Fair Value Measurements

6 Months Ended

Jun. 30, 2013

9.	Fair Value Measurements

The following tables detail the fair value of our financial assets and liabilities that are required to be measured at fair value on a recurring basis, as well as non-recurring fair value measurements, at June 30, 2013 and December 31, 2012, respectively (in millions):

				Fair Value at Measurement Date Using
	Balance at June 30, 2013			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Fair Value Measurements on a Recurring Basis:
Assets
Interest rate swap derivatives (a)	$	4		$	—	$	4		$	—
Forward currency sale contracts (a)		7			—		7			—
Liabilities
Interest rate swap derivatives (a)		(4	)		—		(4	)		—

				Fair Value at Measurement Date Using
	Balance at December 31, 2012			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)

Fair Value Measurements on a Recurring Basis:
Assets
Interest rate swap derivatives (a)	$	7		$	—	$	7		$	—
Forward currency sale contract (a)		5			—		5			—
Liabilities
Interest rate swap derivatives (a)		(6	)		—		(6	)		—

Fair Value Measurements on a Non-recurring Basis:
Impaired hotel properties held and used (b)		34			—		—			34

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

(b) The fair value measurements are as of the measurement date of the impairment and may not reflect the book value as of December 31, 2012.

Derivatives and Hedging

Interest rate swap derivatives designated as cash flow hedges. We have designated our floating-to-fixed interest rate swap derivatives as cash flow hedges. The purpose of the interest rate swaps is to hedge against changes in cash flows (interest payments) attributable to fluctuations in variable rate debt. The derivatives are valued based on the prevailing market yield curve on the date of measurement. We also evaluate counterparty credit risk when we calculate the fair value of the swaps. Changes in the fair value of the derivatives are recorded to accumulated other comprehensive income (loss) within the equity portion of our balance sheets. The hedges were fully effective as of June 30, 2013.

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

								Change in Fair Value
Transaction Date	Total Notional Amount		Maturity Date	Swapped Index	All-in Rate			Gain (Loss) Quarter ended					Gain (Loss) Year-to-date ended
Transaction Date	Total Notional Amount		Maturity Date	Swapped Index	All-in Rate			June 30, 2013		June 15, 2012				June 30, 2013		June 15, 2012
November 2011 (1)	A$	62	November 2016	Reuters BBSY		6.7	%	$	—	$	(3	)		$	1	$	(2	)
February 2011 (2)	NZ$	79	February 2016	NZ$ Bank Bill		7.15	%	$	1	$	(1	)		$	1	$	—

(1) The swap was entered into in connection with the A$82 million ($85 million) mortgage loan on the Hilton Melbourne South Wharf.

(2) The swap was entered into in connection with the NZ$105 million ($87 million) mortgage loan on seven properties in New Zealand.

Interest rate swap derivatives designated as fair value hedges. We have designated our fixed-to-floating interest rate swap derivatives as fair value hedges. We enter into these derivative instruments to hedge changes in the fair value of fixed-rate debt that occur as a result of changes in market interest rates. The derivatives are valued 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 swaps. The changes in the fair value of the derivatives largely are offset by corresponding changes in the fair value of the underlying debt due to changes in the 3-month LIBOR rate, which change is recorded as an adjustment 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 of the underlying debt, which was not significant for the periods presented, is considered the ineffective portion of the hedging relationship and is recognized in net income (loss).

We have three fixed-to-floating interest rate swap agreements for an aggregate notional amount totaling $300 million. During the quarters ended June 30, 2013 and June 15, 2012, the fair value of the swaps decreased $2 million and $1 million, respectively. During the year-to-date periods ended June 30, 2013 and June 15, 2012, the fair value of the swaps decreased $3 million and $1 million, respectively.

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

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

								Change in Fair Value
	Total Transaction Amount in Foreign Currency		Total Transaction Amount in Dollars					Gain (Loss) Quarter ended							Gain (Loss) Year-to-date ended
Transaction Date Range	Total Transaction Amount in Foreign Currency		Total Transaction Amount in Dollars			Forward Purchase Date Range		June 30, 2013				June 15, 2012			June 30, 2013			June 15, 2012
May 2008-January 2013	€	120		$	163		May 2014-January 2016		$	(2	)		$	5		$	1		$	3
July 2011	NZ$	30		$	25		August 2013		$	2			$	—		$	1		$	(1	)

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

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

Currency	Balance Outstanding US$		Balance Outstanding in Foreign Currency		Gain (Loss) Quarter ended
Currency	Balance Outstanding US$		Balance Outstanding in Foreign Currency		June 30, 2013			June 15, 2012		June 30, 2013		June 15, 2012
Canadian dollars (1)	$	30	C$	31	$	1		$	—	$	2	$	—
Australian dollars	$	6	A$	7	$	1		$	—	$	1	$	—
Euros	$	76	€	59	$	(1	)	$	—	$	—	$	—

(1) We have an additional $72 million outstanding on the credit facility in Canadian dollars that has not been designated as a hedging instrument.

Other Liabilities

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

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

	June 30, 2013				December 31, 2012
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial liabilities
Senior notes (Level 1)	$	2,847	$	2,946	$	3,038	$	3,296
Exchangeable Senior Debentures (Level 1)		363		543		531		725
Credit facility (Level 2)		702		702		763		763
Mortgage debt and other, net of capital leases (Level 2)		811		824		1,078		1,094

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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