Debt

Debt consists of the following (in millions):

	As of December 31,
	2013		2012
Series Q senior notes, with a rate of 6¾% due June 2016	$	150	$	550
Series T senior notes, with a rate of 9% due May 2017		—		391
Series V senior notes, with a rate of 6% due November 2020		500		500
Series X senior notes, with a rate of 5⅞% due June 2019		497		497
Series Z senior notes, with a rate of 6% due October 2021		300		300
Series B senior notes, with a rate of 5¼% due March 2022		350		350
Series C senior notes, with a rate of 4¾% due March 2023		450		450
Series D senior notes, with a rate of 3¾% due October 2023		400		—
2004 Exchangeable Senior Debentures, with a rate of 3¼% due April 2024		—		175
2009 Exchangeable Senior Debentures, with a rate of 2½% due October 2029		371		356
Total senior notes		3,018		3,569
Credit facility revolver		446		263
Credit facility term loan due July 2017		500		500
Mortgage debt (non-recourse), with an average interest rate of 4.1% and 4.5% at December 31, 2013 and 2012, respectively, maturing through January 2024		709		993
Other		86		86
Total debt	$	4,759	$	5,411

Senior Notes

General. Under the terms of our senior notes indenture, which includes our Exchangeable Senior Debentures, our senior notes are equal in right of payment with all of our unsubordinated indebtedness and senior to all of our subordinated obligations. The face amount of our senior notes as of December 31, 2013 and 2012 was $3.1 billion and $3.6 billion, respectively. The senior notes balance as of December 31, 2013 and 2012 includes discounts of approximately $32 million and $56 million, respectively. We pay interest on each series of our senior notes semi-annually in arrears at the respective annual rates indicated in the table above.

Under the terms of the senior notes indenture, our ability to incur indebtedness and pay dividends is subject to restrictions and the satisfaction of various conditions. As of December 31, 2013, we are in compliance with all of these covenants.

We completed the following senior notes transactions:

—

We redeemed $400 million ($200 million in June 2013 and $200 million in September 2013) of our 6¾% Series Q senior notes due 2016, for an aggregate price of $404 million, using proceeds from debt issuances and asset dispositions. Subsequent to year-end, we redeemed the remaining $150 million of Series Q senior notes for an aggregate price of $152 million.

—

On March 19, 2013, we issued $400 million of our 3³⁄₄% Series D senior notes due October of 2023 for net proceeds of approximately $396 million. The net proceeds from the issuance of the Series D, together with cash on hand, were used to redeem the $400 million of our 9% Series T senior notes due 2017 at an aggregate price of $418 million in May 2013.

—

In March 2013, holders of $174 million face amount of our 3¹⁄₄% exchangeable senior debentures (the “2004 Debentures”) elected to exchange their debentures for shares of Host Inc. common stock totaling approximately 11.7 million shares, rather than receive the cash redemption proceeds. In connection with the debentures exchanged for Host Inc. common stock, Host L.P. issued 11.5 million common OP units. The remaining $1 million of debentures were redeemed for cash.

—	On December 31, 2012, we redeemed $100 million of our 6³⁄₄% Series Q senior notes due 2016 for a redemption price of $102 million.

—

On August 9, 2012, we issued $450 million of our 4³⁄₄% Series C senior notes due 2023 for net proceeds of approximately $443 million. On September 5, 2012, a portion of the proceeds were used to redeem the $250 million of our 6³⁄₈% Series O senior notes due 2015 for a redemption price of $253 million and $150 million of our 6³⁄₄% Series Q senior notes due 2016 for a redemption price of $153 million.

—	On August 27, 2012, we redeemed $400 million of our 6³⁄₈% Series O senior notes due 2015 with proceeds from our credit facility term loan at a redemption price of $404 million.

—	On April 16, 2012, the holders of $386 million face amount of 2⁵⁄₈% exchangeable senior debentures due 2027 (the “2007 Debentures”) exercised their option to require us to repurchase their debentures at par. We redeemed the remaining $2 million in October 2012.

—	On April 13, 2012, we redeemed $250 million of our 6⁷⁄₈% Series S senior notes due in 2014, and on May 29, 2012, we redeemed the remaining $250 million Series S notes for a total redemption price of $508 million.

—

On March 22, 2012, we issued $350 million of 5¹⁄₄% Series A senior notes due 2022. Net proceeds of the offering of approximately $344 million, and available cash, were used to repay the $113 million loan with a 7.5% interest rate secured by the JW Marriott, Washington, D.C. on April 2, 2012, and to redeem $250 million of our 6⁷⁄₈% Series S senior notes, as noted above. The Series A senior notes were exchanged for Series B senior notes in October 2012. The terms of the Series B senior notes are substantially identical in all respects to those of the Series A senior notes, except that the Series B senior notes are registered under the Securities Act of 1933 and are, therefore, freely transferable by the holders.

Exchangeable Debentures. As of December 31, 2013, we have $400 million of 2¹⁄₂% exchangeable senior debentures outstanding that were issued on December 22, 2009 (the “2009 Debentures”). The 2009 Debentures are equal in right of payment with all of our other senior notes. Holders have the right to require us to purchase the 2009 Debentures at a price equal to 100% of the principal amount outstanding plus accrued interest (the “put option”) on October 15, 2015 and on certain other subsequent dates. Holders of the 2009 Debentures also have the right to exchange the 2009 Debentures prior to maturity under certain conditions, including at any time at which the closing price of Host Inc.’s common stock is more than 130% ($17.40) of the exchange price per share for at least 20 of the last 30 consecutive trading days of the calendar quarter or at any time up to two days prior to the date on which the 2009 Debentures have been called for redemption. We can redeem for cash all, or part of, any of the 2009 Debentures at any time subsequent to October 20, 2015, at a redemption price of 100% of the principal amount plus accrued interest. If, at any time, we elect to redeem the 2009 Debentures and the exchange value exceeds the cash redemption price, we would expect the holders to elect to exchange the 2009 Debentures at the respective exchange value rather than receive the cash redemption price. The exchange value is equal to the applicable exchange rate multiplied by the price of Host Inc.’s common stock. Upon exchange, the 2009 Debentures would be exchanged for Host Inc.’s common stock, cash, or a combination thereof, at our option. Based on Host Inc.’s stock price at December 31, 2013, the 2009 Debentures’ if-converted value would exceed the outstanding principal amount by $181 million. As of December 31, 2013, the closing price of Host Inc.‘s common stock exceeded 130% of the exchange price for more than 20 of 30 consecutive trading days. Therefore, the 2009 Debentures are exchangeable by holders through March 31, 2014. Currently, each $1,000 Debenture would be exchanged for 74.7034 Host Inc. common shares (for an equivalent per share price of $13.39), for a total of 29.9 million shares.

We separately account for the liability and equity components of our 2009 Debentures in order to reflect the fair value of the liability component based on our non-convertible borrowing cost at the issuance date. Accordingly, we record the liability components of the 2009 Debentures at fair value as of the date of issuance and amortize the resulting discount as an increase to interest expense through the initial put option date of the 2009 Debentures, which is the expected life of the debt. However, there is no effect of this accounting treatment on our cash interest payments. We measured the fair value of the debt components of the 2009 Debentures at issuance based on an effective interest rate of 6.9%. The initial allocations between the debt and equity components of the 2009 Debentures, net of the original issue discount, based on the effective interest rate at the time of issuance was $316 million and $82 million, respectively. As of December 31, 2013, the debt carrying value and unamortized discount were $371 million and $29 million, respectively.

Interest expense recorded for our exchangeable senior debentures (including interest expense for debentures redeemed in 2013 and 2012) consists of the following (in millions):

	Year ended December 31,
	2013		2012		2011
Contractual interest expense (cash)	$	10	$	19	$	31
Non-cash interest expense due to discount amortization		15		17		31
Total interest expense	$	25	$	36	$	62

Losses on the repurchased debentures are recorded in interest expense in the consolidated financial statements. We evaluated the fair value of the repurchased debentures based on the fair value of the cash flows at the date of the repurchase, discounted at risk adjusted rates. Based on this calculation, the fair value of our repurchased debentures generally has been greater than the conversion price; therefore, substantially all of the repurchase price was allocated to the debt portion of the debentures.

Authorization for Senior Notes and Exchangeable Senior Debentures Repurchase. Host Inc.’s Board of Directors has authorized repurchases of up to $680 million of senior notes, exchangeable debentures and mortgage debt (other than in accordance with its terms), of which $530 million remains available under this authority following our senior notes redemption subsequent to year-end.

Credit Facility. On November 22, 2011, we entered into a new senior revolving credit facility with Bank of America, N.A., as administrative agent, JPMorgan Chase Bank, N.A., as syndication agent, Wells Fargo Bank, N.A., Deutsche Bank AG New York Branch and The Bank of Nova Scotia as co-documentation agents, and certain other agents and lenders. The amounts outstanding under the prior credit facility were transferred and remain outstanding. Based on our draws at December 31, 2013, we had $554 million of available capacity under our credit facility. The credit facility allows for revolving borrowings in an aggregate principal amount of up to $1 billion, including a foreign currency subfacility for Canadian dollars, Australian dollars, New Zealand dollars, Japanese yen, Euros and British pound sterling of up to the foreign currency equivalent of $500 million, subject to a lower amount in the case of New Zealand dollar borrowings. The credit facility also provides a subfacility of up to $100 million for swingline borrowings and a subfacility of up to $100 million for issuances of letters of credit. Host L.P. also has the option to increase the aggregate principal amount of the credit facility by up to $500 million, subject to obtaining additional loan commitments and satisfaction of certain conditions. The credit facility has an initial scheduled maturity date of November 2015, with an option for Host L.P. to extend the term for one additional year, subject to certain conditions, including the payment of an extension fee.

We had the following transactions under this credit facility during 2013 and 2012 (draws used for bridge financing to facilitate transactions are not included in the below discussion):

—	In 2013, we drew $68 million in net proceeds in Euros on the revolver portion of our credit facility, primarily to facilitate acquisitions and a debt refinancing through investment in the Euro JV.

—

In 2013, we also drew $118 million of net proceeds of the revolver portion of our credit facility in U.S. dollars (net of a $7 million repayment of our draw in Australian dollars) primarily to facilitate the redemption of the Series Q senior notes. Subsequent to year-end, $225 million was repaid on the revolver portion of our credit facility and we have $779 million of available capacity.

—	In July 2012, we drew $100 million in net proceeds on the revolver portion of our credit facility to facilitate the acquisition of the Grand Hyatt Washington.

—	In 2012, we also drew $42 million in net proceeds, in various currencies, including the Euro, Canadian dollars and Australian dollars, on the revolver portion of our credit facility, primarily to facilitate acquisitions through investments in our joint ventures.

—

On July 25, 2012, we entered into a $500 million term loan (“Term Loan”) through an amendment of our credit facility. The Term Loan has a five-year maturity and a floating interest rate of LIBOR plus 165 basis points based on our leverage ratio, as defined in our credit facility, at December 31, 2013 (or approximately a 1.8% all-in interest rate).

Financial Covenants. The credit facility contains covenants concerning allowable leverage, fixed charge coverage and unsecured interest coverage (as defined in our credit facility). Currently, we are permitted to borrow and maintain amounts outstanding under the credit facility so long as our leverage ratio is not in excess of 7.25x, our unsecured coverage ratio is not less than 1.75x and our fixed charge coverage ratio is not less than 1.25x. The financial covenants for the credit facility do not apply when there are no borrowings under the credit facility. Therefore, so long as there are no amounts outstanding, we would not be in default if we do not satisfy the financial covenants and we do not lose the potential to draw under the credit facility in the future if we were to regain compliance with the financial covenants. These calculations are performed based on pro forma results for the prior four fiscal quarters, giving effect to transactions such as acquisitions, dispositions and financings as if they had occurred at the beginning of the period. Under the terms of the credit facility, interest expense excludes items such as gains and losses on the extinguishment of debt, deferred financing charges related to the senior notes or the credit facility, amortization of debt premiums or discounts that were recorded at acquisition of a loan in order to establish the debt at fair value and non-cash interest expense due to the implementation in 2009 of accounting standards related to our exchangeable debentures, all of which are included in interest expense on our consolidated statement of operations. Additionally, total debt used in the calculation of our leverage ratio is based on a “net debt” concept, under which cash and cash equivalents in excess of $100 million are deducted from our total debt balance. As of December 31, 2013, we are in compliance with the financial covenants under our credit facility.

Collateral and Guarantees. The credit facility initially does not include any subsidiary guarantees or pledges of equity interests in our subsidiaries, and the guarantees and pledges are required only in the event that Host L.P.’s leverage ratio exceeds 6.0x for two consecutive fiscal quarters at a time that Host L.P. does not have an investment grade long-term unsecured debt rating. In the event that such guarantee and pledge requirement is triggered, the guarantees and pledges ratably would benefit the credit facility, as well as the notes outstanding under Host L.P.’s senior notes indenture, interest rate and currency hedges and certain other hedging and bank product arrangements with lenders that are parties to the credit facility. Even when triggered, the guarantees and pledges only would be required by certain U.S. and Canadian subsidiaries of Host L.P. and a substantial portion of our subsidiaries would provide neither guarantees nor pledges of equity interests. As of December 31, 2013, our leverage ratio was 3.2x.

Interest and Fees. We pay interest on revolver borrowings under the credit facility at floating rates equal to LIBOR plus a margin. During 2013 and prior years, the margin ranged from 175 to 275 basis points (depending on Host L.P.’s consolidated leverage ratio). Based on our leverage ratio at December 31, 2013 of 3.2x, we would be able to borrow at a rate of LIBOR plus 175 basis points. When using leverage-based pricing, to the extent that amounts under the credit facility remain unused, we pay a quarterly commitment fee on the unused portion of the loan commitment of 25 to 35 basis points, depending on our average revolver usage during the applicable period. On and after January 24, 2014, the date on which Host L.P. elected ratings-based pricing, the margin will range from 100 to 160 basis points (depending on Host L.P.’s unsecured long-term debt rating). We also will pay a facility fee ranging from 15 to 40 basis points, depending on our rating and regardless of usage. Based on Host L.P.’s unsecured long-term debt rating as of January 24, 2014, we will be able to borrow at a rate of LIBOR plus 125 basis points and pay a facility fee of 25 basis points. During 2013 and prior years, the interest rate margin on the Term Loan ranged from 165 to 265 basis points (depending on Host L.P.’s consolidated leverage ratio). On and after January 24, 2014, the date on which Host L.P. elected ratings-based pricing, we will pay interest on the term loan at floating rates plus a margin ranging from 115 to 200 basis points (depending on Host L.P.’s unsecured long-term debt rating). Based on Host L.P.’s unsecured long-term debt rating at January 24, 2014, the margin would be 145 basis points.

Other Covenants and Events of Default. The credit facility contains restrictive covenants on customary matters. Certain covenants become less restrictive at any time that our leverage ratio falls below 6.0x. In particular, at any time that our leverage ratio is below 6.0x, we will not be subject to limitations on capital expenditures, and the limitations on acquisitions, investments and dividends contained in the credit facility will be superseded by the generally less restrictive corresponding covenants in our senior notes indenture. Additionally, the credit facility’s restrictions on the incurrence of debt and the payment of dividends generally are consistent with our senior notes indenture. These provisions, under certain circumstances, limit debt incurrence to debt incurred under the credit facility or in connection with a refinancing, and limit dividend payments to those necessary to maintain Host Inc.’s tax status as a REIT. Our senior notes and credit facility have cross default provisions that would trigger a default under those agreements if we were to have a payment default or an acceleration prior to maturity of other debt of Host L.P. or its subsidiaries. The amount of other debt in default needs to be above certain thresholds to trigger a cross default and the thresholds are greater for secured debt than unsecured debt. The credit facility also includes usual and customary events of default for facilities of this nature, and provides that, upon the occurrence and continuance of an event of default, payment of all amounts owed under the credit facility may be accelerated, and the lenders’ commitments may be terminated. In addition, upon the occurrence of certain insolvency or bankruptcy related events of default, all amounts owed under the credit facility will become due and payable and the lenders’ commitments will terminate.

Mortgage Debt

All of our mortgage debt is recourse solely to specific assets, except for environmental liabilities, fraud, misapplication of funds and other customary recourse provisions. As of December 31, 2013, we have 12 assets that are secured by mortgage debt, with an average interest rate of 4.1%, that mature between 2014 and 2024. Interest is payable monthly. As of December 31, 2013, we are in compliance with the covenants under all of our mortgage debt obligations.

We had the following mortgage debt issuances and repayments since January 2012:

					Maturity
Transaction Date	Property	Rate			Date	Amount
Issuances/Assumptions						(in millions)
December 2013	Harbor Beach Marriott Resort & Spa		4.75	%	1/1/2024	$	150
June 2012	Hyatt Regency Reston ⁽¹⁾		3.3	%	7/1/2016		100
Repayments
December 2013	Harbor Beach Marriott Resort & Spa		5.55	%	3/1/2014		(134	)
December 2013	The Westin Denver Downtown		8.51	%	12/11/2023		(31	)
May 2013	Orlando World Center Marriott		4.75	%	7/1/2013		(246	)
April 2012	JW Marriott, Washington, D.C. ⁽²⁾		7.5	%	4/2/2013		(113	)

(1)	The floating interest rate is equal to 1-month LIBOR plus 310 basis points. The rate shown reflects the rate in effect at December 31, 2013. We have the option to extend the maturity for one year, subject to certain conditions.

(2)	We prepaid the mortgage including an exit fee of $1 million.

Aggregate Debt Maturities

Aggregate debt maturities are as follows (in millions):

	As of
	December 31, 2013
2014	$	332
2015 ⁽¹⁾		858
2016 ⁽²⁾		408
2017		540
2018		-
Thereafter		2,650
		4,788
Unamortized (discounts) premiums, net		(32	)
Fair value hedge adjustment		1
Capital lease obligations		2
	$	4,759

(1)Includes $225 million outstanding under the credit facility that was repaid in January 2014.

(2)Includes $150 million Series Q senior notes that were repaid in February 2014.

Interest

The following items are included in interest expense (in millions):

	Year ended December 31,
	2013⁽¹⁾			2012⁽¹⁾			2011⁽¹⁾
Interest expense	$	304		$	373		$	371
Amortization of debt premiums/discounts, net ⁽²⁾		(15	)		(18	)		(32	)
Amortization of deferred financing costs		(10	)		(12	)		(11	)
Non-cash losses on debt extinguishments		(13	)		(9	)		(4	)
Change in accrued interest		16			4			(4	)
Interest paid ⁽³⁾	$	282		$	338		$	320

(1)	Interest expense and interest paid for 2013, 2012 and 2011 includes cash prepayment premiums of approximately $23 million, $21 million and $5 million, respectively.

(2)	Primarily represents the amortization of the debt discount on our Debentures, which is non-cash interest expense.

(3)	Does not include capitalized interest of $6 million, $6 million and $4 million during 2013, 2012 and 2011, respectively.

Our debt repayments resulted in debt extinguishment costs included in interest expense for 2013, 2012 and 2011 of $36 million, $30 million and $9 million, respectively.

Amortization of property and equipment under capital leases totaled $1 million, $1 million and $3 million for 2013, 2012 and 2011, respectively, and is included in depreciation and amortization on the accompanying consolidated statements of operations.