HOST HOTELS & RESORTS, INC. (HST) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report. This discussion focuses on our financial condition and results of operations for the year ended December 31, 2022 as compared to the year ended December 31, 2021. For a discussion and analysis of the year ended December 31, 2021 compared to the same period in 2020, please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part II Item 7 of our Annual Report on Form 10‑K for the year ended December 31, 2021, filed with the SEC on February 24, 2022.

Overview

Host Inc. operates as a self-managed and self-administered REIT that owns hotels and conducts operations through Host L.P., of which Host Inc. is the sole general partner and of which it holds approximately 99% of its common OP units as of December 31, 2022. The remainder of Host L.P.’s common OP units are owned by various unaffiliated limited partners. Host Inc. has the exclusive and complete responsibility for Host L.P.’s day-to-day management and control.

Host Inc. is the largest lodging REIT in NAREIT’s composite index and one of the largest owners of luxury and upper upscale hotels. As of February 17, 2023, we own 78 hotels in the United States, Canada and Brazil and have minority ownership interests in an additional 23 hotels through joint ventures in the United States and in India. These hotels are operated primarily under brand names that are among the most respected and widely recognized in the lodging industry. Most of our hotels are located in central business districts of major cities, near airports and in resort/conference destinations.

Our customers fall into three broad groups: transient business, group business and contract business, which accounted for approximately 65%, 32%, and 3%, respectively, of our 2022 room sales, which is in-line with our 2019 pre-pandemic mix of customers. For a discussion of our customer categories, see “Item 1 Business – Our Customers”.

Understanding Our Performance

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

Operations from our domestic portfolio account for approximately 99% of our total revenues and 1% relate to our five hotels in Canada and Brazil. Because of the significant adverse impact that the COVID-19 pandemic had on our operations during 2020 and 2021, the mix of our hotel revenues and expenses shifted during those years, reflecting lower occupancies at our properties and less use of food and beverage services. The revenue and expense mix of our hotels returned close to 2019 levels in 2022. The following table presents the components of our hotel revenues as a percentage of our total revenues for each of 2022 and 2019:

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Hotel operating expenses represent approximately 98% of our total operating costs and expenses. The following table presents the components of our hotel operating expenses as a percentage of our total operating costs and expenses for each of 2022 and 2019:

The expense components listed above are based on those presented in our consolidated statements of operations. It also is worth noting that wage and benefit costs are spread among various line items. Taken separately, these costs represent approximately 55% and 58% of our rooms, food and beverage, and other departmental and support expenses in 2022 and 2019, respectively.

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

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

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

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revenues per available room (“RevPAR”) is used to evaluate hotel operations. RevPAR is defined as the product of the average daily room rate charged and the average daily occupancy achieved. RevPAR does not include food and beverage, parking, or other guest service revenues generated by the hotel. Although RevPAR does not include these ancillary revenues, it is considered a key indicator of core revenues for many hotels; and

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

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

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

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NAREIT Funds From Operations (“FFO”) and Adjusted FFO per diluted share. We use NAREIT FFO and Adjusted FFO per diluted share as supplemental measures of company-wide profitability. NAREIT adopted FFO to promote an industry-wide measure of REIT operating performance. We also adjust NAREIT FFO for gains and losses on extinguishment of debt, certain acquisition costs, litigation gains or losses outside the ordinary course of business and severance costs outside the ordinary course of business.

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All Owned Hotel EBITDA. All Owned Hotel EBITDA measures property-level results before debt service, depreciation and corporate expenses (as this is a property level measure) and is a supplemental measure of aggregate property-level profitability. We use All Owned Hotel EBITDA and associated margins to evaluate the profitability of our hotels.

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EBITDA, EBITDAre and Adjusted EBITDAre. Earnings before interest expense, income taxes, depreciation and amortization (“EBITDA”) is a supplemental measure of our operating performance and facilitates comparisons between us and other lodging REITs, hotel owners who are not REITs and other capital-intensive companies. NAREIT adopted EBITDA for real estate (“EBITDAre”) in order to promote an industry-wide measure of REIT operating performance. We also adjust EBITDAre for property insurance gains, certain acquisition costs, litigation gains or losses outside the ordinary course of business and severance costs outside the ordinary course of business (“Adjusted EBITDAre”).

In discussing our operating results, we typically present RevPAR and certain other financial data on a comparable hotel basis. However, due to the COVID-19 pandemic and its effects on operations, there is little comparability between years. For this reason, we temporarily suspended our comparable hotel presentation and instead present hotel operating results for all consolidated hotels and, to facilitate comparisons between periods, we are presenting results, referred to as "All Owned Hotel", which include the following adjustments: (1) operating results are presented for all consolidated hotels owned as of December 31, 2022, but do not include the results of operations for properties sold or held-for-sale as of the reporting date; and (2) operating results for acquisitions as of December 31, 2022 are reflected for full calendar years, to include results for periods prior to our ownership. For these hotels, since the year-over-year comparison includes periods prior to our ownership, the changes will not necessarily correspond to changes in our actual results. In 2023, we plan to return to our prior presentation of comparable hotels - See "- Comparable Hotel Results Definition for Periods Starting on or After January 1, 2023" for further discussion.

Summary of 2022 Operating Results

The following table reflects certain line items from our audited consolidated statements of operations and the significant operating statistics for the two years ended December 31, 2022 (in millions, except per share and hotel statistics):

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___________

(1)
EBITDAre, Adjusted EBITDAre, NAREIT FFO per diluted share and Adjusted FFO per diluted share and All Owned Hotel operating results (including hotel revenues and hotel EBITDA and margins) are non-GAAP financial measures within the meaning of the rules of the SEC. 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. Additionally, All Owned Hotel results and statistics include adjustments for dispositions and acquisitions. See Hotel RevPAR Overview for results of the portfolio based on our ownership period, without these adjustments.

N/M = Not meaningful.

Revenues

Total revenues increased $2,017 million, or 69.8%, compared to 2021, due to strong leisure demand at our resort hotels and the recovery of business transient and group travel during the year. All Owned Hotel RevPAR increased 63.2%, compared to 2021, due to a 19.1 percentage point increase in occupancy and a 15.8% increase in average room rate. All Owned Hotel Total RevPAR increased 68.9% for the year as the increase in rooms revenues were supplemented with growth in both food and beverage revenues and other revenues (see “Statement of Operations Results and Trends”).

Operations at most of our hotels in Florida were affected by Hurricane Ian in September 2022. Due to evacuation mandates and loss of commercial power, we estimate that RevPAR was negatively impacted by approximately 60 basis points for the full year.

All Owned Hotel Total RevPAR for all markets exceeded 2021 levels, while Total RevPAR for the portfolio as a whole was 2.7% below the 2019 pre-pandemic levels. The decline was concentrated in the first quarter of 2022, as the increase in COVID-19 infections in January due to the Omicron variant disrupted hotel operations in the first part of the quarter. However, operations recovered as the Omicron wave subsided, and the second, third and fourth quarters all exceeded 2019 All Owned Hotel Total RevPAR and RevPAR. All Owned Hotel Total RevPAR in our Miami, Orlando, Jacksonville and Phoenix markets increased 33.8%, 22.5%, 22.2% and 19.2%, respectively, compared to 2019, due to continued strength at our leisure properties during the year, which has allowed our operators to drive average room rates in excess of 2019 levels. Our hotels in San Francisco/San Jose and Washington, D.C., two of our larger markets by room count, experienced declines of 34.2% and 20.0%, respectively, compared to 2019, as operations at these hotels continued to ramp up throughout the year following the lifting of many of the COVID-19 restrictions previously in place in these markets. Similarly, our Boston and Seattle markets continue to lag the portfolio, with declines of 32.9% and 24.6%, respectively, compared to 2019.

Operating Profit

Operating trends overall continued to improve throughout the year. During the first half of the year, hotel-level operating costs increased at lower rates when compared to increases in revenues over the same period as hiring did not keep pace with the improvement in operations during the first half of the year. During the second half of the year, hotels were able to increase staffing to levels more in-line with expectations based on current hotel demand.

As a result, operating profit (loss) margins (calculated based on GAAP operating profit as a percentage of GAAP revenues) improved to 15.8% in 2022, compared to (8.7)% in 2021. Along with strong improvements in rates, our hotel margins also have benefited from the implementation of portfolio-wide cost reductions as well as the slower transition to more normalized levels of operations during the year. Operating profit margins under GAAP also are affected significantly by several items, including dispositions, depreciation expense and corporate expenses. Our All Owned Hotel EBITDA margins, which exclude these items, improved to 31.8% for the year, up from 23.55% in 2021.

Net Income, Adjusted EBITDAre and Adjusted FFO per Diluted Share

Net income for Host Inc. was $643 million, an increase of $654 million from the prior year. The improvement was primarily due to improving operations at our hotels, offset by a $289 million decrease in other gains, consisting primarily of a lower gain on sale of assets in 2022 as compared to 2021. These results led to an increase in diluted earnings per common share for Host Inc. of $0.88.

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Adjusted EBITDAre, which excludes gain on sale of assets and impairment expense, among other items, increased to $1,498 million. Adjusted FFO per diluted share, which excludes gain on sale of assets and other real estate transactions, including depreciation and impairment expense, increased to $1.79 in 2022.

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

2023 Outlook

We experienced a significant improvement in revenues and earnings during 2022. However, current macroeconomic headwinds and concerns surrounding the potential for an economic slowdown are now competing with the lodging recovery. Further improvement in operations will be dependent on our ability to maintain high-rated business in our resort markets, as well as the continued improvement of group, business transient and international inbound travel. Accordingly, we believe that operations in specific markets and asset types will continue to be uneven.

Blue Chip Economic Indicators consensus currently estimates an increase in real U.S. GDP of 0.5% for 2023, with slight declines in the first and second quarter, while business investment is anticipated to increase just 0.7%. Rising interest rates, aimed at combating persistently high inflation, and geopolitical uncertainty have led to increased risks and elevated concerns surrounding the Federal Reserve’s ability to rein in inflation without significantly impairing economic growth. The range of potential outcomes on the economy and the lodging industry specifically remains exceptionally wide, reflecting varying analyst assumptions surrounding the impact of higher interest rates, inflation, ongoing labor shortages in key industries, geopolitical conflicts, and the unpredictability of new COVID-19 variants.

Hotel supply growth is anticipated to remain below the long-term historical average in 2023, as supply chain challenges have resulted in project delays across the U.S. We anticipate that the new project pipeline will remain suppressed until macroeconomic concerns abate. While the pandemic had an outsized impact on our industry, particularly in luxury and upper upscale hotels in top U.S. markets, where a majority of our hotels are located, leisure travel continues to outperform expectations due to pent-up demand, high personal savings and waning virus fears. There was a significant acceleration in group and business transient demand in the second half of 2022, leading to improving trends in our urban markets.

For periods starting on or after January 1, 2023, we will cease presentation of All Owned Hotel results, and return to a comparable hotel presentation for our hotel level results. We believe this will provide investors with a better understanding of underlying growth trends for our current portfolio, without impact from properties that experienced closures due to renovations or property damage sustained. We will remove Hyatt Regency Coconut Point Resort and Spa and The Ritz-Carlton, Naples from our comparable operations for 2023 due to closures caused by Hurricane Ian.

Based on the trends noted, we expect comparable Hotel RevPAR growth between 2.0% and 8.0% for the full year 2023. We note that performance in the first quarter of 2022 was negatively impacted by the Omicron variant, resulting in easier comparisons for the first quarter of 2023, which we expect to bolster full-year growth relative to 2022. We expect more comparative performance in the remaining quarters of the year, which will be heavily influenced by the overall macroeconomic environment. Additionally, margins are expected to decline compared to 2022, driven by wage inflation, closer to stable staffing levels, higher insurance and utility expenses, lower attrition and cancelation fees, and occupancy below 2019 levels.

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

Strategic Initiatives

For 2023, we intend to continue our disciplined approach to capital allocation in order to strengthen our portfolio and to deliver stockholder value through multiple levers, which may include, over time, acquiring hotels or investing in our portfolio. We intend to take advantage of our strong capital position and overall scale to acquire upper-upscale and luxury properties, through single asset or portfolio acquisitions, that we believe have sustainable competitive advantages to drive long-term value to the extent favorable pricing opportunities arise. At the same time, we will opportunistically sell hotels when market conditions permit. We also continue to critically analyze our portfolio to seek to take advantage of the inherent value of our real estate for its highest and best use.

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Acquisitions. During 2022, we acquired the 125-room Four Seasons Resort and Residences Jackson Hole for $315 million. The resort also features an additional 44 private residences, the owners of which may participate in a rental program through the resort.

Other Investments. We invested an aggregate of $35 million of cash and issued approximately $56 million of Host L.P. OP units to acquire a minority equity interest in Noble Management Holdings, LLC and Noble Investment Holdings, LLC representing 49% of (a) the net fee income of the Noble Business in respect of existing and future Noble Investment Group funds and other revenue-based activities, (b) 40% of the gross carried interest earned on the funds formed after closing, and (c) proceeds earned by the general partner on commitments to future funds. As part of our investment, we have made a $150 million capital commitment to the next Noble fund. We also have the opportunity to increase our investment in Noble’s business. See Item 1 – “Business" for more information.

Dispositions. We completed the sale of four hotels in 2022 for a total price of $672 million, including bridge loans issued to buyers of $413 million and including $3 million of FF&E replacement funds retained by us.

Financing transactions. Credit Facility. In February 2022, we repaid the remaining $683 million outstanding under the revolver portion of our credit facility. Subsequent to year end, we amended and restated our $2.5 billion credit facility, extending the maturity dates of both the revolver and outstanding term loans and maintaining similar terms to the prior facility.

We believe that our ability to maintain an investment grade balance sheet and well-laddered maturity schedule is an important factor in our investment strategy. As of December 31, 2022, after taking into account the amended and restated credit facility agreement, our weighted average interest rate is 4.4% and our weighted average debt maturity is 5.2 years. We have a debt balance of $4.2 billion and no significant debt maturities until 2024.

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

Capital Projects. We continue to pursue opportunities to enhance asset value through select capital improvements, including projects that are designed to increase the eco-efficiency of our hotels, incorporate elements of sustainable design and replace aging equipment and systems with more efficient technology. During 2022, we spent approximately $504 million on capital expenditures, of which $307 million represented return on investment (“ROI”) capital expenditures and $197 million represented renewal and replacement projects. ROI capital projects completed during the year include the brand-new 2.3-acre River Falls Water Park and 60,000 square-foot meeting space expansion at the Orlando World Center Marriott and the public space repositioning and rooms upgrade at the Miami Marriott Biscayne Bay.

In addition, hotels within certain regions are subject to environmental and weather related events, including hurricanes, wildfires, floods, rising sea levels, mudslides, earthquakes and other natural perils. To mitigate some of these physical risks, we execute capital expenditure projects, including replacements and restorations of exterior walls, doors and windows, roofs, grounds, relocated/elevated critical equipment and distributed energy systems to further increase the resilience of our hotels. A portion of our capital expenditures for 2022 include these types of projects, which we expect to continue in future years. While the number of projects and overall cost varies from year to year, on average approximately 6% our capital expenditures have related to these types of projects over the past six years.

We are nearing completion on the Marriott transformational capital program, which began in 2018. We believe this program will position these hotels to be more competitive in their respective markets and will enhance long-term performance through increases in RevPAR and market yield index. We agreed to invest amounts in excess of the FF&E reserves required under our management agreements and, in exchange, Marriott has provided additional priority returns on the agreed upon investments and operating profit guarantees of $83 million, before reductions for incentive management fees, to offset expected business disruption. Approximately 96% of the total estimated costs of the program have been spent as of December 31, 2022. Of the 16 hotels included in the program, we have completed projects at the Coronado Island Marriott Resort & Spa, New York Marriott Downtown, San Francisco Marriott Marquis, and Santa Clara Marriott in 2019; projects at the Minneapolis Marriott City Center, San Antonio Marriott Rivercenter and JW Marriott Atlanta Buckhead in 2020; projects at The Ritz-Carlton Amelia Island, New York Marriott Marquis and Orlando World Center Marriott in 2021 and projects at Boston Marriott Copley Place, Houston Marriott Medical Center, JW Marriott Houston by the Galleria, and Marina del Rey Marriott in 2022. We expect the final two hotels, Marriott Marquis San Diego Marina and Washington Marriott at Metro Center, to be completed in the first half of 2023.

In 2023, we also have several projects that seek to add value to our existing portfolio over time. These projects include:

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The Ritz-Carlton Naples – the opening of the tower expansion and extensive guestroom renovation was substantially completed in 2022, but delayed due to the impacts from Hurricane Ian. The expansion will increase the number of suites at the property, paired with the redevelopment of public and meeting space, including the addition of a new pool and cabanas. The projects will debut when the property reopens. The property is targeting a phased reopening strategy to begin in the summer of 2023.

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Fairmont Kea Lani, Maui – completion of the final phase of an extensive estimated $138 million renovation of the guestrooms and the addition of a new arrival experience and lobby bar, expected in the fourth quarter of 2023.

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Hilton Singer Island Oceanfront/Palm Beaches Resort - transformational repositioning renovation to become an independent resort hotel.

For 2023, we expect to make capital expenditures of $600 million to $725 million, consisting of $250 million to $300 million of ROI projects, $250 million to $300 million of renewal and replacement projects, and $100 million to $125 million of restoration work for the damage caused by Hurricane Ian. The ROI projects include approximately $25 million to $35 million for the completion of the Marriott transformational capital program discussed above. We received approximately $10 million in operating profit guarantees in 2022 from Marriott and expect to receive approximately $2 million in 2023.

Share Repurchase and Dividends. On August 3, 2022, Host Inc.'s Board of Directors authorized an increase in our share repurchase program from the existing $371 million remaining under the prior Board authorization to $1 billion. In the fourth quarter and for full year 2022, we repurchased 1.7 million shares at an average price of $15.93 per share, exclusive of commissions, for a total of $27 million. As of December 31, 2022, we have $973 million available for repurchase under the program.

As part of our response to COVID-19 and in order to preserve cash and future financial flexibility, we suspended our regular quarterly common cash dividend commencing with the second quarter dividend that would have been paid in July 2020. Beginning with the first quarter of 2022, we re-instated our quarterly dividend at $0.03 per share, and increased it to $0.12 per share starting with the third quarter of 2022.

During 2022, Host Inc.'s Board of Directors declared dividends totaling $0.53 per share, including a fourth quarter special dividend of $0.20 per share, with respect to Host Inc.'s common stock. Accordingly, Host L.P. made distributions of $0.54139182 per unit with respect to its common OP units for 2022. On February 15, 2023, we announced a regular quarterly cash dividend of $0.12 per share on our common stock. The dividend will be paid on April 17, 2023 to stockholders of record on March 31, 2023. The amount of any future dividends will be based on our policy of distributing, over time, 100% of our taxable income and will be determined by Host Inc.’s Board of Directors.

There can be no assurances that any future dividends will match or exceed those set forth above for any number of reasons, including a decline in operations or an increase in liquidity needs. We believe that we have sufficient liquidity and access to the capital markets in order to fund our capital expenditures programs and to take advantage of investment opportunities.

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Results of Operations

The following table reflects certain line items from our audited consolidated statements of operations for the two years ended December 31, 2022 (in millions, except percentages):

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(1) Amounts represent total operating costs and expenses from our audited consolidated statements of operations, less corporate and other expenses and the gain on insurance and business interruption settlements.

N/M = Not meaningful

Statement of Operations Results and Trends

Operations improved significantly in 2022 compared to 2021 due to the ongoing recovery of the lodging industry from the COVID-19 pandemic. With operations normalizing from the effects of the pandemic throughout the year, results in the second half of the year were impacted by typical seasonality and shifting business and market mix, as well as lost revenues caused by Hurricane Ian. In addition to improved operations, acquisitions that occurred in 2021 and 2022 contributed $289 million to the growth in revenues in 2022, compared to the negative impact on revenues of $149 million resulting from dispositions.

The following table presents revenues in accordance with GAAP for the two years ended December 31, 2022 (in millions, except percentages):

Rooms. Total rooms revenues increased $1,156 million, or 62.2%, in 2022, due to increases in average room rates and occupancy compared to 2021. Average room rates for our portfolio also have exceeded pre-pandemic levels, while occupancy continues to lag 2019. 2022 results were negatively impacted by approximately $20 million due to Hurricane Ian.

Food and beverage. Total food and beverage ("F&B") revenues increased $744 million, or 110.4%, in 2022, due primarily to strong outlet spend per occupied room as well as improvements in banquet and audio-visual revenues, reflecting recovering group business. 2022 results were negatively impacted by approximately $16 million due to Hurricane Ian.

Other revenues. Total other revenues increased $117 million, or 32.7%, in 2022, due primarily to an increase in attrition and cancelation fees, resort and destination fees, as well as strong golf and spa revenues. 2022 results were negatively impacted by approximately $3 million due to Hurricane Ian.

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Property-level Operating Expenses

The following table presents consolidated property-level operating expenses in accordance with GAAP for the two years ended December 31, 2022 (in millions, except percentages):

Our operating costs and expenses, which consist of both fixed and variable components, are affected by several factors. Rooms expenses are affected mainly by occupancy, which drives costs related to items such as housekeeping, reservation systems, room supplies, laundry services and front desk costs. Food and beverage expenses correlate closely with food and beverage revenues and are affected by occupancy and the mix of business between banquet, audio-visual and outlet sales. However, the most significant expense for rooms, food and beverage, and other departmental and support is wages and employee benefits, which comprise approximately 55% of these expenses in any year. During 2022, these expenses increased 58% compared to 2021, reflecting the increase in hiring as operations have recovered. In 2021, wage expense increases were partially offset by approximately $13 million related to the Employee Retention Credit recorded by our managers.

Early in 2022, hiring was temporarily paused in many areas due to the Omicron variant, as well as the seasonality of the industry. While hiring pace improved during the first half of the year, the significant acceleration in demand further challenged the ability of our hotel managers to increase hotel staffing commensurate with the increase in demand. However, during the second half of the year, our managers were able to continue improvements in hiring pace, and managers at many of our hotels now are operating at desired staffing levels. Wage and benefit rate inflation is expected to be approximately 5% in 2023.

Other property-level expenses consist of property taxes, which are highly dependent on local taxing authorities, and property and general liability insurance, and do not necessarily change based on changes in revenues at our hotels.

The increase in expenses for rooms, food and beverage, other departmental and support, and management fees was generally due to the corresponding increase in revenues from improvements in occupancy and hotel operations, as follows:

Rooms. Rooms expenses increased $239 million, or 49.0%, during 2022, reflecting an increase in staffing throughout the year to correspond with the improvements in occupancy. Wages and benefits represented approximately 65% of each of our 2022 and 2021 rooms expenses.

Food and beverage. F&B expenses increased $423 million, or 83.8%, in 2022. Overall, F&B costs as a percentage of revenues declined, benefiting from improved banquet revenues and ongoing productivity improvements. Wages and benefits represented approximately 67% of our 2022 F&B expenses and 64% of our 2021 F&B expenses.

Other departmental and support expenses. Other departmental and support expenses increased $291 million, or 32.7%, in 2022, due primarily to improved operations. Wages and benefits represented approximately 40% of our 2022 other departmental and support expenses and 42% of our 2021 other departmental and support expenses.

Management fees. Total management fees increased $120 million, or 123.7%, in 2022. Base management fees, which generally are calculated as a percentage of total revenues, increased $56 million, or 66.7%, compared to 2021. Incentive management fees, which generally are based on the amount of operating profit at each hotel after we receive a priority return on our investment, increased $64 million, due primarily to the improved operations at our properties.

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 $18 million, or 5.9%, in 2022, due to increases in sales and general excise taxes at our hotels, property insurance premiums and rent on a portion of our ground leases that are based on a percentage of sales. The increases were partially offset by a decrease in property taxes. Other property-level expenses were partially offset by the receipt of operating profit guarantees from Marriott under the transformational capital program in both 2022 and 2021.

Depreciation and amortization. Depreciation and amortization expense decreased $98 million, or 12.9%, to $664 million in 2022, due primarily to impairment expense of $92 million in 2021 that did not occur in 2022.

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Other Income and Expenses

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

General and administrative costs primarily consist of wages and benefits, travel, corporate insurance, legal fees, audit fees, building rent and systems costs.

Gain on insurance and business interruption settlements. In 2022, we recorded a gain on insurance consisting of $6 million related to property insurance proceeds and $11 million for receipt of business interruption insurance proceeds, each relating to various claims at our properties. As of December 31, 2022, we had not yet received any proceeds related to Hurricane Ian. However, as we currently anticipate that insurance recoveries will exceed the property loss incurred, we have not recorded a loss related to Hurricane Ian.

Interest expense. Interest expense decreased $35 million, or 18.3%, in 2022 as compared to 2021, due to the repayment of the revolver portion of the credit facility, partially offset by an increase in average interest rates on our floating rate debt. The following table presents certain components of interest expense (in millions):

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(1)
Total cash interest expense paid was $142 million and $183 million in 2022 and 2021, respectively, which includes an increase (decrease) due to the change in accrued interest of $(4) million and $3 million for 2022 and 2021, respectively.

(2)
Incremental interest expense reflects the cash interest expense for refinanced debt subsequent to the issuance of the new financing and prior to the repayment of the refinanced debt.

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

Equity in earnings (losses) of affiliates. Equity in earnings of affiliates decreased $28 million, or 90.3%, in 2022 as compared to 2021, primarily due to unrealized losses recorded by Fifth Wall Ventures, L.P. in 2022 compared to unrealized gains in 2021, partially offset by improved operations at our non-consolidated properties.

Benefit (provision) for income taxes. We lease substantially all our properties to consolidated subsidiaries designated as TRS for U.S. federal income tax purposes. Taxable income or loss generated/incurred by the TRS primarily represents hotel-level operations

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and the aggregate rent paid to Host L.P. by the TRS, on which we record an income tax provision or benefit. In 2022 and 2021, we recorded an income tax provision of $26 million and an income tax benefit of $91 million, respectively, due primarily to the profitability of hotel operations retained by the TRS in 2022 compared to the net operating loss incurred by our TRS in 2021. As a result of legislation enacted by the CARES Act in 2020, a portion of the 2020 domestic net operating loss was carried back to 2017-2019 in order to procure a refund of U.S. federal corporate income taxes previously paid. The remaining portion of the 2020 net operating loss, as well as the entire 2021 net operating loss incurred by our TRS, may be carried forward indefinitely, subject to an annual limit on the use thereof equal to 80% of annual taxable income. See also Part II Item 8. “Financial Statements and Supplementary Data – Note 7. Income Taxes” for a discussion of our income taxes.

Hotel RevPAR Overview

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

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2022 Compared to 2021 and 2019

Hotel Operating Data by Location.

The following table sets forth performance information for our hotels by geographic location as of December 31, 2022, 2021 and 2019:

All Owned Hotels Results by Location Compared to 2021

All Owned Hotels Results by Location Compared to 2019

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Results by Location Compared to 2021 - actual based on ownership period(1)

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Results by Location Compared to 2019 - actual based on ownership period(1)

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(1)
Represents the results of the portfolio for the time period of our ownership, including dispositions through their date of disposal and acquisitions beginning as of the date of acquisition.

Hotel Sales by Business Mix.

The majority of our customers fall into three broad categories: transient, group and contract business. The information below is derived from business mix results from the 78 hotels owned as of December 31, 2022.

While strong leisure transient demand continued to contribute to improvements during the year, a resurgence in group demand also helped shift the mix of business closer to 2019 levels. The following are the results of our consolidated portfolio transient, group and contract business:

Liquidity and Capital Resources

Liquidity and Capital Resources of Host Inc. and Host L.P. The liquidity and capital resources of Host Inc. and Host L.P. are derived primarily from the activities of Host L.P., which generates the capital required by our business from hotel operations, the incurrence of debt, the issuance of OP units or the sale of hotels. Host Inc. is a REIT and its only significant asset is the ownership of general and limited partner interests of Host L.P.; therefore, its financing and investing activities are conducted through Host L.P.,

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except for the issuance of its common and preferred stock. Proceeds from common and preferred stock issuances by Host Inc. are contributed to Host L.P. in exchange for common and preferred OP units. Additionally, funds used by Host Inc. to pay dividends or to repurchase its stock are provided by Host L.P. Therefore, while we have noted those areas in which it is important to distinguish between Host Inc. and Host L.P., we have not included a separate discussion of liquidity and capital resources as the discussion below applies to both Host Inc. and Host L.P.

Overview. We look to maintain a capital structure and liquidity profile with an appropriate balance of cash, debt and equity to provide financial flexibility given the inherent volatility of the lodging industry. We believe this strategy has resulted in a better cost of debt capital, allowing us to complete opportunistic investments and acquisitions and positioning us to manage potential declines in operations throughout the lodging cycle. We have structured our debt profile to maintain a balanced maturity schedule and to minimize the number of assets that are encumbered by mortgage debt. Currently, only one of our consolidated hotels is encumbered by mortgage debt. Over the past several years leading up to the COVID-19 pandemic, we had decreased our leverage as measured by our net debt-to-EBITDA ratio and reduced our debt service obligations, leading to an increase in our fixed charge coverage ratio. As a result, the company was well positioned at the onset of the COVID-19 pandemic with sufficient liquidity and financial flexibility to withstand the severe slowdown in U.S. economic activity and lodging demand brought on by the pandemic. In 2020 and 2021, we took steps to improve our liquidity position during the pandemic, including borrowing under our credit facility, suspending our dividend, working with our operators to reduce hotel operating expenses and closely monitoring capital expenditure levels. In 2022, operations returned close to pre-pandemic levels and, as a result, we repaid the remaining $683 million outstanding under the revolver portion of our credit facility and reinstated our quarterly common cash dividend beginning with the first quarter of 2022.

We intend to use available cash in the near term predominantly to fund, and believe that we have sufficient liquidity to fund, our corporate expenses, capital expenditures and hotel acquisitions. We remain well positioned to execute additional transactions to the extent opportunities arise. In 2022, we utilized approximately $301 million of cash during the year to fund the acquisition of Four Seasons Resort and Residences Jackson Hole, while also generating approximately $236 million by the sale of four hotels. The following summarizes the change in cash flows from 2021 to 2022 for significant items that affected our cash balance and reflects our return to pre-COVID financial activity:

Cash Requirements. We use cash for acquisitions, capital expenditures, debt payments, operating costs, and corporate and other expenses, as well as for dividends and distributions to stockholders and Host L.P. limited partners and stock and OP unit repurchases. Our primary sources of cash include cash from operations, proceeds from the sale of assets, borrowings under our credit facility and debt and equity issuances. In the short term, our cash obligations include the minimum lease payments on our ground leases, which in 2023 are approximately $31 million, and most of our other operating obligations. In the long term, our ground lease payments are the longest time horizon obligations and currently run up to 89 years. For a summary of our obligations under our ground leases, see Exhibit 99.1 to this Annual Report. We have no significant debt maturities until 2024. For our long-term senior note and credit facility obligations, we historically have refinanced these amounts prior to their maturity through the issuance of new senior notes or new credit facility agreements. As discussed further below, we amended our credit facility effective January 4, 2023, extending the maturity date among other things.

In addition to the liabilities on our consolidated balance sheet, under our capital expenditures program, we have budgeted to spend $600 million to $725 million in 2023. Commitments for capital expenditures generally run less than two years for the life of the

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project. In the long term, renewal and replacement ("R&R") capital expenditures are designed to maintain the quality and competitiveness of our hotels and typically occur at intervals of seven to ten years. The projects are primarily funded through the FF&E reserves established at each hotel. Average annual R&R spend over the last five years has been $197 million.

Our 2023 capital expenditures budget includes approximately $100 million to $125 million for restoration work at our Florida properties affected by Hurricane Ian, primarily at The Ritz-Carlton, Naples and Hyatt Regency Coconut Point Resort and Spa, as these properties sustained significant damage from the storm in September 2022. We estimate the total property damage and remediation costs resulting from the storm to be approximately $200 million to $220 million, of which approximately 40% relates to remediation costs. We are insured for $325 million per named windstorm, with a $15 million deductible, resulting in potential insurance recovery of $310 million for covered costs. Based on current planned reopening dates, we believe this coverage should be sufficient to cover substantially all of the property remediation and reconstruction costs and the near-term loss of business; however, there can be no assurances that our insurance coverage will be sufficient to cover all of the business interruption impact from the storm, especially if the hotel is unable to open as currently anticipated.

As a REIT, Host Inc. is required to pay dividends to its stockholders in an amount equal to at least 90% of its taxable income, excluding net capital gain, on an annual basis. See also Part II Item 8. “Financial Statements and Supplementary Data – Note 17. Legal Proceedings, Guarantees and Contingencies” for a discussion of obligations under contingent liabilities or guarantees and a more detailed description of the damage caused by Hurricane Ian.

Capital Resources. As of December 31, 2022, we had $667 million of cash and cash equivalents, $200 million in our FF&E escrow reserve and $1.5 billion available under the revolver portion of our credit facility. In the near term, we expect to fund our above cash requirements, including our capital expenditures program, debt service, operating and corporate costs, primarily through hotel operations and our existing cash reserves. Based on our cash balance at December 31, 2022 and our expected cash obligations, we believe we will have sufficient liquidity to meet our near-term obligations. Future acquisitions and/or obligations also may be funded through a draw on the available portion of the revolver under our credit facility, equity issuances, or asset sales.

We depend primarily on external sources of capital to finance future growth, including acquisitions. As a result, the liquidity and debt capacity provided by our credit facility and the ability to issue senior unsecured debt are key components of our capital structure. Our financial flexibility, including our ability to incur debt, pay dividends, make distributions and make investments, is contingent on our ability to maintain compliance with the financial covenants of our credit facility and senior notes, which include, among other things, the allowable amounts of leverage, interest coverage and fixed charges.

The following graph summarizes our aggregate debt maturities as of February 17, 2023:

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(1)
Maturity dates related to the outstanding credit facility term loans reflect the extensions provided by the amended and restated credit facility agreement effective January 4, 2023. The first term loan under our credit facility that is due in 2027 has an extension option that would extend maturity of the instrument to 2028, subject to meeting certain conditions, including payment of a fee. The second term loan tranche that is due in 2028 does not have an extension option.

(2)
Mortgage and other debt excludes principal amortization of $2 million each year from 2023-2027 for the mortgage loan that matures in 2027.

Given the total amount of our debt and our maturity schedule, we may continue to redeem or repurchase senior notes from time to time, taking advantage of favorable market conditions. In February 2023, Host Inc.’s Board of Directors authorized repurchases of up to $1.0 billion of senior notes other than in accordance with their respective terms, of which the entire amount remains available under this authority. We may purchase senior notes for cash through open market purchases, privately negotiated transactions, a tender offer or, in some cases, through the early redemption of such securities pursuant to their terms. Repurchases of debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. Any retirement before the maturity date will affect earnings and NAREIT FFO per diluted share as a result of the payment of any applicable call premiums and the accelerated expensing of previously deferred and capitalized financing costs. Accordingly, considering our priorities in managing our capital structure and liquidity profile and given prevailing conditions and relative pricing in the capital markets, we may, at any time, subject to applicable securities laws and the requirements of our credit facility and senior notes, be considering, or be in discussions with respect to, the repurchase or issuance of exchangeable debentures and/or senior notes or the repurchase or sale of our common stock. Any such transactions may, subject to applicable securities laws, occur simultaneously.

Two programs currently are in place relating to purchases and sales of our common stock. First, in August 2022, Host Inc.’s Board of Directors authorized an increase in the existing program to repurchase Host Inc. common stock up to $1 billion. The common stock may be purchased from time to time depending upon market conditions and may be purchased in the open market or through private transactions or by other means, including principal transactions with various financial institutions, like accelerated share repurchases, forwards, options, and similar transactions and through one or more trading plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The plan does not obligate us to repurchase any specific number or any specific dollar amount of shares and may be suspended at any time at our discretion. In the fourth quarter of 2022, we repurchased 1.7 million shares at an average price of $15.93 (exclusive of commissions) for a purchase price of approximately $27 million and at December 31, 2022, we had $973 million available for repurchase under the program.

Second, on May 6, 2021, we entered into a distribution agreement with J. P. Morgan Securities LLC, BofA Securities, Inc., BTIG, LLC, Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC, Scotia Capital (USA) Inc., Truist Securities, Inc. and Wells Fargo Securities, LLC, as sales agents, through which Host Inc. may issue and sell, from time to time, shares of its common stock having an aggregate offering price of up to $600 million. The shares can be offered and sold through sales agents in transactions that are deemed to be “at the market” offerings at then-current market prices. We are not obligated to issue any shares and may do so when we believe conditions are advantageous and there is a compelling use of proceeds, including to fund future potential acquisitions or other investment opportunities. There were no issuances under this program in 2022 which expires in May 2023. As of December 31, 2022, there was $460 million of remaining capacity under the agreement.

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

Sources and Uses of Cash. In 2022, our primary sources of cash included cash from operations and proceeds from asset sales. Our primary uses of cash during the year consisted of acquisitions, capital expenditures, operating costs, debt repayments and distributions to equity holders. We anticipate that our sources and uses of cash will be similar in 2023.

Cash Provided by Operations. Our net cash provided by operations for 2022 was $1,416 million, an increase of $1,124 million compared to 2021, reflecting the improved operations at our hotels.

Cash Used in Investing Activities. Approximately $618 million of cash was used in investing activities during 2022 compared to $1,158 million in 2021. In addition to the acquisition and disposition activity detailed in the charts below, cash used in investing activities included $504 million of capital expenditures in 2022, compared to $427 million in 2021. These amounts include certain internal costs and interest expense associated with our capital expenditures projects that have been capitalized in accordance with GAAP. These capitalized costs were $20 million, $13 million and $12 million for 2022, 2021 and 2020, respectively.

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The following tables summarize significant acquisitions, dispositions and investments in affiliates from January 1, 2021 through February 17, 2023 (in millions):

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(1)
Investment amount represents total consideration, including the assumption of $19 million of hotel-level liabilities, net of $5 million of cash retained at the property.

(2)
Investment consisted of $35 million of cash and the issuance of approximately $56 million of Host L.P. OP units.

(3)
Investment includes $4 million paid for the FF&E funds. In connection with the acquisition, we also assumed a nonrecourse mortgage loan with a principal balance of $102 million and a fair value of $105 million. Total cash paid for the acquisition was $139 million.

(4)
Investment amount represents total consideration, including the assumption of $24 million of hotel-level liabilities.

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

(2)
In connection with the sale of the Sheraton New York Times Square Hotel, we extended a $250 million bridge loan to the purchaser. The disposition proceeds shown are net of the bridge loan.

(3)
In connection with the sale of the Sheraton Boston, we extended a $163 million bridge loan to the purchaser. The disposition proceeds shown are net of the bridge loan.

Cash Provided by/Used in Financing Activities. Net cash used in financing activities was $874 million for 2022, compared to $657 million in 2021. Cash used in financing activities in 2022 included a repayment on the revolver portion of the credit facility, payment of common stock dividends, following the reinstatement of the quarterly common stock dividend in the first quarter of 2022, as well as the repurchase of common stock. Cash used in financing activities in 2021 included a repayment on the revolver portion of the credit facility, as well as the redemption of senior notes from the proceeds of a new senior notes issuance. Additional cash provided by financing activities in 2021 included common stock issuances.

The following table summarizes significant debt issuances, net of deferred financing costs and issuance discounts, that have been completed from January 1, 2021 through February 17, 2023 (in millions):

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The following table presents significant debt repayments, including prepayment premiums, that have been completed from January 1, 2021 through February 17, 2023 (in millions):

Equity/Capital Transactions. The following table summarizes significant equity transactions that have been completed from January 1, 2021 through February 17, 2023 (in millions):

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(1)
Our dividend payments for the fourth quarter of 2022 were made in January 2023, but were accrued at December 31, 2022.

(2)
In connection with the dividend payments, Host L.P. made distributions of $231 million and $152 million in 2023 and 2022, respectively, to its common OP unit holders.

(3)
In connection with the issuance, Host L.P. issued 7.6 million OP units.

Financial Condition

As of December 31, 2022, our total debt was approximately $4.2 billion, of which 76% carried a fixed rate of interest. Total debt was comprised of the following (in millions):

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(1)
There were no outstanding credit facility borrowings at December 31, 2022. Amount shown represents deferred financing costs related to the credit facility revolver. Maturity dates related to the outstanding credit facility term loans reflect the extensions provided by the amended and restated credit facility agreement effective January 4, 2023.

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Aggregate debt maturities, including principal amortization, at December 31, 2022 are as follows (in millions):

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(1)
Maturity dates related to the outstanding credit facility term loans reflect the extensions provided by the amended and restated credit facility agreement effective January 4, 2023.

Senior Notes. On November 23, 2021, we issued $450 million of 2.9% Series J senior notes in an underwritten public offering for proceeds of $439 million, net of discounts, underwriting fees and expenses. The Series J senior notes are due in December 2031 and interest is payable semi-annually in arrears on June 15 and December 15, commencing June 15, 2022. The proceeds of this issuance were used to redeem our $400 million 3.75% Series D senior notes due 2023, including a prepayment premium of $22 million. The Series J senior notes are not redeemable prior to 90 days before the December 15, 2031 maturity date, except at a price equal to 100% of their principal amount plus a make-whole premium and accrued and unpaid interest to the applicable redemption date. The Series J senior notes have covenants similar to all other series of our outstanding senior notes. No senior notes were issued in 2022.

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

All of our outstanding senior notes at December 31, 2022 were issued after we attained an investment grade rating and have covenants customary for investment grade debt and covenants that are similar to each other series of our senior notes. These covenants are primarily limitations on our ability to incur additional debt. There are no restrictions on our ability to pay dividends.

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

As of December 31, 2022, we have met the minimum financial covenant levels under our senior notes indentures. The following table summarizes the financial tests contained in the senior notes indenture for our senior notes and our actual credit ratios as of December 31, 2022:

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Credit Facility. On January 4, 2023, we entered into the sixth amended and restated senior revolving credit and term loan facility, with Bank of America, N.A., as administrative agent, Wells Fargo Bank, N.A. and JPMorgan Chase Bank, N.A. as co-syndication agents, and certain other agents and lenders. The credit facility allows for revolving borrowings in an aggregate principal amount of up to $1.5 billion. The revolver also includes a foreign currency subfacility for Canadian dollars, Australian dollars, Euros, British pounds sterling and, if available to the lenders, Mexican pesos, of up to the foreign currency equivalent of $500 million, subject to a lower amount in the case of Mexican peso borrowings. The credit facility also provides for a term loan facility of $1 billion (which is fully utilized), a subfacility of up to $100 million for swingline borrowings in currencies other than U.S. dollars and a subfacility of up to $100 million for issuances of letters of credit. Host L.P. also has the option to add in the future $500 million of commitments which may be used for additional revolving credit facility borrowings and/or term loans, subject to obtaining additional loan commitments (which we have not currently obtained) and the satisfaction of certain conditions.

The revolving credit facility has an initial scheduled maturity date of January 4, 2027, which date may be extended by up to a year by the exercise of either a 1-year extension option or two 6-month extension options, each of which is subject to certain conditions, including the payment of an extension fee and the accuracy of representations and warranties. One $500 million term loan tranche has an initial maturity date of January 4, 2027, which date may be extended up to a year by the exercise of one 1-year extension option, which is subject to certain conditions, including the payment of an extension fee; and the second $500 million term loan tranche has a maturity date of January 4, 2028, which date may not be extended.

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

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

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

Financial Covenants. The credit facility contains covenants concerning allowable leverage, fixed charge coverage and unsecured interest coverage. We are permitted to make borrowings and maintain amounts outstanding under the credit facility so long as our ratio of consolidated total debt to consolidated EBITDA (“leverage ratio”) is not in excess of 7.25x, our unsecured coverage ratio is not less than 1.75x and our fixed charge coverage ratio is not less than 1.25x. These calculations are performed based on pro forma results for the prior four fiscal quarters, giving effect to transactions such as acquisitions, dispositions and financings as if they had occurred at the beginning of the period. Under the terms of the credit facility, interest expense excludes items such as the gains and losses on the extinguishment of debt, deferred financing charges related to the senior notes or the credit facility, and non-cash interest expense, all of which are included in interest expense on our audited consolidated statements of operations. Additionally, total debt used in the calculation of our leverage ratio is based on a “net debt” concept, pursuant to which cash and cash equivalents in excess of $100 million are deducted from our total debt balance.

We are in compliance with all of our financial covenants under the credit facility. The following table summarizes the financial tests contained in the credit facility and our actual credit ratios as of December 31, 2022:

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(1) If at any time our leverage ratio is above 7.0x, our minimum unsecured interest coverage ratio requirement will decrease to 1.50x.

Interest and Fees. The amendment also converted the underlying reference rate from LIBOR to SOFR plus a credit spread adjustment of 10 basis points. We pay interest on U.S. dollar revolver borrowings under the credit facility at floating rates equal to SOFR (plus a credit spread adjustment of 10 basis points) plus a margin. The margin ranges from 72.5 to 140 basis points (depending on Host L.P.’s unsecured long-term debt rating). We also pay a facility fee on the total $1.5 billion revolver commitment ranging from 12.5 to 30 basis points, depending on our rating and regardless of usage. Based on Host L.P.’s unsecured long-term debt rating as of December 31, 2022, we are able to borrow at a rate of adjusted SOFR plus 105 basis points and pay a facility fee of 25 basis points. Interest on the term loans consists of floating rates equal to SOFR (plus a credit spread adjustment of 10 basis points) plus a margin ranging from 80 to 160 basis points (depending on Host L.P.’s unsecured long-term debt rating). Based on Host L.P.’s long-term debt rating as of December 31, 2022, our applicable margin on SOFR loans under both term loans is 120 basis points. We also may elect to pay interest on revolver and term loan borrowings using a base rate plus a margin that is similarly determined based on Host L.P.'s unsecured long-term debt rating. The credit facility includes a sustainability pricing adjustment that can result in a change in the interest rate applicable to borrowings. The adjustment can result in an increase or decrease of the interest rate for revolving loans of up

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to 4 basis points and an increase or decrease of the facility fee of up to 1 basis point. In the case of the term loans, the adjustment can result in an increase or decrease of the interest rate applicable of up to 5 basis points. The adjustments will be determined annually on the basis of an annual audited report of Host L.P.'s performance against targets established in the credit facility for (1) the percentage of our consolidated portfolio with green building certifications and (2) the percentage of electricity used at all our consolidated properties that is generated by renewable resources.

Other Covenants and Events of Default. The credit facility contains restrictive covenants on customary matters. Certain covenants are less restrictive at any time that our leverage ratio is below 6.0x. At any time that our leverage ratio is below 6.0x, acquisitions, investments, dividends and distributions generally are permitted except where they would result in a breach of the financial covenants, calculated on a pro forma basis. Additionally, the credit facility’s restrictions on incurrence of debt incorporate the same financial covenant as set forth in our senior notes indenture.

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

Mortgage Debt, Including Unconsolidated Joint Ventures. At December 31, 2022, we own one consolidated property that is encumbered by mortgage debt. All of our mortgage debt is recourse solely to specific assets, except in instances of fraud, misapplication of funds and other customary recourse provisions. As of December 31, 2022, our mortgage debt has an interest rate of 4.67% and matures in 2027, with principal and interest payments due monthly. We also own non-controlling interests in joint ventures that are not consolidated and that are accounted for under the equity method. The portion of the mortgage and other debt of these joint ventures attributable to us, based on our ownership percentage thereof, was $205 million at December 31, 2022. The debt of our unconsolidated joint ventures is non-recourse to us.

Distributions/Dividends. Host Inc.’s policy on common dividends generally is to distribute, over time, at least 100% of its taxable income, which primarily is dependent on our results of operations, as well as on tax gains and losses on hotel sales. After paying its regular quarterly common cash dividend for the first quarter of 2020, Host Inc. temporarily suspended its regular quarterly common cash dividend in order to preserve cash and future financial flexibility in response to the COVID-19 pandemic. A quarterly common cash dividend was reinstated beginning with the first quarter of 2022. For the fourth quarter of 2022, Host Inc. paid a regular quarterly cash dividend of $0.12 per share and a special dividend of $0.20 per share on its common stock on January 17, 2023 to stockholders of record as of December 30, 2022. Any future dividend will be subject to approval by Host Inc.’s Board of Directors.

Funds used by Host Inc. to pay dividends are provided by distributions from Host L.P. As of December 31, 2022, Host Inc. is the owner of approximately 99% of Host L.P.’s common OP units. The remaining common OP units are owned by various unaffiliated limited partners. Each OP unit may be offered for redemption by the limited partners for cash or, at the election of Host Inc., Host Inc. common stock based on the then current conversion ratio. The current conversion ratio is 1.021494 shares of Host Inc. common stock for each OP unit.

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

Counterparty Credit Risk. We are subject to counterparty credit risk, which relates to the ability of counterparties to meet their contractual payment obligations or the potential non-performance of counterparties to deliver contracted commodities or services at the contracted price. We assess the ability of our counterparties to fulfill their obligations to determine the impact, if any, of counterparty bankruptcy or insolvency on our financial condition. We are exposed to credit risk with respect to cash held at various financial institutions and access to our credit facility. We believe our credit exposure in each of these cases is limited, as the credit risk is spread among a diversified group of investment grade financial institutions. We also have counter-party credit risk with respect to our outstanding notes receivable, although upon event of a default of the notes, we would seek to enforce our rights against the collateral in accordance with the terms of the loan agreement.

Critical Accounting Estimates

Our consolidated financial statements have been prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. While we do not believe the reported amounts would be materially different, application of these policies involves the exercise of judgment and the use of assumptions as to future

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uncertainties and, as a result, actual results could differ from these estimates. We evaluate our estimates and judgments, including those related to the impairment of long-lived assets, on an ongoing basis. We base our estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances. All our significant accounting policies are disclosed in the notes to our consolidated financial statements. For a detailed discussion of the critical accounting policy related to impairment testing on our property and equipment, which requires us to exercise our business judgment or make significant estimates, see “Item 8. Financial Statements and Supplementary Data – Note 1. Summary of Significant Accounting Policies”.

All Owned Hotel Operating Statistics and Results

To facilitate a year-over-year comparison of our operations, we typically present certain operating statistics (i.e., Total RevPAR, RevPAR, average daily rate and average occupancy) and operating results (revenues, expenses, hotel EBITDA and associated margins) for the periods included in this annual report on a comparable hotel basis in order to enable our investors to better evaluate our operating performance. However, due to the COVID-19 pandemic and its effects on operations, there is little comparability between periods. For this reason, we temporarily suspended our comparable hotel presentation and instead present hotel operating results for all consolidated hotels and, to facilitate comparisons between periods, we are presenting results, referred to as "All Owned Hotel", which include the following adjustments: (1) operating results are presented for all consolidated hotels owned as of December 31, 2022, but do not include the results of operations for properties sold or held-for-sale as of the reporting date; and (2) operating results for acquisitions as of December 31, 2022 are reflected for full calendar years, to include results for periods prior to our ownership. For these hotels, since the year-over-year comparison includes periods prior to our ownership, the changes will not necessarily correspond to changes in our actual results.

Comparable Hotel Results Definition for Periods Starting on or After January 1, 2023

For periods starting on or after January 1, 2023, the Company will cease presentation of All Owned Hotel results and return to a comparable hotel presentation for its hotel level results. Management believes this will provide investors with a better understanding of underlying growth trends for the Company’s current portfolio, without impact from properties that experienced closures due to renovations or property damage sustained.

To facilitate a year-to-year comparison of our operations, we will present certain operating statistics (i.e., Total RevPAR, RevPAR, average daily rate and average occupancy) and operating results (revenues, expenses, hotel EBITDA and associated margins) for the periods included in our reports on a comparable hotel basis in order to enable our investors to better evaluate our operating performance. We define our comparable hotels as those that: (i) are owned or leased by us as of the reporting date and are not classified as held-for-sale; and (ii) have not sustained substantial property damage or business interruption, or undergone large-scale capital projects requiring closures lasting one month or longer (as further defined below) during the reporting periods being compared.

We make adjustments to include recent acquisitions to include results for periods prior to our ownership. For these hotels, since the year-over-year comparison includes periods prior to our ownership, the changes will not necessarily correspond to changes in our actual results. Additionally, hotels that we sell are excluded from the comparable hotel set once the transaction has closed or the hotel is classified as held-for-sale.

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 would cause a hotel to be excluded from our comparable hotel set if it requires the entire property to be closed to hotel guests for one month or longer.

Similarly, hotels are excluded from our comparable hotel set from the date that they sustain substantial property damage or business interruption if it requires the property to be closed to hotel guests for one month or longer. 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 the hotel has reopened. Often, related to events that cause property damage and the closure of a hotel, we will collect business interruption insurance proceeds for the near-term loss of business. These proceeds are included in gain on property insurance and business interruption settlements on our consolidated statements of operations. Business interruption insurance gains related to a hotel that was excluded from our comparable hotel set also will be excluded from the comparable hotel results.

The following hotels are expected to be excluded from the comparable hotel set for the year ended December 31, 2023, due to closure of the property:

•
Hyatt Regency Coconut Point Resort & Spa (business disruption due to Hurricane Ian beginning in September 2022, closed until November 2022); and

•
The Ritz-Carlton, Naples (business disruption due to Hurricane Ian beginning in September 2022, remains closed).

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Foreign Currency Translation

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. Therefore, hotel statistics and results for non-U.S. properties include the effect of currency fluctuations, consistent with our financial statement presentation.

Non-GAAP Financial Measures

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

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

Similarly, EBITDAre, Adjusted EBITDAre, NAREIT FFO and Adjusted FFO per diluted share include adjustments for the pro rata share of our equity investments and NAREIT FFO and Adjusted FFO include adjustments for non-controlling partners in consolidated partnerships. Our equity investments consist of interests ranging from 11% to 67% in eight domestic and international partnerships that own a total of 23 hotels and a vacation ownership development. Due to the voting rights of the outside owners, we do not control and, therefore, do not consolidate these entities. The non-controlling partners in consolidated partnerships primarily consist of the approximate 1% interest in Host L.P. held by unaffiliated limited partners and a 15% interest held by an unaffiliated limited partner in one hotel for which we do control the entity and, therefore, consolidate its operations. These pro rata results for NAREIT FFO and Adjusted FFO per diluted share, EBITDAre and Adjusted EBITDAre are calculated as set forth below. Readers should be cautioned that the pro rata results presented in these measures for consolidated partnerships (for NAREIT FFO and Adjusted FFO per diluted share) and equity investments may not accurately depict the legal and economic consequences of our investments in these entities. The following discussion defines these terms and presents why we believe they are useful measures of our performance.

EBITDA, EBITDAre and Adjusted EBITDAre

EBITDA

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

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EBITDAre and Adjusted EBITDAre

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

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

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

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

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

•
Severance Expense – In certain circumstances, we will add back hotel-level severance expenses when we do not believe that such expenses are reflective of the ongoing operation of our properties. Situations that would result in a severance add-back include, but are not limited to: (i) costs incurred as part of a broad-based reconfiguration of the operating model with the specific hotel operator for a portfolio of hotels and (ii) costs incurred at a specific hotel due to a broad-based and significant reconfiguration of a hotel and/or its workforce. We do not add back corporate-level severance costs or severance costs at an individual hotel that we consider to be incurred in the normal course of business.

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

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

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

(in millions)

___________

(1)
Reflects the sale of four hotels in 2022 and six hotels in 2021.

(2)
Pro rata EBITDAre of equity investments and pro rata FFO of equity investments for the year ended December 31, 2021 include a realized gain of approximately $3 million related to equity securities held by one of our unconsolidated partnerships, Fifth Wall Ventures, L.P. Unrealized gains of our unconsolidated investments are not recognized in our EBITDAre, Adjusted EBITDAre, NAREIT FFO or Adjusted FFO until they have been realized by the unconsolidated partnership.

FFO Measures

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

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

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

•
Gains and Losses on the Extinguishment of Debt – We exclude the effect of finance charges and premiums associated with the extinguishment of debt, including the acceleration of the write off of deferred financing costs from the original issuance of the debt being redeemed or retired and incremental interest expense incurred during the refinancing period. We also exclude the gains on debt repurchases and the original issuance costs associated with the retirement of preferred stock. We believe that these items are not reflective of our ongoing finance costs.

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

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

•
Severance Expense – In certain circumstances, we will add back hotel-level severance expenses when we do not believe that such expenses are reflective of the ongoing operation of our properties. Situations that would result in a severance add back include, but are not limited to: (i) costs incurred as part of a broad-based reconfiguration of the operating model with the specific hotel operator for a portfolio of hotels and (ii) costs incurred at a specific hotel due to a broad-based and significant reconfiguration of a hotel and/or its workforce. We do not add back corporate-level severance costs or severance costs at an individual hotel that we consider to be incurred in the normal course of business.

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

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

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

NAREIT and Adjusted Funds From Operations per Diluted Share

(in millions, except per share amount)

___________

(1-2) Refer to the corresponding footnote on the Reconciliation of Net Income to EBITDA, EBITDAre and Adjusted EBITDAre 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 limited partners, exchangeable debt securities and other non-controlling interests that have the option to convert their limited partner interests to common OP units. No effect is shown for securities if they are anti-dilutive.

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Hotel Property Level Operating Results

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

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

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

The following table presents certain operating results and statistics for our All Owned Hotel results for the periods presented herein:

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

(in millions, except hotel statistics)

___________

(1)
All Owned Hotel adjustments represent the following items: (i) the elimination of results of operations of hotels sold or held-for-sale as of December 31, 2022, which operations are included in our consolidated statements of operations as continuing operations and (ii) the addition of results for periods prior to our ownership for hotels acquired as of December 31, 2022. All Owned Hotel results also includes the results of our leased office buildings and other non-hotel revenue and expense items. The AC Hotel Scottsdale North is a new development hotel that opened in January 2021 and The Laura Hotel in Houston re-opened under new management in November 2021. Therefore, no adjustments were made for results of these hotels for periods prior to their openings.

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(2)
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. All Owned Hotel margins are calculated using amounts presented in the following table, which include reconciliations to the applicable GAAP results: