NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding. Diluted earnings per common share is computed by dividing net income available to common stockholders as adjusted for potentially dilutive securities, by the weighted average number of shares of common stock outstanding plus potentially dilutive securities. Dilutive securities may include shares granted under comprehensive stock plans, preferred OP units held by non-controlling partners and exchangeable debt securities. No effect is shown for securities that are anti-dilutive.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4.	Property and Equipment

Property and equipment consists of the following as of:

Impairment of Property and Equipment

We analyze our assets for impairment when events or circumstances occur that indicate the carrying value may not be recoverable. We consider a 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 first quarter of 2009, we reviewed our hotel portfolio for impairment and identified several non-core properties that may be sold prior to the end of their previously estimated useful lives. Therefore, welives or that had current or projected operating losses. Properties exhibiting these characteristics are tested these properties for impairment based on management’s estimate of expected future undiscounted cash flows from operations and sale over our expected holding period taking into account the probabilityremaining hold period. The fair value of consummating the sales. For the two assets where the undiscounted, probability-weightedthese properties is generally determined based on either a discounted cash flows were below the carrying amount,flow analysis or negotiated sales prices. Based on these assessments, we have recorded non-cash impairment charges totaling $40$57 million based onand $97 million in the difference between the properties’ fair valuesecond quarter and the carrying value. These impairmentsyear-to-date periods ended June 19, 2009, respectively. Impairment charges are included inclassified within depreciation expenseand amortization on the accompanying condensed consolidated statements of operations. During the second quarter of 2009, we reclassified $19 million of impairment charges associated with a property that was held for sale as of June 19, 2009 (see note 10) into discontinued operations.

We hold a 32.1% ownership interest in a joint venture based in Europe that owns 11 hotel properties located in six countries. The terms of this joint venture agreement limit the life of the investment to 2016, with two one-year extensions. We review our investment in the joint venture for other than temporary impairment based on the occurrence of any events that would indicate that the carrying amount of the investment exceeds its fair value on an other than temporary basis. We used certain inputs such as available third-party appraisals and forecast net operating income for the hotel properties to estimate the fair value of our investment in the joint venture as of June 19, 2009. We determined that our investment was impaired based on the reduction of distributable cash flows from the joint venture, which has been caused primarily by a decline in cash flows generated by the properties. We believe this impairment to be other than temporary as defined by GAAP because the time period over which the joint venture may be able to improve operations such that our investment would be fully recoverable is constrained by the remaining life of the joint venture. As a result, we recorded a non-cash impairment charge totaling $34 million in the second quarter based on the difference between our investment’s estimated fair value and carrying value. This impairment is included in equity in earnings (losses) of affiliates in the consolidated statement of operations.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Mortgage Debt.Credit Facility and Senior Notes. On March 23,May 5, 2009, we obtained a $120issued $400 million, 9% Series T senior notes maturing May 15, 2017 and received net proceeds of approximately $380 million after discounts, fees and other offering costs. Interest is payable semi-annually in arrears on January 15 and July 15, commencing July 15, 2009. A portion of the proceeds were used to repay the $200 million outstanding on the revolving portion of our credit facility. Additionally, we expect to repay all of the outstanding $135 million mortgage secured bydebt on the JW Marriott, Washington, D.C.Westin Kierland Resort & Spa using proceeds from this issuance in December 2009. The loan matures April 2, 2013,outstanding 9% Series T senior notes are equal in right of payment with an additional one-year extension subject to certain conditions. On March 11, 2009, we prepaid, without penalty, the $33.6 million Westin Indianapolis mortgage loan.all of our other senior notes.

Exchangeable Debentures.The total face amount of the outstanding 2004 and 2007 Debentures is $325 million and $600 million, respectively, as of June 19, 2009. The Debentures are equal in right of payment with all of our other senior notes. The 2004 Debentures mature April 2024; however, holders have the right to require us to repurchase the 2004 Debentures on April 15, 2010, April 15, 2014 and April 15, 2019 for cash equal to 100% of the principal amount. The 2007 Debentures mature April 2027; however, holders have the right to require us to repurchase the 2007 Debentures on April 15, 2012, April 15, 2017 and April 15, 2022 for cash equal to 100% of the principal amount.

During March 2009, we repurchased an additional $75 million face valueamount of the 2004 Debentures with a carrying value of $72 million for approximately $69 million and recorded a gain on the repurchase of approximately $3 million. BasedSubsequent to the end of the second quarter of 2009, we repurchased $22 million face amount of the 2007 Debentures with a carrying value of $19 million for approximately $18 million and will recognize a gain on the relationshiprepurchase of approximately $1 million in the third quarter. Since the fourth quarter of 2008, we have repurchased a total of $197 million face amount of the consideration paid to retireDebentures for approximately $169 million.

Mortgage Debt. On July 1, 2009, we repaid the debentures and the fair value of the debentures on the date of retirement, none of the proceeds utilized in the repurchase were allocated to the retirement of the equity component of the debentures. The $325$175 million remaining outstanding 2004 Debentures mature on April 15, 2024 and are equal in right of payment with all of our other senior notes.San Diego Marriott Hotel & Marina mortgage loan at maturity.

Dividends. On March 16,June 15, 2009, our Board of Directors declared a cash dividend of $0.5546875 per share on our Class E cumulative redeemable preferred stock. The dividend was paid on AprilJuly 15, 2009 to preferred stockholders of record as of March 31,June 30, 2009.

Common Stock Offering. On April 29, 2009, we issued 75,750,000 shares of common stock at $6.60 per share and received net proceeds of approximately $480 million, after underwriting discounts and commissions and transaction expenses.

Stock and Equity Related Securities Repurchase.The Company’sOur Board of Directors authorized a program to repurchase up to $500 million of common stock and equity related securities. These securities may be purchased in the open market or through private transactions, depending on market conditions. The plan does not obligate the Company to repurchase any specific number or amount of securities and may be suspended at any time at management’s discretion. AsCurrently, we have used a total of March 27, 2009, the Company has repurchased 6.5$269 million common shares valued at approximately $100 million. There were no common shares repurchased in the first quarter 2009. The shares repurchased constitute authorized but unissued shares. Additionally, as part of this program, we repurchased $175 million face value of the 2004 Debentures (of which $75funds allocated under this plan, including the $169 million was repurchasedused to repurchase the exchangeable debentures described in the first quarter of 2009) which, under the terms of the Board authorization, reduced the amount eligible for common share repurchases by Host by the approximate $151 million of cash paid for the debentures. As a result of these repurchases, weNote 6 above. We have approximately $249$231 million remaining under the Board of Directors’ authorization for future repurchases.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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. Our foreign operations consist of four properties located in Canada, two properties located in Chile and one property located in Mexico. There were no intercompany sales during the periods presented. The following table presents total revenues for each of the geographical areas in which we operate:

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:

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Dispositions.In the first quarter of 2009, we disposed ofsold the Hyatt Regency Boston for a total of approximately $113 million, including the return of reserves held by the manager, and recorded a gain on the disposition of approximately $20 million, net of tax. The following table summarizes the revenues, income (loss) before taxes, and the gain (loss) on dispositions, net of tax, of the hotels which have been reclassified to discontinued operations, which includes assets held for sale and the results of sold hotels prior to their disposition, in the condensed consolidated statements of operations for the periods presented:

Subsequent to the quarter ended June 19, 2009, we sold three non-core properties: the 448-room Sheraton Stamford Hotel, the 253-room Washington Dulles Marriott Suites and the 430-room Boston Marriott Newton for net proceeds of approximately $64 million and we expect to record a gain of approximately $10 million in the third quarter. We believe the growth prospects of these hotels were limited and certain of the hotels required significant capital expenditures. These three properties are classified as held-for-sale in the condensed consolidated balance sheet as of June 19, 2009. During the first quarter of 2009, we recorded an impairment charge of approximately $19 million associated with the Sheraton Stamford Hotel, the operations of which are included in discontinued operations for all periods presented (see note 4).

Net income attributable to common stockholders is allocated between continuing and discontinued operations as follows:

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On April 23, 2009, we announced plansThe fair value of certain financial assets and liabilities and other financial instruments are shown below:

Notes receivable and other financial assets are valued based on expected future cash flows discounted at risk-adjusted rates. Valuations for secured debt and our credit facility are determined based on expected future payments discounted at risk-adjusted rates. Due to sell approximately 60 million shares of common stock (not including an underwriters’ over-allotment option of 9 million shares)continuing uncertainty in an underwritten public offering. The net proceedsthe credit markets, third party estimates for the risk adjusted rate for each loan is not readily attainable. Management has estimated the rate based upon available market data and estimates of the offering, if successful,fair value of the property securing the mortgage. Senior Notes and the Exchangeable Senior Debentures are expectedvalued based on quoted market prices. The fair values of financial instruments not included in this table are estimated to be used for debt repayment and for general corporate purposes.equal to their carrying amounts.

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

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this report. Host Hotels & Resorts, Inc. is a Maryland corporation and operates as a self-managed and self-administered real estate investment trust, or REIT. Host Hotels & Resorts, Inc. owns properties and conducts operations through Host Hotels & Resorts, L.P., a Delaware limited partnership of which Host Hotels & Resorts, Inc. is the sole general partner and in which it holds approximately 97%98% of the partnership interests as of March 27,June 19, 2009. In this report, 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” to specifically refer to Host Hotels & Resorts, Inc. and the terms “operating partnership” or “Host LP” to refer to Host Hotels & Resorts, L.P. in cases where it is important to distinguish between Host and Host LP.

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,” “estimate” and other similar terms and phrases. Forward-looking statements are based on management’s current expectations and assumptions and are not guarantees of future performance that involve known and unknown risks, uncertainties and other factors which may cause our actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks and uncertainties include those risk factors discussed in our Annual Report on Form 10–K for the year ended December 31, 2008 and in other filings with the Securities and Exchange Commission (SEC). Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that we will attain these expectations or that any deviations will not be material. Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release updates to any forward-looking statement contained in this report to conform the statement to actual results or changes in our expectations.

Outlook

As of March 27, 2009, weWe currently own 116113 hotel properties, which operate primarily in the luxury and upper upscale hotel sectors. For a general overview of our business and a discussion of our reporting periods, see our most recent Annual Report on Form 10-K.

The United States is currently in the midst of a recession and the future economic environment is likelycontinues to be less favorable than that of recent years.in an economic recession. The recessionary environment in 2009, specifically declining GDP, employment, business investment, corporate profits, and consumer spending and increasing unemployment, has negatively impacted, and we believe will continue to negatively impact, overall lodging demand. We believe that consumer and commercial spending and lodging demand will continue to decline inthroughout the remainder of 2009 and, in particular, we expect lodging demand in thethat luxury segment hotels will continue to underperform other property types as consumers continue to utilizeselect less expensive alternatives. We do not anticipate an improvement in lodging demand until the current economic trends reverse course, particularly the expected continued weakness in the overall economy and the lack of liquidity in the credit markets. While new supply in 2009 is expected to be moderately above the historical average, we expect that, asexperiences sustained quarter over quarter growth. As a result of the current fiscal environment, increases in lodging supply will likely slow significantly over the next few years. This may be particularly relevant for the markets and lodging sectors in which we compete due to the long-term planning and high level of investment associated with these properties.

We believe that the weak economic slowdownfundamentals described above will continue to significantly affect both the group and transient elements of our business. Basedbusiness in the second half of 2009. We believe occupancy will stabilize at the current levels, but we expect continued pressure on reservation activitythe average room rate for 2009,the remainder of the year. In addition, we expect that group demand will continue to decline as companies continue to reducethe reduction in travel and increased concern over expenditures which will lead to increased cancellations, diminished booking activity and reduced attendance at group events, resulting in lower banquet and food and beverage and other revenues. However, we have experienced some slowing of the negative trends in recent periods. While our group booking pace is still below 2008 levels, it has increased during the second quarter when compared to the first quarter of 2009. Additionally, the rate of occupancy decline moderated throughout the quarter. It remains difficult to accurately anticipate and forecast group demand due to shorter group booking lead times. In addition, meeting planners are taking advantage of

historically high room availability, which has resulted in a shift in pricing power. Similarly, the continued reduction in corporate travel budgets will continue to negatively affect the transient business traveler.travel. The consumer-led elements of this economic slowdown will also decreaseare expected to continue to cause decreased demand at leisure-dependent destinations, such as Hawaii and Florida, as both U.S. and international leisure travelers are likely to continue to reduce discretionary spending. Certain expenditures may also increase as a result of continued uncertainty in the economy, such as increased insurance expense.

The general economic trends discussed above make it difficult to predict our future operating results. However, thereThere can be no assurances that we will not experience further declines in hotel revenues or earnings at our properties for any number of reasons, including, but not limited to, greater than anticipated weakness in the economy, changes in travel patterns and the continued impact of the trends identified above. For a general overview of our business and a discussion of our reporting periods see our most recent annual report on form 10-K.

Common Stock Offering

On April 23, 2009, we announced plans to sell approximately 60 million shares of common stock (not including an underwriters’ over-allotment option of 9 million) in an underwritten public offering. The net proceeds of the offering, if successful, are expected to be used for debt repayment and for general corporate purposes.

Critical Accounting Policies

We analyze our assets for impairment when events or circumstances occur that indicate the carrying value may not be recoverable. We record an impairment charge when the 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. To the extent that a property has a substantial remaining estimated useful life and management does not believe that it is more likely than not the property will be disposed of prior to the end of its useful life, it would be unusual for undiscounted cash flows to be insufficient to recover the property’s carrying value. In the absence of other factors, we assume that the estimable life is equal to the generally accepted accounting principle, or GAAP, depreciable life, though all of our hotel properties are assumed to have at least a 10-year minimum life because of the continuous property maintenance and improvement capital expenditures required under our management agreements, unless situations dictate otherwise, such as an expiring ground lease, or it is more likely than not that the asset will be sold prior to its previously expected useful life.

We test for impairment in several situations, including when current or projected cash flows are 15% less than budgeted cash flows, when it becomes more likely than not that a hotel will be sold before the end of its previously estimated useful life, or when other events or changes in circumstances indicate that an asset’s carrying value may not be recoverable. In the evaluation of the impairment of our assets, we make many assumptions and estimates, including:

As a preliminary indicator to determine if the carrying value may not be recovered by undiscounted cash flow as of March 27, 2009, we assume a 2.5% rate of growth for cash flows over the useful estimated lives of the individual properties, which has been adjusted lower than the historical growth rate utilized because of the current economic climate. As a result of this test, we identified six properties that required further consideration of property and market specific conditions or factors to determine if the property was impaired. For purposes of this test, if we had assumed a growth rate of 0%, the number of hotel properties required to be tested for recoverability would only have increased by one property. If we had used a growth rate of 5%, the number of hotel properties that required testing would have decreased by three. Management believes its assumptions and estimates reflect the current market conditions and will adjust these measures as appropriate for changes therein.

During the first quarter of 2009, we also identified several non-core properties that may be sold prior to the end of their previously estimated useful lives. Therefore, we tested these properties for impairment based on management’s estimate of expected future undiscounted cash flows over our expected holding period taking into

account the probability of consummating the sales. For the two assets where the undiscounted, probability-weighted cash flows were below the carrying value, we recorded non-cash impairment charges totaling $40 million based on the difference between the property’s fair value and the carrying value. These impairments are included in depreciation expense on the accompanying statements of operations.

Application of New Accounting Standards

SFAS 160, Non-controlling Interests in Consolidated Financial Statements – an amendment of ARB No. 51

Effective January 1, 2009, we have adopted SFAS 160,Non-controlling Interests in Consolidated Financial Statements – an amendment of ARB No. 51,(“FAS 160”), which defines a non-controlling interest in a consolidated subsidiary as “the portion of the equity (net assets) in a subsidiary not attributable, directly or indirectly, to a parent” and requires non-controlling interest to be presented as a separate component of equity in the consolidated balance sheet subject to the provisions of EITF Topic D-98. FAS 160 also modifies the presentation of net income by requiring earnings and other comprehensive income to be attributed to controlling and non-controlling interests. Below are the steps we have taken as a result of the implementation of this standard:

FASB staff position (FSP) APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)”

Effective January 1, 2009, we have retrospectively adopted FASB staff position APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)” (“FSP 14-1”). FSP 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate on the instrument’s issuance date when interest cost is recognized. Our 2⁵/₈% Exchangeable Senior Debentures (the “2007 Debentures”) and our 3¹/₄% Exchangeable Senior Debentures (“the 2004 Debentures”) are within the scope of FSP 14-1; therefore, we are required to record the debt components of the debentures at fair value as of the date of issuance and amortize the resulting discount as an increase to interest expense

over the expected life of the debt. We measured the fair value of the debt components of the 2004 Debentures and 2007 Debentures at issuance based on effective interest rates of 6.8% and 6.5%, respectively. As a result, we attributed $165 million of the proceeds received to the conversion feature of the debentures. This amount represents the excess proceeds received over the fair value of the debt at the date of issuance and is included in additional paid-in capital on the accompanying balance sheets. The implementation of FSP 14-1 has resulted in a decrease to net income and earnings per share for all periods presented; however, there is no effect on our cash interest payments. As a result of this accounting change:

Results of Operations

The following table reflects certain line items from our statements of operations and other significant operating statistics (in millions, except operating statistics and percentages):

		Year-to-date ended
		June 19, 2009				June 13, 2008				% Increase (Decrease)
Revenues:
Total hotel sales		$	1,882			$	2,373			(20.7	)%
Operating costs and expenses:
Property-level costs (1)			1,842				2,001			(7.9	)
Corporate and other expenses			32				31			3.2
Gain on insurance settlement			—				7			N/M
Operating profit			62				405			(84.7	)
Interest expense			169				171			(1.2	)
(Income) loss attributable to non-controlling interests			2				(18	)		N/M
Income (loss) from discontinued operations			(2	)			16			N/M
Net income (loss) attributable to common stockholders			(127	)			238			N/M
All hotel operating statistics (2):
RevPAR		$	114.01			$	147.46			(22.7	)%
Average room rate		$	177.83			$	201.99			(12.0	)%
Average occupancy			64.1	%			73.0	%		(8.9	) pts.
Comparable hotel operating statistics (3):
RevPAR		$	114.07			$	147.57			(22.7	)%
Average room rate		$	177.94			$	202.30			(12.0	)%
Average occupancy			64.1	%			72.9	%		(8.8	) pts.

(2)	Operating statistics are for all properties as of March 27,June 19, 2009 and March 21,June 13, 2008 and include the results of operations for hotels we have sold prior to their disposition.

(3)	Comparable hotel operating statistics for March 27,June 19, 2009 and March 21,June 13, 2008 are based on 116 comparable hotels as of March 27,June 19, 2009.

(4)	N/M=Not Meaningful.

2009 Compared to 2008

Hotel Sales Overview

		Year-to-date ended
		June 19, 2009			June 13, 2008			% Increase (Decrease)
		(in millions)
Revenues
Rooms		$	1,134		$	1,450		(21.8	)%
Food and beverage			592			762		(22.3	)
Other			156			161		(3.1	)
Total hotel sales		$	1,882		$	2,373		(20.7	)