			—			2			922			10
—		Other changes in ownership		—		(11	)		—			1			(10	)		13
—		Change in fair value of derivative instruments		—		—			(1	)		—			(1	)		—
—		Amounts reclassified from Other Comprehensive Income		—		—			4			—			4			—
0.5		Units issued to Host Inc. for the comprehensive stock and employee stock purchase plans		—		10			—			—			10			—
—		Distributions on common OP units		—		(617	)		—			—			(617	)		(7	)
0.2		Redemptions of limited partner interests for common stock		—		2			—			—			2			(2	)
—		Distributions to non-controlling interests		—		—			—			(69	)		(69	)		—
(27.2	)	Repurchase of common OP units		—		(482	)		—			—			(482	)		—
698.3		Balance, December 31, 2019	$	1	$	7,374		$	(56	)	$	6		$	7,325		$	142
—		Net loss		—		(732	)		—			(1	)		(733	)		(8	)
—		Other changes in ownership		—		22			—			—			22			(21	)
—		Foreign currency translation and other comprehensive income (loss) of unconsolidated affiliates		—		—			(18	)		—			(18	)		—
—		Change in fair value of derivative instruments		—		—			(1	)		—			(1	)		—
—		Amounts reclassified from Other Comprehensive Income		—		—			1			—			1			—
0.7		Units issued to Host Inc. for the comprehensive stock and employee stock purchase plans		—		15			—			—			15			—
		Distributions on common OP units		—		(141	)		—			—			(141	)		(2	)
0.2		Redemptions of limited partner interests for common stock		—		3			—			—			3			(3	)
(8.7	)	Repurchase of common OP units		—		(147	)		—			—			(147	)		—
690.5		Balance, December 31, 2020	$	1	$	6,394		$	(74	)	$	5		$	6,326		$	108

See Notes to Consolidated Financial Statements.

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2020, 2019 and 2018

(in millions)

	2020			2019			2018
OPERATING ACTIVITIES
Net income (loss)	$	(741	)	$	932		$	1,151
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization		665			676			944
Amortization of finance costs, discounts and premiums, net		8			6			7
Loss on extinguishment of debt		36			56			—
Stock compensation expense		17			15			14
Deferred income taxes		(165	)		7			4
Other gains		(208	)		(340	)		(902	)
Loss on foreign currency transactions and derivatives		—			1			—
Gain on property insurance settlement		—			(4	)		—
Equity in (earnings) losses of affiliates		30			(14	)		(30	)
Change in due from/to managers		96			3			13
Distributions from investments in affiliates		10			11			58
Changes in other assets		(33	)		7			(5	)
Changes in other liabilities		(22	)		(106	)		46
Net cash provided by (used in) operating activities		(307	)		1,250			1,300

INVESTING ACTIVITIES
Proceeds from sales of assets, net		281			1,192			1,605
Proceeds from loan receivable		28			—			—
Return of investments in affiliates		—			1			1
Advances to and investments in affiliates		(5	)		(6	)		(7	)
Acquisitions		—			(602	)		(1,025	)
Capital expenditures:
Renewals and replacements		(156	)		(222	)		(274	)
Return on investment		(343	)		(336	)		(200	)
Property insurance proceeds		—			31			—
Net cash provided by (used in) investing activities		(195	)		58			100

FINANCING ACTIVITIES
Financing costs		(11	)		(17	)		—
Issuances of debt		740			645			—
Draws on credit facility		2,245			—			360
Repayment of credit facility		(762	)		(56	)		(462	)
Repurchase/redemption of senior notes		(450	)		(650	)		—
Redemption of preferred OP units		(22	)		—			—
Mortgage debt and other prepayments and scheduled maturities		—			—			(1	)
Debt extinguishment costs		(35	)		(50	)		—
Repurchase of common OP units		(147	)		(482	)		—
Distributions on common OP units		(323	)		(630	)		(636	)
Distributions and payments to non-controlling interests		—			(68	)		(1	)
Other financing activities		(4	)		(7	)		(8	)
Net cash provided by (used in) financing activities		1,231			(1,315	)		(748	)
Effects of exchange rate changes on cash held		(3	)		1			(5	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH		726			(6	)		647
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR		1,750			1,756			1,109
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR	$	2,476		$	1,750		$	1,756

See Notes to Consolidated Financial Statements.

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

Years Ended December 31, 2020, 2019 and 2018

(in millions)

Supplemental disclosure of cash flow information (in millions):

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the balance sheet to the amount shown on the statements of cash flows:

	2020		2019		2018
Cash and cash equivalents	$	2,335	$	1,573	$	1,542
Restricted cash (included in other assets)		2		1		1
Cash included in furniture, fixtures and equipment replacement fund		139		176		213
Total cash and cash equivalents and restricted cash shown on the statements of cash flows	$	2,476	$	1,750	$	1,756

Supplemental schedule of noncash investing and financing activities:

During 2020, 2019 and 2018, non-controlling partners converted common operating partnership units (“OP units”) valued at $3 million, $2 million and $15 million, respectively, in exchange for 0.2 million, 0.2 million and 0.7 million shares, respectively, of Host Inc. common stock.

Non-cash consideration for the acquisition of the 1 Hotel South Beach in 2019 included the issuance of $23 million of preferred Host L.P. OP units and $3 million of common Host L.P. OP units.

In connection with the sale of the Chicago Marriott Suites O’Hare in 2019, we extended a $28 million bridge loan to the purchaser. The proceeds received from the sale are net of this loan.

See Notes to Consolidated Financial Statements.

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	Summary of Significant Accounting Policies

Description of Business

Host Hotels & Resorts, Inc. operates as a self-managed and self-administered real estate investment trust, or REIT, with its operations conducted solely through Host Hotels & Resorts, L.P. Host Hotels & Resorts, L.P., a Delaware limited partnership, operates through an umbrella partnership structure, with Host Hotels & Resorts, Inc., a Maryland corporation, as its sole general partner. In the notes to the consolidated financial statements, we use the terms “we” or “our” to refer to Host Hotels & Resorts, Inc. and Host Hotels & Resorts, L.P. together, unless the context indicates otherwise. We also use the term “Host Inc.” to refer specifically to Host Hotels & Resorts, Inc. and the term “Host L.P.” to refer specifically to Host Hotels & Resorts, L.P. in cases where it is important to distinguish between Host Inc. and Host L.P. Host Inc. holds approximately 99% of Host L.P.’s partnership interests, or OP units.

Liquidity and Management’s Plans

The COVID-19 pandemic has had a significant adverse impact on U.S. and global economic activity and has contributed to significant volatility in financial markets beginning in the first quarter of 2020. The adverse economic impact continues as various restrictive measures remain in place in many jurisdictions where we own hotels, including quarantines, restrictions on travel, school closings, limitations on the size of gatherings and/or restrictions on types of business that may continue to operate. As a result, the COVID-19 pandemic continues to negatively impact almost every industry directly or indirectly, including having a severe impact on the U.S. lodging industry generally and our company specifically.

At the start of the pandemic, we suspended operations at 35 hotels and, as of December 31, 2020, operations remain suspended at four of these hotels. The ongoing effects of COVID-19 on our operations and future bookings have had, and will continue to have, a material negative impact on our financial results and cash flows, and such negative impact may continue well after restrictive measures imposed by federal, state, local and other government authorities to contain the outbreak have been lifted. During 2020, we drew down $1.5 billion on the revolver portion of our credit facility as a precautionary measure in order to increase our cash position and preserve financial flexibility. We are continuing to take further measures to preserve our liquidity, including operating expense reductions, capital expenditures deferrals, suspension of future dividends and suspension of common stock repurchases. We also have reached agreements with our hotel managers to temporarily suspend furniture, fixture and equipment (“FF&E”) replacement fund contributions for our hotels and to defer certain hotel initiatives and brand standards.

Consolidated Portfolio

As of December 31, 2020, the hotels in our consolidated portfolio are in the following countries:

	Hotels
United States		74
Brazil		3
Canada		2
Total		79

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements include the consolidated accounts of Host Inc., Host L.P. and their subsidiaries and controlled affiliates, including joint ventures and partnerships. We consolidate subsidiaries when we have the ability to control them. For the majority of our hotel and real estate investments, we consider those control rights to be (i) approval or amendment of developments plans, (ii) financing decisions, (iii) approval or amendments of operating budgets, and (iv) investment strategy decisions.

We also evaluate our subsidiaries to determine if they are variable interest entities (“VIEs”). If a subsidiary is a VIE, it is subject to the consolidation framework specifically for VIEs. Typically, the entity that has the power to direct the activities that most significantly impact economic performance consolidates the VIE. We consider an entity to be a VIE if equity investors own an interest therein that does not have the characteristics of a controlling financial interest or if such investors do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. We review our subsidiaries and affiliates at least annually to determine (i) if they should be considered VIEs, and (ii) whether we should change our consolidation determination based on changes in the characteristics thereof.

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three partnerships are considered VIE’s, as the general partner of these partnerships maintains control over the decisions that most significantly impact the partnerships. The first VIE is the operating partnership, Host L.P., which is consolidated by Host Inc., of which Host Inc. is the general partner and holds 99% of the limited partner interests. Host Inc.’s sole significant asset is its investment in Host L.P. and substantially all of Host Inc.’s assets and liabilities represent assets and liabilities of Host L.P. All of Host Inc.’s debt is an obligation of Host L.P. and may be settled only with assets of Host L.P. The consolidated partnership that owns the Houston Airport Marriott at George Bush Intercontinental, of which we are the general partner and hold 85% of the partnership interests, also is a VIE. The total assets of this VIE at December 31, 2020 are $59 million and consist primarily of cash, a right-of-use (“ROU”) asset and property and equipment. Liabilities for the VIE total $28 million and consist of a lease liability, accounts payable and deferred revenue. The unconsolidated partnership that owns the Philadelphia Marriott Downtown, of which we hold 11% of the limited partner interests, also is a VIE. The carrying amount of this investment at December 31, 2020 is $(7) million and is included in advances to and investments in affiliates. The mortgage debt held by this VIE is non-recourse to us.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Cash and Cash Equivalents

We consider all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents.

Property and Equipment

Generally, property and equipment is recorded at cost. For hotels that we develop, cost includes interest and real estate taxes incurred during construction. For property and equipment acquired in a business combination, we record the assets acquired based on their fair value as of the acquisition date. Replacements and improvements and finance leases are capitalized, while repairs and maintenance are expensed as incurred.

Properties acquired in an asset acquisition are recorded at cost. The acquisition cost is allocated to land, buildings, improvements, furniture, fixtures and equipment, as well as identifiable intangible and lease assets and liabilities. Acquisition cost is allocated using relative fair values. We evaluate several factors, including weighted market data for similar assets, expected future cash flows discounted at risk adjusted rates, and replacement costs for assets to determine an appropriate exit cost when evaluating the fair values.

We capitalize certain inventory (such as china, glass, silver, and linen) at the time of a hotel opening or acquisition, or when significant inventory is purchased (in conjunction with a major rooms renovation or when the number of rooms or meeting space at a hotel is expanded). These amounts then are amortized over the estimated useful life of three years. Subsequent replacement purchases are expensed when placed in service.

We maintain a furniture, fixtures and equipment replacement fund for renewal and replacement capital expenditures at our hotels, which generally is funded with 5% of property revenues.

Impairment testing. We analyze our consolidated hotels for impairment throughout the year when events or circumstances occur that indicate the carrying amount may not be recoverable. We test for impairment in several situations, including:

	•	when a hotel has a current or projected loss from operations;

	•	when management’s intent or ability to hold a property for a period that recovers its carrying value changes, making it more likely than not that a hotel will be sold before the end of its previously estimated useful life and the anticipated sales price is at or below the book value; or

	•	when other events, trends, contingencies or changes in circumstances indicate that a triggering event has occurred and the carrying amount of an asset may not be recoverable.

Due to the impact of the COVID-19 pandemic on operations, we performed recoverability assessments on all of our hotels. Recoverability of hotels is measured by performing a comparison of the carrying amount of each hotel to its expected undiscounted future cash flows over its remaining useful life. While expected undiscounted future cash flows are subject to uncertainty due to factors including the duration and financial impact of the resulting economic downturn and changes in travel patterns of hotel customers, we assumed a four-year recovery period to 2019 operating levels, based on previous disruptions and recoveries, as well as

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

industry forecasts. In order to assess the sensitivity of the four-year recovery assumption, we performed the recoverability assessment using a six-year recovery period, with no changes to the outcome. To the extent that a hotel has a substantial remaining estimated useful life and management does not believe that it is more likely than not that it will be sold prior to the end thereof, it would be unusual for undiscounted cash flows to be insufficient to recover the property’s carrying amount. In the absence of other factors, we assume that the estimated useful life is equal to the remaining GAAP depreciable life because of the continuous property maintenance and improvement capital expenditures required under our management agreements, including critical infrastructure, which regularly is maintained and then replaced at the end of its useful life. We adjust our assumptions with respect to the remaining useful life of the property if situations dictate otherwise, such as an expiring ground lease, or that it is more likely than not that the hotel will be sold prior to the end of its previously expected useful life.

During 2019, due to a reduction in the estimated hold period of the assets, we recognized impairment expense of $14 million related to one hotel and a right of use asset associated with an operating lease. No other properties had triggering events warranting impairment testing. During 2018, we recognized impairment expense of $260 million on four hotels. See Note 13 - Fair Value Measurements.

Classification of Assets as Held for Sale. We will classify a hotel as held for sale when its sale is probable, will be completed within one year and actions to complete the sale are unlikely to change or it is unlikely that the sale will not occur. This policy is consistent with our experience with real estate transactions under which the timing and final terms of a sale frequently are not known until purchase agreements are executed, the buyer has a significant deposit at risk and no financing contingencies exist that could prevent the transaction from being completed in a timely manner. We typically classify hotels as held for sale when all the following conditions are met:

	•	Host Inc.’s Board of Directors has approved the sale (to the extent that the dollar amount of the sale requires Board approval);

	•	a binding agreement to sell the property has been signed under which the buyer has committed a significant amount of nonrefundable cash; and

	•	no significant financing or legal contingencies exist that could prevent the transaction from being completed in a timely manner.

If these criteria are met, we will cease recording depreciation expense and will record an impairment expense if the fair value less costs to sell is less than the carrying amount of the hotel. We will classify the assets and related liabilities as held for sale on the balance sheet. Gains on sales of properties are recognized at the time of sale or are deferred and recognized as income in subsequent periods as conditions requiring deferral are satisfied or expire without further cost to us.

Discontinued Operations. We generally include the operations of a hotel that was sold or a hotel that has been classified as held for sale in continuing operations, including the gain or loss on the sale, unless the sale represents a strategic shift that will have a major impact on our future operations and financial results.

Asset retirement obligations. We recognize the fair value of any liability for conditional asset retirement obligations, including environmental remediation liabilities, when incurred, which generally is upon acquisition, construction, or development and/or through the normal operation of the asset, if information exists with which to reasonably estimate the fair value of the obligation.

Depreciation and Amortization Expense. We depreciate our property and equipment using the straight-line method. Depreciation expense is based on the estimated useful life of our assets and amortization expense for leasehold improvements is based on the shorter of the lease term or the estimated useful life of the related assets. The useful lives of the assets are based on several assumptions, including cost and timing of capital expenditures to maintain and refurbish the assets, as well as specific market and economic conditions. While management believes its estimates are reasonable, a change in the estimated useful lives could affect depreciation expense and net income or the gain or loss on the sale of any of our hotels.

Intangible Assets and Acquired Liabilities

In conjunction with our acquisitions, we may identify intangible assets and other liabilities. These identifiable intangible assets and other liabilities typically include above and below-market contracts, including ground and retail leases and management and franchise agreements, which are recorded at fair value in a business combination and at its relative fair value in an asset acquisition. These contract values are based on the present value of the difference between contractual amounts to be paid pursuant to the contracts acquired and our estimate of the fair value of terms and conditions for similar contracts measured over the period equal to the

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

remaining non-cancelable term of the contract. Intangible assets and other liabilities are amortized using the straight-line method over the remaining non-cancelable term of the related agreements.

Non-Controlling Interests

Other Consolidated Partnerships. As of December 31, 2020, we consolidate two majority-owned partnerships that have third-party, non-controlling ownership interests. The third-party partnership interests are included in non-redeemable non-controlling interests - other consolidated partnerships on the consolidated balance sheets and totaled $5 million and $6 million as of December 31, 2020 and 2019, respectively.

Net income attributable to non-controlling interests of consolidated partnerships is included in our determination of net income. Net income (loss) attributable to non-controlling interests of third parties was $(1) million, $2 million and $52 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Host Inc.’s treatment of the non-controlling interests of Host L.P. Host Inc. adjusts the non-controlling interests of Host L.P. each period so that the amount presented equals the greater of its carrying amount based on its historical cost or its redemption value. The historical cost is based on the proportional relationship between the historical cost of equity held by our common stockholders relative to that of the unitholders of Host L.P. The redemption value is based on the amount of cash or Host Inc. common stock, at our option, that would be paid to the non-controlling interests of Host L.P. if it were terminated. We have estimated that the redemption value is equivalent to the number of shares issuable upon conversion of the OP units currently owned by unaffiliated limited partners (one OP unit may be exchanged for 1.021494 shares of Host Inc. common stock) valued at the market price of Host Inc. common stock at the balance sheet date. Redeemable non-controlling interests of Host L.P. are classified in the mezzanine section of the balance sheet as they do not meet the requirements for equity classification because the redemption feature requires the delivery of registered shares.

The table below details the historical cost and redemption values for the non-controlling interests of Host L.P.:

	As of December 31,
	2020		2019
OP units outstanding (millions)		7.2		7.5
Market price per Host Inc. common share	$	14.63	$	18.55
Shares issuable upon conversion of one OP unit		1.021494		1.021494
Redemption value (millions)	$	108	$	142
Historical cost (millions)		67		79
Book value (millions) (1)		108		142
___________

(1)The book value recorded is equal to the greater of the redemption value or the historical cost.

Net income (loss) is allocated to the non-controlling interests of Host L.P. based on their weighted average ownership percentage during the period. Net income (loss) attributable to Host Inc. has been reduced by the amount attributable to non-controlling interests in Host L.P., which totaled $(8) million, $10 million, and $12 million for 2020, 2019, and 2018, respectively.

Investments in Affiliates

Distributions from Investments in Affiliates. We classify the distributions from our equity investments in the statements of cash flows based upon an evaluation of the specific facts and circumstances of each distribution. For example, distributions of cash that were generated by property operations are classified as cash flows from operating activities. However, distributions of cash that were generated by property sales are classified as cash flows from investing activities.

Income Taxes

Host Inc. elected to be treated as a REIT effective January 1, 1999 pursuant to the U.S. Internal Revenue Code of 1986, as amended. It is our intention to continue to comply with the REIT qualification requirements and to maintain our qualification for treatment as a REIT. A corporation that elects REIT status and meets certain tax law requirements regarding the distribution of its taxable income to its stockholders as prescribed by applicable tax laws and that complies with certain other requirements (relating primarily to the composition of its assets and the sources of its gross income) generally is not subject to federal and state corporate income taxation on its operating income that is distributed to its stockholders. As a partnership for federal income tax purposes, Host L.P. is not subject to federal income tax. Host L.P. is, however, subject to state, local and foreign income and franchise tax in certain jurisdictions. Additionally, each of the Host L.P. taxable REIT subsidiaries is taxable as a regular C corporation, and is subject to federal, state and foreign corporate income tax. Our consolidated income tax provision (benefit) includes the income tax provision

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(benefit) related to the operations of our taxable REIT subsidiaries, and state, local, and foreign income and franchise taxes incurred by Host L.P. and its subsidiaries.

Deferred Tax Assets and Liabilities. Pursuant to its partnership agreement, Host L.P. generally is required to reimburse Host Inc. for any tax payments it is required to make. Accordingly, the tax information included herein represents disclosures regarding Host Inc. and its subsidiaries. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for net operating loss and capital loss carryovers. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which such amounts are expected to be realized or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of available evidence, including future reversals of existing taxable temporary differences, future projected taxable income and tax planning strategies.

GAAP prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken in a tax return. We must determine whether it is “more-likely-than-not” that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Once it is determined that a position meets the more-likely-than-not recognition threshold, the position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement to determine the amount of benefit to recognize in the financial statements. This accounting standard applies to all tax positions related to income taxes. We recognize any accrued interest related to unrecognized tax benefits in interest expense and penalties in operating expenses.

Deferred Charges

Financing costs related to long-term debt are deferred and amortized over the remaining life of the debt using the effective interest method. These costs are presented as a direct deduction from the related long-term debt on the balance sheets.

Foreign Currency Translation

As of December 31, 2020, our foreign operations consist of hotels located in Brazil and Canada, as well as an investment in an Asia/Pacific joint venture. The financial statements of these hotels and our investments therein are maintained in their functional currency, which generally is the local currency, and their operations are translated to U.S. dollars using the average exchange rates for the period. The assets and liabilities of the hotels and the investments therein are translated to U.S. dollars using the exchange rate in effect at the balance sheet date. The resulting translation adjustments are reflected in other comprehensive income (loss).

Foreign currency transactions are recorded in the functional currency for each applicable foreign entity using the exchange rates prevailing at the dates of the transactions. Assets and liabilities denominated in foreign currencies are remeasured at period end exchange rates. The resulting exchange differences are recorded in gain (loss) on foreign currency transactions and derivatives on the accompanying consolidated statements of operations, except when recorded in other comprehensive income (loss) as qualifying net investment hedges.

Accumulated Other Comprehensive Income (Loss)

The components of total accumulated other comprehensive income (loss) in the balance sheets are as follows (in millions):

	As of December 31,
	2020			2019
Gain on foreign currency forward contracts	$	2		$	3
Loss on interest rate swap cash flow hedges		(3	)		(3	)
Foreign currency translation		(74	)		(57	)
Other comprehensive loss attributable to non-controlling interests		1			1
Total accumulated other comprehensive loss	$	(74	)	$	(56	)

During 2019, we reclassified a net loss due to foreign currency translation of $4 million related to foreign subsidiaries that were substantially liquidated. No material amounts were reclassified from accumulated other comprehensive loss in 2020.

Revenues

Substantially all of our operating results represent revenues and expenses generated by property-level operations. Payments are due from customers when services are provided to them. Due to the short-term nature of our contracts and the almost concurrent

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

receipt of payment, we have no material unearned revenues at year end. We collect sales, use, occupancy and similar taxes at our hotels, which we present on a net basis (excluded from revenues) on our statements of operations. Revenues are recognized as follows:

Income statement line item		Recognition method
Rooms revenues		Rooms revenues represent revenues from the occupancy of our hotel rooms and are driven by the occupancy and average daily rate charged. Rooms revenues do not include ancillary services or fees charged. The contracts for room stays with customers generally are very short term in duration and revenues are recognized over the course of the hotel stay.
Food and beverage revenues		Food and beverage revenues consist of revenues from group functions, which may include banquet revenues and audio-visual revenues, as well as outlet revenues from the restaurants and lounges at our properties. Revenues are recognized as the services or products are provided. Our hotels may employ third parties to provide certain services, for example, audio and visual services. These contracts are evaluated to determine if the hotel is the principal or the agent in the transaction and we record the revenues as appropriate (i.e., gross vs. net).
Other revenues		Other revenues consist of ancillary revenues at the property, including attrition and cancelation fees, golf courses, resort and destination fees, spas, entertainment and other guest services, as well as rental revenues; primarily consisting of leased retail outlets. Other revenues generally are recognized as the services or products are provided. Attrition and cancelation fees are recognized for non-cancelable deposits when the customer provides notification of cancelation or is a no-show for the specified date, whichever comes first.

Fair Value Measurement

In evaluating the fair value of both financial and non-financial assets and liabilities, GAAP outlines a valuation framework and creates a fair value hierarchy that distinguishes between market assumptions based on market data (“observable inputs”) and a reporting entity’s own assumptions about market data (“unobservable inputs”). Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability at the measurement date in an orderly transaction (an “exit price”). Assets and liabilities are measured using inputs from three levels of the fair value hierarchy. The three levels are as follows:

Level 1 — Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date. An active market is defined as a market in which transactions occur with sufficient frequency and volume to provide pricing on an ongoing basis.

Level 2 — Inputs include quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active (markets with few transactions), inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data correlation or other means.

Level 3 — Unobservable inputs reflect our assumptions about the pricing of an asset or liability when observable inputs are not available.

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Earnings (Loss) Per Common Share (Unit)

Basic earnings (loss) per common share (unit) is computed by dividing net income (loss) attributable to common stockholders (unitholders) by the weighted average number of shares of Host Inc. common stock or Host L.P. common units outstanding. Diluted earnings (loss) per common share (unit) is computed by dividing net income (loss) attributable to common stockholders (unitholders), as adjusted for potentially dilutive securities, by the weighted average number of shares of Host Inc. common stock or Host L.P. common units outstanding plus other potentially dilutive securities. Dilutive securities may include shares granted under comprehensive stock plans or the common OP units distributed to Host Inc. to support such shares granted, and other non-controlling interests that have the option to convert their limited partner interests to common OP units. No effect is shown for any securities that are anti-dilutive.

The calculation of Host Inc. basic and diluted earnings (loss) per common share is shown below (in millions, except per share amounts):

	Year ended December 31,
	2020			2019			2018
Net income (loss)	$	(741	)	$	932		$	1,151
Less: Net (income) loss attributable to non-controlling interests		9			(12	)		(64	)
Net income (loss) attributable to Host Inc.	$	(732	)	$	920		$	1,087

Basic weighted average shares outstanding		705.9			730.3			739.8
Assuming distribution of common shares granted under the comprehensive stock plans, less shares assumed purchased at market		—			0.8			0.8
Diluted weighted average shares outstanding		705.9			731.1			740.6

Basic earnings (loss) per common share	$	(1.04	)	$	1.26		$	1.47
Diluted earnings (loss) per common share	$	(1.04	)	$	1.26		$	1.47

The calculation of Host L.P. basic and diluted earnings (loss) per common unit is shown below (in millions, except per unit amounts):

	Year ended December 31,
	2020			2019			2018
Net income (loss)	$	(741	)	$	932		$	1,151
Less: Net (income) loss attributable to non- controlling interests		1			(2	)		(52	)
Net income (loss) attributable to Host L.P.	$	(740	)	$	930		$	1,099

Basic weighted average units outstanding		698.4			722.5			732.2
Assuming distribution of common units to support shares granted under the comprehensive stock plans, less shares assumed purchased at market		—			0.8			0.8
Diluted weighted average units outstanding		698.4			723.3			733.0

Basic earnings (loss) per common unit	$	(1.06	)	$	1.29		$	1.50
Diluted earnings (loss) per common unit	$	(1.06	)	$	1.29		$	1.50

Share-Based Payments

Upon the issuance of Host’s common stock under the compensation plans, Host L.P. will issue to Host Inc. common OP units of an equivalent value. These liabilities are included in the consolidated financial statements for Host Inc. and Host L.P.

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We recognize costs resulting from Host Inc.’s share-based payment transactions over their vesting periods. We classify share-based payment awards granted in exchange for employee services either as equity-classified awards or liability-classified awards. Equity-classified awards are measured based on the fair value on the date of grant. Liability-classified awards are remeasured to fair value each reporting period. The plan includes awards that vest over a one-year, two-year and three-year period. For performance-based awards, compensation cost will be recognized when the achievement of the performance condition is considered probable. If a performance condition has more than one outcome that is probable, recognition of compensation cost will be based on the condition that is the most likely outcome. No compensation cost is recognized for awards for which employees do not render the requisite services.

Concentrations of Credit Risk

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents. We are exposed to credit risk with respect to cash held at various financial institutions and access to our credit facility, however, this cash balance is spread among a diversified group of investment grade financial institutions.

Acquisitions and Business Combinations

When acquiring an asset, we determine whether the acquisition is an asset acquisition or a business combination based on whether the fair value of the gross assets acquired is concentrated in a single (group of similar) identifiable assets, resulting in an asset acquisition or, if not, resulting in a business combination. If treated as an asset acquisition, the asset is recorded in accordance with our property and equipment policy and related acquisition costs are capitalized as part of the asset.

In a business combination, we recognize identifiable assets acquired, liabilities assumed, and non-controlling interests at their fair values at the acquisition date based on the exit price (i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date). We evaluate several factors, including market data for similar assets, expected cash flows discounted at risk adjusted rates and replacement cost for the assets to determine an appropriate exit cost when evaluating the fair value of our assets and liabilities acquired. Property and equipment are recorded at fair value and such fair value is allocated to land, buildings, improvements, furniture, fixtures and equipment using appraisals and valuations performed by management and independent third parties. Acquisition-related costs, such as due diligence, legal and accounting fees, are not capitalized or applied in determining the fair value of the acquired assets.

Other items that we evaluate include identifiable intangible assets, lease assets and liabilities and, in a business combination, goodwill. Identifiable intangible assets typically consist of assumed contracts, including ground and retail leases and management and franchise agreements, which are recorded at fair value. Finance lease obligations that are assumed as part of the acquisition of a leasehold interest are measured at fair value and are included as debt on the accompanying balance sheet and we record the corresponding right-of-use assets. Classification of a lease does not change if it is part of an asset acquisition or a business combination. In making estimates of fair values for purposes of allocating purchase price, we may utilize a number of sources that arise in connection with the acquisition or financing of a property and other market data, including third-party appraisals and valuations. In certain situations, and usually only in connection with the acquisition of a foreign hotel, a deferred tax liability is recognized due to the difference between the fair value and the tax basis of the acquired assets at the acquisition date. In a business combination, any consideration paid in excess of the net fair value of the identifiable assets and liabilities acquired would be recorded to goodwill. In very limited circumstances, we may record a bargain purchase gain if the consideration paid is less than the net fair value of the assets and liabilities acquired.

Leases

We consider an arrangement to contain a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for compensation. All leases pursuant to which we are the lessee, including operating leases, are recognized as lease assets and lease liabilities on the balance sheet. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent the present value of our fixed payment obligations. Leases with a term of 12 months or less are not recorded on the balance sheet. We use our estimated incremental borrowing rate to determine the present value of our lease obligations at initiation or modification. Our operating leases may require fixed payments, variable payments based on a percentage of revenue or income, or payments equal to the greater of a fixed or variable payment. Variable payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation is incurred. Operating lease expense is recognized on a straight-line basis over the lease term. Our lease terms include renewal options that we are reasonably certain to exercise, and renewal options controlled by the lessor.

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.	Revenues

Disaggregation of Revenues. While we do not consider the following disclosure of hotel revenues by location to consist of reportable segments, we have disaggregated hotel revenues by market location. Our revenues also are presented by country in Note 16 – Geographic and Business Segment Information.

By Location. The following table presents hotel revenues for each of the geographic locations in our consolidated hotel portfolio (in millions):

	Year ended December 31,
Location	2020		2019		2018
Florida Gulf Coast	$	207	$	338	$	285
Phoenix		141		311		298
San Francisco/San Jose		134		519		488
San Diego		124		516		523
Maui/Oahu		122		400		366
New York		111		560		744
Miami		106		178		55
Orlando		67		221		217
Washington, D.C. (Central Business District)		66		341		330
Los Angeles		59		187		188
Jacksonville		54		100		98
Atlanta		52		159		158
Houston		46		116		118
Boston		41		303		304
New Orleans		38		106		103
Northern Virginia		34		135		158
Chicago		26		165		186
Orange County		26		104		119
San Antonio		25		105		116
Denver		24		93		89
Philadelphia		24		90		88
Seattle		21		120		129
Other		52		214		257
Domestic		1,600		5,381		5,417
International		20		88		107
Total	$	1,620	$	5,469	$	5,524

3	Property and Equipment

Property and equipment consists of the following (in millions):

	As of December 31,
	2020			2019
Land and land improvements	$	2,033		$	2,062
Buildings and leasehold improvements		13,609			13,308
Furniture and equipment		2,471			2,362
Construction in progress		166			262
		18,279			17,994
Less accumulated depreciation and amortization		(8,863	)		(8,323	)
	$	9,416		$	9,671

The aggregate cost of real estate for federal income tax purposes is approximately $9.7 billion at December 31, 2020.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.Investments in Affiliates

We own investments in joint ventures for which the equity method of accounting is used. The debt of our joint ventures is non-recourse to, and not guaranteed by, us, and a default of such debt does not trigger a default under any of our debt instruments. We carry our investments at historical cost which, due to debt restructurings or distributions, may result in a negative investment balance. However, a negative investment balance does not represent a funding obligation for us or for our partners. Investments in affiliates consist of the following (in millions):

	As of December 31, 2020
	Ownership Interests			Our Investment			Our Portion of Debt		Total Debt		Distributions received in 2020 (1)		Assets
Asia/Pacific JV		25	%	$	10		$	—	$	—	$	—	A 36% interest in seven hotels and an office building in India
Maui JV		67	%		46			18		27		10	131-unit vacation ownership project in Maui, HI
Hyatt Place JV		50	%		(13	)		30		60		—	One hotel in Nashville, TN
Harbor Beach JV		49.9	%		(39	)		75		150		—	One hotel in Fort Lauderdale, FL
Philadelphia Marriott Downtown JV		11	%		(7	)		22		205		—	One hotel in Philadelphia, PA
Other investments					24			—		—		—
Total				$	21		$	145	$	442	$	10

	As of December 31, 2019
	Ownership Interests			Our Investment			Our Portion of Debt		Total Debt		Distributions received in 2019 (1)		Assets
Asia/Pacific JV		25	%	$	12		$	—	$	—	$	—	A 36% interest in seven hotels and an office building in India
Maui JV		67	%		72			17		26		—	131-unit vacation ownership project in Maui, HI
Hyatt Place JV		50	%		(13	)		30		60		2	One hotel in Nashville, TN
Harbor Beach JV		49.9	%		(32	)		75		150		9	One hotel in Fort Lauderdale, FL
Philadelphia Marriott Downtown JV		11	%		(6	)		23		209		1	One hotel in Philadelphia, PA
Other investments					23			—		—		—
Total				$	56		$	145	$	445	$	12
___________

(1)	Distributions received were funded by cash from operations unless otherwise noted.

In 2020, our Maui timeshare joint venture recorded a $21 million impairment expense, of which our share was $14 million, on its inventory of timeshare units. This impairment expense is reflected through equity in (earnings) losses of affiliates on our consolidated statements of operations.

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.	Debt

Debt consists of the following (in millions):

	As of December 31,
	2020		2019
Series C senior notes, with a rate of 4¾% due March 2023	$	—	$	447
Series D senior notes, with a rate of 3¾% due October 2023		399		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		398		397
Series H senior notes, with a rate of 3⅜% due December 2029		640		640
Series I senior notes, with a rate of 3½% due September 2030		734	—
Total senior notes		3,065		2,776
Credit facility revolver(1)		1,474		(8	)
Credit facility term loan due January 2024		498		498
Credit facility term loan due January 2025		499		499
Other debt, with an average interest rate of 8.8% and 5.6% at December 31, 2020 and 2019, respectively, maturing through February 2024		5		29
Total debt	$	5,541	$	3,794

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

Senior Notes

General. Under the terms of our senior notes indenture, our senior notes are equal in right of payment with all our unsubordinated indebtedness and senior to all our subordinated obligations. The face amount of our senior notes at December 31, 2020 and 2019 was $3.1 billion and $2.8 billion, respectively. The senior notes balances as of December 31, 2020 and 2019 are net of unamortized discounts and deferred financing costs of approximately $35 million and $24 million, respectively. We pay interest on each series of our senior notes semi-annually in arrears at the respective annual rates indicated in the table above.

Under the terms of the senior notes indenture, our ability to incur indebtedness is subject to restrictions and the satisfaction of various conditions. As of December 31, 2020, we are below the EBITDA-to-interest coverage ratio covenant requirement of our senior notes indenture necessary to incur additional debt, and therefore, we will not be able to incur additional debt until we are in compliance.

On August 20, 2020, we issued $600 million of 3.5% Series I senior notes and on September 3, 2020, we completed the issuance of an additional $150 million of Series I senior notes, for total proceeds of $733 million, net of discounts, underwriting fees and expenses. The Series I senior notes are due in September 2030 and interest is payable semi-annually in arrears on March 15 and September 15, commencing March 15, 2021. The proceeds of this issuance were used to repurchase via a tender offer of $364 million (approximately 81%) of the $450 million 4.75% Series C senior notes due 2023 for $390 million, including a prepayment premium of $26 million. Additionally, the remaining $86 million of Series C senior notes were redeemed in December 2020 for $94 million, including a premium of approximately $8 million. 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. 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.

Authorization for Repurchase of Senior Notes. 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 terms). No repurchases occurred in 2020 under this program. Subsequent to year end, in February 2021, Host Inc.’s Board of Directors reauthorized this authority through February 2023.

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 (which is substantially fully utilized). The revolver also includes a foreign currency subfacility for Canadian dollars,

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

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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 a 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 six-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.

On June 26, 2020, we entered into an amendment to the credit facility, and subsequent to year end, on February 9, 2021, we entered into a second amendment to the credit facility (collectively, the “Amendments”). The Amendments suspend requirements to comply with all existing financial maintenance covenants under the credit facility for the period which began on July 1, 2020 and ends on the required financial statement reporting date for the second quarter of 2022 (such period, the “Covenant Relief Period”), followed by a phase-in period thereafter.

The Amendments also provide for, among other things: an increase of 40 basis points in the interest rate applicable to outstanding borrowings during the Covenant Relief Period; the addition of a permanent LIBOR floor of 15 basis points; the addition of a minimum liquidity covenant requiring a minimum liquidity level of $400 million at the end of each month through the end of the Covenant Relief Period; certain limitations on acquisitions, distributions, repurchases, redemptions and capital expenditures during the Covenant Relief Period; limitations on debt incurrence to only those permitted under our senior notes indenture during the Covenant Relief Period; and a requirement during the Covenant Relief Period to apply the net cash proceeds in excess of $350,000,000 in the aggregate from asset sales and debt issuances (but not equity issuances) as a mandatory prepayment of amounts outstanding under the credit facility, subject to various exceptions.

In connection with each Amendment, we paid a consent fee of 7.5 basis points on the amount of each consenting lender’s commitments under the revolver and term facilities.

The following is a discussion of the terms of the credit facility agreement, including the terms that are in effect outside of the Covenant Relief Period, except where noted otherwise.

Outside of the Covenant Relief Period, we pay interest on revolver borrowings under the credit facility at floating rates equal to LIBOR plus a margin ranging from 77.5 to 145 basis points (depending on Host L.P.’s unsecured long-term debt rating). The Amendments increased the applicable margin during the Covenant Relief Period by 40 basis points. 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, 2020, we are able to borrow at a rate of LIBOR plus 150 basis points for an all-in rate of 1.65% and pay a facility fee of 25 basis points.

Outside of the Covenant Relief Period, 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). The Amendments also increased the applicable margin during the Covenant Relief Period by 40 basis points. Based on Host L.P.’s long-term debt rating as of December 31, 2020, our applicable margin on LIBOR loans under both term loans is 165 basis points, for an all-in rate of 1.8%.

Net draws under the credit facility were $1,483 million in 2020 and net repayments were $56 million in 2019. As of December 31, 2020, we have $12 million of available capacity under the revolver portion of our credit facility. Due to the senior notes covenant noted above, however, we currently are restricted from incurring additional debt.

Financial Covenants. The credit facility contains covenants concerning allowable leverage, fixed charge coverage and unsecured interest coverage (as defined in our credit facility). We are permitted to borrow and maintain amounts outstanding under the credit facility so long as our ratio of consolidated total debt to consolidated EBITDA (“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. Except as set forth during the Covenant Relief Period and phase-in period thereafter, 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 gains and losses on the

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

extinguishment of debt, deferred financing costs 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 the debt at fair value and non-cash interest expense, all of which are or have been included in interest expense on our consolidated statements of operations. Additionally, total debt used in the calculation of our leverage ratio is based on a “net debt” concept, under which cash and cash equivalents in excess of $100 million are deducted from our total debt balance. Under the terms of the Amendment, these covenant requirements currently are not in effect.

Guarantees. The credit facility requires all Host L.P. subsidiaries which guarantee Host L.P. debt to similarly guarantee obligations under the credit facility. Currently, there are no such guarantees.

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. At any time that our leverage ratio is below 6.0x, and outside of the Covenant Waiver Period, acquisitions, investments and dividends generally are permitted except where they would result in a breach of the financial covenants, calculated on a pro forma basis. Additionally, the credit facility’s restrictions on the incurrence of debt incorporate the same financial covenant as set forth in our senior notes indenture. Our senior notes and credit facility have cross default provisions that would trigger a default under those agreements if we were to have a payment default or an acceleration prior to maturity of other debt of Host L.P. or its subsidiaries. The amount of other debt in default needs to exceed certain thresholds in order to trigger a cross default and the thresholds are greater for secured debt than for unsecured debt. 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 owed under the credit facility will become due and payable and the lenders’ commitments will terminate.

Aggregate Debt Maturities

Aggregate debt maturities are as follows (in millions):

	As of December 31, 2020
2021	$	—
2022		—
2023		400
2024		2,388
2025		1,000
Thereafter		1,800
		5,588
Deferred financing costs		(30	)
Unamortized discounts, net		(17	)
	$	5,541

Interest

The following is a reconciliation between interest expense and cash interest paid (in millions):

	Year ended December 31,
	2020 (2)			2019			2018
Interest expense	$	194		$	222		$	176
Amortization of debt premiums/discounts, net		(2	)		(1	)		(1	)
Amortization of deferred financing costs		(6	)		(5	)		(6	)
Non-cash losses on debt extinguishment		(1	)		(6	)		—
Change in accrued interest		(2	)		9			2
Interest paid (1)	$	183		$	219		$	171
___________

(1)	Does not include capitalized interest of $5 million, $4 million and $3 million for 2020, 2019 and 2018, respectively.

(2)	Interest expense and interest paid includes cash prepayment premiums of approximately $35 million and $50 million in 2020 and 2019, respectively.

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.	Equity of Host Inc. and Capital of Host L.P.

Equity of Host Inc.

Host Inc. has authorized 1,050 million shares of common stock, with a par value of $0.01 per share, of which 705.4 million and 713.4 million were outstanding as of December 31, 2020 and 2019, respectively. Fifty million shares of no par value preferred stock are authorized; none of such preferred shares was outstanding as of December 31, 2020 and 2019.

Capital of Host L.P.

As of December 31, 2020, Host Inc. is the owner of approximately 99% of Host L.P.’s common OP units. The remaining 1% of Host L.P.’s common OP units are held by various unaffiliated limited partners. Each common OP unit may be redeemed for cash or, at the election of Host Inc., Host Inc. common stock, based on the conversion ratio of 1.021494 shares of Host Inc. common stock for each OP unit. During the Covenant Relief Period, all redemptions must be made with Host Inc. common stock. In connection with the issuance of shares by Host Inc., Host L.P. will issue OP units based on the same conversion ratio. As of December 31, 2020 and 2019, Host L.P. had 697.7 million and 705.8 million OP units outstanding, respectively, of which Host Inc. held 690.5 million and 698.3 million, respectively.

Repurchases and Issuances of Common Stock and Common OP Units

In February 2017, the Host Inc. Board of Directors authorized a program to repurchase up to $500 million of common stock. On August 5, 2019, Host Inc.’s Board of Directors authorized an increase in its share repurchase program from $500 million to $1 billion. During 2020, we repurchased 8.9 million shares at an average price of $16.49 per share, exclusive of commissions, for a total of $147 million. 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. As of December 31, 2020, we have $371 million available for repurchase under the program. Under the terms of the Amendment of our credit facility, we currently are restricted from repurchasing stock or OP units.

Dividends/Distributions

Host Inc. is required to distribute at least 90% of its annual taxable income, excluding net capital gains, to its stockholders in order to maintain its qualification as a REIT. Funds used by Host Inc. to pay dividends on its common stock are provided by distributions from Host L.P. The amount of any future dividends will be determined by Host Inc.’s Board of Directors.

The dividends that were taxable to our stockholders in 2020 were considered 5.9% qualified REIT dividends, 3.6% qualified dividend income, 46.6% unrecaptured Section 1250 gain, and 43.9% long term capital gain. The dividends that were taxable to our stockholders in 2019 were considered 63.4% qualified REIT dividends, 33.7% qualified dividend income, 2.5% unrecaptured Section 1250 gain, and 0.4% long term capital gain. The 2020 and 2019 qualified REIT dividends are eligible for the 20% deduction provided by Section 199A.

The table below presents the amount of common dividends declared per share and common distributions per unit as follows:

	Year ended December 31,
	2020		2019		2018
Common stock	$	.20	$	.85	$	.85
Common OP units		.204		.868		.868

As part of our response to COVID-19 and in order to preserve cash and future financial flexibility, we suspended our regular quarterly common cash dividends, commencing with the second quarter 2020 dividend that would have been paid in July 2020. Additionally, based on the terms of the credit facility amendments, we are restricted to paying a quarterly common cash dividend of $0.01 per share or higher amounts to the extent necessary to allow Host Inc. to maintain REIT status or to avoid corporate income or excise taxes, until after the covenant waiver period expires following the second quarter of 2022.

7.	Income Taxes

We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with our taxable year beginning January 1, 1999. To continue to qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our annual taxable income to our stockholders, excluding net capital gain. As a REIT, generally we will not be subject to U.S. federal and state corporate income taxes on that portion of our annual taxable income that is distributed to our stockholders. If we fail to qualify for taxation as a REIT in any taxable year, we will be

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

subject to U.S. federal and state corporate income taxes at regular corporate income tax rates and may not be able to qualify as a REIT for four subsequent taxable years. Even if we qualify to be treated as a REIT, we may be subject to certain state, local and foreign taxes on our income and property, and to U.S. federal and state corporate income and excise taxes on our undistributed taxable income. Our 2018 tax provision included approximately $77 million of U.S. federal and state corporate income taxes that we paid on long-term capital gain generated in 2018 that we chose to retain rather than to distribute to our stockholders.

As a result of legislation enacted by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act in 2020, net operating losses generated in 2018, 2019, and 2020 may be carried back up to five years in order to procure a refund of U.S. federal corporate income taxes previously paid. Any net operating loss not carried back pursuant to these rules may be carried forward indefinitely, subject to an annual limit on the use thereof of 80% of annual taxable income. We recently filed refund claims to recover approximately $57 million of U.S. federal income taxes that we paid in 2017 through 2019, which is included in other assets on our consolidated balance sheet as of December 31, 2020.

Set forth below is a table that documents our domestic and foreign tax attributes at December 31, 2020:

Type	Jurisdiction	Amount (in millions)		Expiration
Net operating loss	U.S. Federal	$	487	None
Capital loss	U.S. Federal and State		37	2023
General business credit	U.S. Federal		1	Through 2040
Net operating loss	U.S. State		827	Various
Net operating loss	Brazil		14	None
Net operating loss	Canada		20	Through 2040
Capital loss	Canada		5	None

We have recorded a 100% valuation allowance of approximately $9 million against the deferred tax asset related to our domestic capital loss carryover and a 100% valuation allowance of approximately $5 million against the deferred tax asset related to certain of our foreign net operating loss and capital loss carryovers as of December 31, 2020. We also have recorded a valuation allowance of approximately $5 million against the deferred tax asset related to our accumulated other comprehensive income (“AOCI”) foreign exchange net losses. The net increase of our valuation allowance for the year ended December 31, 2020 is approximately $6 million from the year ended December 31, 2019.

The primary components of our net deferred tax assets are as follows (in millions):

	As of December 31,
	2020			2019
Deferred tax assets
Net operating losses, general business credits, and capital loss carryovers	$	172		$	16
Property and equipment		3			3
Deferred revenue and expenses		17			20
Foreign exchange net losses (AOCI)		12			12
Total gross deferred tax assets		204			51
Less: Valuation allowance		(19	)		(13	)
Total deferred tax assets, net of valuation allowance	$	185		$	38
Deferred tax liabilities
Investments in domestic affiliates		(1	)		(6	)
Total gross deferred tax liabilities		(1	)		(6	)
Net deferred tax assets	$	184		$	32

We believe that it is more likely than not that the results of future operations will generate sufficient taxable income in order to realize our total deferred tax assets, net of a valuation allowance of $19 million, of $185 million.

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our U.S. and foreign income (loss) from continuing operations before income taxes were as follows (in millions):

	Year ended December 31,
	2020			2019		2018
U.S. income (loss)	$	(945	)	$	949	$	887
Foreign income (loss)		(16	)		13		414
Total	$	(961	)	$	962	$	1,301

The income tax provision (benefit) for continuing operations consists of (in millions):

		Year ended December 31,
		2020			2019		2018
Current	—Federal	$	(57	)	$	14	$	79
	—State		1			6		30
	—Foreign		1			3		37
			(55	)		23		146
Deferred	—Federal		(96	)		3		2
	—State		(63	)		1		1
	—Foreign		(6	)		3		1
			(165	)		7		4
Income tax provision (benefit) – continuing operations		$	(220	)	$	30	$	150

The differences between the income tax provision (benefit) calculated at the statutory U.S. federal corporate income tax rate of 21% and the actual income tax provision (benefit) recorded for continuing operations are as follows (in millions):

	Year ended December 31,
	2020			2019			2018
Statutory federal income tax provision (benefit)	$	(202	)	$	202		$	273
Adjustment for nontaxable (income) loss of Host Inc.		34			(182	)		(192	)
Adjustment for net operating loss carryback to 2017-2019		18			—			—
State income tax provision (benefit), net		(62	)		7			31
Change to uncertain tax provision		(3	)		(3	)		—
Foreign income tax provision (benefit)		(5	)		6			38
Income tax provision (benefit)	$	(220	)	$	30		$	150

Cash paid for income taxes, net of refunds received, was immaterial in 2020, and $93 million and $82 million in 2019 and 2018, respectively.

A reconciliation of the beginning and ending balances of our unrecognized tax benefits is as follows (in millions):

	2020			2019
Balance at January 1	$	8		$	11
Reduction of unrecognized tax benefits due to expiration of statute of limitations		(3	)		(3	)
Balance at December 31	$	5		$	8

All of such uncertain tax position amounts, if recognized, would impact our reconciliation between the income tax provision (benefit) calculated at the statutory U.S. federal corporate income tax rate of 21% and the actual income tax provision (benefit) recorded each year.

We expect a decrease to the balance of unrecognized tax benefits within 12 months of the reporting date of approximately $4 million. As of December 31, 2020, the tax years that remain subject to examination by major tax jurisdictions generally include 2017-2020. There were no material interest or penalties recorded for the years ended December 31, 2020, 2019, and 2018.

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.	Leases

Taxable REIT Subsidiaries Leases

We lease substantially all our hotels to a wholly owned subsidiary that qualifies as a taxable REIT subsidiary due to the U.S. federal income tax prohibition on the ability of a REIT to derive revenues directly from the operations of a hotel.

Ground Leases

As of December 31, 2020, all or a portion of 22 of our hotels are subject to ground leases, generally with multiple renewal options, all of which are accounted for as operating leases. Payments for ground leases account for approximately 73% of our 2020 minimum lease payments and 96% of our total future minimum lease payments. For lease agreements with scheduled rent increases, we recognize the fixed portion of the lease expense ratably over the term of the lease. As the exercise of the renewal options were determined to be reasonably certain, the payments associated with the renewals have been included in the measurement of the lease liability and ROU asset. Contingent rental payments based on a percentage of sales in excess of stipulated amounts are not included in the measurement of the lease liability and ROU asset but will be recognized as variable lease expense if and when they are incurred. However, certain of these leases contain provisions that increase the minimum lease payments based on an average of the variable lease payments made over the previous years, for which we will reevaluate the lease liability and ROU asset as these payments represent an increase in the minimum payments for the remainder of the lease term. Certain of these leases also contain provisions that increase the minimum lease payments based on an index such as the Consumer Price Index. Such increases are not included in the measurement of the lease liability and ROU asset but will be recognized as variable lease expense if and when they are incurred. The discount rate used to calculate the lease liability and ROU asset is based on our incremental borrowing rate (“IBR”), as the rate implicit in each lease is not readily determinable. To calculate our IBR, we obtained a forward curve using LIBOR swap rates, with terms ranging from one to fifty years, as well as corresponding bond spreads based on the terms of the leases and our credit risk. The resulting discount rates for our ground leases range from 4.3% to 5.7%.

Offices Leases and Other

We have office leases for our headquarters office in Bethesda, which expires in 2036, as well as satellite offices in Miami and San Diego, which leases expire in 2022 and 2021, respectively, with no renewal options.

We also have leases on facilities used in our former restaurant business, all of which we subsequently subleased. These leases and subleases contain one or more renewal options, generally for five- or ten-year periods. The restaurant leases are accounted for as operating leases. Our contingent liability related to these leases is $3 million and $5 million as of December 31, 2020 and 2019, respectively. We, however, consider the likelihood of any material funding related to these leases to be remote. Our leasing activity also includes leases entered into by our hotels for various types of equipment, which may be accounted for either as operating or capital leases, depending upon the characteristics of the particular lease arrangement. Our finance leases total less than $1 million at December 31, 2020 and 2019.

On January 1, 2019, we adopted ASU No. 2016-02, Leases (Topic 842), as amended, using the effective date transition method. As a result, disclosures required under the new standard will not be provided for dates or periods prior to January 1, 2019. For the comparative periods, we will provide disclosures required by ASC 840, Leases.

The following table presents lease cost and other information (in millions):

	Year ended December 31,
	2020			2019
Lease cost
Operating lease cost	$	43		$	47
Variable lease cost		2			36
Sublease income		(1	)		(1	)
Total lease cost	$	44		$	82

Other information
Operating cash flows used for operating leases	$	43		$	47
Weighted-average remaining lease term - operating leases	49 years			50 years
Weighted-average discount rate - operating leases		5.3	%		5.3	%

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Rent expense in accordance with ASC 840, under which we report prior to January 1, 2019, consists of (in millions):

	Year ended December 31, 2018
Minimum rentals on operating leases	$	45
Additional rentals based on sales		38
Less: sublease rentals		(1	)
	$	82

The following table presents a reconciliation of the total amount of lease payments, on an undiscounted basis, to the lease liability on the balance sheet as of December 31, 2020 (in millions):

	As of December 31, 2020
	Ground Leases			Office Leases and Other			Total
Weighted-average discount rate - operating leases		5.4	%		3.5	%		5.3	%
2021	$	32		$	7		$	39
2022		32			7			39
2023		32			5			37
2024		33			4			37
2025		33			4			37
Thereafter		1,519			52			1,571
Total undiscounted cash flows	$	1,681		$	79		$	1,760

Present values
Long-term lease liabilities	$	550		$	60		$	610
Total lease liabilities	$	550		$	60		$	610
Difference between undiscounted cash flows and discounted cash flows	$	1,131		$	19		$	1,150

Minimum payments for the operating leases have not been reduced by aggregate minimum sublease rentals from restaurants of approximately $4 million that are payable to us under non-cancelable subleases.

9.	Employee Stock Plans

Upon the issuance of Host Inc.’s common stock for stock-based compensation, Host L.P. issues to Host Inc. common OP units of an equivalent value. Accordingly, these awards and related disclosures are included in both Host Inc.’s and Host L.P.’s consolidated financial statements.

Host Inc. maintains two stock-based compensation plans, the Comprehensive Stock and Cash Incentive Plan (the “2020 Comprehensive Plan”), under which Host Inc. may award to participating employees restricted stock units (“RSUs”), and the Employee Stock Purchase Plan. At December 31, 2020, there were approximately 15 million shares of Host Inc.’s common stock reserved and available for issuance under the 2020 Comprehensive Plan.

We recognize costs resulting from share-based payments in our financial statements over their vesting periods. No compensation cost is recognized for awards for which employees do not render the requisite services. We classify share-based payment awards granted in exchange for employee services as either equity-classified or liability-classified awards. Equity-classified awards are measured based on their fair value as of the date of grant. In contrast, liability-classified awards are re-measured to fair value each reporting period.

During 2020, 2019 and 2018, we recorded stock-based compensation expense of approximately $17 million, $15 million and $14 million, respectively. Shares granted in 2020, 2019 and 2018 totaled 2.2 million, 1.4 million and 1.2 million, respectively, while 1.2 million, 0.9 million and 0.8 million shares, respectively, vested during those years.

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Senior Executive Plan

During 2020, Host Inc. granted 2.0 million RSU awards under the 2020 Comprehensive Plan, which amount represents the maximum number of RSUs that can be earned during the period of 2020 through 2022 if performance is at the “high” level of achievement and, for time based awards, the executive remains employed. The RSUs vest over a one, two or three-year period and 1.5 million RSUs were unvested at December 31, 2020. Total unrecognized compensation expense related to unvested RSU awards that vest through 2022 is approximately $11 million.

RSU awards

Vesting of RSUs awarded in 2020 is based on (1) continued employment on the vesting date (“Time-Based Award”); (2) the achievement of relative total shareholder return (“TSR”); and (3) our performance against certain annual strategic objectives. Approximately 40% of the RSUs are Time-Based Awards and vest on an annual basis over three years; approximately 30% of the RSUs are based on the satisfaction of the TSR compared to the NAREIT Equity Lodging & Resort index that serves as a relevant industry/asset specific measurement to our competitors and vest following a three year performance period; and the remaining 30% are based on our performance against certain strategic objectives and vest on an annual basis. The RSUs granted are considered equity-classified awards. As a result, the fair value of these awards is based on the fair value on the grant date, and such grant date fair value is not adjusted for subsequent movements thereof.

We value the time based awards using the closing stock price on the grant date multiplied by the percentage of shares expected to be released, which is 100% of the time based awards. We also value the strategic objective awards using the closing stock price on the grant date multiplied by the percentage of shares expected to be released; however, as a result of the strategic objective awards’ performance conditions, we reevaluate the percentage based on the probability of meeting the performance conditions each period. We value the TSR awards using the economic theory that is the basis for all valuation models, including Binominal, Black-Scholes, exotic options formulas, and Monte Carlo valuations, with the following assumptions:

	NAREIT Lodging & Resorts Index
	2020 Award Grants			2019 Award Grants
Grant date stock price	$	10.06		$	17.97
Volatility		33.1	%		23.7	%
Beta		0.618			1.029
Risk-free rate - three year award		0.19	%		2.43	%

In making these assumptions, we base the expected volatility on the historical volatility over three years using daily stock price observations. The beta is calculated by comparing the risk of our stock to the risk of the applicable peer group index, using three years of daily price data. We base the risk-free rate on the Treasury bond yields corresponding to the length of each performance period as reported by the Federal Reserve.

The payout schedule for the TSR awards is as follows, with linear interpolation for points between the 30th and 75th percentiles.

TSR Percentile Ranking
At or above 75th percentile	100	%
50th percentile	50
30th percentile	25
Below 30th percentile	0

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During 2020, 2019 and 2018, we recorded compensation expense of approximately $15 million, $13 million and $12 million, respectively, related to the RSU awards to senior executives. The following table is a summary of the status of our senior executive plans for the three years ended December 31, 2020:

	Year ended December 31,
	2020					2019					2018
	Shares			Fair Value		Shares			Fair Value		Shares			Fair Value
	(in millions)			(per share)		(in millions)			(per share)		(in millions)			(per share)
Balance, at beginning of year		1.2		$	13		0.9		$	14		0.7		$	14
Granted		2.0			10		1.3			14		1.1			16
Vested (1)		(1.1	)		15		(0.7	)		19		(0.7	)		17
Forfeited/expired		(0.5	)		15		(0.3	)		19		(0.2	)		17
Balance, at end of year		1.6			10		1.2			13		0.9			14
Issued in calendar year (1)		0.4			19		0.4			17		0.3			20
___________

(1)

Shares that vest at December 31 of each year are issued to the employees in the first quarter of the following year, although the requisite service period is complete. Accordingly, the 0.4 million shares issued in 2020 include shares vested at December 31, 2019, after adjusting for shares withheld to meet employee tax requirements. The shares withheld for employee tax requirements were valued at $5.5 million, $5.4 million and $4.8 million for 2020, 2019 and 2018, respectively.

Other Stock Plans

In addition to the share-based plans described above, we maintain an upper-middle management plan and an employee stock purchase plan. The upper-middle management awards are time-based, equity-classified awards that vest within three years of the grant date and compensation expense is recognized over the life of the award based on the grant date fair value. Through the employee stock purchase plan, employees can purchase stock at a discount of 10% of the lower of the beginning and ending stock price each quarter. During 2020, 2019 and 2018, we granted a total of 0.2 million shares, 0.1 million shares and 0.1 million shares, respectively, under these two programs and recorded compensation expense of approximately $2 million in each year.

10.	Profit Sharing and Post-employment Benefit Plans

We contribute to defined contribution plans for the benefit of employees who meet certain eligibility requirements and who elect participation in the plans. The discretionary amount to be matched by us is determined annually by Host Inc.’s Board of Directors. Our liability recorded for this obligation is not material. Payments for these items were not material for the three years ended December 31, 2020.

11.	Dispositions

We disposed of one hotel in 2020, 14 hotels in 2019 and four hotels in 2018 and recorded gains on sales of approximately $148 million, $339 million and $279 million, respectively.

In 2020, we sold excess land adjacent to The Phoenician for $83 million, and recorded a gain on sale of approximately $59 million.

Additionally, on September 21, 2018, we sold the New York Marriott Marquis retail and theater commercial units and the related signage areas of the hotel (the “Retail”) to Vornado Realty Trust for a sale price of $442 million and recorded a gain of approximately $386 million, which amount is net of the non-cash incurrence of a liability of approximately $35 million related to Vornado’s contractual right to future real estate tax rebates. Substantially all of the net proceeds from the sale of the Retail were used to close out a reverse like-kind exchange structure established in connection with the acquisition of the Hyatt portfolio in March 2018. We elected to pay U.S. federal and applicable state corporate income tax of approximately $16 million on the capital gain generated by the sale proceeds not used to close out the reverse like-kind exchange rather than to distribute such capital gain to our stockholders.

The gain on sale of assets is included in other gains/(losses) on the consolidated statement of operations.

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12.	Acquisitions

Asset Acquisitions

In February 2019, we acquired the fee simple interest in the 429-room 1 Hotel South Beach for a total purchase price of $610 million. Consideration included the issuance of $23 million of preferred Host L.P. OP units that were included in debt as of December 31, 2019, and $3 million of common Host L.P. OP units, all of which were subsequently redeemed in 2020.

13.Fair Value Measurements

Impairment

During 2019, we recorded an impairment expense of $14 million related to the Sheraton San Diego Hotel & Marina and a right-of-use asset associated with an operating lease, based on the expected sale proceeds and expected sub-rental income, respectively, which are considered observable inputs other than quoted prices (Level 2) in the GAAP fair value hierarchy. The Sheraton San Diego Hotel & Marina was sold in 2019.

During 2018, we recorded an impairment expense of $44 million related to the W New York, the W New York – Union Square and the Westin New York Grand Central based on the expected sale proceeds of the properties, which are considered observable inputs other than quoted prices (Level 2) in the GAAP fair value hierarchy. The W New York and W New York – Union Square hotels were sold during 2018 and the Westin New York Grand Central was classified as held-for-sale as of December 31, 2018. The fair value of the Westin New York Grand Central, less costs to sell, at December 31, 2018 was $270 million. The Westin New York Grand Central was sold in 2019.

During 2018, we also recorded an impairment expense of $216 million related to the Sheraton New York Times Square Hotel based on a range of sale prices negotiated with a potential buyer, which are considered observable inputs other than quoted prices (Level 2) in the GAAP fair value hierarchy. The fair value of the Sheraton New York Times Square Hotel following the impairment expense was $495 million.

Impairment expense for 2019 and 2018 is recorded in depreciation and amortization on the consolidated statements of operations.

Other Liabilities

Fair Value of Other Financial Liabilities. We did not elect the fair value measurement option for any of our other financial liabilities. The fair values of secured debt and our credit facility are determined based on the expected future payments discounted at risk-adjusted rates. Senior notes are valued based on quoted market prices. The fair values of financial instruments not included in this table are estimated to be equal to their carrying amounts. The fair value of certain financial liabilities is shown below (in millions):

	December 31, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial liabilities
Senior notes (Level 1)	$	3,065	$	3,284	$	2,776	$	2,953
Credit facility (Level 2)		2,471		2,483		989		1,000

14.	Relationship with Marriott International

We have entered into various agreements with Marriott, including those for the management or franchise of approximately 70% of our hotels (as measured by revenues) and certain limited administrative services.

In 2020, 2019 and 2018, we paid Marriott $28 million, $186 million and $200 million, respectively, of hotel management fees and approximately $3.0 million, $11.5 million and $11.7 million, respectively, of franchise fees.

15.	Hotel Management Agreements and Operating and License Agreements

All of our hotels are managed by third parties pursuant to management or operating agreements, with some of our hotels also being subject to separate license agreements addressing matters pertaining to operations under the designated brand. Hotels managed

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

or franchised by Marriott and Hyatt represent 70% and 17% of our total revenues, respectively. Under these agreements, the managers generally have sole responsibility for all activities necessary for the day-to-day operation of the hotels, including establishing room rates, processing reservations and promoting and publicizing the hotels. The managers also provide all employees for the hotels, prepare reports, budgets and projections, control the working capital, and provide other administrative and accounting support services to the hotels. Costs and expenses incurred by the managers are reimbursed by us. We have approval rights over budgets, capital expenditures, significant leases and contractual commitments, and various other matters.

The initial term of our agreements generally is 10 to 25 years, with one or more renewal terms at the option of the manager. The majority of our agreements condition the manager’s right to exercise options for renewal upon the satisfaction of specified economic performance criteria. The manager typically receives a base management fee, which is calculated as a percentage (generally 2-3%) of annual gross revenues, and an incentive management fee, which typically is calculated as a percentage (generally 10-20%) of operating profit after the owner has received a priority return on its investment. In the case of our hotels operating under the W®, Westin®, Sheraton®, Luxury Collection® and St. Regis® brands, the base management fee is 1% of annual gross revenues, but that amount is supplemented by license fees payable to Marriott under a separate license agreement pertaining to the designated brand, including rights to use trademarks, service marks and logos, matters relating to compliance with certain brand standards and policies, and the provision of certain system programs and centralized services. Under the license agreement, Marriott generally receives 5% of gross revenues attributable to room sales and 2% of gross revenues attributable to food and beverage sales in addition to the base management fee.

Pursuant to the agreements, the manager furnishes the hotels with certain chain services, which generally are provided on a central or regional basis to all hotels in the manager’s hotel system. Chain services include central training, advertising and promotion, national reservation systems, computerized payroll and accounting services, and such additional services as needed which may be more efficiently performed on a centralized basis. Costs and expenses incurred in providing such services are allocated among the hotels managed, owned or leased by the manager on a fair and equitable basis. In addition, our managers generally sponsor a guest rewards program, the costs of which are charged to all of the hotels that participate in such program.

We are obligated to provide the manager with sufficient funds, generally 4-5% of the revenues generated at the hotel, to cover the cost of (a) certain non-routine repairs and maintenance to the hotels which normally are capitalized, and (b) replacements and renewals to the hotels’ furniture, fixtures and equipment. Under certain circumstances, we will be required to establish escrow accounts for such purposes under terms outlined in the agreements. Due to the COVID-19 pandemic, our managers temporarily suspended these contribution requirements in 2020.

We generally are limited in our ability to sell, lease or otherwise transfer our hotels unless the transferee assumes the related management agreement. However, most agreements include owner rights to terminate on the basis of the manager’s failure to meet certain performance-based metrics. Typically, these criteria are subject to the manager’s ability to ‘cure’ and avoid termination by payment to us of specified deficiency amounts (or, in some instances, waiver of the right to receive specified future management fees).

In addition to any performance-based or other termination rights, we have negotiated with Marriott and some of our other managers specific termination rights related to specific agreements. These termination rights can take a number of different forms, including termination of agreements upon sale that leave the property unencumbered by any agreement; termination upon sale provided that the property continues to be operated under a license or franchise agreement with continued brand affiliation; and termination without sale or other condition, which may require the payment of a fee. These termination rights also may restrict the number of agreements that may be terminated over any annual or other period; impose limitations on the number of agreements terminated as measured by EBITDA; require that a certain number of hotels continue to maintain the brand affiliation; or be restricted to a specific pool of assets.

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.	Geographic and Business Segment Information

We consider each one of our hotels to be an operating segment, as we allocate resources and assess operating performance based on individual hotels. All of our hotels meet the aggregation criteria for segment reporting and our other real estate investment activities (primarily our retail spaces and office buildings) are immaterial. As such, we report one segment: hotel ownership. Our foreign operations consist of hotels in two countries as of December 31, 2020. There were no intersegment sales during the periods presented. The following table presents revenues and long-lived assets for each of the geographical areas in which we operate (in millions):

	2020				2019				2018
	Revenues		Property and Equipment, net		Revenues		Property and Equipment, net		Revenues		Property and Equipment, net
United States	$	1,600	$	9,331	$	5,381	$	9,570	$	5,417	$	9,651
Brazil		7		34		23		45		19		49
Canada		13		51		65		56		67		60
Mexico		—		—		—		—		21		—
Total	$	1,620	$	9,416	$	5,469	$	9,671	$	5,524	$	9,760

17.	Legal Proceedings, Guarantees and Contingencies

We are involved in various legal proceedings in the ordinary course of business regarding the operation of our hotels and company matters. To the extent not covered by insurance, these lawsuits generally fall into the following broad categories: disputes involving hotel-level contracts, employment litigation, compliance with laws such as the Americans with Disabilities Act, tax disputes and other general matters. Under our management agreements, our operators have broad latitude to resolve individual hotel-level claims for amounts generally less than $150,000. However, for matters exceeding such threshold, our operators may not settle claims without our consent.

Based on our analysis of legal proceedings with which we currently are involved or of which we are aware and our experience in resolving similar claims in the past, we have recorded immaterial accruals as of December 31, 2020 related to such claims. We have estimated that, in the aggregate, our losses related to these proceedings will not be material. We are not aware of any other matters with a reasonably possible unfavorable outcome for which disclosure of a loss contingency is required. No assurances can be given as to the outcome of any pending legal proceedings.

Guarantees and Contingencies

We have entered into certain guarantees which consist of commitments made to third parties for leases or debt that are not recognized in our consolidated financial statements due to various dispositions, spin-offs and contractual arrangements, but that we have agreed to pay in the event of certain circumstances, including the default by an unrelated party. We also may have contingent environmental liabilities related to the presence of hazardous or toxic substances. We consider the likelihood of any material payments under these guarantees and contingencies to be remote.

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.

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