HOST HOTELS & RESORTS, INC. - Quarter Report: 2014 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2014

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission File Number: 001-14625 (Host Hotels & Resorts, Inc.)

0-25087 (Host Hotels & Resorts, L.P.)

HOST HOTELS & RESORTS, INC.

HOST HOTELS & RESORTS, L.P.

(Exact name of registrant as specified in its charter)

Maryland (Host Hotels & Resorts, Inc.)

Delaware (Host Hotels & Resorts, L.P.)

(State or Other Jurisdiction of

Incorporation or Organization)

53-008595

52-2095412

(I.R.S. Employer

Identification No.)

6903 Rockledge Drive, Suite 1500

Bethesda, Maryland

(Address of Principal Executive Offices)

20817

(Zip Code)

(240) 744-1000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Host Hotels & Resorts, Inc.		Yes þ				No ¨
Host Hotels & Resorts, L.P.		Yes þ				No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Host Hotels & Resorts, Inc.		Yes þ				No ¨
Host Hotels & Resorts, L.P.		Yes þ				No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Host Hotels & Resorts, Inc.
Large accelerated filer þ	Accelerated filer ¨
Non-accelerated filer (Do not check if a smaller reporting company) ¨	Smaller reporting company ¨

Host Hotels & Resorts, L.P.
Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer (Do not check if a smaller reporting company) þ	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Host Hotels & Resorts, Inc.		Yes ¨				No þ
Host Hotels & Resorts, L.P.		Yes ¨				No þ

As of May 1, 2014 there were 756,937,640 shares of Host Hotels & Resorts, Inc.’s common stock, $.01 par value per share, outstanding.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q of Host Hotels & Resorts, Inc. and Host Hotels & Resorts, L.P. Unless stated otherwise or the context requires otherwise, references to “Host Inc.” mean Host Hotels & Resorts, Inc., a Maryland corporation, and references to “Host L.P.” mean Host Hotels & Resorts, L.P., a Delaware limited partnership, and its consolidated subsidiaries, in cases where it is important to distinguish between Host Inc. and Host L.P. We use the terms “we” or “our” or “the company” to refer to Host Inc. and Host L.P. together, unless the context indicates otherwise.

Host Inc. operates as a self-managed and self-administered real estate investment trust (“REIT”). Host Inc. owns properties and conducts operations through Host L.P., of which Host Inc. is the sole general partner and of which it holds approximately 99% of the partnership interests (“OP units”). The remaining OP units are owned by various unaffiliated limited partners. As the sole general partner of Host L.P., Host Inc. has the exclusive and complete responsibility for Host L.P.’s day-to-day management and control. Management operates Host Inc. and Host L.P. as one enterprise. The management of Host Inc. consists of the same persons who direct the management of Host L.P. As general partner with control of Host L.P., Host Inc. consolidates Host L.P. for financial reporting purposes, and Host Inc. does not have significant assets other than its investment in Host L.P. Therefore, the assets and liabilities of Host Inc. and Host L.P. are substantially the same on their respective condensed consolidated financial statements and the disclosures of Host Inc. and Host L.P. also are substantially similar. For these reasons, we believe that the combination into a single report of the quarterly reports on Form 10-Q of Host Inc. and Host L.P. results in benefits to management and investors.

The substantive difference between Host Inc.’s and Host L.P.’s filings is the fact that Host Inc. is a REIT with public stock, while Host L.P. is a partnership with no publicly traded equity. In the condensed consolidated financial statements, this difference primarily is reflected in the equity (or partners’ capital for Host L.P.) section of the consolidated balance sheets and in the consolidated statements of equity (or partners’ capital for Host L.P.). Apart from the different equity treatment, the condensed consolidated financial statements of Host Inc. and Host L.P. nearly are identical.

This combined Form 10-Q for Host Inc. and Host L.P. includes, for each entity, separate interim financial statements (but combined footnotes), separate reports on disclosure controls and procedures and internal control over financial reporting and separate CEO/CFO certifications. In addition, with respect to any other financial and non-financial disclosure items required by Form 10-Q, any material differences between Host Inc. and Host L.P. are discussed separately herein. For a more detailed discussion of the substantive differences between Host Inc. and Host L.P. and why we believe the combined filing results in benefits to investors, see the discussion in the combined Annual Report on Form 10-K for the year ended December 31, 2013 under the heading “Explanatory Note.”

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

INDEX

PART I. FINANCIAL INFORMATION

		Page No.
Item 1.	Financial Statements for Host Hotels & Resorts, Inc.:

	Condensed Consolidated Balance Sheets - March 31, 2014 (unaudited) and December 31, 2013	1

	Condensed Consolidated Statements of Operations (unaudited) - Quarter ended March 31, 2014 and 2013	2

	Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) - Quarter ended March 31, 2014 and 2013	3

	Condensed Consolidated Statements of Cash Flows (unaudited) - Quarter ended March 31, 2014 and 2013	4

	Financial Statements for Host Hotels & Resorts, L.P.:

	Condensed Consolidated Balance Sheets - March 31, 2014 (unaudited) and December 31, 2013	6

	Condensed Consolidated Statements of Operations (unaudited) - Quarter ended March 31, 2014 and 2013	7

	Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) - Quarter ended March 31, 2014 and 2013	8

	Condensed Consolidated Statements of Cash Flows (unaudited) - Quarter ended March 31, 2014 and 2013	9

	Notes to Condensed Consolidated Financial Statements (unaudited)	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	42

Item 4.	Controls and Procedures	43

	PART II. OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 6.	Exhibits	45

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2014 and December 31, 2013

(in millions, except share and per share amounts)

	March 31, 2014			December 31, 2013
	(unaudited)
ASSETS
Property and equipment, net	$	10,817		$	10,995
Due from managers		111			52
Advances to and investments in affiliates		412			415
Deferred financing costs, net		39			42
Furniture, fixtures and equipment replacement fund		149			173
Other		256			244
Restricted cash		33			32
Cash and cash equivalents		392			861
Total assets	$	12,209		$	12,814

LIABILITIES, NON-CONTROLLING INTERESTS AND EQUITY
Debt
Senior notes, including $375 million and $371 million, respectively, net of discount, of Exchangeable Senior Debentures	$	2,872		$	3,018
Credit facility, including the $500 million term loan		718			946
Mortgage debt		417			709
Other		86			86
Total debt		4,093			4,759
Accounts payable and accrued expenses		185			214
Other		386			389
Total liabilities		4,664			5,362

Non-controlling interests - Host Hotels & Resorts, L.P.		196			190

Host Hotels & Resorts, Inc. stockholders’ equity:
Common stock, par value $.01, 1,050 million shares authorized; 755.3 million and 754.8 million shares issued and outstanding, respectively		8			8
Additional paid-in capital		8,494			8,492
Accumulated other comprehensive loss		(2	)		(9	)
Deficit		(1,189	)		(1,263	)
Total equity of Host Hotels & Resorts, Inc. stockholders		7,311			7,228
Non-controlling interests—other consolidated partnerships		38			34
Total equity		7,349			7,262
Total liabilities, non-controlling interests and equity	$	12,209		$	12,814

See notes to condensed consolidated statements.

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Quarter ended March 31, 2014 and 2013

(unaudited, in millions, except per share amounts)

	Quarter ended March 31,
	2014			2013
REVENUES
Rooms	$	808		$	762
Food and beverage		405			369
Other		96			93
Total revenues		1,309			1,224
EXPENSES
Rooms		226			215
Food and beverage		284			272
Other departmental and support expenses		315			307
Management fees		50			47
Other property-level expenses		97			94
Depreciation and amortization		172			173
Corporate and other expenses		34			26
Gain on insurance settlements		(3	)		—
Total operating costs and expenses		1,175			1,134
OPERATING PROFIT		134			90
Interest income		1			1
Interest expense		(58	)		(76	)
Gain on sale of other assets		—			12
Gain on foreign currency transactions and derivatives		—			2
Equity in losses of affiliates		(8	)		(2	)
INCOME BEFORE INCOME TAXES		69			27
Benefit for income taxes		7			7
INCOME FROM CONTINUING OPERATIONS		76			34
Income from discontinued operations, net of tax		—			26
INCOME BEFORE GAIN ON SALE OF PROPERTY		76			60
Gain on sale of property, net of tax		109			—
NET INCOME		185			60
Less: Net income attributable to non-controlling interests		(6	)		(4	)
NET INCOME ATTRIBUTABLE TO HOST HOTELS & RESORTS, INC.	$	179		$	56
Basic earnings per common share:
Continuing operations	$	.24		$	.04
Discontinued operations		—			.04
Basic earnings per common share	$	.24		$	.08
Diluted earnings per common share:
Continuing operations	$	.24		$	.04
Discontinued operations		—			.04
Diluted earnings per common share	$	.24		$	.08

See notes to condensed consolidated statements.

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Quarter ended March 31, 2014 and 2013

(unaudited, in millions)

	Quarter ended March 31,
	2014			2013
NET INCOME	$	185		$	60
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation and other comprehensive income (loss) of unconsolidated affiliates		7			(3	)
Change in fair value of derivative instruments		—			5
OTHER COMPREHENSIVE INCOME, NET OF TAX		7			2
COMPREHENSIVE INCOME		192			62
Less: Comprehensive income attributable to non-controlling interests		(6	)		(4	)
COMPREHENSIVE INCOME ATTRIBUTABLE TO HOST HOTELS & RESORTS INC.	$	186		$	58

See notes to condensed consolidated statements.

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Quarter ended March 31, 2014 and 2013

(unaudited, in millions)

	Quarter ended March 31,
	2014			2013
OPERATING ACTIVITIES
Net income	$	185		$	60
Adjustments to reconcile to cash provided by operations:
Discontinued operations:
Gain on dispositions		—			(19	)
Depreciation		—			4
Depreciation and amortization		172			173
Amortization of finance costs, discounts and premiums, net		6			7
Non-cash loss on extinguishment of debt		1			—
Stock compensation expense		4			4
Deferred income taxes		(11	)		(5	)
Gain on sale of other assets		—			(12	)
Gain on sale of property		(109	)		—
Gain on foreign currency transactions and derivatives		—			(2	)
Equity in losses of affiliates		8			2
Change in due from managers		(58	)		(21	)
Changes in other assets		(9	)		21
Changes in other liabilities		(18	)		(36	)
Cash provided by operating activities		171			176

INVESTING ACTIVITIES
Proceeds from sales of assets, net		274			279
Return of investment		25			—
Acquisitions		(73	)		—
Advances to and investments in affiliates		(14	)		(1	)
Capital expenditures:
Renewals and replacements		(76	)		(87	)
Redevelopment and acquisition-related investments		(14	)		(36	)
New development		—			(5	)
Change in furniture, fixtures and equipment ("FF&E") replacement fund		12			(3	)
Cash provided by investing activities		134			147

FINANCING ACTIVITIES
Financing costs		—			(3	)
Issuances of debt		—			400
Repayment of credit facility		(225	)		(100	)
Repurchase/redemption of senior notes		(150	)		(1	)
Mortgage debt prepayments and scheduled maturities		(301	)		—
Scheduled principal repayments		—			(1	)
Issuance of common stock		1			103
Dividends on common stock		(98	)		(65	)
Contributions from non-controlling interests		—			2
Distributions to non-controlling interests		(1	)		(1	)
Change in restricted cash for financing activities		(1	)		—
Cash provided by (used in) financing activities		(775	)		334
Effects of exchange rate changes on cash held		1			1
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(469	)		658
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		861			417
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	392		$	1,075

See notes to condensed consolidated statements.

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Quarter ended March 31, 2014 and 2013

(unaudited)

Supplemental disclosure of cash flow information (in millions)

	Quarter ended March 31,
	2014		2013
Interest paid - periodic interest expense	$	48	$	70
Interest paid - debt extinguishments		2		—
Total interest paid	$	50	$	70
Income taxes paid	$	8	$	4

Supplemental disclosure of noncash investing and financing activities:

For the quarters ended March 31, 2014 and 2013, Host Inc. issued approximately 0.1 million shares and 0.1 million shares, respectively, upon the conversion of OP units of Host L.P. held by non-controlling partners valued at approximately $1 million and $1 million, respectively.

In March 2013, holders of approximately $174 million of the 3.25% exchangeable debentures elected to exchange their debentures for approximately 11.7 million shares of Host Inc. common stock.

See notes to condensed consolidated statements.

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2014 and December 31, 2013

(in millions)

	March 31, 2014			December 31, 2013
	(unaudited)
ASSETS
Property and equipment, net	$	10,817		$	10,995
Due from managers		111			52
Advances to and investments in affiliates		412			415
Deferred financing costs, net		39			42
Furniture, fixtures and equipment replacement fund		149			173
Other		256			244
Restricted cash		33			32
Cash and cash equivalents		392			861
Total assets	$	12,209		$	12,814

LIABILITIES, LIMITED PARTNERSHIP INTERESTS OF THIRD PARTIES AND CAPITAL
Debt
Senior notes, including $375 million and $371 million, respectively, net of discount, of Exchangeable Senior Debentures	$	2,872		$	3,018
Credit facility, including the $500 million term loan		718			946
Mortgage debt		417			709
Other		86			86
Total debt		4,093			4,759
Accounts payable and accrued expenses		185			214
Other		386			389
Total liabilities		4,664			5,362

Limited partnership interests of third parties		196			190

Host Hotels & Resorts, L.P. capital:
General partner		1			1
Limited partner		7,312			7,236
Accumulated other comprehensive loss		(2	)		(9	)
Total Host Hotels & Resorts, L.P. capital		7,311			7,228
Non-controlling interests—consolidated partnerships		38			34
Total capital		7,349			7,262
Total liabilities, limited partnership interest of third parties and capital	$	12,209		$	12,814

See notes to condensed consolidated statements.

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Quarter ended March 31, 2014 and 2013

(unaudited, in millions, except per unit amounts)

	Quarter ended March 31,
	2014			2013
REVENUES
Rooms	$	808		$	762
Food and beverage		405			369
Other		96			93
Total revenues		1,309			1,224
EXPENSES
Rooms		226			215
Food and beverage		284			272
Other departmental and support expenses		315			307
Management fees		50			47
Other property-level expenses		97			94
Depreciation and amortization		172			173
Corporate and other expenses		34			26
Gain on insurance settlements		(3	)		—
Total operating costs and expenses		1,175			1,134
OPERATING PROFIT		134			90
Interest income		1			1
Interest expense		(58	)		(76	)
Gain on sale of other assets		—			12
Gain on foreign currency transactions and derivatives		—			2
Equity in losses of affiliates		(8	)		(2	)
INCOME BEFORE INCOME TAXES		69			27
Benefit for income taxes		7			7
INCOME FROM CONTINUING OPERATIONS		76			34
Income from discontinued operations, net of tax		—			26
INCOME BEFORE GAIN ON SALE OF PROPERTY		76			60
Gain on sale of property, net of tax		109			—
NET INCOME		185			60
Less: Net income attributable to non-controlling interests		(4	)		(3	)
NET INCOME ATTRIBUTABLE TO HOST HOTELS & RESORTS, L.P.	$	181		$	57
Basic earnings per common unit:
Continuing operations	$	.24		$	.04
Discontinued operations		—			.04
Basic earnings per common unit	$	.24		$	.08
Diluted earnings per common unit:
Continuing operations	$	.24		$	.04
Discontinued operations		—			.04
Diluted earnings per common unit	$	.24		$	.08

See notes to condensed consolidated statements.

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Quarter ended March 31, 2014 and 2013

(unaudited, in millions)

	Quarter ended March 31,
	2014			2013
NET INCOME	$	185		$	60
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation and other comprehensive income (loss) of unconsolidated affiliates		7			(3	)
Change in fair value of derivative instruments		—			5
OTHER COMPREHENSIVE INCOME, NET OF TAX		7			2
COMPREHENSIVE INCOME		192			62
Less: Comprehensive income attributable to non-controlling interests		(4	)		(3	)
COMPREHENSIVE INCOME ATTRIBUTABLE TO HOST HOTELS & RESORTS, L.P.	$	188		$	59

See notes to condensed consolidated statements.

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Quarter ended March 31, 2014 and 2013

(unaudited, in millions)

	Quarter ended March 31,
	2014			2013
OPERATING ACTIVITIES
Net income	$	185		$	60
Adjustments to reconcile to cash provided by operations:
Discontinued operations:
Gain on dispositions		—			(19	)
Depreciation		—			4
Depreciation and amortization		172			173
Amortization of finance costs, discounts and premiums, net		6			7
Non-cash loss on extinguishment of debt		1			—
Stock compensation expense		4			4
Deferred income taxes		(11	)		(5	)
Gain on sale of other assets		—			(12	)
Gain on sale of property		(109	)		—
Gain on foreign currency transactions and derivatives		—			(2	)
Equity in losses of affiliates		8			2
Change in due from managers		(58	)		(21	)
Changes in other assets		(9	)		21
Changes in other liabilities		(18	)		(36	)
Cash provided by operating activities		171			176

INVESTING ACTIVITIES
Proceeds from sales of assets, net		274			279
Return of investment		25			—
Acquisitions		(73	)		—
Advances to and investments in affiliates		(14	)		(1	)
Capital expenditures:
Renewals and replacements		(76	)		(87	)
Redevelopment and acquisition-related investments		(14	)		(36	)
New development		—			(5	)
Change in furniture, fixtures and equipment ("FF&E") replacement fund		12			(3	)
Cash provided by investing activities		134			147

FINANCING ACTIVITIES
Financing costs		—			(3	)
Issuances of debt		—			400
Repayment of credit facility		(225	)		(100	)
Repurchase/redemption of senior notes		(150	)		(1	)
Mortgage debt prepayments and scheduled maturities		(301	)		—
Scheduled principal repayments		—			(1	)
Issuance of common OP units		1			103
Distributions on common OP units		(99	)		(66	)
Contributions from non-controlling interests		—			2
Change in restricted cash for financing activities		(1	)		—
Cash provided by (used in) financing activities		(775	)		334
Effects of exchange rate changes on cash held		1			1
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(469	)		658
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		861			417
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	392		$	1,075

See notes to condensed consolidated statements

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Quarter ended March 31, 2014 and 2013

(unaudited)

Supplemental disclosure of cash flow information (in millions):

	Quarter ended March 31,
	2014		2013
Interest paid - periodic interest expense	$	48	$	70
Interest paid - debt extinguishments		2		—
Total interest paid	$	50	$	70
Income taxes paid	$	8	$	4

Supplemental disclosure of noncash investing and financing activities:

For the quarters ended March 31, 2014 and 2013, limited partners converted OP units valued at approximately $1 million and $1 million, respectively, in exchange for approximately 0.1 million and 0.1 million shares, respectively, of Host Inc. common stock.

In March 2013, holders of approximately $174 million of the 3.25% exchangeable debentures elected to exchange their debentures for approximately 11.7 million shares of Host Inc. common stock. In connection with the debentures exchanged for Host Inc. common stock, Host L.P. issued 11.5 million common OP units.

See notes to condensed consolidated statements.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	Organization

Description of Business

Host Hotels & Resorts, Inc. operates as a self-managed and self-administered real estate investment trust (“REIT”), with its operations conducted solely through Host Hotels & Resorts, L.P. and its subsidiaries. Host Hotels & Resorts, L.P., a Delaware limited partnership, operates through an umbrella partnership structure, with Host Hotels & Resorts, Inc., a Maryland corporation, as its sole general partner. In the notes to the condensed consolidated financial statements, we use the terms “we” or “our” to refer to Host Hotels & Resorts, Inc. and Host Hotels & Resorts, L.P. together, unless the context indicates otherwise. We also use the term “Host Inc.” specifically to refer to Host Hotels & Resorts, Inc. and the term “Host L.P.” specifically to refer to Host Hotels & Resorts, L.P. in cases where it is important to distinguish between Host Inc. and Host L.P. As of March 31, 2014, Host Inc. holds approximately 99% of Host L.P.’s OP units.

Consolidated Portfolio

As of March 31, 2014, our consolidated portfolio, primarily consisting of luxury and upper upscale hotels, is located in the following countries:

	Hotels
United States		99
Australia		1
Brazil		1
Canada		3
Chile		2
Mexico		1
New Zealand		7
Total		114

Joint Ventures

We own a non-controlling interest in a joint venture in Europe (“Euro JV”) that owns hotels in two separate funds. We own a 32.1% interest in the first fund (“Euro JV Fund I”) (11 hotels) and a 33.4% interest in the second fund (“Euro JV Fund II”) (8 hotels).

As of March 31, 2014, the Euro JV owned hotels located in the following countries:

	Hotels
Belgium		3
France		4
Germany		1
Italy		3
Poland		1
Spain		2
Sweden		1
The Netherlands		2
United Kingdom		2
Total		19

In addition, our joint venture in Asia (“Asia/Pacific JV”), in which we own a 25% non-controlling interest, owns one hotel in Australia and a non-controlling interest in an entity with two hotels operational and five additional hotels in various stages of development in India.

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


2.	Summary of Significant Accounting Policies

We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP in the accompanying unaudited condensed consolidated financial statements. We believe the disclosures made herein are adequate to prevent the information presented from being misleading. However, the unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10–K for the year ended December 31, 2013.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly our financial position as of March 31, 2014, and the results of our operations and cash flows for the quarters ended March 31, 2014 and 2013, respectively. Interim results are not necessarily indicative of full year performance because of the impact of seasonal and short-term variations.

Reclassifications

Certain prior year financial statement amounts have been reclassified to conform with the current year presentation.

Application of New Accounting Standard

In April 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2014-08 Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360) - Reporting Discontinued Operations and Disclosure of Disposal of Components of an Entity (“ASU 2014-08 Reporting for Discontinued Operations.”) Under this standard, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations only if the disposal represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. In addition, it requires an entity to present, for each comparative period, the assets and liabilities of a disposal group that includes a discontinued operation separately in the asset and liability sections, respectively, of the statement of financial position. As a result, the operations of sold properties through the date of their disposal will be included in continuing operations, unless the sale represents a strategic shift. However, the gain or loss on the sale of a hotel will be reported separately below income from continuing operations. We adopted this standard as of January 1, 2014. No prior year restatements are permitted for this change in policy. For purposes of earnings per share calculation, beginning in 2014 gains and losses on property sales will be included in continuing operations.

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


3.	Earnings Per Common Share (Unit)

Host Inc. Earnings Per Common Share

Basic earnings per common share is computed by dividing net income attributable to common stockholders by the weighted average number of shares of Host Inc. common stock outstanding. Diluted earnings per common share is computed by dividing net income attributable to common stockholders, as adjusted for potentially dilutive securities, by the weighted average number of shares of Host Inc. common stock outstanding plus other potentially dilutive securities. Dilutive securities may include shares granted under comprehensive stock plans, other non-controlling interests that have the option to convert their limited partnership interests to common OP units and convertible debt securities. No effect is shown for any securities that are anti-dilutive. The calculation of basic and diluted earnings per common share is shown below (in millions, except per share amounts):

	Quarter ended March 31,
	2014			2013
Net income	$	185		$	60
Less: Net income attributable to non-controlling interests		(6	)		(4	)
Net income attributable to Host Inc.		179			56
Assuming conversion of exchangeable senior debentures		7			—
Diluted income attributable to Host Inc.	$	186		$	56

Basic weighted average shares outstanding		754.9			728.2
Assuming weighted average shares for conversion of exchangeable senior debentures		29.9			9.9
Assuming distribution of common shares granted under the comprehensive stock plans, less shares assumed purchased at market		0.3			0.5
Diluted weighted average shares outstanding ⁽¹⁾		785.1			738.6

Basic earnings per common share	$	.24		$	.08
Diluted earnings per common share	$	.24		$	.08

(1)

There were approximately 29 million potentially dilutive shares for the quarter ended March 31, 2013, related to our exchangeable senior debentures, which shares were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the period. Income allocated to non-controlling interests in Host L.P. has been excluded from the numerator and common OP units in Host L.P. have been omitted from the denominator for the purpose of computing diluted earnings per share since the effect of including these amounts would have no impact.

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Host L.P. Earnings Per Common Unit

Basic earnings per common unit is computed by dividing net income attributable to common unitholders by the weighted average number of common units outstanding. Diluted earnings per common unit is computed by dividing net income attributable to common unitholders, as adjusted for potentially dilutive securities, by the weighted average number of common units outstanding plus other potentially dilutive securities. Dilutive securities may include units issued to Host Inc. to support Host Inc. common shares granted under comprehensive stock plans, other non-controlling interests that have the option to convert their limited partnership interests to common OP units and convertible debt securities. No effect is shown for any securities that are anti-dilutive. The calculation of basic and diluted earnings per unit is shown below (in millions, except per unit amounts):

	Quarter ended March 31,
	2014			2013
Net income	$	185		$	60
Less: Net income attributable to non-controlling interests		(4	)		(3	)
Net income attributable to Host L.P.		181			57
Assuming conversion of exchangeable senior debentures		7			—
Diluted income attributable to Host L.P.	$	188		$	57

Basic weighted average units outstanding		748.5			722.7
Assuming weighted average units for conversion of exchangeable senior debentures		29.3			9.6
Assuming distribution of common units granted under the comprehensive stock plans, less units assumed purchased at market		0.3			0.5
Diluted weighted average units outstanding⁽¹⁾		778.1			732.8

Basic earnings per common unit	$	.24		$	.08
Diluted earnings per common unit	$	.24		$	.08

(1)	There were approximately 29 million potentially dilutive units for the quarter ended March 31, 2013, related to our exchangeable senior debentures, which units were not included in the computation of diluted earnings per unit because to do so would have been anti-dilutive for the period.


4.	Property and Equipment

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

	March 31, 2014			December 31, 2013
Land and land improvements	$	1,995		$	1,973
Buildings and leasehold improvements		13,283			13,435
Furniture and equipment		2,194			2,223
Construction in progress		153			176
		17,625			17,807
Less accumulated depreciation and amortization		(6,808	)		(6,812	)
	$	10,817		$	10,995


5.	Debt

Mortgage debt: On February 28, 2014, we repaid the $300 million mortgage loan secured by The Ritz-Carlton, Naples and Newport Beach Marriott Hotel, at maturity.

Senior notes: In February 2014, we redeemed the remaining $150 million 6¾ Series Q senior notes due 2016 for an aggregate price of $152 million.

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Credit facility: On January 10, 2014, we repaid $225 million on the revolver portion of our credit facility and as of March 31, 2014, we have $782 million of available capacity.


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

Equity of Host Inc. is allocated between controlling and non-controlling interests as follows (in millions):



	Equity of Host Inc.			Non-redeemable non-controlling interests		Total equity			Redeemable non-controlling interests
Balance, December 31, 2013	$	7,228		$	34	$	7,262		$	190
Net income		179			4		183			2
Issuance of common stock		8			—		8			—
Dividends declared on common stock		(106	)		—		(106	)		—
Distributions to non-controlling interests		—			—		—			(1	)
Other changes in ownership		(5	)		—		(5	)		5
Other comprehensive income		7			—		7			—
Balance, March 31, 2014	$	7,311		$	38	$	7,349		$	196

Capital of Host L.P.

As of March 31, 2014, Host Inc. is the owner of approximately 99% of Host L.P.’s common OP units. The remaining common OP units are held by third party limited partners. Each OP unit may be redeemed for cash or, at the election of Host Inc., Host Inc. common stock, based on the conversion ratio of 1.021494 shares of Host Inc. common stock for each OP unit.

In exchange for any shares issued by Host Inc., Host L.P. will issue OP units to Host Inc. based on the applicable conversion ratio. Additionally, funds used by Host Inc. to pay dividends on its common stock are provided by distributions from Host L.P.

Capital of Host L.P. is allocated between controlling and non-controlling interests as follows (in millions):


									Limited
				Non-					Partnership
	Capital of			controlling		Total			Interests of
	Host L.P			Interests		Capital			Third Parties
Balance, December 31, 2013	$	7,228		$	34	$	7,262		$	190
Net income		179			4		183			2
Issuance of common OP units		8			—		8			—
Distributions declared on common OP units		(106	)		—		(106	)		(1	)
Distributions to non-controlling interests		—			—		—			—
Other changes in ownership		(5	)		—		(5	)		5
Other comprehensive income		7			—		7			—
Balance, March 31, 2014	$	7,311		$	38	$	7,349		$	196

For Host Inc. and Host L.P., there were no material amounts reclassified out of accumulated other comprehensive income (loss) to net income for the quarter ended March 31, 2014.

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Dividends/Distributions

On February 18, 2014, Host Inc.’s Board of Directors declared a regular dividend of $0.14 per share on its common stock. The dividend was paid on April 15, 2014 to stockholders of record as of March 31, 2014. Accordingly, Host L.P. made a distribution of $0.14300916 per unit on its common OP units based on the current conversion ratio.


7.	Dispositions

Effective January 1, 2014, we adopted ASU 2014-08 Reporting for Discontinued Operations. As a result, operations of hotels sold subsequent to December 31, 2013 will continue to be reported in continuing operations, while gains (losses) on sale will be included in Gain on sale of property, net of tax below continuing operations. The results of properties sold in 2013, including the gain (loss) on sale, prior to adoption will continue to be reported in discontinued operations.

During the first quarter of 2014, we sold an 89% controlling interest in the Philadelphia Marriott Downtown. As a result, the hotel is not consolidated in our financial statements. Additionally, we disposed of the Courtyard Nashua for approximately $10 million. We recognized a gain of $109 million related to the sale of these two hotels, net of tax. During the first quarter of 2013, we disposed of one property for a net gain of $19 million.

The following table provides summary results of operations for the five hotels sold in 2013 which have been included in discontinued operations (in millions):


	Quarter ended March 31, 2013
Revenues	$	34
Income before income taxes		11
Gain on disposition, net of tax		19


8.	Acquisitions

On January 21, 2014, we acquired the 151-room Powell Hotel in San Francisco, California, including retail space and the fee simple interest in the land, for approximately $75 million. Accounting for the acquisition requires an allocation of the purchase price to the assets acquired and the liabilities assumed at their respective estimated fair values. The purchase price allocations are estimated based on current available information; however, we still are in the process of obtaining appraisals and finalizing the accounting for the acquisition. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed related to this acquisition (in millions):


Property and equipment	$	73
Other assets		2
Total assets		75
Other liabilities		—
Net assets acquired	$	75

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Our summarized unaudited consolidated pro forma results of operations, assuming the acquisition completed during 2014 occurred on January 1, 2013, are as follows (in millions, except per share and per unit amounts):


	Quarter ended March 31,
	2014		2013
Revenues	$	1,309	$	1,226
Income from continuing operations		77		35
Net income		186		61

Host Inc.:
Net income attributable to Host Inc.	$	180	$	57

Basic earnings per common share:
Continuing operations	$	.24	$	.04
Discontinued operations		—		.04
Basic earnings per common share	$	.24	$	.08

Diluted earnings per common share:
Continuing operations	$	.24	$	.04
Discontinued operations		—		.04
Diluted earnings per common share	$	.24	$	.08

Host L.P.:
Net income attributable to Host L.P.	$	182	$	58

Basic earnings per common unit:
Continuing operations	$	.24	$	.04
Discontinued operations		—		.04
Basic earnings per common unit	$	.24	$	.08

Diluted earnings per common unit:
Continuing operations	$	.24	$	.04
Discontinued operations		—		.04
Diluted earnings per common unit	$	.24	$	.08

The above pro forma results of operations exclude $1 million of acquisition costs for the quarter ended March 31, 2014. The condensed consolidated statements of operations for the quarter ended March 31, 2014 include approximately $1 million of revenues and $0.2 million of net income for the quarter related to our 2014 acquisition.

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


9.	Fair Value Measurements

The following tables detail the fair value of our financial assets and liabilities that are required to be measured at fair value on a recurring basis, as well as non-recurring fair value measurements, at March 31, 2014 and December 31, 2013, respectively (in millions):


	Fair Value at Measurement Date Using
	Balance at March 31, 2014			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Fair Value Measurements on a Recurring Basis:
Assets
Foreign currency forward sale contracts⁽¹⁾	$	2		$	—	$	2		$	—
Liabilities
Interest rate swap derivatives⁽¹⁾		(3	)		—		(3	)		—
Foreign currency forward sale contracts ⁽¹⁾		(5	)		—		(5	)		—

	Fair Value at Measurement Date Using
	Balance at December 31, 2013			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Fair Value Measurements on a Recurring Basis:
Assets
Interest rate swap derivatives ⁽¹⁾	$	1		$	—	$	1		$	—
Foreign currency forward sale contracts⁽¹⁾		3			—		3			—
Liabilities
Interest rate swap derivatives ⁽¹⁾		(3	)		—		(3	)		—
Foreign currency forward sale contracts ⁽¹⁾		(6	)		—		(6	)		—

Fair Value Measurements on a Non-recurring Basis:
Impaired hotel properties held and used ⁽²⁾		9			—		—			9

(1)	These derivative contracts have been designated as hedging instruments.

(2)	The fair value measurements are as of the measurement date of the impairment and may not reflect subsequent book values.

Derivatives and Hedging

Interest rate swap derivatives designated as cash flow hedges. We have designated our floating-to-fixed interest rate swap derivatives as cash flow hedges. The purpose of the interest rate swaps is to hedge against changes in cash flows (interest payments) attributable to fluctuations in variable rate debt. The derivatives are valued based on the prevailing market yield curve on the date of measurement. We also evaluate counterparty credit risk when we calculate the fair value of the swaps. Changes in the fair value of the derivatives are recorded to accumulated other comprehensive income (loss) within the equity portion of our balance sheets. The hedges were fully effective as of March 31, 2014.

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table summarizes our interest rate swap derivatives designated as cash flow hedges (in millions):


								Change in Fair Value
								Gain (Loss)
	Total Notional							Quarter ended March 31,
Transaction Date	Amount		Maturity Date	Swapped Index	All-in-Rate			2014		2013
November 2011 ⁽¹⁾	A$	62	November 2016	Reuters BBSY		6.7	%	$	—	$	1
February 2011⁽²⁾	NZ$	79	February 2016	NZ$ Bank Bill		7.15	%	$	—	$	—

(1)	The swap was entered into in connection with the A$82 million ($76 million) mortgage loan on the Hilton Melbourne South Wharf.

(2)	The swap was entered into in connection with the NZ$105 million ($91 million) mortgage loan on seven properties in New Zealand.

Interest rate swap derivatives designated as fair value hedges. We had three fixed-to-floating interest rate swap agreements with an aggregate notional amount totaling $300 million that matured on March 1, 2014. During the quarter ended March 31, 2013, the fair value of the swaps decreased $1 million.

Foreign Investment Hedging Instruments. We have five foreign currency forward sale contracts that hedge a portion of the foreign currency exposure resulting from the eventual repatriation of our net investment in foreign operations. These derivatives are considered hedges of the foreign currency exposure of a net investment in a foreign operation and are marked-to-market with changes in fair value recorded to accumulated other comprehensive income (loss) within the equity portion of our balance sheets. The forward sale contracts are valued based on the forward yield curve of the foreign currency to U.S. dollar forward exchange rate on the date of measurement. We also evaluate counterparty credit risk when we calculate the fair value of the derivatives.

The following table summarizes our foreign currency sale contracts (in millions):

Currently Outstanding

Change in Fair Value - All Contracts

Total

Transaction

Total

Amount in

Transaction

Gain (Loss)

Transaction Date

Foreign

Amount

Forward Purchase

Quarter ended March 31,

Range

Currency

in Dollars

Date Range

2014

2013

May 2008-January 2013

€

120

163

May 2014-January 2016

—

In addition to the forward sale contracts, we have designated a portion of the foreign currency draws on our credit facility as hedges of net investments in foreign operations. Changes in fair value in the designated credit facility draws are recorded to accumulated other comprehensive income (loss) within the equity portion of our balance sheets.

The following table summarizes the draws on our credit facility that are designated as hedges of net investments in foreign operations (in millions):

	Balance		Balance		Gain (Loss)
	Outstanding		Outstanding in		Quarter ended March 31,
Currency	US$		Foreign Currency		2014		2013
Canadian dollars ⁽¹⁾	$	28	C$	31	$	1	$	1
Euros	$	102	€	74	$	—	$	1

(1)	We have an additional $69 million outstanding on the credit facility in Canadian dollars that has not been designated as a hedging instrument.

Other Liabilities

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

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The fair value of certain financial liabilities are shown below (in millions):



	March 31, 2014				December 31, 2013
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial liabilities
Senior notes (Level 1)	$	2,497	$	2,679	$	2,647	$	2,766
Exchangeable Senior Debentures (Level 1)		375		622		371		603
Credit facility (Level 2)		718		718		946		946
Mortgage debt and other, excluding capital leases (Level 2)		501		515		793		802


10.	Geographic Information

We consider each of our hotels to be an operating segment, none of which meets the threshold for a reportable segment. We also allocate resources and assess operating performance based on individual hotels. All of our other real estate investment activities (primarily office buildings and apartments) are immaterial and, with our operating segments, meet the aggregation criteria, and thus, we report one segment: hotel ownership. Our consolidated foreign operations consist of hotels in six countries. There were no intersegment sales during the periods presented.

The following table presents total revenues and property and equipment for each of the geographical areas in which we operate (in millions):


	Revenues				Property and Equipment, net
	Quarter ended March 31,
	2014		2013		March 31, 2014		December 31, 2013
United States	$	1,243	$	1,159	$	10,312	$	10,498
Australia		9		10		111		106
Brazil		7		8		80		76
Canada		19		21		84		89
Chile		9		8		51		54
Mexico		7		6		32		32
New Zealand		15		12		147		140
Total	$	1,309	$	1,224	$	10,817	$	10,995


11.	Non-controlling Interests

Other Consolidated Partnerships. We consolidate six majority-owned partnerships that have third-party, non-controlling ownership interests. The third-party partnership interests are included in non-controlling interests — other consolidated partnerships on the condensed consolidated balance sheets and totaled $38 million and $34 million as of March 31, 2014 and December 31, 2013, respectively. Two of the partnerships have finite lives that terminate between 2081 and 2095, and the associated non-controlling interests are mandatorily redeemable at our option at the end of, but not prior to, the finite life. At March 31, 2014 and December 31, 2013, the fair values of the non-controlling interests in the partnerships with finite lives were approximately $72 million and approximately $68 million, respectively.

Net income (loss) attributable to non-controlling interests of consolidated partnerships is included in our determination of net income (loss). Net income attributable to non-controlling interests of third parties, which is included in the determination of net income (loss) attributable to Host Inc. and Host L.P., was $4 million and $3 million for the quarters ended March 31, 2014 and 2013, respectively.

Host Inc.’s treatment of the non-controlling interests of Host L.P.: Host Inc. adjusts the non-controlling interests of Host L.P. each period so that the amount presented equals the greater of its carrying value based on accumulated historical cost or its redemption value. The historical cost is based on the proportional relationship between the historical cost of equity held by our common stockholders relative to that of the unitholders of Host L.P. The redemption value is based on the amount of cash or Host Inc. common stock, at our option, that would be paid to the non-controlling interests

HOST HOTELS & RESORTS, INC., HOST HOTELS & RESORTS, L.P., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

of Host L.P. if it were terminated. Therefore, the redemption value of the common OP units is equivalent to the number of shares that would be issued upon conversion of the common OP units held by third parties valued at the market price of Host Inc. common stock at the balance sheet date. One common OP unit may be exchanged into 1.021494 shares of Host Inc. common stock. Non-controlling interests of Host L.P. are classified in the mezzanine section of our balance sheet as they do not meet the requirements for equity classification because the redemption feature requires the delivery of registered shares.

The table below details the historical cost and redemption values for the non-controlling interests:


	March 31, 2014		December 31, 2013
OP units outstanding (millions)		9.5		9.5
Market price per Host Inc. common share	$	20.24	$	19.44
Shares issuable upon conversion of one OP unit		1.021494		1.021494
Redemption value (millions)	$	196	$	190
Historical cost (millions)		95		95
Book value (millions) ⁽¹⁾		196		190

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

Net income (loss) is allocated to the non-controlling interests of Host L.P. based on their weighted average ownership interest during the period. Net income attributable to Host Inc. has been reduced by the amount attributable to non-controlling interests of Host L.P. The net income attributable to the non-controlling interests of Host L.P. was $2 million and $1 million for the quarters ended March 31, 2014 and 2013, respectively.


12.	Legal Proceedings

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

Excluding the San Antonio litigation discussed below, based on our analysis of legal proceedings with which we currently are involved or of which we are aware and our experience in resolving similar claims in the past, we have accrued approximately $23 million as of March 31, 2014 for liabilities related to legal proceedings and estimate that, in the aggregate, our losses related to these proceedings could be as much as $50 million. We believe this range represents the maximum potential loss for all of our legal proceedings. We are not aware of any other matters with a reasonably possible unfavorable outcome for which disclosure of a loss contingency is required. No assurances can be given as to the outcome of any pending legal proceedings.

We also have accrued a loss contingency of approximately $69 million related to the litigation concerning the ground lease for the San Antonio Marriott Rivercenter. On May 16, 2012, we filed a Petition for review in the Texas Supreme Court and provided briefing on the merits, which were concluded in January 2013. On June 28, 2013, the Court issued an order denying the petition for review; however, on December 13, 2013, the Court granted our motion for rehearing on that order and heard oral arguments on our appeal on February 4, 2014. No assurances can be given as to the outcome of this appeal. In relation to this legal proceeding, we previously funded a court-ordered $25 million escrow reserve, which is included in restricted cash. For further details on this legal proceeding, see Part I, Item 3, Legal Proceedings, of our Annual Report on Form 10-K for the year ended December 31, 2013.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this report. Host Inc. operates as a self-managed and self-administered REIT. Host Inc. is the sole general partner of Host L.P. and holds approximately 99% of its partnership interests. Host L.P. is a limited partnership operating through an umbrella partnership structure. The remaining common OP units are owned by various unaffiliated limited partners.

Forward-Looking Statements

In this report on Form 10-Q, we make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “expect,” “may,” “intend,” “predict,” “project,” “plan,” “will,” “estimate” and other similar terms and phrases, including references to assumptions and forecasts of future results. Forward-looking statements are based on management’s current expectations and assumptions and are not guarantees of future performance. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results to differ materially from those anticipated at the time the forward-looking statements are made.

The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

the effect on lodging demand of (i) changes in national and local economic and business conditions, including concerns about global economic prospects and the speed and strength of a recovery, and (ii) other factors such as natural disasters, weather, changes in the international political climate, and the occurrence or potential occurrence of terrorist attacks, all of which will affect occupancy rates at our hotels and the demand for hotel products and services;

·	operating risks associated with the hotel business, including the effect of increasing labor costs or changes in workplace rules that affect labor costs;

the continuing volatility in global financial and credit markets, and the impact of budget deficits and pending and future U.S. governmental action to address such deficits through reductions in spending and similar austerity measures, which could materially adversely affect U.S. and global economic conditions, business activity, credit availability, borrowing costs, and lodging demand;

the impact of geopolitical developments outside the U.S., such as the sovereign credit issues in certain countries in the European Union, or unrest in the Middle East, which could affect the relative volatility of global credit markets generally, global travel and lodging demand, including for our foreign hotel properties;

·	the effect of rating agency downgrades of our debt securities on the cost and availability of new debt financings;

the reduction in our operating flexibility and the limitation on our ability to pay dividends and make distributions resulting from restrictive covenants in our debt agreements, which limit the amount of distributions from Host L.P. to Host Inc., and other risks associated with the level of our indebtedness or related to restrictive covenants in our debt agreements, including the risk of default that could occur;

·	our ability to maintain our properties in a first-class manner, including meeting capital expenditures requirements, and the effect of renovations on our hotel occupancy and financial results;

·	our ability to compete effectively in areas such as access, location, quality of accommodations and room rate structures;

·	our ability to acquire or develop additional properties and the risk that potential acquisitions or developments may not perform in accordance with our expectations;

·	relationships with property managers and joint venture partners and our ability to realize the expected benefits of our joint ventures and other strategic relationships;

·	our ability to recover fully under our existing insurance policies for terrorist acts and our ability to maintain adequate or full replacement cost “all-risk” property insurance policies on our properties on commercially reasonable terms;

·	the effects of tax legislative action and other changes in laws and regulations, or the interpretation thereof, including the need for compliance with new environmental and safety requirements; and

the ability of Host Inc. and each of the REIT entities acquired, established or to be established by Host Inc. to continue to satisfy complex rules in order to qualify as REITs for federal income tax purposes, Host L.P’s ability to satisfy the rules required to maintain its status as a partnership for federal income tax purposes, and Host Inc.’s and Host L.P.’s ability and the ability of our subsidiaries, and similar entities to be acquired or established by us, to operate effectively within the limitations imposed by these rules.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions, including those risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2013 and in other filings with the Securities and Exchange Commission (“SEC”). Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that we will attain these expectations or that any deviations will not be material.

Operating Results and Outlook

Operating Results

The following table reflects certain line items from our statement of operations and significant operating statistics (in millions, except per share and hotel statistics):

Historical Income Statement Data:
	Quarter ended March 31,						% Change
	2014			2013			2013 to 2014
Total revenues	$	1,309		$	1,224			6.9	%
Net income		185			60			208.3	%
Operating profit		134			90			48.9	%
Operating profit margin under GAAP		10.2	%		7.4	%		280	bps
Adjusted EBITDA ⁽¹⁾	$	308		$	283			8.8	%

Diluted earnings per share	$	.24		$	.08			200.0	%
NAREIT FFO per diluted share ⁽¹⁾		.32			.29			10.3	%
Adjusted FFO per diluted share ⁽¹⁾		.33			.28			17.9	%

Comparable Hotel Data:

	2014 Comparable Hotels ⁽²⁾
	Quarter ended March 31,						Change
	2014			2013			2013 to 2014
Comparable hotel revenues ⁽¹⁾	$	1,204		$	1,126			6.9	%
Comparable hotel operating profit ⁽¹⁾		289			257			12.5	%
Comparable hotel adjusted operating profit margin ⁽¹⁾		24.0	%		22.8	%		120	bps
Change in comparable hotel RevPAR - Constant US$		6.8	%
Change in comparable hotel RevPAR - Nominal US$		6.2	%
Change in comparable domestic RevPAR		6.6	%
Change in comparable international RevPAR - Constant US$		10.3	%

(1)

Adjusted EBITDA, NAREIT and Adjusted FFO per diluted share and comparable hotel operating results (including comparable hotel revenues and comparable hotel adjusted operating profit and margins) are non-GAAP (U.S. generally accepted accounting principles) financial measures within the meaning of the rules of the SEC. 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.

(2)	Comparable hotel operating statistics for 2014 and 2013 are based on 109 hotels as of March 31, 2014.

Total revenues increased $85 million to $1.3 billion for the first quarter driven by an increase in rooms revenues of $46 million and food and beverage revenue of $36 million. The growth in operating results were driven by an increase in comparable RevPAR of 6.8% on a constant US$ basis, reflecting strong growth in average room rates coupled with continued improvements in occupancy, and an increase of 9.4% in comparable food and beverage operations. The growth in room revenues was primarily driven by a strong increase in group business, particularly in New York and several of our west coast markets, which helped our operators shift the mix of business to higher-rated transient business. Additionally, this increase in group business helped drive a 13.5% increase in

comparable food and beverage banquet and audio/visual revenues. On a nominal US$ basis, which includes the effect of foreign currency fluctuations, comparable hotel RevPAR increased 6.2% for the first quarter.

Operating profit margins (calculated based on GAAP operating profit as a percentage of GAAP revenues) increased 280 basis points to 10.2% for the first quarter of 2014. These operating profit margins are affected significantly by several items, including operations from recently acquired hotels, depreciation, impairments, and corporate expenses. Our comparable hotel adjusted operating profit margins, which exclude these items, increased 120 basis points to 24.0%. These improvements were driven by the increase in average room rate, as well as a 21.1% increase in comparable food and beverage profit, reflecting the increase in the more profitable banquet and audio/visual business.

The trends and transactions described for Host Inc. affected similarly the operating results for Host L.P, as the only significant difference between the Host Inc. and the Host L.P. statements of operations relates to the treatment of income attributable to the third party limited partners of Host L.P. For the first quarter, net income for Host Inc. and Host L.P. improved $125 million to $185 million from the same period in the prior year. Net income benefited from the improvement in operating profit, as well as a decrease in interest expense of $18 million due to the repayment or refinancing of debt at lower interest rates, and an increase in gains on property transactions and other of $100 million. During the first quarter of 2014, Host Inc.’s diluted income per common share improved $0.16 per common share to $0.24 per common share. Host L.P.’s diluted income per common unit improved $0.16 per common unit to $0.24 per common unit.

Host Inc.’s Adjusted FFO per diluted share increased 17.9% to $.33 per diluted share for the first quarter of 2014. Adjusted EBITDA, which is defined as EBITDA adjusted for gains and losses related to real estate transactions, impairment expense, and other items, increased $25 million, or 8.8%, to $308 million.

Outlook

For the remainder of 2014, we believe that the broad economic trends that have translated into the steady improvement in lodging demand should continue to drive RevPAR growth and operating results. Specifically, based on our current group bookings, we believe increasing group demand will allow our operators to shift the business mix to higher-rated corporate group and transient demand, as opposed to lower-rated transient discount business, helping to drive profitability. As a result, we believe the majority of the RevPAR growth will be driven by improvements in average rate, and we expect occupancy growth will be similar to that experienced in 2013. For the full year 2014, we believe these trends will result in improved operating performance and comparable hotel RevPAR growth on a constant US$ basis of 5% to 6%. We anticipate that comparable food and beverage and other revenue will increase approximately 4% to 5% in 2014 driven in part by the expected increase in group demand.

While we believe that the lodging industry will continue to improve, there can be no assurances that any increases in hotel revenues or earnings at our properties will continue for any number of reasons, including, but not limited to, slower than anticipated growth in the economy and changes in travel patterns.

Investing activities

Acquisitions. We continue to seek investment opportunities in our target markets, which we have identified as those that are expected to have the greatest lodging demand growth, the fewest additions to supply, and consequently the strongest potential for revenue growth. We see increased competition for acquisitions in our target markets due to an abundance of capital and the current availability of inexpensive financing. Consequently, pricing for upper upscale and luxury assets has become more aggressive, and recent transaction values have approached replacement cost levels. Our acquisition strategy also includes the acquisition or development of midscale and upscale properties in select target markets. During the first quarter, we completed the acquisition of the 151-room Powell Hotel in San Francisco, including retail space and the fee simple interest in the land, for approximately $75 million. The property includes a significant long-term retail lease with Sephora, a leading provider of perfume and cosmetics. We intend to invest approximately $22 million in an extensive redevelopment of the property beginning early 2015.

Dispositions. We attempt to dispose of properties which are considered non-core assets when we believe the potential for growth is constrained or where we are able opportunistically to take advantage of the pricing in the market. On January 10, 2014, we sold an 89% interest in the Philadelphia Marriott Downtown based on a market value of $303 million. On February 12, 2014, we sold the Courtyard Nashua for a sales price of $10 million.

Capital Expenditures Projects. We continue to pursue opportunities to enhance asset value through select capital improvements, including projects that are designed specifically to increase the eco-efficiency of our hotels, incorporate elements of sustainable design and replace aging equipment and systems with more efficient technology. During the first quarter, we have completed renovations of 1,800 guestrooms, over 100,000 square feet of meeting space and approximately 42,000 square feet of public space.

Redevelopment and Return on Investment Capital Expenditures. Redevelopment and ROI projects primarily consist of large-scale redevelopment projects designed to increase cash flow and improve profitability by capitalizing on changing market conditions and the favorable locations of our properties, including projects such as the redevelopment of a hotel, repositioning of a hotel restaurant or the installation of energy efficient systems. During the first quarter of 2014 and 2013, we invested $11 million and $21 million, respectively, on redevelopment and ROI projects, of which $5 million in 2014 was invested in restaurant repositionings and energy projects. During 2014, we plan to spend between $70 million and $80 million for redevelopment and ROI projects. Significant redevelopment and ROI capital expenditures completed during the first quarter included the expansion of the 9,000 square foot Willow Stream Spa at The Fairmont Kea Lani, Maui and the repositioning of the Cast & Plow restaurant and public space at The Ritz-Carlton, Marina del Rey.

Acquisition Capital Expenditures. In conjunction with the acquisition of a property, we prepare capital and operational improvement plans designed to maximize profitability. During the first quarter of 2014 and 2013, we spent approximately $3 million and $15 million, respectively, on acquisition capital projects and expect to invest between $30 million and $35 million during 2014. During the first quarter, we completed the first phase of the renovation of over 100,000 square feet of meeting space and expansion of the fitness center at the Manchester Grand Hyatt San Diego.

Renewal and Replacement Capital Expenditures. We spent $76 million and $87 million on renewal and replacement capital expenditures during the first quarter of 2014 and 2013, respectively. These expenditures are designed to ensure that our high standards for product quality are maintained and to enhance the overall competitiveness of our properties in the marketplace. During the first quarter of 2014, we completed the renovation of all guest rooms at The Westin Indianapolis and the Newport Beach Marriott Hotel & Spa and almost 12,000 square feet of public space at the Sheraton San Diego Hotel & Marina. We expect that our investment in renewal and replacement expenditures in 2014 will total approximately $320 million to $340 million.

Financing activities

Debt Transactions. During the quarter, we completed the following transactions:

·	On February 28, 2014, we repaid the $300 million mortgage loan secured by The Ritz-Carlton, Naples and Newport Beach Marriott Hotel at maturity.

·	In February 2014, we redeemed $150 million of our 6¾% Series Q senior notes due 2016 for an aggregate price of $152 million.

·	On January 10, 2014, we repaid $225 million on the revolver portion of our credit facility and currently have $782 million of remaining available capacity.

Results of Operations

The following tables reflect certain line items from our statements of operations (in millions, except percentages):



	Quarter ended March 31,				% Change
	2014		2013		2013 to 2014
Total revenues	$	1,309	$	1,224		6.9	%
Operating costs and expenses:
Property-level costs ⁽¹⁾		1,144		1,108		3.2
Corporate and other expenses		34		26		30.8
Operating profit		134		90		48.9
Interest expense		58		76		(23.7	)
Benefit for income taxes		7		7		—
Income from continuing operations		76		34		123.5
Income from discontinued operations		—		26	N/M
Gain on sale of property, net of tax		109		—	N/M

Host Inc.:
Net income attributable to non-controlling interests	$	6	$	4		50.0	%
Net income attributable to Host Inc.		179		56		219.6

Host L.P.:
Net income attributable to non-controlling interests	$	4	$	3		33.3	%
Net income attributable to Host L.P.		181		57		217.5

(1)	Amount represents total operating costs and expenses from our unaudited condensed consolidated statements of operations less corporate and other expenses and gain on insurance settlements.

N/M=Not meaningful.

2014 Compared to 2013

The comparisons of our hotel revenues and expenses are affected by the results of the hotels acquired and sold during the comparable periods (collectively, our “Recent Acquisitions and Dispositions”). Our first quarter 2014 operations benefited from the results of the Powell Hotel, acquired in January 2014 and the Hyatt Place Waikiki Beach, acquired in May 2013. This was offset by the results for two hotels sold in 2014, which operations prior to sale now are included in continuing operations due to the adoption of ASU 2014-08 Reporting for Discontinued Operations.

Hotel Sales Overview

The following table presents total revenues (in millions, except percentages) and includes both comparable and non-comparable hotels:

	Quarter ended March 31,				% Change
	2014		2013		2013 to 2014
Revenues:
Rooms	$	808	$	762		6.0	%
Food and beverage		405		369		9.8
Other		96		93		3.2
Total revenues	$	1,309	$	1,224		6.9

Rooms. Rooms revenues increased $46 million, or 6.0%, to $808 million compared to the first quarter of 2013. The improvement in rooms revenues reflects a 6.2% increase in RevPAR at our comparable hotels, which is discussed in more detail below, as well as RevPAR improvements from recently renovated properties that are not considered comparable. The increase in rooms revenues was offset partially by a net decrease of $5 million due to the results of our Recent Acquisitions and Dispositions.

Food and beverage. Food and beverage (“F&B”) revenues increased $36 million, or 9.8%, to $405 million compared to the first quarter of 2013. For our comparable hotels, F&B revenues increased 9.4% for the quarter, driven by increased volume at our New York market properties related to the Super Bowl. Additionally, the Sheraton New York Times Square Hotel and Newark Liberty International Airport Marriott benefited from substantial renovations, which were completed in 2013. In addition, several properties had double-digit F&B revenue increases, including San Diego Marriott Marquis & Marina, Sheraton San Diego Hotel & Marina, JW Marriott Desert Springs Resort & Spa, and San Francisco Marriott Marquis. The increase in F&B revenues was offset partially by a net decrease of $5 million as a result of our Recent Acquisitions and Dispositions.

Other revenues . Other revenues increased $3 million, or 3.2%, to $96 million for the first quarter of 2014, compared to the first quarter of 2013 due to increased (i) golf revenues, (ii) attrition and cancellation fees and (iii) rental income and commissions. The increase in other revenues from owned hotels was offset partially by a net decrease of $1 million due to the results of our Recent Acquisitions and Dispositions.

Comparable Portfolio Operating Results. We discuss operating results for our hotels on a comparable basis. Comparable hotels are those properties that we have consolidated for the entirety of the reporting periods being compared. Comparable hotels do not include the results of properties acquired or sold, or that incurred significant property damage or business interruption or have undergone large scale capital projects during these periods. As of March 31, 2014, 109 of our 114 owned hotels have been classified as comparable hotels. See “Comparable Hotel Operating Statistics” for a complete description of our comparable hotels. We also discuss our comparable operating results by property type (i.e. urban, suburban, resort or airport), geographic market and mix of business (i.e. transient, group or contract).

Comparable Hotel Sales by Geographic Market

The following table sets forth performance information for our comparable hotels by geographic market as of March 31, 2014 and 2013, respectively:

Comparable Hotels by Market in Constant US$

	As of March 31, 2014				Quarter ended March 31, 2014							Quarter ended March 31, 2013
Market	No. of Properties		No. of Rooms		Average Room Rate		Average Occupancy Percentage			RevPAR		Average Room Rate		Average Occupancy Percentage			RevPAR		Percent Change in RevPAR
Boston		5		3,432	$	172.94		60.9	%	$	105.36	$	163.11		66.4	%	$	108.30		(2.7	)%
New York		9		7,224		246.13		77.6			190.89		232.73		78.7			183.14		4.2
Philadelphia		2		776		192.34		78.6			151.17		198.64		63.0			125.20		20.7
Washington, D.C.		12		6,016		205.70		69.6			143.14		210.95		68.0			143.40		(0.2	)
Atlanta		6		2,280		171.62		74.8			128.36		162.00		72.2			116.95		9.8
Florida		7		3,230		245.25		85.8			210.43		239.05		84.2			201.27		4.6
Chicago		7		2,857		142.64		59.6			85.01		148.46		58.9			87.47		(2.8	)
Denver		3		1,363		145.62		62.0			90.33		136.61		55.4			75.72		19.3
Houston		4		1,706		191.53		79.9			152.98		175.59		82.3			144.53		5.8
Phoenix		4		1,522		245.17		82.6			202.58		235.30		79.1			186.12		8.8
Seattle		3		1,774		163.37		72.1			117.75		150.31		66.1			99.38		18.5
San Francisco		5		3,701		214.98		77.6			166.78		185.71		71.7			133.15		25.3
Los Angeles		8		3,228		171.01		81.2			138.80		159.34		80.3			127.88		8.5
San Diego		5		4,691		196.10		80.4			157.68		185.32		73.4			136.09		15.9
Hawaii		2		1,256		401.96		86.4			347.40		371.82		89.4			332.31		4.5
Other		13		7,929		166.94		68.4			114.17		165.23		68.3			112.79		1.2
Domestic		95		52,985		203.71		74.0			150.65		195.20		72.4			141.29		6.6

Asia-Pacific		7		1,378	$	158.80		85.5	%	$	135.72	$	150.56		83.3	%	$	125.49		8.2	%
Canada		3		1,219		169.91		62.0			105.37		162.74		64.3			104.64		0.7
Latin America		4		1,075		249.10		69.1			172.04		211.53		67.3			142.38		20.8
International		14		3,672		186.71		73.0			136.27		170.57		72.4			123.53		10.3
All Markets - Constant US$		109		56,657		202.61		73.9			149.71		193.59		72.4			140.13		6.8

Comparable Hotels in Nominal US$
	As of March 31, 2014				Quarter ended March 31, 2014							Quarter ended March 31, 2013
International Market	No. of Properties		No. of Rooms		Average Room Rate		Average Occupancy Percentage			RevPAR		Average Room Rate		Average Occupancy Percentage			RevPAR		Percent Change in RevPAR
Asia-Pacific		7		1,378	$	158.80		85.5	%	$	135.72	$	160.52		83.3	%	$	133.79		1.4	%
Canada		3		1,219		169.91		62.0			105.37		178.00		64.3			114.45		(7.9	)
Latin America		4		1,075		249.10		69.1			172.04		241.89		67.3			162.81		5.7
International		14		3,672		186.71		73.0			136.27		187.57		72.4			135.85		0.3
Domestic		95		52,985		203.71		74.0			150.65		195.20		72.4			141.29		6.6
All Markets - Nominal US$		109		56,657		202.61		73.9			149.71		194.70		72.4			140.93		6.2

Several of our western markets had extremely strong RevPAR results, as our properties in the San Diego, San Francisco, Seattle and Denver markets all experienced RevPAR growth exceeding 15%. Increases were the combined result of strong group market demand and the benefit from renovation activity in the prior year (both in terms of demand growth generated from the renovations and less disruption). While the results were not as strong as other west coast markets, our Los Angeles market also outperformed the portfolio with a RevPAR increase of 8.5%. For the first quarter, RevPAR for our Philadelphia market increased 20.7%, due to an increase in occupancy driven by a shift of city-wide business to the first quarter and weather related flight delays increasing occupancy at the Philadelphia Airport Marriott.

RevPAR results in several of our east coast markets and Chicago underperformed the portfolio. For our New York market, demand from the Super Bowl drove a 4.2% increase in RevPAR despite the decline in demand due to the severe weather and an increase in supply. For the first quarter, RevPAR for our Washington, D.C. market was relatively unchanged as increased occupancy driven by group demand was offset by a decrease in average room rates from the first quarter of 2013, which benefited from inauguration activities. Our Boston market had a decrease in RevPAR as a result of lower occupancy, driven by room renovations at two of our hotels. Our Chicago market RevPAR was negatively impacted by decreased citywide room nights as well as severe winter weather.

For the quarter, RevPAR for our Latin American markets increased 20.8% on a constant dollar basis, primarily reflecting improved operations at our recently renovated JW Marriott Mexico City. RevPAR for our Asia/Pacific markets increased 8.2% on a constant dollar basis, driven by a strong quarter for the Hilton Melbourne South Wharf.

Comparable Hotel Sales by Property Type

The following table sets forth performance information for our comparable hotels by property type as of March 31, 2014 and 2013, respectively:

Comparable Hotels by Type in Nominal US$

	As of March 31, 2014				Quarter ended March 31, 2014							Quarter ended March 31, 2013
Property type	No. of Properties		No. of Rooms		Average Room Rate		Average Occupancy Percentage			RevPAR		Average Room Rate		Average Occupancy Percentage			RevPAR		Percent Change in RevPAR
Urban		57		35,243	$	208.68		73.6	%	$	153.60	$	201.11		72.6	%	$	146.08		5.1	%
Suburban		29		10,206		165.46		67.2			111.24		156.73		66.2			103.76		7.2
Resort		11		5,570		286.62		82.3			235.89		274.47		80.8			221.88		6.3
Airport		12		5,638		138.32		79.4			109.88		130.43		73.6			96.03		14.4
All Types		109		56,657		202.61		73.9			149.71		194.70		72.4			140.93		6.2

For the first quarter 2014, our airport hotels throughout the East Coast benefited from frequent weather events as travelers found themselves displaced. Conversely, this same weather pattern negatively affected our urban properties in the east. However, several of our west coast urban properties increased RevPAR by double digits, as noted above. Suburban property RevPAR increased 7.2% as a result of a 5.6% increase in average room rates and 1.0 percentage point increase in average occupancy. RevPAR for our resort hotels increased 6.3% due to a 4.4% increase in average room rates and a 1.5 percentage point increase in average occupancy.

Hotels Sales by Business Mix

The majority of our customers fall into three broad groups: transient, group, and contract business. The information below is derived from business mix data for 109 of our hotels for which business mix data is available from our managers. For further detail on our business mix, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K. For the first quarter, overall revenue growth primarily resulted from an 11.0% increase in group revenues, consisting of 6.3% growth in group room nights sold and a 4.4% average room rate increase. Corporate group revenues increased 15.6%, driven by the Super Bowl in the New York market and more broadly in our western markets. Other group revenues, including group government business, improved 14.7% primarily as result of the negative effects of the first quarter 2013 fiscal cliff and pending sequestration. Additionally, group revenues benefited from the shift of the Easter holiday into the second quarter of 2014. Transient revenues increased 3.3%, primarily due to a 3.5% increase in average room rates due to a positive mix shift to higher-rated demand as non-qualified revenues improved 7.1%, partially offset by a decline in discount revenues of 7.0%.

Property-level Operating Expenses

The following table presents property-level operating expenses in accordance with GAAP and includes both comparable and non-comparable hotels (in millions, except percentages):

	Quarter ended March 31,				% Change
	2014		2013		2013 to 2014
Expenses:
Rooms	$	226	$	215		5.1	%
Food and beverage		284		272		4.4
Other departmental and support expenses		315		307		2.6
Management fees		50		47		6.4
Other property-level expenses		97		94		3.2
Depreciation and amortization		172		173		(0.6	)
Total property-level operating expenses	$	1,144	$	1,108		3.2

Our operating costs and expenses, which have both fixed and variable components, are affected by changes in occupancy, inflation and revenues (which affect management fees), though the effect on specific costs will differ. Our wages and benefits account for approximately 55% of the operating expenses at our hotels (which exclude depreciation). Other property level expenses consist of property taxes, the amounts and structure of which are highly dependent on local jurisdiction taxing authorities, and property and general liability insurance, and do not necessarily change based on changes in revenues at our hotels.

Rooms. Rooms expenses increased $11 million for the first quarter of 2014 compared to 2013, reflecting a 6.4% increase at our comparable hotels, primarily driven by travel agent commissions and wages and related benefits. The increase in rooms expenses was offset partially by a net decrease of $2 million due to the results of our Recent Acquisitions and Dispositions.

Food and beverage. Food and beverage expenses increased $12 million for first quarter 2014, reflecting the increase in revenues driven by improved group demand. Comparable food and beverage expenses increased $14 million to $264 million. The increase in food and beverage expenses was offset partially by a net decrease of $5 million due to the results of our Recent Acquisitions and Dispositions.

Other departmental and support expenses. Other departmental and support expenses increased $8 million for the first quarter 2014, primarily due to credit card expenses, wages and benefits costs, and information systems expenses. The increase in other departmental and support expenses was offset partially by a net decrease of $3 million due to the results of our Recent Acquisitions and Dispositions.

Management fees. For the first quarter 2014, base management fees, which generally are calculated as a percentage of total revenues, increased $3 million to $42 million. Incentive management fees, which generally are based on the level of operating profit at each property after we receive a priority return on our investment, increased $1 million to $13 million for the first quarter of 2014.

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 increased $3 million, or 3.2%, to $97 million for the first quarter of 2014 compared to the first quarter of 2013, primarily due to an increase in utility expenses. The increase in other property-level expenses was offset partially by a net decrease of $1 million due to the results of our Recent Acquisitions and Dispositions.

Other Income and Expense

Corporate and other expenses. For the first quarter of 2014, corporate and other expenses increased $8 million, primarily as a result of an increase in acquisition costs and legal expenses.

Gain on insurance settlements. During the first quarter of 2014, we recorded a gain of $3 million related to the receipt of business interruption insurance proceeds resulting from Hurricane Sandy.

Interest expense. Interest expense decreased $18 million for the first quarter of 2014, compared to 2013, primarily due to the repayment or refinancing of debt that resulted in a decrease in our weighted average interest rates and overall debt balance. The following table details our interest expense for the quarter (in millions):

	Quarter ended March 31,
	2014		2013
Cash interest expense⁽¹⁾	$	49	$	69
Non-cash interest expense		7		7
Cash debt extinguishment costs⁽¹⁾		2		—
Total interest expense	$	58	$	76

(1)	Including the change in accrued interest, total cash interest expense paid was $48 million and $70 million for the first quarter of 2014 and 2013, respectively.

Gain on sale of other assets. During the first quarter of 2013, we recognized a deferred $11 million gain related to an eminent domain claim by the State of Georgia of 2.9 acres of land for the highway expansion at the Atlanta Marriott Perimeter Center.

Equity in losses of affiliates. Equity in losses of affiliates primarily reflects our interest in the operations of the Euro JV. The increased loss for the quarter is due primarily to the non-recurrence in 2014 of a first quarter 2013 income tax benefit, which offset improvements in operating results.

Benefit from income taxes. We lease substantially all of our properties to consolidated subsidiaries designated as taxable REIT subsidiaries (“TRS”) for federal income tax purposes. The difference between hotel-level operating cash flow and the aggregate rent paid to Host L.P. by the TRS represents its taxable income or loss, on which we record an income tax provision or benefit. The $7 million income tax benefit recorded in the first quarter of 2014 and 2013, respectively, primarily reflects tax losses incurred by the TRS in these quarters as a result of the seasonality of hotel operations.

Income from discontinued operations, net of tax. The income from discontinued operations for the first quarter of 2013 primarily consists of the $19 million gain recorded as a result of the sale of the Atlanta Marriott Marquis.

Gain on sale of property, net of tax. During the first quarter of 2014, we recognized a $109 million gain, net of tax, on the sale of an 89% interest in the Philadelphia Marriott Downtown.

Liquidity and Capital Resources

Liquidity and Capital Resources of Host Inc. and Host L.P. The liquidity and capital resources of Host Inc. and Host L.P. are derived primarily from the activities of Host L.P., which generates the capital required by our business from hotel operations, the incurrence of debt, the issuance of OP units or the sale of properties. Host Inc. is a REIT and its only significant asset is the ownership of partnership interests of Host L.P.; therefore, its financing and investing activities are conducted through Host L.P., except for the issuance of its common and preferred stock. Proceeds from stock issuances by Host Inc. are contributed to Host L.P. in exchange for OP units. Additionally, funds used by Host Inc. to pay dividends or to repurchase 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 the 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 in order to provide financial flexibility, given the inherent volatility in the lodging industry. As operations have improved, in the past several years, we have maintained our focus on strategically decreasing our debt-to-equity ratio and on increasing our interest coverage ratio through (i) acquisitions and other investments, the majority of which were completed with available cash and proceeds from equity issuances, and (ii) the repayment and refinancing of senior notes and mortgage debt in order to extend maturity dates and lower interest rates. As we achieve our balance sheet objectives, we intend to use available cash predominantly for acquisitions or other investments in our portfolio to the extent that we are able to find suitable investment opportunities that meet our return

requirements. If we are unable to find appropriate investment opportunities and assuming operations continue to improve, we may, over time, consider other uses of any available cash, such as a return of capital through dividends or stock repurchases.

We have structured our debt profile to maintain a balanced maturity schedule and to minimize the number of assets that are encumbered by mortgage debt. We have access to multiple types of financing, as approximately 88% of our debt consists of senior notes, exchangeable debentures and borrowings under our credit facility, none of which are collateralized by specific hotel properties. We believe that we have sufficient liquidity and access to capital markets to take advantage of opportunities to enhance our portfolio, withstand declines in operating cash flow, pay near-term debt maturities and fund our capital expenditures programs. We may continue to access the capital markets if favorable conditions exist in order to further enhance our liquidity and to fund cash needs.

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 unitholders. As a REIT, Host Inc. is required to distribute to its stockholders at least 90% of its taxable income, excluding net capital gains, on an annual basis. On April 15, 2014, we paid a dividend of $0.14 per share of Host Inc.’s common stock, which totaled approximately $106 million.

Capital Resources. As of March 31, 2014, we had $392 million of cash and cash equivalents and $782 million available under our credit facility. We depend primarily on external sources of capital to finance future growth, including acquisitions. As a result, the liquidity and debt capacity provided by our credit facility and the ability to issue senior unsecured debt are key components of our capital structure. Our financial flexibility (including our ability to incur debt, make distributions and make investments) is contingent on our ability to maintain compliance with the financial covenants of such indebtedness, which includes, among other things, the allowable amounts of leverage, interest coverage and fixed charges.

If, at any time, we determine that market conditions are favorable, after taking into account our liquidity requirements, we may seek to issue and sell shares of Host Inc. common stock in registered public offerings, including through sales directly on the NYSE under any future “at-the-market” offering program, or to issue and sell shares of Host Inc. preferred stock. We also may seek to cause Host L.P. to issue senior notes or debentures exchangeable for shares of Host Inc. common stock. Given our total debt level and maturity schedule, we will continue to redeem or refinance senior notes and mortgage debt from time to time, taking advantage of favorable market conditions when available. We also may pursue opportunistic refinancings to improve our liquidity, extend debt maturities and reduce interest expense. In October 2013, Host Inc.’s Board of Directors authorized repurchases of up to $680 million of senior notes, exchangeable debentures and mortgage debt (other than in accordance with its terms), of which $530 million remains available under this authority. We may purchase senior notes and exchangeable debentures for cash through open market purchases, privately negotiated transactions, a tender offer or, in some cases, through the early redemption of such securities pursuant to their terms. Repurchases of debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. Any refinancing or retirement before the maturity date will affect earnings and Funds From Operations (“FFO”) per diluted share, as defined below, as a result of the payment of any applicable call premiums and the acceleration of the write-off of previously deferred financing costs. Accordingly, in light of our priorities in managing our capital structure and liquidity profile and given prevailing conditions and relative pricing in the capital markets, we may, at any time, subject to applicable securities laws, be considering, or be in discussions with respect to, the purchase or sale of common stock, exchangeable debentures and/or senior notes. Any such transactions may, subject to applicable securities laws, occur simultaneously.

Sources and Uses of Cash. Our sources of cash include cash from operations, proceeds from debt and equity issuances, and proceeds from asset sales. Uses of cash include acquisitions, investments in our joint ventures, capital expenditures, operating costs, debt repayments and repurchases and distributions to equity holders.

Cash Provided by Operations. Our cash provided by operations decreased $5 million to $171 million compared to 2013. The decrease is due to the timing of cash received from hotel managers, despite the overall improvements in operating results.

Cash Used in Investing Activities. Cash used in investing activities was used primarily for the acquisition of property, for capital expenditures on our existing portfolio and to fund our investment in joint ventures. For the quarter ended March 31, 2014, we invested $177 million for the acquisition of one hotel, investments in our joint ventures, and for capital expenditures at our existing properties. For the quarter ended March 31, 2013, we invested $132 million for capital expenditures at our existing properties and investments in our joint ventures. Cash used for renewal and replacement capital expenditures for the first quarter of 2014 and 2013 was $76 million and $87 million, respectively, while cash used for capital expenditures invested in ROI/redevelopment projects and acquisition capital expenditures was $14 million and $36 million, respectively. Cash provided by investing activities was $299 million from the sale of two assets in the first quarter of 2014 and $279 million from the sale of one hotel in the first quarter of 2013.

The following tables summarize significant acquisitions and dispositions that have been completed as of May 1, 2014 (in millions):

Transaction Date		Description of Transaction	Cash Paid			Investment Price
Acquisitions/Investments
January	2014	Acquisition of The Powell Hotel	$	(75	)	$	(75	)
		Total acquisitions/investments	$	(75	)	$	(75	)

Transaction Date		Description of Transaction	Net Proceeds			Sales Price
Dispositions
February	2014	Disposition of Courtyard Nashua	$	9		$	10
January	2014	Sale of 89% interest in the Philadelphia Marriott Downtown⁽¹⁾	290				270
		Total dispositions	$	299		$	280

(1)	Sales price represents the 89% interest in the hotel that was sold. Net proceeds also include our 11% portion of the proceeds received from the $230 million mortgage loan issued by the partnership at closing.

Cash Used in Financing Activities. In the first quarter of 2014, cash used in financing activities was $775 million, compared to cash provided by financing activities of $334 million in the first quarter of 2013. Cash used in financing activities, primarily for the repayment of debt and dividends, increased $605 million compared to the first quarter of 2013. In the first quarter of 2013, $503 million was provided by financing activities through the issuance of debt and common stock. We did not receive any proceeds from the issuance of debt or common stock (other than $1 million upon the exercise of employee stock options) during the first quarter of 2014.

The following table summarizes significant redemptions and repayments of debt, including premiums, that have been completed through May 1, 2014 (in millions). There have been no new debt issuances.

			Transaction
Transaction Date		Description of Transaction	Amount
Cash Repayments
February	2014	Repayment of mortgage loan on the Ritz-Carlton, Naples and Newport Beach Marriott	$	(300	)
February	2014	Redemption of $150 million of 6¾ % Series Q senior notes		(152	)
January	2014	Repayment on revolver portion of credit facility		(225	)
		Total cash repayments	$	(677	)

The following table summarizes significant equity transactions that have been completed through May 1, 2014 (in millions):

			Transaction
Transaction Date		Description of Transaction	Amount
Equity of Host Inc.
January-April	2014	Dividend payments⁽¹⁾	$	(204	)
		Cash payments on equity transactions	$	(204	)

(1)	In connection with the dividends, Host L.P. made distributions of $208 million.

Debt

As of March 31, 2014, our total debt was $4.1 billion, with an average interest rate of 4.9% and an average maturity of 5.7 years. Additionally, 79% of our debt has a fixed rate of interest and 104 of our hotels are unencumbered by mortgage debt.

Exchangeable Senior Debentures. As of March 31, 2014, we have $400 million of 2½% exchangeable senior debentures outstanding that were issued on December 22, 2009 (the “2009 Debentures”). The 2009 Debentures are equal in right of payment with all of our other senior notes. Holders have the right to require us to purchase the 2009 Debentures at a price equal to 100% of the principal amount outstanding plus accrued interest (the “put option”) on October 15, 2015 and on certain other subsequent dates.

Holders also have the right to exchange the 2009 Debentures prior to maturity under certain conditions, including at any time at which the closing price of Host Inc.’s common stock is more than 130% of the exchange price per share ($13.20) for at least 20 of the last 30 consecutive trading days of the calendar quarter, or at any time up to two days prior to the date on which the 2009 Debentures have been called for redemption. We can redeem for cash all, or a portion of, the 2009 Debentures at any time subsequent to October 20, 2015, at a redemption price of 100% of the principal amount plus accrued interest. If, at any time, we elect to redeem the 2009 Debentures and the exchange value exceeds the cash redemption price, we would expect the holders to elect to exchange their debentures for common stock at the exchange value rather than receive the cash redemption price. The exchange value is equal to the applicable exchange rate multiplied by the price of Host Inc.’s common stock. Upon exchange, the 2009 Debentures would be exchanged for Host Inc.’s common stock, cash, or a combination thereof, at our option. The 2009 Debentures currently are exchangeable by holders at this time and each $1,000 Debenture would be exchanged for 75.7559 Host Inc. common shares (for an equivalent per share price of $13.20), for a total of 30.3 million shares.

We separately account for the liability and equity components of the 2009 Debentures in order to reflect the fair value of the liability component based on our non-convertible borrowing cost at the issuance date. Accordingly, we record the liability components at fair value as of the date of issuance and amortize the resulting discount as an increase to interest expense through the initial put option date, which is the expected life thereof. However, there is no effect of this accounting treatment on our cash interest payments. The initial allocations between the debt and equity components of the 2009 Debentures, net of the original issue discount, based on the effective interest rate at the time of issuance was $316 million and $82 million, respectively. As of March 31, 2014, the debt carrying value and unamortized discount were $375 million and $25 million, respectively.

Interest expense recorded for our debentures (including interest expense for debentures redeemed in 2014 and 2013) for the periods presented consists of the following (in millions):

	Quarter ended March 31,
	2014		2013
Contractual interest expense (cash)	$	3	$	3
Non-cash interest expense due to discount amortization		4		4
Total interest expense	$	7	$	7

Financial Covenants

Credit Facility Covenants. Our credit facility contains certain important financial covenants concerning allowable leverage, unsecured interest coverage and required fixed charge coverage. Total debt used in the calculation of our leverage ratio is based on a “net debt” concept, under which cash and cash equivalents in excess of $100 million are deducted from our total debt balance for purposes of measuring compliance. To the extent that no amounts are outstanding under the credit facility, breaching these covenants would not be an event of default thereunder.

We are in compliance with all of our financial covenants under the credit facility. The following table summarizes the financial tests contained in the credit facility as of March 31, 2014:


	Actual Ratio	Covenant Requirement for all years
Leverage ratio	3.0x	Maximum ratio of 7.25x
Fixed charge coverage ratio	4.7x	Minimum ratio of 1.25x
Unsecured interest coverage ratio ⁽¹⁾	7.7x	Minimum ratio of 1.75x

(1)	If, at any time, our leverage ratio exceeds 7.0x, our minimum unsecured interest coverage ratio will be reduced to 1.5x.

Senior Notes Indenture Covenants

Series D Senior Notes

We are in compliance with all of the financial covenants applicable to our Series D senior notes. The following table summarizes the financial tests contained in the senior notes indenture for our Series D senior notes and our actual credit ratios as of March 31, 2014:

	Actual Ratio		Covenant Requirement
Unencumbered assets tests	466	%	Minimum ratio of 150%
Total indebtedness to total assets	22	%	Maximum ratio of 65%
Secured indebtedness to total assets	2	%	Maximum ratio of 40%
EBITDA-to-interest coverage ratio	6.6x		Minimum ratio of 1.5x

Prior Series of Senior Notes

Because our senior notes currently are rated investment grade by both Moody’s and Standard & Poor’s, the covenants in our senior notes indenture (for all series other than the Series D senior notes) that previously limited our ability to incur indebtedness or pay dividends no longer are applicable. Even if we were to lose the investment grade rating, however, we would be in compliance with all of our financial covenants under the senior notes indenture. The following summarizes the actual credit ratios for our existing senior notes (other than the Series D senior notes) as of March 31, 2014 and the covenant requirements contained in the senior notes indenture that would be applicable at such times as our existing senior notes no longer are rated investment grade by either of Moody’s or Standard & Poor’s:

	Actual Ratio*		Covenant Requirement
Unencumbered assets tests	475	%	Minimum ratio of 125%
Total indebtedness to total assets	22	%	Maximum ratio of 65%
Secured indebtedness to total assets	2	%	Maximum ratio of 45%
EBITDA-to-interest coverage ratio	6.6x		Minimum ratio of 2.0x

*	Because of differences in the calculation methodology between our Series D senior notes and our other senior notes with respect to covenant ratios, our actual ratios as reported may be slightly different.

For further detail on our credit facility and senior notes, see our Annual Report on Form 10-K for the year ended December 31, 2013.

Dividend Policy

Host Inc. is required to distribute at least 90% of its annual taxable income, excluding net capital gains, to its stockholders in order to maintain its qualification as a REIT, including taxable income recognized for federal income tax purposes but with regard to which we do not receive cash. Funds used by Host Inc. to pay dividends on its common stock are provided through distributions from Host L.P. As of March 31, 2014, Host Inc. is the owner of approximately 99% of the Host L.P. common OP units. The remaining common OP units are held by various third party limited partners. Each Host L.P. OP unit may be redeemed for cash or, at the election of Host Inc., Host Inc. common stock based on the conversion ratio. The conversion ratio is 1.021494 shares of Host Inc. common stock for each Host L.P. OP unit.

Investors should take into account the non-controlling interest in the Host L.P. common OP units when analyzing common dividend payments by Host Inc. to its stockholders, as these common OP unit holders share, on a pro rata basis, in cash amounts distributed by Host L.P. to all of its common OP unit holders. 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 Host L.P. common OP unitholders.

Host Inc.’s policy on common dividends generally is to distribute, over time, 100% of its taxable income. The amount of any future dividends will be determined by the Board of Directors of Host Inc.

On February 18, 2014, the Board of Directors of Host Inc. declared a regular dividend of $0.14 per share on our common stock, an increase of $0.01 per share from the previous quarter. This dividend was paid on April 15, 2014 to stockholders of record as of March 31, 2014. Accordingly, Host L.P. made a distribution of $0.14300916 per unit on its common OP units.

European Joint Venture

We own a non-controlling interest in a joint venture in Europe (“Euro JV”) that owns luxury and upper upscale hotels in two separate funds. We own a 32.1% interest in Euro JV Fund I (11 hotels, 3,511 rooms) and a 33.4% interest in Euro JV Fund II (8 hotels, 2,916 rooms). At March 31, 2014, hotel investments by the Euro JV totaled €1.9 billion, with €1.0 billion of mortgage debt. All of the mortgage debt of the Euro JV is non-recourse to us and our partners and a default thereunder does not trigger a default under any of our debt. Our investment, partners’ funding and debt outstanding as of March 31, 2014 are as follows:


		Host's Net Investment		Total Partner Funding	% of Total Commitment			Debt balance ⁽¹⁾		Host's Portion of Non-Recourse Debt
		(in millions)		(in millions)				(in millions)		(in millions)
Euro JV Fund I	€	143	€	631	91	%	€	568	€	182
Euro JV Fund II		122		369	82	%		419		140
	€	265	€	1,000			€	987	€	322

(1)	€70 million loan secured by three hotels in Brussels matures in July 2014.

The following table sets forth operating statistics for the 18 comparable hotels as of March 31, 2014 and 2013:

	Comparable Euro JV Hotels in Constant Euros⁽¹⁾
	Quarter ended March 31,						Change
	2014			2013			2014 to 2013
Average room rate	€	161.56		€	162.41			(0.5	)%
Average occupancy		67.8	%		65.6	%		220	bps
RevPAR	€	109.57		€	106.57			2.8	%

(1)	The presentation above includes the operating performance for the 18 properties consisting of 5,962 rooms. The table excludes the one hotel acquired in 2013 as the joint venture did not own the hotel for the entirety of 2013. See “-Comparable Hotel Operating Statistics.”

Critical Accounting Policies

Our unaudited condensed consolidated financial statements have been prepared in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. While we do not believe that 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 on an ongoing basis. We base our estimates on experience and on various other assumptions that we believe to be reasonable under the circumstances. All of our significant accounting policies, including certain critical accounting policies, are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.

Effective January 1, 2014, we early adopted ASU 2014-08 Reporting for Discontinued Operations, under which only dispositions representing a strategic shift in operations will be reclassified to discontinued operations. Previously, we had reported the disposition of a hotel as discontinued operations. With this adoption, we present the gain on the disposition of hotel property as gain on property sales within income from continuing operations and do not reclassify the operating results of the hotel to discontinued operations. The treatment is prospective and, as a result, we have not restated prior periods.

Comparable Hotel Operating Statistics

To facilitate a quarter-to-quarter comparison of our operations, we present certain operating statistics (i.e., RevPAR, average daily rate and average occupancy) and operating results (revenues, expenses, adjusted operating profit and associated margins) for the periods included in this report on a comparable hotel basis to enable our investors to better evaluate our operating performance.

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

(i)	that are owned or leased by us and the operations of which are included in our consolidated results, whether as continuing operations or discontinued operations, for the entirety of the reporting periods being compared; and

(ii)	that have not sustained substantial property damage or business interruption, or undergone large-scale capital projects (as further defined below) during the reporting periods being compared.

The hotel business is capital-intensive and renovations are a regular part of the business. Generally, hotels under renovation remain comparable hotels. A large scale capital project that would cause a hotel to be excluded from our comparable hotel set is an extensive renovation of several core aspects of the hotel, such as rooms, meeting space, lobby, bars, restaurants and other public spaces. Both quantitative and qualitative factors are taken into consideration in determining if the renovation would cause a hotel to be removed from the comparable hotel set, including unusual or exceptional circumstances such as: a reduction or increase in room count, rebranding, a significant alteration of the business operations, or the closing of the hotel during the renovation.

We do not include an acquired hotel in our comparable hotel set until the operating results for that hotel have been included in our consolidated results for one full calendar year. For example, we acquired the Hyatt Place Waikiki Beach in May 2013. The hotel will not be included in our comparable hotel set until January 1, 2015. Hotels that we sell are excluded from the comparable hotel set once the transaction has closed. Similarly, hotels are excluded from our comparable hotel set from the date that they sustain substantial property damage or business interruption or commence a large-scale capital project. In each case, these hotels are returned to the comparable hotel set when the operations of the hotel have been included in our consolidated results for one full calendar year after completion of the repair of the property damage or cessation of the business interruption, or the completion of large-scale capital projects, as applicable.

Of the 114 hotels that we owned on March 31, 2014, 109 have been classified as comparable hotels. The operating results of the following hotels that we owned as of March 31, 2014 are excluded from comparable hotel results for these periods:

·	Powell Street Hotel (acquired in January 2014)

·	The Ritz-Carlton, Naples, removed in the third quarter of 2013 (business interruption due to the closure of the hotel during extensive renovations that were substantially completed in October 2013, which included renovations of 450 rooms, including 35 suites, restaurant, façade and windows);

·	Hyatt Place Waikiki Beach (acquired in May 2013);

·	Novotel Christchurch Cathedral Square (business interruption due to the closure of the hotel following an earthquake in February 2011 and the subsequent extensive renovations, which hotel reopened in August 2013);

Orlando World Center Marriott, removed in the third quarter of 2012 (business interruption due to extensive renovations that were substantially completed in July 2013, which include façade restoration, the shutdown of the main pool and a complete restoration and enhancement of the hotel, including new water slides and activity areas, new pool, dining facilities and the renovation of one tower of guestrooms, meeting space and restaurants).

The operating results of seven hotels disposed of in 2014 and 2013 are not included in comparable hotel results for the periods presented herein.

CONSTANT US$, NOMINAL US$ AND CONSTANT EUROS

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

We also present RevPAR results for our joint venture in Europe in constant Euros using the same methodology as used for the constant US$ presentation.

Non-GAAP Financial Measures

We use certain “non-GAAP financial measures,” which are measures of our historical or future financial performance that are not calculated and presented in accordance with GAAP, within the meaning of applicable SEC rules. These measures are as follows:

·	Earnings Before Interest Expense, Income Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA, as a measure of performance for Host Inc. and Host L.P.,

·	Funds From Operations (“FFO”) and FFO per diluted share, both calculated in accordance with National Association of Real Estate Investment Trust (“NAREIT”) guidelines and with certain adjustments from those guidelines, as a measure of performance for Host Inc., and

·	Comparable hotel operating results, as a measure of performance for Host Inc. and Host L.P.

The following discussion defines these measures and presents why we believe they are useful supplemental measures of our performance.

Set forth below for each such non-GAAP financial measure is a reconciliation of the measure with the financial measure calculated and presented in accordance with GAAP that we consider most directly comparable to it. We also have included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” in our Annual Report on Form 10-K for the year ended December 31, 2013, further explanations of the adjustment being made, a statement disclosing the reasons why we believe the presentation of each of the non-GAAP financial measures provide useful information to investors regarding our financial condition and results of operations, the additional purposes for which we use the non-GAAP financial measures, and the limitations on their use.

EBITDA and Adjusted 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.

Adjusted EBITDA

Historically, management has adjusted EBITDA when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance and that the presentation of Adjusted EBITDA, when combined with the primary GAAP presentation of net income (loss), is beneficial to an investor’s complete understanding of our operating performance. Adjusted EBITDA also is a relevant measure in calculating certain credit ratios. We adjust EBITDA for the following items, which may occur in any period, and refer to this measure as Adjusted EBITDA:

Real Estate Transactions – We exclude the effect of gains and losses, including the amortization of deferred gains, recorded on the disposition or acquisition of depreciable assets and property insurance gains in our consolidated statement of operations because we believe that including them in Adjusted EBITDA is not consistent with reflecting the ongoing performance of our assets. In addition, material gains or losses based on the depreciated value of the disposed assets could be less important to investors given that the depreciated asset value often does not reflect its market value (as noted below for FFO).

Equity Investment Adjustments – We exclude the equity in earnings (losses) of unconsolidated investments in partnerships and joint ventures as presented in our consolidated statement of operations because it includes our pro rata portion of depreciation, amortization and interest expense from these investments, which are excluded from EBITDA. We include our pro rata share of the Adjusted EBITDA of our equity investments as we believe this more accurately reflects the performance of our investments. The pro rata Adjusted EBITDA of equity investments is defined as the EBITDA of our equity investments, adjusted for any gains or losses on property transactions, multiplied by our ownership percentage in the partnership or joint venture.

Consolidated Partnership Adjustments – We deduct the non-controlling partners’ pro rata share of the Adjusted EBITDA of our consolidated partnerships as this reflects the non-controlling owners’ interest in the EBITDA of our consolidated partnerships. The pro rata Adjusted EBITDA of non-controlling partners is defined as the EBITDA of

our consolidated partnerships, adjusted for any gains or losses on property transactions, multiplied by the non-controlling partners’ ownership percentage in the partnership or joint venture.

Cumulative Effect of a Change in Accounting Principle – Infrequently, the Financial Accounting Standards Board (“FASB”) promulgates new accounting standards that require the consolidated statement of operations to reflect the cumulative effect of a change in accounting principle. We exclude these one-time adjustments because they do not reflect our actual performance for that period.

Impairment Losses – We exclude the effect of impairment losses recorded because we believe that including them in Adjusted EBITDA is not consistent with reflecting the ongoing performance of our assets. In addition, we believe that impairment losses, which are based on historical cost accounting of the relevant asset, are similar to gains (losses) on dispositions and depreciation expense, both of which also are excluded from EBITDA.

·	Acquisition Costs – Under GAAP, costs associated with completed property acquisitions are expensed in the year incurred. We exclude the effect of these costs because we believe they are not reflective of the ongoing performance of the company.

Litigation Gains and Losses – Effective April 1, 2013, we have excluded the effect of gains or losses associated with litigation recorded under GAAP that we consider outside the ordinary course of business, which is consistent with the definition of Adjusted FFO that we adopted effective January 1, 2011. We believe that including these items is not consistent with our ongoing operating performance.

In unusual circumstances, we also may adjust EBITDA for gains or losses that management believes are not representative of our current operating performance. For example, in the first quarter of 2013, management excluded the $11 million gain from the eminent domain claim for land adjacent to the Atlanta Marriott Perimeter Center for which we received the cash proceeds in 2007, but, pending the resolution of certain contingencies, was not recognized until 2013. Typically, gains from the disposition of non-depreciable property are included in the determination of Adjusted EBITDA.

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

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

(in millions)

	Quarter ended March 31,
	2014			2013
Net income ⁽¹⁾	$	185		$	60
Interest expense		58			76
Depreciation and amortization		172			173
Income taxes		(4	)		(7	)
Discontinued operations ⁽²⁾		—			7
EBITDA		411			309
Gain on dispositions ⁽³⁾		(112	)		(19	)
Acquisition costs		1			—
Recognition of deferred gain on land condemnation ⁽¹⁾		—			(11	)
Equity investment adjustments:
Equity in losses of affiliates		8			2
Pro rata Adjusted EBITDA of equity investments		8			8
Consolidated partnership adjustments:
Pro rata Adjusted EBITDA attributable to non-controlling partners in other consolidated partnerships		(8	)		(6	)
Adjusted EBITDA	$	308		$	283

(1)

During the first quarter of 2013, we recognized a previously deferred gain of approximately $11 million related to the eminent domain claim by the State of Georgia for 2.9 acres of land at the Atlanta Marriott Perimeter Center for highway expansion, for which we received cash proceeds in 2007. We have included the gain in NAREIT FFO per diluted share, which is consistent with the treatment of gains recognized on the disposition of undepreciated assets. However, due to the significant passage of time since we received the proceeds, we have excluded the gain from Adjusted FFO per diluted share and Adjusted EBITDA for the quarter.

(2)	Reflects the interest expense, depreciation and amortization and income taxes included in discontinued operations.

(3)	Reflects the sale of an 89% controlling interest in one hotel in 2014 and the sale of one hotel during the first quarter of both 2014 and 2013.

FFO Measures

We present NAREIT FFO and NAREIT FFO per diluted share as non-GAAP measures of our performance in addition to our earnings (loss) per share (calculated in accordance with GAAP). We calculate NAREIT FFO per diluted share as our NAREIT FFO (defined as set forth below) for a given operating period, as adjusted for the effect of dilutive securities, divided by the number of fully diluted shares outstanding during such period in accordance with NAREIT guidelines. NAREIT defines FFO as net income (loss) (calculated in accordance with GAAP), excluding gains (losses) from sales of real estate, the cumulative effect of changes in accounting principles, real estate-related depreciation, amortization and impairments and adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect our pro rata FFO of those entities on the same basis.

We believe that NAREIT FFO per diluted share is a useful supplemental measure of our operating performance and that the presentation of NAREIT FFO per diluted share, when combined with the primary GAAP presentation of earnings per share, provides beneficial information to investors. By excluding the effect of real estate depreciation, amortization, impairments and gains and losses from sales of real estate, all of which are based on historical cost accounting and which may be of lesser significance in evaluating current performance, we believe such measures can facilitate comparisons of operating performance between periods and with other REITs, even though NAREIT FFO per diluted share does not represent an amount that accrues directly to holders of our common stock. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. As noted by NAREIT in its April 2002 “White Paper on Funds From Operations,” since real estate values historically have risen or fallen with market conditions, many industry investors have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. For these reasons, NAREIT adopted the FFO metric in order to promote an industry-wide measure of REIT operating performance.

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

Gains and Losses on the Extinguishment of Debt – We exclude the effect of finance charges and redemption 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. We also exclude the gains on debt repurchases and the original issuance costs associated with the retirement of preferred stock. We believe that these items are not reflective of our ongoing finance costs.

·	Acquisition Costs –Under GAAP, costs associated with completed property acquisitions are expensed in the year incurred. We exclude the effect of these costs because we believe they are not reflective of the ongoing performance of the company.

·	Litigation Gains and Losses – We exclude the effect of gains or losses associated with litigation recorded under GAAP that we consider outside the ordinary course of business. We believe that including these items is not consistent with our ongoing operating performance.

In unusual circumstances, we also may adjust NAREIT FFO for gains or losses that management believes are not representative of our current operating performance. For example, in the first quarter of 2013, management excluded the $11 million gain from the eminent domain claim for land adjacent to the Atlanta Marriott Perimeter Center for which we received the cash proceeds in 2007, but, pending the resolution of certain contingencies, was not recognized until 2013. Typically, gains from the disposition of non-depreciable property are included in the determination of NAREIT and Adjusted FFO.

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

Host Inc. Reconciliation of Net Income to

NAREIT and Adjusted Funds From Operations per Diluted Share

(in millions, except per share amount)

	Quarter ended March 31,
	2014			2013
Net income	$	185		$	60
Less: Net income attributable to non-controlling interests		(6	)		(4	)
Net income attributable to Host Inc.		179			56
Adjustments:
Gain on dispositions, net of taxes ⁽¹⁾		(109	)		(19	)
Depreciation and amortization		171			176
Equity investment adjustments:
Equity in losses of affiliates		8			2
Pro rata FFO of equity investments		1			6
Consolidated partnership adjustments:
FFO adjustment for non-controlling partnerships		(2	)		(1	)
FFO adjustments for non-controlling interests of Host L.P.		(1	)		(2	)
NAREIT FFO		247			218
Adjustments to NAREIT FFO:
Loss on debt extinguishment		2			—
Acquisition costs		1			—
Recognition of deferred gain on land condemnation ⁽²⁾		—			(11	)
Adjusted FFO	$	250		$	207

For calculation on a per share basis:

Adjustments for dilutive securities ⁽³⁾:
Assuming conversion of Exchangeable Senior Debentures	$	7		$	7
Diluted NAREIT FFO	$	254		$	225
Diluted Adjusted FFO	$	257		$	214

Diluted weighted average shares outstanding-EPS		785.1			738.6
Assuming conversion of Exchangeable Senior Debentures		—			29.1
Diluted weighted average shares outstanding - NAREIT FFO and Adjusted FFO		785.1			767.7
NAREIT FFO per diluted share	$	0.32		$	0.29
Adjusted FFO per diluted share	$	0.33		$	0.28

(1)	Reflects the sale of an 89% controlling interest in one hotel in 2014 and the sale of one hotel during the first quarter of both 2014 and 2013.

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

(3)

Earnings per diluted share and NAREIT FFO and Adjusted FFO per diluted share are adjusted for the effects of dilutive securities. Dilutive securities may include shares granted under comprehensive stock plans, preferred OP units held by non-controlling partners, exchangeable debt securities and other non-controlling interests that have the option to convert their limited partnership interests to common OP units. No effect is shown for securities if they are anti-dilutive.

Comparable Hotel Operating Results

We present certain operating results of our hotels, such as hotel revenues, expenses, adjusted operating profit and adjusted operating profit margin, on a comparable hotel, or “same store” basis as supplemental information for investors. For an explanation of which properties we considered to be “comparable hotels”, see “Comparable Hotel Operating Statistics” above.

The following table presents certain operating results and statistics for our comparable hotels for the periods presented herein and a reconciliation of the differences between comparable hotel adjusted operating profits, a non-GAAP financial measure, and

operating profit, the financial measure calculated and presented in accordance with GAAP that we consider most directly comparable. Similar reconciliations of the differences between (i) comparable hotel revenues and (ii) our total revenues as calculated and presented in accordance with GAAP (each of which is used in the applicable margin calculation), and between (iii) comparable hotel expenses and (iv) operating costs and expenses as calculated and presented in accordance with GAAP, are provided in the footnotes to the reconciliation:

Comparable Hotel Results for Host Inc. and Host L.P.

(in millions, except hotel statistics)

	Quarter ended March 31,
	2014			2013
Number of hotels		109			109
Number of rooms		56,657			56,657
Percent change in comparable hotel RevPAR - Constant US$		6.8	%	—
Percent change in comparable hotel RevPAR - Nominal US$		6.2	%		—
Operating profit margin ⁽¹⁾		10.2	%		7.4	%
Comparable hotel adjusted operating profit margin ⁽¹⁾		24.0	%		22.8	%
Comparable hotel revenues
Room	$	764		$	719
Food and beverage ⁽²⁾		370			338
Other		70			69
Comparable hotel revenues ⁽³⁾		1,204			1,126
Comparable hotel expenses
Room		215			202
Food and beverage ⁽⁴⁾		264			250
Other		35			35
Management fees, ground rent and other costs		401			382
Comparable hotel expenses ⁽⁵⁾		915			869
Comparable hotel adjusted operating profit		289			257
Non-comparable hotel results, net ⁽⁶⁾		51			32
Depreciation and amortization		(172	)		(173	)
Corporate and other expenses		(34	)		(26	)
Operating profit	$	134		$	90

(1)

Operating 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 adjusted operating profit margins are calculated using amounts presented in the above table.

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

	Quarter ended March 31,
	2014			2013
Food and beverage sales per the consolidated statements of operations	$	405		$	369
Non-comparable hotel food and beverage sales		(46	)		(41	)
Food and beverage sales for the property for which we record rental income		11			10
Comparable food and beverage sales	$	370		$	338

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

	Quarter ended March 31,
	2014			2013
Revenues per the consolidated statements of operations	$	1,309		$	1,224
Non-comparable hotel revenues		(121	)		(112	)
Hotel revenues for which we record rental income, net		16			14
Comparable hotel revenues	$	1,204		$	1,126

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

	Quarter ended March 31,
	2014			2013
Food and beverage expenses per the consolidated statements of operations	$	284		$	272
Non-comparable hotel food and beverage expenses		(26	)		(28	)
Food and beverage expenses for the property for which we record rental income		6			6
Comparable food and beverage expenses	$	264		$	250

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

	Quarter ended March 31,
	2014			2013
Operating costs and expenses per the consolidated statements of operations	$	1,175		$	1,134
Non-comparable hotel expenses		(70	)		(80	)
Hotel expenses for which we record rental income		16			14
Depreciation and amortization		(172	)		(173	)
Corporate and other expenses		(34	)		(26	)
Comparable hotel expenses	$	915		$	869

(6)

Non-comparable hotel results, net, includes the following items: (i) the results of operations of our non-comparable hotels and sold hotels whose operations are included in our consolidated statements of operations as continuing operations, (ii) gains on property insurance settlements and (iii) the results of our office buildings.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Interest Rate Sensitivity

As of March 31, 2014 and December 31, 2013, 79% and 71%, respectively, of our outstanding debt bore interest at fixed rates. To manage interest rate risk applicable to our debt, we may enter into interest rate swaps or caps. The interest rate derivatives into which we enter are strictly to hedge interest rate risk, and are not for trading purposes. The percentages above reflect the effect of any derivatives into which we have entered to manage interest rate risk. No interest rate swaps or caps were entered into during the first quarter of 2014. See Item 7A of our most recent Annual Report on Form 10–K and Note 9 – “Fair Value Measurements” in this quarterly report.

Exchange Rate Sensitivity

As we have operations outside of the United States (specifically, the ownership of hotels in Australia, Brazil, Canada, Mexico, Chile and New Zealand and our investments in the Euro JV and Asia/Pacific JV), currency exchange risks arise in the normal course of our business. To manage the currency exchange risk, we may enter into forward or option contracts or hedge our investment through the issuance of foreign currency denominated debt. We did not enter into any currency hedges in the first quarter of 2014. The following table summarizes our foreign currency sale contracts (in millions):

Currently Outstanding

Change in Fair Value - All Contracts

Total

Transaction

Total

Amount in

Transaction

Gain (Loss)

Transaction Date

Foreign

Amount

Forward Purchase

Quarter ended March 31,

Range

Currency

in Dollars

Date Range

2014

2013

May 2008-January 2013

€

120

163

May 2014-January 2016

—

The foreign currency exchange agreements into which we have entered are strictly to hedge foreign currency risk and not for trading purposes. In addition to the forward sales contracts, we have designated a portion of the foreign currency draws on our credit facility as hedges of net investments in foreign operations. As a result, currency translation adjustments in the designated credit

facility draws are recorded to accumulated other comprehensive income (loss) within the equity portion of our balance sheets, which adjustments offset a portion of the translation adjustment related to our international investments. See Item 7A of our most recent Annual Report on Form 10-K and Note 9 – “Fair Value Measurements” in this quarterly report.

Item 4. Controls and Procedures

Controls and Procedures (Host Hotels & Resorts, Inc.)

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

Changes to Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Controls and Procedures (Host Hotels & Resorts, L.P.)

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including Host Inc.’s Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, Host Inc.’s Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

Changes to Internal Control over Financial Reporting

PART II. OTHER INFORMATION

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities (Host Hotels & Resorts, Inc.)

Period

Total Number of
Host Inc. Common Shares Purchased

Average Price Paid
per Common Share

Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs

Approximate Dollar Value of

Common Shares that May Yet Be Purchased Under the Plans or Programs

(in millions)

January 1, 2014 – January 31, 2014

15,670

19.28

––

February 1, 2014 – February 28, 2014

368,410

18.32

––

March 1, 2014 – March 31, 2014

857,742

19.37

––

Total

1,241,822

18.36

––

*	Reflects shares of restricted stock withheld and used for the purpose of paying taxes in connection with the release of restricted common shares to plan participants (the purchase price listed is the weighted average price of Host Inc. common stock on the dates of release).

Reflects (1) 856,559 shares of restricted stock forfeited for failure to meet vesting criteria and (2) 1,183 shares of restricted stock withheld and used for the purpose of paying taxes in connection with the release of restricted common shares to plan participants (the purchase price listed is the weighted average price of Host Inc. common stock on the dates of release).

Issuer Purchases of Equity Securities (Host Hotels & Resorts, L.P.)

Period

Total Number of
OP Units Purchased

Average Price
Paid per Unit

Total Number of OP
Units Purchased as Part of Publicly Announced
Plans or Programs

Approximate Dollar Value
of Units that May Yet Be
Purchased Under the Plans
or Programs (in millions)

January 1, 2014 – January 31, 2014

34,732

1.021494 shares of Host Hotels & Resorts, Inc. common stock

––

February 1, 2014 – February 28, 2014

391,369

1.021494 shares of Host Hotels & Resorts, Inc. common stock

––

March 1, 2014 – March 31, 2014

843,146

***

1.021494 shares of Host Hotels & Resorts, Inc. common stock

––

Total

1,269,247

––

Reflects (1) 19,392 common OP units redeemed by holders in exchange for shares of Host Inc.’s common stock and (2) 15,340 common OP units cancelled upon cancellation of 15,670 shares of Host Inc.’s common stock by Host Inc. (and used for the purpose of paying taxes in connection with the release of restricted common shares to plan participants).

Reflects (1) 30,711 common OP units redeemed by holders in exchange for shares of Host Inc.’s common stock and (2) 360,658 common OP units cancelled upon cancellation of 368,410 shares of Host Inc.’s common stock by Host Inc. (and used for the purpose of paying taxes in connection with the release of restricted common shares to plan participants).

***

Reflects (1) 3,453 common OP units redeemed by holders in exchange for shares of Host Inc.’s common stock and (2) 839,693 common OP units cancelled upon cancellation of 857,742 shares of Host Inc.’s common stock by Host Inc. (either because of forfeiture for failure to meet vesting requirements or used for the purpose of paying taxes in connection with the release of restricted common shares to plan participants).

Item 6.

Exhibits

In reviewing the agreements included as exhibits to this report, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the company, its subsidiaries or other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

·	should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

·	have been qualified by disclosures that were made to other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

·	may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

·	were made only as of the date of the applicable agreement or such other date or date as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representation and warranties may not describe the actual state of affairs as the date they were made or at any other time.

The exhibits listed on the accompanying Exhibit Index are filed as part of this report and such Exhibit Index is incorporated herein by reference.

Exhibit No.		Description

3		Articles of Incorporation and Bylaws

3.3		Articles Supplementary of Host Hotels & Resorts, Inc. filed with the State Department of Assessments and Taxation of Maryland on March 27, 2014 (incorporated by reference to Exhibit 3.3 of Host Hotels & Resorts, Inc.’s Current Report on Form 8‑K, filed on March 27, 2014).

12		Statements re Computation of Ratios

12.1*		Computation of Ratios of Earnings to Fixed Charges for Host Hotels & Resorts, Inc.

12.2*		Computation of Ratios of Earnings to Fixed Charges for Host Hotels & Resorts, L.P.

31		Rule 13a-14(a)/15d-14(a) Certifications

31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Host Hotels & Resorts, Inc.

31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Host Hotels & Resorts, Inc.

31.3*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Host Hotels & Resorts, L.P.

31.4*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Host Hotels & Resorts, L.P.

32		Section 1350 Certifications

32.1†*		Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 for Host Hotels & Resorts, Inc.

32.2†*		Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 for Host Hotels & Resorts, L.P.

101		XBRL

101.INS		XBRL Instance Document. Submitted electronically with this report.

101.SCH		XBRL Taxonomy Extension Schema Document. Submitted electronically with this report.

101.CAL		XBRL Taxonomy Calculation Linkbase Document. Submitted electronically with this report.

Exhibit No.		Description
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document. Submitted electronically with this report.

101.LAB		XBRL Taxonomy Label Linkbase Document. Submitted electronically with this report.

101.PRE		XBRL Taxonomy Presentation Linkbase Document. Submitted electronically with this report.

Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations for the Quarter ended March 31, 2014 and 2013, respectively, for Host Hotels & Resorts, Inc.; (ii) the Condensed Consolidated Balance Sheets at March 31, 2014 and December 31, 2013, respectively, for Host Hotels & Resorts, Inc.; (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) for the Quarter ended March 31, 2014 and 2013, respectively, for Host Hotels & Resorts, Inc.; (iv) the Condensed Consolidated Statements of Cash Flows for the Quarter ended March 31, 2014 and 2013, respectively, for Host Hotels & Resorts, Inc.; (v) the Condensed Consolidated Statements of Operations for the Quarter ended March 31, 2014 and 2013, respectively, for Host Hotels & Resorts, L.P.; (vi) the Condensed Consolidated Balance Sheets at March 31, 2014 and December 31, 2013, respectively, for Host Hotels & Resorts, L.P.; (vii) the Condensed Consolidated Statements of Comprehensive Income (Loss) for the Quarter ended March 31, 2014 and 2013, respectively, for Host Hotels & Resorts, L.P.; (viii) the Condensed Consolidated Statements of Cash Flows for the Quarter ended March 31, 2014 and 2013, respectively, for Host Hotels & Resorts, L.P.; and (ix) Notes to Condensed Consolidated Financial Statements that have been detail tagged.

*	Filed herewith.

†

This certificate is being furnished solely to accompany the report pursuant to 18 U.S.C. 1350 and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			HOST HOTELS & RESORTS, INC.

May 2, 2014			/S/ BRIAN G. MACNAMARA
			Brian G. Macnamara Senior Vice President, Corporate Controller (Principal Accounting Officer and duly authorized officer)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			HOST HOTELS & RESORTS, L.P. By: HOST HOTELS & RESORTS, INC.

May 2, 2014			/S/ BRIAN G. MACNAMARA
			Brian G. Macnamara Senior Vice President, Corporate Controller of Host Hotels & Resorts, Inc., general partner of Host Hotels & Resorts, L.P. (Principal Accounting Officer and duly authorized officer)