HOST HOTELS & RESORTS : Administration’s Dialogue and Evaluation of Monetary Situation and Outcomes of Operations (type 10-Okay)

The following discussion should be read in conjunction with the consolidated
financial statements and related notes included elsewhere in this report. This
discussion focuses on our financial condition and results of operations for the
year ended December 31, 2020 as compared to the year ended December 31, 2019.
For a discussion and analysis of the year ended December 31, 2019 compared to
the same period in 2018, please refer to Management’s Discussion and Analysis of
Financial Condition and Results of Operations included in Part II Item 7 of our
Annual Report on Form 10­K for the year ended December 31, 2019, filed with the
SEC on February 25, 2020.

Overview

Host Inc. operates as a self-managed and self-administered REIT that owns hotels
and conducts operations through Host L.P., of which Host Inc. is the sole
general partner and of which it holds approximately 99% of its common OP units
as of December 31, 2020. The remainder of Host L.P.’s common OP units are owned
by various unaffiliated limited partners. Host Inc. has the exclusive and
complete responsibility for Host L.P.’s day-to-day management and control.

Host Inc. is the largest lodging REIT in NAREIT’s composite index and one of the
largest owners of luxury and upper upscale hotels. As of February 19, 2021, we
own 80 hotels in the United States, Canada and Brazil and have minority
ownership interests in an additional 10 hotels through joint ventures in the
United States and in India. These hotels are operated primarily under brand
names that are among the most respected and widely recognized in the lodging
industry. Most of our hotels are located in central business districts of major
cities, near airports and in resort/conference destinations.

Our customers fall into three broad groups: transient business, group business
and contract business, which accounted for approximately 64%, 30%, and 6%,
respectively, of our 2020 room sales. By comparison, our 2019 room sales
consisted of 61%, 35%, and 4%, respectively, for transient business, group
business and contract business. Transient business broadly represents individual
business and leisure travelers. Business travelers make up the majority of
transient demand at our hotels. Therefore, we will be significantly more
affected by trends in business travel than by trends in leisure demand. However,
due to the effects of the COVID-19 pandemic, demand during the period April 2020
to present has primarily been driven by leisure customers. For a discussion of
our customer categories, see “Item 1 Business – Our Customers”.

COVID-19 Impact and Response. The COVID-19 pandemic has significantly adversely
impacted 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 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. The ongoing effects of the
pandemic 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 governmental authorities to contain the outbreak
have been lifted.

We have not filed for any relief under the Coronavirus Aid, Relief, and Economic
Security Act (CARES Act); however, several of our operators, including Hyatt and
Marriott, have filed for the Employee Retention Credit (“ERC”) to partially
offset the costs of their furloughed hotel employees under Title II of the CARES
Act, as discussed below. Benefits received by our operators from the ERC related
to employees at our hotels ultimately will benefit us as we bear the expense for
the wages and benefits of all persons working at our hotels.

In response to the pandemic, we and our managers, as applicable, have taken the
following actions:

• As of February 19, 2021, reopened 31 of the 35 hotels that had suspended

operations at the start of the COVID-19 pandemic. We will maintain

operations or reopen a property when it is anticipated to generate revenue

greater than the incremental costs associated with staying open;

• Average monthly occupancy (which includes the results of hotels with

suspended operations) has increased during the pandemic from 6.9% in April

to 17.3% in December, due primarily to increased demand in drive-to leisure

markets;

• Working with our hotel managers, we implemented portfolio-wide cost

reductions, including significantly reducing staffing levels by furloughing

or severing a substantial portion of the hotel workforce, reduced shared

services fees, suspended food and beverage outlet operations, closed

guestroom floors and meeting space, and temporarily suspended brand

standards. These initiatives have resulted in a reduction of hotel

operating costs across the portfolio by over 50% for the year, excluding

severance, compared to 2019. We expect that certain initiatives, including

modernized brand standards,

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streamlined operating departments and accelerated adoption of cost-saving

technologies, may lead to long-term expense reductions over time;

• Paid health benefits of approximately $112 million during the year for

hotel employees furloughed by our managers and special pay and accrued $13

million at year-end for similar payments to be made in the first quarter of

2021. A portion of the furlough costs has been offset by ERC of
approximately $39 million recorded for the year. We also recorded $65
million during the year for hotel-level severance costs;

• Suspended contributions to our hotels’ FF&E escrow accounts and suspended

or deferred non-essential capital projects, which reduced full year 2020

capital expenditures by over $100 million compared to the forecast range as

reported in our 2019 Annual Report on Form 10-K;

• Successfully amended the credit agreement governing our $1.5 billion

revolving credit facility and two $500 million term loans. Under the

amendments, the quarterly-tested financial covenants were waived beginning

July 1, 2020 until the required financial statement reporting date for the

second quarter of 2022, with certain financial covenants modified through

the third quarter of 2023;

• Accessed the full $1.5 billion under the revolver portion of the credit

facility as a precautionary measure in order to increase our cash position

and preserve financial flexibility in light of continued uncertainty in the

global markets;

• Suspended regular quarterly common cash dividends and stock repurchases

until further notice. All future dividends are subject to approval by the

Board of Directors; and

• Reduced corporate expenses by approximately 16.8% for the year compared to

2019, through reduced travel, compensation and other overhead.

The impact of the COVID-19 pandemic on the company remains fluid, as does our
corporate and property-level response, together with the response of our hotel
operators. There remains a great deal of uncertainty surrounding the timing for
widespread availability of vaccines and, as a result, the duration of the
COVID-19 pandemic remains difficult to predict. We, and our hotel managers, may
take additional actions in response to future developments.

Understanding Our Performance

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

Operations from our domestic portfolio account for approximately 99% of our
total revenues and 1% relate to our five hotels in Canada and Brazil. The
following table presents the components of our hotel revenues as a percentage of
our total revenues:

% of 2020 % of 2019
Revenues Revenues
• Rooms revenues. Occupancy and average daily room rate
are the major drivers of rooms revenues. The business
mix of the hotel (group versus transient and retail 60 % 63 %
versus discount business) is a significant driver of
room rates.

• Food and beverage revenues. Food & beverage revenues
consist of revenues from group functions, which may
include banquet revenues and audio and visual 26 % 30 %
revenues, as well as outlet revenues from the
restaurants and lounges at our hotels.

• Other revenues. Occupancy, the nature of the hotel
(e.g., resort) and its price point are the main
drivers of other ancillary revenues, such as
attrition and cancellation fees, resort and 14 % 7 %
destination fees, parking, golf courses, spas,
entertainment and other guest services. This category
also includes other rental revenues.

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Hotel operating expenses represent approximately 97% of our total operating
costs and expenses. The following table presents the components of our hotel
operating expenses as a percentage of our total operating costs and expenses:

% of 2020 % of 2019
Operating Operating
Costs and Costs and
Expenses Expenses
• Rooms expenses. These costs include housekeeping,
reservation systems, room supplies, laundry services
and front desk costs. Occupancy is the major driver 14 % 19 %
of rooms expenses. These costs can increase based on
increases in salaries and wages, as well as on the
level of service and amenities that are provided.

• Food and beverage expenses. These expenses primarily
include food, beverage and the associated labor costs
and will correlate closely with food and beverage
revenues. Group functions with banquet sales and 16 % 24 %
audio and visual components generally will have lower
overall costs as a percentage of revenues than outlet
sales.

• Other departmental and support expenses. These
expenses include labor and other costs associated
with other ancillary revenues, such as parking, golf
courses, spas, entertainment and other guest 27 % 28 %
services, as well as labor and other costs associated
with administrative departments, allocated brand
costs, sales and marketing, repairs and minor
maintenance and utility costs.

• Management fees. Base management fees are computed as
a percentage of gross revenues. Incentive management 2 % 5 %
fees generally are paid when operating profits exceed
certain thresholds.

• Other property-level expenses. These expenses consist
primarily of real and personal property taxes, ground
rent, equipment rent and property insurance. Many of 12 % 8 %
these expenses are relatively inflexible and do not
necessarily change based on changes in revenues at
our hotels.

• Depreciation and amortization expense. This is a
non-cash expense that changes primarily based on the 26 % 14 %
acquisition and disposition of hotels and the amounts
of historical capital expenditures.

The expense components listed above are based on those presented in our
consolidated statements of operations. It also is worth noting that wage and
benefit costs are spread among various line items. Taken separately, these costs
represent approximately 59% of our rooms, food and beverage, and other
departmental and support expenses.

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

• hotel occupancy is a volume indicator based on the percentage of available

room nights that are sold;

• average daily rate (“ADR”) is a price indicator calculated by dividing

rooms revenues by the number of rooms sold;

• revenues per available room (“RevPAR”) is used to evaluate hotel

operations. RevPAR is defined as the product of the average daily room rate

charged and the average daily occupancy achieved. RevPAR does not include

food and beverage, parking, or other guest service revenues generated by

the hotel. Although RevPAR does not include these ancillary revenues, it is

considered a key indicator of core revenues for many hotels; and

• total revenues per available room (“Total RevPAR”) is a summary measure of

hotel results calculated by dividing the sum of rooms, food and beverage

and other ancillary services revenues by room nights available to guests

for the period. It includes ancillary revenues that are not included in the

calculation of RevPAR.

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

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increases or decreases in average room rates have a greater effect on
profitability than do changes in RevPAR caused by occupancy levels.

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

• NAREIT Funds From Operations (“FFO”) and Adjusted FFO per diluted share. We

use NAREIT FFO and Adjusted FFO per diluted share as supplemental measures

of company-wide profitability. NAREIT adopted FFO to promote an

industry-wide measure of REIT operating performance. We also adjust NAREIT

FFO for gains and losses on extinguishment of debt, certain acquisition

costs, litigation gains or losses outside the ordinary course of business

and severance costs outside the ordinary course of business.

• All Owned Hotel Pro Forma EBITDA. All Owned Hotel Pro Forma EBITDA measures

property-level results before debt service, depreciation and corporate

expenses (as this is a property level measure) and is a supplemental

measure of aggregate property-level profitability. We use All Owned Hotel

Pro Forma EBITDA and associated margins to evaluate the profitability of

our hotels.

• EBITDA, EBITDAre and Adjusted EBITDAre. Earnings before interest expense,

income taxes, depreciation and amortization (“EBITDA”) is a supplemental

measure of our operating performance and facilitates comparisons between us

and other lodging REITs, hotel owners who are not REITs and other

capital-intensive companies. NAREIT adopted EBITDA for real estate

(“EBITDAre”) in order to promote an industry-wide measure of REIT operating

performance. We also adjust EBITDAre for property insurance gains, certain

acquisition costs, litigation gains or losses outside the ordinary course

of business and severance costs outside the ordinary course of business

(“Adjusted EBITDAre”).

In discussing our operating results, we typically present RevPAR and certain
other financial data on a comparable hotel basis. However, due to the COVID-19
pandemic and its effects on operations, there is little comparability between
years. For this reason, we are temporarily suspending our comparable hotel
presentation and instead present hotel operating results for all consolidated
hotels and, to facilitate comparisons between periods, we are presenting results
on a pro forma basis, including the following adjustments: (1) operating results
are presented for all consolidated hotels owned as of December 31, 2020, but do
not include the results of operations for properties sold in 2019 or 2020; and
(2) operating results for acquisitions in the current and prior year are
reflected for full calendar years, to include results for periods prior to our
ownership. For these hotels, since the year-over-year comparison includes
periods prior to our ownership, the changes will not necessarily correspond to
changes in our actual results. We also present RevPAR separately for our
consolidated domestic and foreign (both on a nominal and constant dollar basis)
hotels. We provide RevPAR results in constant currency due to the consolidated
hotels that we own in Canada and Brazil and the effect that exchange rates have
on our reporting. We use constant currency because we believe it is useful to
investors as it provides clarity on how the hotels are performing in their local
markets. For all other measures (net income, operating profit, EBITDA, FFO,
etc.), our discussion refers to nominal US$, which is consistent with the
presentation of our financial statements under U.S. generally accepted
accounting principles (“GAAP”).

Summary of 2020 Operating Results

The following table reflects certain line items from our audited consolidated
statements of operations and the significant operating statistics for the two
years ended December 31, 2020 (in millions, except per share and hotel
statistics):

Historical Income Statement Data:

2020 2019 Change
Total revenues $ 1,620$ 5,469 (70.4 )%
Net income (loss) (741 ) 932 N/M
Operating profit (loss) (953 ) 799 N/M
Operating profit (loss) margin under GAAP (58.8 )% 14.6 % N/M
EBITDAre (1) $ (233 )$ 1,538 N/M
Adjusted EBITDAre (1) $ (168 )$ 1,534 N/M

Diluted earnings (loss) per share $ (1.04 )$ 1.26

N/M

NAREIT FFO per diluted share (1) (.31 ) 1.70

N/M

Adjusted FFO per diluted share (1) (.17 ) 1.78 N/M

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All Owned Hotel Data:

2020 Owned Hotels (1)
2020 2019 Change
All owned hotel revenues (pro forma) (1) $ 1,604$ 5,190 (69.1 )%
All owned hotel EBITDA (pro forma) (1) (137 ) 1,493

N/M

All owned hotel EBITDA margin (pro forma) (8.5 )% 28.8 %

N/M

Change in all owned hotel (pro forma) Total
RevPAR – Constant US$ (69.4 )%
Change in all owned hotel (pro forma) RevPAR –
Constant US$ (2) (70.3 )%
Change in all owned hotel (pro forma) RevPAR –
Nominal US$ (2) (70.3 )%
___________

(1) EBITDAre, Adjusted EBITDAre, NAREIT FFO per diluted share and Adjusted FFO

per diluted share and all owned hotel operating results (including hotel

revenues and hotel EBITDA and margins) are non-GAAP financial measures within

the meaning of the rules of the SEC. Beginning in 2020, we changed our

definition of Adjusted EBITDAre and Adjusted NAREIT FFO to exclude

non-ordinary course severance costs, and remove these severance costs from

property level operating results, which we believe provides useful

supplemental information that is beneficial to an investor’s understanding of

our ongoing operating performance. Furlough costs, which are viewed as a

replacement to wages, will continue to be included in these metrics.

Including these severance costs, our Adjusted EBITDAre and Adjusted NAREIT

FFO would have been $(233) and $(184), respectively. Including severance

costs, our All Hotel Pro Forma EBITDA would have been $(202) million. See

“Non-GAAP Financial Measures” for more information on these measures,
including why we believe these supplemental measures are useful,
reconciliations to the most directly comparable GAAP measure, and the
limitations on the use of these supplemental measures.

N/M = Not meaningful.

Revenues

Total revenues declined $3,849 million, or 70.4%, compared to 2019, due to the
COVID-19 pandemic, as we experienced a sharp decline in group, business and
leisure travel beginning in mid-March 2020. An overall decline in travel as well
as the postponement or cancellation of conventions and conferences, music and
arts festivals, sporting events and other large public gatherings and on-going
travel restrictions have significantly reduced demand at our hotels. All owned
hotel pro forma RevPAR decreased 70.3% compared to 2019, on a constant US$
basis, due to a 5,260 basis point decline in occupancy to 26.0%. All owned hotel
pro forma Total RevPAR decreased 69.4% for the year as food and beverage
revenues also experienced significant declines due to the decline in occupancy.
(see “Statement of Operations Results and Trends”).

Following RevPAR increases in January and February 2020 across the majority of
the portfolio, we experienced unprecedented occupancy declines in the second
quarter, followed by modest sequential improvements in the third and fourth
quarters. The incremental quarterly improvement in the second half of the year
was driven by increased demand in drive-to leisure markets. As a result, all
owned hotel Total RevPAR in our Florida Gulf Coast, Jacksonville and Miami
markets declined the least during the year, with decreases of 40.6%, 46.1% and
46.6%, respectively, due primarily to short-term leisure demand in the second
half of the year. All owned hotel Total RevPAR at our Phoenix properties
declined 51.1% during the year, also benefiting from leisure business, which led
to strong golf revenues at two of our properties in that market, while all owned
hotel Total RevPAR at our Maui/Oahu properties declined 69.6%, with operations
suspended for three of our hotels through the third quarter followed by hotel
reopenings and loosening travel restrictions in the fourth quarter. Our hotels
in San Francisco/San Jose and New York, our two largest markets by room count,
experienced declines in all owned hotel Total RevPAR of 74.5% and 80.3%,
respectively, due to suspension of operations for a portion of the year at
several of these hotels. The largest all owned hotel Total RevPAR declines
occurred in our Boston and Chicago markets, with decreases of 84.8% and 82.7%,
respectively, as operations remain suspended at the Sheraton Boston Hotel and
the Westin Chicago River North.

Operating Profit

Operating profit margins (calculated based on GAAP operating profit as a
percentage of GAAP revenues) declined in 2020 to (58.8)% due to the decline in
operations from the COVID-19 pandemic. Operating profit margins under GAAP also
are affected significantly by several items, including dispositions,
depreciation expense and corporate expenses. Our all owned hotel pro forma
EBITDA margins, which exclude these items, declined to (8.5)% for the year.

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Net Income, Adjusted EBITDAre and Adjusted FFO per Diluted Share

Net income for Host Inc. decreased $1,673 million in 2020 to a loss of
$741 million primarily due to the decline in operations from the COVID-19
pandemic, as well as a $132 million decrease in other gains/(losses), consisting
primarily of lower gain on sale of assets in 2020 as compared to 2019. These
results led to a diluted loss per common share for Host Inc. of $1.04. Adjusted
EBITDAre, which excludes, among other items, gain on sale of assets, impairment
expense and severance expense, decreased to $(168) million for the year, while
Adjusted FFO per diluted share, which excludes gain on sale of assets and other
real estate transactions, including depreciation, impairment and severance,
decreased to $(0.17) in 2020.

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

2021 Outlook

The COVID-19 pandemic has severely impacted macroeconomic and industry
expectations for 2021. While economic growth and business investment are
expected to accelerate meaningfully in 2021, supported by further stimulus, low
interest rates, and vaccine distribution, government-imposed restrictions across
the U.S. remain. Many regions continue to grapple with the early 2021 surge in
outbreaks and new variants of the virus, which has resulted in elevated jobless
claims and slower economic activity in the first part of the year. While
forecasts for 2021 remain uncertain, Blue Chip Economic Indicators consensus
currently estimates an increase in real GDP of 4.9% for the year, while business
investment is anticipated to increase 6.8%. Though analysts believe the
unemployment rate peaked in 2020, it is anticipated to remain elevated into
2021, with an expected average of 5.8% for the year. The range of potential
outcomes on the economy and the lodging industry specifically is exceptionally
wide, reflecting both the unprecedented nature of the pandemic and varying
analyst assumptions surrounding infection rates, new virus variants and the
timing of vaccine deployments.

Hotel supply growth is anticipated to remain below the long-term historical
average in 2021, as social distancing measures and supply chain challenges
resulted in project delays across the U.S. A large percentage of U.S. hotels
closed temporarily in 2020, and while many have begun to reopen, we anticipate
that the number of permanent hotel closures will be higher than historical
averages. The pandemic’s outsized impact on our industry has resulted in a
breakdown of the relationship between increased business investment and RevPAR
growth. RevPAR recovery is anticipated to lag that of the broader U.S. economy,
despite lower supply growth. Luxury and upper upscale hotels in top markets,
where a majority of our hotels are located, have been most heavily affected by
the pandemic, due in part to the sharp decline in air travel, particularly from
international arrivals, and the slower recovery of corporate and group demand.
While we have seen slightly improving trends, we anticipate that these factors
will persist in 2021.

As a result of the significant uncertainties related to the timing of vaccine
deployment, further government stimulus and related policy, and resulting
broader macroeconomic trends in 2021, we anticipate that the industry outlook
will continue to be weighed down by the slow return of corporate and group
travel, as businesses likely will remain cautious. While investor optimism has
grown in the early part of 2021 as analysts focus on the potential for
significant pent-up leisure demand, existing corporate policies are expected to
continue to constrain nonessential business transient and group travel until the
country approaches herd immunity. Given the unprecedented and unpredictable
nature of the pandemic and its effect on our industry, we are not able to
provide a full year forecast for RevPAR at this time. We believe that recovery
within the lodging industry is highly dependent on the strength of the economy,
consumer confidence and, especially with respect to corporate and group travel,
the timing of vaccine deployment. Accordingly, we believe the recovery in 2021
likely will be gradual and that the impact on specific markets and industries
will be uneven.

As noted above, the current outlook for the lodging industry remains highly
uncertain. There can be no assurances as to the timing for a recovery in lodging
demand for any number of reasons, including, but not limited to, slower than
anticipated return of group and business travel. For more information on the
risks that can affect our future results, see Part 1 Item 1A. “Risk Factors.”

Strategic Initiatives

For 2021, we intend to continue our disciplined approach to capital allocation
in order to strengthen our portfolio and to deliver stockholder value through
multiple levers, which may include, over time, acquiring hotels or investing in
our portfolio. We intend to take advantage of our strong capital position and
overall scale to acquire upper-upscale and luxury properties, through single
asset or portfolio acquisitions, that we believe have sustainable competitive
advantages to drive long-term value to the extent favorable pricing
opportunities arise as a result of the pandemic. At the same time, we will
opportunistically sell hotels when market conditions permit, including the
pursuit of exiting the Brazil and Canada markets in order to focus on our
domestic portfolio. We also continue to critically analyze our portfolio to seek
to take advantage of the inherent value of our real estate for its highest and
best use.

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Dispositions. We completed the sale of the Newport Beach Marriott Hotel & Spa in
2020 for net proceeds of approximately $202 million. Additionally, in
transactions completed during the year, we sold a total of 38 acres of land
adjacent to The Phoenician for $83 million.

Financing transactions. Senior Notes. On August 20, 2020, we completed an
underwritten public offering of $600 million aggregate principal amount of 3.5%
Series I senior notes and on September 3, 2020, we completed the issuance of an
additional $150 million aggregate principal amount of Series I senior notes, for
total proceeds of approximately $733 million, net of discounts, underwriting
fees and expenses. The Series I senior Notes have been designated as green
bonds, as an amount equal to the net proceeds will be allocated to eligible
green projects. A portion of the proceeds were used in August 2020 to repay
approximately 81% of the outstanding 4.75% Series C senior notes due 2023 for
$390 million, including $26 million of prepayment costs. 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. This
eliminated the final series of senior notes issued before we attained an
investment grade rating, and therefore any covenants or restrictions under our
non-investment grade senior notes indentures no longer are applicable.

Credit Facility. During the year, we had a net draw of $1,483 million under the
revolver portion of our credit facility. Additionally, in June 2020 and February
2021, we amended the terms of our credit facility, under which the
quarterly-tested financial maintenance covenants were waived beginning July 1,
2020 until the required financial statement reporting date for the second
quarter of 2022. Following the covenant waiver period, certain financial
maintenance covenants are modified through the third quarter of 2023.

We believe that our ability to maintain an investment grade balance sheet and
well-laddered maturity schedule is an important factor in our investment
strategy. Through our transactions in 2020, we were able to lower our weighted
average interest rate to 3.0% at December 31, 2020, compared to 3.8% at December
31, 2019, and extended our weighted average debt maturity to 5.0 years. We have
a debt balance of $5.5 billion and no significant debt maturities until 2023.

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

Capital Projects. We continue to pursue opportunities to enhance asset value
through select capital improvements, including projects that are designed to
increase the eco-efficiency of our hotels, incorporate elements of sustainable
design and replace aging equipment and systems with more efficient technology.
During 2020, we spent approximately $499 million on capital expenditures, of
which $343 million represented return on investment (“ROI”) capital expenditures
and $156 million represented renewal and replacement projects.

In collaboration with Marriott, we initiated a transformational capital program
in 2018 on an initial 17 properties, now 16 properties following the sale of the
Newport Beach Marriott Hotel & Spa, that is expected to occur over a four-year
period. We believe these investments will make these hotels more competitive in
their respective markets and will enhance long-term performance through
increases in RevPAR and market yield index. To accelerate this process, we
agreed to invest amounts in excess of the FF&E reserves required under our
management agreements, or approximately an average of $175 million per year,
which amounts are included in the forecast range of 2021 capital expenditures
reflected below. In exchange, Marriott has provided additional priority returns
on the agreed upon investments and operating profit guarantees of $83 million,
before reductions for incentive management fees, over the four years to offset
expected business disruption.

Of the 16 properties included in the program, we substantially completed the
projects at the Coronado Island Marriott Resort & Spa, New York Marriott
Downtown, San Francisco Marriott Marquis, and Santa Clara Marriott in 2019 and
projects at the Minneapolis Marriott City Center, San Antonio Marriott
Rivercenter and JW Marriott Atlanta Buckhead in 2020. Work is underway at seven
other properties. Approximately 65% of the total estimated costs of the
transformational capital program have been spent as of December 31, 2020 and, in
2021, we expect to substantially complete four additional properties,
including: The Ritz-Carlton Amelia Island, New York Marriott Marquis, Houston
Medical Center Marriott and Orlando World Center Marriott.

In 2021, we also have several projects scheduled to be completed or initiated
that seek to add value to our existing portfolio over time. These include:

• AC Hotel Scottsdale North – using an underutilized parking lot alongside

The Westin Kierland Resort & Spa, we developed a 165-room select-service

hotel branded as an AC by Marriott. The hotel was substantially
completed in 2020 and opened in January 2021;

• Additional villas at the Andaz Maui at Wailea Resort – development and

construction of 19 additional two-bedroom, luxury villas at the Andaz

Maui is underway and expected to be completed in the second quarter of

2021;

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• Expansion at The Ritz-Carlton Naples Golf Resort – development and
construction of a 1.5-acre water park is underway and is expected to be
completed in the second quarter of 2021;

• Expansions at the Orlando World Center Marriott – development and

construction of a 2.3-acre waterpark and a 60,000 gross square-foot

meeting space expansion is underway and is expected to be completed in

the first half of 2022; and

• The Ritz-Carlton Naples – a tower expansion and extensive guestroom

renovation that will increase the number of suites at the property are

scheduled to begin in the second quarter of 2021, paired with the
redevelopment of public and meeting space, including the addition of a
new pool and cabanas to begin in 2022, with all projects expected to be
completed in the fourth quarter of 2022.

For 2021, we expect to make capital expenditures of $375 million to
$475 million, including approximately $110 million to $140 million for the
Marriott transformational capital program discussed above, which is expected to
be nearly 85% complete by year-end 2021. We received approximately $19 million
in operating profit guarantees in 2020 from Marriott and expect to receive
approximately $16 million in 2021. The total expected capital spend consists of
$275 million to $325 million of ROI projects and $100 million to $150 million of
renewal and replacement projects. We have established key milestones to review
major projects prior to implementation, with the ability to reduce 2021 capital
expenditures by approximately $150 million, if required, to conserve cash.

Share Repurchases and Dividends. On August 5, 2019, Host Inc.’s Board of
Directors authorized an increase in its share repurchase program from
$500 million to $1 billion. In the first quarter of 2020, we repurchased 8.9
million common shares at an average price of $16.49 per share, exclusive of
commissions, for a total of $147 million, prior to suspending our repurchases in
response to the COVID-19 pandemic. At December 31, 2020, we had $371 million
available for repurchase under the program. Repurchases are currently restricted
under the terms of our credit facility amendment.

During 2020, Host Inc.’s Board of Directors declared a dividend of $0.20 per
share in the first quarter, with respect to Host Inc.’s common stock.
Accordingly, Host L.P. made distributions of $0.2042988 per unit with respect to
its common OP units for 2020. As part of its response to COVID-19 and in order
to preserve cash and future financial flexibility, Host suspended its regular
quarterly common cash dividend commencing with the second quarter dividend that
would have been paid in July 2020.

There can be no assurances as to when dividends will be restored but, 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. The amount of any future dividends will be
based on our policy of distributing, over time, 100% of our taxable income and
will be determined by Host Inc.’s Board of Directors. However, while the
dividend is suspended to preserve cash and liquidity, we believe that we have
sufficient liquidity and access to the capital markets in order to fund our
capital expenditures programs and to take advantage of investment opportunities.

40

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Results of Operations

The following table reflects certain line items from our audited consolidated
statements of operations for the two years ended December 31, 2020 (in millions,
except percentages):

2020 2019 Change
Total revenues $ 1,620$ 5,469 (70.4 )%
Operating costs and expenses:
Property-level costs (1) 2,484 4,568 (45.6 )
Corporate and other expenses 89 107 (16.8 )
Gain on insurance and business
interruption settlements – 5 N/M
Operating profit (loss) (953 ) 799 N/M
Interest expense 194 222 (12.6 )
Other gains/(losses) 208 340 (38.8 )
Benefit (provision) for income taxes 220 (30 )

N/M

Host Inc.:
Net income (loss) attributable to
non-controlling interests (9 ) 12

N/M

Net income (loss) attributable to
Host Inc. (732 ) 920

N/M

Host L.P.:
Net income (loss) attributable to
non-controlling interests (1 ) 2

N/M

Net income (loss) attributable to
Host L.P. (740 ) 930 N/M
___________

(1) Amounts represent total operating costs and expenses from our consolidated

statements of operations, less corporate and other expenses and the gain on

insurance and business interruption settlements.

N/M = Not meaningful

Statement of Operations Results and Trends

The following table presents revenues in accordance with GAAP for the two years
ended December 31, 2020 (in millions, except percentages):

2020 2019 Change
Revenues:
Rooms $ 976$ 3,431 (71.6 )%
Food and beverage 426 1,647 (74.1 )
Other 218 391 (44.2 )
Total revenues $ 1,620$ 5,469 (70.4 )

The significant decline in revenues was due predominantly to the impact of the
COVID-19 pandemic, which began to significantly impact hotel operations
beginning in March of 2020. After a significant decline in revenues in the
second quarter, revenues gradually improved through subsequent quarters,
although they remained well below historical levels. Our 2020 revenues on a
quarterly basis were as follows:

2020
First Second Third Fourth
Quarter Quarter Quarter Quarter
Revenues: $ 1,052$ 103$ 198$ 267

Rooms. Total rooms revenues decreased $2,455 million, or 71.6%, in 2020. Rooms
revenues in 2019 include $196 million of revenues for hotels sold in 2020 and
2019.

Food and beverage. Total F&B revenues decreased $1,221 million, or 74.1%, in
2020. F&B revenues in 2019 include $77 million of revenues for hotels sold in
2020 and 2019.

Other revenues. Total other revenues decreased $173 million, or 44.2%, in 2019.
Attrition and cancelation fees increased $3 million compared to 2019. Other
revenues in 2019 include $26 million of revenues for hotels sold in 2020 and
2019.

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Property-level Operating Expenses

The following table presents consolidated property-level operating expenses in
accordance with GAAP for the two years ended December 31, 2020 (in millions,
except percentages):

2020 2019 Change
Expenses:
Rooms $ 362$ 873 (58.5 )%
Food and beverage 420 1,120 (62.5 )

Other departmental and support expenses 686 1,295 (47.0 )
Management fees

39 239 (83.7 )
Other property-level expenses 312 365 (14.5 )
Depreciation and amortization 665 676 (1.6 )

Total property-level operating expenses $ 2,484$ 4,568 (45.6 )

Our operating costs and expenses, which consist of both fixed and variable
components, are affected by several factors. Rooms expenses are affected mainly
by occupancy, which drives costs related to items such as housekeeping,
reservation systems, room supplies, laundry services and front desk costs. Food
and beverage expenses correlate closely with food and beverage revenues and are
affected by occupancy and the mix of business between banquet and audio-visual
and outlet sales. However, the most significant expense for the rooms, food and
beverage, and other departmental and support expenses is wages and employee
benefits, which comprise approximately 59% of these expenses in any year. During
2020, these expenses declined 54% compared to 2019, excluding the severance
expense discussed below. Included in these amounts in 2020 is $125 million for
benefits to hotel employees who were furloughed by our managers and special pay,
partially offset by approximately $39 million related to the ERC recorded by our
managers. We also recorded $65 million of severance costs in 2020, which has
been excluded from the wage and benefit discussions below. Other property-level
expenses consist of property taxes, which are highly dependent on local taxing
authorities, and property and general liability insurance, and do not
necessarily change based on changes in revenues at our hotels.

The decline in expenses for rooms, food and beverage, other departmental and
support, and management fees predominantly are due to the impact of the COVID-19
pandemic, as follows:

Rooms. Rooms expenses decreased $511 million, or 58.5%, during 2020. Wages and
benefits represented approximately 71% of our 2020 rooms expenses and 66% of our
2019 rooms expenses.

Food and beverage. F&B expenses decreased $700 million, or 62.5%, in 2020. Wages
and benefits represented approximately 74% of our 2020 F&B expenses and 70% of
our 2019 F&B expenses.

Other departmental and support expenses. Other departmental and support expenses
decreased $609 million, or 47.0%, in 2020. Wages and benefits represented
approximately 44% of our 2020 other departmental and support expenses and 41% of
our 2019 other departmental and support expenses.

Management fees. Total management fees decreased $200 million, or 83.7%, in
2020. Base management fees, which generally are calculated as a percentage of
total revenues, decreased $119 million, or 72.1%, compared to 2019. Incentive
management fees, which generally are based on the amount of operating profit at
each hotel after we receive a priority return on our investment, decreased $91
million, as we did not pay incentive management fees during 2020.

Other property-level expenses. These expenses generally do not vary
significantly based on occupancy and include expenses such as property taxes and
insurance. Other property-level expenses decreased $53 million, or 14.5%, in
2020, primarily due to a decrease in rent on a portion of our ground leases that
are based on a percentage of sales. Other property-level expenses were partially
offset by the receipt of operating profit guarantees from Marriott under the
transformational capital program in both 2020 and 2019.

Depreciation and amortization. Depreciation and amortization expense decreased
$11 million, or 1.6%, to $665 million in 2020, due to impairment expense that
was recorded in 2019.

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Other Income and Expenses

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

Year ended December 31,
2020 2019
General and administrative costs $ 72 $ 92
Non-cash stock-based compensation expense 17 15
Total $ 89$ 107

General and administrative costs primarily consist of wages and benefits,
travel, corporate insurance, legal fees, audit fees, building rent and systems
costs. In 2020, corporate and other expenses declined by approximately 17%
compared to 2019, as a result of reduced compensation, travel and other
overhead. In 2019, corporate and other expenses include costs associated with a
significant transformation of our corporate information systems platform, the
implementation of which was completed in the second quarter of 2019.

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

Interest income. Interest income decreased $24 million, or 75.0%, in 2020 due to
a decline in interest rates.

Interest expense. Interest expense decreased $28 million, or 12.6%, in 2020 as
compared to 2019, reflecting the benefits from refinancing activities in 2019
and 2020 as well as a decline in floating interest rates, which was partially
offset by increased principal balances outstanding due to the credit facility
draw. Interest expense for 2020 also reflects less prepayment premiums on the
repayment of the Series C senior notes compared to the prepayment premiums paid
in 2019 on the Series Z and Series B senior notes. The following table presents
certain components of interest expense (in millions):

Year ended December 31,
2020 2019
Cash interest expense(1) $ 150$ 159
Cash incremental interest expense (1)(2) – 1
Non-cash interest expense 8 6
Cash debt extinguishment costs(1) 35 50
Non-cash debt extinguishment costs 1 6
Total interest expense $ 194$ 222
___________

(1) Total cash interest expense paid was $183 million and $219 million in 2020

and 2019, respectively, which includes an increase (decrease) due to the

change in accrued interest of $(2) million and $9 million for 2020 and 2019,

respectively.

(2) Incremental interest expense reflects the cash interest expense for

refinanced debt subsequent to the issuance of the new financing and prior to

the repayment of the refinanced debt.

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

Year ended

December 31,

2020

2019

Newport Beach Marriott Hotel & Spa $ 148 $ –
Land adjacent to The Phoenician 59 –
Atlanta Marriott Suites Midtown, Costa Mesa
Marriott, Scottsdale Marriott at McDowell
Mountains, and Scottsdale Marriott Old Town – 151
The Westin Indianapolis – 33
Courtyard Chicago Downtown/River North and
Residence Inn Arlington Pentagon City – 98
The Westin Mission Hills and Newport Beach
Marriott Bayview – 60
Maui Timeshare land (1) – 1
Other 1 (3 )
$ 208 $ 340
___________

(1) Represents amortization of the previously deferred gain related to the land

contributed to the Maui JV.

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Equity in earnings (losses) of affiliates. In 2020, we recorded a loss of $30
million related to our unconsolidated investments. This included a $14 million
loss for our share of an inventory impairment expense recorded by our Maui
timeshare joint venture, in addition to operating losses incurred by our
investments. In 2019, we recorded earnings of $14 million from our
unconsolidated investments.

Benefit (provision) for income taxes. We lease substantially all our properties
to consolidated subsidiaries designated as TRS for U.S. federal income tax
purposes. Taxable income or loss generated/incurred by the TRS primarily
represents hotel-level operations and the aggregate rent paid to Host L.P. by
the TRS, on which we record an income tax provision or benefit. In 2020, we
recorded an income tax benefit of $220 million due primarily to the domestic net
operating loss incurred by our TRS. As a result of legislation enacted by the
CARES Act, such domestic net operating loss may be carried back up to five years
in order to procure a refund of U.S. federal corporate income taxes previously
paid. Any domestic net operating loss incurred by our TRS 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 expect to
generate additional net operating losses from our TRS in 2021 and we will
evaluate whether or not to record an income tax benefit for all or a portion of
such net operating loss at that time. The 2019 income tax provision of $30
million primarily related to hotel operations at our TRS. See also Part II Item
8. “Financial Statements and Supplementary Data – Note 7. Income Taxes” for a
discussion of our income taxes.

Hotel RevPAR Overview

To facilitate a year-over-year comparison of our operations, we typically
present certain operating statistics for the periods included in this
presentation on a comparable hotel basis. However, due to the COVID-19 pandemic
and its effects on operations, there is little comparability between periods.
For this reason, we are revising our presentation to instead present pro forma
hotel operating results for all hotels. See “All Owned Hotel Operating
Statistics” for a complete description of our methodology. We also discuss our
Hotel RevPAR results by geographic location and mix of business (i.e.,
transient, group, or contract).

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2020 Compared to 2019

Hotel Operating Data by Location.

The following table sets forth performance information for our hotels by
geographic location as of December 31, 2020 and 2019:

All Owned Hotels (pro forma) by Location in Constant US$(1)

As of December 31, 2020 Year ended December 31, 2020 Year ended December 31, 2019
Average Average Percent Percent
No. of No. of Average Occupancy Average Occupancy Change in Change in
Location Properties Rooms Room Rate Percentage RevPAR Total RevPAR Room Rate Percentage RevPAR Total RevPAR RevPAR Total RevPAR
Jacksonville 1 446 $ 403.32 39.3 % $ 158.58$ 330.97$ 372.94 73.5 % $ 274.07$ 613.80 (42.1 )% (46.1 )%
Florida Gulf Coast 5 1,842 368.26 39.8 146.62 285.67 334.73 72.0 241.11 480.60 (39.2 ) (40.6 )
Miami 3 1,276 378.62 35.2 133.26 219.18 325.16 79.8 259.54 410.81 (48.7 ) (46.6 )
Maui/Oahu 4 1,987 403.12 28.8 115.91 167.60 409.40 88.1 360.59 552.08 (67.9 ) (69.6 )
Phoenix 3 1,654 313.05 32.9 102.99 233.16 292.50 71.9 210.32 476.62 (51.0 ) (51.1 )
Los Angeles 4 1,726 202.96 31.7 64.32 91.72 228.14 86.5 197.26 294.81 (67.4 ) (68.9 )
Atlanta 4 1,682 163.91 34.5 56.47 85.31 190.59 79.8 152.11 241.34 (62.9 ) (64.7 )
San Francisco/San Jose 7 4,528 249.28 22.4 55.76 79.82 274.62 81.6 224.18 312.49 (75.1 ) (74.5 )
New Orleans 1 1,333 164.70 33.3 54.89 76.95 187.65 79.0 148.30 216.97 (63.0 ) (64.5 )
Philadelphia 2 810 154.46 34.9 53.85 81.81 217.01 85.7 185.91 305.37 (71.0 ) (73.2 )
San Diego 3 3,288 218.59 24.4 53.40 102.63 249.41 79.4 198.02 360.49 (73.0 ) (71.5 )
New York 3 4,261 187.28 27.1 50.75 71.03 286.36 84.8 242.96 359.92 (79.1 ) (80.3 )
Houston 4 1,716 138.61 36.2 50.19 73.46 177.93 72.0 128.14 185.48 (60.8 ) (60.4 )
Orange County 1 393 166.55 28.0 46.63 67.52 185.86 79.3 147.41 228.57 (68.4 ) (70.5 )
Northern Virginia 3 1,252 179.08 25.8 46.29 73.95 208.94 70.9 148.19 255.14 (68.8 ) (71.0 )
Washington, D.C. (CBD) 5 3,238 216.26 18.2 39.30 55.93 245.82 81.5 200.27 288.52 (80.4 ) (80.6 )
Orlando 1 2,004 203.28 17.2 35.00 90.81 184.12 67.9 125.02 302.71 (72.0 ) (70.0 )
Denver 3 1,340 140.24 23.9 33.49 48.55 173.47 72.9 126.48 190.45 (73.5 ) (74.5 )
Seattle 2 1,315 187.91 16.7 31.38 44.67 225.12 82.4 185.50 250.12 (83.1 ) (82.1 )
San Antonio 2 1,512 159.16 19.0 30.27 45.28 185.33 69.7 129.14 189.71 (76.6 ) (76.1 )
Chicago 4 1,816 130.47 22.1 28.78 38.48 207.67 76.2 158.19 222.83 (81.8 ) (82.7 )
Boston 3 2,715 168.75 16.0 27.08 40.90 237.24 81.7 193.83 268.74 (86.0 ) (84.8 )
Other 6 2,509 140.44 28.7 40.34 54.71 171.63 77.7 133.40 191.70 (69.8 ) (71.5 )
Domestic 74 44,643 222.76 26.1 58.25 95.61 247.88 78.9 195.54 311.66 (70.2 ) (69.3 )

International 5 1,499 116.26 21.4 24.91 36.65 141.34 70.9 100.17 149.77 (75.1 ) (75.5 )
All Locations –
Constant US$ 79 46,142 219.91 26.0 57.17 93.70 244.77 78.6 192.45 306.40 (70.3 ) (69.4 )

All Owned Hotels (pro forma) in Nominal US$
As of December 31, 2020 Year ended December 31, 2020 Year ended December 31, 2019
Average Average Percent Percent
No. of No. of Average Occupancy Average Occupancy Change in Change in

Properties Rooms Room Rate Percentage RevPAR Total RevPAR Room Rate Percentage RevPAR

Total RevPAR RevPAR Total RevPAR
International 5 1,499 $ 116.26 21.4 % $ 24.91$ 36.65$ 153.01 70.9 % $ 108.44$ 160.74 (77.0 )% (77.2 )%
Domestic 74 44,643 222.76 26.1 58.25 95.61 247.88 78.9 195.54 311.66 (70.2 ) (69.3 )
All Locations 79 46,142 219.91 26.0 57.17 93.70 245.11 78.6 192.72 306.75 (70.3 ) (69.5 )

(1) For a discussion of constant US$ and nominal US$ presentation, see “-All

Owned Hotel Operating Statistics.”

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Hotel Sales by Business Mix.

The majority of our customers fall into three broad categories: transient, group
and contract business. The information below is derived from business mix
results from the 79 hotels owned as of December 31, 2020.

The following are the results of our consolidated portfolio transient, group and
contract business:

Year ended December 31, 2020
Transient business Group business Contract business
Room nights (in thousands) 2,694 1,353 347

Percentage change in room nights

vs. same period in 2019 (65.4 )% (71.9 )% (47.0 )%
Room Revenues (in millions) $ 615 $ 294 $ 57

Percentage change in revenues

vs. same period in 2019 (68.9 )% (74.1 )% (56.3 )%

Liquidity and Capital Resources

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

Overview. We look to maintain a capital structure and liquidity profile with an
appropriate balance of cash, debt and equity to provide financial flexibility
given the inherent volatility of the lodging industry. We believe this strategy
has resulted in a better cost of debt capital, allowing us to complete
opportunistic investments and acquisitions and it positions us to manage
potential declines in operations throughout the lodging cycle. We have
structured our debt profile to maintain a balanced maturity schedule and to
minimize the number of assets that are encumbered by mortgage debt. Currently,
none of our consolidated hotels are encumbered by mortgage debt. Over the past
several years leading up to the COVID-19 pandemic, we had decreased our leverage
as measured by our net debt-to-EBITDA ratio and reduced our debt service
obligations, leading to an increase in our fixed charge coverage ratio. As a
result, the company was well positioned at the onset of the COVID-19 pandemic
with sufficient liquidity and financial flexibility to withstand the severe
slowdown in U.S. economic activity and lodging demand brought on by the
pandemic. We were able to take further steps in 2020 to bolster our liquidity
position as outlined below.

Under the current challenging operating environment posed by the COVID-19
pandemic, we have taken steps to preserve liquidity by drawing on our credit
facility, working with our hotel operators to reduce operating costs at the
hotel, reducing corporate level expenses, suspending our quarterly dividend and
stock repurchases and deferring certain capital expenditures projects to future
years. These actions contributed to lowering our cash used in operating
activities each quarter following the beginning of the pandemic. We intend to
use available cash in the near term predominantly to fund negative operations at
our hotels, corporate expenses and reduced levels of capital expenditures.
However, we also are well positioned to execute acquisitions to the extent
favorable pricing opportunities arise.

46

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Despite the challenges caused by the COVID-19 pandemic and economic crisis, we
believe that we have sufficient liquidity to withstand the current decline in
operating cash flow and to fund our capital expenditures programs. We may access
equity markets if favorable conditions exist in order to enhance our liquidity
and to fund cash needs, including to fund acquisitions or other investment
opportunities generated by the COVID-19 pandemic. The following summarizes the
change in cash flows from 2019 to 2020 for significant items that affected our
cash balance and reflects our actions to preserve financial liquidity:

2020 2019

Change

Total cash and cash equivalents and
restricted cash shown on the statements of
cash flows $ 2,476$ 1,750

$ 726

Operating activities
Net cash provided by (used in) operating
activities (307 ) 1,250 (1,557 )
Investing activities
Capital expenditures (499 ) (558 ) 59
Financing activities
Net draws (repayments) on credit facility
revolver 1,483 (56 )

1,539

Issuances of senior notes 740 645

95

Repurchase/redemption of senior notes,
including extinguishment costs (485 ) (700 )

215

Host Inc.:
Common stock repurchases and dividends on
common stock (467 ) (1,105 )

638

Host L.P.:
Repurchases of common OP units and
distributions on common OP units (470 ) (1,112 )

642

Cash Requirements. We use cash for acquisitions, capital expenditures, debt
payments, operating costs, and corporate and other expenses, as well as for
dividends and distributions to stockholders and Host L.P. limited partners and
stock and OP unit repurchases. Our primary sources of cash include cash from
operations, proceeds from the sale of assets, borrowings under our credit
facility and debt and equity issuances. Our cash obligations include the minimum
lease payments on our ground leases, which in 2021 are approximately $32
million. For a summary of our obligations under our ground leases, see Exhibit
99.1 to this Annual Report. Our ground lease payments are the longest time
horizon obligations and currently run up to 91 years, while other operating
obligations are generally short term in nature. We have no significant debt
maturities until 2023.

In addition to the liabilities on our consolidated balance sheet, under our
capital expenditures program, we have budgeted to spend $375 million to $475
million in 2021, but have the ability to reduce this spend by approximately $150
million if required to conserve cash. Commitments for capital expenditures
generally run less than two years for the life of the project.

As a REIT, Host Inc. is required to pay dividends to its stockholders in an
amount equal to at least 90% of its taxable income, excluding net capital gain,
on an annual basis. As part of our COVID-19 response, our regular quarterly
common cash dividend currently is suspended and we are restricted from
repurchasing stock or OP Units under the terms of our credit facility amendment
as discussed below. See also Part II Item 8. “Financial Statements and
Supplementary Data – Note 17. Legal Proceedings, Guarantees and Contingencies”
for a discussion of obligations under contingent liabilities or guarantees.

Capital Resources. As of December 31, 2020, we had $2,335 million of cash and
cash equivalents, and $139 million in our FF&E escrow reserve. We have
substantially utilized the $1.5 billion revolver under our credit facility to
increase our liquidity in response to the COVID-19 pandemic. In the near term,
we expect to fund our above cash requirements, including our capital
expenditures program, debt payments, operating and corporate costs, primarily
with our existing cash reserves due to the negative operating cash from
operations as a result of the COVID-19 pandemic. Based on our cash balance at
December 31, 2020 and our expected cash obligations, we believe we will have
sufficient liquidity to meet our near-term obligations, even if our hotel
operations remain at current negative operating levels.

We depend primarily on external sources of capital to finance future growth,
including acquisitions. As a result, the liquidity and debt capacity provided by
our credit facility and the ability to issue senior unsecured debt are key
components of our capital structure. Our financial flexibility (including our
ability to incur debt, pay dividends, make distributions and make investments)
is contingent on our ability to maintain compliance with the financial covenants
of our credit facility and senior notes, which include, among other things, the
allowable amounts of leverage, interest coverage and fixed charges. Following
the amendments of our credit facility agreement discussed below, the
quarterly-tested financial covenants were waived beginning July 1, 2020 until
the required financial statement reporting date for the second quarter of 2022.
However, we currently are below the interest coverage ratio required under our
senior notes indentures to incur additional debt and, while not an event of
default, we will be unable to incur additional debt while we remain below the
required covenant level.

47

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Given the total amount of our debt and our maturity schedule, we may continue to
redeem or repurchase senior notes from time to time, taking advantage of
favorable market conditions. In February 2021, Host Inc.’s Board of Directors
authorized repurchases of up to $1.0 billion of senior notes other than in
accordance with their respective terms, of which the entire amount remains
available under this authority. We may purchase senior notes for cash through
open market purchases, privately negotiated transactions, a tender offer or, in
some cases, through the early redemption of such securities pursuant to their
terms. Repurchases of debt will depend on prevailing market conditions, our
liquidity requirements, contractual restrictions and other factors. Any
retirement before the maturity date will affect earnings and NAREIT FFO per
diluted share as a result of the payment of any applicable call premiums and the
accelerated expensing of previously deferred and capitalized financing costs.
Accordingly, considering our priorities in managing our capital structure and
liquidity profile and given prevailing conditions and relative pricing in the
capital markets, we may, at any time, subject to applicable securities laws and
the requirements of our credit facility and senior notes, be considering, or be
in discussions with respect to, the repurchase or issuance of exchangeable
debentures and/or senior notes or the repurchase or sale of our common stock.
Any such transactions may, subject to applicable securities laws, occur
simultaneously.

In February 2017, Host Inc.’s Board of Directors authorized a program to
repurchase up to $500 million of Host Inc. common stock, and on August 5, 2019,
authorized an increase in the program to $1 billion. The common stock may be
purchased from time to time depending upon market conditions and may be
purchased in the open market or through private transactions or by other means,
including principal transactions with various financial institutions, like
accelerated share repurchases, forwards, options, and similar transactions and
through one or more trading plans designed to comply with Rule 10b5-1 under the
Securities Exchange Act of 1934, as amended. The plan does not obligate us to
repurchase any specific number or any specific dollar amount of shares and may
be suspended at any time at our discretion. Under the terms of our credit
facility amendment in 2020, we currently are restricted from repurchasing stock.

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

Sources and Uses of Cash. In 2020, our primary sources of cash included proceeds
from the issuance of debt, draws on our credit facility revolver and
dispositions. Our primary uses of cash during the year consisted of capital
expenditures, operating costs, debt repayments, repurchases of common stock and
distributions to equity holders. We do not anticipate significant cash from
operations in 2021 and we are restricted from issuing debt under the covenants
of our senior notes indenture. However, we have significant available cash and
also have access to stock issuances and property dispositions as alternative
sources of cash. Primary uses of cash are expected to include continued funding
of operating shortfalls at our properties, interest and other corporate expenses
and capital expenditures. Subject to market conditions, other uses of cash may
include property acquisitions or other investments.

Cash Provided by/Used in Operations. Our net cash used in operations for 2020
was $307 million compared to cash provided by operations in 2019 of $1,250
million due primarily to the decline in operations at our properties due to the
COVID-19 pandemic and the need to fund operating shortfalls at our properties.
In the first quarter of 2020, our portfolio provided cash from operations due to
positive operating results in January and February. However, beginning with the
second quarter, we experienced significant cash outflows from operating
activities which continued through the second half of the year. However, net
cash used in operations did decrease in each sequential quarter as a result of
reducing operating costs at our hotels and the slightly improving levels of
operations. The following presents the net cash provided by (used in) operating
activities for each quarter in 2020:

2020
First Second Third Fourth
Quarter Quarter Quarter Quarter
Net cash provided by (used in)
operating activities $ 157$ (172 ) $

(149 ) $ (143 )

Cash Provided by/Used in Investing Activities. Approximately $195 million of
cash was used in investing activities during 2020 compared to $58 million
provided in 2019. In addition to the acquisition and disposition activity
detailed in the charts below, we spent approximately $499 million on capital
expenditures in 2020, compared to $558 million in 2019. These amounts include
certain internal costs and interest expense associated with our capital
expenditures projects that have been capitalized in accordance with GAAP. These
capitalized costs were $12 million, $12 million and $11 million for 2020, 2019,
and 2018, respectively.

48

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The following tables summarize significant acquisitions, dispositions and return
of investments in affiliates from January 1, 2019 through February 19, 2021 (in
millions):

Transaction Date Description of Transaction Investment(1)
Acquisitions
February 2019 Acquisition of 1 Hotel South Beach $ (610 )
Total acquisitions $ (610 )
___________

(1) Effective January 1, 2018, we adopted Accounting Standards Update No.

2018-01, Business Combinations (Topic 805): Clarifying the Definition of a

Business. As a result, the acquisition above was considered an asset

acquisition and we capitalized $2 million of acquisition costs in 2019, which

costs are not included in the above chart.

Net
Proceeds
Transaction Date Description of Transaction (1) Sales Price
Dispositions/Return of Investment
November 2020 Disposition of Newport Beach Marriott Hotel &
Spa $ 202 $ 216
June and October 2020 Disposition of land adjacent to the
Phoenician hotel (2) 72 83
January 2020 Proceeds from loan issued to Chicago Marriott
Suites O’Hare purchaser(3) 28 –
October 2019 Disposition of Sheraton San Diego Hotel &
Marina and Hyatt Regency Cambridge 296 297
August 2019 Disposition of Atlanta Marriott Suites
Midtown, Costa Mesa Marriott, Scottsdale
Marriott at McDowell Mountains, and
Scottsdale Marriott Old Town 247 256
August 2019 Disposition of The Westin Indianapolis 116 120
August 2019 Disposition of Chicago Marriott Suites
O’Hare(3) 7 39
July 2019 Disposition of Courtyard Chicago
Downtown/River North and Residence Inn
Arlington Pentagon City 141 150
June 2019 Disposition of Washington Dulles Airport
Marriott 9 11
April and June 2019 Disposition of The Westin Mission Hills and
Newport Beach Marriott Bayview 100 107
January 2019 Disposition of The Westin New York Grand
Central 276 302
Total $ 1,494
___________

(1) Proceeds are net of transfer taxes, other sales costs and FF&E replacement

funds deposited directly to the property or hotel manager by the purchaser.

(2) In connection with the sale of a parcel of land adjacent to The Phoenician

hotel, we extended a $9 million bridge loan to the purchaser. The disposition

proceeds shown are net of the bridge loan. The loan was repaid in January

2021.

(3) In connection with the sale of the Chicago Marriott Suites O’Hare, we

extended a $28 million bridge loan to the purchaser. The disposition proceeds

shown are net of the bridge loan. The loan was repaid in January 2020.

Cash Provided by/Used in Financing Activities. Net cash provided by financing
activities was $1,231 million for 2020, as compared to net cash used in
financing activities of $1,315 million in 2019. Cash provided by financing
activities in 2020 primarily consisted of the issuance of $750 million of 3.5%
Series I senior notes and a draw on the credit facility, while 2019 included the
issuance of $650 million of senior notes. Cash used in financing activities in
2020 included the repayment of the Series C senior notes, with a portion of the
proceeds from the issuance of the Series I senior notes, and the redemption of
preferred OP units and cash used in 2019 included the repayment of senior notes.
While cash used in 2020 and 2019 both included stock repurchases and dividend
payments, payments in 2020 for these items were $638 million lower compared to
2019, as we suspended dividends and repurchases in response to the COVID-19
pandemic.

The following table summarizes significant issuances, net of deferred financing
costs and issuance discounts, that have been completed from January 1, 2019
through February 19, 2021 (in millions):

Transaction Date Description of Transaction Net Proceeds
Debt Issuances
August – September 2020 Issuance of $750 million 3.5% Series I senior
notes $ 733
March – December 2020 Net draw on the revolver portion of the credit
facility 1,483
September 2019 Proceeds from the issuance of $650 million 3?%
Series H senior notes 640
Total issuances $ 2,856

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The following table presents significant debt repayments, including prepayment
premiums, that have been completed from January 1, 2019 through February 19,
2021 (in millions):

Transaction
Transaction Date Description of Transaction Amount
Debt Repayments
December 2020 Repayment of $86 million 4.75% Series C senior
notes $ (94 )
August 2020 Repayment of $364 million 4.75% Series C senior
notes (390 )
July 2020 Redemption of preferred OP units of Host LP (22 )
October 2019 Redemption of $300 million of 6% Series Z senior
notes (323 )
October 2019 Redemption of $350 million of 5¼% Series B
senior notes (377 )
September 2019 Net repayment on the revolver portion of credit
facility (56 )
Total cash repayments $ (1,262 )

Equity/Capital Transactions. The following table summarizes significant equity
transactions that have been completed from January 1, 2019 through February 19,
2021 (in millions):

Transaction
Transaction
Date Description of Transaction Amount
Equity of
Host Inc.
January – 2020
April Dividend payments (1) $ (320 )
January – 2020 Repurchase of 8.9 million shares of Host Inc.
March common stock (147 )
January – 2019 Dividend payment (1)
December (623 )
May – 2019 Repurchase of 27.8 million shares of Host Inc.
December common stock (482 )
Cash payments on equity transactions $ (1,572 )
___________

(1) In connection with the dividend payments, Host L.P. made distributions of

$323 million in 2020 and $630 million in 2019 to its common OP unit holders.

Financial Condition

As of December 31, 2020, our total debt was approximately $5.5 billion, of which
55% carried a fixed rate of interest. Total debt was comprised 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 3?% due April
2024

398

397

Series H senior notes, with a rate of 3?% 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 represents deferred financing costs related to the credit
facility revolver.

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Aggregate debt maturities at December 31, 2020 are as follows (in millions):

Senior notes
and
credit facility Other debt Total
2021 $ – $ – $ –
2022 – – –
2023 400 – 400
2024 2,383 5 2,388
2025 1,000 – 1,000
Thereafter 1,800 – 1,800
5,583 5 5,588
Deferred financing costs (30 ) – (30 )
Unamortized discounts, net (17 ) – (17 )
$ 5,536 $ 5 $ 5,541

Senior Notes. On August 20, 2020, we completed an underwritten public offering
of $600 million aggregate principal amount of 3.5% Series I senior notes and on
September 3, 2020, we completed the issuance of an additional $150 million
aggregate principal amount of Series I senior notes. The proceeds were used to
make a tender offer for our Series C senior notes and to improve our liquidity
position in response to the COVID-19 pandemic. The Series I senior notes are not
redeemable prior to 90 days before the September 15, 2030 maturity date, except
at a price equal to 100% of their principal amount plus a make-whole premium and
accrued and unpaid interest to the applicable redemption date. The Series I
senior notes have covenants similar to all other series of our outstanding
senior notes.

The following summary is a description of the material provisions of the
indentures governing the various senior notes issued by Host L.P., to which we
refer collectively as the senior notes indenture. We pay interest on each series
of our outstanding senior notes semi-annually in arrears at the respective
annual rates indicated on the table above. Under the terms of our senior notes
indenture, our senior notes are equal in right of payment with all of Host
L.P.’s unsubordinated indebtedness and senior to all subordinated obligations of
Host L.P. Currently there are no guarantees provided to the senior notes, but we
have agreed that all Host L.P. subsidiaries which guarantee other Host L.P. debt
must similarly provide guarantees to the senior notes.

All of our outstanding senior notes at December 31, 2020 were issued after we
attained an investment grade rating and have covenants customary for investment
grade debt and covenants that are similar to each other series of our senior
notes. These covenants are primarily limitations on our ability to incur
additional debt. There are no restrictions on our ability to pay dividends.

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

The following table summarizes the financial tests contained in the senior notes
indenture for our senior notes and our actual credit ratios as of December 31,
2020:

Actual Ratio Covenant Requirement
Unencumbered assets test 383 % Minimum ratio of 150%
Total indebtedness to total assets 26 % Maximum ratio of

65%

Secured indebtedness to total assets 0 % Maximum ratio of

40%

EBITDA-to-interest coverage ratio (1.2 x) Minimum ratio of 1.5x

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We are in compliance with certain of the financial ratios applicable to our
senior notes as of December 31, 2020, but we fell below the 1.5x requirement for
the EBITDA-to-interest coverage ratio starting as of the end of the third
quarter of 2020 and, as a result, while not in default, we will not be able to
incur additional debt while the ratio remains below this requirement. We expect
to continue to be below the 1.5x interest coverage ratio and hence will be
unable to incur additional debt until operations substantially improve from
current levels.

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

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

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

Prepayments. Voluntary prepayments of revolver borrowings and term loans under
the credit facility are permitted in whole or in part without premium or
penalty.

Financial Covenants. The credit facility contains covenants concerning allowable
leverage, fixed charge coverage and unsecured interest coverage. We are
permitted to make borrowings and maintain amounts outstanding under the credit
facility so long as our 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 below during the Covenant Relief Period, these calculations
are performed based on pro forma results for the prior four fiscal quarters,
giving effect to transactions such as acquisitions, dispositions and financings
as if they had occurred at the beginning of the period. Under the terms of the
credit facility, interest expense excludes items such as the gains and losses on
the extinguishment of debt, deferred financing charges related to the senior
notes or the credit facility, amortization of debt premiums or discounts that
were recorded at issuance of a loan in order to establish its fair value and
non-cash interest expense, all of which are included in interest expense on our
audited consolidated statements of operations. Additionally, total debt used in
the calculation of our leverage ratio is based on a “net debt” concept, pursuant
to which cash and cash equivalents in excess of $100 million are deducted from
our total debt balance.

Amendments. On June 26, 2020, we entered into an amendment to the credit
facility and 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 ending on the
required financial statement reporting date for the second quarter of 2022 (such
period, the “Covenant Relief Period”). The existing financial maintenance
covenants are reinstated for the quarter ending June 30, 2022, except that after
the reinstatement instead of using the prior four calendar quarters’ results in
the calculations, only results for the second quarter of 2022 and thereafter are
used during a phase in period. In addition, for the second quarter of 2022, the
only financial covenant that shall be required to be satisfied shall be a
minimum fixed charge coverage ratio of 1.00:1.00 as of the end of such
quarter. For the fiscal quarters ending after the Covenant Relief Period (i.e.,
after June 30, 2022), the financial covenant requirements set forth in the
credit facility before the Amendments shall apply, except that the maximum
leverage ratio requirement will be amended to be (a) 8.50:1:00 as at the end of
the first and second fiscal quarters ending after the Covenant Relief Period,
(b) 8.00:1.00 as at the end of the third and fourth fiscal quarters ending after
the Covenant Relief Period, (c) 7.50:1:00 as at the end of the fifth fiscal
quarter ending after the Covenant Relief

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Period and (d) 7.25:1.00 at all times thereafter. The Amendments permit us to
terminate the Covenant Relief Period at any time, subject to demonstrating
satisfaction of the financial maintenance covenants that otherwise would apply
for the quarter ending June 30, 2022.

The Amendments also provide for, among other things:

• an increase in the interest rate applicable to outstanding borrowings during

the Covenant Relief Period, with the rate being increased by 40 basis points

to the applicable rate across the credit rating-based pricing grid
determined according to our unsecured long-term debt rating;

• the addition of a permanent LIBOR floor of 15 basis points applicable to

borrowings under the revolver and the term facilities;

• the addition of a minimum liquidity covenant, which requires a minimum

liquidity level of $400,000,000 at the end of each calendar month until the

end of the Covenant Relief Period (subject to potential increase in the case

of any future acquisitions of hotels, but not to exceed $600 million);

• during the Covenant Relief Period, additional limitations on acquisitions

which provide that we may make acquisitions including (i) property exchange

transactions governed by Section 1031 of the Internal Revenue Code, (ii)

acquisitions of up to $7,500,000,000 funded by issuances of equity and (iii)

acquisitions of up to $2,000,000,000 funded by existing liquidity and up to

$500 million of asset sales as long as we maintain minimum total liquidity

of up to $600,000,000, depending on the amount of the acquisition; we also

may assume debt in acquisitions, if permitted under our senior notes

indenture, provided that the debt to undepreciated real estate assets ratio

shall not exceed 0.35:1.00 calculated on a pro forma basis;

• during the Covenant Relief Period, additional limitations on the ability to

make distributions and repurchases or redemptions, with certain exceptions,

including the ability to make distributions sufficient to allow for the

payment of a quarterly common cash dividend by Host Inc. 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, and annual
distributions of up to $50 million for any preferred OP units which Host
L.P. may issue;

• during the Covenant Relief Period, additional limitations on debt incurrence

such that we can incur indebtedness only if the incurrence is permitted

under our senior notes indenture;

• limitations on the ability to make stock repurchases or OP unit redemptions

following the Covenant Relief Period if the Leverage Ratio exceeds
7.25:1.00, subject to certain exceptions;

• limitations on the ability to make capital expenditures from the period

beginning on the effective date and ending on March 31, 2022 (or any earlier

date on which the Covenant Relief Period is terminated); during this period

we can fund all emergency, life safety and ordinary course maintenance

capital expenditures plus $950,000,000 in other capital expenditures, such
as return on investment capital expenditures; 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; the mandatory prepayment

requirements for asset sales and debt issuances are subject to various

exceptions, including, among other things, (1) the net cash proceeds of

asset sales in an amount of up to $750,000,000 that are used in a property

exchange transaction governed by Section 1031 of the Internal Revenue Code,

(2) net cash proceeds up to $500 million of asset sales that are used to

acquire assets unencumbered by debt, (3) the net cash proceeds of debt

issuances constituting refinancing indebtedness, (4) certain indebtedness

assumed in acquisitions and (5) other indebtedness up to $10,000,000.

Following the issuance of the Series I Senior Notes and the sale of the

Newport Beach Marriott Hotel & Spa, we have maximized the $350 million net

cash proceeds capacity available to Host, and therefore future excess cash
proceeds will be applied in accordance with the repayment terms of the

Amendments unless they fit into one of the exceptions set forth above.

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.

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At December 31, 2020, the following table summarizes the results of the
financial tests required by the credit facility, for informational purposes
only, as the covenants are not currently in effect under the Amendments:

Covenant Requirement
Actual Ratio for all years
Leverage ratio (16.9 x) Maximum ratio of 7.25x
Fixed charge coverage ratio (1.6 x) Minimum ratio of 1.25x
Unsecured interest coverage ratio (1) (0.8 x) Minimum ratio of

1.75x

___________

(1) If at any time our leverage ratio is above 7.0x, our minimum unsecured

interest coverage ratio will be reduced to 1.5x.

Interest and Fees. We pay interest on revolver borrowings under the credit
facility at floating rates equal to LIBOR plus a margin. Outside of the Covenant
Relief Period, the margin ranges 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 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.

Borrowings under our revolver (currently $1.5 billion) and the $1 billion
outstanding in term loans constitute our primary obligations denominated in
LIBOR. The United Kingdom’sFinancial Conduct Authority, which regulates LIBOR,
announced that it intends to phase out LIBOR over time. On November 30, 2020,
the U.S.Federal Reserve Board expressed support for a plan to cease publication
of the one week and two month LIBOR rates after December 31, 2021, and the
remaining LIBOR rates after June 30, 2023, and encouraged banks to transition
away from LIBOR as soon as possible. Accordingly, it is highly likely that the
LIBOR rates under our credit facility will be discontinued after June 2023.
There currently is no definitive information regarding the future utilization of
LIBOR or of any particular replacement rate. As such, the potential effect of
any such event on our cost of capital cannot yet be determined. Our credit
facility provides that in the event LIBOR no longer is published, we and Bank of
America, N.A., as administrative agent, will amend the credit facility to
provide for a comparable successor rate or, in the absence of an amendment,
borrowings will be deemed converted to base rate borrowing at the higher of the
federal funds rate plus ½ of 1% or the “prime rate” announced by Bank of
America, N.A.

Other Covenants and Events of Default. The credit facility contains restrictive
covenants on customary matters. Certain covenants are less restrictive at any
time that our leverage ratio is below 6.0x. At any time that our leverage ratio
is below 6.0x, and outside of the Covenant Waiver Period, acquisitions,
investments, dividends and distributions 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 incurrence of
debt incorporate the same financial covenant as set forth in our senior notes
indenture.

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

Mortgage Debt of Unconsolidated Joint Ventures. We own non-controlling interests
in joint ventures that are not consolidated and that are accounted for under the
equity method. The portion of the mortgage and other debt of these joint
ventures attributable to us, based on our ownership percentage thereof, was
$145 million at December 31, 2020. The debt of our unconsolidated joint ventures
is non-recourse to us.

Distributions/Dividends. Host Inc.’s policy on common dividends generally is to
distribute, over time, at least 100% of its taxable income, which primarily is
dependent on our results of operations, as well as on tax gains and losses on
hotel sales. After paying its regular quarterly common cash dividend of $0.20
per share for the first quarter of 2020, Host Inc. suspended its regular
quarterly common cash dividend in order to preserve cash and future financial
flexibility in response to the COVID-19 pandemic. Any future dividend will be
subject to approval by Host Inc.’s Board of Directors. In addition, in
connection with the amendments to the credit facility, we agreed to substantial
limitations on our ability to pay common cash dividends during the Covenant
Relief Period as discussed above.

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Funds used by Host Inc. to pay dividends are provided by distributions from 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 common OP units are owned by various
unaffiliated limited partners. Each OP unit may be offered for redemption by the
limited partners for cash or, at the election of Host Inc., Host Inc. common
stock based on the then current conversion ratio. The current conversion ratio
is 1.021494 shares of Host Inc. common stock for each OP unit. During the
Covenant Relief Period, all redemptions must be made with Host Inc. common
stock.

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

Counterparty Credit Risk. We are subject to counterparty credit risk, which
relates to the ability of counterparties to meet their contractual payment
obligations or the potential non-performance of counterparties to deliver
contracted commodities or services at the contracted price. We assess the
ability of our counterparties to fulfill their obligations to determine the
impact, if any, of counterparty bankruptcy or insolvency on our financial
condition. We are exposed to credit risk with respect to cash held at various
financial institutions and access to our credit facility. We believe our credit
exposure in each of these cases is limited, as the credit risk is spread among a
diversified group of investment grade financial institutions.

Critical Accounting Policies

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

• Asset Acquisitions and Business Combinations; and

• Property and Equipment – Impairment testing.

All Owned Hotel Operating Statistics and Results

To facilitate a year-over-year comparison of our operations, we typically
present certain operating statistics (i.e., Total RevPAR, RevPAR, average daily
rate and average occupancy) and operating results (revenues, expenses, hotel
EBITDA and associated margins) for the periods included in this annual report on
a comparable hotel basis in order to enable our investors to better evaluate our
operating performance. However, due to the COVID-19 pandemic and its effects on
operations, there is little comparability between periods. For this reason, we
temporarily are suspending our comparable hotel presentation and instead present
hotel operating results for all consolidated hotels and, to facilitate
comparisons between periods, we are presenting results on a pro forma basis,
including the following adjustments: (1) operating results are presented for all
consolidated hotels owned as of December 31, 2020, but do not include the
results of operations for properties sold in 2019 or through the reporting date;
and (2) operating results for acquisitions in the current and prior year are
reflected for full calendar years, to include results for periods prior to our
ownership. For these hotels, since the year-over-year comparison includes
periods prior to our ownership, the changes will not necessarily correspond to
changes in our actual results.

Constant US$ and Nominal US$

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

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Non-GAAP Financial Measures

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

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

Similarly, EBITDAre, Adjusted EBITDAre, NAREIT FFO and Adjusted FFO per diluted
share include adjustments for the pro rata share of our equity investments and
NAREIT FFO and Adjusted FFO include adjustments for non-controlling partners in
consolidated partnerships. Our equity investments consist of interests ranging
from 11% to 67% in seven domestic and international partnerships that own a
total of 10 hotels and a vacation ownership development. Due to the voting
rights of the outside owners, we do not control and, therefore, do not
consolidate these entities. The non-controlling partners in consolidated
partnerships primarily consist of the approximate 1% interest in Host LP held by
unaffiliated limited partners and a 15% interest held by an unaffiliated limited
partner in one hotel for which we do control the entity and, therefore,
consolidate its operations. These pro rata results for NAREIT FFO and Adjusted
FFO per diluted share, EBITDAre and Adjusted EBITDAre are calculated as set
forth below. Readers should be cautioned that the pro rata results presented in
these measures for consolidated partnerships (for NAREIT FFO and Adjusted FFO
per diluted share) and equity investments may not accurately depict the legal
and economic consequences of our investments in these entities. The following
discussion defines these terms and presents why we believe they are useful
measures of our performance.

EBITDA, EBITDAre and Adjusted EBITDAre

EBITDA

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

EBITDAre and Adjusted EBITDAre

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

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

• Property Insurance Gains – We exclude the effect of property insurance gains

reflected in our consolidated statements of operations because we believe

that including them in Adjusted EBITDAre is not consistent with reflecting

the ongoing performance of our assets. In addition, property insurance gains

could be less important to investors given that the depreciated asset book

value written off in connection with the calculation of the property
insurance gain often does not reflect the market value of real estate
assets.

• Acquisition Costs – Under GAAP, costs associated with completed property

acquisitions that are considered business combinations are expensed in the

year incurred. We exclude the effect of these costs because we believe they

are not reflective of the ongoing performance of the company.

• Litigation Gains and Losses – We exclude the effect of gains or losses

associated with litigation recorded under GAAP that we consider outside the

ordinary course of business. We believe that including these items is not
consistent with our ongoing operating performance.

• Severance Expense – Effective for 2020, in certain circumstances, we will add

back hotel-level severance expenses when we do not believe that such expenses

are reflective of the ongoing operation of our properties. Situations that

would result in a severance add-back include, but are not limited to: (i)

costs incurred as part of a broad-based reconfiguration of the operating

model with the specific hotel operator for a portfolio of hotels and (ii)

costs incurred at a specific hotel due to a broad-based and significant

reconfiguration of a hotel and/or its workforce. We do not add back

corporate-level severance costs or severance costs at an individual hotel

that we consider to be incurred in the normal course of business.

In unusual circumstances, we also may adjust EBITDAre for gains or losses that
management believes are not representative of the Company’s current operating
performance. The last such adjustment of this nature was a 2013 exclusion of a
gain from an eminent domain claim.

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

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

(in millions)

Year ended December 31,
2020 2019
Net income (loss) (1) $ (741 )$ 932
Interest expense 194 222
Depreciation and amortization 665 662
Income taxes (220 ) 30
EBITDA (1) (102 ) 1,846
Gain on dispositions (2) (149 ) (334 )
Non-cash impairment expense – 14
Equity investment adjustments:
Equity in (earnings) losses of affiliates 30 (14 )
Pro rata EBITDAre of equity investments (12 ) 26
EBITDAre (1) (233 ) 1,538
Adjustments to EBITDAre:
Severance at hotel properties (3) 65 –
Gain on property insurance settlement – (4 )
Adjusted EBITDAre (1) $ (168 )$ 1,534
___________

(1) Net income (loss), EBITDA, EBITDAre, Adjusted EBITDAre, NAREIT FFO and

Adjusted FFO for the year ended December 31, 2020 include a gain of $59

million from the sale of land adjacent to The Phoenician hotel and a loss of

$14 million related to inventory impairment expense recorded by our Maui

timeshare joint venture, reflected through equity in (earnings) losses of

affiliates.

(2) Reflects the sale of one hotel in 2020 and 14 hotels in 2019.

(3) Including severance costs, our Adjusted EBITDAre and Adjusted FFO would have

been $(233) and $(184) million, respectively, for 2020.

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FFO Measures

We present NAREIT FFO and NAREIT FFO per diluted share as non-GAAP measures of
our performance in addition to our earnings per share (calculated in accordance
with GAAP). We calculate NAREIT FFO per diluted share as our NAREIT FFO (defined
as set forth below) for a given operating period, as adjusted for the effect of
dilutive securities, divided by the number of fully diluted shares outstanding
during such period in accordance with NAREIT guidelines. Effective January 1,
2019, we adopted NAREIT’s definition of FFO included in NAREIT’s Funds From
Operations White Paper – 2018 Restatement. The adoption did not result in a
change in the way we calculate NAREIT FFO. NAREIT defines FFO as net income
(calculated in accordance with GAAP) excluding depreciation and amortization
related to certain real estate assets, gains and losses from the sale of certain
real estate assets, gains and losses from change in control, impairment expense
of certain real estate assets and investments and adjustments for consolidated
partially-owned entities and unconsolidated affiliates. Adjustments for
consolidated partially-owned entities and unconsolidated affiliates are
calculated to reflect our pro rata share of the FFO of those entities on the
same basis.

We believe that NAREIT FFO per diluted share is a useful supplemental measure of
our operating performance and that the presentation of NAREIT FFO per diluted
share, when combined with the primary GAAP presentation of earnings per share,
provides beneficial information to investors. By excluding the effect of real
estate depreciation, amortization, impairment expense and gains and losses from
sales of depreciable real estate, all of which are based on historical cost
accounting and which may be of lesser significance in evaluating current
performance, we believe such measures can facilitate comparisons of operating
performance between periods and with other REITs, even though NAREIT FFO per
diluted share does not represent an amount that accrues directly to holders of
our common stock. Historical cost accounting for real estate assets implicitly
assumes that the value of real estate assets diminishes predictably over time.
As noted by NAREIT in its Funds From Operations White Paper – 2018 Restatement,
the primary purpose for including FFO as a supplemental measure of operating
performance of a REIT is to address the artificial nature of historical cost
depreciation and amortization of real estate and real estate-related assets
mandated by GAAP. For these reasons, NAREIT adopted the FFO metric in order to
promote a uniform industry-wide measure of REIT operating performance.

We also present Adjusted FFO per diluted share when evaluating our performance
because management believes that the exclusion of certain additional items
described below provides useful supplemental information to investors regarding
our ongoing operating performance. Management historically has made the
adjustments detailed below in evaluating our performance, in our annual budget
process and for our compensation programs. We believe that the presentation of
Adjusted FFO per diluted share, when combined with both the primary GAAP
presentation of earnings per share and FFO per diluted share as defined by
NAREIT, provides useful supplemental information that is beneficial to an
investor’s understanding of our operating performance. We adjust NAREIT FFO per
diluted share for the following items, which may occur in any period, and refer
to this measure as Adjusted FFO per diluted share:

• Gains and Losses on the Extinguishment of Debt – We exclude the effect of

finance charges and premiums associated with the extinguishment of debt,

including the acceleration of the write off of deferred financing costs

from the original issuance of the debt being redeemed or retired and

incremental interest expense incurred during the refinancing period. We

also exclude the gains on debt repurchases and the original issuance costs

associated with the retirement of preferred stock. We believe that these

items are not reflective of our ongoing finance costs.

• Acquisition Costs -Under GAAP, costs associated with completed property

acquisitions that are considered business combinations are expensed in the

year incurred. We exclude the effect of these costs because we believe they

are not reflective of the ongoing performance of the company.

• Litigation Gains and Losses – We exclude the effect of gains or losses

associated with litigation recorded under GAAP that we consider outside the

ordinary course of business. We believe that including these items is not

consistent with our ongoing operating performance.

• Severance Expense – Effective for 2020, in certain circumstances, we will

add back hotel-level severance expenses when we do not believe that such

expenses are reflective of the ongoing operation of our properties.

Situations that would result in a severance add back include, but are not

limited to: (i) costs incurred as part of a broad-based reconfiguration of

the operating model with the specific hotel operator for a portfolio of

hotels and (ii) costs incurred at a specific hotel due to a broad-based and

significant reconfiguration of a hotel and/or its workforce. We do not add

back corporate-level severance costs or severance costs at an individual

hotel that we consider to be incurred in the normal course of business.

In unusual circumstances, we also may adjust NAREIT FFO for gains or losses that
management believes are not representative of our current operating performance.
For example, in 2017, as a result of the reduction of the U.S. federal corporate
income tax rate from 35% to 21% by the Tax Cuts and Jobs Act, we remeasured our
domestic deferred tax assets as of December 31, 2017 and recorded a one-time
adjustment to reduce our deferred tax assets and increase the provision for
income taxes by approximately $11 million. We do not consider this adjustment to
be reflective of our ongoing operating performance and, therefore, we excluded
this item from Adjusted FFO.

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

Host Inc. Reconciliation of Diluted Earnings (Loss) per Common Share to

NAREIT and Adjusted Funds From Operations per Diluted Share

(in millions, except per share amount)

Year ended December 31,
2020 2019
Net income (loss) (1) $ (741 ) $

932

Less: Net (income) loss attributable to

non-controlling interests 9 (12 )
Net income (loss) attributable to Host Inc. (732 ) 920
Adjustments:
Gain on dispositions (2) (149 ) (334 )
Tax on dispositions (3 ) (6 )
Gain on property insurance settlement – (4 )
Depreciation and amortization 663

657

Non-cash impairment expense – 6
Equity investment adjustments:
Equity in (earnings) losses of affiliates 30 (14 )
Pro rata FFO of equity investments (21 ) 20
Consolidated partnership adjustments:
FFO adjustment for non-controlling partnerships (1 ) –
FFO adjustments for non-controlling interests
of Host L.P. (6 ) (3 )
NAREIT FFO (1) (219 ) 1,242
Adjustments to NAREIT FFO:
Loss on debt extinguishment 36 57
Severance at hotel properties (3) 65 –
Loss attributable to non-controlling interests (1 ) (1 )
Adjusted FFO (1) $ (119 ) $

1,298

For calculation on a per share basis (4):

Diluted weighted average shares outstanding –
EPS, NAREIT FFO and Adjusted FFO 705.9

731.1

Diluted earnings (loss) per common share $ (1.04 ) $

1.26

NAREIT FFO per diluted share $ (.31 ) $

1.70

Adjusted FFO per diluted share $ (.17 ) $ 1.78
___________

(1-3) Refer to the corresponding footnote on the Reconciliation of Net Income to

EBITDA, EBITDAre and Adjusted EBITDAre for Host Inc. and Host L.P.

(4) Earnings per diluted share and NAREIT FFO and Adjusted FFO per diluted share

are adjusted for the effects of dilutive securities. Dilutive securities may

include shares granted under comprehensive stock plans, preferred OP units

held by non-controlling limited partners, exchangeable debt securities and

other non-controlling interests that have the option to convert their limited

partner interests to common OP units. No effect is shown for securities if
they are anti-dilutive.

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All Owned Hotel Pro Forma Property Level Operating Results

We present certain operating results for our hotels, such as hotel revenues,
expenses, food and beverage profit, and EBITDA (and the related margins), on a
hotel-level pro forma basis as supplemental information for our investors. Our
hotel results reflect the operating results of our hotels as discussed in “All
Owned Hotel Operating Statistics and Results” above. We present all owned hotel
EBITDA to help us and our investors evaluate the ongoing operating performance
of our hotels after removing the impact of our capital structure (primarily
interest expense) and our asset base (primarily depreciation and amortization
expense). Corporate-level costs and expenses also are removed to arrive at
property-level results. We believe these property-level results provide
investors with supplemental information about the ongoing operating performance
of our hotels. All owned hotel results are presented both by location and for
our properties in the aggregate. While severance expense is not uncommon at the
individual property level in the normal course of business, we eliminate from
our hotel level operating results severance costs related to broad-based and
significant property-level reconfiguration that is not considered to be within
the normal course of business, as we believe this elimination provides useful
supplemental information that is beneficial to an investor’s understanding of
our ongoing operating performance. We also eliminate depreciation and
amortization expense because, even though depreciation and amortization expense
are property-level expenses, these non-cash expenses, which are based on
historical cost accounting for real estate assets, implicitly assume that the
value of real estate assets diminishes predictably over time. As noted earlier,
because real estate values historically have risen or fallen with market
conditions, many real estate industry investors have considered presentation of
historical cost accounting for operating results to be insufficient.

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

While management believes that presentation of all owned hotel results is a
supplemental measure that provides useful information in evaluating our ongoing
performance, this measure is not used to allocate resources or to assess the
operating performance of each of our hotels, as these decisions are based on
data for individual hotels and are not based on all owned hotel results in the
aggregate. For these reasons, we believe all owned hotel operating results, when
combined with the presentation of GAAP operating profit, revenues and expenses,
provide useful information to investors and management.

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The following table presents certain operating results and statistics for our
all owned hotel pro forma results for the periods presented herein:

All Owned Hotel Pro Forma Results for Host Inc. and Host L.P.

(in millions, except hotel statistics)

Year ended
December 31,
2020 2019
Number of hotels 79 79
Number of rooms 46,142 46,142
Change in hotel Total RevPAR –
Constant US$ (69.4 )% –
Nominal US$ (69.5 )% –
Change in hotel RevPAR –
Constant US$ (70.3 )% –
Nominal US$ (70.3 )% –
Operating profit (loss) margin (1) (58.8 )% 14.6 %
All Owned Hotel Pro Forma EBITDA margin (1) (8.5 )% 28.8 %
Food and beverage profit margin (1) 1.4 % 32.0 %
All Owned Hotel Pro Forma food and beverage
profit margin (1) 9.2 % 32.0 %

Net income (loss) $ (741 ) $ 932
Depreciation and amortization 665

676

Interest expense 194

222

Provision (benefit) for income taxes (220 )

30

Gain on sale of property and corporate level

income/expense (97 ) (283 )
Severance at hotel properties (2) 65 –
Pro forma adjustments (3) (3 ) (84 )
All Owned Hotel Pro Forma EBITDA $ (137 ) $ 1,493

Year ended December 31, 2020

Year ended December 31, 2019

Adjustments Adjustments
Severance at All Owned All Owned
hotel Depreciation and Hotel Pro Depreciation and Hotel Pro
properties Pro forma corporate level Forma Results Pro forma corporate level Forma Results
GAAP Results (2) adjustments (3) items (3) GAAP Results adjustments (3) items (3)
Revenues
Room $ 976 $ – $ (10 ) $ – $ 966 $ 3,431 $ (184 ) $ – $ 3,247
Food and beverage 426 – (3 ) – 423 1,647 (71 ) – 1,576
Other 218 – (3 ) – 215 391 (24 ) – 367
Total revenues 1,620 – (16 ) – 1,604 5,469 (279 ) – 5,190
Expenses
Room 362 (15 ) (3 ) – 344 873 (45 ) – 828
Food and beverage 420 (33 ) (3 ) – 384 1,120 (49 ) – 1,071
Other 1,037 (17 ) (7 ) – 1,013 1,899 (101 ) – 1,798
Depreciation and
amortization 665 – – (665 ) – 676 – (676 ) –
Corporate and other
expenses 89 – – (89 ) – 107 – (107 ) –
Gain on insurance and
business
interruption settlements – – – – – (5 ) – 5 –
Total expenses 2,573 (65 ) (13 ) (754 ) 1,741 4,670 (195 ) (778 ) 3,697
Operating Profit – All
Owned Hotel Pro Forma
EBITDA $ (953 ) $ 65 $ (3 ) $ 754 $ (137 ) $ 799 $ (84 ) $ 778 $ 1,493
___________

(1) Profit margins are calculated by dividing the applicable operating profit by

the related revenue amount. GAAP operating profit margins are calculated

using amounts presented in the consolidated statements of operations.

Comparable hotel margins are calculated using amounts presented in the above

table.

(2) Including severance costs, our All Hotel Pro Forma EBITDA would have been

$(202) million for 2020.

(3) Pro forma adjustments represent the following items: (i) the elimination of

results of operations of our sold hotels, which operations are included in

our consolidated statements of operations as continuing operations and (ii)

the addition of results for periods prior to our ownership for hotels

acquired during the presented periods. For this presentation, we no longer

adjust for certain items such as the results of our leased office buildings

and other non-hotel revenue and expense items, and they are included in the

All Owned Hotel Pro Forma results.

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