The following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report.

Overview

Host Inc. operates as a self-managed and self-administered REIT that owns properties and conducts operations through Host L.P., of which Host Inc. is the sole general partner and in which it holds approximately 98.6% of Host L.P.'s common OP units as of December 31, 2012. The remaining approximate 1.4% 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 hotel properties. We currently own 118 hotels in the United States and internationally and have minority ownership interests in an additional 22 hotels through joint ventures in Europe and the Asia/Pacific region. These hotels are operated under brand names that are among the most respected and widely recognized in the lodging industry. The majority are located in central business districts of major cities, near airports and in resort/conference destinations that benefit from significant barriers to entry by competitors. Since 2000, the percentage of revenues generated by our urban and resort/conference hotels has increased from 64% to 80% in 2012, as we have focused our acquisition efforts on these hotel types, and similarly disposed of non-core assets. While hotels in these markets still are subject to competitive pressures, we believe this strategy of combining premium brands with superior locations provides opportunities to achieve room rate and occupancy premiums in excess of our competitors.

Our Customers

The majority of our customers fall into three broad groups: transient business, group business and contract business, which accounted for approximately 60%, 35%, and 5%, respectively, of our 2012 room sales. Similar to the majority of the lodging industry, we further categorize business within these categories based on characteristics they have in common as follows:

Transient business broadly represents individual business or leisure travelers. Business travelers make up the majority of transient demand at our hotels. Therefore, we will be significantly more affected by trends in business travel versus leisure demand. The three key subcategories of the transient business group are:

• Retail: This is the benchmark rate that a hotel publishes and offers to the general public. It typically is for travelers that do not have access to negotiated or discount rates. It includes the "rack rate," which typically is applied to rooms during high demand periods and is the highest rate category available. Retail room rates will fluctuate more freely depending on anticipated demand levels (e.g. seasonality and weekday vs. weekend stays).

• Special Corporate: This is a negotiated rate offered to companies and organizations that provide significant levels of room night demand to the hotel or to hotel brands generally. These rates typically are negotiated annually at a discount to the anticipated retail rate.

• Discount: This category encompasses all discount programs, such as AAA and AARP discounts, government per diem, rooms booked through wholesale channels, frequent guest program redemptions, and promotional rates and packages offered by a hotel.

Group business represents clusters of guestrooms booked together, usually with a minimum of 10 rooms. The three key sub-categories of the group business category are:

• Association: group business related to national and regional association meetings and conventions.

• Corporate: group business related to corporate meetings (e.g., product launches, training programs, contract negotiations, and presentations).

• Other: group business predominately related to social, military, education, religious, fraternal and youth and amateur sports teams, otherwise known as SMERF business.

The final category is contract business, which refers to blocks of rooms sold to a specific company for an extended period of time at significantly discounted rates. Contract rates usually are utilized by hotels that are located in markets that are experiencing consistently lower levels of demand. Airline crews are typical generators of contract demand for our hotels.

Understanding Our Performance

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

Revenue from owned hotels represents 95% of our total revenue. The following table presents the components of our hotel revenue as a percentage of our total revenue:

% of 2012 Revenues
• Rooms revenue. Occupancy and average daily room rate are the major drivers of rooms revenue. The business mix of the hotel
(group versus transient and premium versus discount business) is a significant driver of room rates. 61 %

• Food and beverage revenue. Occupancy and the type of customer staying at the hotel are the major drivers of food and beverage revenue (i.e., group business typically generates more food and beverage business through catering functions when compared to transient business, which may or may not utilize the hotel's restaurants). 28 %

• Other revenue. Occupancy, the nature of the property (i.e., resort, etc.) and its price point are the main drivers of other ancillary revenue, such as parking, golf course, spa, entertainment and other guest services. 6 %

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:

% of 2012 Operating Costs and Expenses
• Rooms expense. These costs include housekeeping, reservation systems, room supplies, laundry services and front desk costs. Occupancy is the major driver of rooms expense. These costs can increase based on increases in salaries and wages, as well as on the level of service and amenities that are provided. 18 %

• Food and beverage expense. These expenses primarily include food, beverage and labor costs. Occupancy and the type of customer staying at the hotel (i.e., catered functions generally are more profitable than outlet sales) are the major drivers of food and beverage expense, which correlates closely with food and beverage revenue. 23 %

• Management fees. Base management fees are computed as a percentage of gross revenue. Incentive management fees generally are paid when operating profits exceed certain threshold levels. 4 %

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

• Depreciation and amortization expense. This is a non-cash expense that changes primarily based on the acquisition and disposition of hotel properties and the level of past capital expenditures. 15 %

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% of our hotel operating expenses.

Key Performance Indicators. Revenue per available room ("RevPAR") is a commonly used measure within the hotel industry 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 or parking, telephone or other guest service revenues generated by the property. Although RevPAR does not include these ancillary revenues, it generally is considered the key indicator of core revenues for many hotels.

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 would lead to increases in rooms revenues and ancillary revenues, such as food and beverage revenue, as well as additional incremental costs (including housekeeping services, utilities and room amenity costs). RevPAR increases due to higher room rates, however, would not result in additional room-related costs, with the exception of those charged as a percentage of revenue. As a result, changes in RevPAR driven by increases or decreases in average room rates have a greater effect on profitability than changes in RevPAR caused by occupancy levels.

In discussing our operating results, we present RevPAR and certain other financial data for our hotels on a comparable hotel basis. Comparable hotels are those properties that we have owned for the entirety of the reporting periods being compared and whose operations have been included in our consolidated results. Comparable hotels do not include the results of properties acquired or sold, or that incurred business interruption due to significant property damage or large scale capital improvements.

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

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

• Hotel adjusted operating profit and margins. Hotel adjusted operating profit measures property-level results before debt service, depreciation and corporate expenses and is a supplemental measure of aggregate property-level profitability. We use hotel adjusted operating profit and associated margins to evaluate the profitability of our comparable hotels.

• EBITDA and Adjusted EBITDA. Earnings before income taxes, interest expense, depreciation and amortization ("EBITDA") is a supplemental measure of the operating performance of our properties and facilitates comparisons between us and other lodging REITs, hotel owners who are not REITs and other capital-intensive companies. We also adjust EBITDA for gains and losses related to real estate transactions and impairment losses ("Adjusted EBITDA").

Summary of 2012 Operating Results

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

Historical Income Statement Data:



                                                                    % Change                           % Change
                                       2012          2011         2011 to 2012         2010          2010 to 2011
Total revenues                        $ 5,286       $ 4,924                 7.4 %     $ 4,361                 12.9 %
Net income (loss)                          63           (16 )               N/M          (132 )               87.9
Operating profit                          383           326                17.5           223                 46.2
Operating profit margin under GAAP        7.2 %         6.6 %             60bps           5.1 %             150bps
Adjusted EBITDA                         1,190         1,018                16.9 %         834                 22.1 %

Diluted earnings (loss) per share     $   .08       $  (.02 )               N/M       $  (.21 )               90.5 %
NAREIT FFO per diluted share             1.04           .89                16.9           .68                 30.9
Adjusted FFO per diluted share           1.10           .92                19.6           .74                 24.3

Comparable Hotel Data:



                                         2012 Comparable Hotels (a)                      2011 Comparable Hotels (a)
                                                                % Change                                        % Change
                                   2012          2011         2011 to  2012         2011          2010        2010 to 2011
Comparable hotel revenues        $  4,428      $  4,195                  5.5 %    $  4,315      $  4,087                5.6 %
Comparable hotel RevPAR            142.48        133.87                  6.4        129.97        122.47                6.1
Comparable hotel operating
profit                              1,061           946                 12.2           961           875                9.8
Comparable hotel adjusted
operating profit margin              24.0 %        22.6 %             140bps          22.3 %        21.4 %            90bps

(a) Comparable hotel operating statistics for 2012 and 2011 are based on 103 comparable hotels as of December 31, 2012, while the comparable hotel operating statistics for 2011 and 2010 are based on 104 comparable hotels as of December 31, 2011.

In 2012, RevPAR at our comparable hotels increased 6.4% compared to 2011, marking the third straight year of comparable RevPAR growth of approximately 6%. While the overall growth in the economy since the 2008-2009 recession has been slow, particularly with regards to GDP growth and the continued high unemployment, specific

drivers of lodging demand have proven to be more resilient, allowing for steady RevPAR improvements. In particular, corporate business, which is one of the most important demand drivers of our portfolio, has strengthened as corporate profits and business investment have increased at a much greater rate than the overall economy. Additionally, our properties in gateway markets, such as New York, San Francisco, Los Angeles, Seattle, Boston, Miami and Chicago, have benefited from an increase in demand from travel to the U.S. as international arrivals increased 7% through September 2012 based on the most recent available report from the Office of Travel and Tourism Industries.

Growth in 2012 at our comparable hotels was both rate and occupancy driven, as room rates improved 3.6% and occupancy improved 200 basis points to 74.5%, which is one percentage point above our pre-recession occupancy levels in 2007. As we enter the third full year of the lodging recovery, our operators have been able to gradually increase room rates, particularly for our transient business, as the occupancy levels at our properties have continued to improve. The occupancy improvement for the year was driven by an increase in demand from our corporate group business, as reflected in a 4% increase in group room nights compared to 2011.

Food and beverage revenues at our comparable hotels increased 3.9% for 2012. The increase was driven primarily by improvements in banquet and audio visual revenues during the first half of the year, while outlet revenue improved during the second half of the year. Banquet and audio visual revenues provide higher overall operating margins than outlet revenue, as catered functions generally are more profitable. Overall, food and beverage revenues increased by 6.4% compared to 2011, which includes incremental food and beverage revenues from recently acquired hotels of $31 million.

As a result, total revenues for our owned hotels increased $342 million to $5.0 billion for the year. In addition to the hotel revenues for our owned hotels described above, our other revenues increased $20 million, which was due primarily to increased revenue from the 53 Courtyard by Marriott hotels leased from Hospitality Properties Trust ("HPT"). Accordingly, total revenues increased $362 million to approximately $5.3 billion for 2012. Approximately $99 million of the increase both in total revenues and revenues for owned hotels resulted from the inclusion of operations from recently acquired hotels, including the Grand Hyatt Washington, which was purchased in July 2012 and a full year of operations for 10 hotels purchased in the first quarter of 2011.

Operating margins (calculated based on GAAP operating profit as a percentage of GAAP revenues) increased 60 basis points for the full year 2012. Operating margins are affected significantly by several items, including operations from recently acquired hotels, depreciation, impairments, and corporate expenses. Our comparable hotel adjusted operating profit margins, which exclude these and other items, increased 140 basis points to 24.0%. Our comparable hotel adjusted operating profit margins were impacted positively by the 3.6% increase in average room rate, as well as a 5.5% decline in utilities expense.

Net income (loss) for Host Inc. improved $79 million in 2012 to a net income of $63 million and Adjusted EBITDA increased $172 million, or 16.9%, to $1.2 billion. Net income was impacted negatively by a $60 million non-cash impairment charge in 2012 related to The Westin Mission Hills Resort & Spa, partially offset by a $48 million gain from asset sales.

During 2012, Host Inc.'s diluted income (loss) per common share improved $.10 per share to income of $.08 per share. The improvement in our income per diluted share reflects the improvement in operating results at our hotels as described above. Host Inc.'s Adjusted FFO per diluted share increased 19.6% to $1.10 per share for 2012.

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 outside partners of Host L.P. For the year, Host L.P.'s net income (loss) improved $79 million to income of $63 million, and the diluted income (loss) per common diluted unit improved $.11 per unit to income of $.09 per unit.

Investing Activities

Acquisitions and New Development. We believe that the lodging industry will continue to present opportunities to acquire hotels at discounts to replacement cost, with growth potential that will provide returns at attractive premiums to our cost of capital. While the global economic outlook remains unclear, the on-going strength of hotel performance, particularly in gateway markets, due to limited new supply and the increasing availability of debt, creates a favorable environment for hotel transactions. Our acquisition strategy also includes the acquisition or development of midscale and upscale properties in select target markets. During 2012, we completed the following transactions:

• On July 16, 2012, we acquired the 888-room Grand Hyatt Washington for approximately $400 million. In connection with the acquisition, we also paid $17 million, net, for the FF&E replacement fund, working capital and other assets.

• On June 8, 2012, we acquired land and entered into a construction agreement to develop two hotels, totaling 405 rooms, in Rio de Janeiro. We invested approximately R$53 million ($26 million) in 2012 and estimate our total development costs to be R$129 million ($72 million). The hotels will be managed by Accor under the ibis and Novotel brands and are expected to open in 2014.

• In May 2012, we entered into a 50/50 joint venture with White Lodging Services to develop a 255-room Hyatt Place in Nashville, Tennessee. The hotel is expected to open in December 2013 at a total cost of $46 million, including the purchase of the land. The joint venture has secured a $34.8 million construction loan for this project, but, as of December 31, 2012, had not drawn on this facility.

International Joint Venture Investments. We continue to utilize joint ventures to expand our global portfolio and help diversify exposure to the market. During 2012, the Euro JV completed the following acquisitions:

• On July 26, 2012, the Euro JV acquired the 192-room Le Mιridien Grand Hotel in Nuremberg for approximately €30 million ($37 million).

• On November 30, 2012, the Euro JV acquired a portfolio of five hotels comprising 1,733 rooms in Paris and Amsterdam for approximately €440 million ($572 million) and the payment of €10 million ($13 million) for the FF&E replacement fund. The acquisition was financed, in part, through the issuance of €250 million ($325 million) of mortgage debt.

We contributed approximately €80 million ($103 million) in connection with these acquisitions, which also includes closing costs of €9 million ($11 million). In connection with the acquisition of the portfolio of five hotels, we received €62 million ($80 million) for our interest in the mortgage loan secured by the hotels that was repaid at closing which we had acquired for €40 million ($55 million) in April 2010.

On March 6, 2012, the Asia/Pacific JV acquired the 278-room Citigate Perth in Australia for A$61 million ($64 million). The Asia/Pacific JV invested approximately A$17 million ($18 million) to upgrade and rebrand the hotel to a Four Points by Sheraton. Our equity contribution for the hotel was approximately A$10 million ($11 million). Additionally, the Asia/Pacific JV has a non-controlling interest in a separate joint venture to develop seven hotels in India. The ibis and Novotel Techpark, Bangalore opened in 2012 and the other five hotels are under various stages of development in Chennai and Delhi and are expected to open during 2014.

Value Enhancement Projects. We also look to enhance the value of our portfolio by identifying and executing strategies designed to achieve the highest and best use of all aspects of our properties. We believe that the successful execution of these projects will create significant value for the company. During 2012, we focused on the following value-enhancement projects:

• On November 9, 2012, we entered into a joint venture agreement (the "Maui JV") with Hyatt Residential Group to develop, sell and operate a 131-unit vacation ownership project in Maui, Hawaii adjacent to our Hyatt Regency Maui Resort & Spa for estimated development costs of $200 million, which we expect will be funded with a $110 million construction loan and partner equity contributions. We contributed a combination of land and cash to the Maui JV in exchange for a 67% membership

• On August 2, 2012, we announced a 20-year lease agreement with Vornado Realty Trust ("Vornado") to lease the retail and signage space at the New York Marriott Marquis. Vornado plans to invest approximately $140 million to redevelop and substantially expand the existing retail space, including the conversion of below-grade parking to high-end retail space and six-story, block front, LED signage that is expected to improve the hotel's presence on Times Square. As a result of the lease, our rental income increased by more than $6 million annually and we would expect significant additional rent increases as the project is completed and leased. Over the term of the lease, each party has options that, if exercised, would result in ownership of the retail space being conveyed to Vornado at a price based on the future cash flow of the leased property.

• We also are under contract with a luxury homebuilder to sell 4.2 acres of excess land adjacent to our Newport Beach Marriott Hotel & Spa. The land, which previously was used for tennis courts, has been approved for the development and sale of 79 luxury condominiums. The sale is expected to close by mid-2013 and is subject to various customary closing conditions.

Redevelopment and Return on Investment Capital Expenditures. Redevelopment and ROI projects primarily consist of large-scale redevelopment projects, as well as near-term capital and operational improvement plans at our newly acquired properties, which we refer to as acquisition projects. During 2012 and 2011, we invested $128 million and $13 million, respectively, in acquisition projects and $144 million and $202 million, respectively, in other projects for a total of $272 million and $215 million, respectively, in redevelopment and ROI expenditures. During 2013, we plan to spend between $40 million to $50 million in acquisition expenditures and $90 million to $100 million for other projects for total redevelopment and ROI expenditures of $130 million to $150 million. In 2012, we continued to implement various projects that were designed specifically to increase the eco-efficiency of our hotels, incorporate elements of sustainable design and replace aging equipment and systems with more efficient technology. Significant redevelopment capital expenditures during the year included the following projects:

• The redevelopment projects that began in 2011 at the following three properties were completed: the Atlanta Marriott Perimeter Center, the Chicago Marriott O'Hare and the Sheraton Indianapolis. These properties have experienced an average RevPAR increase of 41% for 2012 when compared to the pre-construction period in 2010.

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