Edgar Filing: HOST HOTELS & RESORTS L.P.

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 17, 2011

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

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

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

HOST HOTELS & RESORTS, INC.

HOST HOTELS & RESORTS, L.P.

(Exact name of registrant as specified in its charter)


Maryland (Host Hotels & Resorts, Inc.) Delaware (Host Hotels & Resorts, L.P.)		53-0085950 52-2095412
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

6903 Rockledge Drive, Suite 1500 Bethesda, Maryland		20817
(Address of Principal Executive Offices)		(Zip Code)

(240) 744-1000

(Registrant’s telephone number, including area code)

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


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

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


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

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

Host Hotels & Resorts, Inc.

Host Hotels & Resorts, L.P.

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


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

As of July 20, 2011 there were 706,142,406 shares of Host Hotels & Resorts, Inc.’s common stock, $.01 par value per share, outstanding.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the quarter ended June 17, 2011 of Host Hotels & Resorts, Inc. and Host Hotels & Resorts, L.P. Unless stated otherwise or the context otherwise requires, references to “Host Inc.” mean Host Hotels & Resorts, Inc., a Maryland corporation, and references to “Host L.P.” mean Host Hotels & Resorts, L.P., a Delaware limited partnership, and its consolidated subsidiaries in cases where it is important to distinguish between Host Inc. and Host L.P. We use the terms “we” or “our” or “the company” to refer to Host Inc. and Host L.P. together, unless the context indicates otherwise.

Host Inc. operates as a self-managed and self-administered real estate investment trust (“REIT”). Host Inc. owns properties and conducts operations through Host L.P., of which Host Inc. is the sole general partner and in which it holds approximately 98.5% of the partnership interests (“OP units”). The remaining OP units (approximately 1.5%) are owned by various unaffiliated limited partners. As the sole general partner of Host L.P., Host Inc. has the exclusive and complete responsibility for Host L.P.’s day-to-day management and control.

We believe combining the quarterly reports on Form 10-Q of Host Inc. and Host L.P. into this single report results in the following benefits:

•

enhancing investors’ understanding of the company by enabling investors to view the business as a whole in the same manner as management views and operates the business;

•

eliminating duplicative disclosure and providing a more streamlined presentation, since a substantial portion of our disclosure applies to both Host Inc. and Host L.P.; and

•

creating time and cost efficiencies through the preparation of one combined report instead of two separate reports.

Management operates the company as one enterprise. The management of Host Inc. consists of the same members who direct the management of Host L.P. The executive officers of Host Inc. are appointed by Host Inc.’s board of directors, but are employed by Host L.P. Host L.P. employs everyone who works for Host Inc. or Host L.P. As general partner with control of Host L.P., Host Inc. consolidates Host L.P. for financial reporting purposes, and Host Inc. does not have significant assets other than its investment in Host L.P. Therefore, the assets and liabilities of Host Inc. and Host L.P. are substantially the same on their respective consolidated financial statements.

There are a few differences between Host Inc. and Host L.P., which are reflected in the disclosure in this report. We believe it is important to understand the differences between Host Inc. and Host L.P. in the context of how we operate as an interrelated consolidated company. Host Inc. is a REIT whose only material asset is its ownership of OP units of Host L.P. As a result, Host Inc. does not conduct business itself, other than acting as the sole general partner of Host L.P., and issuing public equity from time to time, the proceeds from which are contributed to Host L.P. in exchange for OP units. Host Inc. itself does not issue any indebtedness and does not guarantee the debt or obligations of Host L.P. Host L.P. holds substantially all of our assets and the ownership interests in our joint ventures. Host L.P. conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from public equity issuances by Host Inc., Host L.P. generates the capital required by our business through Host L.P.’s operations, by Host L.P.’s direct or indirect incurrence of indebtedness, through the issuance of OP units or through the sale of equity interests of its subsidiaries.

The substantive difference between Host Inc.’s and Host L.P.’s filings is the fact that Host Inc. is a REIT with public stock, while Host L.P. is a partnership with no publicly traded equity. In the financial statements, this difference is primarily reflected in the equity (or partners’ capital for Host L.P.) section of the consolidated balance sheets and in the consolidated statements of equity (or partners’ capital) and comprehensive income (loss). Apart from the different equity treatment, the consolidated financial statements of Host Inc. and Host L.P. are nearly identical, with the major difference being that the net income allocated to the outside owners of Host L.P., who, in aggregate, hold 1.5% of the OP units, is deducted from net income of Host Inc. in order to arrive at net income attributable to common stockholders. This amount is included in net income attributable to common unitholders for

Host L.P. Also, earnings (loss) per share will generally be slightly different than the earnings (loss) per common OP unit as, subsequent to the 2009 common stock elective dividend, each Host Inc. common share is the equivalent of .97895 OP units (instead of 1 OP unit). This stock dividend caused an approximate 2% difference in earnings (loss) per share when compared to earnings (loss) per common OP unit beginning in 2010.

To help investors understand the differences between Host Inc. and Host L.P., this report presents the following separate sections or portions of sections for each of Host Inc. and Host L.P.:

•

Item 1 – Condensed Consolidated Financial Statements. While the financial statements themselves are presented separately, the notes to the financial statements are generally combined, except for the following notes:

•

We separately disclose the earnings (loss) per common share of Host Inc. and the earnings (loss) per common unit of Host L.P.;

•

Equity of Host Inc. / Capital of Host L.P. are combined, except for separate discussions of differences between equity of Host Inc. and capital of Host L.P.; and

•

Supplemental Guarantor and Non-Guarantor Information for Host L.P.

•

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations are combined, except for a separate discussion of any material differences in the liquidity and capital resources between Host Inc. and Host L.P.;

•

Item 3 – Quantitative and Qualitative Disclosures about Market Risk are combined, except for separate discussions of any material differences between Host Inc. and Host L.P.;

•

This report also includes separate Item 4—Controls and Procedures sections and separate Exhibit 31 and 32 certifications for each of Host Inc. and Host L.P. in order to establish that the Chief Executive Officer and the Chief Financial Officer of Host Inc. and the Chief Executive Officer and the Chief Financial Officer of Host Inc. as the general partner of Host L.P. have made the requisite certifications and that Host Inc. and Host L.P. are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350; and

•

Part II Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds of Host Inc. and Host L.P.

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

INDEX


		Page No.

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements for Host Hotels and Resorts, Inc.:

	Condensed Consolidated Balance Sheets- June 17, 2011 (unaudited) and December 31, 2010		1

	Condensed Consolidated Statements of Operations (unaudited)- Quarter and Year-to-date ended June 17, 2011 and June 18, 2010		2

	Condensed Consolidated Statements of Cash Flows (unaudited)- Year-to-date ended June 17, 2011 and June 18, 2010		3

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

	Condensed Consolidated Balance Sheets- June 17, 2011 (unaudited) and December 31, 2010		5

	Condensed Consolidated Statements of Operations (unaudited)- Quarter and Year-to-date ended June 17, 2011 and June 18, 2010		6

	Condensed Consolidated Statements of Cash Flows (unaudited)- Year-to-date ended June 17, 2011 and June 18, 2010		7

	Notes to Condensed Consolidated Financial Statements (unaudited)		9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		31

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		56

Item 4.	Controls and Procedures		56

PART II. OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		58

Item 6.	Exhibits		59

iii

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

June 17, 2011 and December 31, 2010

(in millions, except share and per share amounts)


	June 17, 2011			December 31, 2010
	(unaudited)
ASSETS
Property and equipment, net	$	11,635		$	10,514
Assets held for sale		6			—
Due from managers		67			45
Investments in affiliates		178			148
Deferred financing costs, net		45			44
Furniture, fixtures and equipment replacement fund		172			152
Other		331			354
Restricted cash		35			41
Cash and cash equivalents		634			1,113

Total assets	$	13,103		$	12,411

LIABILITIES, NON-CONTROLLING INTERESTS AND EQUITY
Debt
Senior notes, including $1,170 million and $1,156 million, respectively, net of discount, of Exchangeable Senior Debentures	$	4,510		$	4,249
Credit facility		162			58
Mortgage debt		1,068			1,025
Other		148			145

Total debt		5,888			5,477
Accounts payable and accrued expenses		178			208
Other		209			203

Total liabilities		6,275			5,888

Non-controlling interests - Host Hotels & Resorts, L.P.		174			191
Host Hotels & Resorts Inc. stockholders’ equity:
Common stock, par value $.01, 1,050 million shares authorized; 693.7 million shares and 675.6 million shares issued and outstanding, respectively		7			7
Additional paid-in capital		7,566			7,236
Accumulated other comprehensive income		40			25
Deficit		(999	)		(965	)

Total equity of Host Hotels & Resorts, Inc. stockholders		6,614			6,303
Non-controlling interests—other consolidated partnerships		40			29

Total equity		6,654			6,332

Total liabilities, non-controlling interests and equity	$	13,103		$	12,411

See notes to condensed consolidated statements.

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Quarter and Year-to-date Ended June 17, 2011 and June 18, 2010

(unaudited, in millions, except per share amounts)


	Quarter ended						Year-to-date ended
	June 17, 2011			June 18, 2010			June 17, 2011			June 18, 2010
REVENUES
Rooms	$	780		$	671		$	1,302		$	1,154
Food and beverage		380			342			650			595
Other		75			72			129			128

Total revenues for owned hotels		1,235			1,085			2,081			1,877
Other revenues		61			27			117			57

Total revenues		1,296			1,112			2,198			1,934

EXPENSES
Rooms		206			178			356			318
Food and beverage		268			240			469			427
Other departmental and support expenses		309			278			547			500
Management fees		53			47			85			75
Other property-level expenses		137			96			254			181
Depreciation and amortization		149			139			290			275
Corporate and other expenses		22			24			47			49

Total operating costs and expenses		1,144			1,002			2,048			1,825

OPERATING PROFIT		152			110			150			109
Interest income		5			1			9			2
Interest expense		(89	)		(82	)		(171	)		(179	)
Net gains on property transactions and other		2			—			3			—
Gain (loss) on foreign currency transactions and derivatives		1			(3	)		2			(5	)
Equity in earnings (losses) of affiliates		4			—			2			(5	)

INCOME (LOSS) BEFORE INCOME TAXES		75			26			(5	)		(78	)
Benefit (provision) for income taxes		(8	)		(6	)		13			16

INCOME (LOSS) FROM CONTINUING OPERATIONS		67			20			8			(62	)
Loss from discontinued operations, net of tax		(3	)		—			(4	)		(2	)

NET INCOME (LOSS)		64			20			4			(64	)
Less: Net income attributable to non-controlling interests		(2	)		(1	)		(2	)		(1	)

NET INCOME (LOSS) ATTRIBUTABLE TO HOST HOTELS & RESORTS, INC.		62			19			2			(65	)
Less: Dividends on preferred stock		—			(2	)		—			(4	)
Issuance costs of redeemed preferred stock		—			(4	)		—			(4	)

NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS	$	62		$	13		$	2		$	(73	)

Basic earnings (loss) per common share:
Continuing operations	$	.10		$	.02		$	.01		$	(.11	)
Discontinued operations		(.01	)		—			(.01	)		—

Basic earnings (loss) per common share	$	.09		$	.02		$	—		$	(.11	)

Diluted earnings (loss) per common share:
Continuing operations	$	.10		$	.02		$	.01		$	(.11	)
Discontinued operations		(.01	)		—			(.01	)		—

Diluted earnings (loss) per common share	$	.09		$	.02		$	—		$	(.11	)

See notes to condensed consolidated statements.

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Year-to-date Ended June 17, 2011 and June 18, 2010

(unaudited, in millions)


	Year-to-date ended
	June 17, 2011			June 18, 2010
OPERATING ACTIVITIES
Net income (loss)	$	4		$	(64	)
Adjustments to reconcile to cash provided by operations:
Discontinued operations:
Loss on dispositions		—			1
Depreciation		3			—
Depreciation and amortization		290			275
Amortization of deferred financing costs		5			6
Amortization of debt premiums/discounts, net		9			16
Deferred income taxes		(15	)		(17	)
Net gain on property transactions and other		(3	)		—
(Gain) loss on foreign currency transactions and derivatives		(2	)		5
Non-cash loss on extinguishment of debt		1			2
Equity in (earnings) losses of affiliates, net		(2	)		5
Distributions from equity investments		—			2
Change in due from managers		(27	)		(25	)
Changes in other assets		12			34
Changes in other liabilities		(19	)		(21	)

Cash provided by operations		256			219

INVESTING ACTIVITIES
Proceeds from sales of assets, net		—			12
Acquisitions		(1,035	)		—
Purchase of mortgage note on a portfolio of hotels		—			(53	)
Investment in affiliates		(18	)		—
Capital expenditures:
Renewals and replacements		(119	)		(67	)
Return on investments		(121	)		(33	)
Change in furniture, fixtures and equipment (“FF&E”) replacement fund		1			(22	)
Change in FF&E replacement funds designated as restricted cash		—			5
Property insurance proceeds		2			—

Cash used in investing activities		(1,290	)		(158	)

FINANCING ACTIVITIES
Financing costs		(8	)		—
Issuances of debt		576			—
Draw on credit facility		153			—
Repayment on credit facility		(50	)		—
Repurchase/redemption of senior notes, including exchangeable debentures		(250	)		(346	)
Mortgage debt prepayments and scheduled maturities		(132	)		(124	)
Scheduled principal repayments		(2	)		(5	)
Common stock issuance		288			55
Redemption of preferred stock		—			(101	)
Dividends on common stock		(21	)		(7	)
Dividends on preferred stock		—			(6	)
Distributions to non-controlling interests		(4	)		(3	)
Change in restricted cash for financing activities		5			5

Cash provided by (used in) financing activities		555			(532	)

DECREASE IN CASH AND CASH EQUIVALENTS		(479	)		(471	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		1,113			1,642

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	634		$	1,171

HOST HOTELS & RESORTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Year-to-date Ended June 17, 2011 and June 18, 2010

(unaudited)

Supplemental disclosure of cash flow information (in millions):


	Year-to-date ended
	June 17, 2011		June 18, 2010
Interest paid	$	144	$	163
Income taxes paid		4		3

Supplemental disclosure of noncash investing and financing activities:

For the year-to-date periods ended June 17, 2011 and June 18, 2010, Host Inc. issued approximately 0.2 million shares and 1.0 million shares, respectively, upon the conversion of operating partnership units (“OP units”) of Host Hotels & Resorts, L.P. (“Host L.P.”) held by non-controlling partners valued at approximately $4 million and $12 million, respectively.

On March 17, 2011, we acquired the 1,625-room Manchester Grand Hyatt San Diego, and certain related rights. In connection with the acquisition, Host L.P. issued approximately 0.3 million common OP units valued at $18.741 per unit, or approximately $6 million.

On April 29, 2011, we acquired a 75% controlling interest in the 364-room Hilton Melbourne South Wharf. In connection with the acquisition, we assumed AUD 80 million ($86 million) of mortgage debt and recorded the mortgage debt at its fair value at the acquisition date, which reflected a premium of $0.5 million. See Note 11 – “Acquisitions” for further discussion.

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

June 17, 2011 and December 31, 2010

(in millions)


	June 17, 2011		December 31, 2010
	(unaudited)
ASSETS
Property and equipment, net	$	11,635	$	10,514
Assets held for sale		6		—
Due from managers		67		45
Investments in affiliates		178		148
Deferred financing costs, net		45		44
Furniture, fixtures and equipment replacement fund		172		152
Other		330		353
Restricted cash		35		41
Cash and cash equivalents		634		1,113

Total assets	$	13,102	$	12,410

LIABILITIES, LIMITED PARTNERSHIP INTEREST OF THIRD PARTIES AND CAPITAL
Debt
Senior notes, including $1,170 million and $1,156 million, respectively, net of discount, of Exchangeable Senior Debentures	$	4,510	$	4,249
Credit facility		162		58
Mortgage debt		1,068		1,025
Other		148		145

Total debt		5,888		5,477
Accounts payable and accrued expenses		178		208
Other		209		203

Total liabilities		6,275		5,888

Limited partnership interests of third parties		174		191
Host Hotels & Resorts, L.P. capital:
General partner		1		1
Limited partner		6,572		6,276
Accumulated other comprehensive income		40		25

Total Host Hotels & Resorts, L.P. capital		6,613		6,302
Non-controlling interests—consolidated partnerships		40		29

Total capital		6,653		6,331

Total liabilities, limited partnership interest of third parties and capital	$	13,102	$	12,410

See notes to condensed consolidated statements.

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Quarter and Year-to-date Ended June 17, 2011 and June 18, 2010

(unaudited, in millions, except per unit amounts)


	Quarter ended						Year-to-date ended
	June 17, 2011			June 18, 2010			June 17, 2011			June 18, 2010
REVENUES
Rooms	$	780		$	671		$	1,302		$	1,154
Food and beverage		380			342			650			595
Other		75			72			129			128

Total revenues for owned hotels		1,235			1,085			2,081			1,877
Other revenues		61			27			117			57

Total revenues		1,296			1,112			2,198			1,934

EXPENSES
Rooms		206			178			356			318
Food and beverage		268			240			469			427
Other departmental and support expenses		309			278			547			500
Management fees		53			47			85			75
Other property-level expenses		137			96			254			181
Depreciation and amortization		149			139			290			275
Corporate and other expenses		22			24			47			49

Total operating costs and expenses		1,144			1,002			2,048			1,825

OPERATING PROFIT		152			110			150			109
Interest income		5			1			9			2
Interest expense		(89	)		(82	)		(171	)		(179	)
Net gains on property transactions and other		2			—			3			—
Gain (loss) on foreign currency transactions and derivatives		1			(3	)		2			(5	)
Equity in earnings (losses) of affiliates		4			—			2			(5	)

INCOME (LOSS) BEFORE INCOME TAXES		75			26			(5	)		(78	)
Benefit (provision) for income taxes		(8	)		(6	)		13			16

INCOME (LOSS) FROM CONTINUING OPERATIONS		67			20			8			(62	)
Loss from discontinued operations, net of tax		(3	)		—			(4	)		(2	)

NET INCOME (LOSS)		64			20			4			(64	)
Less: Net income attributable to non-controlling interests		(1	)		(1	)		(2	)		(2	)

NET INCOME (LOSS) ATTRIBUTABLE TO HOST HOTELS & RESORTS, L.P.		63			19			2			(66	)
Less: Distributions on preferred units		—			(2	)		—			(4	)
Issuance costs of redeemed preferred units		—			(4	)		—			(4	)

NET INCOME (LOSS) AVAILABLE TO COMMON UNITHOLDERS	$	63		$	13		$	2		$	(74	)

Basic earnings (loss) per common unit:
Continuing operations	$	.10		$	.02		$	.01		$	(.11	)
Discontinued operations		(.01	)		—			(.01	)		—

Basic earnings (loss) per common unit	$	.09		$	.02		$	—		$	(.11	)

Diluted earnings (loss) per common unit:
Continuing operations	$	.10		$	.02		$	.01		$	(.11	)
Discontinued operations		(.01	)		—			(.01	)		—

Diluted earnings (loss) per common unit	$	.09		$	.02		$	—		$	(.11	)

See notes to condensed consolidated statements.

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Year-to-date Ended June 17, 2011 and June 18, 2010

(unaudited, in millions)


	Year-to-date ended
	June 17, 2011			June 18, 2010
OPERATING ACTIVITIES
Net income (loss)	$	4		$	(64	)
Adjustments to reconcile to cash provided by operations:
Discontinued operations:
Loss on dispositions		—			1
Depreciation		3			—
Depreciation and amortization		290			275
Amortization of deferred financing costs		5			6
Amortization of debt premiums/discounts, net		9			16
Deferred income taxes		(15	)		(17	)
Net gain on property transactions and other		(3	)		—
(Gain) loss on foreign currency transactions and derivatives		(2	)		5
Non-cash loss on extinguishment of debt		1			2
Equity in (earnings) losses of affiliates, net		(2	)		5
Distributions from equity investments		—			2
Change in due from managers		(27	)		(25	)
Changes in other assets		12			34
Changes in other liabilities		(19	)		(21	)

Cash provided by operations		256			219

INVESTING ACTIVITIES
Proceeds from sales of assets, net		—			12
Acquisitions		(1,035	)		—
Purchase of mortgage note on a portfolio of hotels		—			(53	)
Investment in affiliates		(18	)		—
Capital expenditures:
Renewals and replacements		(119	)		(67	)
Repositionings and other investments		(121	)		(33	)
Change in furniture, fixtures and equipment (“FF&E”) replacement fund		1			(22	)
Change in FF&E replacement funds designated as restricted cash		—			5
Property insurance proceeds		2			—

Cash used in investing activities		(1,290	)		(158	)

FINANCING ACTIVITIES
Financing costs		(8	)		—
Issuances of debt		576			—
Draw on credit facility		153			—
Repayment on credit facility		(50	)		—
Repayments/redemption of senior notes, including exchangeable debentures		(250	)		(346	)
Mortgage debt prepayments and scheduled maturities		(132	)		(124	)
Scheduled principal repayments		(2	)		(5	)
Common OP unit issuance		288			55
Redemption of preferred OP units		—			(101	)
Distributions on common OP units		(21	)		(7	)
Distributions on preferred OP units		—			(6	)
Distributions to non-controlling interests		(4	)		(3	)
Change in restricted cash for financing activities		5			5

Cash provided by (used in) financing activities		555			(532	)

DECREASE IN CASH AND CASH EQUIVALENTS		(479	)		(471	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		1,113			1,642

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	634		$	1,171

See notes to condensed consolidated statements.

HOST HOTELS & RESORTS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Year-to-date Ended June 17, 2011 and June 18, 2010

(unaudited)

Supplemental disclosure of cash flow information (in millions):


	Year-to-date ended
	June 17, 2011		June 18, 2010
Interest paid	$	144	$	163
Income taxes paid		4		3

Supplemental disclosure of noncash investing and financing activities:

For the year-to-date periods ended June 17, 2011 and June 18, 2010, limited partners converted operating partnership units (“OP units”) valued at approximately $4 million and $12 million, respectively, in exchange for approximately 0.2 million and 1.0 million shares, respectively, of Host Hotels & Resorts, Inc. common stock.

On March 17, 2011, we acquired the 1,625-room Manchester Grand Hyatt San Diego, and certain related rights. In connection with the acquisition, Host Hotels & Resorts, L.P. issued approximately 0.3 million common OP units valued at $18.741 per unit, or approximately $6 million.

See notes to condensed consolidated statements.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	Organization

Description of Business

Host Hotels & Resorts Inc. operates as a self-managed and self-administered real estate investment trust (“REIT”) with its operations conducted solely through Host Hotels & Resorts L.P. and its subsidiaries. Host Hotels & Resorts, L.P., a Delaware limited partnership, operates through an umbrella partnership structure, with Host Hotels & Resorts, Inc., a Maryland corporation, as its sole general partner. In the notes to the condensed consolidated financial statements, we use the terms “we” or “our” to refer to Host Hotels & Resorts, Inc. and Host Hotels & Resorts, L.P. together, unless the context indicates otherwise. We also use the term “Host Inc.” to specifically refer to Host Hotels & Resorts, Inc. and the term “Host L.P.” to specifically refer to Host Hotels & Resorts, L.P. in cases where it is important to distinguish between Host Inc. and Host L.P. Host Inc. holds approximately 98.5% of Host L.P.’s OP units.

As of June 17, 2011, we owned, or had controlling interests in, 106 lodging properties located throughout the United States, as well as 17 international properties located in Australia, Brazil, Chile, Canada, Mexico, New Zealand and the United Kingdom, all operated under some of the leading brands in the lodging industry.

2.	Summary of Significant Accounting Policies

We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. generally accepted accounting principles (“GAAP”) in the accompanying unaudited condensed consolidated financial statements. We believe the disclosures made are adequate to prevent the information presented from being misleading. However, the unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10–K for the year ended December 31, 2010.

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

In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary to present fairly our financial position as of June 17, 2011 and the results of our operations for the quarterly and year-to-date periods ended June 17, 2011 and June 18, 2010 and cash flows for the year-to-date periods ended June 17, 2011 and June 18, 2010. Interim results are not necessarily indicative of full year performance because of the impact of seasonal and short-term variations.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.	Earnings (Loss) Per Common Share (Unit)

Host Inc. Earnings (Loss) per Common Share

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


	Quarter ended						Year-to-date ended
	June 17, 2011			June 18, 2010			June 17, 2011			June 18, 2010
	(in millions, except per share amounts)
Net income (loss)	$	64		$	20		$	4		$	(64	)
Net income attributable to non-controlling interests		(2	)		(1	)		(2	)		(1	)
Dividends on preferred stock		—			(2	)		—			(4	)
Issuance costs of redeemed preferred stock (a)		—			(4	)		—			(4	)

Earnings (loss) available to common stockholders		62			13			2			(73	)

Diluted earnings (loss) available to common stockholders	$	62		$	13		$	2		$	(73	)

Basic weighted average shares outstanding		685.7			652.5			681.5			650.3
Diluted weighted average shares outstanding (b)		687.1			654.1			683.0			650.3
Basic earnings (loss) per share	$	.09		$	.02		$	—		$	(.11	)
Diluted earnings (loss) per share	$	.09		$	.02		$	—		$	(.11	)

(a)	Represents the original issuance costs associated with the Class E preferred stock, which were redeemed during the second quarter 2010.

(b)	For all periods presented, there were approximately 50 million potentially dilutive shares related to our Exchangeable Senior Debentures, which were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the period.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Host L.P. Earnings (Loss) Per Common Unit

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


	Quarter ended						Year-to-date ended
	June 17, 2011			June 18, 2010			June 17, 2011			June 18, 2010
	(in millions, except per unit amounts)
Net income (loss)	$	64		$	20		$	4		$	(64	)
Net income attributable to non-controlling interests		(1	)		(1	)		(2	)		(2	)
Distributions on preferred units		—			(2	)		—			(4	)
Issuance costs of redeemed preferred OP units (a)		—			(4	)		—			(4	)

Earnings (loss) available to common unitholders		63			13			2			(74	)

Diluted earnings (loss) available to common unitholders	$	63		$	13		$	2		$	(74	)

Basic weighted average units outstanding		682.0			649.5			677.8			647.5
Diluted weighted average units outstanding (b)		683.3			651.1			679.2			647.5
Basic earnings (loss) per unit	$	.09		$	.02		$	—		$	(.11	)
Diluted earnings (loss) per unit	$	.09		$	.02		$	—		$	(.11	)

(a)	Represents the original issuance costs associated with the Class E preferred OP units, which were redeemed during the second quarter 2010.

(b)	For all periods presented, there were approximately 49 million potentially dilutive units related to our Exchangeable Senior Debentures, which were not included in the computation of diluted earnings per unit because to do so would have been anti-dilutive for the period.

4.	Property and Equipment

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


	June 17, 2011			December 31, 2010
Land and land improvements	$	1,842		$	1,669
Buildings and leasehold improvements		13,240			12,080
Furniture and equipment		2,000			1,895
Construction in progress		125			168

		17,207			15,812
Less accumulated depreciation and amortization		(5,572	)		(5,298	)

	$	11,635		$	10,514

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5.	Investment in Affiliates

European Joint Venture. On June 27, 2011, the expansion of the European Joint Venture (Euro JV) was completed through the creation of a new fund (the “Euro JV Fund II”) in which each of the current partners in the Euro JV holds a 33.3% limited partner interest and we hold the remaining 0.1% general partner interest. The Euro JV Fund II has a target size of approximately €450 million of new equity and a target investment of approximately €1 billion, after taking into account anticipated debt. As part of the expansion, on June 28, 2011, we also transferred the Le Méridien Piccadilly to the Euro JV Fund II at a price of £64 million ($102 million), including the assumption of the associated £32 million ($52 million) mortgage. Proceeds received from our partners for the contribution of the Le Méridien Piccadilly was used to repay £25 million ($41 million) under our credit facility. In addition to the expansion of the capacity of the Euro JV, we have extended its term from 2016 to 2021, subject to two one-year extensions.

On July 6, 2011, our Euro JV Fund II reached an agreement to acquire the 396-room Pullman Bercy, Paris, for approximately €96 million. The joint venture has agreed to invest an additional €9 million to renovate the rooms and public space at the hotel. The transaction is subject to a waiver by the City of Paris of its right to purchase the hotel and is expected to close in September 2011.

Debt

Senior Notes. On May 11 and May 25, 2011, we issued $425 million and $75 million, respectively, of 5⁷/8% Series W senior notes due June 15, 2019. We received proceeds from these issuances of approximately $489 million, net of discounts, underwriting fees and expenses. Interest on the Series W senior notes is payable semi-annually in arrears on June 15 and December 15, beginning December 15, 2011. The proceeds were used to repay $50 million drawn on our credit facility in connection with the acquisition of the Hilton Melbourne South Wharf, as discussed below, and to redeem the remaining $250 million of the 7¹/8% Series K senior notes due November 2013, plus a $3 million premium on the redemption. The remaining proceeds will be used for general corporate purposes.

On May 27, 2011, we gave notice of our intent to redeem $150 million of the outstanding $325 million 3.25% Exchangeable Senior Debentures. Subsequent to the end of the second quarter, holders of approximately $134 million of the 3.25% Exchangeable Debentures elected to exchange their debentures for shares of Host Inc. common stock totaling approximately 8.8 million shares, rather than receive the cash redemption proceeds, while the remaining $16 million of debentures were redeemed for cash.

Mortgage Debt. On April 29, 2011, we assumed AUD 80 million ($86 million) of mortgage debt in connection with the acquisition of the Hilton Melbourne South Wharf, Australia. We pay a floating interest rate equal to the quoted average bid rate on Reuters BBSY plus a 3.25% margin. At acquisition, we recorded the loan at fair value, which reflected a premium of $0.5 million. We also assumed the associated interest rate swap derivative, which fixes the Reuters BBSY rate at 7.52%. At acquisition, the swap did not qualify for hedge accounting; therefore, changes in the fair value of the derivative will be reflected in the consolidated statements of operations throughout the life of the swap. At acquisition, the swap’s fair value was a liability of AUD 1.8 million ($1.9 million). The swap agreement will expire on March 19, 2012. The loan matures on February 28, 2012.

Credit Facility. On April 26, 2011, to facilitate the acquisition of the Hilton Melbourne South Wharf, we drew $50 million on our credit facility, which was subsequently repaid on May 12, 2011. We have $438 million of remaining available capacity under our credit facility as of June 17, 2011.

Subsequent to quarter end, the contribution of the Le Méridien Piccadilly to the Euro JV Fund II and the $41 million repayment of the credit facility with proceeds therefrom, as well as the exchange or redemption of $150 million of our 3.25% Exchangeable Senior Debentures, decreased our total debt outstanding by

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

$304 million to approximately $5.6 billion and increased the availability under our credit facility to $479 million.

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

Equity of Host Inc.

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


	Host Hotels & Resorts, Inc.			Non-redeemable non-controlling interests			Total equity			Redeemable non-controlling interests
Balance, December 31, 2010	$	6,303		$	29		$	6,332		$	191
Net income		2			2			4			—
Issuance of common stock		288			—			288			—
Other changes in ownership		6			9			15			(17	)
Other comprehensive income (note 9)		15			—			15			—

Balance, June 17, 2011	$	6,614		$	40		$	6,654		$	174


	Host Hotels & Resorts, Inc.			Non-redeemable non-controlling interests			Total equity			Redeemable non-controlling interests
Balance, December 31, 2009	$	6,189		$	22		$	6,211		$	139
Net income (loss)		(65	)		2			(63	)		(1	)
Issuance of common stock		55			—			55			—
Redemption of preferred stock		(101	)		—			(101	)		—
Other changes in ownership		(39	)		(3	)		(42	)		31
Other comprehensive loss (note 9)		(10	)		—			(10	)		—

Balance, June 18, 2010	$	6,029		$	21		$	6,050		$	169

Capital of Host L.P.

As of June 17, 2011, Host Inc. is the owner of approximately 98.5% of Host L.P.’s common OP units. The remaining 1.5% of the common OP units are held by third party limited partners. Each OP unit may be redeemed for cash or, at the election of Host Inc., Host Inc. common stock, based on the conversion ratio of 1.021494 shares of Host Inc. common stock for each OP unit.

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

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Capital is allocated between controlling and non-controlling interests as follows (in millions):


	Capital of Host L.P.			Non-controlling interests			Total Capital			Limited Partnership Interests of Third Parties
Balance, December 31, 2010	$	6,302		$	29		$	6,331		$	191
Net income		2			2			4			—
Issuance of common OP units		288			—			288			—
Other changes in ownership		6			9			15			(17	)
Other comprehensive income (note 9)		15			—			15			—

Balance, June 17, 2011	$	6,613		$	40		$	6,653		$	174


	Capital of Host L.P.			Non-controlling interests			Total Capital			Limited Partnership Interests of Third Parties
Balance, December 31, 2009	$	6,187		$	22		$	6,209		$	139
Net income (loss)		(65	)		2			(63	)		(1	)
Issuance of common OP units		55			—			55			—
Redemption of preferred OP units		(101	)		—			(101	)		—
Other changes in ownership		(38	)		(3	)		(41	)		31
Other comprehensive loss (note 9)		(10	)		—			(10	)		—

Balance, June 18, 2010	$	6,028		$	21		$	6,049		$	169

Issuance of Common Stock

On April 21, 2011, we entered into a Sales Financing Agreement with BNY Mellon Capital Markets, LLC, through which Host Inc. may issue and sell, from time to time, shares having an aggregate offering price of up to $400 million. The sales will be made in “at the market” offerings under Securities and Exchange Commission (“SEC”) rules, including sales made directly on the NYSE. BNY Mellon Capital Markets, LLC is acting as sales agent. Host Inc. may sell shares of common stock under its new program from time to time based on market conditions, although it is not under an obligation to sell any shares. During the second quarter 2011, we issued approximately 11 million shares of common stock under the program at an average price of $17.29 per share for net proceeds of approximately $189 million.

Dividends/Distributions

On June 15, 2011, Host Inc.’s Board of Directors declared a dividend of $0.03 per share on its common stock. The dividend was paid on July 15, 2011 to stockholders of record as of June 30, 2011. Accordingly, Host L.P. made a distribution of $0.03064482 per unit on its common OP units based on the current conversion ratio.

8.	Geographic Information

We consider each one of our hotels to be an operating segment, none of which meets the threshold for a reportable segment. We also allocate resources and assess operating performance based on individual hotels. All of our other real estate investment activities (primarily our leased hotels and office buildings) are immaterial and meet the aggregation criteria, and thus, we report one segment: hotel ownership. As of June 17, 2011, our foreign operations consist of 17 properties in seven countries. There were no intercompany

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

sales during the periods presented. The following table presents total revenues and long-lived assets for each of the geographical areas in which we operate (in millions):


	Revenues								Property and Equipment, net
	Quarter ended				Year-to-date ended
	June 17, 2011		June 18, 2010		June 17, 2011		June 18, 2010		June 17, 2011		December 31, 2010
United States	$	1,222	$	1,072	$	2,082	$	1,866	$	10,906	$	10,095
Australia		4		—		4		—		149		—
Brazil		9		—		14		—		49		48
Canada		30		28		53		49		131		131
Chile		8		7		12		11		57		56
Mexico		6		5		10		8		29		29
New Zealand		8		—		9		—		153		—
United Kingdom		9		—		14		—		161		155

Total	$	1,296	$	1,112	$	2,198	$	1,934	$	11,635	$	10,514

9.	Comprehensive Income

Other comprehensive income consists of unrealized gains and losses on foreign currency translation adjustments and hedging instruments.

The following table presents comprehensive income for all periods presented (in millions):


	Quarter ended						Year-to-date ended
	June 17, 2011			June 18, 2010			June 17, 2011			June 18, 2010
Net income (loss)	$	64		$	20		$	4		$	(64	)
Other comprehensive income (loss)		11			(7	)		15			(10	)

Comprehensive income (loss)		75			13			19			(74	)
Comprehensive income attributable to the non-controlling interests		(2	)		(1	)		(2	)		(1	)

Comprehensive income (loss) attributable to Host Hotels & Resorts, Inc.	$	73		$	12		$	17		$	(75	)


	Quarter ended						Year-to-date ended
	June 17, 2011			June 18, 2010			June 17, 2011			June 18, 2010
Net income (loss)	$	64		$	20		$	4		$	(64	)
Other comprehensive income (loss)		11			(7	)		15			(10	)

Comprehensive income (loss)		75			13			19			(74	)
Comprehensive income attributable to the non-controlling interests		(1	)		(1	)		(2	)		(2	)

Comprehensive income (loss) attributable to Host Hotels & Resorts, L.P.	$	74		$	12		$	17		$	(76	)

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10.

Dispositions

We have classified one hotel as held for sale as of June 17, 2011. We disposed of two hotels in 2010 for net proceeds of approximately $12 million. The following table summarizes the revenues, income (loss) before taxes, and the gain (loss) on dispositions, net of income tax, of the hotels which have been included in discontinued operations for all periods presented:


	Quarter ended						Year-to-date ended
	June 17, 2011			June 18, 2010			June 17, 2011			June 18, 2010
	(in millions)
Revenues	$	2		$	5		$	3		$	9
Loss before income taxes		(3	)		—			(4	)		(3	)
Loss on dispositions, net of tax		—			(1	)		—			(1	)

Impairment of Assets Held for Sale

We analyze our assets for impairment when events or circumstances occur that indicate the carrying value may not be recoverable. We consider property to be impaired when the sum of future undiscounted cash flows over our remaining estimated holding period is less than the carrying value of the asset. For impaired assets, we record an impairment charge equal to the excess of the property’s carrying value over its fair value.

During the second quarter of 2011, we reviewed our hotel portfolio and evaluated our held-for-sale assets for impairment. Properties are tested for impairment based on management’s estimate of expected future undiscounted cash flows from operations and sale over our expected remaining hold period. The fair value of these properties is generally determined based on either a discounted cash flow analysis or negotiated sales prices. Based on these assessments, we recorded a non-cash impairment charge totaling $3 million in the second quarter associated with a property that was held for sale as of June 17, 2011. The impairment charge is included in discontinued operations on the consolidated statements of operations.

11.

Acquisitions

We record the assets acquired, liabilities assumed and non-controlling interests at the estimated fair value on the date of purchase. Acquisition-related costs, such as broker fees, due diligence costs, transfer taxes and legal and accounting fees, are expensed in the period incurred and are not capitalized or applied in determining the fair value of the acquired assets. During the second quarter of 2011, we acquired one hotel property. For the acquisitions described below, we recorded approximately $4 million of acquisition-related expenses year-to-date, $1 million of which were incurred in the second quarter of 2011. These costs are included in corporate and other expenses on the consolidated statement of operations. The purchase price allocations are estimated based on available information, however, we are still in the process of finalizing our accounting for the transactions below:

•

On April 29, 2011, we acquired a 75% common voting interest and a preferred interest in Plenary Holdings No. 4 Pty Ltd, the joint venture that indirectly owns the 364-room Hilton Melbourne South Wharf, Australia. The total transaction value, including the 25% voting interest retained by the previous owners, is AUD 142 million ($152 million) and includes the assumption of an existing AUD 80 million ($86 million) mortgage loan. We drew $50 million on the credit facility to fund the acquisition, which was repaid during the second quarter of 2011. We are entitled to receive a cumulative priority return of 12% based on our initial investment of AUD 45 million ($48 million) plus 75% of the distributable cash after our partner’s subordinated preferred interest.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

•

During the first quarter of 2011, we acquired the 775-room New York Helmsley Hotel for $313.5 million, the 1,625-room Manchester Grand Hyatt San Diego for $572 million and a portfolio of seven hotels containing 1,207 rooms in New Zealand for approximately $145 million.

On February 22, 2011, Christchurch, New Zealand experienced an earthquake that resulted in substantial damage to two of the acquired hotels, Hotel Novotel Christchurch Cathedral Square and the Hotel ibis Christchurch. Currently, the hotels remain closed and largely inaccessible, as the New Zealand Ministry of Civil Defense and Emergency Management has restricted access to the area. Based on limited preliminary reviews, the overall structures of our properties remain intact; however, portions of our buildings, particularly the historic portion (39 rooms) of the Novotel property, have experienced significant damage. The properties are expected to remain closed until at least the second quarter of 2012 and potentially longer. We believe we have sufficient coverage under the insurance policy of our property manager for both property and business interruption. We estimate that the economic loss will be capped at approximately $3 million based on the maximum deductible under our insurance policy and have accrued the loss in the second quarter. The city experienced a second significant earthquake on June 13, 2011. While information about additional damage is limited, we do not believe it was significant and have not accrued any additional losses.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed in our acquisitions (in millions):


Property and equipment	$	1,164
Restricted cash, FF&E reserves and other assets		19

Total assets		1,183

Mortgage debt		86
Other liabilities		6

Total net assets acquired	$	1,091

Our summarized unaudited consolidated pro forma results of operations, assuming the 2011 acquisitions occurred on January 1, 2010, are as follows (in millions, except per share amounts):


	Quarter ended					Year-to-date ended
	June 17, 2011			June 18, 2010		June 17, 2011			June 18, 2010
Revenues	$	1,311		$	1,174	$	2,255		$	2,032
Income (loss) from continuing operations		69			22		17			(61	)
Net income (loss)		66			22		13			(63	)
Host Inc.:
Net income (loss) available to common shareholders		64			15		11			(72	)
Basic earnings (loss) per common share:
Continuing operations	$	.10		$	.02	$	.03		$	(.11	)
Discontinued operations		(.01	)		—		(.01	)		—

Basic earnings (loss) per common share	$	.09		$	.02	$	.02		$	(.11	)

Diluted earnings (loss) per common share:
Continuing operations	$	.10		$	.02	$	.03		$	(.11	)
Discontinued operations		(.01	)		—		(.01	)		—

Diluted earnings (loss) per common share	$	.09		$	.02	$	.02		$	(.11	)

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Quarter ended					Year-to-date ended
	June 17, 2011			June 18, 2010		June 17, 2011			June 18, 2010
Host L.P.:
Net income (loss) available to common unitholders		65			15		11			(73	)
Basic earnings (loss) per common unit:
Continuing operations	$	.10		$	.02	$	.03		$	(.11	)
Discontinued operations		(.01	)		—		(.01	)		—

Basic earnings (loss) per common unit	$	.09		$	.02	$	.02		$	(.11	)

Diluted earnings (loss) per common unit:
Continuing operations	$	.10		$	.02	$	.03		$	(.11	)
Discontinued operations		(.01	)		—		(.01	)		—

Diluted earnings (loss) per common unit	$	.09		$	.02	$	.02		$	(.11	)

The above pro forma results of operations exclude $1 million and $4 million of acquisition costs for the quarter and year-to-date periods ended June 17, 2011, respectively. For the second quarter and year-to-date 2011, we have included approximately $55 million and $56 million of revenues, respectively, and $4 million of net income for each of the periods, respectively, in our consolidated statements of operations related to the operations of our 2011 acquisitions.

On July 14, 2011, we reached an agreement to acquire the 888-room Grand Hyatt Washington, D.C. for $442 million, which may include the assumption of a $166 million mortgage loan. The Grand Hyatt, which includes over 43,000 square feet of meeting space, is centrally located in the nation’s capital. The transaction is expected to be completed in September and is subject to customary closing conditions.

12.

Fair Value Measurements

We have adopted the provisions under GAAP for both recurring and non-recurring fair value measurements. Our recurring fair value measurements consist of the valuation of our derivative instruments, which may or may not be designated as accounting hedges. In evaluating the fair value of both financial and non-financial assets and liabilities, GAAP outlines a valuation framework and creates a fair value hierarchy that distinguishes between market assumptions based on market data (observable inputs) and a reporting entity’s own assumptions about market data (unobservable inputs). Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability at the measurement date in an orderly transaction (an exit price) and includes an evaluation of counterparty credit risk.

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table details the fair value of our financial assets and liabilities that are required to be measured at fair value on a recurring basis and the change in the fair value of the derivative instruments at June 17, 2011 (in millions).


			Fair Value at Measurement Date Using
	Balance at June 17, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
*Fair Value Measurements on a Recurring Basis:*
Interest rate swap derivatives	$	9.1	$	—	$	9.1	$	—
Foreign currency forward purchase contracts		1.3		—		1.3		—


			Fair Value at Measurement Date Using
	Balance at December 31, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Fair Value Measurements on a Recurring Basis:
Interest rate swap derivatives	$	10.6	$	—	$	10.6	$	—
Foreign currency forward purchase contracts		6.9		—		6.9		—

Interest Rate Swap Derivatives. In connection with the acquisition of the Hilton Melbourne South Wharf, on April 29, 2011, we assumed an interest rate swap agreement with a notional amount of AUD 80 million ($86 million) related to its mortgage debt. The purpose of the interest rate swap is to hedge against changes in cash flows (interest payments) attributable to fluctuations in the Reuters BBSY. As a result, we will pay a fixed rate of 7.52% and will receive a floating rate equal to the Reuters BBSY on the notional amount through maturity. The derivative value is based on the prevailing market yield curve on the date of measurement. We also evaluate counterparty credit risk in the calculation of the fair value of the swap. The swap did not qualify for hedge accounting at acquisition; therefore, the changes in the fair value of the derivative are recorded in gain (loss) on foreign currency transactions and derivatives on the accompanying unaudited condensed consolidated statements of operations at each balance sheet date. As of June 17, 2011, we have recorded a liability of $1.8 million related to the fair value of the swap.

On February 18, 2011, we entered into an interest rate swap agreement with a notional amount of NZD 79 million ($60 million) related to the mortgage debt on the seven properties acquired in New Zealand on February 18, 2011. We entered into the swap in order to hedge against changes in cash flows (interest payments) attributable to fluctuations in the 3-month NZD Bank Bill rate. As a result, we will pay a fixed rate of 4.75% and will receive a floating rate equal to the 3-month NZD Bank Bill rate on the notional amount through February 18, 2016. We have designated the derivative as a cash flow hedge. The derivative value is based on the prevailing market yield curve on the date of measurement. We also evaluate counterparty credit risk in the calculation of the fair value of the swap. The change in fair value of the derivative is recorded in accumulated other comprehensive income within the equity portion of our balance sheet. As of June 17, 2011, we recorded a liability of $1.8 million related to the fair value of the swap. No portion of the cash flow derivative was ineffective during the quarter.

We have three additional interest rate swap agreements for an aggregate notional amount of $300 million. We entered into these derivative instruments in order to hedge changes in the fair value of the

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

fixed-rate debt that occur as a result of changes in market interest rates. We have designated these derivatives as fair value hedges. The derivatives are valued based on the benchmark yield curve on the date of measurement. We also evaluate counterparty credit risk in the calculation of the fair value of the swaps. As of June 17, 2011 and December 31, 2010, we recorded an asset of $12.7 million and $10.6 million, respectively, related to the fair value of the swaps. We record the change in the fair value of the underlying debt due to change in the LIBOR rate as an addition to the carrying amount of the debt. Any difference between the change in the fair value of the swap and the change in the fair value in the underlying debt, which was not significant for the period presented, is considered the ineffective portion of the hedging relationship and is recognized in net income/loss.

Foreign Currency Forward Purchase Contracts. As of June 17, 2011, we had four foreign currency forward purchase contracts that hedge a portion of the foreign currency exposure resulting from the eventual repatriation of our net investment in the Euro JV. These derivatives are considered a hedge of the foreign currency exposure of a net investment in a foreign operation with changes in fair value recorded to accumulated other comprehensive income. The forward purchase contracts are valued based on the forward yield curve of the Euro to U.S. Dollar forward exchange rate on the date of measurement. The following table summarizes our foreign currency forward purchase contracts (in millions):


	Transaction Amount in Euros		Transaction Amount in Dollars		Forward Purchase Date	Fair Value at						Change in Fair Value for the period ended
Transaction Date	Transaction Amount in Euros		Transaction Amount in Dollars		Forward Purchase Date	June 17, 2011			December 31, 2010			June 17, 2011			June 18, 2010
February 2008	€	30	$	43	August 2011	$	—		$	2.8		$	(2.8	)	$	5.5
February 2008		15		22	February 2013		1.2			2.2			(1.0	)		2.4
May 2008		15		23	May 2014		2.2			2.9			(0.7	)		2.6
July 2010		20		26	October 2014		(2.1	)		(1.0	)		(1.1	)		—

Total	€	80	$	114		$	1.3		$	6.9		$	(5.6	)	$	10.5

On July 15, 2011, we entered into an additional €25 million ($34 million) forward purchase contract to hedge a portion of the foreign currency exposure resulting from the eventual repatriation of our net investment in the Euro JV. We will sell the Euro amount and receive the U.S. dollar amount on the forward purchase date of August 18, 2015. As part of the contract, we also entered into a forward purchase contract to net-settle the existing February 2008 €30 million foreign currency purchase contract and will receive cash of $0.4 million on the settlement date of August 18, 2011. Following these transactions, we have hedged our foreign currency exposure related to €75 million ($105 million) of our net investment in the Euro JV. Additionally, on July 15, 2011, we entered into a €25 million ($35 million) forward purchase contract to hedge a portion of the foreign currency exposure resulting from our investment in a mortgage note on a portfolio of hotels. We will sell the Euro amount and receive the U.S. dollar amount on the forward purchase date of October 22, 2012.

Fair Value of Other Financial Assets and Liabilities. For financial statement purposes, we did not elect the fair value measurement option for any of our other financial assets or liabilities. We have calculated the fair value of other financial assets and liabilities as detailed below. Notes receivable and other financial assets are valued based on the expected future cash flows discounted at risk-adjusted rates and are adjusted to reflect the effects of foreign currency translation. Valuations for secured debt and the credit facility are determined based on the expected future payments discounted at risk-adjusted rates. Senior notes and the exchangeable senior debentures are valued based on quoted market prices. The fair values of financial instruments not included in this table are estimated to be equal to their carrying amounts. The carrying amount and fair value of certain financial assets and liabilities are shown below (in millions):

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	June 17, 2011				December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets
Mortgage notes receivable	$	64	$	86	$	55	$	77
Financial liabilities
Senior notes		3,340		3,467		3,093		3,200
Exchangeable Senior Debentures		1,170		1,398		1,156		1,471
Credit facility		162		162		58		58
Mortgage debt and other, net of capital leases		1,153		1,180		1,110		1,107

13.

Non-controlling Interests

Other Consolidated Partnerships. As of June 17, 2011, we consolidate five majority-owned partnerships that have third-party, non-controlling ownership interests. The third-party partnership interests are included in non-controlling interest—other consolidated partnerships on the unaudited condensed consolidated balance sheets and totaled $40 million and $29 million as of June 17, 2011 and December 31, 2010, respectively. Three of the partnerships have finite lives ranging from 99 to 100 years that terminate between 2081 and 2095, and the associated non-controlling interests are mandatorily redeemable at our option at the end of, but not prior to, the finite life. At June 17, 2011 and December 31, 2010, the fair values of the non-controlling interests in the partnerships with finite lives were approximately $66 million and $65 million, respectively.

Net (income) loss attributable to non-controlling interests of consolidated partnerships is included in our determination of net income (loss). However, net income (loss) has been reduced by the amount attributable to non-controlling interests of third parties, which totaled $1 million for the quarters ended June 17, 2011 and June 18, 2010 and $2 million for the year-to-date periods ended June 17, 2011 and June 18, 2010, in the determination of net income (loss) attributable to Host Inc. and Host L.P.

Host Inc.’s treatment of the non-controlling interests of Host L.P.: Host Inc. adjusts the non-controlling interests of Host L.P. each period so that the amount presented equals the greater of its carrying value based on the accumulated historical cost or its redemption value. The historical cost is based on the proportional relationship between the historical cost of equity held by our common stockholders relative to that of the unitholders of Host L.P. The redemption value is based on the amount of cash or Host Inc. stock, at our option, that would be paid to the non-controlling interests of Host L.P. if it were terminated. Therefore, we have assumed that the redemption value is equivalent to the number of shares issuable upon conversion of the OP units held by third parties valued at the market price of Host Inc. common stock at the balance sheet date. Subsequent to the stock dividend issued in 2009, one OP unit may now be exchanged into 1.021494 shares of Host Inc. common stock. Non-controlling interests of Host L.P. are classified in the mezzanine section of the balance sheet as they do not meet the requirements for equity classification because the redemption feature requires the delivery of registered shares. The table below details the historical cost and redemption values for the non-controlling interests:

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	June 17, 2011		December 31, 2010
OP units outstanding (millions)		10.6		10.5
Market price per Host Inc. common share	$	16.09	$	17.87
Shares issuable upon conversion of one OP unit		1.021494		1.021494
Redemption value (millions)	$	174	$	191
Historical cost (millions)	$	104	$	101
Book value (millions) (1)	$	174	$	191

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

Net (income) loss is allocated to the non-controlling interests of Host L.P. based on their weighted average ownership percentage during the period. Net income (loss) attributable to Host Inc. has been reduced by the amount attributable to non-controlling interests in Host L.P. The income (loss) attributable to the non-controlling interests of Host L.P. was $1 million for the quarter ended June 17, 2011 and $(1) million for the year-to-date period ended June 18, 2010.

14.

Legal Proceedings

We are involved in various legal proceedings in the normal course of business regarding the operation of our hotels. To the extent not covered by insurance, these lawsuits generally fall into the following broad categories: disputes involving hotel-level contracts, employment litigation, compliance with laws such as the Americans with Disabilities Act and other general matters. Under our management agreements, our operators have broad latitude to resolve individual hotel-level claims for amounts generally less than $150,000. However, for matters exceeding such threshold, our operators may not settle claims without our consent. Based on our analysis of legal proceedings that we are currently involved with or aware of and our experience in resolving similar claims in the past, we have accrued approximately $6 million and estimate that, in the aggregate, our losses related to these proceedings could be as much as $8 million. We are not aware of any other matters with a reasonably possible negative outcome for which disclosure of a loss contingency is required. No assurances can be given as to the outcome of any pending legal proceedings.

We have accrued a loss contingency of approximately $48 million related to the San Antonio Marriott Rivercenter. For further detail on this legal proceeding, see our annual report on Form 10-K for the year ended December 31, 2010.

15.

Supplemental Guarantor and Non-Guarantor Subsidiary Information for Host L.P.

A portion of our subsidiaries guarantee our senior notes. Among the subsidiaries not providing guarantees are those owning 40 of our full-service hotels, our taxable REIT subsidiaries and all of their respective subsidiaries, and HMH HPT CBM LLC, the lessee of Courtyard properties. The separate financial statements of each guaranteeing subsidiary (each, a “Guarantor Subsidiary”) are not presented because we have concluded that such financial statements are not material to investors. The guarantee of each Guarantor Subsidiary is full and unconditional and joint and several and each Guarantor Subsidiary is wholly owned by us.

The following unaudited condensed consolidating financial information sets forth the financial position as of June 17, 2011 and December 31, 2010, results of operations for the quarter and year-to-date periods ended June 17, 2011 and June 18, 2010 and cash flows for the year-to-date periods ended June 17, 2011 and June 18, 2010 of the parent, Guarantor Subsidiaries and the Non-Guarantor Subsidiaries:

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Supplemental Condensed Consolidating Balance Sheets

(in millions)

June 17, 2011


	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Property and equipment, net	$	652		$	5,594	$	5,389	$	—		$	11,635
Assets held for sale		6			—		—		—			6
Due from managers		(18	)		—		92		(7	)		67
Investments in affiliates		6,966			1,494		23		(8,305	)		178
Rent receivable		—			36		—		(36	)		—
Deferred financing costs, net		40			—		5		—			45
Furniture, fixtures and equipment replacement fund		61			34		77		—			172
Other		532			138		274		(614	)		330
Restricted cash		25			1		9		—			35
Cash and cash equivalents		494			11		129		—			634

Total assets	$	8,758		$	7,308	$	5,998	$	(8,962	)	$	13,102

Debt	$	1,872		$	2,981	$	1,338	$	(303	)	$	5,888
Rent payable		—			—		36		(36	)		—
Other liabilities		99			195		411		(318	)		387

Total liabilities		1,971			3,176		1,785		(657	)		6,275
Limited partnership interests of third parties		174			—		—		—			174
Capital		6,613			4,132		4,173		(8,305	)		6,613

Total liabilities and capital		8,758			7,308		5,958		(8,962	)		13,062
Non-controlling interests — consolidated partnerships		—			—		40		—			40

Total liabilities, limited partnership interests of third parties and capital	$	8,758		$	7,308	$	5,998	$	(8,962	)	$	13,102

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Supplemental Condensed Consolidating Balance Sheets

(in millions)

December 31, 2010


	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Property and equipment, net	$	675		$	5,227	$	4,612	$	—		$	10,514
Due from managers		(22	)		1		66		—			45
Investments in affiliates		6,566			1,547		22		(7,987	)		148
Rent receivable		—			29		—		(29	)		—
Deferred financing costs, net		38			—		6		—			44
Furniture, fixtures and equipment replacement fund		67			30		55		—			152
Other		319			124		325		(415	)		353
Restricted cash		29			1		11		—			41
Cash and cash equivalents		733			30		350		—			1,113

Total assets	$	8,405		$	6,989	$	5,447	$	(8,431	)	$	12,410

Debt	$	1,785		$	2,766	$	1,178	$	(252	)	$	5,477
Rent payable		—			—		29		(29	)		—
Other liabilities		127			166		281		(163	)		411

Total liabilities		1,912			2,932		1,488		(444	)		5,888
Limited partnership interests of third parties		191			—		—		—			191
Capital		6,302			4,057		3,930		(7,987	)		6,302

Total liabilities and capital		8,405			6,989		5,418		(8,431	)		12,381
Non-controlling interests – consolidated partnerships		—			—		29		—			29

Total liabilities, limited partnership interests of third parties and capital	$	8,405		$	6,989	$	5,447	$	(8,431	)	$	12,410

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Supplemental Condensed Consolidating Statements of Operations

(in millions)

Quarter ended June 17, 2011


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES	$	117		$	131		$	1,295		$	(247	)	$	1,296
Hotel operating expenses		—			—			(836	)		—			(836	)
Other property-level expenses		(5	)		(36	)		(96	)		—			(137	)
Depreciation and amortization		(13	)		(70	)		(66	)		—			(149	)
Corporate and other expenses		(2	)		(10	)		(10	)		—			(22	)
Rental expense		—			—			(247	)		247			—
Interest income		4			4			1			(4	)		5
Interest expense		(23	)		(50	)		(20	)		4			(89	)
Net gain on property transactions and other		1			—			1			—			2
Gain (loss) on foreign currency transactions and derivatives		(1	)		—			2			—			1
Equity in earnings (losses) of affiliates		(11	)		17			—			(2	)		4

Income (loss) before income taxes		67			(14	)		24			(2	)		75
Provision for income taxes		—			—			(8	)		—			(8	)

INCOME (LOSS) FROM CONTINUING OPERATIONS		67			(14	)		16			(2	)		67
Loss from discontinued operations, net of tax		(3	)		—			—			—			(3	)

NET INCOME (LOSS)		64			(14	)		16			(2	)		64
Less: Net income attributable to non-controlling interests		—			—			(1	)		—			(1	)

Net income (loss) attributable to Host Hotels & Resorts, L.P.	$	64		$	(14	)	$	15		$	(2	)	$	63

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Supplemental Condensed Consolidating Statements of Operations

(in millions)

Quarter ended June 18, 2010


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES	$	67		$	138		$	1,111		$	(204	)	$	1,112
Hotel operating expenses		—			—			(743	)		—			(743	)
Property-level expenses		(7	)		(37	)		(52	)		—			(96	)
Depreciation and amortization		(13	)		(70	)		(56	)		—			(139	)
Corporate and other expenses		(2	)		(12	)		(10	)		—			(24	)
Rental expense		—			—			(204	)		204			—
Interest income		2			—			3			(4	)		1
Interest expense		(25	)		(47	)		(14	)		4			(82	)
Loss on foreign currency transactions and derivatives		(1	)		—			(2	)		—			(3	)
Equity in earnings (losses) of affiliates		(1	)		21			—			(20	)		—

Income (loss) before income taxes		20			(7	)		33			(20	)		26
Provision for income taxes		—			—			(6	)		—			(6	)

INCOME (LOSS) FROM CONTINUING OPERATIONS		20			(7	)		27			(20	)		20
Income (loss) from discontinued operations, net of tax		—			—			(2	)		2			—

NET INCOME (LOSS)		20			(7	)		25			(18	)		20
Less: Net income attributable to non-controlling interests		—			—			(1	)		—			(1	)

Net income (loss) attributable to Host Hotels & Resorts, L.P.	$	20		$	(7	)	$	24		$	(18	)	$	19

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Supplemental Condensed Consolidating Statements of Operations

(in millions)

Year-to-date ended June 17, 2011


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES	$	187		$	240		$	2,196		$	(425	)	$	2,198
Hotel operating expenses		—			—			(1,457	)		—			(1,457	)
Other property-level expenses		(10	)		(66	)		(178	)		—			(254	)
Depreciation and amortization		(25	)		(142	)		(123	)		—			(290	)
Corporate and other expenses		(3	)		(22	)		(22	)		—			(47	)
Rental expense		—			—			(425	)		425			—
Interest income		5			8			4			(8	)		9
Interest expense		(45	)		(96	)		(38	)		8			(171	)
Net gain (loss) on property transactions and other		74			—			(71	)		—			3
Gain on foreign currency transactions and derivatives		—			—			2			—			2
Equity in earnings (losses) of affiliates		(175	)		17			2			158			2

Income (loss) before income taxes		8			(61	)		(110	)		158			(5	)
Benefit for income taxes		—			—			13			—			13

INCOME (LOSS) FROM CONTINUING OPERATIONS		8			(61	)		(97	)		158			8
Loss from discontinued operations, net of tax		(4	)		—			—			—			(4	)

NET INCOME (LOSS)		4			(61	)		(97	)		158			4
Less: Net income attributable to non-controlling interests		—			—			(2	)		—			(2	)

Net income (loss) attributable to Host Hotels & Resorts, L.P.	$	4		$	(61	)	$	(99	)	$	158		$	2

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Supplemental Condensed Consolidating Statements of Operations

(in millions)

Year-to-date ended June 18, 2010


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
REVENUES	$	124		$	251		$	1,932		$	(373	)	$	1,934
Hotel operating expenses		—			—			(1,320	)		—			(1,320	)
Property-level expenses		(12	)		(68	)		(101	)		—			(181	)
Depreciation and amortization		(26	)		(139	)		(110	)		—			(275	)
Corporate and other expenses		(4	)		(25	)		(20	)		—			(49	)
Rental expense		—			—			(373	)		373			—
Interest income		3			1			5			(7	)		2
Interest expense		(51	)		(104	)		(31	)		7			(179	)
Loss on foreign currency and derivatives		(3	)		—			(2	)		—			(5	)
Equity in earnings (losses) of affiliates		(93	)		21			—			67			(5	)

Loss before income taxes		(62	)		(63	)		(20	)		67			(78	)
Benefit for income taxes		—			—			16			—			16

LOSS FROM CONTINUING OPERATIONS		(62	)		(63	)		(4	)		67			(62	)
Loss from discontinued operations, net of tax		(2	)		—			(3	)		3			(2	)

NET LOSS		(64	)		(63	)		(7	)		70			(64	)
Less: Net income attributable to non-controlling interests		—			—			(2	)		—			(2	)

Net loss attributable to Host Hotels & Resorts, L.P.	$	(64	)	$	(63	)	$	(9	)	$	70		$	(66	)

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Supplemental Condensed Consolidating Statements of Cash Flows

(in millions)

Year-to-date ended June 17, 2011


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidated
OPERATING ACTIVITIES
Cash provided by operations	$	155		$	53		$	48		$	256

INVESTING ACTIVITIES
Acquisitions		—			(283	)		(752	)		(1,035	)
Investment in affiliates		(18	)		—			—			(18	)
Capital expenditures		(14	)		(115	)		(111	)		(240	)
Change in furniture, fixtures and equipment (FF&E) replacement fund		9			(5	)		(3	)		1
Property insurance proceeds		—			—			2			2

Cash used in investing activities		(23	)		(403	)		(864	)		(1,290	)

FINANCING ACTIVITIES
Financing costs		(8	)		—			—			(8	)
Issuances of debt		496			—			80			576
Draw on credit facility		50			103			—			153
Repayment on credit facility		(50	)		—			—			(50	)
Repurchase of senior notes		(250	)		—			—			(250	)
Mortgage debt prepayments and scheduled maturities		—			(132	)		—			(132	)
Scheduled principal repayments		—			—			(2	)		(2	)
Common OP unit issuance		288			—			—			288
Distributions on common OP units		(21	)		—			—			(21	)
Distributions to non-controlling interests		—			—			(4	)		(4	)
Change in restricted cash for financing activities		—			—			5			5
Transfers to/from Parent		(876	)		360			516			—

Cash provided by (used in) financing activities		(371	)		331			595			555

DECREASE IN CASH AND CASH EQUIVALENTS	$	(239	)	$	(19	)	$	(221	)	$	(479	)

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Supplemental Condensed Consolidating Statements of Cash Flows

(in millions)

Year-to-date ended June 18, 2010


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidated
OPERATING ACTIVITIES
Cash provided by operations	$	74		$	61		$	84		$	219

INVESTING ACTIVITIES
Proceeds from sales of assets, net		3			—			9			12
Purchase of mortgage note on a portfolio of hotels		(53	)		—			—			(53	)
Capital expenditures		(6	)		(53	)		(41	)		(100	)
Change in furniture, fixtures and equipment (FF&E) replacement fund		(1	)		(6	)		(15	)		(22	)
Change in FF&E replacement funds designated as restricted cash		—			—			5			5

Cash used in investing activities		(57	)		(59	)		(42	)		(158	)

FINANCING ACTIVITIES
Repurchase/redemption of senior notes, including exchangeable debentures		(346	)		—			—			(346	)
Mortgage debt prepayments and scheduled maturities		—			—			(124	)		(124	)
Scheduled principal repayments		—			(1	)		(4	)		(5	)
Common OP unit issuance		55			—			—			55
Redemption of preferred OP units		(101	)		—			—			(101	)
Distributions on common OP units		(7	)		—			—			(7	)
Distributions on preferred OP units		(6	)		—			—			(6	)
Distributions to non-controlling interests		—			—			(3	)		(3	)
Change in restricted cash other than FF&E replacement fund		1			(1	)		5			5
Transfers to/from Parent		(82	)		(8	)		90			—

Cash used in financing activities		(486	)		(10	)		(36	)		(532	)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	$	(469	)	$	(8	)	$	6		$	(471	)

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

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this report. Host Inc. operates as a self-managed and self-administered REIT. Host Inc. is the sole general partner of Host L.P. and holds 98.5% of its partnership interests. Host L.P. is a limited partnership operating through an umbrella partnership structure.

Forward-Looking Statements

In this report on Form 10-Q, we make some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “expect,” “may,” “intend,” “predict,” “project,” “plan,” “will,”

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