<PAGE>
As filed with the Securities and Exchange Commission on December 15, 2000
Registration No. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
HOST MARRIOTT, L.P.
(Exact name of registrant as specified in its charter)
Delaware 7011 52-2095412
(State or other (Primary Standard (IRS Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
For Co-Registrants, see "Table of Co-Registrants" on following page.
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-9000
(Address, including zip code, telephone number, including area code, of
registrant's principal executive offices)
Christopher G. Townsend
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-9000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Scott C. Herlihy
Latham & Watkins
1001 Pennsylvania Ave., N.W.
Washington, D.C. 20004-2505
(202) 637-2200
----------------
Approximate date of commencement of proposed sale to the public: as soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
------------------------------------------------------------------------------
------------------------------------------------------------------------------
<CAPTION>
Proposed
Amount Maximum Amount Of
Title of Each Class of To Be Offering Registration
Securities To Be Registered Registered Price Per Unit Fee (1)
------------------------------------------------------------------------------
<S> <C> <C> <C>
9 1/4% Series G senior notes due
2007............................ $250,000,000.00 100.00% $66,000
------------------------------------------------------------------------------
Guarantees of Series G senior
notes (2)....................... (2) (2) (2)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
(1) The Registration Fee has been calculated in accordance with Rule 457(f)
under the Securities Act of 1933, as amended.
(2) No separate consideration will be received with respect to these guarantees
and, therefore, no registration fee is attributable to them.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant will
file a further amendment which specifically states that this registration
statement will thereafter become effective in accordance with section 8(a) of
the securities act or until this registration statement will become effective
on such date as the commission, acting pursuant to said section 8(a), may
determine.
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<PAGE>
Table of Co-Registrants
<TABLE>
<CAPTION>
Primary
State of Standard
other Industrial IRS
Jurisdiction Classification Employer
Name of Formation Code Number Number
---- ------------- -------------- ----------
<S> <C> <C> <C>
HMH Rivers, L.P....................... Delaware 7011 52-2126158
HMH Marina LLC........................ Delaware 7011 52-2095412
HMC SBM Two LLC....................... Delaware 7011 52-2095412
HMC PLP LLC........................... Delaware 7011 52-2095412
HMC Retirement Properties, L.P........ Delaware 7011 52-2126159
HMH Pentagon LLC...................... Delaware 7011 52-2095412
Airport Hotels LLC.................... Delaware 7011 52-2095412
Chesapeake Financial Services LLC..... Delaware 7011 52-2095412
HMC Capital Resources LLC............. Delaware 7011 52-2095412
YBG Associates LLC.................... Delaware 7011 52-2059377
PRM LLC............................... Delaware 7011 52-2095412
Host Park Ridge LLC................... Delaware 7011 52-2095412
Host of Boston, Ltd................... Massachusetts 7011 59-0164700
Host of Houston, Ltd.................. Texas 7011 52-1874034
Host of Houston 1979.................. Delaware 7011 95-3552476
Philadelphia Airport Hotel LLC........ Delaware 7011 52-2095412
HMC Hartford LLC...................... Delaware 7011 52-2095412
HMH Norfolk LLC....................... Delaware 7011 52-2095412
HMH Norfolk, L.P...................... Delaware 7011 52-2039042
HMC Park Ridge LLC.................... Delaware 7011 52-2095412
HMC Partnership Holdings LLC.......... Delaware 7011 52-2095412
HMC Suites LLC........................ Delaware 7011 52-2095412
HMC Suites Limited Partnership........ Delaware 7011 52-1632307
Wellsford-Park Ridge Host Hotel
Limited Partnership.................. Delaware 7011 52-6323494
City Center Interstate Partnership
LLC.................................. Delaware 7011 52-2095412
Farrell's Ice Cream Parlor Restaurants
LLC.................................. Delaware 7011 52-2095412
HMC Burlingame LLC.................... Delaware 7011 52-2095412
HMC California Leasing LLC............ Delaware 7011 52-2095412
HMC Capital LLC....................... Delaware 7011 52-2095412
HMC Grand LLC......................... Delaware 7011 52-2095412
HMC Hotel Development LLC............. Delaware 7011 52-2095412
HMC Mexpark LLC....................... Delaware 7011 52-2095412
HMC Polanco LLC....................... Delaware 7011 52-2095412
HMC NGL LLC........................... Delaware 7011 52-2095412
HMC OLS I L.P......................... Delaware 7011 52-2095412
HMC RTZ Loan I LLC.................... Delaware 7011 52-2095412
HMC RTZ II LLC........................ Delaware 7011 52-2095412
HMC Seattle LLC....................... Delaware 7011 52-2095412
HMC Swiss Holdings LLC................ Delaware 7011 52-2095412
HMC Waterford LLC..................... Delaware 7011 52-2095412
HMH Restaurants LLC................... Delaware 7011 52-2095412
HMH Rivers LLC........................ Delaware 7011 52-2095412
HMH WTC LLC........................... Delaware 7011 52-2095412
HMP Capital Ventures LLC.............. Delaware 7011 52-2095412
HMP Financial Services LLC............ Delaware 7011 52-2095412
Host La Jolla LLC..................... Delaware 7011 52-2095412
City Center Hotel Limited
Partnership.......................... Minnesota 7011 41-1449758
MFR of Illinois LLC................... Delaware 7011 52-2095412
MFR of Vermont LLC.................... Delaware 7011 52-2095412
MFR of Wisconsin LLC.................. Delaware 7011 52-2095412
PM Financial LLC...................... Delaware 7011 52-2095412
PM Financial LP....................... Delaware 7011 52-2131022
</TABLE>
<PAGE>
Table of Co-Registrants
<TABLE>
<CAPTION>
Primary
Standard
State of other Industrial IRS
Jurisdiction of Classification Employer
Name Formation Code Number Number
---- --------------- -------------- ----------
<S> <C> <C> <C>
HMC Chicago LLC..................... Delaware 7011 52-2095412
HMC HPP LLC......................... Delaware 7011 52-2095412
HMC Desert LLC...................... Delaware 7011 52-2095412
HMC Hanover LLC..................... Delaware 7011 52-2095412
HMC Diversified LLC................. Delaware 7011 52-2095412
HMC Properties I LLC................ Delaware 7011 52-2095412
HMC Potomac LLC..................... Delaware 7011 52-2095412
HMC East Side II LLC................ Delaware 7011 52-2095412
HMC Manhattan Beach LLC............. Delaware 7011 52-2095412
Chesapeake Hotel Limited
Partnership........................ Delaware 7011 52-1373476
HMH General Partner Holdings LLC.... Delaware 7011 52-2095412
HMC IHP Holdings LLC................ Delaware 7011 52-2095412
HMC OP BN LLC....................... Delaware 7011 52-2095412
S.D. Hotels LLC..................... Delaware 7011 52-2095412
HMC Gateway LLC..................... Delaware 7011 52-2095412
HMC Pacific Gateway LLC............. Delaware 7011 52-2095412
MDSM Finance LLC.................... Delaware 7011 52-2065959
HMC Market Street LLC............... Delaware 7011 52-2095412
New Market Street LP................ Delaware 7011 52-2131023
Times Square LLC.................... Delaware 7011 52-2095412
Times Square GP LLC................. Delaware 7011 52-2095412
HMC Atlanta LLC..................... Delaware 7011 52-2095412
Ivy Street LLC...................... Delaware 7011 52-2095412
HMC Properties II LLC............... Delaware 7011 52-2138453
Santa Clara HMC LLC................. Delaware 7011 52-2095412
HMC BCR Holdings LLC................ Delaware 7011 52-2095412
HMC Palm Desert LLC................. Delaware 7011 52-2095412
HMC Georgia LLC..................... Delaware 7011 52-2095412
HMC SFO LLC......................... Delaware 7011 52-2095412
Market Street Host LLC.............. Delaware 7011 52-2091669
HMC Property Leasing LLC............ Delaware 7011 52-2095412
HMC Host Restaurants LLC............ Delaware 7011 52-2095412
Durbin LLC.......................... Delaware 7011 52-2095412
HMC HT LLC.......................... Delaware 7011 52-2095412
HMC JWDC GP LLC..................... Delaware 7011 52-2095412
HMC JWDC LLC........................ Delaware 7011 52-2095412
HMC OLS I LLC....................... Delaware 7011 52-2095412
HMC OLS II L.P...................... Delaware 7011 52-2095412
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+This prospectus is subject to completion and amendment. The information in +
+this prospectus is not complete and may be changed. We may not sell or offer +
+these securities until the registration statement filed with the Securities +
+and Exchange Commission is effective. This prospectus is not an offer to sell +
+these securities and we are not soliciting an offer to buy these securities +
+in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Offer to Exchange all Outstanding
9 1/4% Series F Senior Notes due 2007
for
9 1/4% Series G Senior Notes Due 2007
of
HOST MARRIOTT, L.P.
We are offering to exchange all of our outstanding 9 1/4% Series F senior
notes for our 9 1/4% Series G notes. The terms of the Series G senior notes are
substantially identical to the terms of the Series F senior notes except that
the Series G senior notes are registered under the Securities Act of 1933, as
amended, and are therefore freely transferrable. The Series F senior notes were
issued on October 6, 2000 and, as of the date of this prospectus, an aggregate
principal amount of $250 million is outstanding.
Please consider the following:
. Our offer to exchange the notes expires at 5:00 p.m., New York City time, on
[ ], 2000. However, we may extend the offer.
. You should carefully review the procedures for tendering the Series F senior
notes beginning on page 3 of this prospectus. If you do not follow those
procedures, we may not exchange your Series F senior notes for Series G
senior notes.
. We will not receive any proceeds from the exchange offer.
. If you fail to tender your Series F senior notes, you will continue to hold
unregistered securities and your ability to transfer them could be adversely
affected.
. There is currently no public market for the Series G senior notes. We do not
intend to list the Series G senior notes on any securities exchange.
Therefore, we do not anticipate that an active public market for these notes
will develop.
Information about the Series G senior notes:
. The notes will mature on October 1, 2007.
. We will pay interest on the notes at the rate of 9 1/4% per year payable on
April 1 and October 1, commencing April 1, 2001.
. The notes are equal in right of payment to all of our unsubordinated
indebtedness and senior to all of our subordinated obligations.
. Subsidiaries of ours have guaranteed the notes. These subsidiaries comprise
all of our subsidiaries that also guarantee our credit facility and any
other indebtedness of ours.
. As security for the notes, we have pledged the common equity interests of
those of our subsidiaries whose interests are also pledged as security under
our bank credit facility and certain of our other indebtedness.
. We do not have the option to redeem the notes prior to maturity.
Please see "Risk Factors" beginning on page 8 of this prospectus for a
discussion of certain factors that you should consider before participating in
this exchange offer.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
The date of this prospectus is , 2000.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Commission. You may read and copy materials that we have
filed with the Commission, including the registration statement, at the
following Commission public reference rooms:
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
Please call the Commission at 1-800-SEC-0330 for further information on the
public reference rooms.
Our Commission filings can also be read at the following address:
New York Stock Exchange
20 Broad Street
New York, New York 10005
Our Commission filings are also available to the public on the Commission's
Web Site at http://www.sec.gov.
The Commission allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is an important part of this prospectus, and information that we file later
with the Commission will automatically update and supersede this information.
We incorporate by reference the documents listed below and any future filings
made with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until we have sold all of the offered
securities to which this prospectus relates or the offering is otherwise
terminated.
1. Annual Report on Form 10-K of Host Marriott, L.P. for the fiscal year
ended December 31, 1999 (filed on March 16, 2000).
2. Quarterly Reports on Form 10-Q of Host Marriott, L.P. for the
quarters ended:
. March 24, 2000 (filed on May 8, 2000),
. June 16, 2000 (filed on July 25, 2000) and
. September 8, 2000 (filed on October 23, 2000).
3. Current Reports on Form 8-K filed by Host Marriott, L.P., dated:
. February 24, 2000 (filed on February 25, 2000), and
. November 28, 2000 (as amended by Form 8-K/A filed on December 14,
2000).
You may request a copy of these filings, at no cost, by writing us at the
following address or telephoning at (301) 380-2070 between the hours of 9:00
a.m. and 4:00 p.m., Eastern Time:
Corporate Secretary
Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
i
<PAGE>
SUMMARY
The following summary contains basic information about this offering. It
likely does not contain all the information that is important to you. For a
more complete understanding of the offering, we encourage you to read this
entire document and the other documents to which we refer.
Host Marriott, L.P.
We are a Delaware limited partnership whose sole general partner is Host
Marriott Corporation, a Maryland corporation that we refer to as "Host REIT".
We, Host LP, were formed in connection with a series of transactions pursuant
to which the former Host Marriott Corporation, a Delaware corporation that we
refer to as "Host Marriott", and its subsidiaries converted their business
operations to qualify as a real estate investment trust or "REIT." We refer to
this conversion in this offering memorandum as the "REIT conversion." As a
result of the REIT conversion, the hotel ownership business formerly conducted
by Host Marriott and its subsidiaries is conducted by and through us and our
subsidiaries, and Host Marriott was merged with and into Host REIT. Host REIT
has elected, beginning January 1, 1999, to be treated as a REIT for federal
income tax purposes.
Our consolidated assets principally consist of 122 full service hotel
properties, virtually all of which are leased to Crestline Capital Corporation,
a publicly traded corporation and a former subsidiary of Host Marriott which
was distributed to the Host Marriott shareholders as part of the REIT
conversion. These properties are operated under some of the most respected and
widely recognized brand names in the lodging industry, including Marriott,
Ritz-Carlton, Four Seasons, Hyatt, Hilton, and Swissotel. Marriott
International, Inc. manages or franchises 109 of these properties as Marriott
or Ritz Carlton branded hotels. We also have economic, non-voting interests in
non-controlled subsidiaries, whose three full-service hotels are also managed
by Marriott International.
On November 13, we and Crestline announced the execution of a definitive
agreement for the purchase and sale of the entities owning the leasehold
interests with respect to 117 full-service hotel properties owned by us. Under
the terms of the transaction, our wholly-owned subsidiary, which will elect to
be treated as a taxable REIT subsidiary, will purchase the Crestline
subsidiaries, whose primary assets are the leasehold interests, for
approximately $205 million, including recording a non-recurring loss of $120
million net of tax on the acquisition.
Our principal executive offices are located at 10400 Fernwood Road,
Bethesda, Maryland 20817-1109. Our telephone number is (301) 380-9000.
1
<PAGE>
THE EXCHANGE OFFER
Securities to be exchanged........ On October 6, 2000, we issued $250
million in aggregate principal amount
of Series F senior notes in a
transaction exempt from the
registration requirements of the
Securities Act of 1933. The terms of
the Series G senior notes and the
Series F senior notes are substantially
identical in all material respects,
except that the Series G senior notes
will be freely transferable by the
holders thereof except as otherwise
provided in this prospectus.
The exchange offer................ $1,000 principal amount of Series G
senior notes in exchange for each
$1,000 principal amount of Series F
senior notes. As of the date of this
prospectus, Series F senior notes
representing $250 million in aggregate
principal amount are outstanding.
We believe that, subject to the
limitations noted in this prospectus,
Series G senior notes issued pursuant
to the exchange offer in exchange for
Series F senior notes may be offered
for resale, resold or otherwise
transferred by holders thereof without
compliance with the registration and
prospectus delivery requirements of the
Securities Act. Our belief is based on
interpretations by the Staff of the
SEC, as set forth in no-action letters
issued to certain third parties
unrelated to us. The exemption from the
Securities Act requirements only
applies if Series G senior notes are
acquired in the ordinary course of the
holders' business and the holders have
no arrangement with any person to
engage in a distribution of such
registered notes. Any holder who is our
"affiliate" within the meaning of
Securities Act Rule 405, or a broker-
dealer who purchased Series F senior
notes directly from us to resell
pursuant to Securities Act Rule 144A or
any other available exemption
promulgated under the Securities Act,
is not eligible for this exemption.
However, the SEC has not considered our
exchange offer in the context of a no-
action letter. We cannot be sure that
the Staff of the SEC would make a
similar determination with respect to
our exchange offer as in those other
circumstances. Furthermore, unless you
are a broker-dealer, you must
acknowledge that you are not engaged
in, and do not intend to engage in, a
distribution of Series G senior notes
and you have no arrangement or
understanding to participate in a
distribution of Series G senior
2
<PAGE>
notes. If you are a broker-dealer that
receives Series G senior notes for your
own account pursuant to the exchange
offer, you must acknowledge that you
will comply with the prospectus
delivery requirements of the Securities
Act in connection with any resale of
Series G senior notes. Broker-dealers
who acquired Series F senior notes
directly from us and not as a result of
market-making activities or other
trading activities may not rely on the
Staff's interpretations discussed above
or participate in our exchange offer
and must comply with the prospectus
delivery requirements of the Securities
Act in order to resell the Series F
senior notes.
Registration Rights Agreement..... We sold the Series F senior notes on
October 6, 2000 in a private placement
in reliance on Section 4(2) of the
Securities Act. The Series F senior
notes were immediately resold by their
initial purchasers in reliance on
Securities Act Rule 144A. In connection
with the sale, we entered into a
registration rights agreement with the
initial purchasers requiring us to make
this exchange offer. Under the
registration rights agreement, we are
required to cause the registration
statement of which the prospectus forms
a part to become effective on or before
the 160th day following the date on
which we issued the Series F senior
notes and we are obligated to
consummate the exchange offer on or
before the 190th day following the
issuance of the Series F senior notes.
Expiration date................... Our exchange offer will expire at 5:00
p.m., New York City time, [ ], 2000,
or at a later date and time to which we
may extend it.
Withdrawal........................ You may withdraw a tender of Series F
senior notes pursuant to our exchange
offer at any time before 5:00 p.m., New
York City time, on [ ], 2000, or such
later date and time to which we extend
the offer. We will return any Series F
senior notes that we do not accept for
exchange for any reason as soon as
practicable after the expiration or
termination of our exchange offer.
Interest on the Series G senior
notes and Series F senior notes... Interest on the Series G senior notes
will accrue from the date of the
original issuance of the F senior notes
or from the date of the last payment of
interest on the Series F senior notes,
whichever is later. We will not pay
interest on Series F senior notes
tendered and accepted for exchange.
3
<PAGE>
Conditions to our exchange Our exchange offer is subject to
offer............................. customary conditions which are
discussed in the section of this
prospectus entitled "The Exchange
Offer." As described in that section,
we have the right to waive some of the
conditions.
Procedures for tendering Series F We will accept for exchange any and all
senior notes...................... Series F senior notes which are
properly tendered (and not withdrawn)
in the exchange offer prior to 5:00
p.m., New York City time, on [ ],
2000. The Series G senior notes issued
pursuant to our exchange offer will be
delivered promptly following the
expiration date.
If you wish to accept our exchange
offer, you must complete, sign and date
the letter of transmittal, or a copy,
in accordance with the instructions
contained in this prospectus and
therein, and mail or otherwise deliver
the letter of transmittal, or the copy,
together with the Series F senior notes
and all other required documentation,
to the exchange agent at the address
set forth in this prospectus. If you
are a person holding Series F senior
notes through the Depository Trust
Company, or "DTC", and wish to accept
our exchange offer, you may do so
pursuant to the DTC's Automated Tender
Offer Program, or "ATOP", by which you
will agree to be bound by the letter of
transmittal. By executing or agreeing
to be bound by the letter of
transmittal, you will represent to us
that, among other things:
. the Series G senior notes that you
acquire pursuant to the exchange
offer are being obtained by you in
the ordinary course of your business,
whether or not you are the registered
holder of the Series F senior notes;
. you are not engaging in and do not
intend to engage in a distribution of
Series G senior notes;
. you do not have an arrangement or
understanding with any person to
participate in a distribution of
Series G senior notes; and
. you are not our "affiliate," as
defined under Securities Act Rule
405.
Under the registration rights agreement
we may be required to file a "shelf"
registration statement for a continuous
offering pursuant to Rule 415 under the
Securities act of 1933 in respect of
the Series F senior notes, if:
. we determine that we are not
permitted to effect the exchange
offer as contemplated by this
4
<PAGE>
prospectus because of any change in
law or Securities and Exchange
Commission policy; or
. we have commenced and not consummated
the exchange offer with 190 days
following the date on which we issued
the Series F senior notes for any
reason.
Exchange agent....................
HSBC Bank USA is serving as exchange
agent in connection with the exchange
offer.
Federal income tax We believe the exchange of Series F
considerations.................... senior notes for Series G senior notes
pursuant to our exchange offer will not
constitute a sale or an exchange for
federal income tax purposes.
Effect of not tendering...........
If you do not tender your Series F
senior notes or if you do tender them
but they are not accepted by us, your
Series F senior notes will continue to
be subject to the existing restrictions
upon transfer. Except for our
obligation to file a shelf registration
statement under the circumstances
described above, we will have no
further obligation to provide for the
registration under the Securities Act
of Series F senior notes.
Ratio of Earnings to Fixed Charges
In the Selected Financial Data table on
page 29, we present the ratio of
earnings to fixed charges on a
historical basis for the last five
years and the first three quarters of
2000 and 1999. As Host Marriott is our
predecessor, we consider the historical
financial information of Host Marriott
for periods prior to the REIT
conversion to be our historical
financial information.
5
<PAGE>
THE SERIES G SENIOR NOTES
In the summary below, we describe the principal terms of the Series G senior
notes. The terms and conditions described below are subject to important
limitations and exceptions. The "Description of Notes" section of this
prospectus contains a more detailed description of the terms and conditions of
the Series G senior notes.
Total amount of notes offered...... $250,000,000 aggregate principal amount
of 9 1/4% Series G senior notes due
2007.
Maturity........................... October 1, 2007.
Issue Price........................ 98.741% plus accrued interest from the
date of issuance.
Interest........................... 9 1/4% per annum, paid every six months
on April 1 and October 1, commencing on
April 1, 2001.
Ranking............................ The Series G senior notes are equal in
right of payment with all of our
unsubordinated indebtedness and senior
to all of our subordinated obligations,
including any Series F senior notes
that are not exchanged in the exchange
offer.
Optional redemption................ The Series G senior notes will be
redeemable at our option at any time,
in whole but not in part, for 100% of
their principal amount, plus any make-
whole premium and any accrued and
unpaid interest. For more details, see
the section "Description of Notes"
under the heading "Optional
Redemption."
Mandatory offer to repurchase...... If we sell certain assets or undergo
certain kinds of changes of control, we
must offer to repurchase the Series G
senior notes as described in the
section "Description of Notes" under
the heading "Covenants--Repurchase of
Notes at the Option of the Holder upon
a Change of Control Triggering Event."
Basic covenants of the indenture... The indenture governing the Series G
senior notes, among other things,
restricts our ability and the ability
of most of our subsidiaries to:
. incur additional indebtedness;
. pay dividends on, redeem or
repurchase our equity interests;
. make investments;
. permit payment or dividend
restrictions on certain of our
subsidiaries;
6
<PAGE>
. sell assets;
. in the case of our restricted
subsidiaries, guarantee indebtedness;
. create certain liens; and
. sell certain assets or merge with or
into other companies.
For more details, you should read the
description in the section "Description
of Notes" under the heading
"Covenants."
Use of proceeds.................... We will not receive any cash proceeds
from the issuance of the registered
notes.
7
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors, in addition to the
other information contained in this prospectus memorandum, before deciding to
tender Series F senior notes in the exchange offer.
Series F senior notes outstanding after the exchange offer will not have
registration rights.
If you do not exchange your Series F senior notes for Series G senior notes
pursuant to the exchange offer, your Series F senior notes will continue to be
subject to the restrictions on transfer of the Series F notes. In general, you
may not offer to sell Series F senior notes unless they are registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to the registration requirements of the Securities Act and
applicable state securities laws. If you are a broker-dealer that receives
Series G senior notes for your account in exchange for Series F senior notes,
where those Series F senior notes were acquired by you as a result of market-
making activities or other trading activities, you must acknowledge that you
will deliver a prospectus in connection with any resale of those Series G
senior notes.
We have substantial leverage.
We have now, and after the exchange offer we will continue to have, a
significant amount of indebtedness. The following chart shows certain important
credit statistics and is presented assuming we completed the Series F offering
as of September 8, 2000:
<TABLE>
<S> <C>
---
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
As of
September 8,
2000
--------------
<S> <C>
Total indebtedness (excluding convertible debt
obligations)............................................... $5,365 million
Convertible debt obligations due to Host Marriott
Corporation................................................ $ 492 million
Partners' equity (including redeemable limited partner
interests of third parties at redemption value)............ $1,751 million
Debt to equity ratio........................................ 3.3x(1)
</TABLE>
--------
(1) Debt to equity ratio is calculated using the total indebtedness including
the convertible debt divided by the partners' equity, including redeemable
limited partner interests of third parties at redemption value.
Our substantial indebtedness could have important consequences. For example,
it could adversely affect our ability to:
. obtain financing in the future;
. undertake refinancings on terms and conditions acceptable to us;
. pursue our acquisition strategy; or
. compete effectively or operate successfully under adverse economic
conditions.
If our cash flow and working capital were not sufficient to fund our
expenditures or service our indebtedness, we would have to raise additional
funds through:
. the sale of equity;
. the refinancing of all or part of our indebtedness;
. the incurrence of additional permitted indebtedness; or
. the sale of assets.
We cannot assure you that any of these sources of funds would be available
in amounts sufficient for us to meet our obligations or fulfill our business
plans.
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The notes effectively will be junior in right of payment to some other
liabilities.
Only those subsidiaries that have guaranteed payment of certain indebtedness
other than the notes, including our credit facility, the Series A senior notes,
the Series B senior notes, the Series C senior notes, the Series E senior
notes, the Series C senior notes, and future indebtedness that is so
guaranteed, have and are required to guarantee our obligations under the notes.
Although the indenture governing the terms of the notes places limits on the
overall level of indebtedness that non-guaranteeing subsidiaries may incur, the
notes effectively will be junior in right of payment to liabilities of our
subsidiaries which are not guarantors of the notes, to the extent of the assets
of such subsidiaries. Since only those subsidiaries that guarantee the credit
facility or our other indebtedness are required to guarantee the notes, there
can be no assurance as to the number of subsidiaries that will be guarantors of
the notes at any point in time or as to the value of their assets or
significance of their operations. In addition, together with our subsidiaries,
we have a significant amount of indebtedness secured by our assets and the
subsidiary guarantors (other than the equity interests of our direct and
indirect subsidiaries securing our credit facility and senior notes, including
the Series F senior notes). The notes effectively will be junior in right of
payment to this secured debt to the extent of the value of the assets securing
such debt. On a pro forma basis, giving effect to the transactions set forth in
the section, "Pro Forma Financial Information of Host Marriott, L.P.", as of
September 8, 2000, the amount of our and our subsidiaries' secured debt, other
than the existing notes and bank credit facility debt, was approximately $2.3
billion. The notes will not be secured by our assets or those of our
subsidiaries. The notes will be secured only by our directly and indirectly
held equity interests in those of our subsidiaries that have been pledged in
favor of our credit facility. In addition to the credit facility, this
collateral will be shared equally and ratably with holders of other
indebtedness, including but not limited to, the Series A senior notes, Series B
senior notes, Series C senior notes, Series E senior notes and certain of our
other indebtedness ranking pari passu with the notes. As of September 8, 2000,
the amount of indebtedness (including the notes) secured by the equity interest
of these subsidiaries would have been $3.1 billion.
The terms of our debt place restrictions on us and our subsidiaries, reducing
operational flexibility and creating default risks.
The documents governing the terms of our debt, including the documents
governing the terms of these notes, contain covenants that place restrictions
on us and our subsidiaries. The activities upon which such restrictions exist
include, but are not limited to:
. the incurrence of additional debt;
. the creation of liens;
. the sale of assets;
. transactions with affiliates; and
. certain mergers and consolidations.
Certain sales of assets or changes of control could result in an obligation
for us to make an offer to purchase the notes. We cannot assure you that we
would have adequate resources to consummate such an offer to purchase. In
addition, certain covenants applying to debt other than the notes may require
us and our subsidiaries to meet financial performance tests. These covenants
reduce our flexibility in conducting our operations and create a risk of
default under the debt if we cannot satisfy the covenants.
The notes or a guarantee thereof may be deemed a fraudulent transfer.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee of the notes could be voided, or claims
on a guarantee of the notes could be subordinated to all other debts of that
guarantor if, among other things, the guarantor, at the time it incurred the
indebtedness evidenced by its guarantee:
(1) received less than reasonably equivalent value or fair consideration
for the incurrence of such guarantee; and
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(2) either:
(a) was insolvent or rendered insolvent by reason of such
incurrence;
(b) was engaged in a business or transaction for which the
guarantor's remaining assets constituted unreasonably small capital; or
(c) intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they mature.
If such circumstances were found to exist, any payment by that guarantor
pursuant to its guarantee of the notes also could be voided and required to be
returned to the guarantor, or to a fund for the benefit of the creditors of the
guarantor.
In addition, our obligations under the notes may be subject to review under
the same laws in the event of our bankruptcy or other financial difficulty. In
that event, if a court were to find that when we issued the notes the factors
in clauses (1) and (2) above applied to us, or that the notes were issued with
actual intent to hinder, delay or defraud creditors, the court could avoid our
obligations under the notes, or direct the return of any amounts paid
thereunder to us or to a fund for the benefit of our creditors.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, the partnership or a
guarantor would be considered insolvent if:
. the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets; or
. if the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute
and mature; or
. it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that we and each of our guarantors, after giving
effect to the guarantee of the notes, will be solvent, will have a reasonable
amount of capital for the business in which we or it is engaged and will not
have incurred debts beyond our or its ability to pay such debts as they mature.
We can offer no assurance, however, as to what standard a court would apply in
making such determinations or that a court would agree with our conclusions in
this regard.
An active trading market may not develop for the notes.
The Series F senior notes are not listed on any securities exchange. Since
their issuance, there has been a limited trading market for the Series F senior
notes. To the extent that Series F senior notes are tendered and accepted in
the exchange offer, the trading market for untendered and tendered but
unaccepted Series F senior notes will be adversely affected. We cannot assure
you that this market will provide liquidity for you if you want to sell your
Series F senior notes.
We will not list the Series G senior notes on any securities exchange. These
notes are new securities for which there is currently no market. The Series G
senior notes may trade at a discount from their initial offering price,
depending upon prevailing interest rates, the market for similar securities,
our performance and other factors. We have been advised by Donaldson, Lufkin &
Jenrette and BT Alex. Brown that they intend to make a market in the Series G
senior notes, as well as the Series F senior notes, as permitted by applicable
laws and regulations. However, they are not obligated to do so and their market
making activities may be discontinued at any time without notice. In addition,
their market making activities may be limited during our exchange offer.
Therefore, we cannot assure you that an active market for Series G senior notes
will develop.
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We do not control our day to day hotel operations, and we are dependent on the
managers and lessees of our hotels.
Because federal income tax laws currently restrict REITs and "publicly
traded" partnerships from deriving revenues directly from operating a hotel, we
operate none of our hotels. Instead, we lease virtually all of our hotels to
subsidiaries of Crestline which, in turn, retain managers to manage our hotels
as agents pursuant to management agreements. Thus, we are dependent on the
lessees but, under the hotel leases, we have little influence over how the
lessees operate our hotels. Similarly, we have very limited recourse if we
believe that the hotel managers do not maximize the revenues from our hotels,
which in turn will maximize the rental payments we receive under the leases. We
may seek redress under most leases only if the lessee violates the terms of the
lease and then only to the extent of the remedies set forth in the lease.
Each lessee's ability to pay rent accrued under its lease depends to a large
extent on the ability of the hotel manager to operate the hotel effectively and
to generate gross sales in excess of its operating expenses. Our rental income
from the hotels may therefore be adversely affected if the managers fail to
provide quality services and amenities and competitive room rates at our hotels
or fail to maintain the quality of the hotel brand names. Although the lessees
have primary liability under the management agreements while the leases are in
effect, we remain liable under the management agreements for all obligations
that the lessees do not perform. We may terminate a lease if the lessee
defaults under a management agreement, but terminating the lease could, unless
another suitable lessee is found, impair Host REIT's ability to continue to
qualify as a REIT for federal income tax purposes and our ability to qualify as
a partnership for federal income tax purposes if we are a "publicly traded
partnership" unless another suitable lessee is found. As described below, Host
REIT's inability to qualify as a REIT or our inability to qualify as a
partnership for federal income tax purposes would have a material adverse
effect on us.
The REIT Modernization Act will permit a REIT to lease hotels to a taxable C
corporation in which it owns an equity interest, referred to as a "taxable REIT
subsidiary," or "TRS," effective beginning January 1, 2001. See "--The REIT
Modernization Act will affect the way in which our non-controlled subsidiaries
are taxed" below. On November 13, 2000, we and Crestline announced the
execution of a definitive agreement for the purchase and sale, effective
January 1, 2001, of the entities owning the leasehold interests with respect to
117 of our full-service hotels for approximately $205 million, including
recording a non-recurring loss of $120 million net of tax on the acquisition.
After the transaction is consummated, we will lease these hotels to a newly
created subsidiary of ours that qualifies as a TRS. In connection therewith, we
will recognize the revenues and expenses generated by the hotels subject to the
leases and we will no longer recognize rental income from these leases.
Consummation of the transaction with Crestline is subject to various
conditions, including the receipt of required third party consents. There can
be no assurance that we will be able to consummate this transaction.
We do not control the assets held by the non-controlled subsidiaries.
We own economic interests in several taxable corporations, which we refer to
as "non-controlled subsidiaries," that hold various assets which, under our
credit facility may not exceed, in the aggregate, 15% of the value of our
assets. The assets held by the non-controlled subsidiaries consist primarily of
interests in partnerships that own hotels that are not leased to third parties,
hotels that are not leased to third parties, some furniture, fixtures,
furnishings and equipment used in our hotels and some international hotels. If
we owned these assets, it could jeopardize Host REIT's REIT status and/or our
status as a partnership for federal income tax purposes could be jeopardized
under current federal income tax laws. Although we own approximately 95% of the
total economic interests of the non-controlled subsidiaries, we own none of the
voting stock of the non-controlled subsidiaries. The Host Marriott Statutory
Employee/Charitable Trust, the beneficiaries of which are (1) a trust formed
for the benefit of a number of our employees and (2) the J. Willard and Alice
S. Marriott Foundation, owns all of the voting common stock, representing
approximately 5% of the total economic interests in the non-controlled
subsidiaries. The Host Marriott Statutory Employee/Charitable Trust elects the
directors who are responsible for overseeing the operations of the non-
controlled subsidiaries. The directors are currently our employees, although
this is not required. As a result, we have no control over the operation or
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management of the hotels or other assets owned by the non-controlled
subsidiaries, even though we depend upon the non-controlled subsidiaries for a
portion of our revenues. Also, the activities of the non-controlled
subsidiaries could cause us to be in default under our principal credit
facilities. Commencing January 1, 2001, the REIT Modernization Act will permit
us to own all of the voting stock of the non-controlled subsidiaries without
adversely affecting Host REIT's status so long as these subsidiaries elect to
be "taxable REIT subsidiaries" as defined under the Act. We are considering
pursuing a transaction with the Host Marriott Statutory Employee/Charitable
Trust that would allow us to acquire control of the non-controlled
subsidiaries, although we have not reached any such agreement and cannot assure
you that any such agreement will be reached or that a transaction will be
consummated.
We are dependent upon the ability of Crestline and the lessees to meet their
rent obligations.
The lessees' rent payments are the primary source of our revenues. Crestline
guarantees the obligations of its subsidiaries under the hotel leases, but
Crestline's liability is limited to a relatively small portion of the aggregate
rent obligation of its subsidiaries. The ability of Crestline and each of its
subsidiaries to meet its obligations under the leases will determine the amount
of our revenue and our ability to meet our obligations including payments of
amounts due under the notes. We have no control over Crestline or any of its
subsidiaries and cannot assure you that Crestline or any of its subsidiaries
will have sufficient assets, income and access to financing to enable them to
satisfy their obligations under the leases or to make payments of fees under
the management agreements. Although the lessees have primary liability under
the management agreements while the leases are in effect, we and our
subsidiaries remain liable under the management agreements for all obligations
that the lessees do not perform. Because of our current dependence on
Crestline, our credit rating will be affected by its creditworthiness. If the
previously discussed purchase of the Crestline entities owning the leasehold
interests with respect to 117 of our full-service hotels is consummated
effective January 1, 2001, we will instead lease our hotels to a newly created
TRS and, thus, cease to be dependent upon Crestline.
Our relationships with Marriott International and Crestline may result in
conflicts of interest.
Marriott International, a public hotel management company, manages a
significant number of our hotels. In addition, Marriott International and
Crestline manage hotels that compete with our hotels. Decisions made by our
managers, including Marriott International and Crestline, regarding competing
lodging facilities may not be in our best interest as owner. J.W. Marriott, Jr.
is a member of Host REIT's Board of Directors and his brother, Richard E.
Marriott, is Host REIT's Chairman of the Board. Both J.W. Marriott, Jr. and
Richard E. Marriott serve as directors, and J.W. Marriott, Jr. also serves as
Chairman of the Board and an officer, of Marriott International. J.W. Marriott,
Jr. and Richard E. Marriott also beneficially own, as determined for securities
law purposes, as of January 31, 2000, approximately 10.8% and 10.6%,
respectively, of the outstanding shares of common stock of Marriott
International. In addition, J.W. Marriott, Jr. and Richard E. Marriott own, as
of January 31, 2000, approximately 5.2% and 4.8%, respectively, of the
outstanding shares of common stock of Crestline. Neither J.W. Marriott, Jr. or
Richard E. Marriott serves as an officer or director of Crestline. As a result,
J.W. Marriott, Jr. and Richard E. Marriott have potential conflicts of interest
as Host REIT directors when making decisions regarding Marriott International,
including decisions relating to the management agreements involving the hotels,
Marriott International's management of competing lodging properties and
Crestline's leasing and other businesses.
Both Host REIT's Board of Directors and the Board of Directors of Marriott
International follow appropriate policies and procedures to limit the
involvement of Messrs. J.W. Marriott, Jr. and Richard E. Marriott in conflict
situations, including requiring them to abstain from voting as directors of
either Host REIT or Marriott International or their respective subsidiaries on
matters which present a conflict between the companies. If appropriate, these
policies and procedures will apply to other directors and officers.
Our leases and management agreements could impair the sale or other disposition
of our hotels.
Under each lease with a subsidiary of Crestline, we generally must purchase
a lease if we want to terminate the lease prior to the expiration of its term.
If we decide to sell a hotel, we may be required to
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terminate its lease, and the payment of the purchase price under such
circumstances could impair our ability to sell the hotel and would reduce the
net proceeds of any sale. If the previously discussed purchase and sale of the
Crestline entities owning the leasehold interests with respect to 117 of our
full-service hotels is consummated effective January 1, 2001, we will lease our
hotels to a newly created TRS and, therefore, the lease purchase provisions,
which would remain in effect, would no longer affect us adversely.
Under the terms of the management agreements, we generally may not sell,
lease or otherwise transfer the hotels unless the transferee assumes the
related management agreements and meets specified other conditions. Our ability
to finance, refinance or sell any of the properties managed by our managers
may, depending upon the structure of such transactions, require the manager's
consent. If our managers did not consent, we would be prohibited from
financing, refinancing or selling the property without breaching the management
agreement.
Our rental revenues from hotels are subject to the prior rights of lenders.
The mortgages on some of our hotels require that rent payments under the
leases on the hotels be used first to pay the debt service on the mortgage
loans. Consequently, only the cash flow remaining after debt service on those
mortgage loans will be available to satisfy other obligations, including
property taxes and insurance, furniture, fixtures, furnishings and equipment
reserves for the hotels and capital improvements, and to make distributions to
our unitholders, including Host REIT.
The acquisition contracts relating to some hotels limit our ability to sell or
refinance those hotels.
For reasons relating to federal income tax considerations of the former
owners of some of our hotels, we have agreed to restrictions on selling some
hotels or repaying or refinancing the mortgage debt on those hotels for varying
periods depending on the hotel. We anticipate that, in specified circumstances,
we may agree to similar restrictions in connection with future hotel
acquisitions. As a result, even if it were in our best interests to sell or
refinance the mortgage debt on these hotels, it may be difficult or impossible
to do so during their respective lock-out periods.
Our ground lease payments may increase faster than the rent revenues we receive
on the hotels.
As of September 8, 2000, we leased 53 of our hotels pursuant to ground
leases. These ground leases generally require increases in ground rent payments
every five years. Our ability to service debt could be adversely affected to
the extent that the rents payable by the lessees under the leases do not
increase at the same or a greater rate as the increases under the ground
leases. In addition, if we were to sell a hotel encumbered by a ground lease,
the buyer would have to assume the ground lease, which could result in a lower
sales price. Moreover, to the extent that such ground leases are not renewed at
their expiration, our revenues could be adversely affected.
New acquisitions may fail to perform as expected or we may be unable to make
acquisitions on favorable terms.
We intend to acquire additional full-service hotels. Newly acquired
properties may fail to perform as expected, which could adversely affect our
financial condition. We may underestimate the costs necessary to bring an
acquired property up to standards established for its intended market position.
We expect to acquire hotels with cash from secured or unsecured financings and
proceeds from offerings of equity or debt, to the extent available. We may not
be in a position or have the opportunity in the future to make suitable
property acquisitions on favorable terms. Competition for attractive investment
opportunities may increase prices for hotel properties, thereby decreasing the
potential return on our investment. In addition, under current federal income
tax laws, in order to maintain Host REIT's status as a REIT, we must lease
virtually all of the properties we acquire. Under the REIT Modernization Act,
however, we are permitted to lease any newly acquired hotels to a taxable REIT
subsidiary after December 31, 2000.
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The seasonality of the hotel industry may affect the ability of the lessees to
make timely rent payments.
The seasonality of the hotel industry may, from time to time, affect either
the amount of rent that accrues under the hotel leases or the ability of the
lessees to make timely rent payments under the leases. A lessee's inability to
make timely rent payments to us could adversely affect our financial condition
and our ability to service debt.
We may be unable to sell properties when appropriate because real estate
investments are illiquid.
Real estate investments generally cannot be sold quickly. We may not be able
to vary our portfolio promptly in response to economic or other conditions. The
inability to respond promptly to changes in the performance of our investments
could adversely affect our financial condition, and ability to service debt
including the notes. In addition, there are limitations under the federal tax
laws applicable to REITs and agreements that we have entered into when we
acquired some of our properties that may limit our ability to recognize the
full economic benefit from a sale of our assets.
Our revenues and the value of our properties are subject to conditions
affecting the lodging industry.
If our assets do not generate sufficient income to service our debt, we may
be unable to pay interest on our debt, including the notes offered hereby. Our
revenues and the value of our properties are subject to conditions affecting
the lodging industry. These include:
. changes in the national, regional and local economic climate;
. local conditions such as an oversupply of hotel properties or a reduction
in demand for hotel rooms;
. the attractiveness of our hotels to consumers and competition from
comparable hotels;
. the quality, philosophy and performance of the managers of our hotels,
primarily Marriott International;
. the ability of any hotel lessee to maximize rental payments;
. changes in room rates and increases in operating costs due to inflation
and other factors; and
. the need to periodically refurbish our hotels.
Adverse changes in these conditions could adversely affect our financial
performance.
Our expenses may remain constant even if our revenue drops.
The expenses of owning property are not necessarily reduced when
circumstances like market factors and competition cause a reduction in income
from the property. If a property is mortgaged and we are unable to meet the
mortgage payments, the lender could foreclose and take the property. Our
financial condition could be adversely affected by:
. interest rate levels;
. the availability of financing;
. the cost of compliance with government regulation, including zoning and
tax laws; and
. changes in governmental regulations, including those governing usage,
zoning and taxes.
We depend on our key personnel.
We depend on the efforts of our executive officers and other key personnel.
While we believe that we could find replacements for these key personnel, the
loss of their services could have a significant adverse effect on our
operations. We do not intend to obtain key-man life insurance with respect to
any of our key personnel.
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Partnership and other litigation judgments or settlements could have a material
adverse effect on our financial condition.
We and Host REIT are parties to various lawsuits relating to previous
partnership transactions, including the roll-up of certain partnerships
associated with the REIT conversion. While we and the other defendants to such
lawsuits believe all of the lawsuits in which we are a defendant are without
merit and we are vigorously defending against such claims, we can give no
assurance as to the outcome of any of the lawsuits. In connection with the REIT
conversion, we have assumed all liability arising under legal proceedings filed
against Host REIT and will indemnify Host REIT as to all such matters. If any
of the lawsuits were to be determined adversely to us or settlement involving a
payment of a material sum of money were to occur, there could be a material
adverse effect on our financial condition.
Environmental problems are possible and can be costly.
We believe that our properties are in compliance in all material respects
with applicable environmental laws. Unidentified environmental liabilities
could arise, however, and could have a material adverse effect on our financial
condition and performance. Federal, state and local laws and regulations
relating to the protection of the environment may require a current or previous
owner or operator of real estate to investigate and clean up hazardous or toxic
substances or petroleum product releases at the property. The owner or operator
may have to pay a governmental entity or third parties for property damage and
for investigation and clean-up costs incurred by the parties in connection with
the contamination. These laws typically impose clean-up responsibility and
liability without regard to whether the owner or operator knew of or caused the
presence of the contaminants. Even if more than one person may have been
responsible for the contamination, each person covered by the environmental
laws may be held responsible for all of the clean-up costs incurred. In
addition, third parties may sue the owner or operator of a site for damages and
costs resulting from environmental contamination emanating from that site.
Environmental laws also govern the presence, maintenance and removal of
asbestos. These laws require that owners or operators of buildings containing
asbestos properly manage and maintain the asbestos, notify and train those who
may come into contact with asbestos and undertake special precautions,
including removal or other abatement, if asbestos would be disturbed during
renovation or demolition of a building. These laws may impose fines and
penalties on building owners or operators who fail to comply with these
requirements and may allow third parties to seek recovery from owners or
operators for personal injury associated with exposure to asbestos fibers.
Compliance with other government regulations can also be costly.
Our hotels are subject to various forms of regulation, including Title III
of the Americans with Disabilities Act, building codes and regulations
pertaining to fire safety. Compliance with those laws and regulations could
require substantial capital expenditures. These regulations may be changed from
time to time, or new regulations adopted, resulting in additional or unexpected
costs of compliance. Any increased costs could reduce the cash available for
servicing debt and making distributions to our unitholders.
Some potential losses are not covered by insurance.
We carry comprehensive liability, fire, flood and extended coverage and
rental loss (for rental losses extending up to 12 months) insurance with
respect to all of our hotels. We believe the policy specifications and insured
limits of these policies are of the type customarily carried for similar
hotels. Some types of losses, such as from earthquakes and environmental
hazards, however, may be either uninsurable or too expensive to justify
insuring against. Should an uninsured loss or a loss in excess of insured
limits occur, we could lose all or a portion of the capital we have invested in
a hotel, as well as the anticipated future revenue from the hotel. In that
event, we might nevertheless remain obligated for any mortgage debt or other
financial obligations related to the property.
We cannot guarantee that Host REIT will qualify as a REIT.
Host REIT has been organized and has operated in such a manner so as to
qualify as a REIT under the Internal Revenue Code, commencing with its taxable
year beginning January 1, 1999. A REIT generally is not
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taxed at the corporate level on income it currently distributes to its
shareholders as long as it distributes currently at least 95% of its taxable
income, excluding net capital gain. This distribution requirement will be
reduced to 90% in years beginning after December 31, 2000. No assurance can be
provided, however, that Host REIT will qualify as a REIT or that new
legislation, Treasury Regulations, administrative interpretations or court
decisions will not significantly change the tax laws with respect to its
qualification as a REIT or the federal income tax consequences of such
qualification.
Our ability to accumulate cash is limited.
In order to continue to qualify as a REIT, Host REIT currently is required
each year to distribute to its shareholders at least 95% of its taxable income,
excluding net capital gain, and will be required to distribute at least 90% of
this amount for years beginning after December 31, 2000. A REIT must pay tax on
distributions of less than 100% of taxable income. Due to some transactions
entered into in years prior to the REIT conversion, Host REIT expects to
recognize substantial amounts of "phantom" income, which is taxable income that
is not matched by cash flow or EBITDA. In addition, Host REIT will be subject
to a 4% nondeductible excise tax on the amount, if any, by which certain
distributions made by Host REIT with respect to the calendar year are less than
the sum of 85% of Host REIT's ordinary income, 95% of Host REIT's capital gain
net income for that year, and any undistributed taxable income from prior
periods. Generally, Host REIT intends to distribute 100% of its taxable income,
excluding net capital gains to its shareholders, to comply with the 95%
distribution requirement and to avoid paying either tax on its income or the
nondeductible excise tax. Host REIT will rely on distributions from us for
purposes of making such distributions. However, differences in timing between
taxable income and cash available for distribution due to, among other things,
the seasonality of the lodging industry and the fact that some taxable income
will be "phantom" income could require us to borrow funds or to issue
additional equity to enable Host REIT to meet the 95% distribution requirements
and, therefore, to maintain Host REIT's REIT status, and to avoid the
nondeductible excise tax. We are required to pay, or reimburse Host REIT, as
our general partner, for, some taxes and other liabilities and expenses that it
incurs, including all taxes and liabilities attributable to periods and events
prior to the REIT conversion. In addition, because the REIT distribution
requirements prevent Host REIT from retaining earnings, we will generally be
required to refinance debt that matures with additional debt or equity. We
cannot assure you that any of these sources of funds, if available at all,
would be sufficient to meet our distribution and tax obligations.
Host REIT was required to distribute all of its earnings and profits before the
end of fiscal year 1999, and we cannot assure you that it met this requirement.
In order to qualify as a REIT, Host REIT cannot have at the end of any
taxable year any undistributed earnings and profits that is attributable to one
of its non-REIT taxable years. Host REIT was required to have distributed this
E&P prior to the end of 1999, the first taxable year for which its REIT
election was effective. If Host REIT failed to do this, it will be disqualified
as a REIT at least for taxable year 1999. We believe that distributions of non-
REIT E&P that Host REIT made were sufficient to distribute all of the non-REIT
E&P as of December 31, 1999, but there could be uncertainties relating to the
estimate of Host REIT's non-REIT E&P and the value of the Crestline stock that
Host REIT distributed to its shareholders. Therefore, we cannot guarantee that
Host REIT met this requirement.
Host REIT may not be able to meet the income tests to qualify as a REIT.
To qualify as a REIT, Host REIT must satisfy two gross income tests, under
which specified percentages of its gross income must be passive income, like
rent. For the rent paid pursuant to the leases, which constitutes substantially
all of our gross income, to qualify for purposes of the gross income tests, the
leases must be respected as true leases for federal income tax purposes and not
be treated as service contracts, joint ventures or some other type of
arrangement. In addition, the lessees must not be regarded as "related party
tenants," as defined in the Internal Revenue Code. We believe, taking into
account both the terms of the leases and the
16
<PAGE>
expectations that we and the lessees have with respect to the leases, that the
leases will be respected as true leases for federal income tax purposes. There
can be no assurance, however, that the IRS will agree with this view. If the
leases were not respected as true leases for federal income tax purposes or if
the lessees were regarded as "related party tenants," Host REIT would not be
able to satisfy either of the two gross income tests applicable to REITs and
Host REIT would lose its REIT status. If Host REIT fails to continue to qualify
as a REIT, it will be subject to federal income tax, including any applicable
alternative minimum tax, on its taxable income at regular corporate rates. Host
REIT's failure to qualify as a REIT would result in a default under the senior
notes and the credit facility. As a result of the REIT Modernization Act,
beginning January 1, 2001, a "taxable REIT subsidiary" of Host REIT that meets
certain requirements would not be regarded as a "related party tenant" with
respect to hotels leased by Host REIT.
Host REIT is subject to taxes, even if it continues to qualify as a REIT.
Notwithstanding Host REIT's status as a REIT, we are subject to certain
federal, state and local taxes on our income and property. In addition, Host
REIT will be required to pay tax at the regular corporate rate, currently 35%,
upon its share of any "built-in gain" recognized as a result of any sale before
January 1, 2009, by us of assets, including the hotels, in which interests were
acquired by us from Host REIT's predecessor and its subsidiaries as part of the
REIT conversion. Built-in gain is the amount by which an asset's fair market
value exceeded Host REIT's adjusted basis in the asset on January 1, 1999, the
first day of Host REIT's first taxable year as a REIT. At the time of the REIT
conversion there were substantial built-in gain and deferred tax liabilities
that Host REIT would recognize in the next ten years without any corresponding
receipt of cash by Host REIT from us. Host REIT, however, recognized a
substantial amount of these built-in gains and deferred tax liabilities in
1999. Accordingly, our potential tax exposure on these gains and deferred
liabilities for the future is significantly less than it was at the time of our
REIT conversion. We are obligated under our partnership agreement to pay all
such taxes incurred by Host REIT, as well as any liabilities that the IRS may
assert against Host REIT for corporate income taxes for taxable years prior to
the time it qualified as a REIT. The non-controlled subsidiaries are fully
taxable corporations and will pay federal and state income tax on their net
income at the applicable corporate rates. Any taxable REIT subsidiaries that we
form pursuant to the provisions of the REIT Modernization Act that become
effective January 1, 2001, also will be fully taxable at the regular corporate
income tax rates.
If we fail to qualify as a partnership, Host REIT would fail to qualify as a
REIT, adversely affecting our operations.
We believe that we qualify to be treated as a partnership for federal income
tax purposes. No assurance can be provided, however, that the IRS will not
challenge our status as a partnership for federal income tax purposes, or that
a court would not sustain such a challenge. If the IRS were successful in
treating us as a corporation for tax purposes, Host REIT would fail to meet two
of the asset tests applicable to REITs and, accordingly, cease to qualify as a
REIT. If Host REIT fails to continue to qualify as a REIT, it will be subject
to federal income tax, including any applicable alternative minimum tax, on its
taxable income at regular corporate rates. Host REIT's failure to qualify as a
REIT would result in a default under the senior notes and the credit facility.
Also, the imposition of a corporate tax on us would reduce significantly the
amount of cash available for distribution to our unitholders, including Host
REIT. Finally, the classification of us as a corporation would cause Host REIT
to recognize gain at least equal to its "negative capital accounts," and
possibly more, depending upon the circumstances.
The REIT Modernization Act will affect the way in which our non-controlled
subsidiaries are taxed.
Currently, a REIT may not own securities in any one issuer if the value of
those securities exceeds 5% of the value of the REIT's total assets or the
securities owned by the REIT represent more than 10% of the issuer's
outstanding voting securities. As a result of the REIT Modernization Act, after
December 31, 2000, the 5% value test and the 10% voting security test will be
modified in two respects. First, the 10% voting securities
17
<PAGE>
test will be expanded so that REITs also will be prohibited from owning more
than 10% of the value of the outstanding securities of any one issuer. Second,
an exception to these tests will allow a REIT to own securities of a subsidiary
that exceed the 5% value test and the new 10% vote or value test if the
subsidiary elects to be a "taxable REIT subsidiary," which would be a fully
taxable corporation. Under a new asset test, for taxable years beginning after
December 31, 2000, we will not be able to own securities of taxable REIT
subsidiaries that represent in the aggregate more than 20% of the value of our
total assets. We expect that both of our current non-controlled subsidiaries
will elect to be treated as taxable REIT subsidiaries.
Several provisions of the new law will ensure that a taxable REIT subsidiary
will be subject to an appropriate level of federal income taxation. For
example, a taxable REIT subsidiary will be limited in its ability to deduct
interest payments made to an affiliated REIT. In addition, the REIT will have
to pay a 100% penalty tax on some payments that it receives if the economic
arrangements between the REIT, the REIT's tenants, and the taxable REIT
subsidiary are not comparable to similar arrangements between unrelated
parties.
The reliability of market data included in this prospectus is uncertain.
The market data included in this prospectus, including information relating
to our relative position in the industry, is based on independent industry
publications, other publicly available information, studies performed for us by
independent consultants or our management's good faith beliefs. Although we
believe that such independent sources are reliable, the accuracy and
completeness of such information is not guaranteed and has not been
independently verified.
18
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. We identify forward-looking statements in this prospectus by
using words or phrases such as "anticipate," "believe," "estimate," "expect,"
"intend," "may be," "objective," "plan," "predict," "project," and "will be"
and similar words or phrases, or the negative thereof.
These forward-looking statements are subject to numerous assumptions, risks
and uncertainties. Factors which may cause our actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by us in those statements include, among
others, the following:
. national and local economic and business conditions that will affect,
among other things, demand for products and services at our hotels and
other properties, the level of room rates and occupancy that can be
achieved by such properties and the availability and terms of financing;
. our ability to maintain the properties in a first-class manner, including
meeting capital expenditure requirements;
. our ability to compete effectively in areas such as access, location,
quality of accommodations and room rate structures;
. our ability to acquire or develop additional properties and the risk that
potential acquisitions or developments may not perform in accordance with
expectations;
. our degree of leverage which may affect our ability to obtain financing
in the future or compliance with current debt covenants;
. changes in travel patterns, taxes and government regulations which
influence or determine wages, prices, construction procedures and costs;
. government approvals, actions and initiatives including the need for
compliance with environmental and safety requirements, and change in laws
and regulations or the interpretation thereof;
. the effects of tax legislative action, including specified provisions of
the Work Incentives Improvement Act of 1999 as enacted on December 17,
1999 (we refer to this as the "REIT Modernization Act");
. Host REIT's ability to continue to satisfy complex rules in order to
qualify as a REIT for federal income tax purposes and in order for us to
qualify as a partnership for federal income tax purposes, and our ability
to operate effectively within the limitations imposed by these rules; and
. other factors discussed above under the heading "Risk Factors" and in
filings with the Securities and Exchange Commission.
Although we believe the expectations reflected in our 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 any updates or revisions to any
forward-looking statement contained in this prospectus to reflect any change in
our expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
19
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the exchange of the Series G
senior notes for the Series F senior notes pursuant to the exchange offer. In
consideration for issuing the Series G senior notes as contemplated in this
prospectus, we will receive in exchange Series F senior notes in like principal
amounts, which will be cancelled. Accordingly, there will not be any increase
in our outstanding indebtedness.
CAPITALIZATION
In the following table we set forth our capitalization as of September 8,
2000 on an historical basis and on a pro forma basis after giving effect to the
transactions described below under "Pro Forma Financial Information of Host
Marriott, L.P." that occurred or are expected to occur subsequent to September
8, 2000, including the issuance of the Series F senior notes, as if such
transactions had occurred as of September 8, 2000. The following table should
be read in conjunction with our unaudited condensed consolidated financial
statements and the notes thereto as of September 8, 2000 and the unaudited pro
forma financial information included herein.
<TABLE>
<CAPTION>
As of September 8, 2000
-------------------------------
Historical Pro Forma(1)
------------ -------------
(unaudited, in millions)
<S> <C> <C>
Cash and cash equivalents.. $ 188 $ 153
============ ============
Debt:
Senior notes
7 7/8% Series A senior
notes due 2005(2)........ $ 500 $ 500
7 7/8% Series B senior
notes due 2008(2)........ 1,194 1,194
8.45%Series C senior
notes due 2008(2)........ 499 499
8 3/8% Series E senior
notes due 2006........... 300 300
9 1/4% Series G senior
notes due 2007........... -- 250
Other senior notes........ 47 47
Mortgage debt............. 2,289 2,289
Bank credit facility...... 176(3) 190(4)
Other debt................ 96 96
------------ ------------
Total debt (excluding the
convertible debt
obligation to Host
REIT).................... 5,101 5,365
Convertible debt obligation
to Host REIT.............. 492 492
Minority interest.......... 133 133
Cumulative redeemable
preferred limited
partnership interests of
third parties at
redemption value.......... 7 7
Limited partnership
interests of third parties
at redemption value....... 687 687
Partners' capital.......... 828 1,057
------------ ------------
Total capitalization.... $ 7,248 $ 7,741
============ ============
</TABLE>
---------------------
(1) Pro forma reflects the acquisition of the Crestline lessee entities, cash
payments to settle litigation, and the estimated net proceeds to us from
the offering of Series F senior notes and the application of the proceeds
therefrom. See "Pro Forma Financial Information of Host Marriott, L.P."
beginning on pg. 21.
(2) Amount is net of a discount at issuance.
(3) Represents draws under the bank credit facility through September 8, 2000.
$599 million is available under the revolving portion of the bank credit
facility subject to the terms and conditions thereof.
(4) Reflects the application of a portion of the proceeds from the Series F
senior notes offering to repay $26 million on the bank credit facility, and
additional borrowings of $40 million under the bank credit facility to
partially fund the acquisition of the Crestline lessee entities. $585
million would be available under the revolving portion of the bank credit
facility subject to the terms and conditions thereof.
20
<PAGE>
PRO FORMA FINANCIAL INFORMATION OF HOST MARRIOTT, L.P.
The pro forma financial information of Host LP set forth below is based on
the unaudited consolidated financial statements as of and for the thirty-six
weeks ended September 8, 2000 ("First Three Quarters 2000") and audited
consolidated financial statements for the fiscal year ended December 31, 1999.
The pro forma financial statements reflect the following transactions:
2000 Transactions:
. Acquisition by the TRS of the entities owning the leasehold interests to
117 hotels owned by Host LP from Crestline for approximately $205
million, of which $40 million will be funded through additional
borrowings under the bank credit facility;
. November cash payments of $6 million by Host LP and $82 million by a non-
controlled subsidiary ("NCS") of Host LP (of which $52 million in cash
was advanced to the NCS by Host LP) in settlement of certain litigation.
The settlement of the litigation includes the acquisition of a 50% non-
controlling interest in a joint venture owning the limited partner
interests in two affiliated partnerships;
. October issuance of $250 million of Series F senior notes and their
subsequent exchange for Series G senior notes, and application of a
portion of the proceeds therefrom to repay $26 million debt outstanding
under the bank credit facility;
. September cash payment of $12 million by Host LP and $19 million by the
NCS in settlement of litigation with plaintiffs in four partnerships;
. Repurchases of 4.9 million shares of Host REIT common stock, 0.4 million
shares of convertible preferred securities of Host REIT, and 0.3 million
OP units for an aggregate consideration of approximately $62 million;
preferred securities of Host REIT, and 0.3 million OP units for an
aggregate consideration of approximately $62 million.
. June modifications to our bank credit facility to extend the term for two
additional years and to permanently reduce the total line from $1.25
billion at origination to $775 million as of June 16, 2000, consisting of
a $150 million term loan and a $625 million revolver.
1999 Transactions:
. November issuance of Class B preferred stock;
. Fourth quarter repurchases of 5.8 million shares of Host REIT common
stock, 1.1 million shares of convertible preferred securities of Host
REIT, and 0.3 million OP units for an aggregate consideration of
approximately $89 million;
. Repayments of $225 million on a term loan entered into as part of our
bank credit facility;
. Third quarter prepayment on mortgages of two hotels;
. August issuance of Class A preferred stock;
. July refinancing of the mortgages on eight hotels;
. April refinancing of the mortgage on the New York Marriott Marquis Hotel;
. February issuance of Series D senior notes and their subsequent exchange
for Series E senior notes, and the application of proceeds therefrom to
repay, refinance, or acquire certain debt;
. Disposition of five hotels.
All of the above transactions except for the acquisition of the Crestline
entities, the litigation settlements, and the issuance of Series F senior notes
and the application of the proceeds therefrom are already reflected in our
consolidated balance sheet as of September 8, 2000 and, therefore, no pro forma
adjustments for these transactions were necessary in the unaudited pro forma
balance sheet.
21
<PAGE>
Our unaudited pro forma statements of operations reflect the transactions
described above for the fiscal year ended December 31, 1999 and the First Three
Quarters 2000 as if those transactions had been completed at the beginning of
the periods presented. Our unaudited pro forma statements of operations which
we present below include only income before extraordinary items.
Our unaudited pro forma financial statements do not purport to represent
what our results of operations or financial condition would actually have been
if these transactions had in fact occurred at the beginning of the periods
presented, or to project our results of operations or financial condition for
any future period.
Our unaudited pro forma financial statements are based upon available
information and upon assumptions and estimates, some of which are set forth in
the notes to the unaudited pro forma financial statements, that we believe are
reasonable under the circumstances. The unaudited pro forma financial
statements and accompanying notes should be read in conjunction with our
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in this registration statement.
22
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
September 8, 2000
(in millions)
<TABLE>
<CAPTION>
(C)
Host (B, D) Series F
Marriott L.P. (A) Litigation Debt
Historical Acquisitions Settlements Issuance Pro Forma
------------- ------------ ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Assets
Property and equipment,
net.................... $7,101 $ -- $-- $-- $7,101
Notes and other
receivables, net....... 172 (88) 36 -- 120
Due from hotel
managers............... -- 88 -- -- 88
Rent receivable......... 72 -- -- -- 72
Investments in
affiliates............. 99 -- -- -- 99
--
Other assets............ 550 85 -- 5 640
Cash and cash
equivalents............ 188 (205) (31) 245 153
40 (58) (26)
------ ----- ---- ---- ------
$8,182 $ (80) $(53) $224 $8,273
====== ===== ==== ==== ======
Liabilities and Equity
Debt.................... $5,101 $ 40 $-- $250 $5,365
(26)
Convertible debt
obligation to Host
Marriott Corporation... 492 -- -- -- 492
Accounts payable and
accrued expenses....... 147 -- -- -- 147
Deferred income taxes... 48 -- -- -- 48
Deferred rent........... 366 (349) -- -- 17
Other liabilities....... 373 -- (22) -- 320
(31)
------ ----- ---- ---- ------
Total liabilities..... 6,527 (309) (53) 224 6,389
Minority interest....... 133 -- -- -- 133
Cumulative redeemable
preferred limited
partnership interests
of third parties at
redemption value
("Preferred OP Units")
(representing 0.6
million units)......... 7 -- -- -- 7
Limited Partnership
interests of third
parties at redemption
value (representing
63.2 million units).... 687 -- -- -- 687
Partners' Capital
General partner....... 1 -- -- -- 1
Cumulative redeemable
preferred limited
partner.............. 196 -- -- -- 196
Limited partner....... 628 (120) -- -- 857
349
Accumulated other
comprehensive
income............... 3 -- -- -- 3
------ ----- ---- ---- ------
Total partners'
capital................ 828 229 -- -- 1,057
------ ----- ---- ---- ------
$8,182 $ (80) $(53) $224 $8,273
====== ===== ==== ==== ======
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements.
23
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
First Three Quarters 2000
(in millions, except per unit amounts)
<TABLE>
<CAPTION>
(G)
Debt
(F,H) Issuances
Host Marriott L.P. (E) Litigation and
Historical Acquisitions Settlements Refinancings Pro Forma
------------------ ------------ ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
REVENUE
Rental income........... $ 580 $ (508) $-- $-- $ 72
Hotel property-level
revenues
Rooms................. -- 1,723 -- -- 1,723
Food and beverage..... -- 824 -- -- 824
Other................. -- 206 -- -- 206
----- ------- ---- ---- ------
Total hotel property-
level revenues......... 580 2,245 -- -- 2,825
Net gains on property
transactions........... 4 -- -- -- 4
Equity in earnings of
affiliates and other... 13 (18) 3 -- (2)
----- ------- ---- ---- ------
Total revenues...... 597 2,227 3 -- 2,827
----- ------- ---- ---- ------
OPERATING COSTS AND
EXPENSES
Hotel property-level
costs and expenses
Rooms................. -- (406) -- -- (406)
Food and beverages.... -- (611) -- -- (611)
Other................. -- (101) -- -- (101)
Management fees....... -- (163) -- -- (163)
Other property-level
costs and expenses... (415) (570) -- -- (985)
----- ------- ---- ---- ------
Total hotel
property-level
costs and
expenses........... (415) (1,851) -- -- (2,266)
----- ------- ---- ---- ------
OPERATING PROFIT BEFORE
MINORITY INTEREST,
CORPORATE EXPENSES,
INTEREST AND OTHER
EXPENSES............... 182 376 3 -- 561
Minority interest....... (11) -- -- -- (11)
Corporate expenses...... (27) -- -- -- (27)
Interest expense........ (315) -- -- (20) (335)
Interest income......... 26 (3) (1) -- 22
Other................... (9) -- -- -- (9)
----- ------- ---- ---- ------
Income (loss) before
income taxes........... (154) 373 2 (20) 201
Provision for income
taxes.................. (7) (151) -- -- (158)
----- ------- ---- ---- ------
Income (loss) before
extraordinary items.... $(161) $ 222 $ 2 $(20) $ 43
===== ======= ==== ==== ======
Less:
Distributions on
preferred units........ (16) (16)
===== ======
Income (loss) before
extraordinary items
available to common
unitholders............ $(177) $ 27
===== ======
Basic earnings (loss)
per unit before
extraordinary items
available to common
unitholders (L)........ $(.62) $ .10
===== ======
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements.
24
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the year ended December 31, 1999
(in millions, except per units amounts)
<TABLE>
<CAPTION>
(G)
Host Marriott (F, H) Debt (J)
L.P. (E) Litigation Issuances and (I) OP Unit Pro
Historical Acquisitions Settlements Refinancings Dispositions Repurchases Forma
------------- ------------ ----------- ------------- ------------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE
Rental income............. $1,295 $(1,155) $-- $-- $(20) $-- $ 120
Hotel property-level
revenues
Rooms.................... -- 2,336 -- -- -- -- 2,336
Food and beverage........ -- 1,163 -- -- -- -- 1,163
Other.................... -- 278 -- -- -- -- 278
------ ------- ---- ---- ---- ---- ------
Total hotel property-level
revenues................. 1,295 2,622 -- -- (20) -- 3,897
Net gains on property
transactions............. 28 -- -- -- (24) -- 4
Equity in earnings of
affiliates and other..... 14 (23) 5 -- -- -- (4)
------ ------- ---- ---- ---- ---- ------
Total revenues............ 1,337 2,599 5 -- (44) -- 3,897
------ ------- ---- ---- ---- ---- ------
OPERATING COSTS AND
EXPENSES
Hotel property-level costs
and expenses
Rooms.................... -- (555) -- -- -- -- (555)
Food and beverage........ -- (855) -- -- -- -- (855)
Other.................... -- (134) -- -- -- -- (134)
Management fees.......... -- (213) -- -- -- -- (213)
Other property-level
costs and expenses...... (553) (787) -- -- 8 -- (1,332)
------ ------- ---- ---- ---- ---- ------
Total hotel property-level
costs and expenses....... (553) (2,544) -- -- 8 -- (3,089)
------ ------- ---- ---- ---- ---- ------
OPERATING PROFIT BEFORE
MINORITY INTEREST,
CORPORATE EXPENSES,
INTEREST AND OTHER
EXPENSES................. 784 55 5 -- (36) -- 808
Minority interest......... (21) -- -- -- -- -- (21)
Corporate expenses........ (37) -- -- -- -- -- (37)
Interest expense.......... (469) -- -- (19) -- -- (488)
Interest income........... 39 (5) (2) -- -- (9) 23
Loss on litigation
settlement............... (40) -- -- -- -- -- (40)
Other..................... (16) -- -- -- -- -- (16)
------ ------- ---- ---- ---- ---- ------
Income (loss) before
income taxes............. 240 50 3 (19) (36) (9) 229
Benefit (provision) for
income taxes............. 16 (20) -- -- 5 -- 1
------ ------- ---- ---- ---- ---- ------
Income (loss) before
extraordinary items...... $ 256 $ 30 $ 3 $(19) $(31) $ (9) $ 230
====== ======= ==== ==== ==== ==== ======
Less:
Distributions on preferred
units (K)................ (6) (20)
------ ------
Income before
extraordinary items
available to common
unitholders.............. $ 250 $ 210
====== ======
Basic earnings per unit
before extraordinary
items available to common
unitholders (L).......... $ .86 $ .75
====== ======
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements.
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
A. Represents the adjustment to record the acquisition by a wholly-owned
taxable REIT subsidiary ("TRS") of Host LP of the entities owning the lease
rights to 117 hotels owned by Host LP from Crestline for approximately $205
million:
. Record the transfer of working capital of approximately $88 million from
Crestline to Host LP by increasing due from hotel managers and decreasing
notes receivable.
. Record a deferred tax asset of approximately $85 million.
. Record the decrease in cash and cash equivalents of $205 million.
. Record the $40 million increase in cash and cash equivalents and
corresponding $40 million increase in debt, representing the additional
borrowings under the bank credit facility.
. Record the $120 million reduction of partners' capital as a result of the
non-recurring loss on the acquisition.
B. Represents the adjustment to record the November 2000 settlement of
certain litigation.
. Record an affiliate note receivable of $36 million for cash advanced to
the NCS by Host LP.
. Record the decrease in cash of $58 million.
. Reduce accrued liabilities by $22 million.
C. Represents the adjustment to record the offering of Series F senior notes
and subsequent exchange for Series G senior notes, and partial application of
the proceeds therefrom to paydown the bank credit facility:
. Record the issuance of $250 million of notes.
. Record the deferred financing fees of $5 million.
. Record net cash proceeds of $245 million.
. Record the $26 million use of cash to repay the revolver portion of the
bank credit facility.
D. Represents the adjustment to record the September 2000 settlement of
litigation with plaintiffs from four partnerships:
. Record the decrease in cash and cash equivalents of $31 million.
. Record the decrease in other liabilities of $31 million.
E. Represents the adjustment for the acquisition by the TRS of the entities
owning the leasehold interests to 117 hotels owned by Host LP from Crestline.
We anticipate recording a non-recurring loss of approximately $120 million that
is not presented in the pro forma results of operations.
. Reduce rental income by $1,155 million and $508 million for fiscal year
1999 and the First Three Quarters 2000, respectively.
. Reduce equity in earnings of affiliates by $23 million and $18 million
for fiscal year 1999 and the First Three Quarters 2000, respectively, to
reverse FF&E Rental Income paid by Crestline to a non- controlled
subsidiary of Host LP.
. Record hotel property revenues of $3,777 million and $2,753 million and
hotel operating costs and expenses of $2,544 million and $1,851 million
for fiscal year 1999 and the First Three Quarters 2000, respectively.
Historical rental income for the First Three Quarters 2000 does not
include approximately $349 million of contingent rent related to the 117
leased hotels, which has been deferred in accordance with Staff
Accounting Bulletin 101. The pro forma statements for the First Three
Quarters 2000 have been adjusted to include the impact of the reversal of
the contingent rent.
26
<PAGE>
. Reduce interest income by $5 million and $3 million for fiscal year 1999
and the First Three Quarters 2000, respectively, for the interest income
earned on the $88 million in working capital notes receivable due from
Crestline.
. Record a provision for federal and state income taxes applicable to the
TRS of $20 million and $151 million, respectively, for fiscal year 1999
and the First Three Quarters, 2000, using an effective tax rate of 40.5%.
F. Represents the adjustment to record equity in earnings of affiliates of
$5 million and $3 million for fiscal year 1999 and the First Three Quarters
2000, respectively, associated with Host LP's share of the earnings of the
joint venture formed by a NCS of Host LP to acquire the limited partner
interests in two partnerships.
G. Represents the adjustment to record interest expense and related
amortization of deferred financing fees as a result of the $40 million net
borrowings under the bank credit facility to partially fund the acquisition of
the Crestline entities, the issuance of the Series F senior notes, the
retirement of $75 million of the convertible debt obligation to Host REIT in
connection with the repurchase of Host REIT's convertible preferred securities,
the refinancing of the New York Marriott Marquis, the prepayment or refinancing
of the various mortgages, and the paydowns and modifications to the bank credit
facility. The adjustments exclude net extraordinary gains of $3 million for the
First Three Quarters 2000 and $29 million for the fiscal year ended December
31, 1999 resulting from the early extinguishments of debt.
The following table represents the adjustment to decrease (increase)
interest expense, including amortization of deferred financing fees for the
respective periods (in millions):
<TABLE>
<CAPTION>
First Three
Quarters Fiscal Year
2000 1999
----------- -----------
<S> <C> <C>
Issuance of Series F senior notes..................... $(17) $(24)
Series D senior notes and subsequent exchange for
Series E senior notes................................ -- (4)
Debt repaid, refinanced, or acquired with proceeds of
Series D senior notes................................ -- 4
Bank credit facility, as amended...................... (3) 7
Retirement of $75 million of convertible debt
obligation to Host REIT.............................. -- 4
New York Marriott Marquis refinancing................. -- (4)
$665 million mortgage refinancing for eight hotel
properties........................................... -- (6)
Prepayments on mortgages for two hotel properties..... -- 4
---- ----
$(20) $(19)
==== ====
</TABLE>
H. Represents the adjustment to reduce interest income for the cash payment
of approximately $31 million made from corporate cash balances during September
2000, to settle litigation with plaintiffs from four partnerships.
I. Represents the adjustment to reduce the historical revenues and property
level expenses for the 1999 sales of the Minneapolis/Bloomington Airport
Marriott, the Saddle Brook Marriott, Marriott's Grand Hotel and Golf Resort,
The Ritz-Carlton, Boston, and the El Paso Marriott, including the elimination
of the non-recurring gains and taxes on the sales totaling $24 million and $5
million, respectively, in fiscal year 1999.
J. Represents the adjustment to reduce interest income for approximately
$150 million in cash payments made during 1999 and 2000 to repurchase Host REIT
common stock, OP units and Host REIT's convertible preferred securities in
connection with our stock buyback plan.
K. Represents the adjustment to record full-year distributions on 8.16
million units of cumulative redeemable preferred limited partner units, which
were issued during the second half of 1999. Holders of the units are entitled
to receive a cash distribution of $2.50 per unit annually.
27
<PAGE>
L. The historical weighted average common OP units outstanding was 291.6
million and 284.2 million for fiscal year 1999 and the First Three Quarters
2000, respectively. On a pro forma basis, weighted average common OP units
outstanding for fiscal year 1999 and the First Three Quarters 2000 would be
280.6 million and 283.2 million, respectively, to reflect units repurchased in
conjunction with the stock repurchase plan.
28
<PAGE>
SELECTED FINANCIAL DATA
The following table presents certain selected historical financial data of
us and Host Marriott, the predecessor to Host REIT, which has been derived from
Host Marriott's audited consolidated financial statements for the four years
prior to 1999, our audited consolidated financial statements for the fiscal
year ended December 31, 1999 and our unaudited condensed consolidated financial
statement for the First Three Quarters 2000 and 1999.
The information contained in the following table for years prior to 1999 is
not comparable to our 2000 and 1999 operations because the historical
information relates to an operating entity which owns and operates its hotels,
while we own the hotels but lease them to the lessees and receive rental
payments in connection therewith. If we and Crestline complete the previously
discussed transaction for the purchase and sale of the Crestline entities
owning the leasehold interests with respect to 117 of our full-service hotels
during January 2001, our consolidated operations going forward will represent
property-level revenues and expenses rather than rental income from lessees.
<TABLE>
<CAPTION>
First Three Quarters Fiscal Year(1)(2)
--------------------- -------------------------------------------------
2000(3)(4) 1999(3)(4) 1999(4) 1998(4)(5) 1997(4)(5) 1996 1995(4)(5)
---------- ---------- ------- ---------- ---------- ------ ----------
(Unaudited)
(in millions, except per unit data and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues(6)........... $ 623 $ 598 $1,376 $3,564 $2,875 $2,005 $1,389
Income (loss) from
continuing
operations........... (161) (155) 256 194 47 (13) (62)
Income (loss) before
extraordinary items.. (161) (155) 256 195 47 (13) (123)
Net income (loss)..... (158) (138) 285 47 50 (13) (143)
Net income (loss)
available to common
unitholders.......... (174) (139) 279 47 50 (13) (143)
Basic earnings (loss)
per common unit:(7)
Income (loss) from
continuing
operations......... (0.62) (0.54) .86 .90 .22 (.06) (.36)
Income (loss) before
extraordinary
items.............. (0.62) (0.54) .86 .91 .22 (.06) (.72)
Net income (loss)... (0.61) (0.48) .96 .22 .23 (.06) (.84)
Diluted earnings
(loss) per common
unit:(7)
Income (loss) from
continuing
operations......... (0.62) (0.54) .83 .84 .22 (.06) (.36)
Income (loss) before
extraordinary
items.............. (0.62) (0.54) .83 .85 .22 (.06) (.72)
Net income (loss)... (0.61) (0.48) .93 .27 .23 (.06) (.84)
Cash distributions per
common unit(8) ...... .65 .63 .84 1.00 -- -- --
Balance Sheet Data:
Total assets(9)....... $8,182 $8,324 $8,196 $8,262 $6,141 $5,152 $3,557
Debt(10).............. 5,593 5,717 5,583 5,698 3,466 2,647 2,178
Convertible Preferred
Securities........... -- -- -- -- 550 550 --
Other Data:
Ratio of earnings to
fixed charges and
preferred unit
distributions.......... -- -- 1.49x 1.54x 1.32x 1.01x --
Deficiency of earnings
to fixed charges and
preferred unit
distributions (11)..... $ 145 $ 137 -- -- -- -- $ 70
</TABLE>
29
<PAGE>
--------
(1) The Internal Revenue Code requires REITs to file their income tax return
on a calendar year basis. Accordingly, in 1998 we changed our fiscal year
end to December 31 for both financial and tax reporting requirements.
Previously, our fiscal year ended on the Friday nearest to December 31.
As a result of this change, the results of operations for 15 hotels not
managed by Marriott International were adjusted in 1998 to include 13
months of operations (December 1997 through December 1998) and therefore
are not comparable to fiscal years 1997 and 1996, each of which included
12 months of operations. The additional month of operations in 1998
increased our revenues by $44 million.
(2) Fiscal year 1996 includes 53 weeks. Fiscal years 1995, 1997, 1998 and
1999 include 52 weeks.
(3) Our leases have initial terms ranging from 7 to 10 years, subject to
earlier termination upon the occurrence of certain contingencies, as
defined. The rent due under each lease is the greater of base rent or
percentage rent, as defined. Percentage rent applicable to room, food and
beverage and other types of hotel sales varies by lease and is calculated
by multiplying fixed percentages by the total amounts of such revenues
over specified threshold amounts. Both the minimum rent and the revenue
thresholds used in computing percentage rents are subject to annual
adjustments based on increases in the United States Consumer Price Index
and the Labor Index, as defined.We recognize percentage rent when all
contingencies have been met, that is, when annual thresholds for
percentage rent have been met or exceeded. Percentage rent received
pursuant to the leases but not recognized is included on the balance
sheet as deferred rent. Contingent rental revenue of $366 million and
$339 million, respectively, for the First Three Quarters 2000 and 1999,
have been deferred.
(4) During the First Three Quarters 2000, we recorded an extraordinary loss
of $2 million in connection with the renegotiation of the bank credit
facility and an extraordinary gain of $5 million related to the
extinguishment of a portion of the convertible debt obligation to Host
REIT. During the First Three Quarters 1999, we recorded an extraordinary
gain of $13 million related to the renegotiation of the management
agreement for the New York Marriott Marquis and a $3 million
extraordinary loss for the write-off of deferred financing fees along
with a $7 million extraordinary gain on the termination of the interest
rate swap agreements, both related to the refinancing of mortgage debt
for eight properties. In 1999, we recognized a $14 million extraordinary
gain on the renegotiation of the management agreement for the New York
Marriott Marquis, a net extraordinary gain of $5 million related to the
refinancing of the mortgage debt for eight properties, a $2 million
extraordinary loss related to prepayments on the bank credit facility,
and a net extraordinary gain of $12 million related to the extinguishment
of a portion of the convertible debt obligation to Host REIT. In 1998, we
recognized a $148 million extraordinary loss, net of taxes, on the early
extinguishment of debt. In 1997, we recognized a $3 million extraordinary
gain, net of taxes, on the early extinguishment of debt. Also in 1998, we
recognized REIT conversion expenses of $64 million and recorded a tax
benefit of $106 million related to tax liabilities that we will not
recognize as a result of our conversion to a REIT. The loss from
continuing operations for 1995 includes a $10 million pre-tax charge to
write down the carrying value of five limited service properties to their
net realizable value and a $60 million pre-tax charge to write down an
undeveloped land parcel to its estimated sales value. In 1995, we
recognized a $20 million extraordinary loss, net of taxes, on the
extinguishment of debt.
(5) The historical financial data for fiscal years 1998 and 1997 reflect as
discontinued operations our senior living business that we formerly
conducted but disposed of in the spin-off of Crestline as part of the
REIT conversion. We recorded income from the discontinued operations, net
of taxes, of $6 million in fiscal year 1998. We recorded a loss from
discontinued operations, net of taxes, of $61 million in 1995, as a
result of the spin-off of Host Marriott Services Corporation. The 1995
loss from discontinued operations includes a pre-tax charge of $47
million for the adoption of SFAS No. 121, "Accounting For the Impairment
of Long-Lived Assets and Long-Lived Assets to be Disposed Of," a pretax
$15 million restructuring charge and an extraordinary loss of $10
million, net of taxes, on the extinguishment of debt.
(6) Historical revenue for 2000 and 1999 primarily represents lease income
generated by our leases with Crestline. Periods prior to 1999 represent
gross hotel sales as our leases were not in effect until January 1, 1999.
Revenues for fiscal years 1998, 1997, 1996 and 1995 have also been
adjusted to reclassify interest income as revenue (previously classified
as other income from operations) in order to be consistent with our 2000
and 1999 statements of operations presentation.
(7) Basic earnings (loss) per common unit is computed by dividing net income
(loss) by the weighted average number of units of common OP Units
outstanding. Diluted earnings (loss) per common unit is computed by
dividing net income (loss) by the weighted average number of units of
common OP Units outstanding plus other dilutive securities. Diluted
earnings (loss) per unit has not been adjusted for the impact of the
Convertible Preferred Securities for 1999, 1997 and 1996 and for the
comprehensive stock plan for 1995 through 1996, as they are anti-
dilutive. There were no dilutive securities for the First Three Quarters
2000 and 1999.
(8) 2000 cash dividends per common unit for the first and second quarters
reflect a quarterly cash distribution of $0.21 per common unit paid on
April 14 and July 14, 2000, and a quarterly cash distribution of $0.23
per common unit paid on October 16, 2000. 1999 cash dividends per common
unit reflect a quarterly cash distribution of $0.21 per common unit paid
on April 14, July 14 and October 15, 1999 and January 17, 2000. 1998 cash
distributions per common unit reflect the cash portion of a special
dividend paid on February 10, 1999. This special dividend entitled
shareholders of record on December 28, 1998 to elect to receive either
$1.00 in cash or .087 of a share of common stock for each outstanding
share of our common stock owned by such shareholder on the record date.
Cash totaling approximately $73 million and approximately 11.5 million
shares were subsequently issued during 1999.
(9) Total assets for fiscal year 1997 include $236 million related to net
investment in discontinued operations.
(10) Long-term obligations consist of long term debt (which includes senior
notes, secured senior notes, mortgage debt, a revolving bank credit
facility, convertible debt obligation to Host Marriott Corporation, and
other notes) and capital lease obligations.
(11) The deficiency of $70 million in 1995 is primarily as a result of
depreciation expense. The deficiency of $145 million and $137 million for
the First Three Quarters 2000 and 1999, respectively, is due to the
deferral of contingent rent of $366 million and $339 million for the same
periods, respectively.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Host Marriott, L.P., a Delaware limited partnership, operates through an
umbrella partnership structure and is the owner of hotel properties. Host REIT
operates as a self-managed and self-administered REIT with its operations
conducted solely through us and our subsidiaries. Since REITs are not currently
permitted to derive revenues directly from the operations of hotels, we lease
substantially all of the hotels to subsidiaries of Crestline Capital
Corporation.
As of September 8, 2000, we owned, or had controlling interests in, 122
upscale and luxury, full-service hotel lodging properties generally located
throughout the United States and operated primarily under the Marriott, Ritz-
Carlton, Four Seasons, Swissotel, Hilton and Hyatt brand names. Most of these
properties are managed by Marriott International.
During 1999, our basic earnings per unit before extraordinary items
decreased 4% to $0.86, and for the First Three Quarters of 2000 and 1999 our
basic loss per unit before extraordinary items decreased to $0.09 from $0.16,
respectively. Our full year 1999 results benefited from increased hotel sales,
offset by the loss on litigation settlement, and the refinancing of almost $1.2
billion of debt with long term fixed rate notes. As of September 8, 2000, the
refinancing of our debt that began in 1999 and continued in 2000 has resulted
in an average interest rate of approximately 8.1% with 95% of the debt at a
fixed rate and an average maturity of approximately seven years with only $41
million of our principal due through 2001.
During the third and fourth quarter of 1999 we received net proceeds of $196
million as a result of the issuance of 8.16 million in perpetual preferred
stock by Host REIT and our issuance of a substantially similar preferred OP
Unit security, of which Host REIT is the sole holder. Also in the third quarter
of 1999, Host REIT implemented a stock repurchase program which resulted in the
retirement of a like number of OP Units held by Host REIT being repurchased.
We are focused on carefully using our capital to improve returns to
unitholders. In 1999 and the first quarter of 2000, our primary use of free
cash flow and asset sales proceeds was the funding of Host REIT's stock buyback
plan. We believe that the stock repurchase program reflected the best return on
investment for our unitholders. However, we have and will continue to look at
strategic acquisitions, such as our purchase in May 2000 of a non-controlling
interest in the J.W. Marriott Hotel in Washington, D.C., as well as evaluate
the stock repurchase program based on changes in market conditions and the
stock price. Through September 8, 2000, the stock repurchase program has
resulted in the retirement of 10.7 million shares of Host REIT common stock,
1.5 million shares of Host REIT's Convertible Preferred Securities and 0.6
million operating partnership units, for a total reduction of 16.2 million
equivalent units on a fully diluted basis for $150 million.
On November 13, 2000, we executed a definitive agreement with Crestline for
the purchase and sale of the entities owning the leasehold interests with
respect to 117 of our full-service hotels. Under the terms of the transaction,
our newly created wholly-owned subsidiary, which will elect to be treated as a
TRS, will purchase certain Crestline subsidiaries, whose primary assets are the
leasehold interests, for approximately $205 million, including recording a non-
recurring loss of $120 million net of tax on the acquisition. The consummation
of the transaction, which is permitted as a result of the passage of the REIT
Modernization Act, will simplify our corporate structure, enable us to better
control our portfolio of hotels, and is expected to be accretive to our future
earnings.
Effective November 15, 1999, we amended substantially all of our leases with
Crestline to give Crestline the right to renew each of these leases for up to
four additional terms of seven years each at a fair rental value to be
determined either by agreement between us and Crestline or through arbitration
at the time the renewal option is exercised. Crestline is under no obligation
to exercise these renewal options, and we have the right to terminate the
renewal options during time periods specified in the amendments. In addition,
the amendments provide that the fair rental value payable by us to Crestline in
connection with the purchase of a lease, as
31
<PAGE>
described below, does not include any amounts relating to any renewal period.
Therefore, the fair rental value of a lease after expiration of the initial
term for such lease would be zero.
In December 1999, the REIT Modernization Act was passed, effective for
taxable years beginning after December 31, 2000, which significantly amends the
REIT laws applicable to us. Under the REIT Modernization Act, beginning January
1, 2001, (i) we will be able to lease our hotels to a subsidiary that is a
taxable corporation and that elects to be treated as a "taxable REIT
subsidiary" rather than to a third party such as Crestline and (ii) we will be
permitted to own all of the voting stock of such taxable REIT subsidiary. In
addition, as a result of passage of the REIT Modernization Act, and under the
terms of our leases with Crestline subsidiaries, we have the right to purchase
the leases from Crestline on or after January 1, 2001, for a price equal to the
fair rental value of the lessee's interest in the leases over their remaining
terms based on an agreed upon formula, excluding any option periods. On
November 13, we announced the execution of a definitive agreement with
Crestline for the purchase and sale of the entities owning the leasehold
interests with respect to 117 full-service hotel properties owned by us. Under
the terms of the transaction, a wholly-owned subsidiary, which will elect to be
treated as a taxable REIT subsidiary ("TRS"), will purchase the Crestline
subsidiaries, whose primary assets are the leasehold interests, for
approximately $205 million, including recording a non-recurring loss of $120
million net of tax on the acquisition. In connection therewith, we will
recognize the revenues and expenses generated by the hotels subject to the
leases and we will no longer recognize rental income from these leases.
Consummation of the transaction is subject to various conditions, including the
receipt of any required third party consents. There can be no assurance that
the purchase will be consummated. We are also considering pursuing a
transaction with Host Marriot Statutory Employee/Charitable Trust that would
allow us to acquire control of the non-controlled subsidiaries which we expect
will elect to be treated as taxable REIT subsidiaries, although we have not
reached any such agreement and cannot assure you that any such agreement will
be reached.
We and Marriott International have settled with plaintiffs to resolve
specific litigation involving seven limited partnerships in which we act as
general partner. The settlement involved an acquisition of the limited partner
interests in two partnerships by a joint venture between one of our affiliates
and a subsidiary of Marriott International, the contribution by our non-
controlled subsidiaries of their general partnership interests in the
partnerships and cash payments to partners in the other five partnerships, in
exchange for resolution of claims against all defendants in all seven
partnerships. Our share of the cash required to resolve the litigation,
including the acquisition by a joint venture formed by us and Marriott
International of two of the partnerships, was approximately $124 million. Of
this amount, $31 million in cash was paid during September 2000 in settlement
of litigation with the plaintiffs from four of the partnerships, and $88
million in cash was paid by us and a non-controlled subsidiary in settlement of
litigation with plaintiffs in two partnerships. The settlement included the
acquisition of a 50% non-controlling interest in a joint venture owning the
limited partner interests in two affiliated partnerships. As a result of the
settlement, we recorded a one-time non-recurring, pre-tax charge of $40 million
in the fourth quarter of 1999.
Results of Operations
Our historical revenues prior to 1999 primarily represented gross property-
level sales from hotels, net gains on property transactions, interest income
and equity in earnings of affiliates. Our historical operating costs and
expenses prior to 1999 principally consisted of property-level operating costs,
depreciation, management fees, real and personal property taxes, ground,
building and equipment rent, property insurance and other costs. As of
January 1, 1999, we lease substantially all of our hotels to subsidiaries of
Crestline due to the REIT conversion. As a result of these leases, we no longer
record property-level revenues and operating expenses, rather we recognize
rental income on the leases and specified owner expenses, including real estate
and property taxes, property insurance, and ground and equipment rent related
to the properties. The comparison of the 2000 and 1999 results with 1998 and
1997 is also affected by a change in the reporting period for our hotels not
managed by Marriott International. Thus, 2000 and 1999 revenues and expenses
are not comparable with prior years.
32
<PAGE>
If we and Crestline complete the previously discussed transaction for the
purchase and sale of the Crestline entities owning the leasehold interests with
respect to 117 of our full-service hotels during January 2001, our future
consolidated revenues and operating expenses will primarily consist of gross
property-level revenues and expenses, rather than rental income related to the
leases with our wholly-owned taxable REIT subsidiary.
First Three Quarters 2000 Compared to First Three Quarters 1999
Revenues. Our revenues primarily represent rental income from our leased
hotels, net gains on property transactions, interest income and equity in
earnings of affiliates. Percentage rental revenues of $75 million and $86
million for the twelve weeks ended September 8, 2000 and September 10, 1999,
respectively, and $366 million and $339 for the thirty-six weeks ended
September 8, 2000 ("First Three Quarters 2000") and September 10, 1999 ("First
Three Quarters 1999"), respectively, were deferred in accordance with the
Securities and Exchange Commission's Staff Accounting Bulletin No. 101 ("SAB
101"). Percentage rent will be recognized as income during the year once
specified hotel sales thresholds are achieved.
The table below represents hotel sales from which rental income is computed.
The table is presented in order to facilitate an investor's reconciliation of
hotel sales to rental income.
<TABLE>
<CAPTION>
Twelve Weeks
Ended First Three Quarters
-------------------------- --------------------------
September 8, September 10, September 8, September 10,
2000 1999 2000 1999
------------ ------------- ------------ -------------
(in millions) (in millions)
<S> <C> <C> <C> <C>
Hotel Sales
Rooms.................. $656 $609 $1,979 $1,881
Food and beverage...... 258 250 862 828
Other.................. 71 66 224 201
---- ---- ------ ------
Total hotel sales.... $985 $925 $3,065 $2,910
==== ==== ====== ======
</TABLE>
Rental income increased $36 million, or 19%, to $224 for the third quarter
of 2000 and increased $34 million, or 6% to $580 million for the First Three
Quarters 2000, primarily driven by the growth in room revenues generated per
available room or REVPAR for comparable properties, and the completion of the
new Tampa Waterside Marriott in February 2000 and the 500-room expansion at the
Orlando World Center Marriott in June 2000, partially offset by the sale of
five properties in 1999. REVPAR increased 9.4% to $119.74 for the third quarter
of 2000 and 6.6% to $124.31 for the First Three Quarters 2000 for comparable
properties, which consist of the 114 properties owned, directly or indirectly,
by us for the same period of time in each period covered, excluding two
properties where significant expansion at the hotels affected operations and
five properties where reported results were affected by a change in reporting
period. On a comparable basis, average room rates increased approximately 7.9%
and 6.3%, while average occupancy increased one percentage point and less than
one percentage point for the third quarter of 2000 and First Three Quarters
2000, respectively.
Depreciation and Amortization. Depreciation and amortization increased $7
million or 10% for the third quarter of 2000 and increased $21 million or 10%
for the First Three Quarters 2000, reflecting an increase in depreciable
assets, which is primarily the result of capital projects placed in service in
2000, including the Tampa Waterside Marriott and expansion at the Orlando World
Center Marriott, partially offset by net asset disposals of approximately $174
million in connection with the sale of five hotels during 1999.
Property-level Owner Expenses. Property-level owner expenses primarily
consist of property taxes, insurance, and ground and equipment rent. These
expenses increased $4 million, or 6%, to $66 million for the third quarter of
2000 and increased $7 million, or 4%, to $191 million for the First Three
Quarters 2000, primarily due to an increase in ground lease expense, which is
commensurate with the increase in hotel sales, and an increase in equipment
rent expense due to technology initiatives at the hotels during 2000.
33
<PAGE>
Minority Interest Expense. Minority interest expense decreased 50% to $1
million in the third quarter of 2000 and 15% to $11 million for the First Three
Quarters 2000. The decrease in minority interest expense reflect the minority
owners' share in the net losses for the periods, which is primarily the result
of the deferral of contingent rental revenue.
Interest Expense. Interest expense decreased 1% to $107 million in the third
quarter of 2000, primarily due to a decrease in the outstanding balance of the
convertible debt obligation to Host REIT, as approximately $75 million of the
debt obligation was extinguished in connection with the repurchase of
approximately 1.5 million shares of Host REIT's Convertible Preferred
Securities during the fourth quarter of 1999 and first quarter of 2000, and
partially offset by a decrease in capitalized interest as the development
projects at the Tampa Waterside Marriott and Orlando World Center Marriott were
completed in February and June 2000, respectively. Interest expense decreased
3% to $315 million for the First Three Quarters 2000, primarily due to the
aforementioned decrease in the convertible debt obligation to Host REIT and
repayments totaling $225 million on the term loan portion of the bank credit
facility during the fourth quarter of 1999.
Corporate Expenses. Corporate expenses were $7 million and $5 million for
the third quarters of 2000 and 1999, respectively, and increased $7 million to
$27 million for the First Three Quarters 2000, resulting primarily from an
increase in compensation expense related to employee stock plans.
Extraordinary Gain (Loss). There were no extraordinary items recognized
during the third quarter of 2000. During the first quarter of 2000, we
extinguished approximately $22 million of the convertible debt obligation to
Host REIT through the purchase of 435,000 shares of Host REIT's Convertible
Preferred Securities on the open market. We recorded an extraordinary gain of
approximately $5 million on this transaction, based on the discount at which we
purchased the Convertible Preferred Securities. During the twelve weeks ended
June 16, 2000, we recorded an extraordinary loss of approximately $2 million
representing the write off of deferred financing costs and certain fees paid to
our lender in connection with the renegotiation of the bank credit facility.
In connection with the refinancing of the mortgage and the renegotiation of
the management agreement on the New York Marriott Marquis, we recognized an
extraordinary gain of $13 million on the forgiveness of debt in the form of
accrued incentive management fees in the second quarter of 1999. An
extraordinary loss of $3 million representing the write-off of deferred
financing fees was recognized in July 1999 when the mortgage debt for eight
properties was refinanced, including the New York Marriott Marquis. In
connection with this refinancing, the interest rate swap agreements associated
with some of the original debt were terminated and a $7 million extraordinary
gain was recognized.
Net Loss. Our net loss decreased $19 million to $21 million for the third
quarter of 2000 and increased $20 million to $158 million for the First Three
Quarters 2000 as a result of the items discussed above.
Net Loss Available to Common Unitholders. The net loss available to common
unitholders decreased $14 million to $27 million for the third quarter of 2000
and increased $35 million to $174 million for the First Three Quarters 2000.
The net loss available to common unitholders reflects year-to-date
distributions in 2000 and 1999 of $16 million and $1 million, respectively, on
preferred limited partner units, which were issued during the second half of
1999.
1999 Compared to 1998
Revenues. Revenues decreased $2.2 billion, or 61%, to $1.4 billion for 1999.
As discussed above, our revenues and operating profit are not comparable to
prior years, primarily due to the leasing of our hotels as a result of the REIT
conversion. However, gross hotel sales, which is used in the determination of
rental income for 1999, increased $836 million or 24% over 1998 amounts as is
shown in the following table.
34
<PAGE>
The table below represents gross hotel sales generated by the properties for
1999 and 1998. Rental income for 1999 is computed based on gross hotel sales.
<TABLE>
<CAPTION>
Year Ended
-------------------------
December 31, December 31,
1999 1998
------------ ------------
(in millions)
<S> <C> <C>
Hotel Sales(1)
Rooms............................................ $2,725 $2,220
Food and beverage................................ 1,258 984
Other............................................ 295 238
------ ------
Total sales.................................... $4,278 $3,442
====== ======
</TABLE>
--------
(1) 1999 gross hotel sales do not represent our reported revenues for 1999.
Rather, rental income, which is computed based on gross hotel sales,
represents our reported revenues for 1999.
Lodging results for 1999 were primarily driven by the addition of 36
properties in 1998. The increase in hotel sales also reflects the growth in
room revenues generated per available room or REVPAR. For comparable
properties, REVPAR increased 4.1%, to $115.13 for 1999. On a comparable basis,
average room rates increased approximately 3.8% for the year, while average
occupancy increased less than one percentage point for the year.
Interest income decreased $12 million or 24% as a result of a lower level of
cash and marketable securities held during 1999 compared to 1998.
The net gain on property transactions for 1999 primarily represents the $24
million recognized on the sale of five properties, including the sale of the
Ritz-Carlton Boston and the El Paso Marriott during the fourth quarter of 1999.
Expenses. As discussed above, hotel revenues and hotel operating costs are
not comparable with the prior year. The lessee pays specified direct property-
level costs including management fees and we receive a rent payment, which is
generally calculated as a percentage of revenue, subject to a minimum level,
net of certain property-level owner costs. All of these costs were our expenses
in 1998. Property-level owner costs which are comparable, including
depreciation, property taxes, property insurance, ground and equipment rent,
increased 8% to $553 million for 1999 versus 1998, primarily reflecting the
depreciation from 36 properties acquired during 1998.
Minority Interest. Minority interest expense decreased $31 million to $21
million in 1999, primarily reflecting the impact of the consolidation of
partnerships which occurred as part of the REIT conversion.
Interest Expense. Interest expense increased 40% to $469 million in 1999,
primarily due to the issuance of senior notes, establishment of a new credit
facility and additional mortgage debt on properties acquired in 1998. In
addition, in 1999, we recognized $38 million in interest expense related to the
convertible debt obligation to Host REIT, which supports the dividends paid by
Host REIT to holders of the Convertible Preferred Securities. In 1998, these
dividends, totaling $37 million, were a separate component of expense.
Corporate Expenses. Corporate expenses decreased $13 million to $37 million
in 1999, resulting primarily from lower staffing levels after the Crestline
spin-off, lower costs associated with reduced acquisition activity and lower
costs related to various stock compensation plans.
Loss on Litigation. In connection with a proposed settlement for litigation
related to seven limited service partnerships discussed above we have recorded
a one-time, non-recurring charge of $40 million.
Income from Discontinued Operations. Income from discontinued operations
represents the senior living communities business' results of operations for
1998.
35
<PAGE>
Extraordinary Gain (Loss). In connection with the refinancing of the
mortgage and renegotiation of the management agreement on the New York Marriott
Marquis Hotel, we recognized an extraordinary gain of $14 million on the
forgiveness of debt in the form of accrued incentive management fees.
An extraordinary loss of $3 million representing the write-off of deferred
financing fees occurred in July 1999 when the mortgage debt for eight
properties was refinanced, including the New York Marriott Marquis Hotel. In
connection with this refinancing, the interest rate swap agreements associated
with some of the original debt were terminated and an extraordinary gain of $8
million was recognized.
An extraordinary loss of $2 million representing the write-off of deferred
financing fees occurred during the fourth quarter of 1999 when prepayments
totaling $225 million were made to permanently reduce the outstanding balance
of the term loan portion of the Bank Credit Facility to $125 million.
During the fourth quarter of 1999, we extinguished approximately $53 million
of the convertible debt obligation to Host REIT through the purchase of 1.1
million shares of Host REIT's Convertible Preferred Securities on the open
market. We recorded an extraordinary gain of $14 million on this transaction,
based on the discount at which we purchased the Convertible Preferred
Securities. We also recorded an extraordinary loss of $2 million representing
the write-off of deferred financing fees in connection with the early
extinguishment.
In connection with the purchase of the old senior notes, we recognized an
extraordinary loss of $148 million in the third quarter of 1998, which
represents the bond premium and consent payments totaling approximately $175
million and the write-off of deferred financing fees of approximately $52
million related to the old senior notes, net of taxes.
Net Income. Our net income in 1999 was $285 million, compared to $47 million
in 1998. Basic and diluted earnings per common unit were $.96 and $.93 for
1999, compared to $.22 and $.27 in 1998.
Net Income Available to Common Unitholders. Our net income available to
common unitholders in 1999 was $279 million, compared to $47 million in 1998,
reflecting dividends of $6 million in 1999 on the Class A and Class B Preferred
Units which were issued during 1999.
1998 Compared to 1997
Revenues. Revenues increased $0.7 billion, or 24%, to $3.6 billion for 1998
from $2.9 billion for 1997. Our revenue and operating profit were impacted by
improved results for comparable full-service hotel properties, the addition of
18 full-service hotel properties during 1997 and 36 full-service hotel
properties during 1998 and the gain on the sale of two hotel properties in
1998.
Hotel sales, which are gross hotel sales, including room sales, food and
beverage sales, and other ancillary sales such as telephone sales, increased
$0.6 billion, or 23%, to over $3.4 billion in 1998, reflecting the REVPAR
increases for comparable units and the addition of full-service hotels in 1997
and 1998. Improved results for our full-service hotels were driven by strong
increases in REVPAR for our 78 comparable units of 7.3% to $112.39 for 1998.
Results were further enhanced by approximately one percentage point increase in
the house profit margin for comparable full-service properties. Average room
rates increased nearly 6.9% for our comparable full-service hotels.
As discussed in notes to the financial statements on page F-13, we spun off
our senior living communities. We have accounted for these revenues and
expenses as discontinued operations and have shown the amount, net of taxes,
below income from continuing operations. Revenues generated from our 31 senior
living communities totaled $241 million for 1998 compared to $111 million for
1997, as the assets were purchased in the third quarter of 1997.
36
<PAGE>
Revenues were also impacted by the gains on the sales of two hotels. The New
York East Side Marriott was sold for $191 million resulting in a pre-tax gain
of approximately $40 million. The Napa Valley Marriott was sold for $21 million
resulting in a pre-tax gain of approximately $10 million.
Operating Costs and Expenses. Operating costs and expenses principally
consisted of property-level operating costs, depreciation, management fees,
real and personal property taxes, ground, building and equipment rent,
insurance and certain other costs. Operating costs and expenses increased $0.5
billion to $2.9 billion, primarily representing increased hotel operating
costs. Hotel operating costs increased $0.5 billion to $2.8 billion for 1998,
primarily due to the addition of 54 full-service hotel properties during 1997
and 1998 and increased management fees and rentals tied to improved property
results. As a percentage of hotel revenues, hotel operating costs and expenses
decreased slightly to 82% for 1998 from 84% of revenues for 1997, due to the
significant increases in REVPAR discussed above, offset by increases in
management fees and property-level operating costs, including higher labor
costs in certain markets.
Minority Interest. Minority interest expense increased $21 million to $52
million for 1998, primarily reflecting the impact of the consolidation of
affiliated partnerships and the acquisition of controlling interests in newly-
formed partnerships during 1997 and 1998.
Corporate Expenses. Corporate expenses increased $5 million to $50 million
for 1998. As a percentage of revenues, corporate expenses decreased to 1.4% of
revenues for 1998 from 1.6% in 1997, reflecting our efforts to control
corporate expenses in spite of the substantial growth in revenues.
REIT Conversion Expenses. REIT conversion expenses reflect the professional
fees, consent fees, and other expenses associated with our conversion to a REIT
and totaled $64 million for 1998. There were no REIT conversion expenses prior
to 1998.
Interest Expense. Interest expense increased 16% to $335 million in 1998,
primarily due to additional debt assumed in connection with the 1997 and 1998
full-service hotel additions as well as the issuance of the senior notes and
establishment of a new credit facility in 1998.
Dividends on Convertible Preferred Securities. The dividends on the
Convertible Preferred Securities reflect the dividends on the $550 million in
6.75% Convertible Preferred Securities issued by a subsidiary trust of Host
Marriott in December 1996.
Interest Income. Interest income decreased $1 million to $51 million for
1998, primarily reflecting the lower level of cash and marketable securities
held in 1998 compared to 1997.
Discontinued Operations. Income from discontinued operations of $6 million
for 1998 represents the senior living communities' business results of
operations for the entire year. The provision for loss on disposal of $5
million for 1998 includes organizational and formation costs related to
Crestline.
Income before Extraordinary Item. Income before extraordinary item for 1998
was $195 million, compared to $47 million for 1997.
Extraordinary Gain (Loss). In connection with the purchase in August 1998 of
our old senior notes, we recognized an extraordinary loss of $148 million,
which represents the bond premium and consent payments totaling approximately
$175 million and the write-off of deferred financing fees of approximately $52
million related to the old senior notes, net of taxes. In March 1997, we
purchased 100% of the outstanding bonds secured by a first mortgage on the San
Francisco Marriott Hotel. We purchased the bonds for $219 million, which was an
$11 million discount to the face value of $230 million. In connection with the
redemption and defeasance of the bonds, we recognized an extraordinary gain of
$5 million, which represents the $11 million discount and the write-off of
deferred financing fees, net of taxes. In December 1997, we refinanced the
mortgage debt secured by Marriott's Orlando World Center. In connection with
the refinancing, we recognized an extraordinary loss of $2 million, which
represents payment of a prepayment penalty and the write-off of unamortized
deferred financing fees, net of taxes.
37
<PAGE>
Net Income. Net income for 1998 was $47 million compared to net income of
$50 million for 1997. Basic earnings per common share was $.22 and $.23 for
1998 and 1997, respectively. Diluted earnings (loss) per common share was $.27
and $.23 for 1998 and 1997, respectively.
Liquidity and Capital Resources
Cash and cash equivalents were $277 million and $436 million at December 31,
1999 and December 31, 1998, respectively. Cash and cash equivalents for the
First Three Quarters 2000 and 1999, were $188 million and $290 million,
respectively. The decrease in cash is primarily a result of cash flows used for
investing and financing activities, offset by cash provided by operating
activities.
Cash provided by continuing operations increased $48 million to $360 million
during 1999. During 1998, cash from discontinued operations was $29 million;
however, there was no cash activity related to discontinued operations in 1999.
Cash from operations for the First Three Quarters 2000 and 1999, was $439
million and $256 million, respectively.
Cash used in investing activities from continuing operations was $176
million and $655 million in 1999 and 1998, respectively. Cash used in investing
activities includes capital expenditures of $361 million and $252 million and
acquisitions of $29 million and $988 million in 1999 and 1998, respectively.
Significant investing activities during 1999 include:
. Costs associated with the newly constructed 717-room Tampa Waterside
Marriott which opened in February 2000 with over 45,000 square feet of
meeting space. The total cost of the project was over $104 million, of
which $57 million was expended during 1999.
. During 1999 we acquired the remaining minority interests in the two
hotels whose operations we previously consolidated. The acquisition costs
included the issuance of approximately 600,000 preferred OP Units valued
at $8 million and payments of partnership indebtedness of approximately
$6 million.
. In May 1999, we completed a 210-room expansion of the Philadelphia
Marriott for a total cost of approximately $37 million. The project
consisted of a renovation and conversion of the historic railway terminal
directly adjacent to the property.
. Property and equipment balances include $243 million and $78 million for
construction in progress as of December 31, 1999 and December 31, 1998,
respectively. The balance as of December 31, 1999 primarily relates to
the Tampa Waterside Marriott, which was placed in service in February
2000, as well as properties in Orlando, Memphis, Naples, and various
other expansion and development projects.
The cash used for investing activities was partially offset by cash provided
from the net sale of assets of $195 million in 1999, compared to $227 million
in 1998. 1999 property dispositions consisted of the five hotels previously
discussed.
Cash used in investing activities from discontinued operations was $50
million in 1998; however, there was no cash investing activity related to
discontinued operations in 1999.
Cash used in investing activities was $307 million and $276 million for the
First Three Quarters of 2000 and 1999, respectively. Cash used in investing
activities through the third quarter includes capital expenditures of $271
million and $261 million for 2000 and 1999, respectively, mostly related to
renewals and replacements on existing properties and new development projects.
Significant investing activities during the First Three Quarters 2000 include:
. In May 2000, we acquired a non-controlling partnership interest in the
JWDC Limited Partnership, which owns the JW Marriott Hotel, a 772-room
hotel located on Pennsylvania Avenue in Washington, DC. We previously
held a small interest in the venture, and invested an additional $40
million in the form of a preferred equity contribution.
38
<PAGE>
. In late June 2000, an expansion that included the additions of a 500-room
tower and 15,000 square feet of meeting space at the Orlando World Center
Marriott was placed in service at an approximate development cost of $88
million, of which $35 million was expended during the First Three
Quarters 2000.
. Property and equipment balances include $101 million and $243 million for
construction in progress as of September 8, 2000 and December 31, 1999,
respectively. The reduction in construction in progress is due to the
completion of the Tampa Waterside Marriott, which was placed in service
in February 2000 and the expansion at the Orlando World Center Marriott
which was placed in service in late June 2000. The balance as of
September 8, 2000 primarily relates to properties in Naples, Chicago,
Harbor Beach, and various other expansion and development projects.
In December 2000, a newly created joint venture formed by us (through non-
controlled subsidiaries) and Marriott International acquired the partnership
interests in Courtyard by Marriott Limited Partnership and Courtyard by
Marriott II Limited Partnership for an aggregate payment of approximately $372
million plus interest and legal fees, of which we paid approximately $91
million. The joint venture acquired the partnerships by acquiring partnership
units pursuant to a tender offer for such units followed by a merger of each of
CBM I and CBM II with and into subsidiaries of the joint venture. The joint
venture financed the acquisition with mezzanine indebtedness borrowed from
Marriott International and with cash and other assets contributed by us
(through our non-controlled subsidiaries) and Marriott International. We own a
50% interest in the joint venture.
On November 13, 2000, we and Crestline announced the execution of a
definitive agreement for the purchase and sale of the entities owning the
leasehold interests with respect to 117 of our full-service hotels. Under the
terms of the transaction, our subsidiary, which will elect to be treated as a
TRS, will purchase certain Crestline subsidiaries, whose primary assets are the
leasehold interests, for approximately $205 million, including recording a non-
recurring loss of $120 million net of tax on the acquisition.
Cash (used in) provided by financing activities from continuing operations
was ($343) million and $265 million in 1999 and 1998, respectively. Cash used
in financing activities for the First Three Quarters 2000 and 1999 was $221
million and $126 million, respectively.
We believe cash payments will be required for the proposed acquisition of
the Crestline lessee entities, the recognition of certain deferred tax items
and the settlement of certain audits of prior years' tax returns with the
Internal Revenue Service and also to fund specific development projects, all of
which are discussed in this prospectus. We may also make cash payments for
certain tax and litigation contingencies, and other matters that we hope to
come to final resolution upon, by the end of 2000, as well as certain
development projects. The source of future cash outflows are dependent on cash
from operations and the amount of additional debt, if any, necessary for
payment upon the final resolution of these matters.
As of September 8, 2000, our total consolidated debt was approximately $5.6
billion. Our debt is comprised of $2.5 billion in unsecured senior notes, $2.3
billion in non-recourse mortgage debt and $150 million outstanding under the
term loan and $26 million under the revolver portion of the $775 million bank
credit facility and $492 million of convertible debt obligation to Host REIT.
Based on our total capitalization of approximately $7.2 billion as of September
8, 2000 consisting of long term debt, convertible debt obligation to Host REIT,
minority interests and Partner's equity, consolidated debt represents 77% of
Host REIT's total capitalization, compared to 74% as of December 31, 1999.
Since August 1998, we have issued or refinanced more than $3.9 billion of
debt, as described below, in order to reduce the risk and volatility in our
capital structure. The net effect of these transactions has been to virtually
eliminate all of our near term maturities, with only $49 million of our
principal due through 2001, reduce our average interest rate by approximately
70 basis points, and extend our average maturity by over one year. As a result,
our average rate is now approximately 8.1%, and our average maturity is
approximately seven years, with 95% of our debt having fixed interest rates.
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<PAGE>
Significant debt transactions include:
. In October 2000, we issued $250 million of 9 1/4% Series F senior notes
and used a portion of the proceeds to repay $26 million of debt
outstanding under the revolver portion of the bank credit facility. We
will exchange the Series F senior notes for the Series G senior notes
pursuant to this exchange offer.
. As of December 1, 2000, $150 million is outstanding under the term loan
portion of the bank credit facility, while the available capacity under
the revolving credit portion of the bank credit facility is $625 million.
The bank credit facility was renegotiated in June 2000 for $775 million.
The credit facility's term was extended for two additional years, through
August 2003. Borrowings under the credit facility generally bear interest
at the Eurodollar rate plus 2.25% (9.15% at September 8, 2000), and the
interest rate and commitment fee on the unused portion of the facility
fluctuate based on specified financial ratios. In connection with the
previously discussed definitive agreement between Crestline and us for
the purchase and sale of the entities owning the leasehold interests with
respect to 117 of our full-service hotels for approximately $205 million,
we anticipate funding a portion of the transaction through increased
borrowings under the revolver portion of the bank credit facility of $40
million.
. In February 2000, we refinanced the $80 million mortgage on Marriott's
Harbor Beach Resort property in Fort Lauderdale, Florida. The new
mortgage is for $84 million, at a rate of 8.58%, and matures in March
2007.
. We issued $300 million of 8 3/8% Series D senior notes due 2006 in
February 1999 and used the proceeds to refinance, or purchase, debt which
had been assumed through the merger of some partnerships or the purchase
of hotel properties in connection with the REIT conversion in December
1998. We repaid a $40 million variable rate mortgage with a portion of
the proceeds, and terminated the associated swap agreement, incurring a
termination fee of approximately $1 million. In August 1999, the Series D
senior notes were exchanged on a one-for-one basis for Series E senior
notes, which are freely transferable by the holders.
. In April 1999, a subsidiary of ours completed the refinancing of the $245
million mortgage on the New York Marriott Marquis Hotel, maturing in June
2000. In connection with the refinancing, we renegotiated the hotel's
management agreement and recognized an extraordinary gain of $14 million
on the forgiveness of accrued incentive management fees by the manager.
This mortgage was subsequently refinanced as part of the $665 million
financing agreement discussed below.
. In June 1999, we refinanced the debt on the San Diego Marriott Hotel and
Marina. The mortgage is for $195 million and a term of 10 years at a rate
of 8.45%. In addition, we entered into a mortgage for the Philadelphia
Marriott expansion in July 1999 for $23 million at an interest rate of
approximately 8.6%, maturing in 2009.
. In July 1999, we entered into a financing agreement pursuant to which we
borrowed $665 million due 2009 at a fixed rate of 7.47%. Eight of our
hotels serve as collateral for the agreement. In connection with this
refinancing, an extraordinary loss of $3 million was recognized,
representing the write-off of deferred financing fees. The proceeds from
this financing were used to refinance existing mortgage indebtedness
maturing at various times through 2000, including approximately $590
million of outstanding variable rate mortgage debt, and to terminate the
related interest rate swap agreements, recognizing an extraordinary gain
of approximately $8 million. As a result of the refinancing we no longer
have any interest rate swap agreements outstanding.
. In August 1999, we made a prepayment of $19 million to pay down in full
the mezzanine mortgage on the Marriott Desert Springs Resort and Spa. In
September 1999, we made a prepayment of $45 million to pay down in full
the mortgage note on the Philadelphia Four Seasons Hotel.
. In August 1998, we purchased substantially all of our then outstanding
senior debt including: (i) $600 million of 9 1/2% senior notes due 2005,
(ii) $350 million of 9% senior notes due 2007 and (iii) $600 million of 8
7/8% senior notes due 2007. We simultaneously issued an aggregate of $1.7
billion in new senior notes in two series: $500 million of 7 7/8% Series
A senior notes due in 2005 and $1.2 billion of
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<PAGE>
7 7/8% Series B senior notes due in 2008. In December 1998, we issued $500
million of 8.45% Series C senior notes due in 2008 under the same
indenture and with the same covenants as the Series A and Series B senior
notes.
. In addition to the capital resources provided by our debt financings, in
December 1996, a wholly-owned subsidiary of Host Marriott issued 11
million shares of 6 3/4% Convertible Quarterly Income Preferred
Securities, with a liquidation preference of $50 per share for a total
liquidation amount of $550 million. The Convertible Preferred Securities
represent an undivided beneficial interest in the assets of the trust
and, pursuant to various agreements entered into in connection with the
transaction, are fully, irrevocably and unconditionally guaranteed by us.
Proceeds from the issuance of the convertible preferred securities were
invested in $567 million 6 3/4% Convertible Subordinated Debentures due
December 2, 2026 issued by us, which are the trust's sole assets. Each of
the convertible preferred securities is convertible at the option of the
holder into shares of Host REIT common stock at the rate of 3.2537 shares
per convertible preferred security equivalent to a conversion price of
$15.367 per share of Host REIT common stock. This conversion ratio
includes adjustments to reflect distributions made to Host REIT's common
stockholders in connection with the REIT conversion. During 1999, 1998
and 1997, no shares were converted into common stock. Holders of the
convertible preferred securities are entitled to receive preferential
cumulative cash distributions at an annual rate of 6 3/4% accruing from
the original issue date, commencing March 1, 1997, and payable quarterly
in arrears thereafter. The distribution rate and the distribution and
other payment dates for the Convertible Preferred Securities correspond
to the interest rate and interest and other payment dates on the
Convertible Subordinated Debentures. We may defer interest payments on
the Convertible Subordinated Debentures for a period not to exceed 20
consecutive quarters. If interest payments on the Convertible
Subordinated Debentures are deferred, so too are payments on the
Convertible Preferred Securities. Under this circumstance, Host REIT
would not be permitted to declare or pay any cash distributions with
respect to Host REIT capital stock or debt securities that rank equal in
right of payment with or junior to the Convertible Subordinated
Debentures. Subject to certain restrictions, the Convertible Preferred
Securities are redeemable at Host REIT's option upon any redemption of
the Convertible Subordinated Debentures after December 2, 1999. Upon
repayment at maturity or as a result of the acceleration of the
Convertible Subordinated Debentures upon the occurrence of a default, the
Convertible Preferred Securities are subject to mandatory redemption.
During 1999 and 2000, Host REIT repurchased 1.5 million shares of the
Convertible Preferred Securities as part of the stock repurchase plan
discussed below which resulted in the retirement of $75 million of the
Convertible Subordinated Debentures.
Significant equity transactions include:
. Distributions in 2000 reflect quarterly cash distributions of $0.21 per
unit paid on January 17, April 14 and July 14. In addition, a third
quarter cash distribution of $0.23 per unit was paid on October 16.
. In September 1999, Host REIT announced its intention to repurchase, from
time to time, up to 22 million shares of its common stock, our operating
partnership units or an amount of the Convertible Preferred Securities
which are convertible into a like number of shares of its common stock
based upon the specified conversion ratio. As of December 31, 1999, we or
Host REIT had purchased approximately 5.8 million shares of common stock,
1.1 million shares of the Convertible Preferred Securities and 0.3
million OP Units for an aggregate consideration of approximately $89
million. Any repurchases of common stock, OP Units, or Convertible
Preferred Securities may be effected through open market or privately
negotiated purchases, through a tender offer, or through one or more
combinations of such methods. The repurchase program is on-going, and
through September 8, 2000, approximately 16.2 million equivalent common
units on a fully diluted basis were repurchased for $150 million.
. Distributions in 1999 reflect the $73 million in payments for a special
dividend declared in December 1998 as well as the $0.63 distribution per
OP Unit paid as of December 31, 1999. In addition, on December 20, 1999,
Host REIT's Board of Directors declared a regular cash distribution of
$0.21 per OP Unit paid on January 17, 2000.
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<PAGE>
. In August 1999, Host REIT sold 4.16 million shares of 10% Class A
preferred stock, and we issued an equivalent security, the Class A
Preferred Limited Partner Units. Holders of the Class A preferred units
are entitled to receive cumulative cash dividends at a rate of 10% per
year of the $25.00 per unit liquidation preference. Dividends and
corresponding distributions are payable quarterly in arrears beginning
October 15, 1999. After August 3, 2004 Host REIT has the option to redeem
the Class A preferred stock for $25.00 per share, plus accrued and unpaid
dividends to the date of redemption. The Class A preferred units rank
senior to our common OP Units, and on a parity with our Class B preferred
units. The Class A preferred unitholders generally have no voting rights.
. In November 1999, Host REIT sold 4.0 million shares of 10% Class B
preferred stock, and we issued an equivalent security, the Class B
Preferred Limited Partner Units. Holders of the Class B preferred units
are entitled to receive cumulative cash dividends at a rate of 10% per
year of the $25.00 per unit liquidation preference. Dividends and
corresponding distributions are payable quarterly in arrears beginning
January 15, 2000. After April 29, 2005 Host REIT has the option to redeem
the Class B preferred stock for $25.00 per share, plus accrued and unpaid
dividends to the date of redemption. The Class B preferred units rank
senior to our OP Units, and on a parity with our Class A preferred units.
The Class B preferred unitholders generally have no voting rights.
. In December 1998, we completed the acquisition of, or controlling
interests in, twelve world-class luxury hotels and certain other assets,
including a mortgage note on a thirteenth hotel property from affiliates
of the Blackstone Group. We paid approximately $920 million in cash and
assumed debt and issued approximately 47.7 million OP Units, along with
other consideration for a total value of approximately $1.55 billion.
. In December 1998, subsidiaries of ours merged with eight public
partnerships and acquired limited partnership interests in four private
partnerships, which collectively own or control 28 properties, 15 of
which were controlled by us and consolidated on our financial statements
prior to December 1998. We issued approximately 25.8 million OP Units,
8.5 million of which were subsequently converted to Host REIT common
stock, for interests in these partnerships valued at approximately $333
million. As a result of these transactions, we increased our ownership of
most of the 28 properties to 100% while consolidating 13 additional
hotels containing 4,445 rooms.
. In connection with our conversion to a REIT, we formed two non-controlled
subsidiaries, which own approximately $329 million in assets as of
December 31, 1999. The ownership of most of these assets by us and Host
REIT would have jeopardized its status as a REIT and our status as a
partnership for federal income tax purposes. These assets primarily
consist of partnership or other interests in hotels which are not leased,
some furniture, fixtures and equipment used in the hotels. In exchange
for our contribution of these assets to the non-controlled subsidiaries,
we received nonvoting common stock representing 95% of the total economic
interests of the non-controlled subsidiaries. The Host Marriott Statutory
Employee/Charitable Trust, the beneficiaries of which are 1) a trust
formed for the benefit of some of our employees and 2) the J. Willard
Marriott Foundation, acquired all of the voting common stock representing
the remaining 5% of the total economic interests, and reflecting 100% of
the control of each non-controlled subsidiary. As a result, as of
December 31, 1998, we did not control the non-controlled subsidiaries.
Commencing January 1, 2001, the REIT Modernization Act would permit us to
own all of the voting stock of the non-controlled subsidiaries without
adversely affecting Host REIT so long as these subsidiaries were to elect
to be taxable REIT subsidiaries. We have not yet determined whether to
pursue a transaction with the Host Marriott Statutory Employee/Charitable
Trust that would allow us to acquire control of the non-controlled
subsidiaries.
FFO and EBITDA
We consider Funds from Operations ("FFO"), which represents FFO as defined
by the National Association of Real Estate Investment Trusts, and our EBITDA to
be indicative measures of our operating performance due to the significance of
our long-lived assets. FFO and EBITDA are also useful in measuring our ability
to service debt, fund capital expenditures and expand our business.
Furthermore, management
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<PAGE>
believes that FFO and EBITDA are meaningful disclosures that will help
unitholders and the investment community to better understand our financial
performance, including comparing our performance to other REITs. However, FFO
and EBITDA as presented may not be comparable to amounts calculated by other
companies. This information should not be considered as an alternative to net
income, operating profit, cash from operations, or any other operating or
liquidity performance measure prescribed by generally accepted accounting
principles. Cash expenditures for various long-term assets, interest expense
(for EBITDA purposes only) and income taxes have been, and will be incurred
which are not reflected in the EBITDA and FFO presentation.
FFO increased $149 million, or 37%, to $551 million in 1999 over 1998, and
Comparative Funds From Operations ("Comparative FFO"), which represents FFO, as
defined by the National Association of Real Estate Investment Trusts, plus
contingent rent, available to common unitholders increased $39 million or 10%
to $419 million for the First Three Quarters 2000 over the same period in 1999.
The following is a reconciliation of income (loss) from continuing operations
to FFO (in millions):
<TABLE>
<CAPTION>
First Three Quarters
----------------------
2000 1999
---------- ----------
<S> <C> <C>
Funds from Operations
Loss from operations before extraordinary items.... $ (161) $ (155)
Depreciation and amortization...................... 220 203
Other real estate activities....................... (2) (16)
Partnership adjustments............................ 18 19
---------- ----------
Funds from operations of Host L.P. ................ 75 51
Effects on funds from operations of SAB 101........ 359 330
---------- ----------
Comparative funds from operations of Host L.P.
before preferred unit distributions............... 434 381
Distributions on preferred units................... (15) (1)
---------- ----------
Comparative funds from operations of Host L.P.
available to common unitholders................... $ 419 $ 380
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Year Ended
------------------------------------
December 31, December 31, January 2,
1999 1998 1998
------------ ------------ ----------
<S> <C> <C> <C>
Funds from Operations
Income from continuing operations..... $256 $194 $ 47
Depreciation and amortization......... 291 243 230
Other real estate activities.......... (28) (57) 5
Partnership adjustments............... 19 (11) (12)
REIT conversion expenses.............. -- 64 --
Loss on litigation settlement......... 40 -- --
Tax adjustments....................... (21) (59) 15
---- ---- ----
Funds from continuing operations of
Host L.P............................. 557 374 285
Discontinued operations............... -- 28 10
---- ---- ----
Funds from operations of Host L.P. be-
fore preferred unit
distributions........................ 557 402 295
Distributions on preferred units...... (6) -- --
---- ---- ----
Funds from operations of Host LP
available to common unitholders...... $551 $402 $295
==== ==== ====
</TABLE>
43
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EBITDA increased $179 million, or 22%, to $1,007 million in 1999 from $828
million in 1998, and increased $55 million, or 8%, to $749 million for the
First Three Quarters 2000 over the same period in 1999. Hotel EBITDA increased
$162 million, or 19%, to $1,032 million in 1999 from $870 million in 1998,
reflecting comparable hotel EBITDA growth, as well as incremental EBITDA from
1998 acquisitions offset by amounts representing hotel sales which are retained
by Crestline. Hotel EBITDA for the First Three Quarters 2000 and 1999 was $390
million and $362 million, respectively, which does not include deferred rental
income of $366 million and $339 million for the same periods, respectively.
The following schedule presents our EBITDA as well as a reconciliation of
EBITDA to income (loss) from continuing operations (in millions):
<TABLE>
<CAPTION>
First Three Quarters
----------------------
2000 1999
---------- ----------
<S> <C> <C>
EBITDA
Hotels................................................ $ 390 $ 362
Office buildings...................................... 5 3
Interest income....................................... 26 26
Corporate and other expenses.......................... (38) (36)
Effect on revenue of SAB 101.......................... 366 339
---------- ----------
EBITDA.................................................. $ 749 $ 694
========== ==========
EBITDA.................................................. $ 749 $ 694
Effect on revenue of SAB 101.......................... (366) (339)
Interest expense...................................... (315) (325)
Depreciation and amortization......................... (224) (203)
Minority interest expense............................. (11) (13)
Income taxes.......................................... (7) (3)
Other non-cash changes, net........................... 13 34
---------- ----------
Loss from operations before extraordinary item...... $ (161) $ (155)
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Year Ended
------------------------------------
December 31, December 31, January 2,
1999 1998 1998
------------ ------------ ----------
<S> <C> <C> <C>
EBITDA
Hotels.................................. $1,032 $ 870 $ 690
Office buildings........................ 3 1 --
Interest income......................... 39 53 55
Corporate and other expenses............ (67) (96) (63)
------ ----- -----
EBITDA.................................... $1,007 $ 828 $ 682
====== ===== =====
EBITDA.................................... $1,007 $ 828 $ 682
Interest expense........................ (469) (335) (288)
Dividends on Convertible Preferred Secu-
rities................................. -- (37) (37)
Depreciation and amortization........... (293) (243) (231)
Minority interest expense............... (21) (52) (31)
Income taxes............................ 16 20 (36)
REIT Conversion expense................. -- (64) --
Loss on litigation settlement........... (40) -- --
Other non-cash changes, net............. 56 77 (12)
------ ----- -----
Income from continuing operations..... $ 256 $ 194 $ 47
====== ===== =====
</TABLE>
44
<PAGE>
Our interest coverage, defined as EBITDA divided by cash interest expense,
was 2.4 times, 2.7 times, and 2.5 times for 1999, 1998, and 1997, respectively
and 2.4 times and 2.2 times for the First Three Quarters 2000 and 1999,
respectively. The ratio of earnings to fixed charges was 1.5 to 1.0, 1.5 to
1.0, and 1.3 to 1.0 in 1999, 1998, and 1997, respectively and the deficiency of
earnings to fixed charges was $145 million and $137 million for the First Three
Quarters 2000 and 1999, respectively, which is primarily due to the deferral of
contingent rent of $366 million and $339 million for the same periods,
respectively.
Partnership Activities. Prior to the REIT conversion, we had general and
limited partner interests in numerous limited partnerships which owned 240
hotels including 20 full-service hotels, managed by Marriott International. As
a result of the REIT conversion, the majority of our interests in the 220
limited-service hotels were transferred to the non-controlled subsidiaries.
Additionally, as part of the REIT conversion, we acquired 13 of the 20 full-
service hotels, two were sold, four were transferred to one of the non-
controlled subsidiaries and one was retained by Host REIT.
Leases. In addition to our full-service hotels, we also lease some property
and equipment under noncancelable operating leases, including the long-term
ground leases for some of our hotels, generally with multiple renewal options.
The leases related to the 53 Courtyard properties and 18 Residence Inn
properties sold during 1995 and 1996, are nonrecourse to us and contain
provisions for the payment of contingent rentals based on a percentage of sales
in excess of stipulated amounts. During the REIT conversion these properties
were subleased to Crestline. We remain contingently liable on certain leases
related to divested non-lodging properties. Such contingent liabilities
aggregated $80 million at December 31, 1999. However, management considers the
likelihood of any substantial funding related to these divested properties'
leases to be remote.
Inflation. Our hotel lodging properties have been impacted by inflation
through its effect on increasing costs and on the managers' ability to increase
room rates. Unlike other real estate, hotels have the ability to change room
rates on a daily basis, so the impact of higher inflation generally can be
passed on to customers. Our exposure to inflation is less now that
substantially all of our hotels are leased to others.
Almost all of our debt bears interest at fixed rates. This debt structure
largely mitigates the impact of changes in the rate of inflation on future
interest costs. We have some financial instruments that are sensitive to
changes in interest rates. The interest recognized on the debt obligations is
based on various LIBOR terms, which ranged from 5.6% to 5.9% and 5.1% to 5.8%
at December 31, 1999 and December 31, 1998, respectively, and 5.8% to 6.9% for
the First Three Quarters 2000.
We repaid a $40 million variable rate mortgage with proceeds from the $300
million Series D senior notes offering during the first quarter of 1999. We
terminated the associated swap agreement incurring a termination fee of
approximately $1 million.
In July 1999, we completed the refinancing of approximately $784 million of
outstanding variable rate mortgage debt and terminated the related interest
rate swap agreements. As a result of the refinancing we no longer have any
interest rate swap agreements outstanding. As of September 8, 2000, our
remaining variable debt consists of the credit facility and the mortgage debt
on the Ritz-Carlton Amelia Island property which totaled $265 million, and has
subsequently been reduced to $239 million with the $26 million paydown of the
bank credit facility in October, 2000.
Accounting Standards. In December 1999, we changed our method of accounting
for contingent rental revenues to conform to the Commission's Staff Accounting
Bulletin (SAB) No. 101. As a result, contingent rental revenue will be deferred
on the balance sheet until certain revenue thresholds are realized. We have
adopted SAB No. 101 with retroactive effect beginning January 1, 1999 to
conform to the new presentation. SAB No. 101 has no impact on full-year 1999
revenues, net income, or earnings per unit because all rental revenues
considered contingent under SAB No. 101 were earned as of December 31, 1999.
For the First Three Quarters 2000 and 1999, $366 million and $339 million were
deferred on the balance sheet. The change in accounting principle has no effect
on prior years because percentage rent relates to rental income on our leases,
which began in 1999.
45
<PAGE>
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The Statement
establishes accounting and reporting standards requiring that every derivative
instrument (including specified derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 is effective for fiscal years beginning after
June 15, 2000. We have not determined the full impact of SFAS No. 133.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The table below provides information as of December 1, 2000 about our
financial instruments that are sensitive to changes in interest rates. For debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates.
<TABLE>
<CAPTION>
Expected Maturity Date
-----------------------------------
Fair
2000 2001 2002 2003 Total Value
---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Liabilities
Long-term variable rate debt:
The Ritz-Carlton, Amelia Island............ -- -- -- $89 $89 $89
Credit facility............................ -- -- -- 150 150 150
Average Interest Rate(1).................... 8.8% 8.8% 8.8% 8.8% 8.8%
</TABLE>
--------
(1) Interest rates are based on various LIBOR terms plus certain basis points
which range from 200 to 225 basis points. The one-month LIBOR rate at
September 8, 2000 was 6.6%. We have assumed for purposes of this
presentation that the LIBOR rate remains unchanged. A 100 basis point
increase in LIBOR would increase our interest rate expense by approximately
$2 million per year.
46
<PAGE>
BUSINESS AND PROPERTIES
Host Marriott, L.P., or the "operating partnership," is a limited
partnership owning full service hotel properties as part of an umbrella
partnership real estate investment trust with Host Marriott Corporation, which
we refer to as "Host REIT," as our sole general partner. We were formed as a
Delaware limited partnership in 1998 as a wholly owned subsidiary of Host
Marriott Corporation, a Delaware corporation, in connection with its efforts to
reorganize its business operations to qualify as a REIT for federal income tax
purposes. As part of this reorganization, which we refer to as the REIT
conversion, and which is described below in more detail, on December 29, 1998,
Host Marriott Corporation and various of its subsidiaries contributed to us
substantially all of their assets and we assumed substantially all of their
liabilities. As a result, we have succeeded to the hotel ownership business
formerly conducted by Host Marriott Corporation. Throughout this prospectus,
activities prior to December 29, 1998 represent the activities of our
predecessor, Host Marriott Corporation and its subsidiaries.
We and Host REIT were formed primarily to continue, in an UPREIT structure,
the full service hotel ownership business formerly conducted by Host Marriott
and its subsidiaries. Our primary business objective is to provide superior
total returns to our unitholders through a combination of distributions and
appreciation in unit price. In addition, we endeavor to:
. achieve long-term sustainable growth in FFO (i.e., net income computed in
accordance with generally accepted accounting principles, excluding gains
or losses from sales of properties, plus real estate-related depreciation
and amortization, and after adjustments for unconsolidated partnerships
and joint ventures), and cash flow;
. increase asset values by selectively improving and expanding our hotels;
. acquire additional existing and newly developed upscale and luxury full
service hotels in targeted markets, primarily focusing on downtown hotels
in core business districts in major metropolitan markets and select
airport and resort/convention locations;
. develop and construct upscale and luxury full service hotels; and
. opportunistically pursue other real estate investments.
As of September 8, 2000, we own 122 hotels, containing approximately 58,000
rooms, located throughout the United States and Canada. The hotels are
generally operated under the Marriott, Ritz-Carlton, Four Seasons, Swissotel,
Hilton and Hyatt brand names. These brand names are among the most respected
and widely recognized brand names in the lodging industry. The hotels are
currently leased by us and our subsidiaries to lessees, including Crestline and
its subsidiaries, and are managed on behalf of the lessees by subsidiaries of
Marriott International and other companies. As previously discussed, we have
executed a definitive agreement with Crestline for the purchase and sale of the
entities owning the leasehold interests with respect to 117 of our full-service
hotels for approximately $205 million in cash. If this transaction is
consummated, our wholly-owned taxable REIT subsidiary will be the lessee.
Host REIT is our sole general partner and manages all aspects of our
business. This includes decisions with respect to:
. sales and purchases of hotels;
. the financing of the hotels;
. the leasing of the hotels; and
. capital expenditures for the hotels subject to the terms of the leases
and the management agreements.
Host REIT, our sole general partner, is managed by a Board of Directors and
has no employees who are not also our employees.
Under current federal income tax law, REITs are restricted in their ability
to derive revenues directly from the operations of hotels. Therefore we lease
virtually all of our hotels to the lessees. See "--The Leases"
47
<PAGE>
below. The lessees pay rent to us and our subsidiaries generally equal to the
greater of a specified minimum rent or rent based on specified percentages of
different categories of aggregate sales at the relevant hotels, to the extent
such "percentage rent" would exceed the minimum rent. As we discuss further
below, under the REIT Modernization Act, effective for taxable years beginning
after December 31, 2000, (i) we will be able to lease our hotels to a
subsidiary that is a taxable corporation that elects to be treated as a
"taxable REIT subsidiary" rather than to a third party such as Crestline and
(ii) we will be permitted to own all of the voting stock of such taxable REIT
subsidiary. See "--The REIT Conversion" below. The lessees operate the hotels
pursuant to management agreements with the managers. Each of the management
agreements provides for certain base and incentive management fees, plus
reimbursement of specific costs, as further described below. See "--The
Management Agreements." Such fees and cost reimbursements are the obligation of
the lessees and not ours or our subsidiaries' (although the obligation to pay
such fees could adversely affect the ability of the lessees to pay the required
rent to us or our subsidiaries).
The leases, through the sales percentage rent provisions, are designed to
allow us to participate in any growth above specified levels in room sales at
the hotels, which management expects can be achieved through increases in room
rates and occupancy levels. Although the economic trends affecting the hotel
industry will be the major factor in generating growth in lease revenues, the
abilities of the lessees and the managers will also have a material impact on
future sales growth.
In addition to external growth generated by new acquisitions, we intend to
carefully and periodically review our portfolio to identify opportunities to
selectively enhance existing assets to improve operating performance through
major capital improvements. Our leases and those of our subsidiaries do provide
us with the right to approve and finance major capital improvements.
Our primary focus is on the acquisition of upscale and luxury full service
hotel lodging properties. Since the beginning of 1994 through the date hereof,
we have acquired, directly and through our respective subsidiaries, 106 full
service hotels containing more than 48,000 rooms for an aggregate purchase
price of approximately $6.2 billion. Based upon data provided by Smith Travel
Research, we believe that our full service hotels outperform the industry's
average occupancy rate by a significant margin and averaged 77.7% occupancy for
both fiscal years 1999 and 1998 compared to a 69.1% and 69.4% average occupancy
for our competitive set for 1999 and 1998, respectively and 79.0% and 79.2%
occupancy compared to 72.1% and % occupancy for our competitive set for the
First Three Quarters 2000 and 1999, respectively. "Our competitive set" refers
to hotels in the upscale and luxury full service segment of the lodging
industry, the segment which is most representative of our full service hotels,
and consists of Crowne Plaza; Doubletree; Hyatt; Hilton; Radisson; Renaissance;
Sheraton; Swissotel; Westin and Wyndham.
The relatively high occupancy rates of our hotels, along with increased
demand for full-service hotel rooms, have allowed the managers of our hotels to
increase average daily room rates by selectively raising room rates and by
minimizing, in specified cases, discounted group business, replacing it with
higher-rate group and transient business. As a result, on a comparable basis
REVPAR for our full-service properties increased approximately 4.1% for full-
year 1999, and 6.6% for the First Three Quarters 2000.
Business Strategy
Our primary business objective is to provide superior total returns to our
unitholders through a combination of distributions and appreciation in unit
price. In order to achieve this objective and, therefore, enhance our equity
value, we employ the following strategies:
. Acquire existing upscale and luxury full-service hotels as market
conditions permit, including Marriott and Ritz-Carlton hotels and other
hotels operated by leading management companies such as Four Seasons and
Hyatt which satisfy our investment criteria, which acquisitions may be
completed through various means including by entering into joint ventures
when we believe our return on investment will be maximized by doing so;
48
<PAGE>
. Develop selected new upscale and luxury full-service hotels, including
Marriott and Ritz-Carlton hotels and other hotels operated by leading
management companies such as Four Seasons and Hyatt which satisfy our
investment criteria and employ transaction structures which mitigate our
risk;
. Participate in the sales growth for each of our hotels through leases
which provide for the payment of rent based upon the lessees' gross hotel
sales in excess of specified thresholds; and
. Enhance existing hotel operations by completing selective capital
improvements that are designed to increase gross hotel sales or improve
operations.
Although competition for acquisitions has remained steady and the
availability of suitable acquisition candidates has been limited recently due
to market conditions, we believe that the upscale and luxury full-service
segments of the market will continue to offer opportunities over time to
acquire assets at attractive multiples of cash flow and at discounts to
replacement value, including underperforming hotels which can be improved by
conversion to the Marriott, Ritz-Carlton, or other high quality brands. Since
the beginning of fiscal year 1994, we have acquired 14 hotels which we have
converted to the Marriott brand. The vast majority of our hotel properties are
operated under the Marriott and Ritz-Carlton brands. In general, based upon
REVPAR data provided by Smith Travel Research, we believe that our portfolio
has consistently outperformed the industry. Our comparable properties,
consisting of 84 hotels, owned directly or indirectly by us for the entire 1999
and 1998 fiscal years, respectively, excluding two properties where significant
expansion at the hotels substantially affected operations during the two fiscal
years, generated a 31% and 29% REVPAR premium over our competitive set for
fiscal years 1999 and 1998, respectively. Our comparable properties for 2000
consisting of 114 hotels, owned directly or indirectly by us for the entire
First Three Quarters 2000 and 1999, respectively, excluding two properties
where significant expansion at the hotels affected operations and five
properties where reported results were affected by a change in reporting
period, generated a 30% and 32% REVPAR premium over our competitive set for the
First Three Quarters 2000 and 1999, respectively.
On November 13, 2000, we executed a definitive agreement with Crestline for
the purchase and sale of the entities owning the leasehold interests with
respect to 117 of our full-service hotels. Under the terms of the transaction,
our newly created wholly-owned subsidiary, which will elect to be treated as a
TRS, will purchase certain Crestline subsidiaries, whose primary assets are the
leasehold interests, for approximately $205 million in cash, including
recording a non-recurring loss of $120 million net of tax on the acquisition.
The consummation of the transaction, which is permitted as a result of the
passage of the REIT Modernization Act, will simplify our corporate structure,
enable us to better control our portfolio of hotels, and is expected to be
accretive to future earnings.
In December 2000, a newly created joint venture formed by us (through non-
controlled subsidiaries) and Marriott International acquired the partnership
interests in Courtyard by Marriott Limited Partnership and Courtyard by
Marriott II Limited Partnership for an aggregate payment of approximately $372
million plus interest and legal fees, of which we paid approximately $91
million. The joint venture financed the acquisition with mezzanine indebtedness
borrowed from Marriott International and with cash and other assets contributed
by us (through our non-controlled subsidiaries) and Marriott International. We
own a 50% non-controlling interest in the joint venture.
We have increased our pool of potential acquisition candidates by
considering acquisitions of select non-Marriott and non-Ritz-Carlton hotels
that offer long-term growth potential and are consistent with the overall
quality of our current portfolio. We will focus on upscale and luxury full
service properties in difficult to duplicate locations with high costs to
prospective competitors, such as hotels located in downtown, airport and
resort/convention locations, which are operated by quality managers. For
example, in December 1998, we consummated the Blackstone acquisition for
approximately $1.55 billion in a combination of cash, OP Units, assumed debt
and other consideration. The Blackstone acquisition consisted of two Ritz-
Carlton, two Four Seasons, one Grand Hyatt, three Hyatt Regency and four
Swissotel properties. Currently, we also consider opportunities to improve
property operations by converting certain existing or acquired hotels to these
and other quality national brands. For example, we converted the resort
property in Singer Island, Florida to the Hilton brand in April 2000.
49
<PAGE>
We believe we are well qualified to pursue our acquisition and development
strategy. Management has extensive experience in acquiring and financing
lodging properties and believes its industry knowledge, relationships and
access to market information provide a competitive advantage with respect to
identifying, evaluating and acquiring hotel assets.
In September 1999, the board of directors of Host REIT approved the
repurchase, from time to time on the open market and/or in privately negotiated
transactions, of up to 22 million of the outstanding shares of Host Marriott
Corporation common stock, OP Units or Convertible Preferred Securities
convertible into a like number of shares of common stock. The Board of
Directors of Host REIT will continue to look at strategic acquisitions as well
as evaluate Host REIT's stock repurchase program based on changes in market
conditions and Host REIT's stock price. The stock repurchases may be financed
through cash from operations, assets sales, and other financing activities,
such as the issuances of the Class A and Class B Preferred Stock made during
1999. Such repurchases will be made at management's discretion, subject to
market conditions and may be suspended at any time at our discretion. Through
September 8, 2000, we spent, in the aggregate, approximately $150 million to
repurchase 10.7 million shares of common stock, and 1.5 million shares of the
Convertible Preferred Securities and 0.6 million operating partnership units
for a total reduction of 16.2 million equivalent common shares on a fully
diluted basis.
The REIT Conversion
During 1998, Host Marriott and its subsidiaries and affiliates consummated a
series of transactions intended to enable Host REIT to qualify as a REIT for
federal income tax purposes. As a result of these transactions, the hotels
formerly owned by Host Marriott and its subsidiaries and other affiliates are
now owned by us and our subsidiaries; we and our subsidiaries lease
substantially all of these hotels to Crestline, and Marriott International and
other hotel operators conduct the day-to-day management of the hotels pursuant
to management agreements with Crestline. Host REIT has elected to be treated as
a REIT for federal income tax purposes effective January 1, 1999. The important
transactions comprising the REIT conversion are summarized below.
During 1998, Host Marriott reorganized its hotels and certain other assets
so that they were owned by us and our subsidiaries. Host Marriott and its
subsidiaries received a number of OP Units equal to the number of then
outstanding shares of Host Marriott common stock, and we and our subsidiaries
assumed substantially all of the liabilities of Host Marriott and its
subsidiaries. As a result of this reorganization and the related transactions
described below, Host REIT is our sole general partner and, as of September 8,
2000, held approximately 78% of our outstanding common OP Units. We and our
subsidiaries conduct our hotel ownership business. OP Units owned by holders
other than Host REIT are redeemable at the option of the holder, generally
commencing one year after the issuance of their OP Units. Upon redemption of an
OP Unit, the holder would receive from us cash in an amount equal to the market
value of one share of Host REIT common stock. However, in lieu of a cash
redemption by us, Host REIT has the right to acquire any OP Unit offered for
redemption directly from the holder thereof in exchange for either one share of
Host REIT common stock or cash in an amount equal to the market value of one
share of Host REIT common stock.
In connection with the REIT conversion, two taxable corporations were formed
in which we own approximately 95% of the economic interest but none of the
voting interest. We refer to these two subsidiaries as the non-controlled
subsidiaries. The non-controlled subsidiaries hold various assets and related
liabilities which were originally contributed by Host Marriott and its
subsidiaries to us, but whose direct ownership by Host REIT, us or our other
subsidiaries generally would jeopardize Host REIT's status as a REIT and our
status as a partnership for federal income tax purposes. These assets primarily
consist of interests in partnerships or other interests in three hotels which
are not leased, and specified furniture, fixtures and equipment--also known as
FF&E--used in the hotels. We have no control over the operation or management
of the hotels or other assets owned by the non-controlled subsidiaries. The
Host Marriott Statutory Employee/Charitable Trust acquired all of the voting
common stock of each non-controlled subsidiary,
50
<PAGE>
representing, in each case, the remaining approximately 5% of the total
economic interests in each non-controlled subsidiary. The beneficiaries of the
Employee/Charitable Trust are a trust formed for the benefit of specified
employees of ours and the J. Willard and Alice S. Marriott Foundation.
Commencing January 1, 2001, the REIT Modernization Act would permit us to own
all of the voting stock of the non-controlled subsidiaries without adversely
affecting Host REIT so long as these subsidiaries were to elect to be taxable
REIT subsidiaries.
Under current federal income tax law, REITs are restricted in their ability
to derive revenues from the operation of hotels. However, they can derive
rental income by leasing hotels. Therefore, we and our subsidiaries lease
virtually all of our hotel properties to subsidiaries of Crestline. We have
executed a definitive agreement with Crestline for the purchase and sale of the
entities owning the leasehold interests with respect to 117 of our full-service
hotels for approximately $205 million. If this transaction is consummated, our
wholly-owned taxable REIT subsidiary will be the lessee. Currently, the lessees
pay rent to us and our subsidiaries generally equal to the greater of (1) a
specified minimum rent or (2) rent based on specified percentages of different
categories of aggregate sales at the relevant hotels. Generally, there is a
separate lessee for each hotel property or there is a separate lessee for each
group of hotel properties that has separate mortgage financing or has owners in
addition to us and our wholly owned subsidiaries. The lessees for all but four
of our hotels are wholly owned subsidiaries of Crestline, formed as limited
liability companies, each of whose purpose is limited to acting as lessee under
an applicable lease. The limited liability company agreement for each Crestline
lessee provides that Crestline will have full control over the management of
the business of the lessee, except with respect to certain decisions for which
the consent of other members or the hotel manager will be required. In
addition, although the Crestline lessees are wholly owned subsidiaries of
Crestline, Marriott International or its appropriate subsidiary has a non-
economic voting interest on specific matters pertaining to hotels which are
managed by Marriott International or its subsidiaries.
The leases, through the sales percentage rent provisions, are designed to
allow us and our subsidiaries to participate in any growth above specified
levels in room sales at the hotels, which management expects can be achieved
through increases in room rates and occupancy levels. Although the economic
trends affecting the hotel industry will be the major factor in generating
growth in lease revenues, the abilities of the lessees and the managers will
also have a material impact on future sales growth. Our leases have remaining
terms ranging from two to ten years, subject to earlier termination upon the
occurrence of contingencies that are specified in the leases. We have entered
into a definitive agreement with Crestline to purchase the entities which own
the leasehold interests of 117 of our full-service hotels on or about January
1, 2000 as a result of certain changes in tax law included in the REIT
Modernization Act (discussed below), for $205 million.
In December 1999, the REIT Modernization Act was passed, with most
provisions effective for taxable years beginning after December 31, 2000. The
REIT Modernization Act significantly amends the REIT laws applicable to us.
Among the changes, the REIT Modernization Act allows a REIT to own up to 100%
of the voting stock of one or more taxable REIT subsidiaries subject to
limitations on the value of those subsidiaries. The rents received from such
subsidiaries would not be disqualified from being "rents from real property" by
reason of our ownership interest in the subsidiary so long as the property is
operated on behalf of the taxable REIT subsidiary by an "eligible independent
contractor." This will enable us to lease our hotels to wholly owned taxable
subsidiaries if the hotels are operated and managed on behalf of such
subsidiaries by an independent third party. Under the REIT Modernization Act,
taxable REIT subsidiaries will be subject to federal income tax. The REIT
Modernization Act also changes the asset limitations applicable to REITs. Under
the law that is currently in effect, a REIT must satisfy three tests relating
to the nature of its assets:
. First, at least 75% of its total assets must be represented by real
estate assets.
. Second, no more than 25% of its total assets may be represented by
securities other than those in the 75% asset class.
. Third, within the 25% assets class, the value of any one issuer's
securities may not exceed 5% of its total assets and a REIT may not own
more than 10% of any one issuer's outstanding voting securities.
51
<PAGE>
The third test will be modified in two respects by the REIT Modernization
Act:
. The 10% voting securities test will be expanded so that we will be
prohibited from owning more than 10% of the value of the outstanding
securities of any one issuer.
. We will be permitted to own securities of a subsidiary that exceed the 5%
value test and the new 10% vote or value test if the subsidiary elects to
be a taxable REIT subsidiary.
Under the REIT Modernization Act, beginning January 1, 2001, (i) we will be
able to lease our hotels to a subsidiary that is a taxable corporation and that
elects to be treated as a "taxable REIT subsidiary" rather than to a third
party such as Crestline and (ii) we will be permitted to own all of the voting
stock of such taxable REIT subsidiary. In addition, as a result of passage of
the REIT Modernization Act and under the terms of our leases with Crestline
subsidiaries, we have the right to purchase the leases from Crestline on or
after January 1, 2001, for a price equal to the fair rental value of the
lessee's interest in the leases over their remaining terms based on an agreed
upon formula, excluding any option periods. On November 13, Host LP and
Crestline announced the execution of a definitive agreement for the purchase
and sale of the entities owning the leasehold interests with respect to 117
full-service hotel properties owned by Host LP. Under the terms of the
transaction, a wholly-owned subsidiary of Host LP, which will elect to be
treated as a taxable REIT subsidiary ("TRS"), will purchase the Crestline
subsidiaries, whose primary assets are the leasehold interests, for
approximately $205 million, including recording a non-recurring loss of $120
million net of tax on the acquisition. If the transaction is consummated, we
will lease these hotels to a newly created subsidiary of ours that qualifies as
a taxable REIT subsidiary. In connection therewith, we will recognize the
revenues and expenses generated by the hotels subject to the leases and we will
no longer recognize rental income from these leases. Consummation of the
transaction with Crestline is subject to various conditions, including the
receipt of any required third party consents. There can be no assurance that
the purchase will be consummated. We are also considering pursuing a
transaction with Host Marriott Statutory Employee/Charitable Trust that would
allow us to acquire control of the non-controlled subsidiaries (which we expect
will elect to be treated as a taxable REIT subsidiary) although we have not
reached any such agreement and cannot assure you that any such agreement will
be reached.
Finally, under the REIT Modernization Act, beginning January 1, 2001, the
aggregate fair market values of real and personal property will be used for
purposes of determining rents from real property. Currently, the aggregate tax
bases of both real and personal property are used for this purpose.
Recent Acquisitions, Developments and Dispositions
The pace of acquisitions changed significantly in 2000 and 1999 from the
previous years. After three years of acquisitions numbering 36, 17, and 24 full
service hotels for 1998, 1997 and 1996, respectively, our 1999 acquisitions
were limited to completing the acquisition of minority interests in two hotels
where we had previously acquired the controlling interests for a total
consideration of approximately $14 million.
During 2000, we focused our energies on increasing the value of our current
portfolio with selective investments and expansions and new developments. We
plan to selectively develop new upscale and luxury full-service hotels in major
urban markets and convention/resort locations with strong growth prospects,
unique or difficult to duplicate sites, high costs for prospective competitors
for other new hotels and limited new supply. We intend to target only
development projects that show promise of providing financial returns that
represent a premium to acquisitions. The largest of these projects was the
construction of a 717-room full service hotel adjacent to the convention center
in downtown Tampa, Florida. The hotel, which was completed and opened for
business on February 19, 2000, includes 45,000 square feet of meeting space,
three restaurants and a 30-slip marina as well as many other amenities. The
total development cost of the property was approximately $104 million,
excluding a $16 million tax subsidy provided by the City of Tampa.
52
<PAGE>
In December 2000, a newly created joint venture formed by us (through non-
controlled subsidiaries) and Marriott International acquired the partnership
interests in Courtyard by Marriott Limited Partnership and Courtyard by
Marriott II Limited Partnership for an aggregate payment of approximately $372
million plus interest and legal fees, of which we paid approximately $91
million. The joint venture financed the acquisition with mezzanine indebtedness
borrowed from Marriott International and with cash and other assets contributed
by us (through our non-controlled subsidiaries) and Marriott International. We
own a 50% interest in the joint venture.
In May 1999 we completed a 210-room expansion of the Philadelphia Marriott,
through a renovation of the historic railroad headhouse building adjacent to
the property. The project was completed for approximately $37 million including
a $7 million tax financing provided by the City of Philadelphia. At the Orlando
Marriott, the addition of a 500-room tower and 15,000 square feet of meeting
space was completed in June 2000 at an approximate development cost of $88
million, making it the single largest hotel in the Marriott system at 2000
rooms. We also have renovated the golf course, added a multi-level parking
deck, and upgraded and expanded several restaurants.
Also under development is a 50,000 square-foot world-class spa at the Ritz-
Carlton, Naples. This project is anticipated to be completed late in 2000. The
development cost for this expansion is estimated to be approximately $23
million.
Two longer-term development projects are currently active with anticipated
completion in 2001. These are the construction of a 295-room Ritz-Carlton,
Naples, Golf Lodge and the 200-room expansion of the Memphis Marriott. The
construction of the Naples Golf Lodge near the 463-room Ritz-Carlton, Naples,
as well as the construction of the new spa facility, will offer travelers an
unmatched resort experience. The Memphis Marriott, which is located adjacent to
a newly-renovated convention center, was converted to the Marriott brand upon
acquisition in 1998 to capitalize on Marriott's brand name recognition. The
combined development costs for these projects is estimated to be approximately
$90 million.
In addition to investments in partnerships in which we already held minority
interests, we have been successful in adding properties to our portfolio
through partnership arrangements with either the seller of the property or the
incoming managers (typically Marriott International or a Marriott franchisee).
For example, we acquired a non-controlling partnership interest in the 772-room
Washington, D.C., J.W. Marriott Hotel in May 2000 and have the option to
purchase an additional 44% limited partnership interest between December 15,
2001 and September 30, 2002 and between January 15, 2003 and June 30, 2003. We
have the financial flexibility and, due to our existing private partnership
investment portfolio, the administrative infrastructure in place to accommodate
such arrangements. We view this ability as a competitive advantage and expect
to enter into similar arrangements to acquire additional properties in the
future.
Through subsidiaries we currently own four Canadian properties, containing
1,636 rooms. We intend to continue to evaluate other attractive acquisition
opportunities in Canada. In addition, the overbuilding and economic stress
experienced in some European and Pacific Rim countries may eventually lead to
additional international acquisition opportunities. We will acquire
international properties only when we believe such acquisitions achieve
satisfactory returns after adjustments for currency and country risks.
We will also consider from time to time selling hotels that do not fit our
long-term strategy, or otherwise meet our ongoing investment criteria,
including for example, hotels in some suburban locations, hotels that require
significant capital improvement and other underperforming assets. The net
proceeds from these sales will be reinvested in upscale and luxury hotels more
consistent with our strategy or otherwise applied in a
53
<PAGE>
manner consistent with our investment strategy (which may include the purchase
of securities) at the time of sale. The following table summarizes our 1999
dispositions (in millions, except number of rooms):
<TABLE>
<CAPTION>
Pre-tax
Total Gain (Loss)
Property Location Rooms Consideration on Disposal
-------- -------- ----- ------------- -----------
<S> <C> <C> <C> <C>
Minneapolis/Bloomington
Marriott.................... Bloomington, MN 479 $ 35 $10
Saddle Brook Marriott........ Saddle Brook, NJ 221 15 3
Marriott's Grand Hotel Resort
and Golf Club............... Point Clear, AL 306 28 (2)
The Ritz-Carlton, Boston..... Boston, MA 275 119 15
El Paso Marriott............. El Paso, TX 296 1 (2)
</TABLE>
Hotel Lodging Industry
The lodging industry posted moderate gains in 1999 as higher average daily
rates drove strong increases in REVPAR, which measures daily room revenues
generated on a per room basis. This does not include food and beverage or other
ancillary revenues generated by the property. REVPAR represents the product of
the average daily room rate charged and the average daily occupancy achieved.
Previously, the lodging industry benefited from a favorable supply/demand
imbalance, driven in part by low construction levels combined with high gross
domestic product, or GDP, growth. However, during 1999 and 1998 supply
moderately outpaced demand, causing slight declines in occupancy rates in the
upscale and luxury full-service segments in which we operate. According to
Smith Travel Research, supply in our brands' competitive set increased 1.6% for
the year ended December 31, 1999 and increased 2.0% for the First Three
Quarters 2000 while demand in our competitive set increased 1.1% for the year
ended December 31, 1999 and increased 4.6% for the First Three Quarters 2000.
At the same time, occupancy declined 0.4 percentage points in our competitive
set for the year ended December 31, 1999 and increased 3.2 percentage points
for The First Three Quarters 2000.
These declines in occupancy, however, were more than offset by increases in
average daily rates which generated higher REVPAR. According to Smith Travel
Research, for the year ended December 31, 1999, average daily rate and REVPAR
for our competitive set increased 3.0% and 2.5%, respectively, versus the same
period one year ago. For the First Three Quarters 2000, average daily rate and
REVPAR increased 5.2% and 7.8%, respectively, versus the same period one year
ago. The current amount of excess supply in the upper-upscale and luxury
portions of the full-service segment of the lodging industry is relatively
moderate and much less severe than that experienced in the lodging industry in
other occupancy downturns, in part because of the greater financial discipline
and lending practices imposed by financial institutions and public markets
today relative to those during the late 1980's.
Our hotels have outperformed both the industry as a whole and the upper-
upscale and luxury full service segment. The attractive locations of our
hotels, the limited availability of new building sites for new construction of
competing full service hotels, and the lack of availability of financing for
new full service hotels has allowed us to maintain REVPAR and average daily
rate premiums over our competitors in these service segments. For our
comparable hotels, as previously defined, average daily rates increased 3.8% in
1999 and 6.3% for the First Three Quarters 2000. The increase in average daily
rate helped generate a strong increase in comparable hotel REVPAR of 4.1% and
6.6% for the same periods, respectively. Furthermore, because our lodging
operations have a high fixed-cost component, increases in REVPAR generally
yield greater percentage increases in our consolidated earnings before interest
expense, income taxes, depreciation, amortization and other non-cash items or
EBITDA. While we currently do not benefit directly from increases in EBITDA
levels at our properties due to the structure of our leases, we should benefit
from such increases due to expected higher market valuations of our properties
based on such elevated EBITDA levels. If we were to acquire the Crestline
leases with respect to our hotels, any increases in EBITDA levels at our
properties (which formerly were leased to Crestline) would have a direct,
positive effect on our consolidated EBITDA.
We currently believe that demand is exceeding supply in the sub-markets in
which we operate, however, we expect that this trend will reverse in 2001. The
relative balance between supply and demand growth may be influenced by a number
of factors including growth of the economy, interest rates, unique local
considerations
54
<PAGE>
and the relatively long lead time to develop urban, convention and resort
hotels. We believe that growth in room supply in upscale and luxury full-
service sub-markets in which we operate continue to exceed room demand growth
through the year 2001. There can be no assurance that growth in supply will
moderate or that REVPAR and EBITDA will continue to improve.
Hotel Lodging Properties
Our lodging portfolio, as of September 8, 2000, consists of 122 upscale and
luxury full-service hotels containing approximately 58,000 rooms. Our hotel
lodging properties represent quality upscale and luxury assets in the full
service segment. All but thirteen of our hotel properties are currently
operated under the Marriott or Ritz-Carlton brand names.
Our hotels average approximately 478 rooms. Thirteen of our hotels have more
than 750 rooms. Hotel facilities typically include meeting and banquet
facilities, a variety of restaurants and lounges, swimming pools, gift shops
and parking facilities. Our hotels primarily serve business and pleasure
travelers and group meetings at locations in downtown, airport, resort
convention and suburban locations throughout the United States. The properties
are generally well situated in locations where there are significant barriers
to entry by competitors including downtown areas of major metropolitan cities,
at airports and resort/convention locations where there are limited or no
development sites. The average age of the properties is 16 years, although many
of the properties have had more recent substantial renovations or major
additions.
To maintain the overall quality of our lodging properties, each property
undergoes refurbishments and capital improvements on a regularly scheduled
basis. Typically, refurbishing has been provided at intervals of five years,
based on an annual review of the condition of each property. For fiscal years
1999, 1998 and 1997 we spent $197 million, $165 million and $129 million,
respectively, on capital improvements to existing properties. As a result of
these expenditures, we expect to maintain high quality rooms at our properties.
In addition to acquiring and maintaining superior assets, a key part of our
strategy is to have the hotels managed by leading management companies. As of
September 8, 2000, 100 of our 122 hotel properties were managed by subsidiaries
of Marriott International as Marriott or Ritz-Carlton brand hotels and an
additional nine hotels are part of Marriott International's full-service hotel
system through franchise agreements. The remaining hotels are managed by
leading management companies including Four Seasons, Hilton, Hyatt, and
Swissotel. Our properties have reported annual increases in REVPAR since 1993.
Based upon data provided by Smith Travel Research, our comparable properties,
as previously defined, have more than a nine and ten percentage point occupancy
premium and an approximate 31% and 30% REVPAR premium over the competitive set
for fiscal year 1999 and First Three Quarters 2000, respectively.
Comparable properties refer to properties that we owned for the same period
of time in each of the periods covered as adjusted to exclude properties where
significant disruptions to operations occurred due to expansions to the
properties.
The chart below sets forth performance information for our comparable
properties:
<TABLE>
<CAPTION>
First Three
Quarters Year Ended
---------------- ----------------
2000 1999 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Comparable Full-Service Hotels(1)
Number of properties........................ 114 114 84 84
Number of rooms............................. 52,426 52,426 40,868 40,868
Average daily rate.......................... $156.40 $147.13 $146.74 $141.41
Occupancy percentage........................ 79.5% 79.3% 78.5% 78.2%
REVPAR...................................... $124.31 $116.64 $115.13 $110.57
REVPAR % change............................. 6.6% -- 4.1% --
</TABLE>
--------
(1) Consists of 114 and 84 properties owned, directly or indirectly, by us for
the entire First Three Quarters 2000 and 1999, and the 1999 and 1998 fiscal
years, respectively, excluding two properties where significant expansion
at the hotels affected operations and five properties where reported
results were affected by a change in reporting period for the First Three
Quarters 2000 and 1999, and excluding two properties where significant
expansion at the hotels affected operations for the 1999 and 1998 fiscal
years. These properties, for the respective periods, represent the
"comparable properties."
55
<PAGE>
The chart below presents some performance information for our hotels:
<TABLE>
<CAPTION>
First Three
Quarters Year Ended
---------------- -------------------------
2000(3) 1999(4) 1999(1) 1998(2) 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Number of properties............... 122 124 121 126 95
Number of rooms.................... 58,369 57,966 57,086 58,445 45,718
Average daily rate................. $155.22 $146.79 $149.51 $140.36 $133.74
Occupancy percentage............... 79.0% 79.2% 77.7% 77.7% 78.4%
REVPAR............................. $122.64 $116.19 $116.13 $109.06 $104.84
</TABLE>
--------
(1) The property statistics and operating results include operations for the
Minneapolis/Bloomington Marriott, the Saddle Brook Marriott, Marriott's
Grand Hotel Resort and Golf Club, the Ritz-Carlton, Boston, and the El Paso
Marriott, which were sold at various times throughout 1999, through the
date of sale.
(2) Number of properties and rooms is as of December 31, 1998 and includes 25
properties (9,965 rooms) acquired in that month.
(3) Number of properties and rooms is as of September 8, 2000 and includes the
Tampa Waterside Marriott (717 rooms), which opened in February 2000.
(4) The property statistics and operating results include operations for the
five hotels which were sold at various times in 1999, through the date of
sale.
The following tables present full service hotel information by geographic
region:
<TABLE>
<CAPTION>
As of September 8, 2000 First Three Quarters 2000
------------------------ --------------------------------------
Number Average Number Average Average
Geographic Region of Hotels of Guest Rooms Occupancy Daily Rate REVPAR
----------------- --------- -------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Atlanta................. 11 487 74.0% $ 158.29 $ 117.12
Florida................. 13 584 77.8 154.03 119.81
Mid-Atlantic............ 17 364 77.1 142.41 109.84
Midwest................. 14 358 76.5 137.17 104.95
New York................ 10 719 83.7 209.08 174.98
Northeast............... 11 390 77.3 135.20 104.56
South Central........... 19 497 78.7 125.74 98.93
Western................. 27 492 81.8 163.20 133.42
---
Average--All regions.... 122 478 79.0 155.22 122.64
===
<CAPTION>
As of December 31, 1999 Year Ended December 31, 1999(2)
------------------------ --------------------------------------
Number Average Number Average Average
Geographic Region of Hotels of Guest Rooms Occupancy Daily Rate REVPAR
----------------- --------- -------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Atlanta................. 11 486 74.7% $ 148.78 $ 111.12
Florida................. 12 531 77.1 149.75 115.51
Mid-Atlantic............ 17 364 75.8 132.80 100.69
Midwest................. 14 358 76.6 132.19 101.24
New York................ 10 716 84.0 203.16 170.70
Northeast............... 11 390 77.4 140.99 109.07
South Central........... 19 497 76.2 123.25 93.89
Western................. 27 491 78.2 154.26 120.60
---
Average--All regions.... 121 472 77.7 149.51 116.13
===
</TABLE>
--------
(1) The property statistics and operating results include operations for the
Tampa Waterside Marriott, which opened in February 2000.
(2) The property statistics and operating results include operations for the
five hotels which were sold at various times throughout 1999, through the
date of sale.
56
<PAGE>
Prior to 1997, we divested virtually all of our limited-service hotel
properties through the sale and leaseback of 53 Courtyard properties and 18
Residence Inn properties. The Courtyard and Residence Inn properties are
subleased to subsidiaries of Crestline under sublease agreements and are
managed by Marriott International under long-term management agreements. During
1999, limited-service properties represented less than 1% of our EBITDA from
hotel properties. Lease revenues for the 71 properties that we sub-lease are
reflected in our revenues in 1999, while gross property-level sales were
reflected previous to that.
The following table sets forth as of September 8, 2000, the location and
number of rooms relating to each of our 122 hotels. All of the properties are
leased to a subsidiary of Crestline and operated under Marriott brands by
Marriott International, unless otherwise indicated.
<TABLE>
<CAPTION>
Location Rooms
-------- -----
<S> <C>
Arizona
Mountain Shadows Resort.................................................. 337
Scottsdale Suites........................................................ 251
The Ritz-Carlton, Phoenix................................................ 281
California
Coronado Island Resort(1)(2)............................................. 300
Costa Mesa Suites........................................................ 253
Desert Springs Resort and Spa............................................ 884
Fullerton(2)............................................................. 224
Hyatt Regency, Burlingame(3)............................................. 793
Manhattan Beach(1)(2)(4)(6).............................................. 380
Marina Beach(1)(2)....................................................... 368
Newport Beach............................................................ 586
Newport Beach Suites..................................................... 250
Ontario Airport(4)(6).................................................... 299
Sacramento Airport(2)(3)(7).............................................. 85
San Diego Marriott Hotel and Marina(2)(6)................................ 1,355
San Diego Mission Valley(6)(7)........................................... 350
San Francisco Airport.................................................... 684
San Francisco Fisherman's Wharf(4)....................................... 285
San Francisco Moscone Center(2).......................................... 1,498
San Ramon(2)............................................................. 368
Santa Clara(2)........................................................... 754
The Ritz-Carlton, Marina del Rey(2)...................................... 306
The Ritz-Carlton, San Francisco.......................................... 336
Torrance................................................................. 487
Colorado
Denver Southeast(2)...................................................... 595
Denver Tech Center(1).................................................... 625
Denver West(2)........................................................... 307
Marriott's Mountain Resort at Vail(1).................................... 349
Connecticut
Hartford/Farmington...................................................... 380
Hartford/Rocky Hill(2)................................................... 251
Florida
Fort Lauderdale Marina(2)................................................ 580
Harbor Beach Resort(2)(5)(6)............................................. 637
Jacksonville(2)(4)....................................................... 256
Miami Airport(2)......................................................... 782
Miami Biscayne Bay(2).................................................... 605
Orlando World Center..................................................... 2,003
Palm Beach Gardens(4).................................................... 279
Singer Island Hilton(3).................................................. 222
Tampa Airport(2)......................................................... 295
Tampa Waterside.......................................................... 717
Tampa Westshore(2)....................................................... 309
</TABLE>
<TABLE>
<CAPTION>
Location Rooms
-------- -----
<S> <C>
The Ritz-Carlton, Amelia Island.......................................... 449
The Ritz-Carlton, Naples................................................. 463
Georgia
Atlanta Marriott Marquis(6).............................................. 1,671
Atlanta Midtown Suites(2)................................................ 254
Atlanta Norcross......................................................... 222
Atlanta Northwest........................................................ 401
Atlanta Perimeter(2)..................................................... 400
Four Seasons, Atlanta(3)................................................. 246
Grand Hyatt, Atlanta(3).................................................. 439
JW Marriott Hotel at Lenox(2)............................................ 371
Swissotel, Atlanta(3).................................................... 348
The Ritz-Carlton, Atlanta(2)............................................. 447
The Ritz-Carlton, Buckhead............................................... 553
Illinois
Chicago/Deerfield Suites................................................. 248
Chicago/Downers Grove Suites............................................. 254
Chicago/Downtown Courtyard............................................... 334
Chicago O'Hare(2)........................................................ 681
Chicago O'Hare Suites(2)................................................. 256
Swissotel, Chicago(3).................................................... 630
Indiana
South Bend(2)............................................................ 300
Louisiana
New Orleans.............................................................. 1,290
Maryland
Bethesda(2).............................................................. 407
Gaithersburg/Washingtonian Center........................................ 284
Massachusetts
Boston/Newton............................................................ 430
Hyatt Regency, Cambridge(3).............................................. 469
Swissotel, Boston(3)..................................................... 498
Michigan
The Ritz-Carlton, Dearborn............................................... 308
Detroit Livonia.......................................................... 224
Detroit Romulus.......................................................... 245
Detroit Southfield....................................................... 226
Minnesota
Minneapolis City Center(2)............................................... 583
Minneapolis Southwest(6)(7).............................................. 320
Missouri
Kansas City Airport(2)................................................... 382
New Hampshire
Nashua................................................................... 251
New Jersey
Hanover.................................................................. 353
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
Location Rooms
-------- -----
New Jersey (continued)
<S> <C>
Newark Airport(2)........................................................ 590
Park Ridge(2)............................................................ 289
New Mexico
Albuquerque(2)........................................................... 411
New York
Albany(6)(7)............................................................. 359
New York Marriott Financial Center....................................... 504
New York Marriott Marquis(2)............................................. 1,944
Marriott World Trade Center (1)(2)....................................... 820
Swissotel, The Drake(3).................................................. 494
North Carolina
Charlotte Executive Park(4).............................................. 298
Greensboro/Highpoint(2).................................................. 299
Raleigh Crabtree Valley.................................................. 375
Research Triangle Park................................................... 224
Ohio
Dayton................................................................... 399
Oklahoma
Oklahoma City............................................................ 354
Oklahoma City Waterford(1)(4)(6)......................................... 197
Oregon
Portland................................................................. 503
Pennsylvania
Four Seasons, Philadelphia(3)............................................ 365
Philadelphia Convention Center(2)(6)..................................... 1,410
Philadelphia Airport(2).................................................. 419
Pittsburgh City Center(1)(2)(4)(6)....................................... 400
Tennessee
Memphis(1)(2)............................................................ 403
Texas
Dallas/Fort Worth Airport................................................ 492
</TABLE>
<TABLE>
<CAPTION>
Location Rooms
-------- ------
<S> <C>
Dallas Quorum(2)........................................................ 547
Houston Airport(2)...................................................... 566
Houston Medical Center(2)............................................... 386
JW Marriott Houston..................................................... 514
Plaza San Antonio(1)(2)(4).............................................. 252
San Antonio Rivercenter(2).............................................. 999
San Antonio Riverwalk(2)................................................ 500
Utah
Salt Lake City(2)....................................................... 510
Virginia
Dulles Airport(2)....................................................... 370
Fairview Park(2)........................................................ 395
Hyatt Regency, Reston(3)................................................ 514
Key Bridge(2)........................................................... 588
Norfolk Waterside(2)(4)................................................. 404
Pentagon City Residence Inn............................................. 300
The Ritz-Carlton, Tysons Corner(2)...................................... 397
Washington Dulles Suites................................................ 254
Westfields(1)........................................................... 335
Williamsburg(1)......................................................... 295
Washington
Seattle SeaTac Airport.................................................. 459
Washington, DC
Washington Metro Center(1).............................................. 456
Canada
Calgary(1).............................................................. 380
Toronto Airport(6)...................................................... 423
Toronto Eaton Center(2)................................................. 459
Toronto Delta Meadowvale(3)............................................. 374
------
TOTAL.................................................................... 58,369
======
</TABLE>
(1) This property was converted to the Marriott brand after acquisition.
(2) The land on which this hotel is built is leased under one or more long-term
lease agreements.
(3) This property is not operated under the Marriott brand and is not managed
by Marriott International.
(4) This property is operated as a Marriott franchised property.
(5) This property is leased to Marriott International.
(6) This property is not wholly owned by us.
(7) This property is not leased to Crestline.
Investments in Affiliated Partnerships
We and certain of our subsidiaries also manage our partnership investments
and conduct the partnership services business. As previously discussed, in
connection with the REIT conversion, the non-controlled subsidiaries were
formed to hold various assets. The direct ownership of those assets by us or
Host REIT could jeopardize Host REIT's status as a REIT or our treatment as a
partnership for federal income tax purposes. Substantially all our general and
limited partner interests in partnerships owning 209 limited-service hotels
were held by the non-controlled subsidiaries at year end. There were also 20
full-service hotels in which we had general and limited partner interests, 13
of which have been acquired by us, two were sold, four were transferred to our
non-controlled subsidiary and one was retained.
The managing general partner of the partnership is responsible for the day-
to-day management of the partnership operations, which generally includes
payment of partnership obligations from partnership funds, preparation of
financial reports and tax returns and communications with lenders, limited
partners and regulatory bodies. The general partner is reimbursed for the cost
of providing these services subject to limitations in certain cases.
58
<PAGE>
The partnership hotels are currently operated under management agreements
with Marriott International or its subsidiaries. The general partner oversees
and monitors Marriott International and its subsidiaries' performance pursuant
to these agreements.
Cash distributions provided from these partnerships including distributions
related to partnerships sold, transferred or acquired in 1998 are tied to the
overall performance of the underlying properties and the overall level of
debt. All debt of these partnerships is nonrecourse to us and our
subsidiaries, except that we are contingently liable under various guarantees
of debt obligations of certain of the limited-service partnerships.
Marketing
As of September 8, 2000, 100 of our 122 hotel properties were managed by
subsidiaries of Marriott International as Marriott or Ritz-Carlton brand
hotels and an additional nine hotels are part of Marriott International's
full-service hotel system through franchise agreements. The remaining hotels
are managed primarily by Hyatt, Four Seasons and Swissotel. In addition, we
converted the resort property in Singer Island, Florida to the Hilton brand in
April 2000.
We believe that our properties will continue to enjoy competitive
advantages arising from their participation in the Marriott, Ritz-Carlton,
Hyatt, Four Seasons, Swissotel, and Hilton hotel systems. The national
marketing programs and reservation systems of each of these managers, as well
as the advantages of strong customer preference for these upper-upscale and
luxury brands should also help these properties to maintain or increase their
premium over competitors in both occupancy and room rates. Repeat guest
business is enhanced by guest rewards programs offered by Marriott, Hyatt,
Swissotel, and Hilton. For example, the Marriott Rewards program membership
includes more than 7.5 million members.
Each of the managers maintains national reservation systems that provide
reservation agents with complete descriptions of the rooms available and up-
to-date rate information from the properties. Marriott's reservation system
also features connectivity to airline reservation systems, providing travel
agents with access to available rooms inventory for all Marriott and Ritz-
Carlton lodging properties. In addition, software at Marriott's centralized
reservations centers enables agents to immediately identify the nearest
Marriott or Ritz-Carlton brand property with available rooms when a caller's
first choice is fully occupied. Our website (www.hostmarriott.com) currently
permits users to connect to the Marriott, Ritz-Carlton, Hyatt, Hilton, Four
Seasons, and Swissotel reservation systems to reserve rooms in our hotels.
Competition
Our hotels compete with several other major lodging brands in each segment
in which they operate. Competition in the industry is based primarily on the
level of service, quality of accommodations, convenienceof locations and room
rates. Although the competitive position of each of our hotel properties
differs from market to market, we believe that our properties compare
favorably to their competitive set in the markets in which they operate on the
basis of these factors. The following table presents key participants in
segments of the lodging industry in which we compete:
<TABLE>
<CAPTION>
Segment Representative Participants
------- ---------------------------
<C> <S>
Luxury Full-Service Ritz-Carlton; Four Seasons
Upscale Full-Service Crown Plaza; Doubletree; Hyatt; Hilton; Marriott Hotels,
Resort and Suites; Radisson; Renaissance; Sheraton;
Swissotel; Westin; Wyndham
</TABLE>
Seasonality
Our hotel revenues have traditionally experienced significant seasonality.
Additionally, hotel revenues in the fourth quarter reflect sixteen weeks of
results compared to twelve weeks for the first three quarters of the fiscal
year. Average hotel sales by quarter over the three years 1997 through 1999
for our lodging properties are as follows:
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C>
22% 23% 22% 33%
</TABLE>
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Other Real Estate Investments
We have lease and sublease activity relating primarily to Host Marriott's
former restaurant operations. Additionally, we have lease activity related to
certain office space that we own in Atlanta, Chicago, and San Francisco which
is included in other revenues in our statements of operations. Prior to the
REIT conversion, we owned 12 undeveloped parcels of vacant land, totaling
approximately 83 acres, originally purchased primarily for the development of
hotels or senior living communities. These parcels are now owned by one of the
non-controlled subsidiaries.
Employees
As of September 8, 2000, we had 179 management employees, and 13 other
employees who are covered by a collective bargaining agreement that is subject
to review and renewal on a regular basis. We believe that we and our managers
have good relations with labor unions and have not experienced any material
business interruptions as a result of labor disputes.
Environmental and Regulatory Matters
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws may impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In addition, certain environmental laws and
common law principles could be used to impose liability for release of
asbestos-containing materials, and third parties may seek recovery from owners
or operators of real properties for personal injury associated with exposure to
released asbestos-containing materials. Environmental laws also may impose
restrictions on the manner in which property may be used or business may be
operated, and these restrictions may require expenditures. In connection with
our current or prior ownership or operation of hotels, we may be potentially
liable for any such costs or liabilities. Although we are currently not aware
of any material environmental claims pending or threatened against us, we can
offer no assurance that a material environmental claim will not be asserted
against us.
The Leases
Currently, in order for Host REIT to qualify as a REIT and for us to be
treated as a partnership for income tax purposes, neither we nor Host REIT may
operate the hotels or related properties. Accordingly, we lease the hotels to
lessees, which are primarily wholly owned indirect subsidiaries of Crestline.
Beginning January 1, 2001, the REIT Modernization Act, however, will permit a
REIT to lease hotels to a subsidiary that qualifies as a taxable REIT
subsidiary. For a description of our definitive agreement with Crestline to
acquire the entities that own the leasehold interests for 117 of our hotels
through a taxable REIT subsidiary, see "--The REIT Conversion" above.
The following is a brief summary of the general terms of the leases, a form
of which has been filed with the Securities and Exchange Commission.
. Lessees. There generally is a separate lessee for each hotel or group of
hotels that is owned by us or our subsidiaries. Each lessee is a Delaware
limited liability company, whose purpose is limited to acting as lessee
under the applicable lease(s). For those hotels where it is the manager,
Marriott International or a subsidiary has a noneconomic membership
interest in the lessee entitling it to certain voting rights but no
economic rights. The operating agreements for such lessees provide that
the Crestline member of the lessee has full control over the management
of the business of the lessee, except with respect to specific decisions
for which the consent of both members is required. Upon any termination
of the applicable management agreement, these special voting rights of
Marriott International or its subsidiary will cease.
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. Lease Terms. Each lease has a fixed term ranging generally from seven to
ten years (depending upon the lease), subject to earlier termination upon
the occurrence of specified contingencies described in the lease.
Effective November 15, 1999, we amended substantially all of our leases
with Crestline to give Crestline the right to renew each of these leases
for up to four additional terms of seven years each at a fair rental
value, to be determined either by agreement between us and Crestline or
through arbitration at the time the renewal option is exercised.
Crestline is under no obligation to exercise these renewal options, and
we have the right to terminate the renewal options during time periods
specified in the amendments. In addition, the amendments provide that the
fair rental value payable by us to Crestline in connection with the
purchase of a lease as described above does not include any amounts
relating to any renewal period. Therefore, the fair rental value of a
lease after expiration of the initial term for such lease would be zero.
. Termination of the Leases upon Changes in Tax Laws. In the event that
changes in the federal income tax laws such as those included in the REIT
Modernization Act allow the lessors, or subsidiaries or affiliates of the
lessors, to directly operate the hotels without jeopardizing Host REIT's
status as a REIT, the lessors have the right to terminate all, but not
less than all, of the leases (excluding leases of hotels that must still
be leased following the tax law change) in return for paying the lessees
the fair market value of the remaining terms of the leases. We are
currently engaged in discussions with Crestline regarding a transaction
in which a taxable REIT subsidiary owned by us would acquire all or
substantially all of the leases that Crestline owns for our hotels. We
have not reached an agreement with Crestline with respect to this
acquisition and there can be no assurance that we will be able to reach
an agreement or that an acquisition would be completed.
. Minimum Rent; Percentage Rent. Each lease requires the lessee to pay
minimum rent in a fixed dollar amount per annum specified in each lease
plus, to the extent it exceeds minimum rent, percentage rent based upon
specified percentages of aggregate sales from the applicable hotel,
including room sales, food and beverage sales and other income in excess
of specified thresholds. The amount of minimum rent and the percentage
rent thresholds are to be adjusted each year. The annual adjustment with
respect to minimum rent equals a percentage of any increase in the
Consumer Price Index during the previous twelve months. Neither minimum
rent nor percentage rent thresholds will be decreased because of the
annual adjustment.
. Lessee Expenses. Each lessee is responsible for paying all of the
expenses of operating the applicable hotel(s), including all personnel
costs, utility costs and general repair and maintenance of the hotel(s).
The lessee also is responsible for all fees payable to the applicable
manager, including base and incentive management fees, chain services
payments and franchise or system fees, with respect to periods covered by
the term of the lease. The lessee is not obligated to bear the cost of
any capital improvements or capital repairs to the hotels or the other
expenses borne by the lessor, as described below.
. Lessor Expenses. The lessor is responsible for the following expenses:
real estate taxes, personal property taxes, casualty insurance on the
structures, ground lease rent payments, required expenditures for FF&E
and capital expenditures. The consent of the lessor is required for any
capital expenditures or a change in the amount of the FF&E reserve
payment.
. Crestline Guarantee. Crestline and some of its subsidiaries have entered
into a limited guarantee of the lease and management agreement
obligations of each lessee. For each of four identified "pools" of
hotels, the cumulative limit of the guarantee at any time is 10% of the
aggregate rents under all leases in such pool paid with respect to the
preceding thirteen full accounting periods (with an annualized amount
based upon the minimum rent for those leases that have not been in effect
for thirteen full accounting periods). In the event of a payment default
under any lease or failure of Crestline to maintain specified minimum net
worth or debt service coverage ratios, the obligations under the
guarantees of leases in each pool are secured by excess cash flow of each
lessee in such pool. Such excess cash flow will be collected, held in a
cash collateral account, and disbursed in accordance with agreed cash
management procedures.
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. Working Capital. Each lessor sold the existing working capital (including
Inventory and Fixed Asset Supplies (as defined in the Uniform System of
Accounts for Hotels) and receivables due from the manager, net of
accounts payable and accrued expenses) to the applicable lessee upon the
commencement of the lease at a price equal to the fair market value of
such assets. The purchase price was represented by a note evidencing a
loan that bears interest at a rate per year equal to the "long-term
applicable federal rate" in effect on the commencement of the lease.
Interest owed on the working capital loan is due simultaneously with each
periodic rent payment and the amount of each payment of interest will be
credited against such rent payment. The principal amount of the working
capital loan will be payable upon termination of the lease.
. Termination of Leases upon Disposition of Full-Service Hotels. In the
event the applicable lessor enters into an agreement to sell or otherwise
transfer any full-service hotel free and clear of the applicable lease,
the lessor must pay the lessee a termination fee equal to the fair market
value of the lessee's leasehold interest in the remaining term of the
lease. Alternatively, the lessor would be entitled to substitute a
comparable hotel or hotels for any hotel that is sold or sell the hotel
subject to the lease subject to the lessee's reasonable approval. In
addition, the lessors collectively and the lessees collectively each have
the right to terminate up to twelve leases without being required to pay
any fee or other compensation as a result of such termination, but the
lessors are permitted to exercise such right only in connection with
sales of hotels to an unrelated third party or the transfer of a hotel to
a joint venture in which we do not have a two-thirds or greater interest.
. Assignment of Lease. A lessee is permitted to sublet all or part of the
hotel or assign its interest under its lease, without the consent of the
lessor, to any wholly owned and controlled single purpose subsidiary of
Crestline, provided that Crestline continues to meet the minimum net
worth test and all other requirements of the lease. Transfers to other
parties are permitted if approved by the lessor.
. Subordination to Qualifying Mortgage Debt. The rights of each lessee are
expressly subordinate to qualifying mortgage debt and any refinancing
thereof.
. Personal Property Limitation. If a lessor reasonably anticipates that the
average tax basis of the items of the lessor's FF&E and other personal
property that are leased to the applicable lessee will exceed 15% of the
aggregate average tax basis of the real and personal property subject to
the applicable lease the lessor would acquire any replacement FF&E that
would cause the applicable limits to be exceeded, and immediately
thereafter the lessee would be obligated either to acquire such excess
FF&E from the lessor or to cause a third party to purchase such FF&E. The
annual rent under the applicable lease would then be reduced in
accordance with a formula based on market leasing rates for the excess
FF&E. Beginning January 1, 2001, the average aggregate fair market values
of both real and personal property will be used for purposes of
determining rents from real property as opposed to the aggregate tax
bases.
. Change in Manager. A lessee is permitted to change the manager or the
brand affiliation of a hotel only with the approval of the applicable
lessor, which approval may not be unreasonably withheld.
The Management Agreements
All of our hotels are subject to management agreements for the operation of
the properties. The original terms of the management agreements are generally
15 to 20 years in length with multiple optional renewal terms. The following is
a brief summary of the general terms of the management agreements, a form of
which has been filed with the Securities and Exchange Commission. The lessees
lease the hotels from us or our subsidiaries. Upon leasing the hotels, the
lessees assume substantially all of the obligations of such subsidiaries under
the management agreements between those entities and the subsidiaries of the
companies that currently manage the hotels. As a result of their assumptions of
obligations under the management agreements, the lessees have substantially all
of the rights and obligations of the "owners" of the hotels under the
management agreements for the period during which the leases are in effect
(including the obligation to pay the management
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and other fees thereunder) and hold us harmless with respect thereto. Our
subsidiaries remain liable for all obligations under the management agreements.
If the purchase of the Crestline entities that own the leasehold interests with
respect to 117 of our full-service hotels is consummated, Crestline will no
longer be obligated under the management agreements.
. General. Under each management agreement related to a Marriott
International-managed hotel, the manager provides complete management
services to the applicable lessees in connection with its management of
such lessee's hotels.
. Operational services. The managers have been delegated sole
responsibility and exclusive authority for all activities necessary for
the day-to-day operation of the hotels, as agents, including
establishment of all room rates, the processing of reservations,
procurement of inventories, supplies and services, periodic inspection
and consultation visits to the hotels by the managers' technical and
operational experts and promotion and publicity of the hotels. The
manager receives compensation from the lessee in the form of a base
management fee and an incentive management fee, which are normally
calculated as percentages of gross revenues and operating profits,
respectively.
. Executive supervision and management services. The managers provide all
managerial and other employees for the hotels; review the operation and
maintenance of the hotels; prepare reports, budgets and projections;
provide other administrative and accounting support services, such as
planning and policy services, financial planning, divisional financial
services, risk planning services, product planning and development,
employee planning, corporate executive management, legislative and
governmental representation and certain in-house legal services; and
protect tradenames and service marks. The managers also provide national
reservations systems.
. Chain services. Generally, the management agreements require the manager
to furnish chain services that are furnished generally on a central or
regional basis. Such services include: (1) the development and operation
of computer systems and reservation services, (2) regional management and
administrative services, regional marketing and sales services, regional
training services, manpower development and relocation costs of regional
personnel and (3) such additional central or regional services as may
from time to time be more efficiently performed on a regional or group
level. Costs and expenses incurred in providing such services are
allocated among all hotels managed by the manager or its affiliates and
each applicable lessee is required to reimburse the manager for its
allocable share of such costs and expenses.
. Working capital and fixed asset supplies. The lessee is required to
maintain working capital for each hotel and fund the cost of fixed asset
supplies, which principally consist of linen and similar items. The
applicable lessee also is responsible for providing funds to meet the
cash needs for the operations of the hotels if at any time the funds
available from operations are insufficient to meet the financial
requirements of the hotels.
. Use of affiliates. The manager employs the services of its affiliates to
provide certain services under the management agreements. Certain of the
management agreements provide that the terms of any such employment must
be no less favorable to the applicable lessee, in the reasonable judgment
of the manager, than those that would be available from the manager.
Furniture, fixtures, furnishings and equipment replacements. The management
agreements generally provide that once each year the manager will prepare a
list of FF&E to be acquired and certain routine repairs that are normally
capitalized to be performed in the next year and an estimate of the funds
necessary therefor. Under the terms of the leases, the lessor is required to
provide to the applicable lessee all necessary FF&E for the operation of the
hotels (including funding any required FF&E replacements). For purposes of
funding the FF&E replacements, a specified percentage (generally 5%) of the
gross revenues of the hotel is deposited by the manager into a book entry
account. These amounts are treated under the leases as paid by the lessees to
the lessor and will be credited against their rental obligations.
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Under each lease, the lessor is responsible for the costs of FF&E
replacements and for decisions with respect thereto (subject to its obligations
to the lessee under the lease).
. Building alterations, improvements and renewals. The management
agreements require the manager to prepare an annual estimate of the
expenditures necessary for major repairs, alterations, improvements,
renewals and replacements to the structural, mechanical, electrical,
heating, ventilating, air conditioning, plumbing and vertical
transportation elements of each hotel. Such estimate must be submitted to
the lessor and the lessee for their approval. In addition to the
foregoing, the management agreements generally provide that the manager
may propose such changes, alterations and improvements to the hotel as
are required, in the manager's reasonable judgment, to keep the hotel in
a competitive, efficient and economical operating condition or in
accordance with Marriott standards. The cost of the foregoing is paid
from the FF&E reserve account; to the extent that there are insufficient
funds in such account, we are required to pay any shortfall.
. Service marks. During the term of the management agreements, the service
mark, such as "Marriott" and other symbols, logos and service marks
currently used by the manager and its affiliates, may be used in the
operation of the hotels. Marriott International (or its applicable
affiliates), Hyatt, Swissotel, and Four Seasons intend to retain their
legal ownership of these marks. Any right to use the service marks, logo
and symbols and related trademarks at a hotel will terminate with respect
to that hotel upon termination of the management agreement with respect
to such hotel.
. Termination fee. Certain of the management agreements provide that if the
management agreement is terminated prior to its full term due to
casualty, condemnation or the sale of the hotel, the manager would
receive a termination fee as specified in the specific management
agreement. Under the leases, the responsibility for the payment of any
such termination fee as between the lessee and the lessor depends upon
the cause for such termination.
. Termination for failure to perform. Most of the management agreements may
be terminated based upon a failure to meet certain financial performance
criteria, subject to the manager's right to prevent such termination by
making specified payments to the lessee based upon the shortfall in such
criteria.
Assignment of management agreements. The management agreements applicable to
each hotel have been assigned to the applicable lessee for the term of the
lease of such hotel. The lessee is obligated to perform all of the obligations
of the lessor under the management agreement during the term of its lease,
other than specified retained obligations including, without limitation,
payment of real property taxes, property casualty insurance and ground rent,
and maintaining a reserve fund for FF&E replacements and capital expenditures,
for which the lessor retains responsibility. Although the lessee has assumed
obligations of the lessor under the management agreement, the lessor is not
released from its obligations and, if the lessee fails to perform any
obligations, the manager will be entitled to seek performance by or damages
from the lessor. If the lease is terminated for any reason, any new or
successor lessee must meet certain requirements for an approved lessee or
otherwise be acceptable to Marriott International.
Non-competition agreements
Pursuant to a non-competition agreement entered into in connection with the
leases, Crestline has agreed, among other things, that until the earlier of
December 31, 2008 and the date on which it is no longer a lessee for more than
25% of the number of the hotels owned by us on December 29, 1998, it will not
(1) own, operate or otherwise control (as owner or franchisor) any full-service
hotel brand or franchise, or purchase, finance or otherwise invest in full-
service hotels, or act as an agent or consultant with respect to any of the
foregoing activities, or lease or manage full-service hotels (other than hotels
owned by us) if its economic return therefrom would be more similar to returns
derived from ownership interests in such hotels except for acquisitions of
property used in hotels as to which a subsidiary of Crestline is the lessee,
investments in full-service hotels which represent an immaterial portion of a
merger or similar transaction or a minimal portfolio investment in another
entity, limited investments (whether debt or equity) in full-service hotels as
to which a subsidiary of Crestline is the lessee or activities undertaken with
respect to its business of providing asset
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management services to hotel owners, or (2) without our consent, manage any of
the hotels owned by us, other than to provide asset management services.
We have agreed with Crestline, among other things, that, (1) until December
31, 2003, we will not purchase, finance or otherwise invest in senior living
communities, or act as an agent or consultant with respect to any of the
foregoing activities (except for acquisitions of communities which represent an
immaterial portion of a merger or similar transaction or for minimal portfolio
investments in other entities) and (2) until the earlier of December 31, 2008
and the date on which subsidiaries of Crestline are no longer lessees for more
than 25% of the number of the hotels owned by Host Marriott on December 29,
1998, we will not lease, as tenant or subtenant, limited- or full-service hotel
properties from any "real estate investment trust" within the meaning of
Sections 856 through 859 of the Internal Revenue Code where it will not be the
operator or manager of the hotel (other than through a contractual arrangement
with a non-affiliated party) and where its rental payments qualify as "rents
from real property" within the meaning of Section 856(d) of the Internal
Revenue Code, or purchase, finance or otherwise invest in persons or entities
which engage in any of the foregoing activities, or act as an agent or
consultant with respect to any of the foregoing activities (except for
acquisitions of entities which engage in any of the foregoing activities where
the prohibited activities represent an immaterial portion of a merger or
similar transaction, or minimal portfolio investments in other entities which
engage in any of the foregoing activities, or certain leasing arrangements
existing on December 29, 1998 or entered into in the future between us and
certain other related parties, or by our management of any hotels in which it
has an equity interest). In addition, both Crestline and we have agreed not to
hire or attempt to hire any of the other company's senior employees at any time
prior to December 31, 2000. In the event we were to consummate a transaction
with Crestline for the purchase of all or substantially all of the leases for
our hotels held by Crestline subsidiaries, as more fully described above under
"--The REIT Conversion," the non-competition agreement would likely be affected
as part of the negotiation.
We entered into a noncompetition agreement with Marriott International that
defines our rights and obligations with respect to certain businesses operated
by each of us. Crestline became an additional party to this agreement at the
time its shares were distributed to our stockholders. At that time, we also
entered into an agreement with Crestline under which we agreed with Crestline
about the allocation between us of the rights to engage in certain activities
permitted under the agreement with Marriott International. In general, under
this agreement, we and our subsidiaries are prohibited from entering into or
acquiring any business that competes with the hotel management business (i.e.,
managing, operating or franchising full-service or limited-service hotels) as
conducted by Marriott International. This non-competition agreement with
Marriott International terminates on October 8, 2000, and thereafter will no
longer restrict business in which we may engage.
Legal Proceedings
Marriott Hotel Properties II Limited Partnership (MHP). Limited partners of
MHP II have filed putative class action lawsuits in Palm Beach County Circuit
Court on May 10, 1996, Leonard Rosenblum, as Trustee of the Sylvia Bernice
Rosenblum Trust, et. al. v. Marriott MHP Two Corporation, et. al., Case No. CL-
96-4087-AD, and, in the Delaware Court of Chancery on April 24, 1996, Cary W.
Salter, Jr., et. al. v. MHP II Acquisition Corp., et. al., respectively,
against Host REIT and certain of its affiliates alleging that the defendants
violated their fiduciary duties and engaged in fraud and coercion in connection
with the tender offer for MHP II units and with our acquisition of MHP II in
connection with the REIT conversion. The plaintiffs in these actions are
seeking unspecified damages.
In the Florida case, the defendants removed the case to the United States
District Court for the Southern District of Florida and, after hearings on
various procedural motions, the District Court remanded the case to state court
on July 25, 1998. In light of the court's decision in the Delaware case,
detailed below, the defendants in the Florida action filed a supplemental
memorandum in support of their motions to dismiss, and attached a copy of the
Delaware opinion to the memorandum. The Florida court has not yet ruled on the
motions.
In the Delaware case, the Delaware Court of Chancery initially granted the
plaintiffs' motion to voluntarily dismiss the case with the proviso that the
plaintiffs could refile in the aforementioned action in
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federal court in Florida. After the District Court's remand of the Florida
action back to Florida state court, two of the three original Delaware
plaintiffs asked the Court of Chancery to reconsider its order granting their
voluntary dismissal. The Court of Chancery refused to allow the plaintiffs to
join the Florida action and, instead, reinstated the Delaware case, now styled
In Re Marriott Hotel Properties II Limited Partnership Unitholders Litigation,
Consolidated Civil Action No. 14961. On January 29, 1999, Cary W. Salter, one
of the original plaintiffs, alone filed an Amended Consolidated Class Action
Complaint in the Delaware action, adding the allegations that related to our
acquisition of MHP II in connection with the REIT conversion. On January 24,
2000, the Delaware Court of Chancery issued a memorandum opinion in which the
court dismissed all but one of the plaintiff's claims, which remaining claim
concerns the adequacy of disclosure during the initial tender offer. This claim
remains pending.
A subsequent lawsuit, Accelerated High Yield Growth Fund, Ltd., et al. v.
HMC Hotels Properties II Limited Partnership, et. al., C.A. No. 18254NC, was
filed on August 23, 2000 in the Delaware Court of Chancery by the MacKenzie
Patterson group of funds, one of the three original Delaware plaintiffs,
against Host REIT and certain of its affiliates alleging breach of contract,
fraud and coercion in connection with the acquisition of MHP II during the REIT
conversion. The plaintiffs allege that our acquisition of MHP II by merger in
connection with the REIT conversion violated the partnership agreement and that
our subsidiary acting as the general partner of MHP II breached its fiduciary
duties by allowing it to occur. The plaintiffs in this action are seeking
unspecified damages.
Marriott Suites Limited Partnership (MSLP). On December 10, 1999, KSK Hawaii
Co., Ltd. ("KSK"), a limited partner in MSLP, filed a lawsuit, KSK Hawaii Co.,
Ltd. v. Marriott SBM One Corporation, et al., Civil Action No. 17657-NC, in the
Delaware Court of Chancery. This lawsuit relates to a 1996 recapitalization of
MSLP by our subsidiary, the general partner of MSLP, and the merger of MSLP
into Host REIT in 1998. KSK claims that it was coerced into selling 19 of its
20 partnership units in the 1996 recapitalization and alleges that the 1998
merger was a "freeze-out' merger that was designed solely to eliminate KSK's
interest in MSLP. KSK maintains that it lost slightly more than $15 million as
a result of its investment in MSLP. The defendants have filed their answer, and
this case is in the early stages of discovery.
Mutual Benefit Chicago Marriott Suite Hotel Partners, L.P. ("O'Hare
Suites"). On October 5, 2000, Joseph S. Roth and Robert M. Niedelman, limited
partners in O'Hare Suites, filed a putative class action lawsuit, Joseph S.
Roth, et al., v. MOHS Corporation, et al., Case No. 00CH14500, in the Circuit
Court of Cook County, Illinois, Chancery Division, against Host REIT, Host LP,
Marriott International, and MOHS Corporation, a subsidiary of Host LP and a
former general partner of O'Hare Suites. The plaintiffs allege that an improper
calculation of the hotel manager's incentive management fees resulted in
inappropriate payments in 1997 and 1998, and, consequently, in an inadequate
appraised value for their limited partner units in connection with the
acquisition of O'Hare Suites during the REIT conversion. The plaintiffs are
seeking damages of approximately $13 million.
Certain Policies
The following is a discussion of our and Host REIT's policies with respect
to distributions, investments, financing, lending, conflicts of interest and
certain other activities. Our policies with respect to these activities are
determined by the Board of Directors of Host REIT and may be amended or revised
from time to time at the discretion of the Board of Directors, except that
changes in certain policies with respect to conflicts of interest must be
consistent with legal and contractual requirements.
Investment Policies
Investments in Real Estate or Interests in Real Estate. Host REIT is
required to conduct all of its investment activities through us. Our investment
objectives are to
. achieve long-term sustainable growth in "Funds from Operations" (i.e.,
net income computed in accordance with generally accepted accounting
principles, excluding gains or losses from debt
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restructuring and sales of properties, plus real estate related
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures) per OP Unit and cash flow;
. increase asset values by selectively improving and expanding our hotels;
. acquire additional existing and newly developed upscale and luxury full
service hotels in targeted markets (primarily focusing on downtown
hotels in core business districts in major metropolitan markets and
select airport and resort/convention locations);
. develop and construct upscale and luxury full service hotels; and
. opportunistically pursue other real estate investments.
Our business primarily focuses on upscale and luxury full service hotels.
Where appropriate, and subject to REIT qualification rules and limitations
contained in our partnership agreement, we may sell certain of our hotels.
We also may participate with other entities in property ownership through
joint ventures or other types of co-ownership. Equity investments may be
subject to existing mortgage financing and other indebtedness or such
financing or indebtedness may be incurred in connection with acquiring
investments. Any such financing or indebtedness will have priority over our
equity interest in such property.
Investments in Real Estate Mortgages. While we will emphasize equity real
estate investments, we may, in our discretion, invest in mortgages and other
similar interests. We do not intend to invest to a significant extent in
mortgages or deeds of trust, but may acquire mortgages as a strategy for
acquiring ownership of a property or the economic equivalent thereof, subject
to the investment restrictions applicable to REITs. In addition, we may invest
in mortgage-related securities and/or may seek to issue securities
representing interests in such mortgage-related securities as a method of
raising additional funds.
Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities and Other Issuers. Subject to the percentage ownership limitations
and gross and asset income tests necessary for REIT qualification, we also may
invest in securities of other entities engaged in real estate activities or
invest in securities of other issuers, including for the purpose of exercising
control over such entities. We may acquire all or substantially all of the
securities or assets of other REITs or similar entities where such investments
would be consistent with our investment policies. No such investments will be
made, however, unless the Board of Directors determines that the proposed
investment would not cause either Host REIT or us to be an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
Financing Policies
Neither our nor Host REIT's organizational documents contain restrictions
on incurring debt. The indenture described in this prospectus under
"Description of Notes" and our existing credit facility impose limitations on
the incurrence of indebtedness. The indenture limits the amount of debt that
we may incur if, immediately after giving effect to the incurrence of such
additional debt, the aggregate principal amount of all of our and our
subsidiaries on a consolidated basis is greater than 65% of our undepreciated
total assets on the date of such incurrence. We may, from time to time, reduce
our outstanding indebtedness by repurchasing a portion of such outstanding
indebtedness, subject to certain restrictions contained in our partnership
agreement and the terms of our outstanding indebtedness. We will from time to
time reevaluate our borrowing policies in light of then current economic
conditions, relative costs of debt and equity capital, market conditions,
market values of properties, growth and acquisition opportunities and other
factors. Consequently, our financing policy is subject to modification and
change. We may waive or modify our borrowing policy without notice to, or vote
of, the holders of any of our securities or any securities of Host REIT.
To the extent that the Host REIT Board of Directors determines to seek
additional capital, we or Host REIT may raise such capital through equity
offerings, debt financing or retention of cash flow or a combination of these
methods. As long as we are in existence, the net proceeds of all equity
capital raised by Host REIT will be contributed to us in exchange for OP
Units, which will dilute the ownership interest of our limited partners.
67
<PAGE>
In the future, we may seek to extend, expand, reduce or renew our existing
credit facility, or obtain new credit facilities or lines of credit, subject to
our general policy relating to the ratio of debt-to-total market
capitalization, for the purpose of making acquisitions or capital improvements
or providing working capital or meeting the taxable income distribution
requirements for REITs under the Internal Revenue Code. In the future, we and
Host REIT also may determine to issue securities senior to the common shares or
OP Units, including preferred shares and debt securities (either of which may
be convertible into common shares or OP Units or may be accompanied by warrants
to purchase common shares or OP Units).
We have not established any limit on the number or amount of mortgages that
may be placed on any single hotel or on its portfolio as a whole, although our
objective is to reduce its reliance on secured indebtedness.
Lending Policies
We may consider offering purchase money financing in connection with the
sale of a hotel where the provision of such financing will increase the value
we receive for the hotel sold.
Policies With Respect to Other Activities
We may, but do not presently intend to, make investments other than as
previously described. Host REIT will make investments only through us. We and
Host REIT have authority to offer our securities and to repurchase or otherwise
reacquire our securities and may engage in such activities in the future. We
and Host REIT also may make loans to joint ventures in which we may participate
in the future to meet working capital needs. We do not, and Host REIT does not,
intend to engage in trading, underwriting, agency distribution or sale of
securities of other issuers. Host REIT's policies with respect to such
activities may be reviewed and modified from time to time by Host REIT's Board
of Directors without notice to, or the vote of, the holders of any securities
of Host REIT or us.
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MANAGEMENT
Executive Officers and Directors of Host REIT
The following table sets forth certain information with respect to persons
who are the directors and executive officers of Host REIT, our sole general
partner.
<TABLE>
<CAPTION>
Name Age Position With Host REIT
<S> <C> <C>
Richard E. Marriott(1).. 61 Chairman of the Board of Directors
J.W. Marriott, Jr.(1)... 68 Director
R. Theodore Ammon....... 51 Director
Robert M. Baylis........ 62 Director
Terence C. Golden....... 56 Director
Ann Dore McLaughlin..... 58 Director
John G. Schreiber....... 53 Director
Harry L. Vincent, Jr. .. 80 Director
Christopher J.
Nassetta............... 38 Director, President and Chief Executive Officer
Robert E. Parsons,
Jr. ................... 45 Executive Vice President and Chief Financial Officer
James F. Risoleo........ 45 Executive Vice President
W. Edward Walter........ 45 Executive Vice President and Treasurer
Christopher G.
Townsend............... 53 Senior Vice President, General Counsel and Secretary
Donald D. Olinger....... 41 Senior Vice President and Controller
</TABLE>
---------------------
(1) Richard E. Marriott and J.W. Marriott, Jr. are brothers.
The following is a biographical summary of the experience of the persons who
are the directors and executive officers of Host REIT.
Richard E. Marriott. Mr. Richard E. Marriott has been a Director of Host
Marriott Corporation, now Host REIT, since 1979 and is a Director of Marriott
International, Inc. and the Polynesian Cultural Center, and he is Chairman of
the Board of First Media Corporation. Mr. Marriott also serves on the Federal
City Counsel, the Board of Associates for Gallaudet University and the National
Advisory Council of Brigham Young University. He is a past President of the
National Restaurant Association. In addition, Mr. Marriott is the President and
a Trustee of the Marriott Foundation for People with Disabilities. Mr.
Marriott's term as a Director of Host REIT will expire at the 2001 annual
meeting of shareholders. Mr. Marriott joined Host Marriott Corporation in 1965
and has served in various executive capacities. In 1984, he was elected
Executive Vice President, and in 1986, he was elected Vice Chairman of the
Board of Directors. In 1993, Mr. Marriott was elected Chairman of the Board.
J.W. Marriott, Jr. Mr. J.W. Marriott, Jr. has been a Director of Host
Marriott Corporation, now Host REIT, since 1964 and is Chairman of the Board
and Chief Executive Officer of Marriott International, Inc., and a Director of
General Motors Corporation and the Naval Academy Endowment Trust. He also
serves on the Boards of Trustees of Georgetown University and on the Board of
Trustees of the National Geographic Society. He serves on the Executive
Committee of the World Travel & Tourism Council and is a member of the Business
Council. Mr. Marriott's term as a Director of Host REIT will expire at the 2002
annual meeting of shareholders.
R. Theodore Ammon. Mr. Ammon has been a Director of Host Marriott
Corporation, now Host REIT, since 1992 and is a private investor and Founder
and Chairman of Vertis, Inc. He was formerly a General Partner of Kohlberg
Kravis Roberts & Company (a New York and San Francisco-based investment firm)
from 1990 to 1992, and was an executive of such firm prior to 1990. Mr. Ammon
is also the Chairman of the Board of 24/7 Media, Inc. and a Director of CAIS
Internet, Inc., and he serves on numerous boards of privately held companies.
In addition, he is involved in a number of not-for-profit organizations,
including as a member of the Board of Directors of The Municipal Art Society of
New York, The New York YMCA, Jazz @ Lincoln Center and on the Board of Trustees
of Bucknell University. Mr. Ammon's term as a Director of Host REIT will expire
at the 2001 annual meeting of shareholders.
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<PAGE>
Robert M. Baylis. Mr. Baylis has been a Director of Host Marriott
Corporation, now Host REIT, since 1996 and is a Director of The International
Forum, an executive education program of the Wharton School of the University
of Pennsylvania. He was formerly Vice Chairman of CS First Boston. Mr. Baylis
also serves as a Director of New York Life Insurance Company, Covance, Inc. and
Gildan Activewear, Inc. In addition, he is an overseer of the University of
Pennsylvania Museum of Archeology and Anthropology. Mr. Baylis's term as a
Director of Host REIT will expire at the 2003 annual meeting of shareholders.
Terence C. Golden. Mr. Golden has been a Director of Host Marriott
Corporation, now Host REIT, since 1995 and served as President and Chief
Executive Officer of Host REIT from 1995 until his retirement in May 2000. He
also serves as Chairman of Bailey Realty Corporation and Bailey Capital
Corporation and various affiliated companies. In addition, Mr. Golden is a
Director of American Classic Voyages Co., Cousins Properties, Inc., Potomac
Electric Power Company, The Morris and Gwendolyn Cafritz Foundation and the
District of Columbia Early Childhood Collaborative. He is also a member of the
Executive Committee of the Federal City Council. Prior to coming to Host REIT,
Mr. Golden had served as chief financial officer of The Oliver Carr Company and
was a Founder and National Managing Partner of Trammel Crow Residential
Companies. He has also served as Administrator of the U.S. General Services
Administration and as Assistant Secretary of the U.S. Department of the
Treasury. Mr. Golden's term as a Director of Host REIT will expire at the 2003
annual meeting of shareholders.
Ann Dore McLaughlin. Ms. McLaughlin has been a Director of Host Marriott
Corporation, now Host REIT, since 1993 and currently is Senior Advisor to
Benedetto, Gartland & Company, Inc., an investment banking firm in New York.
She formerly served as President of the Federal City Council from 1990 until
1995 and as Chairman of The Aspen Institute from 1996 until August 2000. Ms.
McLaughlin has served with distinction in several U.S. Administrations in such
positions as Secretary of Labor and Under Secretary of the Department of the
Interior. She also serves as a Director of AMR Corporation, Fannie Mae, Kellogg
Company, Microsoft Corporation, Nordstrom, Inc., Donna Karan International,
Inc., Vulcan Materials Company and Harman International Industries, Inc. Ms.
McLaughlin's term as a Director of Host REIT will expire at the 2003 annual
meeting of shareholders.
John G. Schreiber. Mr. Schreiber has been a Director of Host Marriott
Corporation, now Host REIT, since 1998 and is President of Centaur Capital
Partners, Inc. and a senior advisor and partner of Blackstone Real Estate
Advisors, L.P., an affiliate of The Blackstone Group L.P. Mr. Schreiber serves
as a Trustee of AMLI Residential Properties Trust and as a Director of Urban
Shopping Centers, Inc., JMB Realty Corporation, The Brickman Group, Ltd. and a
number of mutual funds advised by T. Rowe Price Associates, Inc. Prior to his
retirement as an officer of JMB Realty Corporation in 1990, Mr. Schreiber was
Chairman and CEO of JMB/Urban Development Company and an Executive Vice
President of JMB Realty Corporation. Mr. Schreiber's term as a Director of Host
REIT will expire at the 2002 annual meeting of shareholders.
Harry L. Vincent, Jr. Mr. Vincent has been a Director of Host Marriott
Corporation, now Host REIT, since 1969 and is a retired Vice Chairman of Booz-
Allen & Hamilton, Inc. He also served as a Director of Signet Banking
Corporation from 1973 until 1989. Mr. Vincent's term as a Director of Host REIT
will expire at the 2002 annual meeting of shareholders.
Christopher J. Nassetta. Mr. Nassetta has been a Director of Host Marriott
Corporation, now Host REIT, since 1999 and became the President and Chief
Executive Officer of Host REIT in May 2000. He also serves on the Board of
Trustees of Prime Group Realty Trust and as a member of the McIntire School of
Commerce Advisory Board for the University of Virginia. Mr. Nassetta's term as
a Director of Host REIT will expire at the 2001 annual meeting of shareholders.
From 1995 until May 2000, he served as Executive Vice President and was elected
Chief Operating Officer of Host Marriott Corporation in 1997. Prior to joining
Host, Mr. Nassetta served as President of Bailey Realty Corporation from 1991
until 1995. He had previously served as Chief Development Officer and in
various other positions with The Oliver Carr Company from 1984 through 1991.
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<PAGE>
Robert E. Parsons, Jr. Mr. Parsons joined the Corporate Financial Planning
staff of Host Marriott Corporation, now Host REIT, in 1981 and was made
Assistant Treasurer in 1988. In 1993, Mr. Parsons was elected Senior Vice
President and Treasurer of Host Marriott Corporation, and in 1995, he was
elected Executive Vice President and Chief Financial Officer of Host Marriott
Corporation. Mr. Parsons is now Executive Vice President and Chief Financial
Officer of Host REIT.
James F. Risoleo. Mr. Risoleo joined Host Marriott Corporation, now Host
REIT, in 1996 as Senior Vice President for Acquisitions, and he was elected
Executive Vice President in May 2000. He is responsible for Host Marriott's
development, acquisition and disposition activities. Prior to joining Host
Marriott, Mr. Risoleo served as Vice President of Development for Interstate
Hotels Corporation, then the nation's largest independent hotel management
company. Before joining Interstate, he was Senior Vice President at
Westinghouse Financial Services.
W. Edward Walter. Mr. Walter joined Host Marriott Corporation, now Host
REIT, in 1996 as Senior Vice President for Acquisitions, and he was elected
Treasurer in 1998 and Executive Vice President in May 2000. He is responsible
for all of Host's debt and equity financing activities as well as its asset
management efforts. Prior to joining Host Marriott, Mr. Walter was a partner
with Trammell Crow Residential Company and the President of Bailey Capital
Corporation, a real estate firm that focused on tax-exempt real estate
investments. Mr. Walter is a member of the District of Columbia Bar
Association.
Christopher G. Townsend. Mr. Townsend joined the Law Department of Host
Marriott Corporation, now Host REIT, in 1982 as a Senior Attorney. In 1984, Mr.
Townsend was made Assistant Secretary of Host Marriott Corporation, and in
1986, he was made Assistant General Counsel. In 1993, Mr. Townsend was elected
Senior Vice President, Corporate Secretary and Deputy General Counsel. In
January 1997, he was elected General Counsel. Mr. Townsend is now Senior Vice
President, General Counsel and Secretary of Host REIT.
Donald D. Olinger. Mr. Olinger joined Host Marriott Corporation, now Host
REIT, in 1993 as Director--Corporate Accounting. Later in 1993, Mr. Olinger was
promoted to Senior Director and Assistant Controller. He was promoted to Vice
President--Corporate Accounting in 1995. In 1996, he was elected Senior Vice
President and Corporate Controller. Mr. Olinger is now Senior Vice President
and Corporate Controller of Host REIT. Prior to joining Host Marriott
Corporation, Mr. Olinger was with the firm of Deloitte & Touche.
Committees of the Board of Directors
The Board of Directors of Host REIT, our general partner, has established
the following committees:
Audit Committee. The Audit Committee is composed of five Directors who are
not our employees or employees of Host REIT, namely, R. Theodore Ammon (Chair),
Harry L. Vincent, Jr., Ann Dore McLaughlin, John G. Schreiber and Robert M.
Baylis. The Audit Committee meets at least four times a year with the
independent auditors, management representatives and internal auditors;
recommends to the Board of Directors appointment of independent auditors;
approves the scope of audits and other services to be performed by the
independent and internal auditors; considers whether the performance of any
professional service by the auditors other than services provided in connection
with the audit function could impair the independence of the outside auditors;
reviews the results of internal and external audits, the accounting principles
applied in financial reporting, and financial and operational controls; and
reviews interim financial statements each quarter before the company files its
Form 10-Q with the Securities and Exchange Commission.
Compensation Policy Committee. The Compensation Policy Committee is composed
of six Directors who are not our employees or employees of Host REIT, namely,
John G. Schreiber (Chair), R. Theodore Ammon, Robert M. Baylis, J.W. Marriott,
Jr., Ann Dore McLaughlin and Harry L. Vincent, Jr. The Compensation Policy
Committee's functions include recommendations on policies and procedures
relating to senior officers' compensation and various employee stock plans, and
approval of individual salary adjustments and stock awards in those areas.
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<PAGE>
Nominating and Corporate Governance Committee. The Nominating and Corporate
Governance Committee is composed of six Directors who are not our employees or
employees of Host REIT, namely, Ann Dore McLaughlin (Chair), Harry L. Vincent,
Jr., John G. Schreiber, R. Theodore Ammon, J.W. Marriott, Jr. and Robert M.
Baylis. It considers candidates for election as Directors and is responsible
for keeping abreast of and making recommendations with regard to corporate
governance in general. In addition, the Nominating and Corporate Governance
Committee fulfills an advisory function with respect to a range of matters
affecting the Board of Directors and its Committees, including the making of
recommendations with respect to qualifications of Director candidates,
compensation of Directors, the selection of committee chairs, committee
assignments and related matters affecting the functioning of the Board.
Host REIT may from time to time form other committees as circumstances
warrant. Such committees will have authority and responsibility as delegated by
the Board of Directors.
Compensation of Directors
Directors who are also our officers or officers of Host REIT will receive no
additional compensation for their services as Directors. Directors who are not
officers will receive an annual retainer fee of $30,000 as well as an
attendance fee of $1,250 for each shareholders' meeting, meeting of the Board
of Directors or meeting of a committee of the Board of Directors, regardless of
the number of meetings held on a given day. The chair of each committee of the
Board of Directors will receive an additional annual retainer fee of $1,000,
except for the chair of the Compensation Policy Committee, Mr. Schreiber, who
will receive an annual retainer fee of $6,000. (The higher annual retainer fee
paid to the chair of the Compensation Policy Committee relates to his
additional duties which include, among other things, the annual performance
appraisal of the chief executive officer on behalf of the Board, although the
final appraisal is determined by the Board.) Any individual Director receiving
these fees may elect to defer payment of all such fees or any portion thereof
pursuant to Host REIT's Executive Deferred Compensation Plan and/or Host REIT's
Non-Employee Directors' Deferred Stock Compensation Plan. Directors will also
be reimbursed for travel expenses and other out-of-pocket costs incurred in
attending meetings or in visiting hotels or other properties controlled by us
or by Marriott International.
Directors who are not also our officers or officers of Host REIT receive an
annual award of deferred shares of Host REIT common stock equal in value to the
amount of the annual retainer fee paid to non-employee Directors. This annual
award of deferred shares is distributed immediately following the annual
meeting of Host REIT shareholders. In 2000, each such award was for 2,972
shares. Host REIT's Non-Employee Directors' Deferred Stock Compensation Plan
permits participants to be credited with dividend equivalents which are equal
in value to the dividends paid on Host REIT common stock. In addition, in 1997,
the following Directors of Host REIT received special one-time awards of Host
REIT common stock in the amounts indicated: Mr. Ammon, 4,000 shares; Mr.
Baylis, 7,000 shares; Ms. McLaughlin, 7,000 shares and Mr. Vincent, 7,000
shares. The special one-time awards of Host REIT common stock vest at the rate
of 10% per year of a Director's service on the Board, with credit given for
each year of service already completed, and will also become fully vested upon
the death or disability of the Directors.
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<PAGE>
Executive Compensation
The table below sets forth a summary of the compensation paid by Host
Marriott, now Host REIT, for the last three fiscal years to the Chief Executive
Officer and the four additional most highly compensated persons serving as
executive officers of Host Marriott at the end of Host Marriott's fiscal year
1999 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------- ---------------------
Restricted
Other Annual Stock All Other
Compensation Awards LTIP Compensation
Name and Principal Fiscal Salary(1) Bonus(2) (3)(4) (5)(6) Payouts(7) (8)
Position Year ($) ($) ($) ($) ($) ($)
------------------ ------ --------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard E. Marriott 1999 307,008 150,434 262,548 0 0 26,111
Chairman of the Board 1998 290,450 116,180 275,607 2,138,750 0 23,923
1997 271,449 108,580 212,324 0 0 22,668
Terence C. Golden 1999 749,996 849,895 0 0 0 81,952
Former President and 1998 669,782 602,804 67,489 11,800,000 0 73,051
Chief Executive 1997 619,045 557,141 58,783 354,693 0 66,105
Officer(9)
Christopher J. Nassetta 1999 500,006 536,106 0 0 947,318 48,363
President and Chief 1998 382,563 286,922 0 7,375,000 0 36,970
Executive Officer(9) 1997 338,889 254,167 0 0 0 36,231
Robert E. Parsons, Jr. 1999 424,996 455,681 0 0 947,318 42,672
Executive Vice
President 1998 369,583 277,187 0 6,195,000 0 36,970
and Chief Financial 1997 338,889 254,167 0 0 0 36,231
Officer
Christopher G. Townsend 1999 225,000 194,295 0 0 0 24,566
Senior Vice President 1998 215,904 118,747 0 1,696,250 0 19,683
and General Counsel 1997 202,962 111,629 0 1,015,800 0 18,405
</TABLE>
--------
(1) Salary amounts include base salary earned and paid in cash during the
fiscal year as well as the amount of base salary deferred at the election
of the named executive officer under Host REIT's Executive Deferred
Compensation Plan. An increase in base salary for the period November 2,
1997 through the end of that fiscal year was paid in 1998 and reported as
1997 earnings. The 1998 salary includes a competitive pay adjustment, paid
in 1999 but effective as of November 2, 1998 and reported as 1998 earnings.
The 1998 salary adjustment resulted from a compensation study conducted by
an independent consulting firm retained by the Compensation Policy
Committee of the Board of Directors.
(2) The bonus consists of the cash bonus earned pursuant to Host REIT's 1997
Comprehensive Stock and Cash Incentive Plan. It was either paid subsequent
to the end of each fiscal year or deferred under the Executive Deferred
Compensation Plan.
(3) The amounts set forth in this column for Mr. Marriott include $110,700,
$97,000 and $92,000 in 1999, 1998 and 1997, respectively, for the
allocation of company personnel costs for non-company business, and
$120,174, $133,626 and $101,535 in 1999, 1998 and 1997, respectively, for
additional cash compensation to cover taxes payable for all other
compensation in this column.
(4) The amounts set forth in this column for Mr. Golden represent reimbursement
of travel expenses of Mr. Golden's spouse when she accompanied him on Host
Marriott Corporation business trips. It also includes additional cash
compensation to cover taxes payable for such reimbursement.
(5) Restricted Stock. Restricted stock awards are subject to various general
restrictions, such as continued employment, as well as several performance
restrictions. Holders of restricted stock receive dividends and exercise
voting rights on their restricted shares. The named executive officers have
agreed that any cash dividends on the shares of restricted stock shall,
after withholding for or payment of any taxes due on the dividends, be
reinvested in shares of Host REIT common stock either through a dividend
reinvestment program or otherwise. Deferred Bonus Stock. The amount of a
deferred bonus stock award generally equals 20 percent of each individual's
annual cash bonus award, based on the stock price on the last trading day
for the fiscal year. Holders of deferred bonus stock awards do not receive
dividends or exercise voting rights on their deferred bonus stock until
such stock has been distributed to them. The recipient can designate an
award as current, which is distributed in 10 annual installments beginning
one year after the award is granted, or deferred, which is distributed in a
lump sum or in up to 10 annual installments following termination of
employment. Deferred bonus stock awards contingently vest in 10 equal
annual installments beginning one year after the awards are granted.
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<PAGE>
(6) Seventy percent of the restricted shares awarded in 1998 have performance
restrictions and thirty percent have general restrictions conditioned upon
continued employment. The performance criteria established by the
Compensation Policy Committee are based upon (i) the measurement of our
annual stock performance (Stockholder Return Performance) and (ii) either
(a) for 1999, the relative performance of Host REIT stock measured against
a published peer index (Relative Performance), or (b) for all other years,
Host Marriott's achieving specific earnings targets set by the Compensation
Policy Committee. Restricted shares granted in previous years which had not
had restrictions released, including those reflected in the table as having
been granted in 1997, were forfeited and replaced by the restricted shares
awarded in 1998. The total number of restricted and deferred shares held by
each named executive officer as of the end of the 1999 fiscal year and the
aggregate value of those shares at such time were as follows: Mr. Marriott,
150,176 shares valued at $1,262,417; Mr. Golden, 895,151 shares valued at
$7,524,863; Mr. Nassetta, 578,414 shares valued at $4,862,293; Mr. Parsons,
483,213 shares valued at $4,099,586; and Mr. Townsend, 138,075 shares
valued at $1,160,693.
(7) In 1999, the Compensation Policy Committee determined that the time and
performance criteria set forth in the long-term incentive plan established
in 1996 for Mr. Nassetta and Mr. Parsons had been met. Accordingly, the
restricted shares awarded under such long-term incentive plan vested and
the restrictions were released.
(8) This column represents Host REIT's matching contributions made under its
Retirement and Savings Plan and its Executive Deferred Compensation Plan.
Under the Retirement and Savings Plan, Host REIT contributed $9,600 for
each of the named executive officers in 1999. The amounts contributed under
the Executive Deferred Compensation Plan for 1999 for each named executive
officer were as follows: Mr. Marriott, $15,953; Mr. Golden, $72,352; Mr.
Nassetta, $38,763; Mr. Parsons, $33,072; and Mr. Townsend, $14,966. For Mr.
Marriott, this column also includes the amount of the taxable economic
benefit to Mr. Marriott as a result of Host Marriott's purchase of certain
life insurance policies for the benefit of a trust established by Mr.
Marriott. For 1999, such taxable economic benefit to Mr. Marriott was $558.
(9) Mr. Golden retired from his positions as President and Chief Executive
Officer in May 2000, at which time Mr. Nassetta became President and Chief
Executive Officer. During the fiscal years reported in this table, Mr.
Nassetta served as Executive Vice President and Chief Operating Officer.
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<PAGE>
Aggregated Stock Option/SAR Exercises and Year-End Value
The table below sets forth, on an aggregated basis, (1) information
regarding the exercise during fiscal year 1999 of options to purchase Host
Marriott common stock (and shares of the common stock of other companies which
Host Marriott has previously spun off) by each of the Named Executive Officers
listed on the Executive Compensation table above, (2) information regarding the
exercise of stock appreciation rights ("SARs") in Host REIT common stock by
each of the Named Executive Officers, and (3) the value on December 31, 1999 of
all unexercised options and SARs held by such individuals. Terence C. Golden
and Christopher J. Nassetta do not have any options to purchase stock in any of
the companies listed in the following table. Richard E. Marriott is the only
executive officer who holds SARs in Host REIT common stock. In 1998, he entered
into an agreement with Host Marriott pursuant to which all of his then
outstanding options to purchase Host Marriott common stock were canceled and
then replaced with SARs on equivalent economic terms.
Aggregated Stock Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option Values
<TABLE>
<CAPTION>
Number of
Shares Underlying Value of Unexercised
Shares Unexercised Options/SARs In-the-Money Options/SARs
Acquired at Fiscal Year End(2) at Fiscal Year End(3)
on Value (#) ($)
Exercise Realized ------------------------- -------------------------
Name Company(1) (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ---------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
R.E. Marriott........... HM 0 0 66,685 0 434,877 0
HMS 11,140 160,446 0 0 0 0
MI 0 0 122,634 0 3,227,392 0
------ ------- ------- --- --------- ---
TOTAL 11,140 160,446 189,319 0 3,662,269 0
R.E. Parsons, Jr........ HM 3,592 19,846 14,637 0 89,561 0
HMS 3,045 37,486 0 0 0 0
MI 0 0 0 0 0 0
------ ------- ------- --- --------- ---
TOTAL 6,637 57,332 14,637 0 89,561 0
C.G. Townsend........... HM 1,677 9,161 6,676 0 41,473 0
HMS 0 0 0 0 0 0
MI 0 0 0 0 0 0
------ ------- ------- --- --------- ---
TOTAL 1,677 9,161 6,676 0 41,473 0
</TABLE>
--------
(1) "HM" represents options to purchase or SARs in Host REIT common stock.
"HMS" represents options to purchase Host Marriott Services Corporation
common stock. "MI" represents options to purchase Marriott International,
Inc. common stock.
(2) The number and terms of these options reflect several adjustments made as a
result of our spin-off of Marriott International in October 1993; Host
Marriott's spin-off of Host Marriott Services Corporation in December 1995;
the spin-off of Marriott International from Sodexho Marriott Services
Corporation in March 1998; and Host Marriott's conversion into a real
estate investment trust (and the related spin-off of Crestline Capital
Corporation) in December 1998, each in accordance with the applicable
employee benefit plans covering those options. These adjustments preserved,
but did not increase or decrease, the economic value of the options.
(3) These figures are based on a per share price for Host REIT common stock of
$8.406 and a per share price for Marriott International, Inc. common stock
of $31.375. These prices reflect the average of the high and low trading
prices on the New York Stock Exchange on December 31, 1999.
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<PAGE>
Employment Arrangements
Certain of the terms and conditions of employment of Messrs. Golden,
Nassetta, Parsons, Risoleo, Walter, Townsend and Olinger, are governed by a
written "Key Executives/Termination of Employment" policy. The policy provides
a basic framework to govern the termination of employment under specific
circumstances. This policy is not a binding contract and can be changed by Host
REIT unilaterally at any time. The terms of the plan are subject to the
approval of the Board of Directors or the Chief Executive Officer/President as
applicable.
Certain of the terms and conditions of employment of Terence C. Golden are
also governed by a written employment agreement. Under the terms of that
agreement, Mr. Golden's annual salary has been set at $750,000 for 2000. Under
the agreement, in the event of a "termination event" (defined as a significant
reduction in Mr. Golden's responsibility, a requirement to relocate, a change
in control, a change in his responsibility to the Company's Chairman or his
failure to receive a bonus equal to at least half of the maximum bonus
available to be earned for a particular year), Mr. Golden will receive a
payment equal to one year's salary and an amount equal to the maximum bonus
that could have been earned for the year in which such termination event
occurs, and the restrictions will be lifted on all remaining restricted stock
held by Mr. Golden. If he is terminated without cause, Mr. Golden will receive
one year's salary and bonus and the restrictions will be lifted on the
restricted stock that is not subject to performance goals. In the event Mr.
Golden is terminated for cause or resigns, he will receive no termination
payment and the restricted stock will be canceled. Mr. Golden retired from his
position as President and Chief Executive Officer in May 2000, but he remains
an employee of Host Marriott through the remainder of fiscal year 2000.
Accordingly, he will receive any benefits accruing in 2000 that are incidental
to such employment. His bonus award for fiscal year 2000, however, will be pro
rated through May 2000.
1998 Employee Benefits Allocation Agreement
As part of the REIT conversion, we entered into an Employee Benefits and
Other Employment Matters Allocation Agreement along with Host REIT and
Crestline ("1998 Employee Benefits Allocation Agreement"). The 1998 Employee
Benefits Allocation Agreement governs the allocation of responsibilities with
respect to various compensation, benefits and labor matters. Under the 1998
Employee Benefits Allocation Agreement, Crestline assumes certain liabilities
relating to covered benefits and labor matters with respect to individuals who
were employed by Host Marriott or its affiliates before they became employed by
Crestline or its affiliates ("Transferred Employees") and we assume certain
other liabilities relating to employee benefits and labor matters. The 1998
Employee Benefits Allocation Agreement also governs the treatment of awards
under the Host Marriott Corporation 1997 Comprehensive Stock Incentive Plan,
formerly called the Host Marriott Corporation 1993 Comprehensive Stock
Incentive Plan (the "Comprehensive Stock Incentive Plan"), as part of the REIT
conversion. The 1998 Employee Benefits Allocation Agreement requires Crestline
to establish the Crestline Capital Corporation 1998 Comprehensive Stock
Incentive Plan to grant awards of Crestline common stock. Additionally, the
1998 Employee Benefits Allocation Agreement provides that we will adopt the
Comprehensive Stock Incentive Plan.
Comprehensive Stock Incentive Plan
Host REIT sponsors the Comprehensive Stock Incentive Plan for purposes of
attracting and retaining highly qualified employees. Host REIT reserved
44,442,911 shares of Host REIT common stock for issuance pursuant to the
Comprehensive Stock Incentive Plan. As part of the REIT conversion, we adopted
the Comprehensive Stock Incentive Plan. Shares of Host Marriott common stock
issued or reserved under the Comprehensive Stock Incentive Plan before the REIT
conversion have been exchanged for Host REIT Common Shares and Crestline common
stock, according to the terms of the 1998 Employee Benefits Allocation
Agreement.
Under the terms of the Comprehensive Stock Incentive Plan, we may award
eligible full-time employees (1) options to purchase Host REIT common stock,
(2) deferred shares of Host REIT common stock, (3) restricted shares of Host
REIT common stock, (4) stock appreciation rights, (5) special recognition
awards or (6) other equity-based awards, including but not limited to, phantom
shares of Host REIT common stock,
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performance shares of Host REIT common stock, bonus shares of Host REIT common
stock, dividend equivalent units or similar securities or rights.
The awarding of options to purchase Host REIT common stock under the
Comprehensive Stock Incentive Plan is expected to continue. Options granted to
our officers and key employees or officers and key employees of Host REIT will
have an exercise price of not less than the fair market value on the date of
grant. Incentive stock options granted under the Comprehensive Stock Incentive
Plan expire no later than 10 years after the date of grant and non-qualified
stock options expire up to 15 years after the date of grant.
Under the terms of the Comprehensive Stock Incentive Plan, Host REIT may
award deferred shares of Host REIT common stock to eligible full-time
employees. Deferred shares may be granted as part of a bonus award or deferred
stock agreement. Host REIT intends to award deferred shares of Host REIT Common
Shares under the Comprehensive Stock Incentive Plan. Deferred shares generally
vest over ten years in annual installments commencing one year after the date
of grant.
The Comprehensive Stock Incentive Plan also provides for the issuance of
restricted shares of Host REIT common stock to officers and key executives to
be distributed over the next three or five years in annual installments based
on continued employment and the attainment of certain performance criteria.
Under the terms of the Comprehensive Stock Incentive Plan, Host REIT may
grant bonus awards to eligible full-time employees. Bonus awards may be part of
a management incentive program which pays part of the annual performance bonus
awarded to managers and other key employees in shares of Host REIT common
stock. A bonus award entitles the holder to receive a distribution of Host REIT
common stock in accordance with the underlying agreement. Holders of bonus
awards vest in the shares covered by their award over ten years in annual
installments commencing one year after grant. Unless the holder of a bonus
award elects otherwise, vested shares are distributed in 10 consecutive,
approximately equal, annual installments.
The Comprehensive Stock Incentive Plan authorizes Host REIT to grant SARs to
eligible full-time employees. SARs awarded under the Comprehensive Stock
Incentive Plan give the holder the right to an amount equal to the appreciation
in the value of the Host REIT common stock over a specified price. SARs may be
paid in the Host REIT common stock, cash or other form or combination form of
payout.
Under the Comprehensive Stock Incentive Plan, Host REIT may award an
eligible full-time employee or officer a Special Recognition Award. Special
Recognition Awards may be paid in the form of Host REIT common stock or an
option to purchase Host REIT common stock at an amount not less than fair
market value on the date of grant.
Stock Purchase Plan
Host REIT sponsors the Host Marriott, L.P. Employee Stock Purchase Plan (the
"Stock Purchase Plan"). Under the terms of the Stock Purchase Plan, an
individual who is: (1) an active eligible employee on the last day of the prior
plan year, (2) working more than 20 hours per week and (3) customarily employed
more than five months in a calendar year may, at the end of the plan year,
purchase Host common stock through contributions or payroll deductions at the
lower of 90% of the fair market value on the first or last day of such plan
year. A participant may elect to contribute up to 10% of his compensation per
year.
401(k) Plan
Host REIT sponsors the Host Marriott, L.P. Retirement and Saving Plan (the
"401(k) Plan"). The 401(k) Plan has received a favorable ruling from the IRS as
to its tax-qualified status. We assumed the 401(k) Plan as part of the REIT
conversion. The 401(k) Plan is available to all eligible employees immediately
upon their date
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of hire. A participant may elect to contribute from 1% to 15% of his
compensation to the 401(k) Plan. Each year, we will make a fixed matching
contribution equal to 50% of the first 6% of the compensation contributed to
the 401(k) Plan by employees. In addition, we may make a discretionary
contribution, in an amount, if any, determined annually by the Board of our
general partner (Host REIT) to the 401(k) Plan for the benefit of eligible
employees.
Under the terms of the 401(k) Plan, participants may elect to invest part or
all of their plan benefits in Host REIT common stock. As part of the REIT
conversion, all shares of Host Marriott common stock held under the 401(k) Plan
have been converted to Host REIT Common Shares and Crestline common stock.
Directors' Deferred Compensation Plan
Host REIT sponsors the Host Marriott Corporation Non-Employee Directors'
Deferred Stock Compensation Plan (the "Deferred Compensation Plan") for
purposes for attracting and retaining qualified non-employee Directors. Under
the terms of the Deferred Compensation Plan, a non-employee Director may elect
to defer payment of part or all of his or her Directors' fees from Host REIT
until such individual is no longer a member of the Board. Currently, fees that
are deferred under the Deferred Compensation Plan are converted into shares of
Host REIT common stock using the fair market value of such shares on the date
of deferral. In addition, the Deferred Compensation Plan provides for annual
grants of deferred shares of Host REIT common stock equal to the amount of the
annual cash retainer fee paid to non-employee Directors. This award is
distributed immediately following each annual meeting. The Deferred
Compensation Plan also permits participants to be credited with dividend
equivalents which are equal in value to the dividends paid on Host REIT common
stock.
Limitation of Liability and Indemnification
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its shareholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) acts committed in bad faith or active and
deliberate dishonesty established by a final judgment as being material to the
cause of action. The charter of Host REIT contains such a provision which
eliminates such liability to the maximum extent permitted by Maryland law.
The charter of Host REIT authorizes it, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (1) any
present or former director or officer or (2) any individual who, while a
director of Host REIT and at the request of Host REIT, serves or has served
another corporation, real estate investment trust, partnership, joint venture,
trust, employee benefit plan or any other enterprise from and against any claim
or liability to which such person may become subject or which such person may
incur by reason of his or her status as a present or former Director or officer
of Host REIT. The bylaws of Host REIT obligate it, to the maximum extent
permitted by Maryland law, to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer who is made party to the proceeding by reason of his
service in that capacity or (b) any individual who, while a director or officer
of Host REIT and at the request of Host REIT, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a trustee, director, officer
or partner of such corporation, real estate investment trust, partnership,
joint venture, trust, employee benefit plan or other enterprise and who is made
a party to the proceeding by reason of his service in that capacity, against
any claim or liability to which he may become subject by reason of such status.
The charter and bylaws also permit Host REIT to indemnify and advance expenses
to any person who served as a predecessor of Host REIT in any of the capacities
described above and to any employee or agent of Host REIT or a predecessor of
Host REIT. The bylaws require Host REIT to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity.
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The MGCL permits a Maryland corporation to indemnify and advance expenses to
its directors, officers, employees and agents. The MGCL permits a corporation
to indemnify its present and former directors and officers, among others,
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may
be made a party by reason of their service in those or other capacities unless
it is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (i) was committed in
bad faith or (ii) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal proceeding, the
director or officer had reasonable cause to believe that the act or omission
was unlawful. However, under the MGCL, a Maryland corporation may not indemnify
for an adverse judgment in a suit by or in the right of the corporation. In
accordance with the MGCL, the bylaws of Host REIT require it, as a condition to
advancing expenses, to obtain (1) a written affirmation by the director or
officer of his good faith belief that he has met the standard of conduct
necessary for indemnification by Host REIT as authorized by the bylaws and (2)
a written statement by or on his behalf to repay the amount paid or reimbursed
by Host REIT if it is ultimately determined that the standard of conduct was
not met.
The Host Marriott, L.P. Partnership Agreement also provides for
indemnification of Host REIT and its officers and trustees to the same extent
that indemnification is provided to officers and directors of Host REIT in its
charter, and limits the liability of Host REIT and its officers and directors
to Host Marriott, L.P. and its respective partners to the same extent that the
liability of the officers and directors of Host REIT to Host REIT and its
shareholders is limited under Host REIT's charter. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling the registrant pursuant to the foregoing
provisions, Host REIT has been informed that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
Indemnification Agreements
Each of Host REIT and Host Marriott, L.P. have entered into or will enter
into indemnification agreements with each of its directors and officers, as
applicable. The indemnification agreements require, among other things, that
Host REIT and/or Host Marriott, L.P. indemnify their directors and officers to
the fullest extent permitted by law and advance to their directors and officers
all related expenses, subject to reimbursement if it is subsequently determined
that indemnification is not permitted.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationships Between Host REIT, Host Marriott, L.P. and Marriott International
Host Marriott (Host REIT's predecessor) and Marriott International, prior to
October 8, 1993, were operated as a single consolidated company. On October 8,
1993 in connection with the issuance of a special dividend, the consolidated
company's businesses were split between Host Marriott Corporation and Marriott
International. Thereafter, Host Marriott retained the lodging real estate
business and the airport/tollroad concessions business, while Marriott
International took over the management of the lodging and service management
businesses. On December 29, 1995, Host Marriott distributed its airport/toll
road concession business to its stockholders.
Distribution Agreement and Related Agreement
In connection with the Marriott International distribution, Host Marriott
and Marriott International entered into a distribution agreement, which
provided for, among other things, (1) the division between Host Marriott and
Marriott International of certain liabilities and (2) certain other agreements
governing the relationship between Host Marriott and Marriott International
following the Marriott International distribution. Under the Marriott
International distribution agreement, which has been amended from time to time,
Marriott International obtained a purchase right which provided Marriott
International with the right, until June 2017, to purchase up to 20% of each
class of Host Marriott's voting stock (determined after assuming full exercise
of the right) at its then fair market value (based on an average of trading
prices during a specified period), upon the occurrence of certain specified
events generally involving a change in control of Host Marriott. The Marriott
International purchase right could be exercised for a 30-day period following
the date a person or group of affiliated persons has (1) become the beneficial
owner of 20% or more of the total voting power of the then outstanding shares
of Host Marriott's voting stock or (2) announced a tender offer for 30% more of
the total voting power of the then outstanding shares of Host Marriott common
stock. The Marriott International purchase right continues in effect with
respect to Host REIT as to Host REIT's common stock, subject to the following
limitations intended to protect the REIT status of Host REIT. The Marriott
International purchase right will be exercisable only to the extent that
neither (1) Marriott International, or any entity in which it has a direct or
indirect interest (and which would be deemed, under the applicable attribution
rules, to own the shares of Host REIT owned by Marriott International) would,
as a result of such exercise, own, taking into account the applicable
attribution rules, more than 9.8% of both Host REIT and Crestline, any
subsidiary of Crestline or any other tenant of Host REIT nor (2) any owners of
direct or indirect interests in Marriott International would, as a result of
such exercise, own, taking into account the applicable attribution rules, more
than 9.8% of both Host REIT and Crestline, any subsidiary of Crestline or any
other tenant of Host REIT. In addition to the foregoing limitation, in the
event Host Marriott, L.P. is or would be considered a "publicly traded
partnership" within the meaning of the code, the Marriott International
purchase right will be exercisable only if such acquisition and ownership of
Host REIT common stock would not cause Host Marriott, L.P. to be considered to
own, directly or by attribution, 10% or more of Crestline, any subsidiary of
Crestline or any other tenant of Host REIT (taking into account the applicable
attribution rules and any stock of Crestline that the operating partnership is
deemed to own under the attribution rules by reason of the ownership of an
interest in Host Marriott, L.P. by the Blackstone Entities).
In addition, Host Marriott and Marriott International entered into a number
of other agreements in connection with the Marriott International distribution,
including (1) a tax sharing agreement that defines the parties' rights and
obligations with respect to deficiencies and refunds of federal, state and
other income or franchise taxes relating to Host Marriott's businesses for tax
years prior to the Marriott International distribution and with respect to
certain tax attributes of Host Marriott after the Marriott International
distribution; (2) a noncompetition agreement that defines the parties' rights
and obligations with respect to certain businesses operated by Marriott
International, which expires on October 8, 2000; and (3) agreements under which
Marriott International would guarantee Host Marriott's performance in
connection with certain
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partnership, real estate and project loans and other obligations. Host
Marriott, L.P. assumed the liabilities of Host Marriott under each of these
agreements with Marriott International.
Acquisition Financing
Marriott International has also provided, and Host REIT expects that
Marriott International in the future may provide, financing for a portion of
the cost of acquiring properties to be operated or franchised by Marriott
International. In 1999 Marriott International did not provide any new
acquisition financing, although a non-controlled subsidiary of Host Marriott
remained indebted to Marriott International for acquisition financing from
prior years. The amount of such indebtedness at December 31, 1999 was $38
million.
Lodging Management and Franchise Agreements
Marriott International and certain of its subsidiaries have entered into
management agreements with us and certain of our subsidiaries to manage for
fees the Marriott Hotels, Resorts and Suites, Ritz-Carlton hotels, Courtyard
hotels and Residence Inns owned or leased by us and our subsidiaries. Marriott
International has also entered into franchise agreements with us and certain of
our subsidiaries. The franchise agreements allow us to use the Marriott brand,
associated trademarks, reservation systems and other related items in
connection with 9 Marriott hotels for which we have entered into operating
agreements with hotel management companies other than Marriott International.
These agreements reflect market terms and conditions and are substantially
the same as agreements of similar types with other third-party owners. As a
result of the REIT conversion, however, we have assigned the management
agreements and franchise agreements to Crestline. Consequently, it is
Crestline's primary obligation to pay Marriott International the management
fees and franchise fees owed under these agreements as long as Crestline
remains the lessee for hotels governed by these agreements.
In addition, certain of our non-controlled subsidiaries are partners in
several unconsolidated partnerships that owned 226 lodging properties, although
11 of those properties were sold during 1999. These properties are operated by
Marriott International or certain of its subsidiaries under long-term
agreements. Our non-controlled subsidiaries typically serve as the general
partners in such partnerships. In 1999, those unconsolidated partnerships paid
fees of $119 million to Marriott International under those agreements. The
partnerships also paid $22 million in rent to Marriott International in 1999
for leases of land upon which certain of the partnerships' hotels are located.
J.W. Marriott, Jr. and Richard E. Marriott beneficially own approximately
10.8% and 10.6%, respectively, of the outstanding shares of common stock of
Marriott International. By reason of their ownership of such shares of common
stock of Marriott International and their positions as Chairman and a Director,
respectively, of Marriott International, J.W. Marriott, Jr. and Richard E.
Marriott, who is also a Director and Chairman, respectively, of Host REIT,
could be deemed in control of Marriott International within the meaning of the
federal securities laws. Other members of the Marriott family might also be
deemed control persons of Marriott International by reason of their ownership
of shares of Marriott International and/or their relationship to other family
members.
Relationships Between Host REIT, Host Marriott, L.P. and Crestline
For the purposes of governing certain of the ongoing relationships between
Crestline and Host REIT, Crestline, Host REIT and Host Marriott, L.P. have
entered into various agreements in addition to the leases, as described below.
On November 13, 2000, we announced the execution of a definitive agreement with
Crestline for the purchase and sale, effective January 1, 2001, of the entities
owning the leasehold interests with respect to 117 of our full-service hotels
for approximately $205 million. The agreement includes arrangements for the
amendment, supplement or termination of the various agreements described below.
There can be no assurance that the transaction we will be completed.
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Distribution Agreement
As part of the REIT conversion, Crestline and Host REIT entered into a
distribution agreement which provided for, among other things:
. the distribution of shares of Crestline to the stockholders of Host REIT
in connection with the Crestline distribution;
. the division of certain assets and liabilities between Crestline and Host
REIT;
. the contribution to Crestline of Host REIT's interest in 31 senior living
communities;
. the transfer to Crestline of the 25% interest in Swissotel Management
(USA) L.L.C. which Host REIT acquired from the Blackstone Entities;
. a guarantee by Host REIT on certain Crestline debt obligations;
. the contingent right for a period of ten years to purchase Crestline's
interest in Swissotel Management (USA) L.L.C. at fair market value if the
tax laws are changed so that Host REIT could own such interest without
jeopardizing its status as a REIT; and
. certain other agreements governing the relationship between Crestline and
Host REIT following the Crestline distribution.
Subject to certain exceptions, the distribution agreement provides for,
among other things, assumptions of liabilities and cross-indemnities designed
to allocate to Crestline financial responsibilities for liabilities arising out
of or in connection with the business of the senior living communities.
The changes in the tax laws resulting from the passage of the REIT
Modernization Act would not permit us to acquire Crestline's 25% interest in
Swissotel Management (USA) L.L.C.
Hotel Leases
We and our subsidiaries have entered into hotel leases with subsidiaries of
Crestline for 122 full-service hotels. In 1999, we sold five of the leased
full-service hotels, and we agreed with Crestline to terminate the leases
reducing the number of hotels leased from us to 117 full-service hotels. Each
hotel lease has a fixed term generally ranging from seven to ten years.
Crestline is required to pay:
. a minimum rent specified in each hotel lease;
. plus, to the extent it exceeds the minimum rent, a percentage rent based
upon a specified percentage of aggregate sales from the hotels in excess
of specified thresholds.
The amount of minimum rent and percentage rent thresholds will be increased
each year based upon any increases in the Consumer Price Index and the
Employment Cost Index during the previous twelve months. The hotel leases will
generally provide for a rent adjustment in the event of damage, destruction,
partial taking or certain capital expenditures. In 1999, Crestline paid us an
aggregate amount of $1.253 billion in rent for the hotels leased by us to
Crestline.
Under the hotel leases, Crestline is responsible for paying all hotel
operating expenses, including all personnel costs, utility costs, and general
repair and maintenance of the hotels. In addition, Crestline is responsible for
all fees payable to the hotel manager, including base and incentive management
fees, chain services payments and franchise or system fees. However, we remain
responsible for real estate and personal property taxes, property casualty
insurance, ground lease rent and capital expenditures and for maintaining a
reserve fund for furnishings, fixtures and equipment replacements.
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If we dispose of a hotel free and clear of the hotel lease, we have to pay a
termination fee equal to the fair market value of Crestline's leasehold
interest in the remaining term of the hotel lease using a discount rate of 12%.
Alternatively, we are entitled either to:
. substitute a comparable hotel for any hotel that is sold, with the terms
agreed to by Crestline; or
. sell the hotel subject to the hotel lease and to Crestline's approval
under certain circumstances, but without having to pay a termination fee.
In addition, we have the right to terminate up to 12 hotel leases, in
connection with sales of hotels, without having to pay any termination fees.
During 1999, we exercised our right to terminate five hotel leases without
paying termination fees for five leased hotels that were sold during 1999,
although only three of such terminations counted against our right to terminate
12 hotel leases as described above. At the same time, Crestline may terminate
up to 12 full-service leases without penalty upon 180 days' notice to us.
During 1999 and 2000, Crestline exercised its right to terminate seven hotel
leases, but we subsequently agreed with Crestline to continue all of these
leases on modified terms.
See "Business and Properties--The Leases" for a more complete description of
our hotel leases with Crestline. As a result of the passage of the REIT
Modernization Act, and under the terms of the leases for our hotels with
Crestline subsidiaries, we have the right to purchase the leases from Crestline
on or after January 1, 2001. On November 13, 2000, we announced the execution
of a definitive agreement with Crestline for the purchase and sale of the
entities owning the leasehold interests with respect to 117 of our full-service
hotels. Under the terms of the transaction, our newly created wholly-owned
subsidiary, which will elect to be treated as a taxable REIT subsidiary, will
purchase certain Crestline subsidiaries, whose primary assets are the leasehold
interests, for approximately $205 million. There can be no assurances that the
purchase will be consummated. For a discussion of the REIT Modernization Act
and our agreement with Crestline, see "Business and Properties--The REIT
Conversion."
Furnishings, Fixtures and Equipment Leases
In connection with the Crestline distribution, if the total average tax
basis of an individual hotel's FF&E and other personal property exceeded 15% of
the aggregate average tax basis of the hotel's real and personal property,
there was excess FF&E. In these cases, subsidiaries of Crestline and non-
controlled subsidiaries of ours entered into lease agreements for the excess
FF&E. The terms of the FF&E leases generally range from two to three years and
rent under the FF&E leases is a fixed amount. Crestline will have the option at
the expiration of the lease term either to:
. renew the FF&E leases for consecutive one year renewal terms at a fair
market rental rate; or
. purchase the excess FF&E for a price equal to its fair market value.
If Crestline does not exercise its purchase or renewal option, it must pay a
termination fee equal to approximately one month's rent. In 1999, Crestline
paid our non-controlled subsidiaries an aggregate amount of $23 million in rent
under the FF&E leases.
Tax Sharing Agreement
Crestline and Host REIT are parties to a tax sharing agreement which defines
each party's rights and obligations with respect to deficiencies and refunds of
federal, state and other income or franchise taxes relating to Crestline's
business for taxable years prior to the distribution of Crestline share of Host
REIT's stockholders and with respect to certain tax attributes of Crestline
after such distribution. Generally, Host REIT will be responsible for filing
consolidated returns and paying taxes for periods through the date of the
distribution, and Crestline will be responsible for filing returns and paying
taxes for subsequent periods.
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Asset Management Agreement
Host Marriott, L.P. and a Non-Controlled Subsidiary entered into asset
management agreements with Crestline pursuant to which Crestline agrees to
provide review and advice on the management and operation of our hotels.
Generally, Crestline will provide the following consulting services:
. review of operating and financial results (including site visits) and
meet with Host Marriott, L.P. and the non-controlled subsidiaries, as
applicable, at least quarterly, to review such results of the hotels;
. review of financial statements and budgets, including periodic accounting
statements, annual operating budgets, FF&E budgets and management
analysis reports;
. review of revenue and capital spending projections;
. administration of approvals relating to the operation of the hotel
required under any related loan documents;
. advice relating to any changes to the hotel management agreements;
. review of market conditions and competition for each of the hotels;
. monitoring and negotiating with governmental agencies in connection with
any condemnation proceedings against the hotels; and
. monitoring and negotiating with insurance companies and contractors
following a casualty at a hotel.
Crestline was paid a fee of $4.5 million in 1999 for its consulting services
under the asset management agreements, which was allocated between Host
Marriott, L.P. and the non-controlled subsidiary. The asset management
agreements have a term of two years with an automatic one year renewal, unless
earlier terminated by either party in accordance with the terms thereof.
Non-Competition Agreement
Crestline, Host REIT and Host Marriott, L.P. entered into a non-competition
agreement that limits the respective parties' future business opportunities.
See "Business and Properties--Noncompetition Agreements."
Guarantee and Pooling Agreements
Crestline and certain of its subsidiaries entered into guarantees of the
lease obligations of each lessee. See "Business and Properties--The Leases."
1998 Employee Benefits Allocation Agreement
As part of the REIT conversion, Host REIT, Host Marriott, L.P. and Crestline
entered into the 1998 Employee Benefits and Other Employment Matters Allocation
Agreement relating to various compensation, benefits and labor matters. See
"Management--1998 Employee Benefit Allocation Agreement."
Relationship between Host REIT, Host Marriott, L.P. and Blackstone Entities
In conjunction with the REIT conversion, in December 1998 we acquired 12
upscale and luxury full-service hotels, a mortgage loan secured by a thirteenth
hotel, and certain other assets from The Blackstone Group L.P. and a series of
partnerships, persons and other entities affiliated with Blackstone Real Estate
Associates. We refer to this group of entities as the Blackstone Entities. As
part of the Blackstone acquisition, Host Marriott, L.P. and Host REIT entered
into a contribution agreement with the Blackstone Entities. This agreement
provides that an affiliate of the Blackstone Entities will have the right to
designate one person to be included in the slate of Directors nominated for
election to Host REIT's Board of Directors as long as the Blackstone Entities
own at least 5% of all of the outstanding operating partnership units
(including those operating partnership units held by Host REIT and its
subsidiaries). The Blackstone Entities designated John G. Schreiber, who is a
senior advisor and partner of Blackstone Real Estate Advisors L.P., an
affiliate of the Blackstone Entities. Mr. Schreiber has served on the Host REIT
Board of Directors since 1998.
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In addition, the Blackstone contribution agreement provides that OP Units
beneficially owned by the Blackstone Entities (and their permitted transferees)
are redeemable for cash or, at Host REIT's election, for Host REIT common
stock. Host REIT has granted to the Blackstone Entities (and their permitted
transferees) certain registration rights with respect to shares of Host REIT
common stock obtained upon conversion of the Blackstone OP Units.
The Blackstone contribution agreement also grants the Blackstone Entities an
exemption from the ownership limitations contained in our partnership
agreement. It also contains standstill provisions which prohibit the Blackstone
Entities from engaging in certain activities with respect to Host REIT and that
Host Marriott, L.P. For example, the Blackstone Entities may not take any
actions in opposition to Host REIT's Board of Directors. In addition, the
Blackstone Entities' ability to acquire and dispose of our voting securities is
restricted.
In addition to the contribution agreement, Host Marriott, L.P. and Host REIT
entered into another agreement with the Blackstone Entities which restricts our
ability, without the consent of the Blackstone Entities, to transfer our
interests in the hotels and other assets acquired form the Blackstone Entities
if such a transfer would create adverse tax consequences to the Blackstone
Entities. These restrictions terminate on December 30, 2003 with respect to 50%
of the assets acquired from the Blackstone Entities, and they terminate in
their entirety on the earlier of (i) December 30, 2008 or (ii) the date on
which the Blackstone Entities have redeemed all of their OP Units pursuant to
the contribution agreement.
Investment in STSN, Inc.
STSN, Inc. is a privately held company that is a leading provider of in-
room, high-speed Internet access to the lodging industry. Marriott
International has selected STSN as the exclusive provider of high-speed
Internet access at hotels managed by Marriott International, including those
owned by Host Marriott, L.P. and its subsidiaries. In September 2000, one of
our non-controlled subsidiaries acquired an approximate 4% interest in the
equity of STSN from an affiliate of First Media Corporation for a purchase
price of $4.5 million. First Media is a corporation of which Richard E.
Marriott is an officer, director and controlling shareholder. The purchase
price was at the same cost as First Media's original investment in STSN in
December 1999, plus investment costs and accrued interest through September
2000.
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THE EXCHANGE OFFER
Purpose and effect
We sold the Series F senior notes on October 6, 2000. In connection with
that issuance, we entered into the registration rights agreement, which
requires us to file a registration statement under the Securities Act of 1933
with respect to the Series G senior notes. Upon the effectiveness of that
registration statement, we are required to offer to the holders of the Series F
senior notes the opportunity to exchange their Series F senior notes for a like
principal amount of Series G senior notes, which will be issued without a
restrictive legend and which generally may be reoffered and resold by the
holder without registration under the Securities Act.
The registration rights agreement further provides that we must use our
reasonable best efforts to consummate the exchange offer on or before the 190th
day following the date on which we issued the Series F senior notes.
Except as provided below, upon the completion of the exchange offer, our
obligations with respect to the registration of the Series F senior notes and
the Series G senior notes will terminate. A copy of the registration rights
agreement has been filed as an exhibit to the registration statement of which
this prospectus is a part, and the summary in this prospectus of its material
provisions is not complete and is qualified in its entirety by reference to the
actual agreement. Except as set forth below, following the completion of the
exchange offer holders of Series F senior notes not tendered will not have any
further registration rights and those Series F senior notes will continue to be
subject to restrictions on transfer. Accordingly, the liquidity of the market
for the Series F senior notes could be adversely affected upon consummation of
the exchange offer.
In order to participate in the exchange offer, you must represent to us,
among other things, that:
. the Series G senior notes you acquire pursuant to the exchange offer are
being obtained in the ordinary course of your business;
. you are not engaging in and do not intend to engage in a distribution of
the Series G senior notes;
. you do not have an arrangement or understanding with any person to
participate in a distribution of the Series G senior notes; and
. you are not our "affiliate," as defined under Securities Act Rule 405.
Pursuant to the registration rights agreement we will be required to file a
"shelf" registration statement for a continuous offering pursuant to Securities
Act Rule 415 in respect of the Series F senior notes if:
. we determine that we are not permitted to effect the exchange offer as
contemplated hereby because of any change in applicable law or Securities
and Exchange Commission policy; or
. we have commenced and not consummated the exchange offer within 190 days
following the date on which we issued the Series F senior notes for any
reason.
Other than as set forth above, no holder will have the right to participate
in the shelf registration statement or to otherwise require that we register
their Series F senior notes under the Securities Act.
Based on an interpretation by the SEC Staff set forth in no-action letters
issued to third parties unrelated to us, we believe that, with the exceptions
set forth below, Series G senior notes issued to you pursuant to the exchange
offer in exchange for Series F senior notes may be offered for resale, resold
and otherwise transferred by you, unless you are our "affiliate" within the
meaning of Securities Act Rule 405 or a broker-dealer who purchased
unregistered notes directly from us to resell pursuant to Rule 144A or any
other available exemption promulgated under the Securities Act, without
compliance with the registration and prospectus delivery provisions of the
Securities Act; provided that the Series G senior notes are acquired in the
ordinary course of business of the holder and the holder does not have an
arrangement or understanding with any person to participate in the distribution
of Series G senior notes.
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If you tender in the exchange offer for the purpose of participating in a
distribution of the Series G senior notes, you cannot rely on this
interpretation by the SEC Staff and you must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. If you are a broker-dealer that receives Series G
senior notes for your own account in exchange for Series G senior notes, where
those notes were acquired by you as a result of market-making activities or
other trading activities, you must acknowledge that you will deliver a
prospectus in connection with any resale of such Series G senior notes. If you
are a broker-dealer who acquired Series F senior notes directly from us and not
as a result of market-making activities or other trading activities, you may
not rely on the Staff's interpretations discussed above or participate in the
exchange offer and must comply with the prospectus delivery requirements of the
Securities Act in order to sell the Series G senior notes.
Consequences of failure to exchange
Following the completion of the exchange offer, you will not have any
further registration rights for Series F senior notes that you did not tender.
All Series F senior notes not tendered in the exchange offer will continue to
be subject to restrictions on transfer. Accordingly, the liquidity of the
market for Series F senior notes could be adversely affected upon completion of
the exchange offer.
Terms of the exchange offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all Series F senior
notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on [ ], 2000, or such date and time to which we extend the offer. We
will issue $1,000 principal amount of Series G senior notes in exchange for
each $1,000 principal amount of outstanding Series F senior notes accepted in
the exchange offer. Holders may tender some or all of their Series F senior
notes pursuant to the exchange offer. However, Series F senior notes may be
tendered only in integral multiples of $1,000 in principal amount.
The form and terms of the Series G senior notes are substantially the same
as the form and terms of the Series F senior notes except that the Series G
senior notes have been registered under the Securities Act and will not bear
legends restricting their transfer. The Series G senior notes will evidence the
same debt as the Series F senior notes and will be issued pursuant to, and
entitled to the benefits of, the same indenture pursuant to which the Series F
senior notes were issued.
As of the date of this prospectus, Series F senior notes representing $250
million in aggregate principal amount were outstanding and there was one
registered holder, a nominee of the DTC. This prospectus, together with the
letter of transmittal, is being sent to that registered holder and to you and
others based on our belief that you have beneficial interests in the Series F
senior notes. We intend to conduct the exchange offer in accordance with the
applicable requirements of the Securities Exchange Act of 1934 and the rules
and regulations of the SEC.
We will be deemed to have accepted validly tendered Series F senior notes
when, as, and if we have given oral or written notice thereof to the exchange
agent. The exchange agent will act as your agent for the purpose of receiving
the Series G senior notes from us. If any of your tendered Series F senior
notes are not accepted for exchange because of an invalid tender, the
occurrence of the other events set forth in this prospectus or otherwise,
certificates for any such unaccepted Series F senior notes will be returned,
without expense, to you as promptly as practicable after [ ], 2000, unless we
extend the exchange offer.
If you tender Series F senior notes in the exchange offer, you will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the letter of transmittal, transfer taxes with respect to the exchange of
Series F senior notes pursuant to the exchange offer. We will pay all charges
and expenses, other than certain applicable taxes, in connection with the
exchange offer.
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Expiration date; extensions; amendments
The expiration date will be 5:00 p.m., New York City time, on [ ],
2000, unless, in our sole discretion, we extend the exchange offer, in which
case the expiration date will mean the latest date and time to which the
exchange offer is extended. In order to extend the exchange offer, we will
notify the exchange agent of any extension by oral or written notice prior to
9:00 a.m., New York City time, on the next business day after the previously
scheduled expiration date.
We reserve the right, in our sole discretion:
. to delay accepting any Series F senior notes, to extend the exchange
offer or, if any of the conditions to the exchange offer set forth below
under "--Conditions to Exchange Offer" have not been satisfied, to
terminate the exchange offer, by giving oral or written notice of such
delay, extension or termination to the exchange agent; or
. to amend the terms of the exchange offer in any manner.
In the event that we make a material or fundamental change to the terms of
the exchange offer, we will file a post-effective amendment to the registration
statement.
Procedures for tendering
Only a holder of Series F senior notes may tender the Series F senior notes
in the exchange offer. To tender in the exchange offer you must either (1)
complete, sign, and date the letter of transmittal, or a copy thereof, have the
signatures thereon guaranteed if required by the letter of transmittal, and
mail or otherwise deliver the letter of transmittal or copy to the exchange
agent prior to the expiration date or (2) comply with the book-entry
requirements which are discussed below under "--Book Entry Transfer". In
addition:
. certificates for Series F senior notes must be received by the exchange
agent along with the letter of transmittal prior to the expiration date;
. a timely confirmation of a book-entry transfer of those Series F senior
notes, if that procedure is available, into the exchange agent's account
at DTC pursuant to the procedure for book-entry transfer described below,
must be received by the exchange agent on or prior to the expiration
date; or
. you must comply with the guaranteed delivery procedures described below.
To be tendered effectively, the letter of transmittal and other required
documents must be received by the exchange agent on or prior to the expiration
date. Its address is given below under "--Exchange Agent".
A tender of your Series F senior notes that is not withdrawn before the
expiration date will constitute an agreement between you and us in accordance
with the terms and subject to the conditions set forth in this prospectus and
in the letter of transmittal.
The method of delivery of Series F senior notes and the letter of
transmittal and all other required documents to the exchange agent is at your
election and risk. Instead of delivery by mail, we recommend that you use an
overnight or hand delivery service. In all cases, you should allow sufficient
time to assure delivery to the exchange agent before the expiration date. You
should not send any letter of transmittal or Series F senior notes to us. You
may request your respective brokers, dealers, commercial banks, trust companies
or nominees to effect these transactions for you.
If you are a beneficial owner whose Series F senior notes are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
and you wish to tender, you should contact the registered holder promptly and
instruct the registered holder to tender on your behalf. If you wish to tender
on your own behalf, you must, prior to completing and executing the letter of
transmittal and delivering your Series F senior notes, either make appropriate
arrangements to register ownership of the unregistered notes in your name or
obtain a properly completed bond power from the registered holder. The transfer
of registered ownership may take considerable time.
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Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an eligible institution unless the Series F
senior notes tendered pursuant thereto are tendered:
. by a registered holder who has not completed the box entitled "Special
Registration Instruction" or "Special Delivery Instructions" on the
letter of transmittal; or
. for the account of an eligible institution.
If signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, the guarantee must be by any
eligible guarantor institution that is a member of, or participant in, the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, referred to
as an "eligible institution".
If the letter of transmittal is signed by a person other than the registered
holder of any Series F senior notes listed therein, the Series F senior notes
must be endorsed or accompanied by a properly completed bond power, signed by
the registered holder as that registered holder's name appears on the Series F
senior notes.
If the letter of transmittal or any Series F senior notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and evidence
satisfactory to us of their authority to so act must be submitted with the
letter of transmittal unless waived by us.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Series F senior notes will be
determined by us in our sole discretion, which determination will be final and
binding. We reserve the absolute right to reject any and all Series F senior
notes not properly tendered or any Series F senior notes that would, in the
opinion of counsel, be unlawful to accept. We also reserve the right to waive
any defects, irregularities or conditions of tender as to particular Series F
senior notes. Our interpretation of the terms and conditions of the exchange
offer (including the instructions in the letter of transmittal) will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Series F senior notes must be cured within such time
as we will determine. Although we intend to notify you of defects or
irregularities with respect to tenders of Series F senior notes, neither we,
the exchange agent, nor any other person will incur any liability for failure
to give such notification. Your tender of Series F senior notes will not be
deemed to have been made until such defects or irregularities have been cured
or waived. Any Series F senior notes received by the exchange agent that are
not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned by the exchange agent to you, unless
otherwise provided in the letter of transmittal, as soon as practicable
following [ ], 2000, unless we extend the exchange offer.
In addition, we reserve the right in our sole discretion to purchase or make
offers for any Series F senior notes that remain outstanding after the
expiration date or to terminate the exchange offer and, to the extent permitted
by applicable law, purchase Series F senior notes in the open market, in
privately negotiated transactions, or otherwise. The terms of any such
purchases or offers could differ from the terms of the exchange offer.
In all cases, issuance of Series G senior notes for Series F senior notes
that are accepted for exchange pursuant to the exchange offer will be made only
after timely receipt by the exchange agent of certificates for the notes or a
timely book-entry confirmation of such Series F senior notes into the exchange
agent's account at DTC, a properly completed and duly executed letter of
transmittal (or, with respect to the DTC and its participants, electronic
instructions in which you acknowledge your receipt of and agreement to be bound
by the letter of transmittal) and all other required documents. If any tendered
Series F senior notes are not accepted for any reason set forth in the terms
and conditions of the exchange offer or if unregistered notes are submitted for
a greater principal amount than you desire to exchange, such unaccepted or non-
exchanged notes will be returned without expense to you (or, in the case of
Series F senior notes tendered by book-entry transfer
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into the exchange agent's account at the DTC pursuant to the book-entry
transfer procedures described below, such nonexchanged notes will be credited
to an account maintained with DTC) as promptly as practicable after the
expiration or termination of the exchange offer.
If you are a broker-dealer that receives Series G senior notes for your own
account in exchange for Series F senior notes, where your Series F senior notes
were acquired by you as a result of market-making activities or other trading
activities, you must acknowledge that you will deliver a prospectus in
connection with any resale of those Series G senior notes.
Book-entry transfer
The exchange agent will make a request to establish an account in respect of
the Series F senior notes at DTC for purposes of the exchange offer within two
business days after the date of this prospectus, and any financial institution
that is a participant in DTC's systems may make book-entry delivery of Series F
senior notes being tendered by causing DTC to transfer the Series F senior
notes into the exchange agent's account at DTC in accordance with its transfer
procedures. However, although delivery of Series F senior notes may be effected
through book-entry transfer at DTC, the letter of transmittal or copy thereof,
with any required signature guarantees and any other required documents, must,
in any case other than as set forth in the following paragraph, be transmitted
to and received by the exchange agent on or prior to the expiration date or the
guaranteed delivery procedures described below must be complied with.
DTC's Automated Tender Offer Program, or "ATOP", is the only method of
processing exchange offers through DTC. To accept the exchange offer through
ATOP, participants in DTC must send electronic instructions to DTC through
DTC's communication system in lieu of sending a signed, hard copy letter of
transmittal. DTC is obligated to communicate those electronic instructions to
the exchange agent. To tender Series F senior notes through ATOP, the
electronic instructions sent to DTC and transmitted by DTC to the exchange
agent must contain the character by which the participant acknowledges its
receipt of and agrees to be bound by the letter of transmittal.
Guaranteed delivery procedures
If you are a registered holder of the Series F senior notes and you desire
to tender your notes and the notes are not immediately available, or time will
not permit your Series F senior notes or other required documents to reach the
exchange agent before the expiration date, or the procedure for book-entry
transfer cannot be completed on a timely basis, you may effect a tender if:
. the tender is made through an eligible institution;
. prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed letter of
transmittal (or a facsimile thereof) and notice of guaranteed delivery,
substantially in the form provided by us (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth your name and address
and the amount of Series F senior notes tendered, stating that the tender
is being made thereby and guaranteeing that within three New York Stock
Exchange, Inc. trading days after the date of execution of the notice of
guaranteed delivery, the certificates for all physically tendered
unregistered notes, in proper form for transfer, or a book- entry
confirmation, as the case may be, will be deposited by the eligible
institution with the exchange agent; and
. the certificates for all physically tendered Series F senior notes, in
proper form for transfer, or a book-entry confirmation, as the case may
be, are received by the exchange agent within three NYSE trading days
after the date of execution of the notice of guaranteed delivery.
Withdrawal rights
You may withdraw tenders of Series F senior notes at any time prior to 5:00
p.m., New York City time, on the expiration date.
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For a withdrawal of your tender of Series F senior notes to be effective, a
written or (for DTC participants) electronic ATOP transmission notice of
withdrawal must be received by the exchange agent prior to 5:00 p.m., New York
City time, on the expiration date. Any notice of withdrawal must:
. specify the name of the person having deposited the Series F senior notes
to be withdrawn;
. identify the Series F senior notes to be withdrawn, including the
certificate number or numbers and principal amount of the Series F senior
notes;
. in the case of a written notice of withdrawal, be signed in the same
manner as the original signature on the letter of transmittal by which
the Series F senior notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have
the trustee register the transfer of the Series F senior notes into the
name of the person withdrawing the tender; and
. specify the name in which any Series F senior notes are to be registered,
if different from that of the person having deposited the Series F senior
notes.
All questions as to the validity, form, and eligibility (including time of
receipt) of such notices will be determined by us. Our determination will be
final and binding on all parties. Any Series F senior notes so withdrawn will
be deemed not to have been validly tendered for exchange for purposes of the
exchange offer. Any Series F senior notes which you tender for exchange but
which are not exchanged for any reason will be returned to you without cost to
you as soon as practicable after withdrawal, rejection of tender, or
termination of the exchange offer. Properly withdrawn Series F senior notes may
be retendered by following one of the procedures discussed above under "--
Procedures for Tendering" at any time on or prior to the expiration date.
Conditions to the exchange offer
Notwithstanding any other provision of the exchange offer, we are not
required to accept for exchange, or to issue Series G senior notes in exchange
for, any Series F senior notes and may terminate or amend the exchange offer
if, at any time before the acceptance of Series F senior notes for exchange or
Series G senior notes for Series F senior notes, (1) we determine that the
exchange offer violates applicable law, any applicable interpretation of the
staff of the Commission or any order of any governmental agency or court of
competent jurisdiction, (2) any action or proceeding has been instituted or
threatened in any court or before any governmental agency with respect to the
exchange offer which, in our judgment, might impair our ability to proceed with
the exchange offer or have a material adverse effect on us, or (3) we determine
that there has been a material change in our business or financial affairs
which, in our judgment, would materially impair our ability to consummate the
exchange offer.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us in whole or in part at any time and from time to time in our sole
discretion. Our failure to exercise any of the foregoing rights at any time
will not be deemed a waiver of any such right and each such right will be
deemed an ongoing right which may be asserted at any time and from time to
time.
In addition, we will not accept for exchange any Series F senior notes
tendered, and no Series G senior notes will be issued in exchange for any
Series F senior notes, if at such time any stop order will be threatened or in
effect with respect to the registration statement of which this prospectus
constitutes a part or the qualification of the indenture under the Trust
Indenture Act of 1939, as amended. In any such event we are required to use
every reasonable effort to obtain the withdrawal of any stop order at the
earliest possible time.
Exchange Agent
All executed letters of transmittal should be directed to the exchange
agent. HSBC Bank USA, formerly known as Marine Midland Bank, has been appointed
as exchange agent for the exchange offer. Questions, requests for assistance
and requests for additional copies of this prospectus or of the letter of
transmittal should be directed to the exchange agent addressed as follows:
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HSBC Bank USA
By Hand Or Overnight Delivery: By Registered Or Certified Mail:
140 Broadway 140 Broadway
A Level A Level
New York, N.Y. 10005-1180 New York, N.Y. 10005-1180
Attn: Corporate Trust Services Attn: Corporate Trust Services
By facsimile:
(eligible institutions only)
(212) 658-2292
Attn: Anthony Bufinsky
For information or
confirmation by telephone:
(212) 658-5931
Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand or by overnight delivery service.
Fees and expenses
We will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. The principal solicitation is being made by
mail; however, additional solicitations may be made in person or by telephone
by our officers and employees. We will pay the estimated cash expenses to be
incurred in connection with the exchange offer. We estimate such expenses to be
$300,000, which includes fees and expenses of the exchange agent, accounting,
legal, printing and related fees and expenses.
Transfer taxes
You will not be obligated to pay any transfer taxes in connection with your
tender of Series F senior notes. However, if you instruct us to register Series
G senior notes in the name of, or request that Series F senior notes not
tendered or not accepted in the exchange offer be returned to, a person other
than yourself, you will be responsible for the payment of any applicable
transfer tax thereon.
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DESCRIPTION OF NOTES
We will issue the Series G senior notes pursuant to an indenture dated as of
August 5, 1998, by and among Host Marriott, L.P., the Subsidiary Guarantors
signatory thereto and HSBC Bank USA (formerly Marine Midland Bank), as trustee,
as amended or supplemented from time to time. The terms of the indenture
include those made part of the indenture by reference to the Trust Indenture
Act of 1939, as amended. The following description is a summary of the material
provisions of the indenture and the related amended and restated pledge and
security agreement, dated as of August 5, 1998 and amended and restated as of
May 31, 2000, which governs property securing, among other things, the
obligations on the notes. It does not restate those agreements in their
entirety. We urge you to read the indenture and the pledge agreement because
they, and not this description, define your rights as holders of these notes.
You may obtain copies of the indenture and the pledge agreement from Host
Marriott, L.P. upon request. The indenture is also listed as an exhibit to a
registration statement on Form S-3 of HMH Properties, file no. 333-50729. You
can find out how to obtain these documents by looking at the section of this
prospectus titled "Where You can Find More Information" on page 135. You can
find the definitions of certain terms used in this description under the
subheading "Certain Definitions."
General
The Series G senior notes will be limited to $250,000,000 aggregate
principal amount and will mature on October 1, 2007. Interest on the Series G
senior notes will accrue at the rate of 9 1/4% per annum and will be payable
every six months in arrears on April 1 and October 1, commencing on April 1,
2001. We will make each interest payment to the holders of record of the Series
G senior notes on the immediately preceding March 15 and September 15.
The Series A senior notes, Series B senior notes, Series C senior notes,
Series D senior notes and the Series E senior notes are, and the Series G
senior notes offered hereby will be, senior, general obligations of Host
Marriott, L.P. The Series A through Series F senior notes are, and the Series G
senior notes offered hereby will be initially secured by a pledge of all the
Capital Stock of certain of our subsidiaries, which Capital Stock also equally
and ratably secures our obligation under the Credit Facility, the Series A
through Series F senior notes, and certain other Indebtedness ranking on an
equitable and ratable basis with the Series G senior notes. See "--Security".
The Series A through Series F senior notes are, and the Series G senior notes
offered hereby will be, pari passu with all of our other existing and future
unsubordinated Indebtedness and will rank senior to all of our subordinated
obligations. The Series A through Series F senior notes are, and the Series G
senior notes offered hereby will be, jointly and severally guaranteed on a
senior basis by the Subsidiary Guarantors. The Guarantee of the Subsidiary
Guarantors with respect to the notes, and the pledges of equity interests, are
subject to release upon satisfaction of certain conditions.
Interest on any series of notes issued under the indenture is or will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
The notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and integral multiples thereof. Principal of, premium,
if any, and interest on the notes will be payable at the office or agency of
Host Marriott, L.P. maintained for such purpose, in the Borough of Manhattan,
The City of New York. Except as provided below, at our option payment of
interest may be made by check mailed to the holders of any notes at the
addresses set forth upon our registry books; provided, however, holders of
certificated notes will be entitled to receive interest payments (other than at
maturity) by wire transfer of immediately available funds, if appropriate wire
transfer instructions have been received in writing by the trustee not less
than 15 days prior to the applicable interest payment date. Such wire
instructions, upon receipt by the trustee, will remain in effect until revoked
by such holder. No service charge will be made for any registration of transfer
or exchange of notes, but we may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith. Until we
designate otherwise our office or agency will be the corporate trust office of
the trustee presently located at 140 Broadway, New York, New York 10005-1180.
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Guarantees
The Series A through Series F senior notes and the Series G senior notes
offered hereby will be fully and unconditionally guaranteed as to principal,
premium, if any, and interest, jointly and severally, by the Subsidiary
Guarantors. If the partnership defaults in the payment of the principal of, or
premium, if any, or interest on, a guaranteed series of notes issued under the
indenture when and as the same shall become due, whether upon maturity,
acceleration, call for redemption, Change of Control, offer to purchase or
otherwise, without the necessity of action by the trustee or any holder, the
Subsidiary Guarantors shall be required promptly to make such payment in full.
The indenture provides that the Subsidiary Guarantors will be released from
their obligations as guarantors under such series of notes under certain
circumstances. The obligations of the Subsidiary Guarantors will be limited in
a manner intended to avoid such obligations being construed as fraudulent
conveyances under applicable law.
Each current and future Restricted Subsidiary of Host Marriott, L.P. that
subsequently guarantees any Indebtedness (the "Guaranteed Indebtedness") of
Host Marriott, L.P. (each a "Future Subsidiary Guarantor") will be required to
guarantee the Series G senior notes offered hereby and any other series of
notes guaranteed under the indenture. If the Guaranteed Indebtedness is (A)
pari passu in right of payment with the notes, then the guarantee of such
Guaranteed Indebtedness shall be pari passu in right of payment with, or
subordinated in right of payment to, the Subsidiary guarantee or (B)
subordinated in right of payment to the notes, then the guarantee of such
Guaranteed Indebtedness shall be subordinated in right of payment to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated in right of payment to the notes.
Subject to compliance with the preceding paragraph, the indenture also
provides that any guarantee by a Subsidiary Guarantor shall be automatically
and unconditionally released upon (1) the sale or other disposition of Capital
Stock of the Subsidiary Guarantor, if, as a result of such sale or disposition,
such Subsidiary Guarantor ceases to be a Subsidiary of the partnership, (2) the
consolidation or merger of any such Subsidiary Guarantor with any Person other
than the partnership or a Subsidiary of the partnership, if, as a result of
such consolidation or merger, such Subsidiary Guarantor ceases to be Subsidiary
of the partnership, (3) a Legal Defeasance or Covenant Defeasance, or (4) the
unconditional and complete release of such Subsidiary Guarantor from its
guarantee of all Guaranteed Indebtedness.
Security
The obligations of the operating partnership to pay the principal of,
premium, if any, and interest on the Series G senior notes is secured by a
pledge of the Capital Stock of certain of our direct and indirect subsidiaries,
which pledge is, and will be, shared equally and ratably with the credit
facility, the Series A through Series F senior notes and certain other of our
Indebtedness ranking pari passu in right of payment with the Series F senior
notes, including, unless otherwise provided for in the applicable supplemental
indenture, any series of notes issued under the indenture in the future. The
indenture also provides that, unless otherwise provided in a supplemental
indenture with respect to a series of notes, the Capital Stock of each
Restricted Subsidiary that is subsequently pledged to secure the credit
facility will also be pledged to secure each such series of notes on an equal
and ratable basis with respect to the Liens securing the credit facility and
any other pari passu Indebtedness secured by such Capital Stock, provided,
however, that any shares of the Capital Stock of any Restricted Subsidiary will
not be and will not be required to be pledged to secure any such series of
notes if the pledge of or grant of a security interest in such shares is
prohibited by law. Bankers Trust Company (the administrative agent under the
credit facility) currently serves as the collateral agent with respect to such
stock pledge, subject to replacement in certain circumstances. So long as the
credit facility is in effect, the lenders under the credit facility will have
the right to direct the manner and method of enforcement of remedies with
respect to the stock pledge. Any proceeds realized on a sale or disposition of
collateral would be applied first to expenses of, and other obligations owed
to, the collateral agent, second, pro rata to outstanding principal and
interest of the secured Indebtedness, and third, pro rata to other secured
obligations.
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Upon the complete and unconditional release of the pledge of any such
Capital Stock in favor of the credit facility, the pledge of such Capital Stock
as collateral securing the notes shall be released; provided that should the
obligations of the partnership under the credit facility subsequently be
secured by a pledge of such Capital Stock at any time, the partnership must
cause such Capital Stock to be pledged ratably and with at least the same
priority for the benefit of holders of the notes.
Ranking
The Series A through Series F senior notes are, and the Series G senior
notes offered hereby will be, senior, general obligations of the partnership,
ranking pari passu in right of payment with any other outstanding or future
unsubordinated Indebtedness of the partnership, including, without limitation,
the obligations of the partnership under the credit facility. The Series A
through Series F senior notes are, and the Series G senior notes offered hereby
will be, senior to all subordinated obligations of the partnership. Each of the
Subsidiary guarantees of the Series A through Series F senior notes and any
other series of guaranteed notes, including the Series G senior notes offered
hereby, will rank pari passu with all current and future unsubordinated
Indebtedness, and senior to all current and future subordinated Indebtedness,
of the Subsidiary Guarantors. Holders of the notes will be direct creditors of
the Subsidiary Guarantors by virtue of such guarantees of the notes.
Optional Redemption
Upon not less than 30 nor more than 60 days' notice, we may redeem the notes
in whole but not in part at any time at a redemption price equal to 100% of the
principal amount thereof plus the Make-Whole Premium, together with accrued and
unpaid interest thereon, if any, to the applicable redemption date (subject to
the right of holders of record on the relevant record date to receive interest
due on an interest payment date that is on or prior to the applicable
redemption date). No sinking fund is provided for the notes.
Notice
Any notice to the holders of notes of such a redemption need not set forth
the redemption price of such notes but need only set forth the calculation
thereof as described in the immediately preceding paragraph. The redemption
price, calculated as aforesaid, should be set forth in an Officer's Certificate
delivered to the trustee no later than one business day prior to the redemption
date.
Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each holder of notes to be
redeemed at its registered address.
Notes called for redemption become due on the date fixed for redemption. On
and after the redemption date, interest ceases to accrue on notes called for
redemption.
Certain Definitions
Set forth below are certain defined terms used in the covenants and other
provisions of the indenture. Reference is made to the indenture for the full
definition of all such terms as well as any other capitalized term used herein
for which no definition is provided.
"Acquired Indebtedness" means Indebtedness or Disqualified Stock of a
Person:
(1) existing at the time such Person becomes a Restricted Subsidiary of
the Company, or
(2) assumed in connection with an Asset Acquisition and not incurred in
connection with or in contemplation or anticipation of such event
provided that Indebtedness of such Person which is redeemed, defeased
(including the deposit of funds in a valid trust for the exclusive benefit of
holders and the trustee thereof, sufficient to repay such Indebtedness in
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accordance with its terms), retired or otherwise repaid at the time of or
immediately upon consummation of the transactions by which such Person becomes
a Restricted Subsidiary or such Asset Acquisition shall not be Acquired
Indebtedness.
"Adjusted Total Assets" means, for any Person, the Total Assets for such
Person and its Restricted Subsidiaries as of any Transaction Date, as adjusted
to reflect the application of the proceeds of the Incurrence of Indebtedness
and issuance of Disqualified Stock on the Transaction Date.
"Affiliate" means any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a Person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by
contract, or otherwise; provided that:
(1) a beneficial owner of 10% or more of the total voting power normally
entitled to vote in the election of directors, managers or trustees, as
applicable, shall for such purposes be deemed to constitute control;
(2) the right to designate a member of the Board of a Person or a Parent
of that Person will not, by itself, be deemed to constitute control; and
(3) Marriott International and its Subsidiaries shall not be deemed to
be Affiliates of the Company or its Parent or Restricted Subsidiaries.
"Asset Acquisition" means:
(1) an investment by the Company or any of its Restricted Subsidiaries
in any other Person pursuant to which such Person shall become a Restricted
Subsidiary or shall be merged or consolidated into or with the Company or
any of its Restricted Subsidiaries or
(2) an acquisition by the Company or any of its Restricted Subsidiaries
from any other Person that constitutes all or substantially all of a
division or line of business, or one or more real estate properties, of
such Person.
"Asset Sale" means any sale, transfer or other disposition (including by way
of merger, consolidation or sale-leaseback transaction) in one transaction or a
series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of
(1) all or any of the Capital Stock of any Restricted Subsidiary
(including by issuance of such Capital Stock);
(2) all or substantially all of the property and assets of an operating
unit or business of the Company or any of its Restricted Subsidiaries; or
(3) any other property and assets of the Company or any of its
Restricted Subsidiaries (other than Capital Stock of a Person which is not
a Restricted Subsidiary) outside the ordinary course of business of the
Company or such Restricted Subsidiary and, in each case, that is not
governed by the covenant of the indenture entitled "Consolidation, Merger
and Sale of Assets";
provided that "Asset Sale" shall not include:
(a) sales or other dispositions of inventory, receivables and other
current assets;
(b) sales, transfers or other dispositions of assets with a fair market
value not in excess of $10 million in any transaction or series of related
transactions;
(c) leases of real estate assets;
(d) Permitted Investments (other than Investments in Cash Equivalents)
or Restricted Investments made in accordance with the "Limitation on
Restricted Payments" covenant;
(e) any transaction comprising part of the REIT Conversion; and
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(f) any transactions that, pursuant to the "Limitation of Asset Sales"
covenant, are defined not to be an "Asset Sale."
"Average Life" means at any date of determination with respect to any debt
security, the quotient obtained by dividing:
(1) the sum of the products of:
(a) the number of years (calculated to the nearest one-twelfth) from
such date of determination to the date of each successive scheduled
principal (or redemption) payment of such debt security, and
(b) the amount of such principal (or redemption) payment
by
(2) the sum of all such principal (or redemption) payments.
"Blackstone Acquisition" means the acquisition by the Operating Partnership
from The Blackstone Group, a Delaware limited partnership, and a series of
funds controlled by Blackstone Real Estate Partners, a Delaware limited
partnership, of certain hotel properties, mortgage loans and other assets
together with the assumption of related Indebtedness.
"Board" means:
(1) with respect to any corporation, the board of directors of such
corporation or any committee of the board of directors of such corporation
authorized, with respect to any particular matter, to exercise the power of
the board of directors of such corporation;
(2) with respect to any partnership, any partner (including, without
limitation, in the case of any partner that is a corporation, the board of
directors of such corporation or any authorized committee thereof) with the
authority to cause the partnership to act with respect to the matter at
issue;
(3) in the case of a trust, any trustee or board of trustees with the
authority to cause the trust to act with respect to the matter at issue;
(4) in the case of a limited liability company (an "LLC"), the managing
member, management committee or other Person or group with the authority to
cause the LLC to act with respect to the matter at issue; and
(5) with respect to any other entity, the Person or group exercising
functions similar to a board of directors of a corporation.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capital Contribution" means any contribution to the equity of the Company
for which no consideration is given, or if given, consists only of the issuance
of Qualified Capital Stock (or, if other consideration is given, only the value
of the contribution in excess of such other consideration).
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, or other equivalents (however designated, whether
voting or non-voting), including partnership interests, whether general or
limited, in the equity of such Person, whether outstanding on the Closing Date
or issued thereafter, including, without limitation, all Common Stock,
Preferred Stock and Units.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such Person.
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"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease as reflected on the balance sheet
of such Person in accordance with GAAP.
"Cash Equivalent" means:
(1) securities issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided
that the full faith and credit of the United States of America are pledged
in support thereof);
(2) time deposits, bankers acceptances and certificates of deposit and
commercial paper issued by the Parent of any domestic commercial bank of
recognized standing having capital and surplus in excess of $500 million
and commercial paper issued by others rated at least A-2 or the equivalent
thereof by S&P or at least P-2 or the equivalent thereof by Moody's;
(3) marketable direct obligations issued by the District of Columbia or
any state of the United States of America or any political subdivision or
public instrumentality thereof bearing (at the time of investment therein)
one of the two highest ratings obtainable from either S&P or Moody's; and
(4) liquid investments in money market funds substantially all of the
assets of which are securities of the type described in clauses (1) through
(3) inclusive;
provided that the securities described in clauses (1) through (3) inclusive
have a maturity of one year or less after the date of acquisition.
"Change of Control" means:
(1) any sale, transfer or other conveyance, whether direct or indirect,
of all or substantially all of the assets of the Company or Host or Host
REIT (for so long as Host or Host REIT is a Parent of the Company
immediately prior to such transaction or series of related transactions),
on a consolidated basis, in one transaction or a series of related
transactions, if, immediately after giving effect to such transaction, any
"person" or "group" (as such terms are used for purposes of Sections 13(d)
and 14(d) of the Exchange Act, whether or not applicable) other than an
Excluded Person is or becomes the "beneficial owner," directly or
indirectly, of more than 50% of the total voting power in the aggregate
normally entitled to vote in the election of directors, managers, or
trustees, as applicable, of the transferee;
(2) any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable)
other than an Excluded Person is or becomes the "beneficial owner,"
directly or indirectly, of more than 50% of the total voting power in the
aggregate of all classes of Capital Stock of the Company (or Host or Host
REIT for so long as Host or Host REIT is a Parent of the Company
immediately prior to such transaction or series of related transactions)
then outstanding normally entitled to vote in elections of directors,
managers or trustees, as applicable;
(3) during any period of 12 consecutive months after the Issue Date (for
so long as Host or Host REIT is a Parent of the Company immediately prior
to such transaction or series of related transactions), Persons who at the
beginning of such 12-month period constituted the Board of Host or Host
REIT (together with any new Persons whose election was approved by a vote
of a majority of the Persons then still comprising the Board who were
either members of the Board at the beginning of such period or whose
election, designation or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Host or Host REIT, as applicable, then in office; or
(4) Host REIT ceases to be a general partner of the Operating
Partnership or ceases to control the Company;
provided, however, that neither
(x) the pro rata distribution by Host to its shareholders of shares of
the Company or shares of any of Host's or Host REIT's other Subsidiaries,
nor
(y) the REIT Conversion (or any element thereof)
shall, in and of itself, constitute a Change of Control for purposes of this
definition.
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"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Rating Decline.
"Closing Date" means August 5, 1998.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting), which have no preference on liquidation or with respect
to distributions over any other class of Capital Stock, including partnership
interests, whether general or limited, of such Person's equity, whether
outstanding on the Closing Date or issued thereafter, including, without
limitation, all series and classes of common stock.
"Company" means Host Marriott, L.P., and its successors and assigns (and,
from the Issue Date to the consummation of the Merger, HMH Properties, Inc.,
and its successors and assigns).
"Consolidated" or "consolidated" means, with respect to any Person, the
consolidation of the accounts of the Restricted Subsidiaries (including those
of the Non-Consolidated Restricted Entities) of such Person with those of such
Person; provided that:
(1) "consolidation" will not include consolidation of the accounts of
any other Person other than a Restricted Subsidiary of such Person with
such Person; and
(2) "consolidation" will include consolidation of the accounts of any
Non-Consolidated Restricted Entities, whether or not such consolidation
would be required or permitted under GAAP
(it being understood that the accounts of such Person's Consolidated
Subsidiaries shall be consolidated only to the extent of such Person's
proportionate interest therein).
The terms "consolidated" and "consolidating" have correlative meanings to
the foregoing.
"Consolidated Coverage Ratio" of any Person on any Transaction Date means
the ratio, on a pro forma basis, of
(1) the aggregate amount of Consolidated EBITDA of such Person
attributable to continuing operations and businesses (exclusive of amounts
attributable to operations and businesses permanently discontinued or
disposed of) for the Reference Period;
to
(2) the aggregate Consolidated Interest Expense of such Person
(exclusive of amounts attributable to operations and businesses permanently
discontinued or disposed of, but only to the extent that the obligations
giving rise to such Consolidated Interest Expense would no longer be
obligations contributing to such Person's Consolidated Interest Expense
subsequent to the Transaction Date) during the Reference Period;
provided that for purposes of such calculation:
(a) acquisitions of operations, businesses or other income-producing
assets (including any reinvestment of disposition proceeds in income-
producing assets held as of and not disposed on the Transaction Date) which
occurred during the Reference Period or subsequent to the Reference Period
and on or prior to the Transaction Date shall be assumed to have occurred
on the first day of the Reference Period;
(b) transactions giving rise to the need to calculate the Consolidated
Coverage Ratio shall be assumed to have occurred on the first day of the
Reference Period;
(c) the incurrence of any Indebtedness or issuance of any Disqualified
Stock during the Reference Period or subsequent to the Reference Period and
on or prior to the Transaction Date (and the application
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of the proceeds therefrom to the extent used to refinance or retire other
Indebtedness or invested in income-producing assets held as of and not
disposed on the Transaction Date) shall be assumed to have occurred on the
first day of such Reference Period; and
(d) the Consolidated Interest Expense of such Person attributable to
interest on any Indebtedness or dividends on any Disqualified Stock bearing
a floating interest (or dividend) rate shall be computed on a pro forma
basis as if the average rate in effect from the beginning of the Reference
Period to the Transaction Date had been the applicable rate for the entire
period, unless such Person or any of its Subsidiaries is a party to an
Interest Swap or Hedging Obligation (which shall remain in effect for the
12-month period immediately following the Transaction Date) that has the
effect of fixing the interest rate on the date of computation, in which
case such rate (whether higher or lower) shall be used.
"Consolidated EBITDA" means, for any Person and for any period, the
Consolidated Net Income of such Person for such period adjusted to add thereto
(to the extent deducted from net revenues in determining Consolidated Net
Income), without duplication:
(1) the sum of:
(a) Consolidated Interest Expense;
(b) provisions for taxes based on income (to the extent of such
Person's proportionate interest therein);
(c) depreciation and amortization expense (to the extent of such
Person's proportionate interest therein);
(d) any other noncash items reducing the Consolidated Net Income of
such Person for such period (to the extent of such Person's
proportionate interest therein);
(e) any dividends or distributions during such period to such Person
or a Consolidated Subsidiary (to the extent of such Person's
proportionate interest therein) of such Person from any other Person
which is not a Restricted Subsidiary of such Person or which is
accounted for by such Person by the equity method of accounting (other
than a Non-Consolidated Restricted Entity), to the extent that:
1. such dividends or distributions are not included in the
Consolidated Net Income of such Person for such period; and
2. the sum of such dividends and distributions, plus the
aggregate amount of dividends or distributions from such other
Person since the Issue Date that have been included in Consolidated
EBITDA pursuant to this clause (e), do not exceed the cumulative net
income of such other Person attributable to the equity interests of
the Person (or Restricted Subsidiary of the Person) whose
Consolidated EBITDA is being determined;
(f) any cash receipts of such Person or a Consolidated Subsidiary of
such Person (to the extent of such Person's proportionate interest
therein) during such period that represent items included in
Consolidated Net Income of such Person for a prior period which were
excluded from Consolidated EBITDA of such Person for such prior period
by virtue of clause (2) of this definition; and
(g) any nonrecurring expenses incurred in connection with the REIT
Conversion;
minus,
(2) the sum of:
(a) all non-cash items increasing the Consolidated Net Income of
such Person (to the extent of such Person's proportionate interest
therein) for such period; and
(b) any cash expenditures of such Person (to the extent of such
Person's proportionate interest therein) during such period to the
extent such cash expenditures did not reduce the Consolidated Net
Income of such Person for such period and were applied against reserves
or accruals that constituted noncash items reducing the Consolidated
Net Income of such Person (to the extent of such Person's proportionate
interest therein) when reserved or accrued;
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all as determined on a consolidated basis for such Person and its Consolidated
Subsidiaries (it being understood that the accounts of such Person's
Consolidated Subsidiaries shall be consolidated only to the extent of such
Person's proportionate interest therein).
"Consolidated Interest Expense" of any Person means, for any period, the
aggregate amount (without duplication and determined in each case on a
consolidated basis) of:
(1) interest expensed or capitalized, paid, accrued, or scheduled to be
paid or accrued (including, in accordance with the following sentence,
interest attributable to Capitalized Lease Obligations but excluding the
amortization of fees or expenses incurred in order to consummate the sale
of the notes issued under the indenture or to establish the Credit
Facility) of such Person and its Consolidated Subsidiaries during such
period, including:
(a) original issue discount and noncash interest payments or
accruals on any Indebtedness;
(b) the interest portion of all deferred payment obligations; and
(c) all commissions, discounts and other fees and charges owed with
respect to bankers' acceptances and letters of credit financings and
Interest Swap and Hedging Obligations, in each case to the extent
attributable to such period; and
(2) dividends accrued or payable by such Person or any of its
Consolidated Subsidiaries in respect of Disqualified Stock (other than by
Restricted Subsidiaries of such Person to such Person or, to the extent of
such Person's proportionate interest therein, such Person's Restricted
Subsidiaries);
provided, however, that any such interest, dividends or other payments or
accruals (referenced in clauses (1) or (2)) of a Consolidated Subsidiary that
is not Wholly Owned shall be included only to the extent of the proportionate
interest of the referent Person in such Consolidated Subsidiary.
For purposes of this definition:
(x) interest on a Capitalized Lease Obligation shall be deemed to accrue
at an interest rate reasonably determined by the Company to be the rate of
interest implicit in such Capitalized Lease Obligation in accordance with
GAAP; and
(y) interest expense attributable to any Indebtedness represented by the
guaranty by such Person or a Restricted Subsidiary of such Person of an
obligation of another Person shall be deemed to be the interest expense
attributable to the Indebtedness guaranteed.
"Consolidated Net Income" means, with respect to any Person for any period,
the net income (or loss) of such Person and its Consolidated Subsidiaries for
such period, determined on a consolidated basis (it being understood that the
net income of Consolidated Subsidiaries shall be consolidated with that of a
Person only to the extent of the proportionate interest of such Person in such
Consolidated Subsidiaries); provided that:
(1) net income (or loss) of any other Person which is not a Restricted
Subsidiary of the Person, or that is accounted for by such specified Person
by the equity method of accounting (other than a Non-Consolidated
Restricted Entity), shall be included only to the extent of the amount of
dividends or distributions paid to the specified Person or a Restricted
Subsidiary of such Person;
(2) the net income (or loss) of any other Person acquired by such
specified Person or a Restricted Subsidiary of such Person in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded;
(3) all gains and losses which are either extraordinary (as determined
in accordance with GAAP) or are either unusual or nonrecurring (including
any gain from the sale or other disposition of assets or from the issuance
or sale of any Capital Stock) shall be excluded; and
(4) the net income, if positive, of any of such Person's Consolidated
Subsidiaries other than Consolidated Subsidiaries that are not Subsidiary
Guarantors to the extent that the declaration or payment of dividends or
similar distributions is not at the time permitted by operation of the
terms of its charter or
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bylaws or any other agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Consolidated
Subsidiary
shall be excluded; provided, however, in the case of exclusions from
Consolidated Net Income set forth in clauses (2), (3) and (4), such amounts
shall be excluded only to the extent included in computing such net income (or
loss) on a consolidated basis and without duplication.
"Consolidated Subsidiary" means, for any Person, each Restricted Subsidiary
of such Person (including each Non-Consolidated Restricted Entity).
"Conversion Date" means December 29, 1998.
"Credit Facility" means the credit facility established pursuant to the
Credit Agreement, dated as of August 5, 1998 among the Company, Host, certain
other Subsidiaries party thereto, the lenders party thereto, Bankers Trust
Company, as Arranger and Administrative Agent, and Wells Fargo Bank, N.A., The
Bank of Nova Scotia and Credit Lyonnais New York Branch, as Co-Arrangers,
together with all other agreements, instruments and documents executed or
delivered pursuant thereto or in connection therewith, in each case as such
agreements, instruments or documents may be amended, supplemented, extended,
renewed, replaced or otherwise modified or restructured from time to time
(including by way of adding Subsidiaries of the Company as additional borrowers
or guarantors thereof), whether by the same or any other agent, lender or group
of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means except as set forth below, with respect to any
Person, Capital Stock of that Person that by its terms or otherwise is:
(1) required to be redeemed on or prior to the Stated Maturity of the
notes for cash or property other than Qualified Capital Stock;
(2) redeemable for cash or property other than Qualified Capital Stock
at the option of the holder of such class or series of Capital Stock at any
time prior to the Stated Maturity of the notes; or
(3) convertible into or exchangeable mandatorily or at the option of the
holder for Capital Stock referred to in clause (1) or (2) above or
Indebtedness of the Company or a Restricted Subsidiary having a scheduled
maturity prior to the Stated Maturity of the notes;
provided that any Capital Stock that would not constitute Disqualified Stock
but for provisions thereof giving holders thereof the right to require such
Person to repurchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or "change of control" occurring prior to the Stated Maturity of
the notes shall not constitute Disqualified Stock if the "asset sale" or
"change of control" provisions applicable to such Capital Stock are no more
favorable to the holders of such Capital Stock than the provisions contained in
"Limitation on Asset Sales" and "Repurchase of Notes at the Option of Holders
upon a Change of Control Triggering Event" covenants described below and such
Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of such notes as are required to be repurchased pursuant to the
"Limitation on Asset Sales" and "Repurchase of Notes at the Option of Holders
upon a Change of Control Triggering Event" covenants described below.
With respect to Capital Stock of a Restricted Subsidiary, only the amount
thereof issued to Persons (other than the Company or any of its Restricted
Subsidiaries) in excess of such Persons' Pro Rata Share of such Capital Stock
shall be deemed to be Disqualified Stock for purposes of determining the amount
of Disqualified Stock of the Company and its Restricted Subsidiaries.
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Notwithstanding anything to the contrary contained in this definition:
(a) the QUIPs are not Disqualified Stock;
(b) any Capital Stock issued by the Operating Partnership to Host REIT
shall not be deemed to be Disqualified Stock solely by reason of a right by
Host REIT to require the Company to make a payment to it sufficient to
enable Host REIT to satisfy its concurrent obligation with respect to
Capital Stock of Host REIT, provided such Capital Stock of Host REIT would
not constitute Disqualified Stock; and
(c) no Capital Stock shall be deemed to be Disqualified Stock as the
result of the right of the holder thereof to request redemption thereof if
the issuer of such Capital Stock (or the Parent of such issuer) has the
right to satisfy such redemption obligations by the issuance of Qualified
Capital Stock to such holder.
"E&P Distribution" means:
(1) one or more distributions to the shareholders of Host and/or Host
REIT of:
(a) shares of SLC; and
(b) cash, securities or other property, with a cumulative aggregate
value equal to the amount estimated in good faith by Host or Host REIT
from time to time as being necessary to assure that Host and Host REIT
have distributed the accumulated earnings and profits (as referenced in
Section 857(a)(2)(B) of the Code) of Host as of the last day of the
first taxable year for which Host REIT's election to be taxed as a REIT
is effective; and
(2) the distributions from the Operating Partnership to:
(a) Host REIT necessary to enable Host REIT to make the distributions
described in clause (1); and
(b) holders of Units (other than Host REIT) required as a result of
or a condition to such distributions made pursuant to clause (2)(a).
"Excluded Person" means, in the case of the Company, Host, Host REIT or any
Wholly Owned Subsidiary of Host or Host REIT.
"Exempted Affiliate Transaction" means:
(1) employee compensation arrangements approved by a majority of
independent (as to such transactions) members of the Board of the Company;
(2) payments of reasonable fees and expenses to the members of the
Board;
(3) transactions solely between the Company and any of its Subsidiaries
or solely among Subsidiaries of the Company;
(4) Permitted Tax Payments;
(5) Permitted Sharing Arrangements;
(6) Procurement Contracts;
(7) Operating Agreements;
(8) Restricted Payments permitted under the "Limitation on Restricted
Payments" covenant; and
(9) any and all elements of the REIT Conversion.
"Existing Senior Notes" means amounts outstanding from time to time of:
(1) the 9 1/2% Senior Secured Notes due 2005 of the Company;
(2) the 8 7/8% Senior Notes due 2007 of the Company; and
(3) the 9% Senior Notes due 2007 of the Company;
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in each case not in excess of amounts outstanding immediately following the
Issue Date, less amounts retired from time to time.
"Fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined:
(1) in good faith by the Board of the Company or the applicable
Subsidiary involved in such transaction; or
(2) by an appraisal or valuation firm of national or regional standing
selected by the Company or such Subsidiary, with experience in the
appraisal or valuation of properties or assets of the type for which fair
market value is being determined.
"Fifty Percent Venture" means a Person:
(1) in which the Company owns (directly or indirectly) at least 50% of
the aggregate economic interests;
(2) in which the Company or a Restricted Subsidiary participates in
control as a general partner, a managing member or through similar means;
and
(3) which is not consolidated for financial reporting purposes with the
Company under GAAP.
"FF&E" means furniture, fixtures and equipment, and other tangible personal
property other than real property.
"Funds From Operations" for any period means the Consolidated Net Income of
the Company and its Restricted Subsidiaries for such period excluding gains or
losses from debt restructurings and sales of property, plus depreciation of
real estate assets and amortization related to real estate assets and other
non-cash charges related to real estate assets, after adjustments for
unconsolidated partnerships and joint ventures plus minority interests, if
applicable (it being understood that the accounts of such Person's Consolidated
Subsidiaries shall be consolidated only to the extent of such Person's
proportionate interest therein).
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession in the United States of America.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly Guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by
virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services (unless such purchase
arrangements are on arm's-length terms and are entered into in the ordinary
course of business), to take-or-pay, or to maintain financial statement
conditions or otherwise); or
(2) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"HMH Properties" means HMH Properties, Inc, a Delaware corporation, which
was merged into Host Marriott, L.P. on December 16, 1998.
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"Host" means Host Marriott Corporation, a Delaware corporation and the
indirect Parent of the Company on the Issue Date, and its successors and
assigns.
"Host REIT" means Host Marriott Corporation, a Maryland corporation, which
is the sole general partner of Host Marriott, L.P. following the REIT
Conversion, and its successors and assigns.
"Host REIT Merger" means the merger of Host with and into Host REIT, with
Host REIT surviving the merger, which merger occurred on December 29, 1998.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to (including
as a result of an acquisition), or become responsible for, the payment of,
contingently or otherwise, such Indebtedness (including Acquired Indebtedness);
provided that neither the accrual of interest nor the accretion of original
issue discount shall be considered an Incurrence of Indebtedness.
"Indebtedness" of any Person means, without duplication:
(1) all liabilities and obligations, contingent or otherwise, of such
Person:
(a) in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a
portion thereof);
(b) evidenced by bonds, notes, debentures or similar instruments;
(c) representing the balance deferred and unpaid of the purchase
price of any property or services, except those incurred in the
ordinary course of its business that would constitute ordinarily a
trade payable to trade creditors;
(d) evidenced by bankers' acceptances;
(e) for the payment of money relating to a Capitalized Lease
Obligation; or
(f) evidenced by a letter of credit or a reimbursement obligation of
such Person with respect to any letter of credit;
(2) all net obligations of such Person under Interest Swap and Hedging
Obligations; and
(3) all liabilities and obligations of others of the kind described in
the preceding clause (1) or (2) that such Person has guaranteed or that is
otherwise its legal liability or which are secured by any assets or
property of such Person.
"Interest Swap and Hedging Obligation" means any obligation of any Person
pursuant to any interest rate swaps, caps, collars and similar arrangements
providing protection against fluctuations in interest rates. For purposes of
the Indenture, the amount of such obligations shall be the amount determined in
respect thereof as of the end of the then most recently ended fiscal quarter of
such Person, based on the assumption that such obligation had terminated at the
end of such fiscal quarter, and in making such determination, if any agreement
relating to such obligation provides for the netting of amounts payable by and
to such Person thereunder or if any such agreement provides for the
simultaneous payment of amounts by and to such Person, then in each such case,
the amount of such obligations shall be the net amount so determined, plus any
premium due upon default by such Person.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including without limitation by way of Guarantee or
similar arrangement, but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the consolidated balance sheet of the Company and its Restricted
Subsidiaries) or capital contribution to (by means of any transfer of cash or
other property (tangible or intangible) to others or any payment for property
or services solely for the account or use of others, or otherwise), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include the designation of
a Restricted Subsidiary to be an Unrestricted Subsidiary or a Non-Consolidated
Entity.
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For purposes of the definition of "Unrestricted Subsidiary" and the
"Limitation on Restricted Payments" covenant described below:
(1) "Investment" shall include the proportionate share of the Company
and its Restricted Subsidiaries in the fair market value of the assets (net
of liabilities (other than liabilities to the Company or any of its
Restricted Subsidiaries)) of any Restricted Subsidiary at the time such
Restricted Subsidiary is designated an Unrestricted Subsidiary or Non-
Consolidated Entity;
(2) the proportionate share of the Company and its Restricted
Subsidiaries in the fair market value of the assets (net of liabilities
(other than liabilities to the Company or any of its Restricted
Subsidiaries)) of any Unrestricted Subsidiary or Non-Consolidated Entity at
the time that such Unrestricted Subsidiary or Non-Consolidated Entity is
designated a Restricted Subsidiary shall be considered a reduction in
outstanding Investments; and
(3) any property transferred to or from an Unrestricted Subsidiary or
Non-Consolidated Entity shall be valued at its fair market value at the
time of such transfer.
"Investment Grade" means a rating of the notes by both S&P and Moody's, each
such rating being in one of such agency's four highest generic rating
categories that signifies investment grade (i.e., currently BBB--(or the
equivalent) or higher by S&P and Baa3 (or the equivalent) or higher by
Moody's); provided in each case such ratings are publicly available; provided,
further, that in the event Moody's or S&P is no longer in existence for
purposes of determining whether the notes are rated "Investment Grade," such
organization may be replaced by a nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) designated by
the Company, notice of which shall be given to the Trustee.
"Issue Date" means August 5, 1998.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien,
privilege, hypothecation, other encumbrance or charge of any kind (including,
without limitation, any conditional sale or other title retention agreement or
lease in the nature thereof or any agreement to give any security interest)
upon or with respect to any property of any kind now owned or hereinafter
acquired.
"Limited Partner Note" means an unsecured note of the Operating Partnership
which a limited partner of a Public Partnership elected to receive at the time
of the Partnership Mergers instead of or in exchange for Units.
"Make-Whole Premium" means, with respect to any note at any redemption date,
the excess, if any, of (a) the present value of the sum of the principal amount
and premium, if any, that would be payable on such note on its maturity date
and all remaining interest payments (not including any portion of such payments
of interest accrued as of the redemption date) to and including such maturity
date, discounted on a semi-annual bond equivalent basis from such maturity date
to the redemption date at a per annum interest rate equal to the sum of the
Treasury Yield (determined on the Business Day immediately preceding the date
of such redemption), plus 50 basis points, over (b) the principal amount of the
note being redeemed.
"Merger" means the merger of HMH Properties with and into the Operating
Partnership, with the Operating Partnership as the surviving entity, which
merger occurred on December 16, 1998.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means:
(1) with respect to any Asset Sale other than the sale of Capital Stock
of a Restricted Subsidiary, the proceeds of such Asset Sale in the form of
cash or Cash Equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but not
interest, component thereof) when received in the form of cash or Cash
Equivalents (except to the extent such obligations are
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financed or sold with recourse to the Company or any of its Restricted
Subsidiaries) and proceeds from the conversion of other property received
when converted to cash or Cash Equivalents, net of:
(a) brokerage commissions and other fees and expenses (including
fees and expenses of counsel and investment bankers) related to such
Asset Sale;
(b) provisions for all Taxes (including Taxes of Host REIT) actually
paid or payable as a result of such Asset Sale by the Company and its
Restricted Subsidiaries, taken as a whole;
(c) payments made to repay Indebtedness (other than Indebtedness
subordinated in right of payment to the notes or a Subsidiary
Guarantee) or any other obligations outstanding at the time of such
Asset Sale that either (I) is secured by a Lien on the property or
assets sold; or (II) is required to be paid as a result of such sale;
(d) amounts reserved by the Company and its Restricted Subsidiaries
against any liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such
Asset Sale, all as determined on a consolidated basis in conformity
with GAAP; and
(e) unless Taxes thereon are paid by Host REIT as set forth in
clause (b) above, amounts required to be distributed as a result of the
realization of gains from Asset Sales in order to maintain or preserve
Host REIT's status as a REIT;
(provided, however, that with respect to an Asset Sale by any Person other
than the Company or a Wholly Owned Subsidiary, Net Cash Proceeds shall be
the above amount multiplied by the Company's (direct or indirect)
percentage ownership interest in such Person); and
(2) with respect to any issuance or sale of Capital Stock, the proceeds
of such issuance or sale in the form of cash or Cash Equivalents, including
payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or Cash Equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any of its
Restricted Subsidiaries) and proceeds from the conversion of other property
received when converted to cash or Cash Equivalents, net of attorney's
fees, accountant's fees, underwriters' or placement agents' fees, discounts
or commissions and brokerage, consultant and other fees incurred in
connection with such issuance or sale and net of tax paid or payable as a
result thereof (provided, however, that with respect to an issuance or sale
by any Person other than the Company or a Wholly Owned Subsidiary, Net Cash
Proceeds shall be the above amount multiplied by the Company's (direct or
indirect) percentage ownership interest in such Person).
"Net Investments" means, with respect to any referenced category or group of
Investments:
(1) the aggregate amount of such Investments made by the Company and its
Restricted Subsidiaries (to the extent of the Company's proportionate
interest in such Restricted Subsidiaries) on or subsequent to the Issue
Date,
minus
(2) the aggregate amount of any dividends, distributions, sales proceeds
or other amounts received by the Company and its Restricted Subsidiaries
(to the extent of the Company's proportionate interest in such Restricted
Subsidiaries) in respect of such Investments on or subsequent to the Issue
Date;
and, in the event that any such Investments are made, or amounts are received,
in property other than cash, such amounts shall be the fair market value of
such property.
"Non-Conforming Assets" means various assets (principally comprising
partnership or other interests in hotels which are not leased, certain
international hotels in which Host or its Subsidiaries own interests, and
certain FF&E relating to hotels owned by the Operating Partnership and its
Subsidiaries) which assets, if owned by the Operating Partnership, could
jeopardize Host REIT's status as a REIT.
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"Non-Consolidated Entity" means a Non-Controlled Entity or a Fifty Percent
Venture which is neither a Non-Consolidated Restricted Entity nor an
Unrestricted Subsidiary.
"Non-Consolidated Restricted Entity" means a Non-Controlled Entity or a
Fifty Percent Venture which has been designated by the Company (by notice to
the Trustee) as a Restricted Subsidiary and which designation has not been
revoked (by notice to the Trustee). Revocation of a previous designation of a
Non-Controlled Entity or a Fifty Percent Venture as a Non-Consolidated
Restricted Entity shall be deemed to be a designation of such entity to be a
Non-Consolidated Entity.
"Non-Controlled Entity" means a taxable corporation in which the Operating
Partnership owns (directly or indirectly) 90% or more of the economic interest
but no more than 9.9% of the Voting Stock and whose assets consist primarily of
Non-Conforming Assets.
"Offering" means the offering of the notes for sale by the Company.
"Officer's Certificate" means a certificate signed on behalf of the Company,
a Guarantor or Subsidiary Guarantor, as applicable, by an officer of the
Company, a Guarantor or Subsidiary Guarantor, as applicable, who must be the
principal executive officer, the principal financial officer, the treasurer or
the principal accounting officer of the Company, Guarantor or Subsidiary
Guarantor, as applicable.
"Old Notes" means the approximately $35 million aggregate principal amount
of four series of Indebtedness of Host outstanding on the Issue Date.
"Operating Agreements" means the asset or property management agreements,
franchise agreements, lease agreements and other similar agreements between the
Company, any Subsidiary Guarantor or any of their respective Restricted
Subsidiaries, on the one hand, and Marriott International, SLC or another
entity engaged in and having pertinent experience with the operation of such
similar properties, on the other, relating to the operation of the real estate
properties owned by the Company, any Subsidiary Guarantor or any of their
respective Restricted Subsidiaries, provided that the management of the Company
determines in good faith that such arrangements are fair to the Company and to
such Restricted Subsidiary.
"Operating Partnership" means Host Marriott, L.P., a Delaware limited
partnership.
"Parent" of any Person means a corporation which at the date of
determination owns, directly or indirectly, a majority of the Voting Stock of
such Person or of a Parent of such Person.
"Partnership Mergers" means the merger of one of more Subsidiaries of the
Operating Partnership into one or more of the Public Partnerships.
"Paying Agent" means, until otherwise designated, the Trustee.
"Permitted Investment" means any of the following:
(1) an Investment in Cash Equivalents;
(2) Investments in a Person substantially all of whose assets are of a
type generally used in a Related Business (an "Acquired Person") if, as a
result of such Investments:
(a) the Acquired Person immediately thereupon is or becomes a
Restricted Subsidiary of the Company; or
(b) the Acquired Person immediately thereupon either (I) is merged
or consolidated with or into the Company or any of its Restricted
Subsidiaries and the surviving Person is the Company or a Restricted
Subsidiary of the Company or (II) transfers or conveys all or
substantially all of its assets to, or is liquidated into, the Company
or any of its Restricted Subsidiaries;
(3) an Investment in a Person, provided that:
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(a) such Person is principally engaged in a Related Business;
(b) the Company or one or more of its Restricted Subsidiaries
participates in the management of such Person, as a general partner,
member of such Person's governing board or otherwise; and
(c) any such Investment shall not be a Permitted Investment if,
after giving effect thereto, the aggregate amount of Net Investments
outstanding made in reliance on this clause (3) subsequent to the Issue
Date would exceed 5% of Total Assets;
(4) Permitted Sharing Arrangement Payments;
(5) securities received in connection with an Asset Sale so long as such
Asset Sale complied with the Indenture including the covenant "Limitation
on Asset Sales" (but, only to the extent the fair market value of such
securities and all other non-cash and non-Cash Equivalent consideration
received complies with clause (2) of the first paragraph of the "Limitation
on Asset Sales" covenant);
(6) Investments in the Company or in Restricted Subsidiaries of the
Company;
(7) Permitted Mortgage Investments;
(8) any Investments constituting part of the REIT Conversion; and
(9) any Investments in a Non-Consolidated Entity, provided that (after
giving effect to such Investment) the total assets (before depreciation and
amortization) of all Non-Consolidated Entities attributable to the
Company's proportionate ownership interest therein, plus an amount equal to
the Net Investments outstanding made in reliance upon clause (3) above,
does not exceed 20% of the total assets (before depreciation and
amortization) of the Company and its Consolidated Subsidiaries (to the
extent of the Company's proportionate ownership interest therein).
"Permitted Lien" means any of the following:
(1) Liens imposed by governmental authorities for taxes, assessments or
other charges where nonpayment thereof is not subject to penalty or which
are being contested in good faith and by appropriate proceedings, if
adequate reserves with respect thereto are maintained on the books of the
Company in accordance with GAAP;
(2) statutory liens of carriers, warehousemen, mechanics, materialmen,
landlords, repairmen or other like Liens arising by operation of law in the
ordinary course of business, provided that:
(a) the underlying obligations are not overdue for a period of more
than 30 days;
(b) such Liens are being contested in good faith and by appropriate
proceedings and adequate reserves with respect thereto are maintained
on the books of the Company in accordance with GAAP;
(3) Liens securing the performance of bids, trade contracts (other than
for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(4) easements, rights-of-way, zoning, similar restrictions and other
similar encumbrances or title defects which, singly or in the aggregate, do
not in any case materially detract from the value of the property, subject
thereto (as such property is used by the Company or any of its Restricted
Subsidiaries) or interfere with the ordinary conduct of the business of the
Company or any of its Restricted Subsidiaries;
(5) Liens arising by operation of law in connection with judgments, only
to the extent, for an amount and for a period not resulting in an Event of
Default with respect thereto;
(6) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security legislation; and
(7) Liens securing on an equal and ratable basis the notes and any other
Indebtedness.
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"Permitted Mortgage Investment" means an Investment in Indebtedness secured
by real estate assets or Capital Stock of Persons (other than the Company or
its Restricted Subsidiaries) owning such real estate assets; provided that:
(1) the Company is able to consolidate the operations of the real estate
assets in its GAAP financial statements;
(2) such real estate assets are owned by a partnership, LLC or other
entity which is controlled by the Company or a Restricted Subsidiary as a
general partner, managing member or through similar means; or
(3) the aggregate amount of such Permitted Mortgage Investments
(excluding those referenced in clauses (1) and (2) above), determined at
the time each such Investment was made, does not exceed 10% of Total Assets
after giving effect to such Investment.
"Permitted REIT Distributions" means a declaration or payment of any
dividend or the making of any distribution:
(1) to Host REIT that is necessary to maintain Host REIT's status as a
REIT under the Code or to satisfy the distributions required to be made by
reason of Host REIT's making of the election provided for in Notice 88-19
(or Treasury regulations issued pursuant thereto), if:
(a) the aggregate principal amount of all outstanding Indebtedness
(other than the QUIPs Debt) of the Company and its Restricted
Subsidiaries on a consolidated basis at such time is less than 80% of
Adjusted Total Assets of the Company; and
(b) no Default or Event of Default shall have occurred and be
continuing; and
(2) to any Person in respect of any Units, which distribution is
required as a result of or a condition to the distribution or payment of
such dividend or distribution to Host REIT; provided that such Person's
investment in the Operating Partnership in consideration of which such
Person received such Units shall have been consummated in a transaction
determined by the Company to be fair to the Operating Partnership as set
forth in an Officer's Certificate for Investments in an amount less than
$50 million and as set forth in a Board Resolution for Investments equal to
or greater than such amount.
"Permitted REIT Payments" means, without duplication, payments to Host REIT
and its Subsidiaries that hold only Qualified Assets in an amount necessary
and sufficient to permit Host REIT and such Subsidiaries to pay all of their
operating expenses and other general corporate expenses and liabilities
(including any reasonable professional fees and expenses).
"Permitted Sharing Arrangements" means any contracts, agreements or other
arrangements between the Company and/or one or more of its Subsidiaries and a
Parent of the Company and/or one or more Subsidiaries of such Parent, pursuant
to which such Persons share centralized services, establish joint payroll
arrangements, procure goods or services jointly or otherwise make payments
with respect to goods or services on a joint basis, or allocate corporate
expenses (other than taxes based on income) (provided that (i) such Permitted
Sharing Arrangements are, in the determination of management of the Company,
the Subsidiary Guarantors, or their Restricted Subsidiaries in the best
interests of the Company, the Subsidiary Guarantors, or their Restricted
Subsidiaries and (ii) the liabilities of the Company, the Subsidiary
Guarantors and their Restricted Subsidiaries under such Permitted Sharing
Arrangements are determined in good faith and on a reasonable basis).
"Permitted Sharing Arrangements Payment" means payments under Permitted
Sharing Arrangements.
"Permitted Tax Payments" means payment of any liability of the Company,
Host, Host REIT or any of their respective Subsidiaries for Taxes.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
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"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated, whether
voting or non-voting), which have a preference on liquidation or with respect
to distributions over any other class of Capital Stock, including preferred
partnership interests, whether general or limited, or such Person's preferred
or preference stock, whether outstanding on the Closing Date or issued
thereafter, including, without limitation, all series and classes of such
preferred or preference stock.
"Private Partnership" means a partnership (other than a Public Partnership)
or limited liability company that owns one or more full service hotels and
that, prior to the REIT Conversion, was partially but not Wholly Owned by Host
or one of its Subsidiaries.
"Private Partnership Acquisition" means the acquisition by the Operating
Partnership or a Restricted Subsidiary thereof from unaffiliated partners of
certain Private Partnerships of partnership interests in such Private
Partnerships in exchange for Units or the assets of such Private Partnerships
by merger or conveyance in exchange for Units.
"Procurement Contracts" means contracts for the procurement of goods and
services entered into in the ordinary course of business and consistent with
industry practices.
"Pro Rata Share" means "PRS" where:
PRS equals CR divided by TC multiplied by OPTC
where:
CR equals the redemption value of such Capital Stock in the issuing
Restricted Subsidiary held in the aggregate by the Company and its
Restricted Subsidiaries.
TC equals the total contribution to the equity of the issuing Restricted
Subsidiary made by the Company and its Restricted Subsidiaries, and
OPTC equals the total contribution to the equity of the issuing
Restricted Subsidiary made by other Persons.
"Public Partnerships" mean, collectively:
(1) Atlanta Marriott Marquis II Limited Partnership, a Delaware limited
partnership (with which HMC Atlanta Merger Limited Partnership was merged);
(2) Desert Springs Marriott Limited Partnership, a Delaware limited
partnership (with which HMC Desert Merger Limited Partnership was merged);
(3) Hanover Marriott Limited Partnership, a Delaware limited partnership
(with which HMC Hanover Merger Limited Partnership was merged);
(4) Marriott Diversified American Hotels, L.P., a Delaware limited
partnership (with which HMC Diversified Merger Limited Partnership was
merged);
(5) Marriott Hotel Properties Limited Partnership, a Delaware limited
partnership (with which HMC Properties I Merger Limited Partnership was
merged);
(6) Marriott Hotel Properties II Limited Partnership, a Delaware limited
partnership (with which HMC Properties II Merger Limited Partnership was
merged);
(7) Mutual Benefit Chicago Marriott Suite Hotel Partners, L.P., a Rhode
Island Limited partnership (with which HMC Chicago Merger Limited
Partnership was merged);
(8) Potomac Hotel Limited Partnership, a Delaware limited partnership
(with which HMC Potomac Merger Limited Partnership was merged); and
(9) Marriott Suites Limited Partnership (with which MS Merger Limited
Partnership was merged);
or, as the context may require, any such entity together with its
Subsidiaries, or any of such Subsidiaries.
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"Qualified Assets" means:
(1) Capital Stock of the Company or any of its Subsidiaries or of other
Subsidiaries of the Guarantors substantially all of whose sole assets are
direct or indirect interests in Capital Stock of the Company; and
(2) other assets related to corporate operations of the Guarantors which
are de minimus in relation to those of the Guarantors and their Restricted
Subsidiaries, taken as a whole.
"Qualified Capital Stock" means any Capital Stock of the Company that is not
Disqualified Stock and, when used in the definition of "Disqualified Stock,"
also includes any Capital Stock of a Restricted Subsidiary, Host REIT or any
Parent of the Company that is not Disqualified Stock.
"Qualified Exchange" means:
(1) any legal defeasance, redemption, retirement, repurchase or other
acquisition of then outstanding Capital Stock or Indebtedness of the
Company issued on or after the Issue Date with the Net Cash Proceeds
received by the Company from the substantially concurrent sale of Qualified
Capital Stock; or
(2) any exchange of Qualified Capital Stock for any then outstanding
Capital Stock or Indebtedness issued on or after the Issue Date.
"QUIPS" means the 6 3/4% Convertible Preferred Securities issued by Host
Marriott Financial Trust, a statutory business trust.
"QUIPs Debt" means the $567 million aggregate principal amount of 6 3/4%
convertible subordinated debentures due 2026 of Host, held by Host Marriott
Financial Trust, a statutory business trust.
"Rating Agencies" means (i) S&P and (ii) Moody's or (iii) if S&P or Moody's
or both shall not make a rating of all of the notes publicly available, a
nationally recognized securities rating agency or agencies, as the case may be,
selected by the Company, which shall be substituted for S&P or Moody's or both,
as the case may be.
"Rating Category" means currently:
(1) with respect to S&P, any of the following categories: BB, B, CCC,
CC, C and D (or equivalent successor categories);
(2) with respect to Moody's, any of the following categories: Ba, B,
Caa, Ca, C and D (or equivalent successor categories); and
(3) the equivalent of any such category of S&P or Moody's used in
another Rating Agency.
In determining whether the rating of the notes has decreased by one or more
gradations, gradations within Rating Categories (currently + and - for S&P, 1,
2 and 3 for Moody's; or the equivalent gradations for another Rating Agency)
shall be taken into account (e.g., with respect to S&P, a decline in a rating
from BB+ to BB, as well as from BB- to B+, will constitute a decrease of one
gradation).
"Rating Date" means the date which is 90 days prior to the earlier of:
(1) a Change of Control; and
(2) the first public notice of the occurrence of a Change of Control or
of the intention by the Company to effect a Change of Control.
"Rating Decline" means the occurrence, on or within 90 days after the
earliest to occur of:
(1) a Change of Control; and
(2) the date of the first public notice of the occurrence of a Change of
Control or of the intention by any Person to effect a Change of Control
(which period shall be extended so long as the rating of the notes is under
publicly announced consideration for possible downgrade by any of the
Rating Agencies), of
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(a) in the event the notes are rated by either Moody's or S&P on the
Rating Date as Investment Grade, a decrease in the rating, of the notes
by either of such Rating Agencies to a rating that is below Investment
Grade; or
(b) in the event the notes are rated below Investment Grade by both
Rating Agencies on the Rating Date, a decrease in the rating of the
notes by either Rating Agency by one or more gradations (including
gradations with Rating Categories as well as between Rating Categories).
"real estate assets" means real property and all FF&E associated or used in
connection therewith.
"Reference Period" with regard to any Person means the four full fiscal
quarters ended immediately preceding any date upon which any determination is
to be made pursuant to the terms of the securities or the indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Stock:
(1) issued in exchange for, or the proceeds from the issuance and sale
of which are used substantially concurrently to repay, redeem, defease,
refund, refinance, discharge or otherwise retire for value, in whole or in
part; or
(2) constituting an amendment, modification or supplement to, or a
deferral or renewal of ((1) and (2) above are, collectively, a
"Refinancing"),
any Indebtedness or Disqualified Stock in a principal amount or, in the case
of Disqualified Stock, liquidation preference, not to exceed the sum of :
(a) the reasonable and customary fees and expenses incurred in
connection with the Refinancing,
plus
(b) the lesser of:
1. the principal amount or, in the case of Disqualified Stock,
liquidation preference, of the Indebtedness or Disqualified Stock so
refinanced; and
2. if such Indebtedness being refinanced was issued with an
original issue discount, the accreted value thereof (as determined
in accordance with GAAP) at the time of such Refinancing;
provided that Refinancing Indebtedness (other than a revolving line of credit
from a commercial lender or other Indebtedness whose proceeds are used to
repay a revolving line of credit from a commercial lender to the extent such
revolving line of credit or other Indebtedness was not put in place for
purposes of evading the limitations described in this definition) shall:
(x) not have an Average Life shorter than the Indebtedness or
Disqualified Stock to be so refinanced at the time of such Refinancing; and
(y) be subordinated in right of payment to the rights of holders of the
notes if the Indebtedness or Disqualified Stock to be refinanced was so
subordinated.
"REIT Conversion" means the various transactions which were carried out in
connection with Host's conversion to a REIT, as generally described in the S-4
Registration Statement, including without limitation:
(1) the contribution to the Operating Partnership and its Subsidiaries
of substantially all of the assets (excluding the assets of SLC) held by
Host and its other Subsidiaries;
(2) the assumption by the Operating Partnership and/or its Subsidiaries
of substantially all of the liabilities of Host and its other Subsidiaries
(including, without limitation, the QUIPs Debt and the Old Notes);
(3) the Partnership Mergers;
(4) the Private Partnership Acquisitions;
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(5) the issuance of Limited Partner Notes in connection with the
foregoing;
(6) the Blackstone Acquisition;
(7) the contribution, prior to or substantially concurrent with the
Conversion Date, to Non-Controlled Entities of Non-Conforming Assets;
(8) the leases to SLC or Subsidiaries of SLC of the hotels owned by the
Operating Partnership and its Subsidiaries;
(9) the Host REIT Merger;
(10) the E&P Distribution; and
(11) such other related transactions and steps, occurring prior to or
substantially concurrent with or within a reasonable time after the
Conversion Date as may be reasonably necessary to complete the above
transactions or otherwise to permit Host REIT to elect to be treated as a
REIT for Federal income tax purposes.
"Related Business" means the businesses conducted (or proposed to be
conducted) by the Company and its Restricted Subsidiaries as of the Closing
Date and any and all businesses that in the good faith judgment of the Board of
the Company are materially related businesses or real estate related
businesses. Without limiting the generality of the foregoing, Related Business
shall include the ownership and operation of lodging properties.
"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than a Permitted Investment.
"Restricted Payment" means, with respect to any Person (but without
duplication):
(1) the declaration or payment of any dividend or other distribution in
respect of Capital Stock of such Person or the Parent or any Restricted
Subsidiary of such Person;
(2) any payment on account of the purchase, redemption or other
acquisition or retirement for value of Capital Stock of such Person or the
Parent or any Restricted Subsidiary of such Person;
(3) other than with the proceeds from the substantially concurrent sale
of, or in exchange for, Refinancing Indebtedness, any purchase, redemption,
or other acquisition or retirement for value of, any payment in respect of
any amendment of the terms of or any defeasance of, any Subordinated
Indebtedness, directly or indirectly, by such Person or the Parent or a
Restricted Subsidiary of such Person prior to the scheduled maturity, any
scheduled repayment of principal, or scheduled sinking fund payment, as the
case may be, of such Indebtedness;
(4) any Restricted Investment by such Person; and
(5) the payment to any Affiliate (other than the Company or its
Restricted Subsidiaries) in respect of taxes owed by any consolidated group
of which both such Person or a Subsidiary of such Person and such Affiliate
are members;
provided, however, that the term "Restricted Payment" does not include:
(a) any dividend, distribution or other payment on or with respect to
Capital Stock of the Company to the extent payable solely in shares of
Qualified Capital Stock;
(b) any dividend, distribution or other payment to the Company, or to
any of the Subsidiary Guarantors, by the Company or any of its Restricted
Subsidiaries;
(c) Permitted Tax Payments;
(d) the declaration or payment of dividends or other distributions by
any Restricted Subsidiary of the Company, provided such distributions are
made to the Company (or a Subsidiary of the Company, as applicable) on a
pro rata basis (and in like form) with all dividends and distributions so
made;
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(e) the retirement of Units upon conversion of such Units to Capital
Stock of Host REIT;
(f) any transactions comprising part of the REIT Conversion;
(g) any payments with respect to Disqualified Stock or Indebtedness at
the stated time and amounts pursuant to the original terms of the
instruments governing such obligations;
(h) Permitted REIT Payments; and
(i) payments in accordance with the existing terms of the QUIPS;
and provided, further, that any payments of bona fide obligations of the
Company or any Restricted Subsidiary shall not be deemed to be Restricted
Payments solely by virtue of the fact of another Person's co-obligation with
respect thereto.
"Restricted Subsidiary" means any Subsidiary of the Company other than (i)
an Unrestricted Subsidiary or (ii) a Non-Consolidated Entity.
"S-4 Registration Statement" means the registration statement of the
Operating Partnership on Form S-4, filed with the Commission on June 2, 1998,
as amended and supplemented.
"Secured Indebtedness" means any Indebtedness or Disqualified Stock secured
by a Lien (other than Permitted Liens) upon the property of the Company, the
Subsidiary Guarantors or any of their respective Restricted Subsidiaries.
"Significant Subsidiary" means any Subsidiary which is a "significant
subsidiary" of the Company within the meaning of Rule 1-02(w) of Regulation S-X
promulgated by the Commission as in effect as of the Issue Date.
"SLC" means HMC Senior Communities, Inc., a Delaware corporation, and its
successor Crestline Capital Corporation, a Maryland corporation, and its
successors and assigns.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Stated Maturity" means:
(1) with respect to any debt security, the date specified in such debt
security as the fixed date on which the final installment of principal of
such debt security is due and payable; and
(2) with respect to any scheduled installment of principal of or
interest on any debt security, the date specified in such debt security as
the fixed date on which such installment is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Subsidiary Guarantor that is expressly subordinated in right of payment to the
notes or a Subsidiary Guarantee thereof, as applicable.
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which more
than 50% of the voting power of the outstanding Voting Stock is owned,
directly or indirectly, by such Person, by such Person and one or more
Subsidiaries of such Person or by one or more Subsidiaries of such Person,
or the accounts of which would be consolidated with those of such Person in
its consolidated financial statements in accordance with GAAP, if such
statements were prepared as of such date;
(2) any partnership:
(a) in which such Person or one or more Subsidiaries of such Person
is, at the time, a general partner and owns alone or together with the
Company a majority of the partnership interest; or
(b) in which such Person or one or more Subsidiaries of such Person
is, at the time, a general partner and which is controlled by such
Person in a manner sufficient to permit its financial
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statements to be consolidated with the financial statements of such
Person in conformance with GAAP and the financial statements of which
are so consolidated;
(3) any Non-Controlled Entity; and
(4) any Fifty Percent Venture.
"Subsidiary Guarantee" means a Guarantee by each Subsidiary Guarantor for
payment of principal, premium and interest on the notes by such Subsidiary
Guarantor. Each Subsidiary Guarantee will be a senior obligation of the
Subsidiary Guarantor and will be full and unconditional regardless of the
enforceability of the notes and the Indenture.
"Subsidiary Guarantors" means:
(1) the current Subsidiary Guarantors identified in the following
sentence; and
(2) any Future Subsidiary Guarantors that become Subsidiary Guarantors
pursuant to the terms of the Indenture
but in each case excluding any Persons whose guarantees have been released
pursuant to the terms of the Indenture.
The current Subsidiary Guarantors are:
(1) Airport Hotels LLC;
(2) Host of Boston, Ltd.;
(3) Host of Houston, Ltd.;
(4) Host of Houston 1979;
(5) Chesapeake Financial Services LLC;
(6) City Center Interstate Partnership LLC;
(7) HMC Retirement Properties, L.P.;
(8) HMH Marina LLC;
(9) Farrell's Ice Cream Parlour Restaurants LLC;
(10) HMC Atlanta LLC;
(11) HMC BCR Holdings LLC;
(12) HMC Burlingame LLC;
(13) HMC California Leasing LLC;
(14) HMC Capital LLC;
(15) HMC Capital Resources LLC;
(16) HMC Park Ridge LP;
(17) HMC Partnership Holdings LLC;
(180) Host Park Ridge LLC;
(19) HMC Suites LLC;
(20) HMC Suites Limited Partnership;
(21) PRM LLC;
(22) Wellsford-Park Ridge Host Hotel Limited Partnership;
(23) YBG Associates LLC;
(24) HMC Chicago LLC;
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(25) HMC Desert LLC;
(26) HMC Palm Desert LLC;
(27) MDSM Finance LLC;
(28) HMC Diversified LLC;
(29) HMC East Side II LLC;
(30) HMC Gateway LLC;
(31) HMC Grand LLC;
(32) HMC Hanover LLC;
(33) HMC Hartford LLC;
(34) HMC Hotel Development LLC;
(35) HMC HPP LLC;
(36) HMC IHP Holding LLC;
(37) HMC Manhattan Beach LLC;
(38) HMC Market Street LLC;
(39) New Market Street LP;
(40) HMC Georgia LLC;
(41) HMC Mexpark LLC;
(42) HMC Polanco LLC;
(43) HMC NGL LLC;
(44) HMC OLS I L.P.;
(45) HMC OP BN LLC;
(46) HMC Pacific Gateway LLC;
(47) HMC PLP LLC;
(48) Chesapeake Hotel Limited Partnership;
(49) HMC Potomac LLC;
(50) HMC Properties I LLC;
(51) HMC Properties II LLC;
(52) HMC RTZ Loan I LLC;
(53) HMC RTZ II LLC;
(54) HMC SBM Two LLC;
(55) HMC Seattle LLC;
(56) HMC SFO LLC;
(57) HMC Swiss Holdings LLC;
(58) HMC Waterford LLC;
(59) HMH General Partner Holdings LLC;
(60) HMH Norfolk LLC;
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(61) HMH Norfolk, L.P.;
(62) HMH Pentagon LLC;
(63) HMH Restaurants LLC;
(64) HMH Rivers LLC;
(65) HMH Rivers, L.P.;
(66) HMH WTC LLC;
(67) HMP Capital Ventures LLC;
(68) HMP Financial Services LLC;
(69) Host La Jolla LLC;
(70) City Center Hotel Limited Partnership;
(71) Times Square LLC;
(72) Ivy Street LLC;
(73) Market Street Host LLC;
(74) MFR of Illinois LLC;
(75) MFR of Vermont LLC;
(76) MFR of Wisconsin LLC;
(77) Philadelphia Airport Hotel LLC;
(78) PM Financial LLC;
(79) PM Financial LP;
(80) HMC Property Leasing LLC;
(81) HMC Host Restaurants LLC;
(82) Santa Clara HMC LLC;
(83) S.D. Hotels LLC;
(84) Times Square GP LLC;
(85) Durbin LLC;
(86) HMC HT LLC;
(87) HMC JWDC GP LLC;
(88) HMC JWDC LLC;
(89) HMC OLS I LLC; and
(90) HMC OLS II L.P..
"Subsidiary Indebtedness" means, without duplication, all Unsecured
Indebtedness (including Guarantees (other than Guarantees by Restricted
Subsidiaries of Secured Indebtedness)) of which a Restricted Subsidiary other
than a Subsidiary Guarantor is the obligor. A release of the Guarantee of a
Subsidiary Guarantor which remains a Restricted Subsidiary shall be deemed to
be an Incurrence of Subsidiary Indebtedness in amount equal to the Company's
proportionate interest in the Unsecured Indebtedness of such Subsidiary
Guarantor.
"Tax" or "Taxes" means all Federal, state, local, and foreign taxes, and
other assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties applicable
thereto, imposed by any domestic or foreign governmental authority responsible
for the administration of any such taxes.
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"Total Assets" means the sum of:
(1) Undepreciated Real Estate Assets; and
(2) all other assets (excluding intangibles) of the Company, the
Subsidiary Guarantors, and their respective Restricted Subsidiaries
determined on a consolidated basis (it being understood that the accounts
of Restricted Subsidiaries shall be consolidated with those of the Company
only to the extent of the Company's proportionate interest therein).
"Total Unencumbered Assets" as of any date means the sum of :
(1) Undepreciated Real Estate Assets not securing any portion of Secured
Indebtedness; and
(2) all other assets (but excluding intangibles and minority interests
in Persons who are obligors with respect to outstanding secured debt) of
the Company, the Subsidiary Guarantors and their respective Restricted
Subsidiaries not securing any portion of Secured Indebtedness, determined
on a consolidated basis (it being understood that the accounts of
Restricted Subsidiaries shall be consolidated with those of the Company
only to the extent of the Company's proportionate interest therein).
"Transaction Date" means, with the respect to the Incurrence of any
Indebtedness or issuance of Disqualified Stock by the Company or any of its
Restricted Subsidiaries, the date such Indebtedness is to be Incurred or such
Disqualified Stock is to be issued and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"Treasury Yield" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled by and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the
date fixed for redemption (or, if such Statistical Release is no longer
published, any publicly available source of similar data)) most nearly equal to
the then remaining average life of the notes, provided that if the average life
of the notes is not equal to the constant maturity of a United States Treasury
security for which a weekly average yield is given, the Treasury yield shall be
obtained by linear interpolation (calculated to the nearest one-twelfth of a
year) from the weekly average yields of United States Treasury securities for
which such yields are given, except that if the average life of the notes is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"Undepreciated Real Estate Assets" means, as of any date, the cost (being
the original cost to the Company, the Subsidiary Guarantors or any of their
respective Restricted Subsidiaries plus capital improvements) of real estate
assets of the Company, the Subsidiary Guarantors and their respective
Restricted Subsidiaries on such date, before depreciation and amortization of
such real estate assets, determined on a consolidated basis (it being
understood that the accounts of Restricted Subsidiaries shall be consolidated
with those of the Company only to the extent of the Company's proportionate
interest therein).
"Units" means the limited partnership units of the Operating Partnership.
"Unrestricted Subsidiary" means any Subsidiary of the Company that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of the Company in the manner provided below. The Board of the Company may
designate any Subsidiary (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary, unless such
Subsidiary owns any Capital Stock of the Company, the Subsidiary Guarantors or
any of their respective Restricted Subsidiaries (other than the designated
Subsidiary and any other Subsidiary concurrently being designated as an
Unrestricted Subsidiary); provided that:
(1) any Guarantee by the Company, the Subsidiary Guarantors or any of
their respective Restricted Subsidiaries (other than the designated
Subsidiary and any other Subsidiary concurrently being designated as an
Unrestricted Subsidiary) of any Indebtedness of the Subsidiary being so
designated shall be deemed an "Incurrence" of such Indebtedness and an
"Investment" by the Company, the Subsidiary Guarantors or such Restricted
Subsidiaries at the time of such designation;
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(2) either:
(a) the Subsidiary to be so designated has total assets of $1,000 or
less; or
(b) if such Subsidiary has assets greater than $1,000, such
designation would not be prohibited under the "Limitation on Restricted
Payments" covenant described below; and
(3) if applicable, the Incurrence of Indebtedness and the Investment
referred to in clause (1) of this proviso would be permitted under the
"Limitation on Incurrences of Indebtedness and Issuances of Disqualified
Stock" and "Limitation on Restricted Payments" covenants.
The Board of the Company may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that:
(1) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such designation; and
(2) all Liens, Indebtedness and Disqualified Stock of such Unrestricted
Subsidiary outstanding immediately after such designation would, if
Incurred, granted or issued at such time, have been permitted to be
Incurred, granted or issued and shall be deemed to have been Incurred,
granted or issued for all purposes of the Indenture.
Any such designation by the Board of the Company shall be evidenced to the
Trustee by promptly filing with the Trustee a copy of the Board Resolution
giving effect to such designation and an Officer's Certificate certifying that
such designation complied with the foregoing provisions.
"Unsecured Indebtedness" means any Indebtedness or Disqualified Stock of the
Company, the Subsidiary Guarantors or any of their respective Restricted
Subsidiaries that is not Secured Indebtedness.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting, members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other
than any director's qualifying shares or Investments by individuals mandated by
applicable law) by such Person and/or one or more Wholly Owned Subsidiaries of
such Person.
Covenants
The following covenants apply to the notes being offered pursuant to this
prospectus:
Repurchase of Notes at the Option of the Holder Upon a Change of Control
Triggering Event
Upon the occurrence of a Change of Control Triggering Event, each holder of
notes will have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such holder's notes
pursuant to the unconditional, irrevocable offer to purchase described below
(the "Change of Control Offer") at an offer price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon to
the date of purchase (the "Change of Control Payment") on a date that is not
more than 45 Business Days after the occurrence of such Change of Control
Triggering Event (the "Change of Control Payment Date").
On or before the Change of Control Payment Date, the Company will:
(1) accept for payment notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent cash sufficient to pay the Change of
Control Payment (together with accrued and unpaid interest) of all notes so
tendered; and
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(3) deliver to the trustee notes so accepted together with an Officer's
Certificate listing the aggregate principal amount of the notes or portions
thereof being purchased by the Company.
The Paying Agent will promptly mail to the holders of notes so accepted
payment in an amount equal to the Change of Control Payment, and the trustee
will promptly authenticate and mail or deliver (or cause to be transferred by
book entry) to such holders a new note equal in principal amount to any
unpurchased portion of the note surrendered; provided that each such new note
will be in a principal amount of $1,000 or an integral multiple thereof. Any
notes not so accepted will be promptly mailed or delivered by the Company to
the holder thereof. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the consummation
thereof.
The provisions of the indenture relating to a Change of Control Triggering
Event may not afford the holders protection in the event of a highly leveraged
transaction, reorganization, restructuring, merger, spin-off or similar
transaction that may adversely affect holders, if such transaction does not
constitute a Change of Control Triggering Event, as defined. In addition, the
Company may not have sufficient financial resources available to fulfill its
obligation to repurchase the notes upon a Change of Control Triggering Event.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Securities Exchange Act of 1934, as amended, and the rules thereunder and all
other applicable Federal and state securities laws.
Limitation on Incurrences of Indebtedness and Issuances of Disqualified Stock
(1) Except as set forth below, neither the Company, the Subsidiary
Guarantors nor any of their respective Restricted Subsidiaries will, directly
or indirectly, Incur any Indebtedness (including Acquired Indebtedness) or
issue any Disqualified Stock. Notwithstanding the foregoing sentence, if, on
the date of any such Incurrence or issuance, after giving effect to, on a pro
forma basis, such Incurrence or issuance and the receipt and application of the
proceeds therefrom:
(a) the aggregate amount of all outstanding Indebtedness (other than the
QUIPs Debt) and Disqualified Stock of the Company, the Subsidiary
Guarantors and their respective Restricted Subsidiaries (including amounts
of Refinancing Indebtedness outstanding pursuant to paragraph (4)(c) hereof
or otherwise), determined on a consolidated basis (it being understood that
the amounts of Indebtedness and Disqualified Stock of Restricted
Subsidiaries shall be consolidated with that of the Company only to the
extent of the Company's proportionate interest in such Restricted
Subsidiaries), without duplication, is less than or equal to 65% of
Adjusted Total Assets of the Company; and
(b) the Consolidated Coverage Ratio of the Company would be greater than
or equal to 2.0 to 1, the Company and its Restricted Subsidiaries may Incur
such Indebtedness or issue such Disqualified Stock.
(2) In addition to the foregoing limitations set forth in (1) above, except
as set forth below, the Company, the Subsidiary Guarantors and their Restricted
Subsidiaries will not Incur any Secured Indebtedness or Subsidiary
Indebtedness. Notwithstanding the foregoing sentence, if, immediately after
giving effect to the Incurrence of such additional Secured Indebtedness and/or
Subsidiary Indebtedness and the application of the proceeds thereof, the
aggregate amount of all outstanding Secured Indebtedness and Subsidiary
Indebtedness of the Company, the Subsidiary Guarantors and their Restricted
Subsidiaries (including amounts of Refinancing Indebtedness outstanding
pursuant to paragraph (4)(c) hereof or otherwise), determined on a consolidated
basis (it being understood that the amounts of Secured Indebtedness and
Subsidiary Indebtedness of Restricted Subsidiaries shall be consolidated with
that of the Company only to the extent of the Company's proportionate interest
in such Restricted Subsidiaries), without duplication, is less than or equal to
45% of Adjusted Total Assets of the Company, the Company and its Restricted
Subsidiaries may Incur such Secured Indebtedness and/or Subsidiary
Indebtedness.
(3) In addition to the limitations set forth in (1) and (2) above, the
Company, the Subsidiary Guarantors and their Restricted Subsidiaries will
maintain at all times Total Unencumbered Assets of not less than 125% of
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the aggregate outstanding amount of the Unsecured Indebtedness (other than the
QUIPs Debt) (including amounts of Refinancing Indebtedness outstanding
pursuant to paragraph (4)(c) hereof or otherwise) determined on a consolidated
basis (it being understood that the Unsecured Indebtedness of the Restricted
Subsidiaries shall be consolidated with that of the Company only to the extent
of the Company's proportionate interest in such Restricted Subsidiaries).
(4) Notwithstanding paragraphs (1) or (2), the Company, the Subsidiary
Guarantors and their respective Restricted Subsidiaries (except as specified
below) may Incur or issue each and all of the following:
(a) Indebtedness outstanding (including Indebtedness issued to replace,
refinance or refund such Indebtedness) under the Credit Facility at any
time in an aggregate principal amount not to exceed $1.5 billion, less any
amount of such Indebtedness permanently repaid as provided under the
"Limitation on Asset Sales" covenant (including that, in the case of a
revolver or similar arrangement, such commitment is permanently reduced by
such amount);
(b) Indebtedness or Disqualified Stock owed:
a) to the Company; or
b) to any Subsidiary Guarantor; provided that any event which results
in any Restricted Subsidiary holding such Indebtedness or Disqualified
Stock ceasing to be a Restricted Subsidiary or any subsequent transfer
of such Indebtedness or Disqualified Stock (other than to the Company or
a Subsidiary Guarantor) shall be deemed, in each case, to constitute an
Incurrence of such Indebtedness or issuance of Disqualified Stock not
permitted by this clause (b);
(c) Refinancing Indebtedness with respect to outstanding Indebtedness
(other than Indebtedness Incurred under clause (a), (b), (d), (f) or (h) of
this paragraph) and any refinancings thereof;
(d) Indebtedness:
(i) in respect of performance, surety or appeal bonds Incurred in the
ordinary course of business;
(ii) under Currency Agreements and Interest Swap and Hedging
Obligations; provided that such agreements:
(A) are designed solely to protect the Company, the Subsidiary
Guarantors or any of their Restricted Subsidiaries against
fluctuations in foreign currency exchange rates or interest rates;
and
(B) do not increase the Indebtedness of the obligor outstanding,
at any time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or by reason of fees,
indemnities and compensation payable thereunder; or
(iii) arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from Guarantees
or letters of credit, surety bonds or performance bonds securing any
obligations of the Company, the Subsidiary Guarantors or any of their
Restricted Subsidiaries pursuant to such agreements, in any case
Incurred in connection with the disposition of any business, assets or
Restricted Subsidiary (other than Guarantees of Indebtedness Incurred by
any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition), in
an amount not to exceed the gross proceeds actually received by the
Company, the Subsidiary Guarantors and their Restricted Subsidiaries on
a consolidated basis in connection with such disposition;
(e) Indebtedness of the Company, to the extent the net proceeds thereof
are promptly:
(i) used to purchase all of the notes tendered in a Change of Control
Offer made as a result of a Change of Control; or
(ii) deposited to defease the notes as described below under "Legal
Defeasance and Covenant Defeasance";
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(f) Guarantees of the notes and Guarantees of Indebtedness of the
Company or any of the Subsidiary Guarantors by any of their respective
Restricted Subsidiaries; provided the guarantee of such Indebtedness is
permitted by and made in accordance with the terms of the Indenture at the
time of the incurrence of such underlying Indebtedness or at the time such
guarantor becomes a Restricted Subsidiary;
(g) Indebtedness evidenced by the notes and the Guarantees thereof and
represented by the indenture up to the amounts issued pursuant thereto as
of the Issue Date;
(h) the QUIPs Debt;
(i) Limited Partner Notes; and
(j) Indebtedness Incurred pursuant to the Blackstone Acquisition and any
Indebtedness of Host, its Subsidiaries, a Public Partnership or a Private
Partnership incurred in connection with the REIT Conversion.
(5) For purposes of determining any particular amount of Indebtedness under
this covenant:
(a) Indebtedness Incurred under the Credit Facility on or prior to the
Issue Date shall be treated as Incurred pursuant to clause (a) of paragraph
(4) of this covenant; and
(b) Guarantees, Liens or obligations with respect to letters of credit
supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included as additional Indebtedness. For
purposes of determining compliance with this covenant, in the event that an
item of Indebtedness meets the criteria of more than one of the types of
Indebtedness described in the above clauses, the Company, in its sole
discretion, shall classify such item of Indebtedness as being Incurred
under only one of such clauses.
Indebtedness or Disqualified Stock of any Person that is not a Restricted
Subsidiary of the Company, which Indebtedness or Disqualified Stock is
outstanding at the time such Person becomes a Restricted Subsidiary of the
Company (including by designation) or is merged with or into or consolidated
with the Company or a Restricted Subsidiary of the Company, shall be deemed to
have been Incurred or issued at the time such Person becomes a Restricted
Subsidiary of the Company or is merged with or into or consolidated with the
Company, or a Restricted Subsidiary of the Company, and Indebtedness or
Disqualified Stock which is assumed at the time of the acquisition of any asset
shall be deemed to have been Incurred or issued at the time of such
acquisition.
Limitation on Liens
Neither the Company, the Subsidiary Guarantors, nor any Restricted
Subsidiary shall secure any Indebtedness under the Credit Facility by a Lien or
suffer to exist any Lien on their respective properties or assets securing
Indebtedness under the Credit Facility unless effective provision is made to
secure the notes equally and ratably with the Lien securing such Indebtedness
for so long as Indebtedness under the Credit Facility is secured by such Lien.
Limitation on Restricted Payments
The Company and the Subsidiary Guarantors will not, and the Company and the
Subsidiary Guarantors will not permit any of their respective Restricted
Subsidiaries to, directly or indirectly, make a Restricted Payment if, at the
time of, and after giving effect to, the proposed Restricted Payment:
(1) a Default or Event of Default shall have occurred and be continuing;
(2) the Company could not Incur at least $1.00 of Indebtedness under
paragraph (a) of the "Limitation on Incurrence of Indebtedness and Issuance
of Disqualified Stock" covenant; or
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(3) the aggregate amount of all Restricted Payments (the amount, if
other than in cash, the fair market value of any property used therefor)
made on and after the Issue Date shall exceed the sum of, without
duplication:
(a) 95% of the aggregate amount of the Funds From Operations (or, if
the Funds From Operations is a loss, minus 100% of the amount of such
loss) accrued on a cumulative basis during the period (taken as one
accounting period) beginning on the first day of the fiscal quarter in
which the Issue Date occurs and ending on the last day of the last
fiscal quarter preceding the Transaction Date;
(b) 100% of the aggregate Net Cash Proceeds received by the Company
after the Issue Date from the issuance and sale permitted by the
Indenture of its Capital Stock (other than Disqualified Stock) to a
Person who is not a Subsidiary of the Company including from an
issuance to a Person who is not a Subsidiary of the Company of any
options, warrants or other rights to acquire Capital Stock of the
Company (in each case, exclusive of any Disqualified Stock or any
options, warrants or other rights that are redeemable at the option of
the holder, or are required to be redeemed, prior to the Stated
Maturity of the notes), and the amount of any Indebtedness (other than
Indebtedness subordinate in right of payment to the notes) of the
Company that was issued and sold for cash upon the conversion of such
Indebtedness after the Issue Date into Capital Stock (other than
Disqualified Stock) of the Company, or otherwise received as Capital
Contributions;
(c) an amount equal to the net reduction in Investments (other than
Permitted Investments) in any Person other than a Restricted Subsidiary
after the Issue Date resulting from payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other
transfers of assets, in each case to the Company or any of its
Restricted Subsidiaries or from the Net Cash Proceeds from the sale of
any such Investment (except, in each case, to the extent any such
payment or proceeds are included in the calculation of Funds From
Operations) or from designations of Unrestricted Subsidiaries or Non-
Consolidated Entities as Restricted Subsidiaries (valued in each case
as provided in the definition of "Investments");
(d) the fair market value of noncash tangible assets or Capital
Stock (other than that of the Company or its Parent) representing
interests in Persons acquired after the Issue Date in exchange for an
issuance of Qualified Capital Stock; and
(e) the fair market value of noncash tangible assets or Capital
Stock (other than that of the Company or its Parent) representing
interests in Persons contributed as a Capital Contribution to the
Company after the Issue Date.
Notwithstanding the foregoing, the Company may make Permitted REIT
Distributions.
The Company estimates that as of June 16, 2000, the sum of the amounts
referenced in clauses (a) through (e) above was approximately $3.4 billion.
Limitation on Dividend and Other Payment Restrictions Affecting Subsidiary
Guarantors
The Company and the Subsidiary Guarantors will not create or otherwise cause
or suffer to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any Subsidiary Guarantor to:
(1) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Subsidiary Guarantor held by
the Company or its Restricted Subsidiaries;
(2) pay any Indebtedness owed to the Company or any Subsidiary
Guarantor;
(3) make loans or advances to the Company or any Subsidiary Guarantor;
or
(4) transfer its property or assets to the Company or any Subsidiary
Guarantor.
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The foregoing provisions shall not prohibit any encumbrances or
restrictions:
(1) imposed under the indenture as in existence immediately following
the Issue Date or under the Credit Facility, and any extensions,
refinancings, renewals or replacements of such agreements; provided that
the encumbrances and restrictions in any such extensions, refinancings,
renewals or replacements are no less favorable in any material respect to
the holders than those encumbrances or restrictions that are then in effect
and that are being extended, refinanced, renewed or replaced;
(2) imposed under any applicable documents or instruments pertaining to
any Secured Indebtedness (and relating solely to assets constituting
collateral thereunder or cash proceeds from or generated by such assets);
(3) existing under or by reason of applicable law;
(4) existing with respect to any Person or the property or assets of
such Person acquired by the Company or any Restricted Subsidiary, existing
at the time of such acquisition and not incurred in contemplation thereof,
which encumbrances or restrictions are not applicable to any Person or the
property or assets of any Person other than such Person or the property or
assets of such Person so acquired;
(5) in the case of clause (4) of the first paragraph of this covenant,
(a) that restrict in a customary manner the subletting, assignment or
transfer of any property or asset that is a lease, license, conveyance or
contract or similar property or asset, (b) existing by virtue of any
transfer of, agreement to transfer, option or right with respect to, or
Lien on, any property or assets of the Company or any Restricted Subsidiary
not otherwise prohibited by the indenture or (c) arising or agreed to in
the ordinary course of business, not relating to any Indebtedness, and that
do not, individually or in the aggregate, detract from the value of
property or assets of the Company or any Restricted Subsidiary in any
manner material to the Company and its Restricted Subsidiaries, taken as a
whole;
(6) with respect solely to a Restricted Subsidiary and imposed pursuant
to an agreement that has been entered into for the sale or disposition of
all or substantially all of the Capital Stock of, or property and assets
of, such Restricted Subsidiary;
(7) contained in the terms of any Indebtedness or any agreement pursuant
to which such Indebtedness was issued if (a) the encumbrance or restriction
applies only in the event of a payment default or a default with respect to
a financial covenant contained in such Indebtedness or agreement, (b) the
encumbrance or restriction is not materially more disadvantageous to the
holders of the notes than is customary in comparable financings (as
determined by the Company) and (c) the Company determines that any such
encumbrance or restriction will not materially affect its ability to make
principal or interest payments on the notes, or
(8) in connection with and pursuant to permitted refinancings thereof,
replacements of restrictions imposed pursuant to clause (4) of this
paragraph that are not more restrictive than those being replaced and do
not apply to any other Person or assets other than those that would have
been covered by the restrictions in the Indebtedness so refinanced.
Nothing contained in this covenant shall prevent the Company, the Subsidiary
Guarantors or any of their respective Restricted Subsidiaries from:
(a) creating, incurring, assuming or suffering to exist any Permitted
Liens or Liens not prohibited by the "Limitation on Liens" covenant; or
(b) restricting the sale or other disposition of property or assets of
the Company or any of its Restricted Subsidiaries that secure Indebtedness
of the Company or any of its Restricted Subsidiaries in accordance with the
terms of such Indebtedness or any related security document.
Limitation on Transactions with Affiliates
Neither the Company, the Subsidiary Guarantors, nor any of their respective
Restricted Subsidiaries will be permitted to, directly or indirectly, enter
into, renew or extend any transaction or series of transactions
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(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any Affiliate of the
Company or any of its Restricted Subsidiaries ("Affiliate Transactions"), other
than Exempted Affiliate Transactions, except upon fair and reasonable terms no
less favorable to the Company, the Subsidiary Guarantor or such Restricted
Subsidiary than could be obtained, at the time of such transaction or, if such
transaction is pursuant to a written agreement, at the time of the execution of
the agreement providing therefor, in a comparable arm's length transaction with
a Person that is not an Affiliate.
The foregoing limitation does not limit, and shall not apply to:
(1) transactions approved by a majority of the Board of the Company;
(2) the payment of reasonable and customary fees and expenses to members
of the Board of the Company who are not employees of the Company;
(3) any Restricted Payments not prohibited by the "Limitation on
Restricted Payments" covenant or any payments specifically exempted from
the definition of Restricted Payments; and
(4) Permitted REIT Payments.
Notwithstanding the foregoing, any Affiliate Transaction or series of
related Affiliate Transactions, other than Exempted Affiliate Transactions and
any transaction or series of related transactions specified in any of clauses
(2) through (4) of the preceding paragraph:
(a) with an aggregate value in excess of $10 million must first be
approved pursuant to a Board Resolution by a majority of the Board of the
Company who are disinterested in the subject matter of the transaction; and
(b) with an aggregate value in excess of $25 million, will require the
Company to obtain a favorable written opinion from an independent financial
advisor of national reputation as to the fairness from a financial point of
view of such transaction to the Company, such Subsidiary Guarantor or such
Restricted Subsidiary, except that in the case of a real estate transaction
or related real estate transactions with an aggregate value in excess of
$25 million but not in excess of $50 million, an opinion may instead be
obtained from an independent, qualified real estate appraiser that the
consideration received in connection with such transaction is fair to the
Company, such Subsidiary Guarantor or such Restricted Subsidiary.
Limitation on Asset Sales
The Company and the Subsidiary Guarantors will not, and the Company and the
Subsidiary Guarantors will not permit any of their respective Restricted
Subsidiaries to, consummate any Asset Sale, unless:
(1) the consideration received by the Company, the Subsidiary Guarantor
or such Restricted Subsidiary is at least equal to the fair market value of
the assets sold or disposed of as determined by the Board of the Company,
in good faith; and
(2) at least 75% of the consideration received consists of cash, Cash
Equivalents and/or real estate assets; provided that, with respect to the
sale of one or more real estate properties, up to 75% of the consideration
may consist of indebtedness of the purchaser of such real estate properties
so long as such Indebtedness is secured by a first priority Lien on the
real estate property or properties sold; and provided that, for purposes of
this clause (2) the amount of:
(a) any Indebtedness (other than Indebtedness subordinated in right
of payment to the notes or a Subsidiary Guarantee) that is required to
be repaid or assumed (and is either repaid or assumed by the transferee
of the related assets) by virtue of such Asset Sale and which is
secured by a Lien on the property or assets sold; and
(b) any securities or other obligations received by the Company, any
Subsidiary Guarantor or any such Restricted Subsidiary from such
transferee that are immediately converted by the Company, the
Subsidiary Guarantor or such Restricted Subsidiary into cash (or as to
which the Company, any Subsidiary Guarantor or such Restricted
Subsidiary has received at or prior to the consummation of
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the Asset Sale a commitment (which may be subject to customary
conditions) from a nationally recognized investment, merchant or
commercial bank to convert into cash within 90 days of the consummation
of such Asset Sale and which are thereafter actually converted into
cash within such 90-day period) will be deemed to be cash.
In the event that the aggregate Net Cash Proceeds received by the Company,
any Subsidiary Guarantors or such Restricted Subsidiaries from one or more
Asset Sales occurring on or after the Closing Date in any period of 12
consecutive months exceed 1% of Total Assets (determined as of the date closest
to the commencement of such 12 month period for which a consolidated balance
sheet of the Company and its Restricted Subsidiaries has been filed with the
Securities and Exchange Commission or provided to the trustee pursuant to the
"Reports" covenant), then prior to 12 months after the date Net Cash Proceeds
so received exceeded 1% of Total Assets, the Net Cash Proceeds may be:
(1) invested in or committed to be invested in, pursuant to a binding
commitment subject only to reasonable, customary closing conditions, and
providing such Net Cash Proceeds are, in fact, so invested, within an
additional 180 days:
(a) fixed assets and property (other than notes, bonds, obligations
and securities) which in the good faith reasonable judgment of the
Board of the Company will immediately constitute or be part of a
Related Business of the Company, the Subsidiary Guarantor or such
Restricted Subsidiary (if it continues to be a Restricted Subsidiary)
immediately following such transaction;
(b) Permitted Mortgage Investments; or
(c) a controlling interest in the Capital Stock of an entity engaged
in a Related Business;
provided that concurrently with an Investment specified in clause (c), such
entity becomes a Restricted Subsidiary; or
(2) used to repay and permanently reduce Indebtedness outstanding under
the Credit Facility (including that, in the case of a revolver or similar
arrangement, such commitment is permanently reduced by such amount).
Pending the application of any such Net Cash Proceeds as described above,
the Company may invest such Net Cash Proceeds in any manner that is not
prohibited by the Indenture. Any Net Cash Proceeds from Asset Sales that are
not applied or invested as provided in the first sentence of this paragraph
(including any Net Cash Proceeds which were committed to be invested as
provided in such sentence but which are not in fact invested within the time
period provided) will be deemed to constitute "Excess Proceeds."
Within 30 days following each date on which the aggregate amount of Excess
Proceeds exceeds $25 million, the Company will make an offer to purchase from
the holders of the notes and holders of any other Indebtedness of the Company
ranking pari passu with the notes from time to time outstanding with similar
provisions requiring the Company to make an offer to purchase or redeem such
Indebtedness with the proceeds from such Asset Sale, on a pro rata basis, an
aggregate principal amount (or accreted value, as applicable) of notes and such
other Indebtedness equal to the Excess Proceeds on such date, at a purchase
price in cash equal to 100% of the principal amount (or accreted value, as
applicable) of the notes and such other Indebtedness, plus, in each case,
accrued interest (if any) to the Payment Date. To the extent that the aggregate
amount of notes and other senior Indebtedness tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, the Company may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate principal
amount (or accreted value, as applicable) of notes and such other Indebtedness
tendered pursuant to an Asset Sale Offer exceeds the amount of Excess Proceeds,
the notes to be purchased and such other Indebtedness shall be selected on a
pro rata basis. Upon completion of such Offer to Purchase, the amount of Excess
Proceeds shall be reset at zero.
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Notwithstanding, and without complying with, any of the foregoing
provisions:
(1) the Company, the Subsidiary Guarantors and their respective
Restricted Subsidiaries may, in the ordinary course of business, convey,
sell, lease, transfer, assign or otherwise dispose of inventory acquired
and held for resale in the ordinary course of business;
(2) the Company, the Subsidiary Guarantors and their respective
Restricted Subsidiaries may convey, sell, lease, transfer, assign or
otherwise dispose of assets pursuant to and in accordance with the
"Consolidation, Merger and Sale of Assets" and "Limitation on Merger of
Subsidiary Guarantors and Release of Subsidiary Guarantors" covenants in
the indenture;
(3) the Company, the Subsidiary Guarantors and their respective
Restricted Subsidiaries may sell or dispose of damaged, worn out or other
obsolete property in the ordinary course of business so long as such
property is no longer necessary for the proper conduct of the business of
the Company, the Subsidiary Guarantor or such Restricted Subsidiary, as
applicable; and
(4) the Company, the Subsidiary Guarantors and their respective
Restricted Subsidiaries may exchange assets held by the Company, the
Subsidiary Guarantor or a Restricted Subsidiary for one or more real estate
properties and/or one or more Related Businesses of any Person or entity
owning one or more real estate properties and/or one or more Related
Businesses; provided that the Board of the Company has determined in good
faith that the fair market value of the assets received by the Company are
approximately equal to the fair market value of the assets exchanged by the
Company.
No transaction listed in clauses (1) through (4) inclusive shall be deemed
to be an "Asset Sale."
Limitation on Merger of Subsidiary Guarantors and Release of Subsidiary
Guarantors
No Subsidiary Guarantor shall consolidate or merge with or into (whether or
not such Subsidiary Guarantor is the surviving Person) another Person (other
than the Company or another Subsidiary Guarantor), unless:
(1) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Subsidiary Guarantor) assumes all the obligations of such Subsidiary
Guarantor pursuant to a supplemental indenture in form reasonably
satisfactory to the trustee, pursuant to which such Person shall
unconditionally and fully guarantee, on a senior basis, all of such
Subsidiary Guarantor's obligations under such Subsidiary Guarantor's
Guarantee under the indenture on the terms set forth in the indenture; and
(2) immediately before and immediately after giving effect to such
transaction on a pro forma basis, no Default or Event of Default shall have
occurred or be continuing.
The Guarantee of the notes by a Subsidiary Guarantor shall be automatically
released upon:
(a) the sale or other disposition of Capital Stock of such Subsidiary
Guarantor if, as a result of such sale or disposition, such Subsidiary
Guarantor ceases to be a Subsidiary of the Company;
(b) the consolidation or merger of any such Subsidiary Guarantor with
any Person other than the Company or a Subsidiary of the Company if, as a
result of such consolidation or merger, such Subsidiary Guarantor ceases to
be Subsidiary of the Company;
(c) a Legal Defeasance or Covenant Defeasance; or
(d) the unconditional and complete release of such Subsidiary Guarantor
from its Guarantee of all Guaranteed Indebtedness.
Limitation on Status as Investment Company
The indenture prohibits the Company and its Restricted Subsidiaries from
being required to register as an "investment company" (as that term is defined
in the Investment Company Act of 1940, as amended).
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Covenants upon Attainment and Maintenance of an Investment Grade Rating.
The covenants "--Limitation on Liens," "--Limitation on Restricted
Payments," "--Limitation on Dividend and other Payment Restrictions Affecting
Subsidiary Guarantors," "--Limitation on Asset Sales," and "--Limitation on
Transactions with Affiliates" will not be applicable in the event, and only for
so long as, the notes are rated Investment Grade.
Reports
Whether or not the Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall deliver to the
trustee and to each holder, within 15 days after it is or would have been
required to file such with the Commission, annual and quarterly financial
statements substantially equivalent to financial statements that would have
been included in reports filed with the Commission, if the Company were subject
to the requirements of Section 13 or 15(d) of the Exchange Act, including, with
respect to annual information only, a report thereon by the certified
independent public accountants of the Company, as such would be required in
such reports to the Commission, and, in each case, together with a management's
discussion and analysis of financial condition and results of operations which
would be so required. Whether or not required by the rules and regulations of
the Commission, the Company will file a copy of all such information and
reports with the Commission for public availability and will make such
information available to securities analysts and prospective investors upon
request.
Events of Default
An Event of Default with respect to any series of notes issued under the
indenture is defined as:
(1) the failure by the Company to pay any installment of interest on the
notes of that series as and when the same becomes due and payable and the
continuance of any such failure for 30 days;
(2) the failure by the Company to pay all or any part of the principal
of, or premium, if any, on, the notes of that series when and as the same
becomes due and payable at maturity, redemption, by acceleration or
otherwise;
(3) the failure by the Company, a Guarantor or any Subsidiary Guarantor
to observe or perform any other covenant or agreement contained in the
notes of that series or the Indenture with respect to that series of notes
and, subject to certain exceptions, the continuance of such failure for a
period of 30 days after written notice is given to the Company by the
trustee or to the Company and the trustee by the holders of at least 25% in
aggregate principal amount of the notes of that series outstanding;
(4) certain events of bankruptcy, insolvency or reorganization in
respect of the Company or any of its Significant Subsidiaries;
(5) a default in (a) Secured Indebtedness of the Company or any of its
Restricted Subsidiaries with an aggregate principal amount in excess of 5%
of Total Assets, or (b) other Indebtedness of the Company or any of its
Restricted Subsidiaries with an aggregate principal amount in excess of $50
million, in either case, (A) resulting from the failure to pay principal or
interest when due (after giving effect to any applicable extensions or
grace or cure periods) or (B) as a result of which the maturity of such
Indebtedness has been accelerated prior to its final Stated Maturity; and
(6) final unsatisfied judgments not covered by insurance aggregating in
excess of 0.5% of Total Assets, at any one time rendered against the
Company or any of its Significant Subsidiaries and not stayed, bonded or
discharged within 60 days.
The indenture provides that if a Default occurs and is continuing, the trustee
must, within 90 days after the occurrence of such default, give to the holders
notice of such default; provided that the trustee may withhold from holders of
the notes notice of any continuing Default or Event of Default (except a
Default or Events of Default relating to the payment of principal or interest
on the notes of that series) if it determines that withholding notice is in
their interest.
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If an Event of Default with respect to the notes of any series occurs and is
continuing (other than an Event of Default specified in clause (4), above,
relating to the Company), then either the trustee or the holders of 25% in
aggregate principal amount of the notes of that series then outstanding, by
notice in writing to the Company (and to the trustee if given by holders) (an
"Acceleration Notice"), may declare all principal, determined as set forth
below, and accrued interest thereon to be due and payable immediately. If an
Event of Default specified in clause (4) above relating to the Company occurs,
all principal and accrued interest thereon will be immediately due and payable
on all outstanding notes without any declaration or other act on the part of
trustee or the holders. The holders of a majority in aggregate principal amount
of notes of any series generally are authorized to rescind such acceleration if
all existing Events of Default with respect to the notes of such series, other
than the non-payment of the principal of, premium, if any, and interest on the
notes of that series which have become due solely by such acceleration, have
been cured or waived. Subject to certain limitations, holders of a majority in
principal amount of the then outstanding notes of a series may direct the
trustee in its exercise of any trust or power with respect to such series.
The holders of a majority in aggregate principal amount of the notes of a
series at the time outstanding may waive on behalf of all the holders any
default with respect to such series, except a default with respect to any
provision requiring supermajority approval to amend, which default may only be
waived by such a supermajority with respect to such series, and except a
default in the payment of principal of or interest on any note of that series
not yet cured or a default with respect to any covenant or provision which
cannot be modified or amended without the consent of the holder of each
outstanding note of that series affected.
Subject to the provisions of the indenture relating to the duties of the
trustee, the trustee will be under no obligation to exercise any of its rights
or powers under the indenture at the request, order or direction of any of the
holders, unless such holders have offered to the trustee reasonable security or
indemnity. Subject to all provisions of the Indenture and applicable law, the
holders of a majority in aggregate principal amount of the notes of any series
at the time outstanding will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the trustee, or
exercising any trust or power conferred on the trustee, with respect to such
series.
Consolidation, Merger and Sale of Assets
The Company will not merge with or into, or sell, convey, or transfer, or
otherwise dispose of all or substantially of its property and assets (as an
entirety or substantially as an entirety in one transaction or a series of
related transactions) to any Person or permit any Person to merge with or into
the Company, unless:
(1) either the Company shall be the continuing Person or the Person (if
other than the Company) formed by such consolidation or into which the
Company is merged or that acquired such property and assets of the Company
shall be an entity organized and validly existing under the laws of the
United States of America or any state or jurisdiction thereof and shall
expressly assume, by a supplemental indenture, executed and delivered to
the trustee, all of the obligations of the Company, on the notes and under
the indenture;
(2) immediately after giving effect, on a pro forma basis, to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and
(3) the Company will have delivered to the trustee an Officer's
Certificate and an Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture complies
with this provision and that all conditions precedent provided for herein
relating to such transaction have been complied with.
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company, in accordance with the foregoing, the successor
Person formed by such consolidation or into which the Company is merged or to
which such transfer is made, shall succeed to, be substituted for, and may
exercise every right and power of the Company under the indenture with the same
effect as if such successor Person had been named therein as the Company and
the Company shall be released from the obligations under the notes and the
indenture.
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Legal Defeasance and Covenant Defeasance
The Company may, at its option, elect to have its obligations and the
obligations of the Guarantors and Subsidiary Guarantors discharged with
respect to the outstanding notes of any series ("Legal Defeasance"). Such
Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented, and the indenture shall cease
to be of further effect as to all outstanding notes of such series and
Guarantees thereof, except as to:
(1) rights of holders to receive payments in respect of the principal
of, premium, if any, and interest on such notes when such payments are due
from the trust funds;
(2) the Company's obligations with respect to such notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes, and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trust, duties, and immunities of the trustee,
and the Company's, the Guarantors' and the Subsidiary Guarantors'
obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, the Company may, at its option and at any time, elect, with
respect to any series of notes, to have the obligations of the Company, the
Guarantors and the Subsidiary Guarantors released with respect to certain
covenants that are described in the indenture ("Covenant Defeasance") and
thereafter any failure to comply with such obligations shall not constitute a
Default or Event of Default with respect to the notes of such series. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described
under "Events of Default" will no longer constitute an Event of Default with
respect to the notes of such series.
In order to exercise either Legal Defeasance or Covenant Defeasance, with
respect to any series of notes:
(1) the Company must irrevocably deposit with the trustee, in trust, for
the benefit of the holders of the notes of such series, U.S. legal tender,
noncallable government securities or a combination thereof, in such amounts
as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any,
and interest on such notes on the stated date for payment thereof or on the
redemption date of such principal or installment of principal of, premium,
if any, or interest on such notes;
(2) in the case of the Legal Defeasance, the Company shall have
delivered to the trustee an opinion of counsel in the United States
reasonably acceptable to trustee confirming that (A) the Company has
received from, or there has been published by the Internal Revenue Service,
a ruling or (B) since the date of the indenture, there has been a change in
the applicable Federal income tax law, in either case to the effect that,
and based thereon such opinion of counsel shall confirm that, the holders
of such notes will not recognize income, gain or loss for Federal income
tax purposes as a result of such Legal Defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not
occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered
to the trustee an opinion of counsel in the United States reasonably
acceptable to such trustee confirming that the holders of such notes will
not recognize income, gain or loss for Federal income tax purposes as a
result of such Covenant Defeasance and will be subject to Federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred with respect to
such series and be continuing on the date of such deposit or insofar as
Events of Default from bankruptcy or insolvency events are concerned, at
any time in the period ending on the 91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the indenture or any
other material agreement or instrument to which the Company or any of its
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound;
131
<PAGE>
(6) the Company shall have delivered to the trustee an Officer's
Certificate stating that the deposit was not made by the Company with the
intent of preferring the holders of such notes over any other creditors of
the Company or with the intent of defeating, hindering, delaying or
defrauding any other creditors of the Company or others; and
(7) the Company shall have delivered to the trustee an Officer's
Certificate stating that the conditions precedent provided for have been
complied with.
Amendments and Supplements
The indenture contains provisions permitting the Company, the Guarantors,
the Subsidiary Guarantors and the trustee to enter into a supplemental
indenture for certain limited purposes without the consent of the holders.
Subject to certain limited exceptions, modifications and amendments of the
indenture or any supplemental indenture with respect to any series may be made
by the Company, the Guarantors, the Subsidiary Guarantors and the trustee with
the consent of the holders of not less than a majority in aggregate principal
amount of the outstanding notes of such series (except that any amendments or
supplements to the provisions relating to security interests or with respect to
the Guarantees of the Subsidiary Guarantors shall require the consent of the
holders of not less than 66 2/3% of the aggregate principal amount of the notes
of such series at the time outstanding); provided that no such modification or
amendment may, without the consent of each holder affected thereby:
(1) change the Stated Maturity of the principal of, or any installment
of interest on, any note;
(2) reduce the principal amount of, or premium, if any, or interest on,
any note;
(3) change the place of payment of principal of, or premium, if any, or
interest on, any note;
(4) impair the right to institute suit for the enforcement of any
payment on or after the Stated Maturity (or, in the case of a redemption,
on or after the Redemption Date) of any note;
(5) reduce the above-stated percentages of outstanding notes the consent
of whose holders is necessary to modify or amend the indenture;
(6) waive a default in the payment of principal of, premium, if any, or
interest on the notes;
(7) alter the provisions relating to the redemption of the notes at the
option of the Company;
(8) reduce the percentage or aggregate principal amount of outstanding
notes the consent of whose holders is necessary for waiver of compliance
with certain provisions of the indenture or for waiver of certain defaults;
or
(9) make the notes subordinate in right of payment to any other
Indebtedness.
No Personal Liability of Partners, Stockholders, Officers, Directors
No recourse for the payment of the principal of, premium, if any, or
interest on any of the notes or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company, the Guarantors or the Subsidiary Guarantors in the
indenture, or in any of the notes or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator,
partner, stockholder, officer, director, employee or controlling Person of the
Company, the Guarantors or the Subsidiary Guarantors or of any successor Person
thereof, except as an obligor or guarantor of the notes pursuant to the
indenture. Each holder, by accepting the notes, waives and releases all such
liability.
Concerning the Trustee
The indenture provides that, except during the continuance of a Default, the
trustee will not be liable, except for the performance of such duties as are
specifically set forth in such indenture. If an Event of Default has occurred
and is continuing, the trustee will use the same degree of care and skill in
its exercise of the rights and powers vested in it under the indenture as a
prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
132
<PAGE>
The indenture and provisions of the Trust Indenture Act of 1939, as amended,
incorporated by reference therein contain limitations on the rights of the
trustee, should it become a creditor of the Company or the Guarantors, to
obtain payment of claims in certain cases or to realize on certain property
received by it in respect of any such claims, as security or otherwise. The
trustee is permitted to engage in other transactions; provided that if it
acquires any conflicting interest, it must eliminate such conflict or resign.
Book Entry; Delivery; Form and Transfer
The certificates representing the notes will be issued in fully registered
form without interest coupons. Notes sold in offshore transactions in reliance
on Regulation S under the Securities Act will initially be represented by one
or more permanent global notes in definitive, fully registered form without
interest coupons (each a "Regulation S Global Note") and will be deposited with
the trustee as custodian for, and registered in the name of a nominee of, DTC
for the accounts of The Bank of New York, as depositary for the Euroclear
System (Euroclear) and Clearstream, Luxembourg societe anonyme ("Clearstream").
Prior to the 40th day after the closing date of the notes, beneficial interests
in the Regulation S Global Notes may only be held through Euroclear or
Clearstream, and any resale or transfer of such interests to U.S. persons shall
not be permitted during such period unless such resale or transfer is made
pursuant to Rule 144A or Regulation S.
Notes sold in reliance on Rule 144A will be represented by one or more
permanent global notes in definitive, fully registered form without interest
coupons (each a "Restricted Global Note"; and together with the Regulation S
Global Notes, the "Global Notes") and will be deposited with the trustee as
custodian for, and registered in the name of a nominee of, DTC.
Each Global Note (and any notes issued for exchange thereof) will be subject
to certain restrictions on transfer set forth therein as described under
"Notice to Investors."
Notes transferred to Institutional Accredited Investors who are not
qualified institutional buyers ("Non-Global Purchasers") will be in registered
form without interest coupons ("Certificated Notes"). Upon the transfer of
Certificated Notes initially issued to a Non-Global Purchaser to a qualified
institutional buyer or in accordance with Regulation S, such Certificated Notes
will, unless the relevant Global Note has previously been exchanged in whole
for Certificated Notes, be exchanged for an interest in a Global Note. For a
description of the restrictions on the transfer of Certificated Notes, see
"Notice to Investors."
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Qualified institutional buyers may hold their
interests in a Restricted Global Note directly through DTC if they are
participants in such system, or indirectly through organizations which are
participants in such system.
Investors may hold their interests in a Regulation S Global Note directly
through Clearstream or Euroclear, if they are participants in such systems, or
indirectly through organizations that are participants in such system. On or
after the 40th day following the closing date of the notes, investors may also
hold such interests through organizations other than Clearstream or Euroclear
that are participants in the DTC system. Clearstream and Euroclear will hold
interests in the Regulation S Global Notes on behalf of their participants
through DTC.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the notes represented by such Global Note for all
purposes under the indenture and the notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
indenture and, if applicable, those of Euroclear and Clearstream.
133
<PAGE>
Payments of the principal of, and interest on, a Global Note will be made to
DTC or its nominee, as the case may be, as the registered owner thereof.
Neither Host Marriott, L.P., the trustee nor any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Host Marriott, L.P., expects that DTC or its nominee, upon receipt of any
payment of principal or interest in respect of a Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of DTC or its nominee. Host Marriott, L.P. also expects
that payments by participants to owners of beneficial interests in such Global
Note held through such participants will be governed by standing instructions
and customary practices, as is now the case with securities held for the
accounts of customers registered in the names of nominees for such customers.
Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same day funds. Transfers
between participants in Euroclear and Clearstream will be effected in the
ordinary way in accordance with their respective rules and operating
procedures.
Host Marriott, L.P. expects that DTC will take any action permitted to be
taken by a holder of notes (including the presentation of notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in a Global Note is credited and only in respect of
such portion of the aggregate principal amount of notes to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the notes, DTC will exchange the applicable Global
Note for Certificated Notes, which it will distribute to its participants and
which may be legended as set forth under the heading "Notice to Investors."
Host Marriott, L.P. understands that DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical
movement of certificates. Indirect access to the DTC system is available to
others such as banks, brokers, dealers and trust companies and certain other
organizations that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
Although DTC, Euroclear and Clearstream are expected to follow the foregoing
procedures in order to facilitate transfers of interests in a Global Note among
participants of DTC, Euroclear and Clearstream they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. Neither Host Marriott, L.P. nor the trustee will have
any responsibility for the performance by DTC, Euroclear or Clearstream or
their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a despositary for
the Global Notes and a successor depositary is not appointed by Host Marriott,
L.P. within 90 days, Host Marriott, L.P. will issue Certificated Notes, which
may bear the legend referred to under "Notice to Investors," in exchange for
the Global Notes. Holders of an interest in a Global Note may receive
Certificated Notes, which may bear the legend referred to under "Notice to
Investors," in accordance with the DTC's rules and procedures in addition to
those provided for under the indenture.
Initially, the trustee will act as paying agent and registrar. The notes may
be presented for registration of transfer and exchange at the offices of the
Registrar. It is expected that the notes will be eligible for inclusion in the
NASD's PORTAL system.
134
<PAGE>
Same Day Settlement and Payment
The indenture will require that payments in respect of the notes represented
by the Global Notes (including principal, premium, if any, interest and
liquidated damages, if any) be made by wire transfer of immediately available
same day funds to the accounts specified by the holder of interests in such
Global Note. With respect to Certificated Notes, we will make all payments of
principal, premium, if any, interest and liquidated damages, if any, by wire
transfer of immediately available same day funds to the accounts specified by
the holders thereof or, if no such account is specified, by mailing a check to
each such holder's registered address. We expect that secondary trading in the
Certificated Notes will also be settled in immediately available funds.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE
The following discussion, to the extent that it constitutes matters of law,
summaries of legal matters or legal conclusions, is the opinion of Latham &
Watkins, our special tax counsel, as to the material federal income tax
consequences expected to result to holders whose Series F senior notes are
exchanged for Series G senior notes in the exchange offer. Their opinion is
based upon the facts set forth in the registration statement of which this
prospectus is a part, current provisions of the Internal Revenue Code of 1986,
as amended, applicable U.S. Treasury regulations, judicial authority and
administrative rulings and practice. We can not assure you that the Internal
Revenue Service will not take a contrary view. We have not sought nor will we
seek any ruling from the IRS with respect to the exchange offer. Legislative,
judicial or administrative changes or interpretations could occur that would
alter or modify these statements and conclusions set forth in this prospectus.
Any changes or interpretations may or may not be retroactive and could affect
the tax consequences to holders. Holders of Series F senior notes (including
insurance companies, tax-exempt organizations, financial institutions, broker-
dealers, foreign corporations, and persons who are not citizens or residents of
the United States) may be subject to special rules not discussed below. Each
holder of Series F senior notes should consult its tax advisor as to the
particular tax consequences of exchanging Series F senior notes for Series G
senior notes, including the applicability and effect of any state, local or
foreign laws.
The exchange of Series F senior notes for Series G senior notes will be
treated as a "non-event" for federal income tax purposes. That is, the exchange
will not be treated as an exchange for federal income tax purposes because the
Series G senior notes will not be considered to differ materially in kind or
extent from the Series F senior notes. As a result, no material federal income
tax consequences will result to holders exchanging Series F senior notes for
Series G senior notes.
135
<PAGE>
PLAN OF DISTRIBUTION
If you are a broker-dealer that receives Series G senior notes for your own
account pursuant to the exchange offer, you must acknowledge that you will
deliver a prospectus in connection with any resale of such Series G senior
notes. This prospectus, as it may be amended or supplemented from time to time,
may be used in connection with resales of Series G senior notes received in
exchange for Series F senior notes where such Series F senior notes were
acquired as a result of market-making activities or other trading activities.
To the extent any broker-dealer participates in the exchange offer and so
notifies us, we have agreed that we will make this prospectus, as amended or
supplemented, available to that broker-dealer for use in connection with
resales, and will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
those documents in the letter of transmittal.
. We will not receive any proceeds from any sale of Series G senior notes
by broker-dealers.
. Series G senior notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Series G senior notes
or a combination of such methods of resale, at prevailing market prices
at the time of resale, at prices related to such prevailing market prices
or at negotiated prices.
. Any resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers or any such
Series G senior notes.
. Any broker-dealer that resells Series G senior notes that were received
by it for its own account pursuant to the exchange offer and any broker
or dealer that participates in a distribution of such Series G senior
notes may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of Series G senior
notes and any commissions or concessions received by any such persons may
be deemed to be underwriting compensation under the Securities Act.
. The letter of transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
We have agreed to pay all expenses incident to the exchange offer (other
than commissions and concessions of any broker-dealer), subject to certain
prescribed limitations, and will provide indemnification against certain
liabilities, including certain liabilities that may arise under the Securities
Act, to broker-dealers that make a market in the Series F senior notes and
exchange Series F senior notes in the exchange offer for Series G senior notes.
By its acceptance of the exchange offer, any broker-dealer that receives
Series G senior notes pursuant to the exchange offer hereby agrees to notify us
prior to using the prospectus in connection with the sale or transfer of Series
G senior notes. It also agrees that, upon receipt of notice from us of the
happening of any event which makes any statement in this prospectus untrue in
any material respect or which requires the making of any changes in this
prospectus in order to make the statements therein not misleading or which may
impose upon us disclosure obligations that may have a material adverse effect
on us (which notice we agree to deliver promptly to such broker-dealer), such
broker-dealer will suspend use of this prospectus until we have notified such
broker-dealer that delivery of this prospectus may resume and has furnished
copies of any amendment or supplement to this prospectus to such broker-dealer.
136
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the Series G senior notes will be passed
upon for us by Christopher G. Townsend, Senior Vice President and General
Counsel of Host REIT, Bethesda, Maryland. Mr. Townsend owns shares of Host REIT
common stock, and holds stock options, deferred stock and restricted stock
awards under Host REIT compensation plans. Mr. Townsend may receive additional
awards under these plans in the future. Certain other legal matters in
connection with the exchange of the notes will be passed upon for us by Latham
& Watkins, Washington, D.C.
EXPERTS
The audited consolidated financial statements of Host Marriott, L.P., CCHP I
Corporation, CCHP II Corporation, CCHP III Corporation and CCHP IV Corporation
included in this prospectus and elsewhere in the registration statement to the
extent and for the periods indicated in their reports have been audited by
Arthur Andersen LLP, independent public accountants, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
137
<PAGE>
INDEX TO FINANCIAL STATEMENTS
The following financial information is included on the pages indicated:
Historical Financial Statements
Host Marriott, L.P.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998............. F-3
Consolidated Statements of Operations for the Fiscal Years Ended December
31, 1999 and 1998, and January 2, 1998.................................. F-4
Consolidated Statements of Shareholders' Equity and Comprehensive Income
for the Fiscal Years Ended December 31, 1998 and January 2, 1998........ F-5
Consolidated Statements of Partners' Capital and Comprehensive Income for
the Fiscal Years Ended December 31, 1999 and 1998....................... F-6
Consolidated Statements of Cash Flows for the Fiscal Years Ended December
31, 1999 and 1998 and January 2, 1998................................... F-7
Notes to Consolidated Financial Statements............................... F-9
Lease Pool Financial Statements
CCHP I Corporation:
Report of Independent Public Accountants................................. F-44
Consolidated Balance Sheet as of December 31, 1999....................... F-45
Consolidated Statement of Operations for the Fiscal Year Ended December
31, 1999................................................................ F-46
Consolidated Statement of Shareholders' Equity for the Fiscal Year Ended
December 31, 1999....................................................... F-47
Consolidated Statement of Cash Flows for the Fiscal Year Ended December
31, 1999................................................................ F-48
Notes to Consolidated Financial Statements............................... F-49
CCHP II Corporation:
Report of Independent Public Accountants................................. F-56
Consolidated Balance Sheet as of December 31, 1999....................... F-57
Consolidated Statement of Operations for the Fiscal Year Ended December
31, 1999................................................................ F-58
Consolidated Statement of Shareholders' Equity for the Fiscal Year Ended
December 31, 1999....................................................... F-59
Consolidated Statement of Cash Flows for the Fiscal Year Ended December
31, 1999................................................................ F-60
Notes to Consolidated Financial Statements............................... F-61
CCHP III Corporation:
Report of Independent Public Accountants................................. F-68
Consolidated Balance Sheet as of December 31, 1999....................... F-69
Consolidated Statement of Operations for the Fiscal Year Ended December
31, 1999................................................................ F-70
Consolidated Statement of Shareholders' Equity for the Fiscal Year Ended
December 31, 1999....................................................... F-71
Consolidated Statement of Cash Flows for the Fiscal Year Ended December
31, 1999................................................................ F-72
Notes to Consolidated Financial Statements............................... F-73
CCHP IV Corporation:
Report of Independent Public Accountants................................. F-80
Consolidated Balance Sheet as of December 31, 1999....................... F-81
Consolidated Statement of Operations for the Fiscal Year Ended December
31, 1999................................................................ F-82
Consolidated Statement of Shareholders' Equity for the Fiscal Year Ended
December 31, 1999....................................................... F-83
Consolidated Statement of Cash Flows for the Fiscal Year Ended December
31, 1999................................................................ F-84
Notes to Consolidated Financial Statements............................... F-85
Host Marriott, L.P.
Condensed Consolidated Balance Sheets--September 8, 2000................. F-91
Condensed Consolidated Statements of Operations--Twelve Weeks and Thirty-
six Weeks Ended September 8, 2000 and September 10, 1999................ F-92
Condensed Consolidated Statements of Cash Flows--Thirty-six Weeks Ended
September 8, 2000 and September 10, 1999................................ F-94
Notes to Condensed Consolidated Financial Statements..................... F-95
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Host Marriott Corporation as general partner to Host Marriott, L.P.:
We have audited the accompanying consolidated balance sheets of Host
Marriott, L.P. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, partner's capital and
comprehensive income and cash flows of Host Marriott, L.P. for the fiscal year
ended December 31, 1999 and the consolidated statements of operations,
shareholders' equity and comprehensive income and cash flows of Host Marriott
Corporation (as predecessor to Host Marriott L.P. -- See Note 1) for the fiscal
years ended December 31, 1998 and January 2, 1998. These financial statements
and the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Host
Marriott, L.P. and subsidiaries as of December 31, 1999, and the results of
operations and cash flows of Host Marriott, L.P. for the fiscal year ended
December 31, 1999 and of Host Marriott Corporation for the fiscal years ended
December 31, 1998 and January 2, 1998, in conformity with accounting principles
generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index at Item
21(B) is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Vienna, Virginia
March 8, 2000
F-2
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
1999 1998
------ ------
(in millions)
<S> <C> <C>
ASSETS
Property and equipment, net..................................... $7,108 $7,201
Notes and other receivables, net (including amounts due from
affiliates of $127 million and $134 million, respectively)..... 175 203
Rent receivable................................................. 72 --
Due from managers............................................... -- 19
Investments in affiliates....................................... 49 33
Other assets.................................................... 515 370
Cash and cash equivalents....................................... 277 436
------ ------
$8,196 $8,262
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Debt
Senior notes.................................................. $2,539 $2,246
Mortgage debt................................................. 2,309 2,438
Convertible debt obligation to Host Marriott Corporation...... 514 567
Other......................................................... 221 447
------ ------
5,583 5,698
Accounts payable and accrued expenses........................... 148 204
Deferred income taxes........................................... 49 97
Other liabilities............................................... 426 460
------ ------
Total liabilities............................................. 6,206 6,459
------ ------
Minority interest............................................... 136 147
Cumulative redeemable preferred limited partnership interests of
third parties at redemption value ("Preferred OP Units")
(representing 0.6 million units and 0 units at December 31,
1999 and 1998, respectively)................................... 5 --
Limited partnership interests of third parties at redemption
value (representing 64.0 million units and 64.6 million units
at December 31, 1999 and 1998, respectively)................... 528 892
Partners' capital
General partner............................................... 1 1
Cumulative redeemable preferred limited partner............... 196 --
Limited partner............................................... 1,122 767
Accumulated other comprehensive income (loss)................. 2 (4)
------ ------
Total partners' capital..................................... 1,321 764
------ ------
$8,196 $8,262
====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal years ended December 31, 1999 and 1998, and January 2, 1998
(in millions, except per common share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
REVENUES
Rental income (Note 1)............................... $1,295 $ -- $ --
Hotel sales
Rooms................................................ -- 2,220 1,850
Food and beverage.................................... -- 984 776
Other................................................ -- 238 180
------ ------ ------
Total hotel revenues................................ -- 3,442 2,806
Interest income...................................... 39 51 52
Net gains (losses) on property transactions.......... 28 57 (11)
Equity in earnings of affiliates and other........... 14 14 28
------ ------ ------
Total revenues...................................... 1,376 3,564 2,875
------ ------ ------
EXPENSES
Depreciation and amortization........................ 289 242 231
Property-level expenses.............................. 264 271 247
Hotel operating expenses
Rooms................................................ -- 524 428
Food and beverage.................................... -- 731 592
Other department costs and deductions................ -- 843 693
Management fees and other (including Marriott
International management fees of $196 million in
1998 and $162 million in 1997)...................... -- 213 171
Minority interest.................................... 21 52 31
Corporate expenses................................... 37 50 45
REIT conversion expenses............................. -- 64 --
Loss on litigation settlement........................ 40 -- --
Interest expense..................................... 469 335 288
Dividends on Host Marriott-obligated mandatorily
redeemable convertible preferred securities of a
subsidiary trust whose sole assets are the
convertible subordinated debentures due 2026
("Convertible Preferred Securities")................ -- 37 37
Other................................................ 16 28 29
------ ------ ------
Total expenses...................................... 1,136 3,390 2,792
------ ------ ------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES................................................ 240 174 83
Benefit (provision) for income taxes................. 16 (86) (36)
Benefit from change in tax status.................... -- 106 --
------ ------ ------
INCOME FROM CONTINUING OPERATIONS..................... 256 194 47
DISCONTINUED OPERATIONS
Income from discontinued operations (net of income
tax expense of $4 million in 1998).................. -- 6 --
Provision for loss on disposal (net of income tax
benefit of $3 million in 1998)...................... -- (5) --
------ ------ ------
INCOME BEFORE EXTRAORDINARY ITEMS..................... 256 195 47
Extraordinary gain (loss), net of income tax expense
(benefit) of $4 million, ($80) million and $1
million in 1999, 1998 and 1997, respectively........ 29 (148) 3
------ ------ ------
NET INCOME............................................ $ 285 $ 47 $ 50
====== ====== ======
Less: Distributions on preferred limited partner
units to Host Marriott, net of income tax expense of
$4 million.......................................... (6) -- --
------ ------ ------
NET INCOME AVAILABLE TO COMMON UNITHOLDERS............ $ 279 $ 47 $ 50
====== ====== ======
BASIC EARNINGS (LOSS) PER COMMON UNIT:
Continuing operations................................ $ .86 $ .90 $ .22
Discontinued operations (net of income taxes)........ -- .01 --
Extraordinary gain (loss)............................ .10 (.69) .01
------ ------ ------
BASIC EARNINGS PER COMMON UNIT........................ $ .96 $ .22 $ .23
====== ====== ======
DILUTED EARNINGS (LOSS) PER COMMON UNIT:
Continuing operations................................ $ .83 $ .84 $ .22
Discontinued operations (net of income taxes)........ -- .01 --
Extraordinary gain (loss)............................ .10 (.58) .01
------ ------ ------
DILUTED EARNINGS PER COMMON UNIT...................... $ .93 $ .27 $ .23
====== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME OF HOST MARRIOTT CORPORATION
Fiscal years ended December 31, 1998 and January 2, 1998
(in millions)
<TABLE>
<CAPTION>
Shares Outstanding
----------------------
Accumulated
Additional Retained Other
Preferred Common Paid-in Earnings Comprehensive Comprehensive
Preferred Common Stock Stock Capital (Deficit) Income (Loss) Income (Loss)
--------- ---------- --------- ------ ---------- --------- ------------- -------------
<C> <C> <S> <C> <C> <C> <C> <C> <C>
-- 202.0 Balance, January 3,
1997.................... $-- $202 $ 921 $ (1) $ 5 $--
-- -- Net income available to
common shareholders..... -- -- -- 50 -- 50
-- -- Other comprehensive
income:
-- -- Unrealized gain on HM
Services common stock... -- -- -- -- 7 7
---
-- -- Comprehensive income
available to common
shareholders............ $57
===
-- 1.8 Common stock issued for
the comprehensive stock
and employee stock
purchase plans.......... -- 2 14 -- --
---------------------------------------------------------------------------------------------------------------------
-- 203.8 Balance, January 2,
1998.................... -- 204 935 49 12 --
-- -- Net income available to
common shareholders..... -- -- -- 47 -- 47
-- -- Other comprehensive
income (loss):
-- Unrealized loss on HM
Services common stock... -- -- -- -- (5) (5)
-- Foreign currency
translation adjustment.. -- -- -- -- (9) (9)
-- Reclassification of gain
realized on HM Services
common stock--net
income.................. -- -- -- -- (2) (2)
---
-- -- Comprehensive income
available to common
shareholders............ $31
===
-- 1.4 Common stock issued for
the comprehensive stock
and employee stock
purchase plans.......... -- -- 8 -- --
-- -- Adjustment of stock par
value from $1 to $.01
per share............... -- (202) 202 -- --
-- 11.9 Common stock issued for
Special Dividend........ -- -- 143 (143) --
-- -- Distribution of stock of
Crestline Capital
Corporation............. -- -- -- (438) --
-- -- Cash portion of Special
Dividend................ -- -- -- (69) --
---------------------------------------------------------------------------------------------------------------------
-- 217.1 Balance, Before
contribution to Host
Marriott, L.P. ......... $-- $ 2 $1,288 $(554) $(4)
Net assets retained by
Host Marriott........... (23)
------
Balance contributed to
Host Marriott, L.P. .... $ 709
======
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNER'S CAPITAL
AND COMPREHENSIVE INCOME OF HOST MARRIOTT, L.P.
Fiscal years ended December 31, 1999 and 1998
(in millions)
<TABLE>
<CAPTION>
Class A and Accumulated
B Preferred Common Preferred Other
Units OP Units Limited General Limited Comprehensive Comprehensive
Outstanding Outstanding Partner Partner Partner Income (Loss) Income (Loss)
----------- ----------- --------- ------- ------- ------------- -------------
<C> <C> <S> <C> <C> <C> <C> <C>
-- 217.1 Contribution by Host
Marriott................ $ -- $ 1 $ 712 $(4) $ --
-- 8.5 Issuance of OP Units to
Host Marriott in
connection with the
Partnership Mergers..... -- -- 113 --
-- -- Market Adjustment to
record OP Units of third
parties at redemption
value................... -- -- (58) --
----------------------------------------------------------------------------------------------------------
-- 225.6 Balance, December 31,
1998.................... -- 1 767 (4) --
-- -- Net income.............. -- -- 285 -- 285
-- -- Other comprehensive
income (loss):
Unrealized gain on HM
Services common stock... -- -- -- 4 4
Foreign currency
translation adjustment.. -- -- -- 3 3
Reclassification of gain
realized on HM Services
common stock--net
income.................. -- -- -- (1) (1)
----
-- -- Comprehensive income.... -- -- -- -- $291
====
-- 3.6 Units issued to Host
Marriott for the
comprehensive stock and
employee stock purchase
plans................... -- -- 8 --
-- 0.5 Redemptions of limited
partnership interests of
third parties for cash.. -- -- (3) --
-- -- Other comprehensive
income attributed to OP
Units of third parties.. -- -- 2 --
-- -- Distributions on OP
Units................... -- -- (245) --
-- -- Distributions on
Preferred Limited
Units................... -- -- (6) --
-- (0.4) Adjustment to Special
Dividend................ -- -- (4) --
-- (5.8) Repurchases of OP
Units................... -- -- (50) --
-- -- Market adjustment to
record Preferred OP
Units and OP Units of
third parties at
redemption value........ -- -- 368 --
8.2 -- Issuance of Preferred OP
Units................... 196 -- -- --
----------------------------------------------------------------------------------------------------------
8.2 223.5 Balance, December 31,
1999.................... $196 $ 1 $1,122 $ 2
</TABLE>
--------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal years ended December 31, 1999 and 1998, and January 2, 1998
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(in millions)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations................... $ 256 $ 194 $ 47
Adjustments to reconcile to cash from operations:
Depreciation and amortization...................... 293 243 231
Income taxes....................................... (66) (103) (20)
Amortization of deferred income.................... (4) (4) (4)
Net (gains) losses on property transactions........ (24) (50) 19
Equity in earnings of affiliates................... (6) (1) (4)
Other.............................................. 26 39 62
Changes in operating accounts:
Other assets...................................... (55) (56) 57
Other liabilities................................. (60) 50 44
------- ------- -------
Cash from continuing operations.................... 360 312 432
Cash from discontinued operations.................. -- 29 32
------- ------- -------
Cash from operations............................... 360 341 464
------- ------- -------
INVESTING ACTIVITIES
Proceeds from sales of assets....................... 195 227 51
Acquisitions........................................ (29) (988) (359)
Capital expenditures:
Capital expenditures for renewals and
replacements...................................... (197) (165) (129)
New investment capital expenditures................ (150) (87) (29)
Other Investments.................................. (14) -- --
Purchases of short-term marketable securities....... -- (134) (354)
Sales of short-term marketable securities........... -- 488 --
Notes receivable collections (advances), net........ 19 4 6
Affiliate notes receivable issuances and
collections, net................................... -- (13) (6)
Other............................................... -- 13 13
------- ------- -------
Cash used in investing activities from continuing
operations........................................ (176) (655) (807)
Cash used in investing activities from discontinued
operations........................................ -- (50) (239)
------- ------- -------
Cash used in investing activities.................. (176) (705) (1,046)
------- ------- -------
FINANCING ACTIVITIES
Issuances of debt, net.............................. 1,345 2,496 857
Debt prepayments.................................... (1,397) (1,898) (403)
Cash contributed to Crestline at inception.......... -- (52) --
Cash contributed to Non-Controlled Subsidiary....... -- (30) --
Cost of extinguishment of debt...................... (2) (175) --
Scheduled principal repayments...................... (34) (51) (90)
Issuances of OP Units............................... 5 1 6
Issuances of preferred limited partner units........ 196 -- --
Distributions on common OP Units.................... (258) -- --
Distributions on preferred limited partner units.... (2) -- --
Redemption or repurchase of OP Units for cash....... (54) -- --
Repurchases of Convertible Preferred Securities..... (36) -- --
Other............................................... (106) (26) 22
------- ------- -------
Cash from (used in) financing activities from
continuing operations............................. (343) 265 392
Cash from (used in) financing activities from
discontinued operations........................... -- 24 (3)
------- ------- -------
Cash from (used in) financing activities........... (343) 289 389
------- ------- -------
DECREASE IN CASH AND CASH EQUIVALENTS............... (159) (75) (193)
CASH AND CASH EQUIVALENTS, beginning of year........ 436 511 704
------- ------- -------
CASH AND CASH EQUIVALENTS, end of year.............. $ 277 $ 436 $ 511
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
Fiscal years ended December 31, 1999 and 1998, and January 2, 1998
Supplemental schedule of noncash investing and financing activities:
In 1999, approximately 612,000 cumulative redeemable preferred limited
partnership units valued at $7.6 million were issued in connection with the
acquisition of minority interests in two hotels.
The Company assumed mortgage debt of $1,215 million and $733 million in 1998
and 1997, respectively, for the acquisition of, or purchase of controlling
interest in, certain hotel properties and senior living communities.
In 1998, the Company distributed $438 million of net assets in connection
with the discontinued operations and contributed $12 million of net assets to
the Non-Controlled Subsidiaries in connection with the REIT Conversion.
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business
Host Marriott Corporation, a Maryland corporation formerly named HMC Merger
Corporation ("Host REIT"), operating through an umbrella partnership structure,
is a self-managed and self-administered real estate investment trust ("REIT")
with its operations conducted solely through an operating partnership, Host
Marriott, L.P. (the "Operating Partnership") and its subsidiaries. As REITs are
not currently permitted to derive revenues directly from the operations of
hotels, Host REIT leases all of the hotels to subsidiaries of Crestline Capital
Corporation or other lessees (collectively the "Lessee") as further discussed
at Note 9.
As of December 31, 1999, the Operating Partnership owned, or had controlling
interests in, 121 upscale and luxury, full-service hotel lodging properties
generally located throughout the United States and operated primarily under the
Marriott, Ritz-Carlton, Four Seasons, Hyatt and Swissotel brand names. 108 of
these properties are managed or franchised by Marriott International, Inc.
("Marriott International"). Host REIT also has economic, non-voting interests
in certain Non-Controlled Subsidiaries, whose hotels are also managed by
Marriott International (see Note 4).
Basis of Presentation
On December 15, 1998, shareholders of Host Marriott Corporation, ("Host
Marriott"), a Delaware corporation and the predecessor to Host REIT, approved a
plan to reorganize Host Marriott's business operations through the spin-off of
Host Marriott's senior living business as part of Crestline and the
contribution of Host Marriott's hotels and certain other assets and liabilities
to a newly formed Delaware limited partnership, Host Marriott, L.P. Host
Marriott merged into HMC Merger Corporation (the "Merger"), a newly formed
Maryland corporation (renamed Host Marriott Corporation) which intends to
qualify, effective January 1, 1999, as a REIT and is the sole general partner
of the Operating Partnership. Host Marriott and its subsidiaries' contribution
of its hotels and certain assets and liabilities to the Operating Partnership
and its subsidiaries (the "Contribution") in exchange for units of partnership
interest in the Operating Partnership ("OP Units") was accounted for at Host
Marriott's historical basis. As of December 31, 1999, Host REIT owned
approximately 78% of the Operating Partnership.
In these consolidated financial statements, the "Company" or "Host Marriott"
refers to Host Marriott Corporation before, and Host Marriott, L.P. after Host
Marriott Corporation's conversion to a REIT (the "REIT Conversion"). Host
Marriott Corporation is presented as the predecessor to the Operating
Partnership since the Operating Partnership and its subsidiaries received
substantially all of the continuing operations, assets and liabilities of Host
Marriott Corporation and its subsidiaries.
On December 29, 1998, the Company completed the previously discussed spin-
off of Crestline (see Note 2), through a taxable stock dividend to its
shareholders. Each Host Marriott shareholder of record on December 28, 1998
received one share of Crestline for every ten shares of Host Marriott common
stock owned (the "Distribution").
As a result of the Distribution, the Company's financial statements have
been restated to present the senior living communities business results of
operations and cash flows as discontinued operations. See Note 2 for further
discussion of the Distribution. All historical financial statements presented
have been restated to conform to this presentation.
F-9
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries and controlled affiliates. Investments in affiliates over
which the Company has the ability to exercise significant influence, but does
not control, are accounted for using the equity method. All material
intercompany transactions and balances have been eliminated.
Fiscal Year End Change
The U.S. Internal Revenue Code of 1986, as amended, requires REITs to file
their U.S. income tax return on a calendar year basis. Accordingly in 1998, the
Company changed its fiscal year-end to December 31 for both financial and tax
reporting requirements. Previously, the Company's fiscal year ended on the
Friday nearest to December 31.
Revenues
The Company's 1999 revenue primarily represents the rental income from its
leased hotels and is not comparable to 1998 hotel revenues which reflect gross
sales generated by the properties. The rent due under each lease is the greater
of base rent or percentage rent, as defined. Percentage rent applicable to
room, food and beverage and other types of hotel revenue varies by lease and is
calculated by multiplying fixed percentages by the total amounts of such
revenues over specified threshold amounts. Both the minimum rent and the
revenue thresholds used in computing percentage rents are subject to annual
adjustments based on increases in the United States Consumer Price Index and
the Labor Index, as defined. As of year end all annual thresholds have been
achieved.
The comparison of the 1999 results with 1998 and 1997 is also affected by a
change in the reporting period for the Company's hotels not managed by Marriott
International. In prior years, operations for certain of the Company's hotels
were recorded from the beginning of December of the prior year to November of
the current year due to a one-month delay in receiving results from those hotel
properties. Upon conversion to a REIT, operations are required to be reported
on a calendar year basis in accordance with Federal income tax regulations. As
a result, the Company recorded one additional period of operations in fiscal
year 1998 for these properties. The effect on revenues and net income was to
increase revenues by $44 million and net income by $6 million and diluted
earning per share by $0.02 in 1998.
Earnings (Loss) Per Unit
Basic earnings per unit is computed by dividing net income available to
common unitholders by the weighted average number of units outstanding. Diluted
earnings per unit is computed by dividing net income available to common
unitholders as adjusted for potentially dilutive securities, by the weighted
average number of units outstanding plus other potentially dilutive securities.
Dilutive securities may include units distributed to Host Marriott Corporation
for Host Marriott Corporation common shares granted under comprehensive stock
plans, warrants and the Convertible Preferred Securities (see Note 6). Dilutive
securities also include those common and preferred OP Units issuable or
outstanding that are held by minority partners which are assumed to be
converted. Diluted earnings per unit was not adjusted for the impact of the
Convertible Preferred Securities for 1999 and 1997 as they were anti-dilutive.
In December 1998, the Company declared the Special Dividend (Note 2) and, in
February 1999, Host REIT distributed 11.5 million shares to existing
shareholders in conjunction with the Special Dividend. The weighted average
number of units outstanding and the basic and diluted earnings per unit
computations have been restated to reflect these shares as outstanding for all
periods presented.
In February 1999, the Company distributed 8.5 million units to Host Marriott
Corporation for 8.5 million shares of Host Marriott Corporation common stock
issued in exchange for 8.5 million OP Units issued to certain limited partners
in connection with the Partnership Mergers (see Note 12) which are deemed
outstanding at December 31, 1998.
F-10
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of the number of units utilized for the calculation of
diluted earnings per unit follows:
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------- -------------------------------- --------------------------------
Per Per Per
Income Units Unit Income Units Unit Income Units Unit
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income.......... $285 291.6 $.98 $47 216.3 $.22 $50 215.0 $.23
Distributions on
preferred limited
partner units and
preferred OP
Units............. (6) -- (.02) -- -- -- -- -- --
---- ----- ---- --- ----- ---- --- ----- ----
Basic earnings
available to common
unitholders
per unit........... $279 291.6 $.96 $47 216.3 $.22 $50 215.0 $.23
Assuming
distribution of
units to Host
Marriott
Corporation for
Host Marriott
Corporation common
shares granted
under the
comprehensive
stock plan, less
shares assumed
purchased at
average market
price............. -- 5.3 (.02) -- 4.0 (.01) -- 4.8 --
Assuming conversion
of Preferred
OP Units.......... -- 0.3 -- -- -- -- -- -- --
Assuming issuance
of minority OP
Units issuable
under certain
purchase
agreements........ 7 10.9 (.01) -- 0.3 -- -- -- --
Assuming conversion
of Convertible
Preferred
Securities........ -- -- -- 22 35.8 .06 -- -- --
Assuming conversion
of warrants....... -- -- -- -- -- -- -- 0.3 --
---- ----- ---- --- ----- ---- --- ----- ----
Diluted Earnings per
Unit............... $286 308.1 $.93 $69 256.4 $.27 $50 220.1 $.23
==== ===== ==== === ===== ==== === ===== ====
</TABLE>
International Operations
The consolidated statements of operations include the following amounts
related to non-U.S. subsidiaries and affiliates: revenues of $24 million, $121
million and $105 million, and income (loss) before income taxes of $8 million,
$7 million and ($9 million) in 1999, 1998 and 1997, respectively.
Minority Interest
Minority interest consists of limited partnership interests in consolidated
investments of $136 million and $147 million as of December 31, 1999 and 1998,
respectively.
Property and Equipment
Property and equipment is recorded at cost. For newly developed properties,
cost includes interest, ground rent and real estate taxes incurred during
development and construction. Replacements and improvements are capitalized.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, generally 40 years for buildings and three to ten
years for furniture and equipment. Leasehold improvements are amortized over
the shorter of the lease term or the useful lives of the related assets.
Gains on sales of properties are recognized at the time of sale or deferred
to the extent required by generally accepted accounting principles. Deferred
gains are recognized as income in subsequent periods as conditions requiring
deferral are satisfied or expire without further cost to the Company.
In cases where management is holding for sale particular hotel properties,
the Company assesses impairment based on whether the estimated sales price less
costs of disposal of each individual property to be sold is less than the net
book value. A property is considered to be held for sale when the Company has
made the decision to dispose of the property. Otherwise, the Company assesses
impairment of its real estate properties based on whether it is probable that
undiscounted future cash flows from each individual property will be less than
its net book value. If a property is impaired, its basis is adjusted to its
fair market value.
F-11
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred Charges
Financing costs related to long-term debt are deferred and amortized over
the remaining life of the debt.
Cash, Cash Equivalents and Short-term Marketable Securities
The Company considers all highly liquid investments with a maturity of 90
days or less at the date of purchase to be cash equivalents. Cash and cash
equivalents includes approximately $5 million and $22 million at December 31,
1999 and 1998, respectively, of cash related to certain consolidated
partnerships, the use of which is restricted generally for partnership
purposes to the extent it is not distributed to the partners. Short-term
marketable securities include investments with a maturity of 91 days to one
year at the date of purchase. The Company's short-term marketable securities
represent investments in U.S. government agency notes and high quality
commercial paper. The short-term marketable securities are categorized as
available for sale and, as a result, are stated at fair market value.
Unrealized holding gains and losses are included as a separate component of
partners' capital until realized.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents
and short-term marketable securities. The Company maintains cash and cash
equivalents and short-term marketable securities with various high credit-
quality financial institutions. The Company performs periodic evaluations of
the relative credit standing of these financial institutions and limits the
amount of credit exposure with any institution.
In addition, on January 1, 1999, subsidiaries of Crestline became the
lessees of virtually all the hotels and, as such, their rent payments are the
primary source of the Company's revenues. The full-service hotel leases are
grouped into four lease pools, with Crestline's guarantee limited to the
greater of 10% of the aggregate rent payable for the preceding year or 10% of
the aggregate rent payable under all leases in the respective pool.
Additionally, the lessee's obligation under each lease agreement is guaranteed
by all other lessees in the respective lease pool. As a result, the Company
believes that the operating results of each full-service lease pool may be
material to the Company's financial statements. However, management believes
that due to Crestline's substantial assets, net worth and ability to operate
as a separate publicly traded company, Crestline will have the financial
stability and access to capital necessary to meet the substantial obligations
as lessee under the leases. The separate financial statements of each full-
service lease pool are included in this offering memorandum. For a more
detailed discussion of the guarantee, see Note 9.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with United States
generally accepted accounting principles 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.
REIT Conversion Expenses
The Company incurred certain costs related to the REIT Conversion. These
costs consist of professional fees, printing and filing costs, consent fees
and certain other related fees and are classified as REIT conversion expenses
on the consolidated statement of operations. The Company recognized REIT
conversion expense of $64 million in 1998.
F-12
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Interest Rate Swap Agreements
In the past, the Company entered into a limited number of interest rate swap
agreements for non-trading purposes. The Company used such agreements to fix
certain of its variable rate debt to a fixed rate basis. The interest rate
differential to be paid or received on interest rate swap agreements is
recognized as an adjustment to interest expense.
Other Comprehensive Income
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" (SFAS 130) which establishes new rules for the reporting
and display of comprehensive income and its components. SFAS 130 requires
unrealized gains or losses on the Company's right to receive Host Marriott
Services stock (see Note 10) and foreign currency translation adjustments, to
be included in other comprehensive income. Prior year financial statements have
been reclassified to conform to the requirements of SFAS 130.
The components of total accumulated other comprehensive income in the
balance sheet are as follows (in millions):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net unrealized gains............................................. $ 8 $ 5
Foreign currency translation adjustment.......................... (6) (9)
--- ---
Total accumulated other comprehensive income (loss).............. $ 2 $(4)
=== ===
</TABLE>
Application of New Accounting Standards
On December 3, 1999 the Securities and Exchange Commission staff issued
Staff Accounting Bulletin (SAB) No. 101, which codified the staff's position on
revenue recognition. The Company retroactively changed its method of accounting
for contingent rental revenues to conform to SAB No. 101. As a result, base
rent is recognized as it is earned according to the applicable lease
provisions. Percentage rent is recorded as deferred revenue on the balance
sheet until the applicable hotel revenues exceed the threshold amounts. The
Company has adopted SAB No. 101 with retroactive effect beginning January 1,
1999.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The Statement
establishes accounting and reporting standards requiring that derivative
instruments (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement is effective for fiscal years
beginning after June 15, 2000. The Company has not determined the impact of
SFAS No. 133, but management does not believe it will be material.
2. Distribution and Special Dividend
In December 1998, the Company distributed to its shareholders through a
taxable distribution the outstanding shares of common stock of Crestline (the
"Distribution"), formerly a wholly owned subsidiary of the Company, which, as
of the date of the Distribution, owned and operated the Company's senior living
communities, owned certain other assets and held leasehold interests in
substantially all of the Company's hotels. The Distribution provided Company
shareholders with one share of Crestline common stock for every ten shares of
Company common stock held by such shareholders on the record date of December
28, 1998. As a result of the Distribution, the Company's financial statements
have been restated to present the senior living communities' business results
of operations and cash flows as discontinued operations. Revenues for the
Company's discontinued operations totaled $241 million and $111 million in 1998
and 1997, respectively. The provision for loss on disposal includes
organizational and formation costs related to Crestline.
F-13
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For purposes of governing certain of the ongoing relationships between the
Company and Crestline after the Distribution and to provide for an orderly
transition, the Company and Crestline entered into various agreements,
including a Distribution Agreement, an Employee Benefits Allocation Agreement
and a Tax Sharing Agreement. Effective as of December 29, 1998, these
agreements provide, among other things, for the division between the Company
and Crestline of certain assets and liabilities.
On December 18, 1998, the Board of Directors declared a special dividend
which entitled shareholders of record on December 28, 1998 to elect to receive
either $1.00 in cash or .087 of a share of common stock of the Company for each
outstanding share of the Company's common stock owned by such shareholder on
the record date (the "Special Dividend"). Cash totaling $73 million and 11.5
million shares of common stock that were elected in the Special Dividend were
paid and/or issued in 1999.
3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1999 1998
------- ------
(in millions)
<S> <C> <C>
Land and land improvements.................................. $ 687 $ 740
Buildings and leasehold improvements........................ 6,687 6,613
Furniture and equipment..................................... 712 740
Construction in progress.................................... 243 78
------- ------
8,329 8,171
Less accumulated depreciation and amortization.............. (1,221) (970)
------- ------
$ 7,108 $7,201
======= ======
</TABLE>
Interest cost capitalized in connection with the Company's development and
construction activities totaled $7 million in 1999, $4 million in 1998, and $1
million in 1997.
4. Investments in and Receivables from Affiliates
Investments in and receivables from affiliates consist of the following:
<TABLE>
<CAPTION>
Ownership
Interests 1999 1998
--------- ---- ----
(in millions)
<S> <C> <C> <C>
Equity investments
Rockledge Hotel Properties, Inc. ..................... 95% $ 47 $ 31
Fernwood Hotel Assets, Inc. .......................... 95% 2 2
Notes and other receivables from affiliates, net........ -- 127 134
---- ----
$176 $167
==== ====
</TABLE>
In connection with the REIT Conversion, Rockledge Hotel Properties, Inc. and
Fernwood Hotel Assets, Inc. (together, the "Non-Controlled Subsidiaries") were
formed to own various assets of approximately $264 million contributed by Host
Marriott Corporation to the Operating Partnership, the direct ownership of
which by Host REIT or the Operating Partnership could jeopardize Host REIT's
status as a REIT. These assets primarily consist of partnership or other
interests in hotels which are not leased and certain furniture, fixtures and
equipment ("FF&E") used in the hotels. In exchange for the contribution of
these assets to the Non-Controlled Subsidiaries, the Operating Partnership
received only non-voting common stock of the Non-Controlled Subsidiaries,
representing 95% of the total economic interests therein. The Host Marriott
Statutory Employee/Charitable Trust, the beneficiaries of which are certain
employees of the Company and the J.W. Marriott Foundation concurrently acquired
all of the voting common stock representing the remaining 5% of
F-14
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the total economic interest. The Non-Controlled Subsidiaries own three full-
service hotels and interests in partnerships that own an additional two full-
service hotels and 209 limited-service hotels.
In connection with the REIT Conversion, the Company completed the
Partnership Mergers and, as a result, investments in affiliates in prior years
include earnings and assets, which are now consolidated. (See Note 12 for
discussion.)
Receivables from affiliates are reported net of reserves of $7 million at
December 31, 1999 and 1998. Net amounts funded by the Company totaled $10
million in 1997, and repayments were $2 million in 1999, $14 million in 1998
and $2 million in 1997. There were no fundings in 1999 and 1998.
The Company's pre-tax income from affiliates includes the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in millions)
<S> <C> <C> <C>
Interest income.............................................. $11 $ 1 $11
Equity in net income......................................... 6 1 5
--- --- ---
$17 $ 2 $16
=== === ===
</TABLE>
Combined summarized balance sheet information for the Company's affiliates
follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
(in millions)
<S> <C> <C>
Property and equipment, net................................... $1,556 $1,656
Other assets.................................................. 344 258
------ ------
Total assets................................................ $1,900 $1,914
====== ======
Debt, principally mortgages................................... $1,533 $1,622
Other liabilities............................................. 310 300
Equity (deficit).............................................. 57 (8)
------ ------
Total liabilities and equity................................ $1,900 $1,914
====== ======
</TABLE>
Combined summarized operating results for the Company's affiliates follow:
<TABLE>
<CAPTION>
1999 1998 1997
----- ------ -------
(in millions)
<S> <C> <C> <C>
Hotel revenues....................................... $ 911 $1,123 $ 1,393
Operating expenses:
Cash charges (including interest).................. (710) (930) (1,166)
Depreciation and other non-cash charges............ (153) (151) (190)
----- ------ -------
Income before extraordinary items.................... 48 42 37
Extraordinary items--forgiveness of debt............. -- 4 40
----- ------ -------
Net income......................................... $ 48 $ 46 $ 77
===== ====== =======
</TABLE>
F-15
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Debt
Debt consists of the following:
<TABLE>
<CAPTION>
1999 1998
------ ------
(in millions)
<S> <C> <C>
Series A senior notes, with a rate of 7 7/8% due August 2005..... $ 500 $ 500
Series B senior notes, with a rate of 7 7/8% due August 2008..... 1,193 1,192
Series C senior notes, with a rate of 8.45% due December 2008.... 498 498
Series E senior notes, with a rate of 8 3/8% due February 2006... 300 --
Senior secured notes, with a rate of 9 1/2% due May 2005......... 13 21
Senior notes, with an average rate of 9 3/4% at December 31,
1999, maturing through 2012..................................... 35 35
------ ------
Total senior notes............................................. 2,539 2,246
------ ------
Mortgage debt (non-recourse) secured by $3.5 billion of real es-
tate assets, with an average rate of 7.95% at December 31, 1999,
maturing through April 2037..................................... 2,309 2,438
Line of credit, with a variable rate of Eurodollar plus 1.65%
(7.57% at December 31, 1999).................................... 125 350
Other notes, with an average rate of 7.36% at December 31, 1999,
maturing through December 2017.................................. 90 90
Capital lease obligations........................................ 6 7
------ ------
Total other.................................................... 221 447
------ ------
$5,069 $5,131
====== ======
</TABLE>
Public Debt. In February 1999, the Company issued $300 million of 8 3/8%
Series D senior notes due in 2006 under the same indenture and with the same
covenants as the New Senior Notes (described below). The debt was used to
refinance, or purchase, approximately $299 million of debt acquired in the
Partnership Mergers, including a $40 million variable rate mortgage and
terminate the associated swap agreement, incurring a termination fee of $1
million. The notes were exchanged in August 1999 for Series E senior notes on a
one-for-one basis, which are freely transferable by the holders.
In December 1998, the Operating Partnership issued $500 million of 8.45%
Series C senior notes due in 2008 under the same indenture and with the same
covenants as the New Senior Notes (described below).
On August 5, 1998, the Company issued an aggregate of $1.7 billion in new
senior notes (the "New Senior Notes"). The New Senior Notes were issued in two
series, $500 million of 7 7/8% Series A senior notes due in 2005 and $1.2
billion of 7 7/8% Series B senior notes due in 2008. The indenture under which
the New Senior Notes were issued contains covenants restricting the ability of
the Company and certain of its subsidiaries to incur indebtedness, grant liens
on their assets, acquire or sell assets or make investments in other entities,
and make certain distributions to equity holders of the Company and the
Operating Partnership. The Company utilized the proceeds from the New Senior
Notes to purchase substantially all of its (i) $600 million in 9 1/2% senior
notes due 2005; (ii) $350 million in 9% senior notes due 2007; and (iii) $600
million in 8 7/8% senior notes due 2007 (collectively, the "Old Senior Notes").
Approximately $13 million of the Old Senior Notes remain outstanding. In
connection with the purchase of substantially all of the Old Senior Notes, the
Company recorded a charge of approximately $148 million (net of income tax
benefit of $80 million) as an extraordinary item representing the amount paid
for bond premiums and consent fees, as well as the write-off of deferred
financing fees on the Old Senior Notes.
Concurrently with each offer to purchase, the Company successfully solicited
consents (the "1998 Consent Solicitations") from registered holders of the Old
Senior Notes to certain amendments to eliminate or
F-16
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
modify substantially all of the restrictive covenants and certain other
provisions contained in the indentures pursuant to which the Old Senior Notes
were issued.
Bank Credit Facility. In August 1998, the Company entered into a $1.25
billion credit facility (the "Bank Credit Facility") with a group of commercial
banks. The Bank Credit Facility has an initial three-year term with two one-
year extension options. At origination, the facility consisted of a $350
million term loan and a $900 million revolver. Borrowings under the Bank Credit
Facility bear interest currently at the Eurodollar rate plus 1.65% (7.57% at
December 31, 1999). The interest rate and commitment fee on the unused portion
of the Bank Credit Facility fluctuate based on certain financial ratios. The
New Senior Notes and the Bank Credit Facility were assumed by the Operating
Partnership in connection with the REIT Conversion.
During 1999, the Company repaid $225 million of the outstanding balance on
the $350 million term loan portion of the Bank Credit Facility, permanently
reducing the term loan portion to $125 million. In connection with these
prepayments, an extraordinary loss of $2 million representing the write-off of
deferred financing costs was recognized. As a result of these repayments, the
available capacity under the revolver remains $900 million while the total Bank
Credit Facility has been permanently reduced to $1.025 billion.
The Bank Credit Facility contains covenants restricting the ability of the
Company and certain of its subsidiaries to incur indebtedness, grant liens on
their assets, acquire or sell assets or make investments in other entities, and
make certain distributions to equity holders of Host REIT and the Operating
Partnership. The Bank Credit Facility also contains certain financial covenants
relating to, among other things, maintaining certain levels of tangible net
worth and certain ratios of EBITDA to interest and fixed charges, total debt to
EBITDA, unencumbered assets to unsecured debt, and secured debt to total debt.
Mortgage Debt. In August 1999, the Company made a prepayment of $19 million
to pay down in full the mezzanine mortgage on the Marriott Desert Springs
Resort and Spa. In September 1999, the Company made a prepayment of $45 million
to pay down in full the mortgage note on the Philadelphia Four Seasons Hotel.
In July 1999, the Company entered into a financing agreement pursuant to
which it borrowed $665 million due 2009 at a fixed rate of 7.47% with eight
hotels serving as collateral. In connection with this refinancing, an
extraordinary loss of $3 million was recognized, representing the write-off of
deferred financing fees. The proceeds from this financing were used to
refinance existing mortgage indebtedness maturing at various times through
2000, including approximately $590 million of outstanding variable rate
mortgage debt.
In June 1999, the Company refinanced the debt on the San Diego Marriott
Hotel and Marina. The mortgage is $195 million with a term of 10 years at a
rate of 8.45%. In addition, the Company entered into a mortgage for the
Philadelphia Marriott expansion in July 1999 for $23 million at an interest
rate of approximately 8.6%, maturing in 2009.
In April 1999, a subsidiary of the Company completed the refinancing of the
$245 million mortgage on the New York Marriott Marquis, maturing June 2000. In
connection with the refinancing, the Company renegotiated the management
agreement and recognized an extraordinary gain of $14 million on the
forgiveness of accrued incentive management fees by the manager. This mortgage
was subsequently refinanced as part of the $665 million financing agreement
discussed above.
In connection with the refinancing of certain mortgage debt for
approximately $152 million in December 1997, the Company recognized an
extraordinary loss of $2 million which represents payment of a prepayment
penalty and the write-off of unamortized deferred financing fees, net of taxes.
In 1997, the Company purchased 100% of the outstanding bonds secured by a
first mortgage on the San Francisco Marriott for $219 million, an $11 million
discount to the face value of $230 million. An
F-17
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
extraordinary gain of $5 million was recognized, which represents the $11
million discount less the write-off of unamortized deferred financing fees, net
of taxes.
Interest Rate Swap Agreements. During 1999, the Company terminated its
outstanding interest rate swap agreements recognizing an extraordinary gain of
approximately $8 million. The Company was party to an interest rate swap
agreement with a financial institution with an aggregate notional amount of
$100 million which expired in December 1998. In 1997, the Company was party to
two additional interest rate swap agreements with an aggregate notional amount
of $400 million which expired in May 1997. The Company realized a net reduction
of interest expense of $338,000 and $1 million in 1999 and 1997, respectively,
related to interest rate swap agreements.
The Company's debt balance at December 31, 1999, includes $87 million of
debt that is recourse to the parent company. Aggregate debt maturities at
December 31, 1999 are (in millions):
<TABLE>
<S> <C>
2000................................................................. $ 180
2001................................................................. 169
2002................................................................. 157
2003................................................................. 132
2004................................................................. 47
Thereafter........................................................... 4,900
------
5,585
Discount on senior notes............................................. (9)
Capital lease obligation............................................. 7
------
$5,583
======
</TABLE>
Cash paid for interest for continuing operations, net of amounts
capitalized, was $413 million in 1999, $325 million in 1998, and $278 million
in 1997. Deferred financing costs, which are included in other assets, amounted
to $111 million and $98 million, net of accumulated amortization, as of
December 31, 1999 and 1998, respectively. Amortization of deferred financing
costs totaled $17 million, $10 million, and $7 million in 1999, 1998, and 1997,
respectively.
6. Convertible Debt Obligation to Host Marriott Corporation
The obligation for the $514 million and $567 million of 6 3/4% Convertible
Subordinated Debentures (the "Debentures") as of December 31, 1999 and 1998,
respectively, has been included in these financial statements as debt of the
Company because upon the REIT Conversion the Operating Partnership assumed
primary liability for repayment of the Debentures of Host Marriott underlying
the Convertible Preferred Securities (defined below) of the Host Marriott
Financial Trust (the "Issuer"), a wholly-owned subsidiary trust of Host
Marriott. The common securities of the Issuer were not contributed to the
Operating Partnership and therefore the Issuer is not consolidated by the
Operating Partnership. Upon conversion by a Convertible Preferred Securities
holder, Host Marriott will issue shares of its common stock which will be
delivered to such holder. Upon the issuance of such shares by Host Marriott,
the Operating Partnership will issue to Host Marriott the number of OP Units
equal to the number of shares of Host Marriott common stock issued in exchange
for the Debentures.
In December 1996, the Issuer issued 11 million shares of 6 3/4% convertible
quarterly income preferred securities (the "Convertible Preferred Securities"),
with a liquidation preference of $50 per share (for a total liquidation amount
of $550 million). The Convertible Preferred Securities represent an undivided
beneficial interest in the assets of the Issuer. The payment of distributions
out of moneys held by the Issuer and payments on liquidation of the Issuer or
the redemption of the Convertible Preferred Securities are guaranteed by the
F-18
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company to the extent the Issuer has funds available therefor. This guarantee,
when taken together with the Company's obligations under the indenture pursuant
to which the Debentures (defined below) were issued, the Debentures, the
Company's obligations under the Trust Agreement and its obligations under the
indenture to pay costs, expenses, debts and liabilities of the Issuer (other
than with respect to the Convertible Preferred Securities) provides a full and
unconditional guarantee of amounts due on the Convertible Preferred Securities.
Proceeds from the issuance of the Convertible Preferred Securities were
invested in 6 3/4% Convertible Subordinated Debentures (the "Debentures") due
December 2, 2026 issued by the Company. The Issuer exists solely to issue the
Convertible Preferred Securities and its own common securities (the "Common
Securities") and invest the proceeds therefrom in the Debentures. The note
receivable from the Operating Partnership is the Issuer's sole asset.
Each of the Convertible Preferred Securities and the related debentures are
convertible at the option of the holder into shares of Host Marriott
Corporation common stock at the rate of 3.2537 shares per Convertible Preferred
Security (equivalent to a conversion price of $15.367 per share of Host
Marriott Corporation common stock). The Issuer will only convert Debentures
pursuant to a notice of conversion by a holder of Convertible Preferred
Securities. During 1999, 1998 and 1997, no shares were converted into common
stock. The conversion ratio and price were adjusted to reflect the impact of
the Distribution and the Special Dividend.
Holders of the Convertible Preferred Securities are entitled to receive
preferential cumulative cash distributions at an annual rate of 6 3/4% accruing
from the original issue date, commencing March 1, 1997, and payable quarterly
in arrears thereafter. The distribution rate and the distribution and other
payment dates for the Convertible Preferred Securities will correspond to the
interest rate and interest and other payment dates on the Debentures. The
Company may defer interest payments on the Debentures for a period not to
exceed 20 consecutive quarters. If interest payments on the Debentures are
deferred, so too are payments on the Convertible Preferred Securities. Under
this circumstance, the Company will not be permitted to declare or pay any cash
distributions with respect to its capital stock or debt securities that rank
pari passu with or junior to the Debentures.
Subject to certain restrictions, the Convertible Preferred Securities are
redeemable at the Issuer's option upon any redemption by the Company of the
Debentures after December 2, 1999. Upon repayment at maturity or as a result of
the acceleration of the Debentures upon the occurrence of a default, the
Debentures shall be subject to mandatory redemption, from which the proceeds
will be applied to redeem Convertible Preferred Securities and Common
Securities, together with accrued and unpaid distributions.
As part of the share repurchase program described below in Note 7, the
Company purchased 1.1 million shares of Convertible Preferred Securities in
1999 and has purchased an additional 0.4 million shares through March 8, 2000,
resulting in the retirement of an equivalent amount of Debentures.
7. Equity and Partner's Capital
223.5 million and 225.6 million OP Units were outstanding as of December 31,
1999 and 1998, respectively. 8.16 million preferred limited partner units were
outstanding as of December 31, 1999. No preferred limited partner units were
outstanding as of December 31, 1998.
A quarterly distribution of $0.21 per unit was paid on April 14, July 14,
and October 15 of 1999. A fourth quarter distribution of $0.21 per unit was
declared on December 20, 1999 and paid on January 17, 2000.
During 1999, approximately 585,000 Class TS cumulative redeemable preferred
operating partnership units and approximately 26,000 Class AM cumulative
redeemable preferred operating partnership units (together the "Preferred OP
Units") were issued in connection with the acquisition of minority interests in
two
F-19
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
hotels. The Preferred OP Units are convertible into OP Units on a one-for-one
basis, subject to adjustment in specified events, at any time beginning one
year after acquisition, and after conversion to OP Units are redeemable for
cash or at Host REIT's option, Host REIT common shares. The Company has the
right to convert the Preferred OP Units to OP Units two years from the date of
issuance. Preferred OP Unitholders are entitled to receive a preferential cash
distribution of $0.21 per quarter.
In September 1999, the Board of Directors of Host REIT approved the
repurchase, from time to time on the open market and/or in privately negotiated
transactions, of up to 22 million of the outstanding shares of Host REIT common
stock, operating partnership units, or a corresponding amount of the
Convertible Preferred Securities, which are convertible into a like number of
shares of common stock, based on the appropriate conversion ratio. Such
repurchases will be made at management's discretion, subject to market
conditions, and may be suspended at any time at the Company's discretion. For
the year ended December 31, 1999, Host REIT repurchased 5.8 million common
shares, 1.1 million shares of the Convertible Preferred Securities and 0.3
million OP Units for a total investment of $89 million. Through March 8, 2000,
Host REIT repurchased an additional 4.7 million common shares, 0.4 million
Convertible Preferred Securities, and 0.3 million operating partnership units
for an additional investment of $60 million.
In August 1999, Host REIT sold 4.16 million shares of 10% Class A preferred
stock, and in November 1999, Host REIT sold 4.0 million shares of 10% Class B
preferred stock. The Operating Partnership, in turn, issued equivalent
securities, the Class A Preferred Units and Class B Preferred Units ("Class A
and B Preferred Units"), to Host REIT. Holders of the Class A and B Preferred
Units are entitled to receive cumulative cash dividends at a rate of 10% per
annum of the $25.00 per unit liquidation preference, payable quarterly in
arrears commencing October 15, 1999 and January 15, 2000 for the Class A and
Class B preferred stock, respectively. After August 3, 2004 and April 29, 2005,
Host REIT has the option to redeem the Class A and Class B Preferred Stock,
respectively, for $25.00 per share, plus accrued and unpaid dividends to the
date of redemption. The Class A and B Preferred Units rank senior to the OP
Units, and on a parity with each other. The preferred unitholders generally
have no voting rights. Accrued distributions at December 31, 1999 were
$4 million.
In conjunction with the Merger, the Blackstone Acquisition and the
Partnership Mergers (Note 12), the Company issued approximately 64.5 million OP
Units which are convertible into cash (or at Host Marriott's option, shares of
Host Marriott common stock).
Host Marriott Corporation issued 11.5 million shares of common stock as part
of the Special Dividend and 8.5 million shares of common stock in exchange for
8.5 million OP Units issued to certain limited partners in connection with the
Partnership Mergers (Note 12). Also, as part of the REIT Conversion, Host
Marriott Corporation changed its par value from $1 to $0.01 per share. The
change in par value did not affect the number of shares outstanding.
8. Income Taxes
The Operating Partnership is not a tax paying entity. However, the Operating
Partnership under the Operating Partnership Agreement is required to reimburse
Host REIT for any tax payments Host REIT is required to make. Accordingly, the
tax information included herein represents disclosures regarding Host REIT. As
a result of the requirement of the Company to reimburse Host REIT for these
liabilities, such liabilities and related disclosures are included in the
Company's financial statements.
F-20
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In December 1998, Host Marriott restructured itself to enable Host REIT to
qualify for treatment as a REIT, pursuant to the U.S. Internal Revenue Code of
1986, as amended, effective January 1, 1999. In general, a corporation that
elects REIT status and distributes at least 95% of its taxable income to its
shareholders and complies with certain other requirements (relating primarily
to the nature of its assets and the sources of its revenues) is not subject to
Federal income taxation to the extent it distributes its taxable income. In
1999, Host REIT distributed 100% if its 1999 taxable income which amounted to
$.84 per outstanding common share. Of the total distribution, $.83 per share
was taxable as ordinary income with the remaining $.01 per share taxable as a
capital gain. Management believes that Host REIT was organized to qualify as a
REIT for 1999 and intends for it to qualify in subsequent years (including
distribution of at least 95% of its REIT taxable income to shareholders each
year). Management expects that Host REIT will pay taxes on "built-in gains" on
only certain of its assets. Based on these considerations and the settlement
of certain tax contingencies in 1999, management does not believe that Host
REIT will be liable for income taxes at the federal level or in most of the
states in which it operates in future years, and Host REIT eliminated $26
million and $106 million of its net tax liabilities as of December 31, 1999
and 1998. Host REIT does not expect to provide for any material deferred
income taxes in future periods except in certain states and foreign countries.
In connection with the Distribution and formation of the Non-Controlled
Subsidiaries, Host REIT further reduced deferred income tax liabilities by
$102 million in 1998.
In order to qualify as a REIT for federal income tax purposes, among other
things, Host REIT was required to distribute all of its accumulated earnings
and profits ("E&P") to its stockholders in one or more taxable dividends prior
to December 31, 1999. To accomplish the requisite distributions of accumulated
E&P, Host Marriott made distributions consisting of approximately 20.4 million
shares of Crestline valued at $297 million, $73 million in cash, and
approximately 11.5 million shares of Host Marriott stock valued at $138
million. Management believes it has distributed all required E&P as of
December 31, 1999. Host REIT's final calculation of E&P and the distribution
thereof is subject to review by the Internal Revenue Service.
Where required, deferred income taxes are accounted for using the asset and
liability method. Under this method, deferred income taxes are recognized for
temporary differences between the financial reporting bases of assets and
liabilities and their respective tax bases and for operating loss and tax
credit carryforwards based on enacted tax rates expected to be in effect when
such amounts are realized or settled. However, deferred tax assets are
recognized only to the extent that it is more likely than not that they will
be realized based on consideration of available evidence, including tax
planning strategies and other factors.
Total deferred tax assets and liabilities at December 31, 1999 and December
31, 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
------ -------
(in millions)
<S> <C> <C>
Deferred tax assets........................................ $ 10 $ 32
Deferred tax liabilities................................... (59) (129)
------ -------
Net deferred income tax liability........................ $ (49) $ (97)
====== =======
</TABLE>
The tax effect of each type of temporary difference and carryforward that
gives rise to a significant portion of deferred tax assets and liabilities as
of December 31, 1999 and December 31, 1998 follows:
<TABLE>
<CAPTION>
1999 1998
------ -------
(in millions)
<S> <C> <C>
Safe harbor lease investments.............................. $ (24) $ (24)
Deferred tax gain.......................................... (35) (105)
Alternative minimum tax credit carryforwards............... 10 32
------ -------
Net deferred income tax liability........................ $ (49) $ (97)
====== =======
</TABLE>
F-21
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in millions)
<S> <C> <C> <C>
Current--Federal........................................... $ 26 $116 $19
--State................................................. 3 27 4
--Foreign............................................... 3 4 3
---- ---- ---
32 147 26
---- ---- ---
Deferred--Federal.......................................... (37) (49) 8
--State................................................. (11) (12) 2
---- ---- ---
(48) (61) 10
---- ---- ---
$(16) $ 86 $36
==== ==== ===
</TABLE>
At December 31, 1999, Host REIT had approximately $10 million of alternative
minimum tax credit carryforwards available which do not expire.
As of December 31, 1999, Host REIT had settled with the Internal Revenue
Service substantially all issues for tax years through 1996. Host REIT expects
to resolve any remaining issues with no material impact on the consolidated
financial statements. Host REIT made net payments to the IRS of approximately
$14 million, $27 million, and $10 million in 1999, 1998 and 1997, respectively,
related to these settlements.
A reconciliation of the statutory Federal tax rate to Host REIT's effective
income tax rate follows (excluding the impact of the change in tax status):
<TABLE>
<CAPTION>
1999 1998 1997
----- ---- ----
<S> <C> <C> <C>
Statutory Federal tax rate............................... -- % 35.0% 35.0%
Built-in-gains........................................... 2.8 -- --
State income taxes, net of Federal tax benefit........... 1.2 5.8 4.9
Tax credits.............................................. -- (1.7) (2.7)
Tax contingencies........................................ (16.9) -- --
Additional tax on foreign source income.................. 1.6 4.2 6.0
Permanent non-deductible REIT Conversion expenses........ -- 4.6 --
Other permanent items.................................... -- 1.2 .1
Other, net............................................... -- 0.3 .1
----- ---- ----
Effective income tax rate.............................. (11.3)% 49.4% 43.4%
===== ==== ====
</TABLE>
Cash paid for income taxes, including IRS settlements, net of refunds
received, was $50 million in 1999, $83 million in 1998 and $56 million in 1997.
9. Leases
Due to current federal income tax law restrictions on a REIT's ability to
derive revenues directly from the operation of a hotel, the Company leases its
hotels (the "Leases") to one or more lessees (the "Lessees").
Hotel Leases. There generally is a separate Lessee for each hotel or group
of hotels that is owned by a separate subsidiary of the Company. The operating
agreements for such Lessees provide that the Crestline member of the Lessee has
full control over the management of the business of the Lessee, subject to
blocking rights by Marriott International, where it is the manager, over
certain decisions by virtue of its non-economic, limited voting interest in the
lessee subsidiaries. Each full-service hotel Lease has a fixed term generally
F-22
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ranging from seven to ten years, subject to earlier termination upon the
occurrence of certain contingencies as defined in the Leases. Each Lease
requires the Lessee to pay 1) minimum rent in a fixed dollar amount per annum
plus 2) to the extent it exceeds minimum rent, percentage rent based upon
specified percentages of aggregate sales from the applicable hotel, including
room sales, food and beverage sales, and other income in excess of specified
thresholds. The amount of minimum rent and the percentage rent thresholds will
be adjusted each year based upon any increases in the Consumer Price Index and
the Employment Cost Index during the previous 10 months, as well as for certain
capital expenditures and casualty occurrences. The Company has received notices
of termination from Crestline on five leases, with effective dates ranging from
March through June 2000, which we are currently negotiating. We expect to be
able to obtain replacement leases for these leases without material impact to
our future operations.
Effective November 15, 1999, we amended substantially all of our leases with
Crestline to give Crestline the right to renew each of these leases for up to
four additional terms of seven years each at a fair rental value, to be
determined either by agreement between us and Crestline or through arbitration
at the time the renewal option is exercised. Crestline is under no obligation
to exercise these renewal options, and the Company has the right to terminate
the renewal options during certain time periods specified in the amendments. In
addition, the amendments provide that the fair rental value payable by the
Company to Crestline in connection with the purchase of a lease as described
above does not include any amounts relating to any renewal period. Therefore,
the fair rental value of a lease after expiration of the initial term for such
lease would be zero. The Company intends to evaluate our options regarding the
Crestline leases and have not yet made a decision whether or not to purchase
those leases.
If the Company anticipates that the average tax basis of the Company's FF&E
and other personal property that are leased by any individual lessor entity
will exceed 15% of the aggregate average tax basis of the fixed assets in that
entity, then the Lessee would be obligated either to acquire such excess FF&E
from the Company or to cause a third party to purchase such FF&E. The Lessee
has agreed to give a right of first opportunity to a Non-Controlled Subsidiary
to acquire the excess FF&E and to lease the excess FF&E to the Lessee.
Each Lessee is responsible for paying all of the expenses of operating the
applicable hotel(s), including all personnel costs, utility costs and general
repair and maintenance of the hotel(s). The Lessee also is responsible for all
fees payable to the applicable manager, including base and incentive management
fees, chain services payments and franchise or system fees, with respect to
periods covered by the term of the Lease. The Company also remains liable under
each management agreement.
The Company is responsible for paying real estate taxes, personal property
taxes (to the extent the Company owns the personal property), casualty
insurance on the structures, ground lease rent payments, required expenditures
for FF&E (including maintaining the FF&E reserve, to the extent such is
required by the applicable management agreement) and other capital
expenditures.
Crestline Guarantees. Crestline and certain of its subsidiaries entered into
limited guarantees of the Lease obligations of each Lessee. The full-service
hotel leases are grouped into four lease pools (determined on the basis of the
term of the particular Lease with all leases having generally the same lease
term placed in the same "pool"). For each of the four identified pools, the
cumulative limit of Crestline's guaranty obligation is the greater of 10% of
the aggregate rent payable for the immediately preceding fiscal year under all
Leases in the pool or 10% of the aggregate rent payable under all Leases in the
pool. For each pool, the subsidiary of Crestline that is the parent of the
Lessees in the pool (a "Pool Parent") also is a party to the guaranty of the
Lease obligations for that pool.
The obligations of the Pool Parent under each guaranty is secured by all
funds received by the applicable Pool Parent from the hotels in the pool, and
the hotels in the pool are required to distribute their excess cash flow to the
Pool Parent for each accounting period, under certain conditions as described
by the guaranty.
F-23
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As a result of the limited guarantees of the lease obligations of the
lessees, the Company believes that the operating results of each full-service
lease pool may be material to the Company's financial statements. Separate
financial statements for the year ended December 31, 1999 for each of the four
lease pools in which the Company's hotels are organized are presented in this
Offering Memorandum. Financial information of certain pools related to the
sublease agreements for limited service properties are not presented, as the
Company believes they are not material to the Company's financial statements.
Financial information of Crestline may be found in its quarterly and annual
filings with the Securities and Exchange Commission.
In the event that Crestline's obligation under a guaranty is reduced to
zero, the applicable Pool Parent can elect to terminate its guaranty and the
pooling agreement for that pool by giving notice to the Operating Partnership.
In that event, subject to certain conditions, the Pool Parent's guaranty will
terminate six months after the effective date of such notice, subject to
reinstatement in certain limited circumstances.
The Company sold the existing working capital to the applicable Lessee upon
the commencement of the Lease at a price equal to the fair market value of such
assets. The purchase price is represented by a note evidencing a loan that
bears interest at a rate of 5.12%. Interest accrued on the working capital loan
is due simultaneously with each periodic rent payment, and the amount of each
payment of interest is credited against such rent payment. The principal amount
of the working capital loan is payable upon termination of the Lease. The
Lessee can return the working capital in satisfaction of the note. As of
December 31, 1999, the note receivable from Crestline for working capital was
$90 million.
In the event the Company enters into an agreement to sell or otherwise
transfer any full-service hotel free and clear of the applicable Lease, the
Lessor must pay the Lessee a termination fee equal to the fair market value of
the Lessee's leasehold interest in the remaining term of the Lease using a
discount rate of 12%. Alternatively, the Lessor will be entitled to (i)
substitute a comparable hotel or hotels for any hotel that is sold or (ii) sell
the hotel subject to the Lease and certain conditions without being required to
pay a termination fee.
REIT Modernization Act. Under the REIT Modernization Act, beginning January
1, 2001, the Company could lease its hotels to one of its subsidiaries that is
a taxable corporation and that elects to be treated as a "taxable REIT
subsidiary". In addition, as a result of passage of the REIT Modernization Act,
the Company has the right to purchase the leases from Crestline on or after
January 1, 2001, for a price equal to the fair rental value of the lessee's
interest in the leases over their remaining terms (which could be significant).
Hospitality Properties Trust Relationship. The Company sold and leased back
37 of its Courtyard properties in 1995 and an additional 16 Courtyard
properties in 1996 to Hospitality Properties Trust ("HPT"). Additionally, in
1996, the Company sold and leased back 18 of its Residence Inns to HPT. These
leases, which are accounted for as operating leases and are included in the
table below, have initial terms expiring through 2012 for the Courtyard
properties and 2010 for the Residence Inn properties, and are renewable at the
option of the Company. Minimum rent payments are $51 million annually for the
Courtyard properties and $17 million annually for the Residence Inn properties,
and additional rent based upon sales levels are payable to the owner under the
terms of the leases.
In connection with the REIT Conversion, the Company sublet the HPT hotels
(the "Subleases") to separate indirect sublessee subsidiaries of Crestline
("Sublessee"), subject to the terms of the applicable HPT Lease. The term of
each Sublease expires simultaneously with the expiration of the initial term of
the HPT lease to which it relates and automatically renews for the
corresponding renewal term under the HPT lease, unless either the HPT lessee
(the "Sublessor") elects not to renew the HPT lease, or the Sublessee elects
not to renew the Sublease at the expiration of the initial term provided,
however, that neither party can elect to terminate fewer than all of the
Subleases in a particular pool of HPT hotels (one for Courtyard by Marriott
F-24
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
hotels and one for Residence Inn hotels). Rent under the Sublease consists of
the Minimum Rent payable under the HPT lease and an additional percentage rent
payable to the Sublessor. The percentage rent is sufficient to cover the
additional rent due under the HPT lease, with any excess being retained by the
Sublessor. The rent payable under the Subleases is guaranteed by Crestline, up
to a maximum amount of $30 million which amount is allocated between the two
pools of HPT hotels.
Other Lease Information. A number of the Company's leased hotel properties
also include long-term ground leases for certain hotels, generally with
multiple renewal options. Certain leases contain provision for the payment of
contingent rentals based on a percentage of sales in excess of stipulated
amounts. Future minimum annual rental commitments for all non-cancelable leases
for which the Company is the lessee are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
(in millions)
<S> <C> <C>
2000....................................................... $ 2 $ 109
2001....................................................... 1 105
2002....................................................... 1 101
2003....................................................... 1 97
2004....................................................... 1 103
Thereafter................................................. 3 1,236
--- ------
Total minimum lease payments............................... 9 $1,751
=== ======
Less amount representing interest.......................... (3)
---
Present value of minimum lease payments.................. $ 6
===
</TABLE>
Certain of the lease payments included in the table above relate to
facilities used in the Company's former restaurant business. Most leases
contain one or more renewal options, generally for five or 10-year periods.
Future rentals on leases have not been reduced by aggregate minimum sublease
rentals from restaurants and HPT subleases of $71 million and $851 million,
respectively, payable to the Company under non-cancellable subleases.
In conjunction with the refinancing of the mortgage of the New York Marriott
Marquis, the Company also renegotiated the terms of the ground lease,
retroactive to 1998. The renegotiated ground lease provides for the payment of
a percentage of the hotel sales (3% in 1998, 4% in 1999 and 5% thereafter)
through 2017, which is to be used to amortize the then existing deferred ground
rent obligation of $116 million. The Company has the right to purchase the land
under certain circumstances. The balance of the deferred ground rent obligation
was $86 million at December 31, 1999.
The Company remains contingently liable at December 31, 1999 on certain
leases relating to divested non-lodging properties. Such contingent liabilities
aggregated $80 million at December 31, 1999. However, management considers the
likelihood of any substantial funding related to these leases to be remote.
Rent expense consists of:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in millions)
<S> <C> <C> <C>
Minimum rentals on operating leases.......................... $106 $104 $ 98
Additional rentals based on sales............................ 29 26 20
---- ---- ----
$135 $130 $118
==== ==== ====
</TABLE>
F-25
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Employee Stock Plans
In connection with the REIT conversion, the Company assumed the employee
obligations of Host REIT. Upon the exercise of stock options in Host REIT
common stock, Host REIT will issue shares of its common stock in return for the
issuance of an equal number of OP Units of the Company. Accordingly, those
liabilities and related disclosures are included in the Company's financial
statements.
At December 31, 1999, Host REIT maintained two stock-based compensation
plans, including the comprehensive stock plan (the "Comprehensive Plan"),
whereby Host REIT may award to participating employees (i) options to purchase
Host REIT's common stock, (ii) deferred shares of Host REIT's common stock and
(iii) restricted shares of Host REIT's common stock and the employee stock
purchase plan (the "Employee Stock Purchase Plan").
Employee stock options may be granted to officers and key employees with an
exercise price not less than the fair market value of the common stock on the
date of grant. Non-qualified options generally expire up to 15 years after the
date of grant. Most options vest ratably over each of the first four years
following the date of the grant.
In connection with the Host Marriott Services ("HM Services") spin-off in
1995, outstanding options held by current and former employees of Host Marriott
were redenominated in both Host Marriott and Host Marriott Services stock and
the exercise prices of the options were adjusted based on the relative trading
prices of shares of the common stock of the two companies. Pursuant to the
distribution agreement between the Company and HM Services, the Company
originally had the right to receive up to 1.4 million shares of HM Services'
common stock or an equivalent cash value subsequent to exercise of the options
held by certain former and current employees of Marriott International. On
August 27, 1999, Autogrill Acquisition Co., a wholly-owned subsidiary of
Autogrill SpA of Italy, acquired Host Marriott Services Corporation. Since Host
Marriott Services is no longer publicly traded, all future payments to the
Company will be made in cash as Host Marriott Services Corporation has
indicated that the receivable will not be settled in Autogrill SpA stock. As of
December 31, 1999, the receivable balance is approximately $11.9 million, which
is included in other assets.
Effective December 29, 1998, the Company adjusted the number of outstanding
stock options and the related exercise prices to maintain the intrinsic value
of the options to account for the Special Dividend and the Distribution. The
vesting provisions and option period of the original grant was retained. No
compensation expense was recorded by the Company as a result of these
adjustments. Employee optionholders that remained with the Company received
options only in Host REIT's stock and those employee optionholders that became
Crestline employees received Crestline options in exchange for the Company's
options.
The Company continues to account for expense under its plans according to
the provisions of Accounting Principle Board Opinion 25 and related
interpretations as permitted under SFAS No. 123. Consequently, no compensation
cost has been recognized for its fixed stock options under the Comprehensive
Plan and its Employee Stock Purchase Plan.
For purposes of the following disclosures required by SFAS No. 123, the fair
value of each option granted has been estimated on the date of grant using an
option-pricing model with the following weighted average assumptions used for
grants in 1999 and 1997, respectively: risk-free interest rate of 6.4% and
6.2%, volatility of 32% and 35%, expected lives of 12 years and 12 years, and
dividend yield of $0.84 per share and no dividend yield. The weighted average
fair value per option granted during the year was $1.15 in 1999 and $13.13 in
1997. No options were granted in 1998. Pro forma compensation cost for 1999,
1998 and 1997 would have reduced net income by approximately $919,000, $524,000
and $330,000. Basic and diluted earnings per share on a pro forma basis were
not impacted by the pro forma compensation cost in 1999, 1998 and 1997.
F-26
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The effects of the implementation of SFAS No. 123 are not representative of
the effects on reported net income in future years because only the effects of
stock option awards granted in 1997 and subsequent have been considered.
A summary of the status of the Company's stock option plan for 1999, 1998
and 1997 follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(in millions) Price (in millions) Price (in millions) Price
------------- -------- ------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, at beginning of
year................... 5.6 $ 3 6.8 $ 4 8.3 $ 4
Granted................. 0.6 10 -- -- .1 20
Exercised............... (1.3) 3 (1.3) 5 (1.6) 4
Forfeited/Expired....... -- -- (0.6) 4 -- --
Adjustment for Distribu-
tion and Special
Dividend............... -- -- 0.7 3 -- --
---- ---- ----
Balance, at end of
year................... 4.9 4 5.6 3 6.8 4
==== ==== ====
Options exercisable at
year-end............... 4.2 5.5 6.4
==== ==== ====
</TABLE>
The following table summarizes information about stock options at December
31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- ----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Shares Contractual Exercise Shares Exercise
Range of Exercise Prices (in millions) Life Price (in millions) Price
------------------------ ------------- ----------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
$ 1 - 3 3.4 7 $ 2 3.4 $ 2
4 - 6 0.4 9 6 0.4 6
7 - 9 0.9 13 9 0.4 8
10 - 12 0.2 14 12 -- 12
13 - 15 -- 13 15 -- 15
16 - 19 -- 13 18 -- 18
--- ---
4.9 4.2
=== ===
</TABLE>
Deferred stock incentive plan shares granted to officers and key employees
after 1990 generally vest over 10 years in annual installments commencing one
year after the date of grant. Certain employees may elect to defer payments
until termination or retirement. The Company accrues compensation expense for
the fair market value of the shares on the date of grant, less estimated
forfeitures. In 1999, 1998 and 1997, 11,000, 12,000 and 14,000 shares were
granted, respectively, under this plan. The compensation cost that has been
charged against income for deferred stock was not material in 1999, 1998 and
1997. The weighted average fair value per share granted during each year was
$14.31 in 1999, $19.21 in 1998 and $15.81 in 1997.
The Company from time to time awards restricted Host REIT stock plan shares
under the Comprehensive Plan to officers and key executives to be distributed
over the next three to 10 years in annual installments based on continued
employment and the attainment of certain performance criteria. The Company
recognizes compensation expense over the restriction period equal to the fair
market value of the shares on the date of issuance adjusted for forfeitures,
and where appropriate, the level of attainment of performance criteria and
fluctuations in the fair market value of Host REIT's common stock. In 1999,
1998 and 1997, 3,203,000, 2,900
F-27
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and 198,000 shares of additional restricted stock plan shares were granted to
certain key employees under these terms and conditions. Approximately 5,000 and
17,000 shares were forfeited in 1999 and 1998, respectively. There were no
shares forfeited in 1997. The Company recorded compensation expense of $7.7
million, $11 million and $13 million in 1999, 1998 and 1997, respectively,
related to these awards. The weighted average fair value per share granted
during each year was $12.83 in 1999, $18.13 in 1998 and $16.88 in 1997. Under
these awards 3,203,000 shares were outstanding at December 31, 1999.
In 1998, 568,408 stock appreciation rights ("SARs") were issued under the
Comprehensive Plan to certain directors of the Company as a replacement for
previously issued options that were cancelled during the year. The conversion
to SARs was completed in order to comply with ownership limits applicable to
Host REIT upon conversion to a REIT. The SARs are fully vested and the grant
prices range from $1.20 to $5.13. In 1999 and 1998, the Company recognized
compensation (income) expense of $(2.7) million and $4.8 million, respectively,
related to this grant. Additionally, in future periods, the Company will
recognize compensation expense for outstanding SARs as a result of fluctuations
in the market price of Host REIT's common stock.
Under the terms of the Employee Stock Purchase Plan, eligible employees may
purchase common stock through payroll deductions at 90% of the lower of market
value at the beginning or market value at the end of the plan year.
11. Profit Sharing and Postemployment Benefit Plans
The Company contributes to profit sharing and other defined contribution
plans for the benefit of employees meeting certain eligibility requirements and
electing participation in the plans. The amount to be matched by the Company is
determined annually by Host REIT's Board of Directors. The Company provides
medical benefits to a limited number of retired employees meeting restrictive
eligibility requirements. Amounts for these items were not material in 1997
through 1999.
12. Acquisitions and Dispositions
The Company completed a 210-room expansion of the Philadelphia Marriott in
April 1999 at a cost of approximately $37 million. Additionally, we acquired
the remaining unaffiliated partnership interests in two full-service hotels by
issuing approximately 612,000 cumulative preferred OP Units and paid cash of
approximately $6.8 million.
The Company acquired or gained controlling interest in 36 hotels with 15,166
rooms in 1998 and 18 hotels with 9,128 rooms in 1997. Twenty-five of the 1998
acquisitions, consisting of the Blackstone Acquisition and the Partnership
Mergers, were completed on December 30, 1998 in conjunction with the REIT
Conversion. Additionally, three full-service properties were contributed to one
of the Non-Controlled Subsidiaries (Note 4). These acquisitions are summarized
below.
In December 1998, the Company completed the acquisition of, or controlling
interests in, twelve hotels and one mortgage loan secured by an additional
hotel (the "Blackstone Acquisition") from the Blackstone Group, a Delaware
limited partnership, and a series of funds controlled by affiliates of
Blackstone Real Estate Partners (together, the "Blackstone Entities"). In
addition, the Company acquired a 25% interest in Swissotel Management (USA)
L.L.C., which operates five Swissotel hotels in the United States, which the
Company transferred to Crestline in connection with the Distribution. The
Operating Partnership issued approximately 47.7 million OP Units, which are
redeemable for the Company's common stock (or cash equivalent at Host
Marriott's option) assumed debt and made cash payments totaling approximately
$920 million and distributed 1.4 million of the shares of Crestline common
stock to the Blackstone Entities. During 1999, approximately 467,000 OP Units
were redeemed for common stock and an additional 233,000 OP Units were redeemed
for $2 million in cash. As of December 31, 1999, the Blackstone Entities own
approximately 16% of the outstanding OP Units of the Operating Partnership.
F-28
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In December 1998, the Company announced the completion of the Partnership
Mergers which was the roll-up of eight public partnerships and four private
partnerships which own or control 28 properties, 13 of which were already
consolidated (the "Partnership Mergers"). The Operating Partnership issued
approximately 25.8 million OP Units to partners for their interests valued at
approximately $333 million. As of December 31, 1999, approximately 16.8 million
OP Units remain outstanding.
As a result of these transactions, the Company increased its ownership of
most of the 28 properties to 100% while consolidating 15 additional hotels
(4,445 rooms).
During 1998, the Company acquired an additional interest in the Atlanta
Marriott Marquis II Limited Partnership, which owns an interest in the 1,671-
room Atlanta Marriott Marquis for approximately $239 million. The Company also
acquired a controlling interest in two partnerships that own four hotels for
approximately $74 million. In addition, the Company acquired four Ritz-Carlton
hotels and two additional hotels totaling over 2,200 rooms for approximately
$465 million.
In 1997, the Company acquired eight full-service hotels totaling 3,600 rooms
for approximately $145 million. In addition, the Company acquired controlling
interests in nine full-service hotels totaling 5,024 rooms for approximately
$621 million, including the assumption of approximately $418 million of debt.
The Company also completed the acquisition of the 504-room New York Marriott
Financial Center, after acquiring the mortgage on the hotel for $101 million in
late 1996.
Also in 1997, the Company acquired the outstanding common stock of the Forum
Group from Marriott Senior Living Services. The Company purchased the Forum
Group portfolio of 29 senior living communities for approximately $460 million,
including approximately $270 million in debt. The Company also acquired 49% of
the remaining 50% interest in the partnership which owned the 418-unit Leisure
Park retirement community for approximately $23 million, including the
assumption of approximately $15 million of debt. The Company contributed these
assets in conjunction with the Distribution of Crestline.
The following table summarizes property dispositions for 1999 and 1998:
<TABLE>
<CAPTION>
Pre-tax
Total Gain/(Loss)
Consideration on Disposal
Property Location Year Rooms (in millions) (in millions)
-------- ---------------- ---- ----- ------------- -------------
<S> <C> <C> <C> <C> <C>
Minneapolis/Bloomington
Marriott............... Bloomington, MN 1999 479 $ 35 $10
Saddle Brook Marriott... Saddle Brook, NJ 1999 221 15 3
Marriott's Grand Hotel
Resort and Golf Club... Point Clear, AL 1999 306 28 (2)
The Ritz-Carlton,
Boston................. Boston, MA 1999 275 119 15
El Paso Marriott........ El Paso, TX 1999 296 1 (2)
New York Marriott East
Side................... New York, NY 1998 662 191 40
Napa Valley Marriott.... Napa, CA 1998 191 21 10
</TABLE>
F-29
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Fair Value of Financial Instruments
The fair values of certain financial assets and liabilities and other
financial instruments are shown below:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- ------
(in millions)
<S> <C> <C> <C> <C>
Financial assets
Receivables from affiliates.............. $ 127 $ 133 $ 134 $ 141
Notes receivable......................... 48 48 69 69
Other.................................... 12 12 9 9
Financial liabilities
Debt, net of capital leases.............. 5,063 4,790 5,110 5,125
Other financial instruments
Convertible Debt Obligation to Host
Marriott................................ 514 357 567 466
</TABLE>
Short-term marketable securities and Convertible Preferred Securities are
valued based on quoted market prices. Receivables from affiliates, notes and
other financial assets are valued based on the expected future cash flows
discounted at risk-adjusted rates. Valuations for secured debt are determined
based on the expected future payments discounted at risk-adjusted rates. The
fair values of the Bank Credit Facility and other notes are estimated to be
equal to their carrying value. Senior notes are valued based on quoted market
prices.
The fair value of the liability related to the interest rate swap agreements
assumed in the Blackstone Acquisition was $14 million. The fair value is based
on the estimated amount the Company would pay or receive to terminate the swap
agreements. The aggregate notional amount of the agreements was $365 million at
December 31, 1998 and $100 million at January 2, 1998. The Company terminated
all the swap agreements in 1999.
14. Marriott International Distribution and Relationship with Marriott
International
The Company and Marriott International (formerly a wholly owned subsidiary,
the common stock of which was distributed to the Company's shareholders on
October 8, 1993) have entered into various agreements in connection with the
Marriott International Distribution and thereafter which provide, among other
things, that (i) the majority of the Company's hotel lodging properties are
managed by Marriott International (see Note 15); (ii) 13 of the Company's full-
service properties are operated under franchise agreements with Marriott
International with terms of 15 to 30 years; (iii) Marriott International
provided the Company with $92 million of financing at an average rate of 9% in
1997 related to the Company's discontinued senior living operations; (iv) the
Company acquired 49% of Marriott International's 50% interest in the Leisure
Park retirement community in 1997 for $23 million, including approximately $15
million of assumed debt; (v) Marriott International guarantees the Company's
performance in connection with certain obligations ($24 million at December 31,
1999); (vi) the Company borrowed and repaid $109 million of first mortgage
financing for construction of the Philadelphia Marriott (see Note 5); (vii)
Marriott International and the Company formed a joint venture and Marriott
International provided the Company with $29 million in debt financing at an
average interest rate of 12.7% and $28 million in preferred equity in 1996 for
the acquisition of two full-service properties in Mexico City, Mexico; and
(viii) Marriott International provides certain limited administrative services.
In 1998 and 1997, the Company paid to Marriott International $196 million
and $162 million, respectively, in hotel management fees and $9 million and $4
million, respectively, in franchise fees. Beginning in 1999, these fees,
totaling $218 million in 1999, were paid by the lessees (see Note 9). In 1999,
1998 and 1997, the Company paid to Marriott International $0.3 million, $4
million and $13 million, respectively, in interest and commitment fees under
the debt financing and line of credit provided by Marriott International, and
F-30
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$3 million for each of those years for limited administrative services. In
connection with the discontinued senior living communities' business, the
Company paid Marriott International $13 million and $6 million in management
fees during 1998 and 1997, respectively.
Additionally, Marriott International has the right to purchase up to 20% of
the voting stock of the Company if certain events involving a change in control
of the Company occur.
15. Hotel Management Agreements
Most of the Company's hotels are subject to management agreements (the
"Agreements") under which Marriott International manages the Company's hotels,
generally for an initial term of 15 to 20 years with renewal terms at the
option of Marriott International of up to an additional 16 to 30 years. The
Agreements generally provide for payment of base management fees equal to one
to four percent of sales and incentive management fees generally equal to 20%
to 50% of Operating Profit (as defined in the Agreements) over a priority
return (as defined) to the Company, with total incentive management fees not to
exceed 20% of cumulative Operating Profit, or 20% of current year Operating
Profit. In the event of early termination of the Agreements, Marriott
International will receive additional fees based on the unexpired term and
expected future base and incentive management fees. The Company has the option
to terminate certain management agreements if specified performance thresholds
are not satisfied. No agreement with respect to a single lodging facility is
cross-collateralized or cross-defaulted to any other agreement and a single
agreement may be canceled under certain conditions, although such cancellation
will not trigger the cancellation of any other agreement.
As a result of the REIT Conversion, all fees payable under the Agreements
for subsequent periods are the primary obligations of the Lessees. The
obligations of the Lessees are guaranteed to a limited extent by Crestline. The
Company remains obligated to the managers in case the Lessee fails to pay these
fees (but it would be entitled to reimbursement from the Lessee under the terms
of the Leases).
Pursuant to the terms of the Agreements, Marriott International is required
to furnish the hotels with certain services ("Chain Services") which are
generally provided on a central or regional basis to all hotels in the Marriott
International hotel system. Chain Services include central training,
advertising and promotion, a national reservation system, computerized payroll
and accounting services, and such additional services as needed which may be
more efficiently performed on a centralized basis. Costs and expenses incurred
in providing such services are allocated among all domestic hotels managed,
owned or leased by Marriott International or its subsidiaries. In addition, the
Company's hotels also participate in the Marriott Rewards program. The cost of
this program is charged to all hotels in the Marriott hotel system.
Crestline, as the Company's Lessee, is obligated to provide the manager with
sufficient funds to cover the cost of (a) certain non-routine repairs and
maintenance to the hotels which are normally capitalized; and (b) replacements
and renewals to the hotels' property and improvements. Under certain
circumstances, Crestline will be required to establish escrow accounts for such
purposes under terms outlined in the Agreements.
Crestline assumed franchise agreements with Marriott International for 10
hotels. Pursuant to these franchise agreements, Crestline generally pays a
franchise fee based on a percentage of room sales and food and beverage sales
as well as certain other fees for advertising and reservations. Franchise fees
for room sales vary from four to six percent of sales, while fees for food and
beverage sales vary from two to three percent of sales. The terms of the
franchise agreements are from 15 to 30 years.
Crestline assumed management agreements with The Ritz-Carlton Hotel Company,
LLC ("Ritz-Carlton"), an affiliate of Marriott International, to manage ten of
the Company's hotels. These agreements have an initial term of 15 to 25 years
with renewal terms at the option of Ritz-Carlton of up to an additional 10 to
40 years.
F-31
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Base management fees vary from two to five percent of sales and incentive
management fees are generally equal to 20% of available cash flow or operating
profit, as defined in the agreements.
Crestline also assumed management agreements with hotel management companies
other than Marriott International and Ritz-Carlton for 23 of the Company's
hotels (10 of which are franchised under the Marriott brand). These agreements
generally provide for an initial term of 10 to 20 years with renewal terms at
the option of either party or, in some cases, the hotel management company of
up to an additional one to 15 years. The agreements generally provide for
payment of base management fees equal to one to four percent of sales.
Seventeen of the 23 agreements also provide for incentive management fees
generally equal to 10 to 25 percent of available cash flow, operating profit,
or net operating income, as defined in the agreements.
16. Relationship with Crestline Capital Corporation
The Company and Crestline have entered into various agreements in connection
with the Distribution as discussed in Note 2 and further outlined below.
Distribution Agreement
Crestline and the Company entered into a distribution agreement (the
"Distribution Agreement"), which provided for, among other things, (i) the
distribution of shares of Crestline in connection with the Distribution; (ii)
the division between Crestline and the Company of certain assets and
liabilities; (iii) the transfer to Crestline of the 25% interest in the
Swissotel management company acquired in the Blackstone Acquisition and (iv)
certain other agreements governing the relationship between Crestline and the
Company following the Distribution. Crestline also granted the Company a
contingent right to purchase Crestline's interest in Swissotel Management (USA)
L.L.C. at fair market value in the event the tax laws are changed so that the
Company could own such interest without jeopardizing its status as a REIT.
Subject to certain exceptions, the Distribution Agreement provides for,
among other things, assumptions of liabilities and cross-indemnities designed
to allocate to Crestline, effective as of the date of the Distribution,
financial responsibilities for liabilities arising out of, or in connection
with, the business of the senior living communities.
Asset Management Agreement
The Company and the Non-Controlled Subsidiaries entered into asset
management agreements (the "Asset Management Agreements") with Crestline
whereby Crestline agrees to provide advice on the operation of the hotels and
review financial results, projections, loan documents and hotel management
agreements. Crestline also agrees to consult on market conditions and
competition, as well as monitor and negotiate with governmental agencies,
insurance companies and contractors. Crestline will be paid a fee not to exceed
$4.5 million for each calendar year for its consulting services under the Asset
Management Agreements, which includes $0.25 million related to the Non-
Controlled Subsidiaries. The Asset Management Agreements each have terms of two
years with an automatic one year renewal, unless earlier terminated by either
party in accordance with the terms thereof.
Non-Competition Agreement
Crestline and the Company entered into a non-competition agreement that
limits the respective parties' future business opportunities. Pursuant to this
non-competition agreement, Crestline agrees, among other things, that until the
earlier of December 31, 2008, or the date on which it is no longer a Lessee of
more than 25% of the number of hotels owned by the Company at the time of the
Distribution, it will not own any full service hotel, manage any limited
service or full service hotel owned by the Company, or own or operate a full
service hotel franchise system operating under a common name brand, subject to
certain exceptions. In addition, the
F-32
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company agrees not to participate in the business of leasing, operating or
franchising limited service or full service properties, subject to certain
exceptions.
1998 Employee Benefits and Other Employment Matters Allocation Agreement
As part of the REIT Conversion, the Company, the Operating Partnership and
Crestline entered into the 1998 Employee Benefits Allocation Agreement relating
to various compensation, benefits and labor matters. Under the agreement, the
Operating Partnership and Crestline each assumed certain liabilities related to
covered benefits and labor matters arising prior to the effective date of the
Distribution and relating to employees of each organization, respectively,
after the Distribution. The agreements also govern the treatment of awards
under the Comprehensive Plan and requires the adoption of such a plan by
Crestline and the Operating Partnership.
17. Litigation
In connection with the REIT Conversion, the Company assumed all liability
arising under legal proceedings filed against Host REIT and will indemnify Host
REIT as to all such matters. We believe all of the lawsuits in which we are a
defendant, including the following lawsuits, are without merit and we intend to
defend vigorously against such claims; however, no assurance can be given as to
the outcome of any of the lawsuits.
On March 16, 1998, limited partners in several limited partnerships filed a
lawsuit, the Texas Multi-Partnership Lawsuit, naming the Company, Marriott
International and others as defendants and claiming that they conspired to sell
hotels to the partnerships for inflated prices, that they charged the
partnerships excessive management fees to operate the partnerships' hotels and
otherwise breached their fiduciary duties. The lawsuit involved the following
partnerships: Courtyard by Marriott Limited Partnership, Courtyard by Marriott
II Limited Partnership, Marriott Residence Inn Limited Partnership, Marriott
Residence Inn II Limited Partnership, Fairfield Inn by Marriott Limited
Partnership, Desert Springs Marriott Limited Partnership and Atlanta Marriott
Marquis Limited Partnership. Three other lawsuits, collectively, the
Partnership Lawsuits, involving limited partners of some of the aforementioned
partnerships had also been filed, at various dates beginning in June 1996 and
include similar actions naming the Company, Marriott International and others
as defendants.
Host REIT and Marriott International announced they had executed a
definitive settlement agreement to resolve the Texas Multi-Partnership Lawsuit
and the Partnership Lawsuits. The understanding, which is still subject to
numerous conditions, including court approval and various consents, has two
principal features. First, the Company and Marriott International expect,
through a joint venture to be formed between their affiliates, to acquire the
equity interest of the limited partners in the two Courtyard partnerships for
approximately $372 million. The Company's share of the acquisition costs of the
Courtyard partnerships is expected to be $82 million. Second, the Company and
Marriott International will each pay approximately $31 million to the limited
partners of the remaining five partnerships in exchange for settlement of the
litigation and a full release of claims. As a result of the proposed
settlement, the Company has recorded a non-recurring, pre-tax charge of $40
million in 1999.
The Company has also been named a defendant in other lawsuits involving
various hotel partnerships. The lawsuits are ongoing, and although the ultimate
resolution of lawsuits is not determinable, the Company does not believe the
outcome will be material to the financial position, statement of operations or
cash flows of the Company.
F-33
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
18. Geographic and Business Segment Information
The Company operates one business segment, hotel ownership. The Company's
hotels are primarily operated under the Marriott or Ritz-Carlton brands,
contain an average of approximately 474 rooms as of March 1, 2000, as well as
supply other amenities such as meeting space and banquet facilities; a variety
of restaurants and lounges; gift shops and swimming pools. They are typically
located in downtown, airport, suburban and resort areas throughout the United
States. During most of 1998, the Company's foreign operations consisted of six
full-service hotel properties located in Mexico and Canada. As of December 31,
1999, the Company's foreign operations had decreased to four Canadian hotel
properties, as the hotels in Mexico were contributed to Rockledge Hotel
Properties, Inc. at year end 1998. There were no intercompany sales between the
properties and the Company. The following table presents revenues and long-
lived assets for each of the geographical areas in which the Company operates
(in millions):
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
Long- Long- Long-
lived lived lived
Revenues Assets Revenues Assets Revenues Assets
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
United States................... $1,352 $6,987 $3,443 $7,112 $2,770 $4,412
International................... 24 121 121 89 105 222
------ ------ ------ ------ ------ ------
Total......................... $1,376 $7,108 $3,564 $7,201 $2,875 $4,634
====== ====== ====== ====== ====== ======
</TABLE>
The long-lived assets for 1997 exclude $583 million of assets related to the
discontinued senior living business.
19. Supplemental Guarantor and Non-Guarantor Subsidiary Information
All subsidiaries of the Company guarantee the Senior Notes except those
among the twenty one full service hotels listed below and HMH HPT Residence
Inn, LLC and HMH HPT Courtyard, LLC, the leasees of the Residence Inn and
Courtyard properties, respectively. The separate financial statements of each
guaranteeing subsidiary (each, a "Guarantor Subsidiary") are not presented
because the Company's management has 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 a
wholly owned subsidiary of the Company. The non-guarantor subsidiaries (the
"Non-Guarantor Subsidiaries") own the following full-service hotels: the Albany
Marriott, Atlanta Marriott Marquis, Grand Hyatt, Atlanta, Harbor Beach Resort,
Hartford Marriott, Hyatt Regency, Cambridge, Hyatt Regency, Reston, Manhattan
Beach Marriott, Minneapolis Southwest Marriott, New York Marriott Marquis,
Ontario Airport Marriott, Pittsburgh City Center Marriott, The Ritz-Carlton,
Amelia Island, San Diego Marriott Hotel and Marina, San Diego Mission Valley,
Swissotel Atlanta, Swissotel Boston, Swissotel Chicago, The Drake (Swissotel)
New York and the Oklahoma City Waterford Marriott.
The following condensed combined consolidating financial information sets
forth the financial position as of December 31, 1999 and 1998 and results of
operations and cash flows for the three fiscal years in the period ended
December 31, 1999 of the parent, Guarantor Subsidiaries and the Non-Guarantor
Subsidiaries:
F-34
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Supplemental Condensed Combined Consolidating Balance Sheets
(in millions)
December 31, 1999
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Property and equipment,
net.................... $1,227 $3,642 $2,239 $ -- $7,108
Investments in
affiliates............. 1,593 -- -- (1,544) 49
Notes and other
receivables............ 685 51 24 (585) 175
Rent receivable......... 11 23 38 -- 72
Other assets............ 175 214 175 (49) 515
Cash, cash equivalents
and marketable
securities............. 199 58 20 -- 277
------ ------ ------ ------- ------
Total assets.......... $3,890 $3,988 $2,496 $(2,178) $8,196
====== ====== ====== ======= ======
Debt.................... $1,189 $3,062 $1,168 $ (350) $5,069
Convertible debt
obligation to Host
Marriott............... 514 -- -- -- 514
Deferred income taxes... 10 32 7 -- 49
Other liabilities....... 314 346 198 (284) 574
------ ------ ------ ------- ------
Total liabilities..... 2,027 3,440 1,373 (634) 6,206
Minority interests...... 9 54 73 -- 136
Limited partner interest
of third parties at
redemption value....... 533 -- -- -- 533
Owner's capital......... 1,321 494 1,050 (1,544) 1,321
------ ------ ------ ------- ------
Total liabilities and
owner's capital...... $3,890 $3,988 $2,496 $(2,178) $8,196
====== ====== ====== ======= ======
</TABLE>
December 31, 1998
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Property and equipment,
net.................... $1,172 $3,796 $2,233 $ -- $7,201
Investments in
affiliates............. 1,475 -- -- (1,442) 33
Notes and other
receivables............ 782 52 19 (650) 203
Other assets............ 259 145 141 (156) 389
Cash and cash
equivalents............ 330 91 15 -- 436
------ ------ ------ ------- ------
Total assets.......... $4,018 $4,084 $2,408 $(2,248) $8,262
====== ====== ====== ======= ======
Debt.................... $1,438 $2,837 $1,183 $ (327) $5,131
Convertible debt
obligation to Host
Marriott............... 567 -- -- -- 567
Deferred income taxes... 51 39 7 -- 97
Other liabilities....... 291 600 252 (479) 664
------ ------ ------ ------- ------
Total liabilities..... 2,347 3,476 1,442 (806) 6,459
Minority interests...... 15 56 76 -- 147
Limited partner interest
of third parties at
redemption value....... 892 -- -- -- 892
Owner's capital......... 764 552 890 (1,442) 764
------ ------ ------ ------- ------
Total liabilities and
owner's capital...... $4,018 $4,084 $2,408 $(2,248) $8,262
====== ====== ====== ======= ======
</TABLE>
F-35
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Supplemental Condensed Combined Consolidating Statements of Operations
(in millions)
Fiscal Year Ended December 31, 1999
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES................ $ 584 $ 660 $ 425 $(293) $ 1,376
Depreciation............ (65) (143) (81) -- (289)
Property-level
expenses............... (51) (93) (120) -- (264)
Hotel operating
expenses............... -- -- -- -- --
Minority interest....... (5) (7) (9) -- (21)
Corporate expenses...... (6) (20) (11) -- (37)
Interest expense........ (157) (263) (100) 51 (469)
Other expenses.......... (44) (11) (1) -- (56)
------ ------- ------ ----- -------
Income from continuing
operations before
taxes.................. 256 123 103 (242) 240
Benefit (provision) for
income taxes........... 20 (2) (2) -- 16
------ ------- ------ ----- -------
INCOME BEFORE
EXTRAORDINARY ITEM..... 276 121 101 (242) 256
Extraordinary item--gain
on extinguishment of
debt (net of income
taxes)................. 9 1 19 -- 29
------ ------- ------ ----- -------
NET INCOME.............. $ 285 $ 122 $ 120 $(242) $ 285
====== ======= ====== ===== =======
Fiscal Year Ended December 31, 1998
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES................ $1,012 $ 1,680 $1,023 $(151) $ 3,564
Depreciation............ (69) (124) (49) -- (242)
Property-level
expenses............... (63) (128) (80) -- (271)
Hotel operating
expenses............... (535) (1,094) (682) -- (2,311)
Minority interest....... (30) (11) (11) -- (52)
Corporate expenses...... (8) (27) (15) -- (50)
REIT conversion
expenses............... (64) -- -- -- (64)
Interest expense........ (93) (208) (67) 33 (335)
Dividends on convertible
preferred securities... (37) -- -- -- (37)
Other expenses.......... (25) (2) (1) -- (28)
------ ------- ------ ----- -------
Income from continuing
operations before
taxes.................. 88 86 118 (118) 174
Benefit (provision) for
income taxes........... 101 (34) (47) -- 20
------ ------- ------ ----- -------
Income from continuing
operations............. 189 52 71 (118) 194
Income from discontinued
operations............. 1 -- -- -- 1
------ ------- ------ ----- -------
INCOME BEFORE
EXTRAORDINARY ITEM..... 190 52 71 (118) 195
Extraordinary item--loss
on extinguishment of
debt (net of income
taxes)................. (143) (5) -- -- (148)
------ ------- ------ ----- -------
NET INCOME.............. $ 47 $ 47 $ 71 $(118) $ 47
====== ======= ====== ===== =======
</TABLE>
F-36
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Supplemental Condensed Combined Consolidating Statements of Operations--
(Continued)
(in millions)
Fiscal Year Ended January 2, 1998
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES................ $ 915 $1,195 $ 808 $(43) $ 2,875
Depreciation............ (98) (94) (39) -- (231)
Property-level
expenses............... (72) (105) (70) -- (247)
Hotel operating
expenses............... (552) (800) (532) -- (1,884)
Minority interest....... (5) (60) (5) 39 (31)
Corporate expenses...... (11) (25) (9) -- (45)
REIT conversion
expenses............... -- -- -- -- --
Interest expense........ (27) (189) (72) -- (288)
Dividends on convertible
preferred securities... (37) -- -- -- (37)
Other expenses.......... (29) -- -- -- (29)
----- ------ ----- ---- -------
Income from operations
before taxes........... 84 (78) 81 (4) 83
Benefit (provision) for
income taxes........... (35) 31 (32) -- (36)
----- ------ ----- ---- -------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM..... 49 (47) 49 (4) 47
Extraordinary item--gain
on extinguishment of
debt (net of income
taxes)................. -- 3 -- -- 3
----- ------ ----- ---- -------
NET INCOME.............. $ 49 $ (44) $ 49 $ (4) $ 50
===== ====== ===== ==== =======
</TABLE>
F-37
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Supplemental Condensed Combined Consolidating Statements of Cash Flows
(in millions)
Fiscal Year Ended December 31, 1999
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Cash from operations.......... $ 84 $ 117 $ 159 $ 360
----- ----- ----- -------
INVESTING ACTIVITIES
Net cash received from sales
of assets.................... 3 192 -- 195
Capital expenditures.......... (132) (179) (50) (361)
Acquisitions.................. (1) (8) (20) (29)
Other......................... 19 -- -- 19
----- ----- ----- -------
Cash used in investing
activities................... (111) 5 (70) (176)
----- ----- ----- -------
FINANCING ACTIVITIES
Repayment of debt............. (230) (392) (809) (1,431)
Issuance of debt.............. 290 99 956 1,345
Issuance of OP Units.......... 5 -- -- 5
Issuance of preferred limited
partner units................ 196 -- -- 196
Distributions on common and
preferred limited partner
units........................ (260) -- -- (260)
Redemption or repurchase of OP
Units for cash............... (54) -- -- (54)
Repurchase of Convertible
Preferred Securities......... (36) -- -- (36)
Cost of extinguishment of
debt......................... -- -- (2) (2)
Transfer to/from Parent....... (15) 138 (123) --
Other......................... -- -- (106) (106)
----- ----- ----- -------
Cash from financing
activities................... (104) (155) (84) (343)
----- ----- ----- -------
INCREASE IN CASH AND CASH
EQUIVALENTS.................. (131) (33) 5 (159)
CASH AND CASH EQUIVALENTS,
beginning of year............ 330 91 15 436
----- ----- ----- -------
CASH AND CASH EQUIVALENTS, end
of year...................... $ 199 $ 58 $ 20 $ 277
===== ===== ===== =======
</TABLE>
F-38
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Supplemental Condensed Combined Consolidating Statements of Cash Flows--
(Continued)
(in millions)
Fiscal Year Ended December 31, 1998
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Cash from continuing
operations.................. $ 145 $ 124 $ 43 $ 312
Cash from discontinued
operations.................. 29 -- -- 29
------- ----- ----- -------
Cash from operations......... 174 124 43 341
------- ----- ----- -------
INVESTING ACTIVITIES
Cash received from sales of
assets...................... 227 -- -- 227
Capital expenditures......... (61) (147) (44) (252)
Acquisitions................. (336) (325) (327) (988)
Sales of short-term
marketable securities....... 354 -- -- 354
Other........................ 4 -- -- 4
------- ----- ----- -------
Cash from (used in) investing
activities from continuing
operations.................. 188 (472) (371) (655)
Cash from (used in) investing
activities from discontinued
operations.................. (50) -- -- (50)
------- ----- ----- -------
Cash used in investing
activities.................. 138 (472) (371) (705)
------- ----- ----- -------
FINANCING ACTIVITIES
Repayment of debt............ (1,902) (51) (171) (2,124)
Issuances of debt............ 2,483 6 7 2,496
Transfers to/from Parent..... (875) 385 490 --
Cash contributed to Crestline
at inception................ (52) -- -- (52)
Cash contributed to Non-
Contributed Subsidiary...... (30) -- -- (30)
Other........................ (25) -- -- (25)
------- ----- ----- -------
Cash from (used in) financing
activities from continuing
operations.................. (401) 340 326 265
Cash from (used in) financing
activities from discontinued
operations.................. 24 -- -- 24
------- ----- ----- -------
Cash from (used in) financing
activities.................. (377) 340 326 289
------- ----- ----- -------
DECREASE IN CASH AND CASH
EQUIVALENTS................. (65) (8) (2) (75)
CASH AND CASH EQUIVALENTS,
beginning of year........... 395 99 17 511
------- ----- ----- -------
CASH AND CASH EQUIVALENTS,
end of year................. $ 330 $ 91 $ 15 $ 436
======= ===== ===== =======
</TABLE>
F-39
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Supplemental Condensed Combined Consolidating Statements of Cash Flows--
(Continued)
(in millions)
Fiscal Year Ended January 2, 1998
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Cash from continuing
operations................... $ 203 $ 98 $ 131 $ 432
Cash from discontinued
operations................... 32 -- -- 32
----- ----- ----- -------
Cash from operations.......... 235 98 131 464
----- ----- ----- -------
INVESTING ACTIVITIES
Cash received from sales of
assets....................... 51 -- -- 51
Capital expenditures.......... (52) (77) (29) (158)
Acquisitions.................. (56) (190) (113) (359)
Purchase of short-term
marketable securities........ (354) -- -- (354)
Other......................... -- -- 13 13
----- ----- ----- -------
Cash used in investing
activities from continuing
operations................... (411) (267) (129) (807)
Cash used in investing
activities from discontinued
operations................... (239) -- -- (239)
----- ----- ----- -------
Cash used in investing
activities................... (650) (267) (129) (1,046)
----- ----- ----- -------
FINANCING ACTIVITIES
Repayment of debt............. (5) (447) (41) (493)
Issuances of debt............. 586 270 1 857
Transfers to/from Parent...... (417) 392 25 --
Other......................... 5 -- 23 28
----- ----- ----- -------
Cash from financing activities
from continuing operations... 169 215 8 392
Cash used in financing
activities from discontinued
operations................... (3) -- -- (3)
----- ----- ----- -------
Cash from financing
activities................... 166 215 8 389
----- ----- ----- -------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS......... (249) 46 10 (193)
CASH AND CASH EQUIVALENTS,
beginning of year............ 644 53 7 704
----- ----- ----- -------
CASH AND CASH EQUIVALENTS, end
of year...................... $ 395 $ 99 $ 17 $ 511
===== ===== ===== =======
</TABLE>
F-40
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
20. Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
1999
----------------------------------------------------------
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
--------- --------- --------- ---------- ----------
(in millions, except per common share amounts)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 192 $ 203 $ 203 $ 778 $ 1,376
Income from continuing
operations before in-
come taxes............. (56) (55) (44) 395 240
Income from continuing
operations............. (56) (55) (44) 411 256
Income before extraordi-
nary item.............. (56) (55) (44) 411 256
Net income (loss)....... (56) (42) (40) 423 285
Net income (loss) avail-
able to unitholders.... (56) (42) (41) 418 279
Basic earnings (loss)
per unit:
Income from continuing
operations........... (.19) (.19) (.16) 1.40 .86
Income before extraor-
dinary items......... (.19) (.19) (.16) 1.40 .86
Net income (loss)..... (.19) (.15) (.14) 1.44 .96
Diluted earnings (loss)
per unit:
Income from continuing
operations........... (.19) (.19) (.16) 1.23 .83
Income before extraor-
dinary items......... (.19) (.19) (.16) 1.23 .83
Net income (loss)..... (.19) (.15) (.14) 1.27 .93
<CAPTION>
1998
----------------------------------------------------------
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
--------- --------- --------- ---------- ----------
(in millions, except per common share amounts)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 805 $ 849 $ 756 $ 1,154 $ 3,564
Income from continuing
operations before in-
come taxes............. 48 105 8 13 174
Income from continuing
operations............. 28 62 2 102 194
Income before extraordi-
nary items............. 30 66 4 95 195
Net income (loss)....... 30 66 (144) 95 47
Net income (loss) avail-
able to unitholders.... 30 66 (144) 95 47
Basic earnings per unit:
Income from continuing
operations........... .13 .29 .01 .47 .90
Income before extraor-
dinary items......... .14 .31 .02 .44 .91
Net income (loss)..... .14 .31 (.67) .44 .22
Diluted earnings per
unit:
Income from continuing
operations........... .13 .26 .01 .43 .84
Income before extraor-
dinary items......... .14 .28 .02 .40 .85
Net income (loss)..... .14 .28 (.65) .40 .27
</TABLE>
The quarterly data in the table above has been restated to reflect the
Company's senior living business as a discontinued operation and the impact of
the 1998 stock portion of the Special Dividend on earnings per share.
The first three quarters consist of 12 weeks each in both 1999 and 1998, and
the fourth quarter includes 16 weeks. The sum of the basic and diluted earnings
(loss) per unit for the four quarters in 1999 and 1998 differs from the annual
earnings per common share due to the required method of computing the weighted
average number of shares in the respective periods.
In December 1999, the Company changed its method of accounting for
contingent rental revenues to conform to the Securities and Exchange
Commission's Staff Accounting Bulletin (SAB) No. 101. As a result, contingent
rental revenue will be deferred on the balance sheet until certain revenue
thresholds are realized. We
F-41
<PAGE>
HOST MARRIOTT, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
have adopted SAB No. 101 with retroactive effect beginning January 1, 1999 to
conform to the new presentation. SAB No. 101 has no impact on full-year 1999
revenues, net income, or earnings per share because all rental revenues
considered contingent under SAB No. 101 were earned as of December 31, 1999.
The change in accounting principle has no effect on prior years because
percentage rent relates to rental income on our leases, which began in 1999.
F-42
<PAGE>
CCHP I CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
With Independent Public Accountants' Report Thereon
F-43
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CCHP I Corporation:
We have audited the accompanying consolidated balance sheet of CCHP I
Corporation and its subsidiaries (a Maryland corporation) as of December 31,
1999, and the related consolidated statements of operations, shareholder's
equity and cash flows for the fiscal year ended December 31, 1999. These
consolidated financial statements are the responsibility of CCHP I
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CCHP I
Corporation and its subsidiaries as of December 31, 1999 and the results of
their operations and their cash flows for the fiscal year then ended in
conformity with accounting principles generally accepted in the United States.
Arthur Andersen LLP
Vienna, Virginia
February 24, 2000
F-44
<PAGE>
CCHP I CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999
(in thousands, except share data)
<TABLE>
<S> <C>
ASSETS
Current assets
Cash and cash equivalents............................................ $ 9,467
Due from hotel managers.............................................. 3,890
-------
13,357
Hotel working capital.................................................. 26,011
-------
$39,368
=======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Lease payable to Host Marriott....................................... $ 5,792
Other................................................................ 3,334
-------
9,126
Hotel working capital notes payable to Host Marriott................... 26,011
Deferred income taxes.................................................. 1,027
-------
Total liabilities.................................................. 36,164
-------
Shareholder's equity
Common stock (100 shares issued at $1.00 par value).................. --
Retained earnings.................................................... 3,204
-------
Total shareholder's equity......................................... 3,204
=======
$39,368
=======
</TABLE>
See Notes to Consolidated Financial Statements.
F-45
<PAGE>
CCHP I CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Fiscal Year Ended December 31, 1999
(in thousands)
<TABLE>
<S> <C>
REVENUES
Rooms............................................................... $585,381
Food and beverage................................................... 277,684
Other............................................................... 65,069
--------
Total revenues.................................................... 928,134
--------
OPERATING COSTS AND EXPENSES
Property-level operating costs and expenses
Rooms............................................................... 141,898
Food and beverage................................................... 211,964
Other............................................................... 241,996
Other operating costs and expenses
Lease expense to Host Marriott...................................... 276,058
Management fees..................................................... 40,659
--------
Total operating costs and expenses................................ 912,575
--------
OPERATING PROFIT BEFORE CORPORATE EXPENSES AND INTEREST............... 15,559
Corporate expenses.................................................... (1,367)
Interest expense...................................................... (1,585)
--------
INCOME BEFORE INCOME TAXES............................................ 12,607
Provision for income taxes............................................ (5,169)
--------
NET INCOME............................................................ $ 7,438
========
</TABLE>
See Notes to Consolidated Financial Statements.
F-46
<PAGE>
CCHP I CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
Fiscal Year Ended December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Common Retained
Stock Earnings Total
------ -------- ------
<S> <C> <C> <C>
Balance, January 1, 1999................................ $-- $ -- $ --
Dividend to Crestline Capital......................... -- (4,234) (4,234)
Net income............................................ -- 7,438 7,438
---- ------ ------
Balance, December 31, 1999.............................. $-- $3,204 $3,204
==== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-47
<PAGE>
CCHP I CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Fiscal Year Ended December 31, 1999
(in thousands)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income............................................................. $ 7,438
Change in amounts due from hotel managers.............................. (678)
Change in lease payable to Host Marriott............................... 5,792
Changes in other operating accounts.................................... 1,149
-------
Cash from operations................................................. 13,701
INVESTING ACTIVITIES................................................... --
-------
FINANCING ACTIVITIES
Dividend to Crestline Capital.......................................... (4,234)
-------
Increase in cash and cash equivalents.................................. 9,467
Cash and cash equivalents, beginning of year........................... --
-------
Cash and cash equivalents, end of year................................. $ 9,467
=======
</TABLE>
See Notes to Consolidated Financial Statements.
F-48
<PAGE>
CCHP I CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Organization
CCHP I Corporation (the "Company") was incorporated in the state of Delaware
on November 23, 1998 as a wholly owned subsidiary of Crestline Capital
Corporation ("Crestline"). On December 29, 1998, Crestline became a publicly
traded company when Host Marriott Corporation ("Host Marriott") completed its
plan of reorganizing its business operations by spinning-off Crestline to the
shareholders of Host Marriott as part of a series of transactions pursuant to
which Host Marriott converted into a real estate investment trust ("REIT").
On December 31, 1998, wholly owned subsidiaries of the Company (the "Tenant
Subsidiaries") entered into lease agreements with Host Marriott to lease 35 of
Host Marriott's full-service hotels with the existing management agreements of
the leased hotels assigned to the Tenant Subsidiaries. During 1999, Host
Marriott sold three of the hotels and terminated the leases on those hotels. As
of December 31, 1999, the Company leased 32 full-service hotels from Host
Marriott.
The Company operates as a unit of Crestline, utilizing Crestline's
employees, insurance and administrative services since the Company does not
have any employees. Certain direct expenses are paid by Crestline and charged
directly or allocated to the Company. Certain general and administrative costs
of Crestline are allocated to the Company, using a variety of methods,
principally including Crestline's specific identification of individual costs
and otherwise through allocations based upon estimated levels of effort devoted
by general and administrative departments to the Company or relative measures
of the size of the Company based on revenues. In the opinion of management, the
methods for allocating general and administrative expenses and other direct
costs are reasonable.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany transactions and balances
between the Company and its subsidiaries have been eliminated.
Fiscal Year
The Company's fiscal year ends on the Friday nearest December 31.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at date of purchase as cash equivalents.
Revenues
The Company records the gross property-level revenues generated by the
hotels as revenues.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
F-49
<PAGE>
CCHP I CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 2. Leases
Hotel Leases
The Tenant Subsidiaries entered into leases with Host Marriott effective
January 1, 1999 for 35 full-service hotels. Each hotel lease has an initial
term generally ranging from three to seven years. The hotel leases generally
have four seven-year renewal options at the option of the Company, however,
Host Marriott may terminate any unexercised renewal options. The Tenant
Subsidiaries are required to pay the greater of (i) a minimum rent specified in
each hotel lease or (ii) a percentage rent based upon a specified percentage of
aggregate revenues from the hotel, including room revenues, food and beverage
revenues, and other income, in excess of specified thresholds. The amount of
minimum rent is increased each year based upon 50% of the increase in CPI
during the previous twelve months. Percentage rent thresholds are increased
each year based on a blend of the increases in CPI and the Employment Cost
Index during the previous twelve months. The hotel leases generally provide for
a rent adjustment in the event of damage, destruction, partial taking or
certain capital expenditures. The rent during any renewal periods will be
negotiated at fair market value at the time the renewal option is exercised.
The Tenant Subsidiaries are responsible for paying all of the expenses of
operating the hotels, including all personnel costs, utility costs, and general
repair and maintenance of the hotels. In addition, the Tenant Subsidiaries are
responsible for all fees payable to the hotel manager, including base and
incentive management fees, chain services payments and franchise or system
fees. Host Marriott is responsible for real estate and personal property taxes,
property casualty insurance, equipment rent, ground lease rent, maintaining a
reserve fund for FF&E replacements and capital expenditures.
In the event that Host Marriott disposes of a hotel free and clear of the
hotel lease, Host Marriott would generally have to pay a termination fee equal
to the fair market value of the Company's leasehold interest in the remaining
term of the hotel lease using a discount rate of 12%. Alternatively, Host
Marriott would be entitled to (i) substitute a comparable hotel for any hotel
that is sold, with the terms agreed to by the Company, or (ii) sell the hotel
subject to the hotel lease, subject to the Company's approval under certain
circumstances, without having to pay a termination fee. In addition, Host
Marriott also has the right to terminate up to twelve of Crestline's leases
without having to pay a termination fee. During 1999, Host Marriott exercised
its right to terminate three hotel leases of the Company and Crestline without
having to pay a termination fee. Conversely, Crestline may terminate up to
twelve full-service hotel leases without penalty upon 180 days notice to Host
Marriott. During 1999, Crestline exercised its right to terminate two of the
Company's hotel leases as well as three additional Crestline hotel leases.
These hotel leases will terminate in 2000, 180 days after each respective
notification date.
As a result of the recent tax legislation discussed below, Host Marriott may
purchase all, but not less than all, of its hotel leases with Crestline,
beginning January 2, 2001, with the purchase price calculated as discussed
above. The payment of the termination fee will be payable in cash or, subject
to certain conditions, shares of Host Marriott common stock at the election of
Host Marriott.
For those hotels where Marriott International is the manager, it has a
noneconomic membership interest with certain limited voting rights in the
Tenant Subsidiaries.
FF&E Leases
Prior to entering into the hotel leases, if the average tax basis of a
hotel's FF&E and other personal property exceeded 15% of the aggregate average
tax basis of the hotel's real and personal property (the "Excess FF&E"), the
Tenant Subsidiaries and affiliates of Host Marriott entered into lease
agreements (the "FF&E Leases") for the Excess FF&E. The terms of the FF&E
Leases generally range from two to three years
F-50
<PAGE>
CCHP I CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and rent under the FF&E Leases is a fixed amount. The Company will have the
option at the expiration of the FF&E Lease term to either (i) renew the FF&E
Leases for consecutive one-year renewal terms at fair market rental rate, or
(ii) purchase the Excess FF&E for a price equal to its fair market value. If
the Company does not exercise its purchase or renewal option, the Company is
required to pay a termination fee equal to approximately one month's rent.
Guaranty and Pooling Agreement
In connection with entering into the hotel leases, the Company, Crestline
and Host Marriott, entered into a pool guarantee and a pooling and security
agreement by which the Company provides a full guarantee and Crestline provides
a limited guarantee of all of the hotel lease obligations.
The cumulative limit of Crestline's guarantee obligation is the greater of
ten percent of the aggregate rent payable for the immediately preceding fiscal
year under all of the Company's hotel leases or ten percent of the aggregate
rent payable under all of the Company's hotel leases for 1999. In the event
that Crestline's obligation under the pooling and guarantee agreement is
reduced to zero, the Company can terminate the agreement and Host Marriott can
terminate the Company's hotel leases without penalty.
All of the Company's leases are cross-defaulted and the Company's
obligations under the guaranty are secured by all the funds received from its
Tenant Subsidiaries.
Recent Tax Legislation
On December 17, 1999 President Clinton signed the Work Incentives
Improvement Act of 1999. Included in this legislation are provisions that,
effective January 1, 2001, will allow a REIT to lease hotels to a "taxable REIT
subsidiary" if the hotel is operated and managed on behalf of such subsidiary
by an independent third party. A taxable REIT subsidiary is a corporation that
is owned more than 35 percent by a REIT. This law will enable Host Marriott,
beginning in 2001 to lease its hotels to a taxable REIT subsidiary. Host
Marriott may, at its discretion, elect to terminate the Company's leases,
beginning in 2001, and pay termination fees determined according to formulas
specified in the leases. If Host Marriott elects to terminate the full-service
hotel leases, it would have to terminate all of Crestline's full-service hotel
leases.
Future minimum annual rental commitments for all non-cancelable leases as of
December 31, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000............................................................... $161,094
2001............................................................... 158,406
2002............................................................... 156,630
2003............................................................... 156,630
2004............................................................... 141,614
Thereafter......................................................... 141,614
--------
Total minimum lease payments..................................... $915,988
========
Lease expense for 1999 consisted of the following (in thousands):
Base rent.......................................................... $167,996
Percentage rent.................................................... 108,062
--------
$276,058
========
</TABLE>
F-51
<PAGE>
CCHP I CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3. Working Capital Notes
Upon the commencement of the hotel leases, the Company purchased the working
capital of the leased hotels from Host Marriott for $26,832,000 with the
purchase price evidenced by notes that bear interest at 5.12%. Interest on each
note is due simultaneously with the rent payment of each hotel lease. The
principal amount of each note is due upon the termination of each hotel lease.
Upon termination of the hotel lease, the Company will sell Host Marriott the
existing working capital at its current value. To the extent the working
capital delivered to Host Marriott is less than the value of the note, the
Company will pay Host Marriott the difference in cash. However, to the extent
the working capital delivered to Host Marriott exceeds the value of the note,
Host Marriott will pay the Company the difference in cash. As of December 31,
1999, the outstanding balance of the working capital notes was $26,011,000.
Debt maturities at December 31, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000................................................................. $ 135
2001................................................................. 1,205
2002................................................................. --
2003................................................................. 3,005
2004................................................................. --
Thereafter........................................................... 21,666
-------
$26,011
=======
</TABLE>
Cash paid for interest expense in 1999 totaled $1,463,000.
Note 4. Management Agreements
All of the Company's hotels are operated by hotel management companies under
long-term hotel management agreements between Host Marriott and hotel
management companies.
Assignment of Management Agreements
The existing management agreements were assigned to the Tenant Subsidiaries
upon the execution of the hotel leases for the term of each corresponding hotel
lease. The Tenant Subsidiaries are obligated to perform all of the obligations
of Host Marriott under the hotel management agreements including payment of
fees due under the management agreements other than certain obligations
including payment of property taxes, property casualty insurance and ground
rent, maintaining a reserve fund for FF&E replacements and capital expenditures
for which Host Marriott retains responsibility.
Marriott International Management Agreements
Marriott International manages 28 of the 32 hotels under long-term
management agreements assigned to the Tenant Subsidiaries, generally for an
initial term of 15 to 20 years with renewal terms at the option of Marriott
International of up to an additional 16 to 30 years. The management agreements
generally provide for payment of base management fees equal to one to four
percent of revenues and incentive management fees generally equal to 20% to 50%
of Operating Profit (as defined in the management agreements) over a priority
return (as defined) to the Tenant Subsidiaries, with total incentive management
fees not to exceed 20% of cumulative Operating Profit, or 20% of current year
Operating Profit.
F-52
<PAGE>
CCHP I CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pursuant to the terms of the management agreements, Marriott International
is required to furnish the hotels with certain services ("Chain Services")
which are generally provided on a central or regional basis to all hotels in
the Marriott International hotel system. Chain Services include central
training, advertising and promotion, a national reservation system,
computerized payroll and accounting services, and such additional services as
needed which may be more efficiently performed on a centralized basis. Costs
and expenses incurred in providing such services are allocated among all
domestic hotels managed, owned or leased by Marriott International or its
subsidiaries. In addition, the Company's hotels also participate in the
Marriott Rewards program. The cost of this program is charged to all hotels in
the Marriott hotel system.
Other Hotel Management Agreements
The Company's remaining four hotels are managed by other hotel management
companies. One of the hotels is managed by Swissotel Management (USA) LLC, one
is managed by Four Seasons Hotel Limited, and the remaining two hotels are
managed by other independent hotel management companies under the "Marriott"
brand pursuant to franchise agreements. The managers of the hotels provide
similar services as Marriott International under its management agreements and
receive base management fees, generally calculated as a percentage of revenues,
and in most cases, incentive management fees, which are generally calculated as
a percentage of operating profits.
The Company has the option to terminate certain management agreements if
specified performance thresholds are not satisfied, with the consent of Host
Marriott under certain conditions. No agreement with respect to a single
lodging facility is cross-collateralized or cross-defaulted to any other
agreement and a single agreement may be canceled under certain conditions,
although such cancellation will not trigger the cancellation of any other
agreement.
Franchise Agreements
Two of the Company's hotels are managed under franchise agreements between
Host Marriott and Marriott International for terms ranging from 15 to 30 years.
In connection with the assignment of the corresponding management agreement,
the Tenant Subsidiaries assumed the franchise agreements for these hotels and
will be the franchisee for the term of the corresponding hotel lease. Pursuant
to the franchise agreements, the Tenant Subsidiaries generally pay a franchise
fee based on a percentage of room revenues and food and beverage revenues as
well as certain other fees for advertising and reservations. Franchise fees for
room revenues vary from four to six percent, while fees for food and beverage
revenues vary from two to three percent of revenues.
Note 5. Income Taxes
The Company is included in the consolidated Federal income tax return of
Crestline and its affiliates (the "Group"). Tax expense is allocated to the
Company as a member of the Group based upon the relative contribution to the
Group's consolidated taxable income/loss and changes in temporary differences.
This allocation method results in Federal and state tax expense allocated for
the period presented that is substantially equal to the expense that would have
been recognized if the Company had filed separate tax returns.
F-53
<PAGE>
CCHP I CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The provision for income taxes for 1999 consists of the following (in
thousands):
<TABLE>
<S> <C>
Current--Federal...................................................... $3,536
--State........................................................... 606
------
4,142
------
Deferred--Federal..................................................... 877
--State........................................................... 150
------
1,027
------
$5,169
======
</TABLE>
A reconciliation of the statutory Federal tax rate to the Company's
effective income tax rate for 1999 follows:
<TABLE>
<S> <C>
Statutory federal tax rate............................................. 35.0%
State income taxes, net of federal tax benefit......................... 6.0
----
41.0%
====
</TABLE>
As of December 31, 1999, the Company had no deferred tax assets. The tax
effect of the temporary difference that gives rise to the Company's deferred
tax liability is attributable to the hotel working capital.
Note 6. Sale of the Company's Lessee Entities (unaudited), Subsequent to Date
of Auditor's Report
On November 13, 2000, Crestline, the Company and other subsidiaries of
Crestline entered into an acquisition and exchange agreement with a subsidiary
of Host Marriott for the sale of Crestline's entities owning the lease rights
to Host Marriott's portfolio of full-service hotels, including the lessee
entities of the Company. The transaction will generally transfer ownership of
those lessee entities currently owned by Crestline, including the Company, to a
subsidiary of Host Marriott for a total consideration of $205 million, the
proceeds of which will be paid entirely in cash. The transaction is expected to
close at the beginning of 2001. In connection with the sale of its full-service
hotel lessee entities, Crestline's full-service hotel working capital and full-
service hotel working capital notes will be transferred to a subsidiary of Host
Marriott.
F-54
<PAGE>
CCHP II CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
With Independent Public Accountants' Report Thereon
F-55
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CCHP II Corporation:
We have audited the accompanying consolidated balance sheet of CCHP II
Corporation and its subsidiaries (a Maryland corporation) as of December 31,
1999, and the related consolidated statements of operations, shareholder's
equity and cash flows for the fiscal year ended December 31, 1999. These
consolidated financial statements are the responsibility of CCHP II
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CCHP II
Corporation and its subsidiaries as of December 31, 1999 and the results of
their operations and their cash flows for the fiscal year then ended in
conformity with accounting principles generally accepted in the United States.
Arthur Andersen LLP
Vienna, Virginia
February 24, 2000
F-56
<PAGE>
CCHP II CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As of December 31, 1999
(in thousands, except share data)
<TABLE>
<S> <C>
ASSETS
Current assets
Cash and cash equivalents............................................ $ 8,856
Due from hotel managers.............................................. 10,280
-------
19,136
Hotel working capital.................................................. 18,090
-------
$37,226
=======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Lease payable to Host Marriott....................................... $16,197
Other................................................................ 1,246
-------
17,443
Hotel working capital notes payable to Host Marriott................... 18,090
Deferred income taxes.................................................. 996
-------
Total liabilities.................................................. 36,529
Shareholder's equity
Common stock (100 shares issued at $1.00 par value).................... --
Retained earnings...................................................... 697
-------
Total shareholder's equity......................................... 697
-------
$37,226
=======
</TABLE>
See Notes to Consolidated Financial Statements.
F-57
<PAGE>
CCHP II CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Fiscal Year Ended December 31, 1999
(in thousands)
<TABLE>
<S> <C>
REVENUES
Rooms.............................................................. $ 646,624
Food and beverage.................................................. 306,320
Other.............................................................. 64,876
---------
Total revenues................................................... 1,017,820
---------
OPERATING COSTS AND EXPENSES
Property-level operating costs and expenses
Rooms.............................................................. 158,279
Food and beverage.................................................. 230,001
Other.............................................................. 231,668
Other operating costs and expenses
Lease expense to Host Marriott..................................... 312,112
Management fees.................................................... 66,672
---------
Total operating costs and expenses............................... 998,732
---------
OPERATING PROFIT BEFORE CORPORATE EXPENSES AND INTEREST.............. 19,088
Corporate expenses................................................... (1,499)
Interest expense..................................................... (928)
---------
INCOME BEFORE INCOME TAXES........................................... 16,661
Provision for income taxes........................................... (6,831)
---------
NET INCOME........................................................... $ 9,830
=========
</TABLE>
See Notes to Consolidated Financial Statements.
F-58
<PAGE>
CCHP II CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
Fiscal Year Ended December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Common Retained
Stock Earnings Total
------ -------- -------
<S> <C> <C> <C>
Balance, January 1, 1999.............................. $-- $ -- $ --
Dividend to Crestline Capital....................... -- (9,133) (9,133)
Net income.......................................... -- 9,830 9,830
---- ------- -------
Balance, December 31, 1999............................ $-- $ 697 $ 697
==== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-59
<PAGE>
CCHP II CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Fiscal Year Ended December 31, 1999
(in thousands)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income............................................................. $ 9,830
Change in amounts due from hotel managers.............................. (9,322)
Change in lease payable to Host Marriott............................... 16,197
Changes in other operating accounts.................................... 1,284
-------
Cash from operations................................................. 17,989
-------
INVESTING ACTIVITIES................................................... --
-------
FINANCING ACTIVITIES
Dividend to Crestline Capital.......................................... (9,133)
-------
Increase in cash and cash equivalents.................................. 8,856
Cash and cash equivalents, beginning of year........................... --
-------
Cash and cash equivalents, end of year................................. $ 8,856
=======
</TABLE>
See Notes to Consolidated Financial Statements.
F-60
<PAGE>
CCHP II CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Organization
CCHP II Corporation (the "Company") was incorporated in the state of
Delaware on November 23, 1998 as a wholly owned subsidiary of Crestline Capital
Corporation ("Crestline"). On December 29, 1998, Crestline became a publicly
traded company when Host Marriott Corporation ("Host Marriott") completed its
plan of reorganizing its business operations by spinning-off Crestline to the
shareholders of Host Marriott as part of a series of transactions pursuant to
which Host Marriott converted into a real estate investment trust ("REIT").
On December 31, 1998, wholly owned subsidiaries of the Company (the "Tenant
Subsidiaries") entered into lease agreements with Host Marriott to lease 28 of
Host Marriott's full-service hotels with the existing management agreements of
the leased hotels assigned to the Tenant Subsidiaries. As of December 31, 1999,
the Company leased 28 full-service hotels from Host Marriott.
The Company operates as a unit of Crestline, utilizing Crestline's
employees, insurance and administrative services since the Company does not
have any employees. Certain direct expenses are paid by Crestline and charged
directly or allocated to the Company. Certain general and administrative costs
of Crestline are allocated to the Company, using a variety of methods,
principally including Crestline's specific identification of individual costs
and otherwise through allocations based upon estimated levels of effort devoted
by general and administrative departments to the Company or relative measures
of the size of the Company based on revenues. In the opinion of management, the
methods for allocating general and administrative expenses and other direct
costs are reasonable.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany transactions and balances
between the Company and its subsidiaries have been eliminated.
Fiscal Year
The Company's fiscal year ends on the Friday nearest December 31.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at date of purchase as cash equivalents.
Revenues
The Company records the gross property-level revenues generated by the
hotels as revenues.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
F-61
<PAGE>
CCHP II CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 2. Leases
Hotel Leases
The Tenant Subsidiaries entered into leases with Host Marriott effective
January 1, 1999 for 28 full-service hotels. Each hotel lease has an initial
term of eight years. The hotel leases generally have four seven-year renewal
options at the option of the Company, however, Host Marriott may terminate any
unexercised renewal options. The Tenant Subsidiaries are required to pay the
greater of (i) a minimum rent specified in each hotel lease or (ii) a
percentage rent based upon a specified percentage of aggregate revenues from
the hotel, including room revenues, food and beverage revenues, and other
income, in excess of specified thresholds. The amount of minimum rent is
increased each year based upon 50% of the increase in CPI during the previous
twelve months. Percentage rent thresholds are increased each year based on a
blend of the increases in CPI and the Employment Cost Index during the previous
twelve months. The hotel leases generally provide for a rent adjustment in the
event of damage, destruction, partial taking or certain capital expenditures.
The rent during any renewal periods will be negotiated at fair market value at
the time the renewal option is exercised.
The Tenant Subsidiaries are responsible for paying all of the expenses of
operating the hotels, including all personnel costs, utility costs, and general
repair and maintenance of the hotels. In addition, the Tenant Subsidiaries are
responsible for all fees payable to the hotel manager, including base and
incentive management fees, chain services payments and franchise or system
fees. Host Marriott is responsible for real estate and personal property taxes,
property casualty insurance, equipment rent, ground lease rent, maintaining a
reserve fund for FF&E replacements and capital expenditures.
In the event that Host Marriott disposes of a hotel free and clear of the
hotel lease, Host Marriott would generally have to pay a termination fee equal
to the fair market value of the Company's leasehold interest in the remaining
term of the hotel lease using a discount rate of 12%. Alternatively, Host
Marriott would be entitled to (i) substitute a comparable hotel for any hotel
that is sold, with the terms agreed to by the Company, or (ii) sell the hotel
subject to the hotel lease, subject to the Company's approval under certain
circumstances, without having to pay a termination fee. In addition, Host
Marriott also has the right to terminate up to twelve of Crestline's leases
without having to pay a termination fee. During 1999, Host Marriott exercised
its right to terminate three of Crestline's hotel leases, however, none of
these were the Company's hotel leases. Conversely, Crestline may terminate up
to twelve full-service hotel leases without penalty upon 180 days notice to
Host Marriott. During 1999, Crestline exercised its right to terminate five of
its hotel leases, however, none of these were the Company's hotel leases.
As a result of the recent tax legislation discussed below, Host Marriott may
purchase all, but not less than all, of its hotel leases with Crestline
beginning January 1, 2001, with the purchase price calculated as discussed
above. The payment of the termination fee will be payable in cash or, subject
to certain conditions, shares of Host Marriott common stock at the election of
Host Marriott.
For those hotels where Marriott International is the manager, it has a
noneconomic membership interest with certain limited voting rights in the
Tenant Subsidiaries.
FF&E Leases
Prior to entering into the hotel leases, if the average tax basis of a
hotel's FF&E and other personal property exceeded 15% of the aggregate average
tax basis of the hotel's real and personal property (the "Excess FF&E"), the
Tenant Subsidiaries and affiliates of Host Marriott entered into lease
agreements (the "FF&E Leases") for the Excess FF&E. The terms of the FF&E
Leases generally range from two to three years and rent under the FF&E Leases
is a fixed amount. The Company will have the option at the expiration of the
F-62
<PAGE>
CCHP II CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
FF&E Lease term to either (i) renew the FF&E Leases for consecutive one-year
renewal terms at fair market rental rate, or (ii) purchase the Excess FF&E for
a price equal to its fair market value. If the Company does not exercise its
purchase or renewal option, the Company is required to pay a termination fee
equal to approximately one month's rent.
Guaranty and Pooling Agreement
In connection with entering into the hotel leases, the Company, Crestline
and Host Marriott, entered into a pool guarantee and a pooling and security
agreement by which the Company provides a full guarantee and Crestline provides
a limited guarantee of all of the hotel lease obligations.
The cumulative limit of Crestline's guarantee obligation is the greater of
ten percent of the aggregate rent payable for the immediately preceding fiscal
year under all of the Company's hotel leases or ten percent of the aggregate
rent payable under all of the Company's hotel leases for 1999. In the event
that Crestline's obligation under the pooling and guarantee agreement is
reduced to zero, the Company can terminate the agreement and Host Marriott can
terminate the Company's hotel leases without penalty.
All of the Company's leases are cross-defaulted and the Company's
obligations under the guaranty are secured by all the funds received from its
Tenant Subsidiaries.
Recent Tax Legislation
On December 17, 1999 President Clinton signed the Work Incentives
Improvement Act of 1999. Included in this legislation are provisions that,
effective January 1, 2001, will allow a REIT to lease hotels to a "taxable REIT
subsidiary" if the hotel is operated and managed on behalf of such subsidiary
by an independent third party. A taxable REIT subsidiary is a corporation that
is owned more than 35 percent by a REIT. This law will enable Host Marriott,
beginning in 2001 to lease its hotels to a taxable REIT subsidiary. Host
Marriott may, at its discretion, elect to terminate the Company's leases,
beginning in 2001, and pay termination fees determined according to formulas
specified in the leases. If Host Marriott elects to terminate the full-service
hotel leases, it would have to terminate all of Crestline's full-service hotel
leases.
Future minimum annual rental commitments for all non-cancelable leases as of
December 31, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000............................................................ $ 174,747
2001............................................................ 174,747
2002............................................................ 174,747
2003............................................................ 174,747
2004............................................................ 174,747
Thereafter...................................................... 349,493
----------
Total minimum lease payments.................................. $1,223,228
==========
Lease expense for 1999 consisted of the following (in
thousands):
Base rent....................................................... $ 167,755
Percentage rent................................................. 144,357
----------
$ 312,112
==========
</TABLE>
F-63
<PAGE>
CCHP II CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3. Working Capital Notes
Upon the commencement of the hotel leases, the Company purchased the working
capital of the leased hotels from Host Marriott for $18,090,000 with the
purchase price evidenced by notes that bear interest at 5.12%. Interest on each
note is due simultaneously with the rent payment of each hotel lease. The
principal amount of each note is due upon the termination of each hotel lease.
Upon termination of the hotel lease, the Company will sell Host Marriott the
existing working capital at its current value. To the extent the working
capital delivered to Host Marriott is less than the value of the note, the
Company will pay Host Marriott the difference in cash. However, to the extent
the working capital delivered to Host Marriott exceeds the value of the note,
Host Marriott will pay the Company the difference in cash. As of December 31,
1999, the outstanding balance of the working capital notes was $18,090,000.
Debt maturities at December 31, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000............................................................... $ --
2001............................................................... --
2002............................................................... --
2003............................................................... --
2004............................................................... --
Thereafter......................................................... 18,090
-------
$18,090
=======
</TABLE>
Cash paid for interest expense in 1999 totaled $856,000.
Note 4. Management Agreements
All of the Company's hotels are operated by hotel management companies under
long-term hotel management agreements between Host Marriott and hotel
management companies.
Assignment of Management Agreements
The existing management agreements were assigned to the Tenant Subsidiaries
upon the execution of the hotel leases for the term of each corresponding hotel
lease. The Tenant Subsidiaries are obligated to perform all of the obligations
of Host Marriott under the hotel management agreements including payment of
fees due under the management agreements other than certain obligations
including payment of property taxes, property casualty insurance and ground
rent, maintaining a reserve fund for FF&E replacements and capital expenditures
for which Host Marriott retains responsibility.
Marriott International Management Agreements
Marriott International manages 20 of the 28 hotels under long-term
management agreements assigned to the Tenant Subsidiaries, generally for an
initial term of 15 to 20 years with renewal terms at the option of Marriott
International of up to an additional 16 to 30 years. The management agreements
generally provide for payment of base management fees equal to one to four
percent of revenues and incentive management fees generally equal to 20% to 50%
of Operating Profit (as defined in the management agreements) over a priority
return (as defined) to the Tenant Subsidiaries, with total incentive management
fees not to exceed 20% of cumulative Operating Profit, or 20% of current year
Operating Profit.
Pursuant to the terms of the management agreements, Marriott International
is required to furnish the hotels with certain services ("Chain Services")
which are generally provided on a central or regional basis to
F-64
<PAGE>
CCHP II CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
all hotels in the Marriott International hotel system. Chain Services include
central training, advertising and promotion, a national reservation system,
computerized payroll and accounting services, and such additional services as
needed which may be more efficiently performed on a centralized basis. Costs
and expenses incurred in providing such services are allocated among all
domestic hotels managed, owned or leased by Marriott International or its
subsidiaries. In addition, the Company's hotels also participate in the
Marriott Rewards program. The cost of this program is charged to all hotels in
the Marriott hotel system.
Ritz-Carlton Hotel Management Agreements
The Ritz-Carlton Hotel Company, LLC ("Ritz-Carlton"), an affiliate of
Marriott International, manages three of the leased hotels under long-term
Hotel Management Agreements assigned to the Tenant Subsidiaries. These
agreements have an initial term of 15 to 25 years with renewal terms at the
option of Ritz-Carlton of up to an additional 10 to 40 years. Base management
fees vary from two to four percent of revenues and incentive management fees
are generally equal to 20% of available cash flow or operating profit, up to a
maximum of 2.1% of revenues, as defined in the agreements.
Other Hotel Management Agreements
The Company's remaining five hotels are managed by other hotel management
companies. One of the hotels is managed by the Hyatt Corporation and the
remaining four hotels are managed by other independent hotel management
companies under other brands pursuant to franchise agreements. The managers of
the hotels provide similar services as Marriott International under its
management agreements and receive base management fees, generally calculated as
a percentage of revenues, and in most cases, incentive management fees, which
are generally calculated as a percentage of operating profits.
The Company has the option to terminate certain management agreements if
specified performance thresholds are not satisfied, with the consent of Host
Marriott under certain conditions. No agreement with respect to a single
lodging facility is cross-collateralized or cross-defaulted to any other
agreement and a single agreement may be canceled under certain conditions,
although such cancellation will not trigger the cancellation of any other
agreement.
Franchise Agreements
Four of the Company's hotels are managed under franchise agreements between
Host Marriott and other hotel companies for terms ranging from 15 to 30 years.
In connection with the assignment of the corresponding management agreement,
the Tenant Subsidiaries assumed the franchise agreements for these hotels and
will be the franchisee for the term of the corresponding hotel lease. Pursuant
to the franchise agreements, the Tenant Subsidiaries generally pay a franchise
fee based on a percentage of room revenues and food and beverage revenues as
well as certain other fees for advertising and reservations. Franchise fees for
room revenues vary from four to six percent, while fees for food and beverage
revenues vary from two to three percent of revenues.
Note 5. Income Taxes
The Company is included in the consolidated Federal income tax return of
Crestline and its affiliates (the "Group"). Tax expense is allocated to the
Company as a member of the Group based upon the relative contribution to the
Group's consolidated taxable income/loss and changes in temporary differences.
This allocation method results in Federal and net state tax expense allocated
for the period presented that is substantially equal to the expense that would
have been recognized if the Company had filed separate tax returns.
F-65
<PAGE>
CCHP II CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The provision for income taxes for 1999 consists of the following (in
thousands):
<TABLE>
<S> <C>
Current--Federal..................................................... $4,981
--State.......................................................... 854
------
5,835
------
Deferred--Federal.................................................... 850
--State.......................................................... 146
------
996
------
$6,831
======
</TABLE>
A reconciliation of the statutory Federal tax rate to the Company's
effective income tax rate for 1999 follows:
<TABLE>
<S> <C>
Statutory federal tax rate............................................. 35.0%
State income taxes, net of federal tax benefit......................... 6.0
----
41.0%
====
</TABLE>
As of December 31, 1999, the Company had no deferred tax assets. The tax
effect of the temporary differences that gives rise to the Company's federal
deferred tax liability is attributable to the hotel working capital.
Note 6. Sale of the Company's Lessee Entities (unaudited), Subsequent to Date
of Auditor's Report
On November 13, 2000, Crestline, the Company and other subsidiaries of
Crestline entered into an acquisition and exchange agreement with a subsidiary
of Host Marriott for the sale of Crestline's entities owning the lease rights
to Host Marriott's portfolio of full-service hotels, including the lessee
entities of the Company. The transaction will generally transfer ownership of
those lessee entities currently owned by Crestline, including the Company, to a
subsidiary of Host Marriott for a total consideration of $205 million, the
proceeds of which will be paid entirely in cash. The transaction is expected to
close at the beginning of 2001. In connection with the sale of its full-service
hotel lessee entities, Crestline's full-service hotel working capital and full-
service hotel working capital notes will be transferred to a subsidiary of Host
Marriott.
F-66
<PAGE>
CCHP III CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
With Independent Public Accountants' Report Thereon
F-67
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CCHP III Corporation:
We have audited the accompanying consolidated balance sheet of CCHP III
Corporation and its subsidiaries (a Maryland corporation) as of December 31,
1999, and the related consolidated statements of operations, shareholder's
equity and cash flows for the fiscal year ended December 31, 1999. These
consolidated financial statements are the responsibility of CCHP III
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CCHP III
Corporation and its subsidiaries as of December 31, 1999 and the results of
their operations and their cash flows for the fiscal year then ended in
conformity with accounting principles generally accepted in the United States.
Arthur Andersen LLP
Vienna, Virginia
February 24, 2000
F-68
<PAGE>
CCHP III CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As of December 31, 1999
(in thousands, except share data)
<TABLE>
<S> <C>
ASSETS
Current assets
Cash and cash equivalents............................................ $ 6,638
Due from hotel managers.............................................. 8,214
Restricted cash...................................................... 4,519
-------
19,371
Hotel working capital.................................................. 21,697
-------
$41,068
=======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Lease payable to Host Marriott....................................... $13,706
Other................................................................ 4,139
-------
17,845
Hotel working capital notes payable to Host Marriott................... 21,697
Deferred income taxes.................................................. 342
-------
Total liabilities.................................................. 39,884
-------
Shareholder's equity
Common stock (100 shares issued at $1.00 par value).................. --
Retained earnings.................................................... 1,184
-------
Total shareholder's equity......................................... 1,184
-------
$41,068
=======
</TABLE>
See Notes to Consolidated Financial Statements.
F-69
<PAGE>
CCHP III CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Fiscal Year Ended December 31, 1999
(in thousands)
<TABLE>
<S> <C>
REVENUES
Rooms............................................................... $570,611
Food and beverage................................................... 274,233
Other............................................................... 80,149
--------
Total revenues.................................................... 924,993
--------
OPERATING COSTS AND EXPENSES
Property-level operating costs and expenses
Rooms............................................................... 137,338
Food and beverage................................................... 202,181
Other............................................................... 236,721
Other operating costs and expenses
Lease expense to Host Marriott...................................... 295,563
Management fees..................................................... 41,893
--------
Total operating costs and expenses................................ 913,696
--------
OPERATING PROFIT BEFORE CORPORATE EXPENSES AND INTEREST............... 11,297
Corporate expenses.................................................... (1,357)
Interest expense...................................................... (1,129)
--------
INCOME BEFORE INCOME TAXES............................................ 8,811
Provision for income taxes............................................ (3,612)
--------
NET INCOME............................................................ $ 5,199
========
</TABLE>
See Notes to Consolidated Financial Statements.
F-70
<PAGE>
CCHP III CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
Fiscal Year Ended December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Common Retained
Stock Earnings Total
------ -------- -------
<S> <C> <C> <C>
Balance, January 1, 1999.............................. $-- $ -- $ --
Dividend to Crestline Capital....................... -- (4,015) (4,015)
Net income.......................................... -- 5,199 5,199
---- ------- -------
Balance, December 31, 1999............................ $-- $ 1,184 $ 1,184
==== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-71
<PAGE>
CCHP III CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Fiscal Year Ended December 31, 1999
(in thousands)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income.............................................................. $5,199
Change in amounts due from hotel managers............................... (4,084)
Change in lease payable to Host Marriott................................ 13,706
Changes in other operating accounts..................................... (4,168)
------
Cash from operations.................................................. 10,653
INVESTING ACTIVITIES.................................................... --
------
FINANCING ACTIVITIES
Dividend to Crestline Capital........................................... (4,015)
------
Increase in cash and cash equivalents................................... 6,638
Cash and cash equivalents, beginning of year............................ --
------
Cash and cash equivalents, end of year.................................. $6,638
======
</TABLE>
See Notes to Consolidated Financial Statements.
F-72
<PAGE>
CCHP III CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Organization
CCHP III Corporation (the "Company") was incorporated in the state of
Delaware on November 23, 1998 as a wholly owned subsidiary of Crestline Capital
Corporation ("Crestline"). On December 29, 1998, Crestline became a publicly
traded company when Host Marriott Corporation ("Host Marriott") completed its
plan of reorganizing its business operations by spinning-off Crestline to the
shareholders of Host Marriott as part of a series of transactions pursuant to
which Host Marriott converted into a real estate investment trust ("REIT").
On December 31, 1998, wholly owned subsidiaries of the Company (the "Tenant
Subsidiaries") entered into lease agreements with Host Marriott to lease 31 of
Host Marriott's full-service hotels with the existing management agreements of
the leased hotels assigned to the Tenant Subsidiaries. During 1999, Host
Marriott sold two of the hotels and terminated the leases on those hotels. As
of December 31, 1999, the Company leased 29 full-service hotels from Host
Marriott.
The Company operates as a unit of Crestline, utilizing Crestline's
employees, insurance and administrative services since the Company does not
have any employees. Certain direct expenses are paid by Crestline and charged
directly or allocated to the Company. Certain general and administrative costs
of Crestline are allocated to the Company, using a variety of methods,
principally including Crestline's specific identification of individual costs
and otherwise through allocations based upon estimated levels of effort devoted
by general and administrative departments to the Company or relative measures
of the size of the Company based on revenues. In the opinion of management, the
methods for allocating general and administrative expenses and other direct
costs are reasonable.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany transactions and balances
between the Company and its subsidiaries have been eliminated.
Fiscal Year
The Company's fiscal year ends on the Friday nearest December 31.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at date of purchase as cash equivalents.
Restricted Cash
In connection with the lender requirements of one of the leased hotels, the
Company is required to maintain a separate account with the lender on behalf of
the Company for the operating profit and incentive management fees of the
hotel. Following the annual audit, amounts will be distributed to the hotel's
manager and to the Company, in accordance with the loan agreement.
Revenues
The Company records the gross property-level revenues generated by the
hotels as revenues.
F-73
<PAGE>
CCHP III CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
Note 2. Leases
Hotel Leases
The Tenant Subsidiaries entered into leases with Host Marriott effective
January 1, 1999 for 31 full-service hotels. Each hotel lease has an initial
term of nine years. The hotel leases generally have four seven-year renewal
options at the option of the Company, however, Host Marriott may terminate any
unexercised renewal options. The Tenant Subsidiaries are required to pay the
greater of (i) a minimum rent specified in each hotel lease or (ii) a
percentage rent based upon a specified percentage of aggregate revenues from
the hotel, including room revenues, food and beverage revenues, and other
income, in excess of specified thresholds. The amount of minimum rent is
increased each year based upon 50% of the increase in CPI during the previous
twelve months. Percentage rent thresholds are increased each year based on a
blend of the increases in CPI and the Employment Cost Index during the previous
twelve months. The hotel leases generally provide for a rent adjustment in the
event of damage, destruction, partial taking or certain capital expenditures.
The rent during any renewal periods will be negotiated at fair market value at
the time the renewal option is exercised.
The Tenant Subsidiaries are responsible for paying all of the expenses of
operating the hotels, including all personnel costs, utility costs, and general
repair and maintenance of the hotels. In addition, the Tenant Subsidiaries are
responsible for all fees payable to the hotel manager, including base and
incentive management fees, chain services payments and franchise or system
fees. Host Marriott is responsible for real estate and personal property taxes,
property casualty insurance, equipment rent, ground lease rent, maintaining a
reserve fund for FF&E replacements and capital expenditures.
In the event that Host Marriott disposes of a hotel free and clear of the
hotel lease, Host Marriott would generally have to pay a termination fee equal
to the fair market value of the Company's leasehold interest in the remaining
term of the hotel lease using a discount rate of 12%. Alternatively, Host
Marriott would be entitled to (i) substitute a comparable hotel for any hotel
that is sold, with the terms agreed to by the Company, or (ii) sell the hotel
subject to the hotel lease, subject to the Company's approval under certain
circumstances, without having to pay a termination fee. In addition, Host
Marriott also has the right to terminate up to twelve of Crestline's leases
without having to pay a termination fee. During 1999, Host Marriott exercised
its right to terminate three of Crestline's hotel leases, however, none of
these were the Company's hotel leases. Conversely, Crestline may terminate up
to twelve full-service hotel leases without penalty upon 180 days notice to
Host Marriott. During 1999, Crestline exercised its right to terminate three of
the Company's hotel leases, as well as two additional Crestline hotel leases.
These hotel leases will terminate in 2000, 180 days after each respective
notification date. In 1999, Host Marriott terminated two of the Company's hotel
leases with no termination fee as stipulated in those specific lease
agreements.
As a result of the recent tax legislation discussed below, Host Marriott may
purchase all, but not less than all, of its hotel leases with Crestline
beginning January 1, 2001 with the purchase price calculated as discussed
above. The payment of the termination fee will be payable in cash or, subject
to certain conditions, shares of Host Marriott common stock at the election of
Host Marriott.
F-74
<PAGE>
CCHP III CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For those hotels where Marriott International is the manager, it has a
noneconomic membership interest with certain limited voting rights in the
Tenant Subsidiaries.
FF&E Leases
Prior to entering into the hotel leases, if the average tax basis of a
hotel's FF&E and other personal property exceeded 15% of the aggregate average
tax basis of the hotel's real and personal property (the "Excess FF&E"), the
Tenant Subsidiaries and affiliates of Host Marriott entered into lease
agreements (the "FF&E Leases") for the Excess FF&E. The terms of the FF&E
Leases generally range from two to three years and rent under the FF&E Leases
is a fixed amount. The Company will have the option at the expiration of the
FF&E Lease term to either (i) renew the FF&E Leases for consecutive one-year
renewal terms at fair market rental rate, or (ii) purchase the Excess FF&E for
a price equal to its fair market value. If the Company does not exercise its
purchase or renewal option, the Company is required to pay a termination fee
equal to approximately one month's rent.
Guaranty and Pooling Agreement
In connection with entering into the hotel leases, the Company, Crestline
and Host Marriott, entered into a pool guarantee and a pooling and security
agreement by which the Company provides a full guarantee and Crestline provides
a limited guarantee of all of the hotel lease obligations.
The cumulative limit of Crestline's guarantee obligation is the greater of
ten percent of the aggregate rent payable for the immediately preceding fiscal
year under all of the Company's hotel leases or ten percent of the aggregate
rent payable under all of the Company's hotel leases for 1999. In the event
that Crestline's obligation under the pooling and guarantee agreement is
reduced to zero, the Company can terminate the agreement and Host Marriott can
terminate the Company's hotel leases without penalty.
All of the Company's leases are cross-defaulted and the Company's
obligations under the guaranty are secured by all the funds received from its
Tenant Subsidiaries.
Recent Tax Legislation
On December 17, 1999 President Clinton signed the Work Incentives
Improvement Act of 1999. Included in this legislation are provisions that,
effect January 1, 2001, will allow a REIT to lease hotels to a "taxable REIT
subsidiary" if the hotel is operated and managed on behalf of such subsidiary
by an independent third party. A taxable REIT subsidiary is a corporation that
is owned more than 35 percent by a REIT. This law will enable Host Marriott,
beginning in 2001 to lease its hotels to a taxable REIT subsidiary. Host
Marriott may, at its discretion, elect to terminate the Company's leases,
beginning in 2001, and pay termination fees determined according to formulas
specified in the leases. If Host Marriott elects to terminate the full-service
hotel leases, it would have to terminate all of Crestline's full-service hotel
leases.
F-75
<PAGE>
CCHP III CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum annual rental commitments for all non-cancelable leases as of
December 31, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000............................................................ $ 162,014
2001............................................................ 155,465
2002............................................................ 155,465
2003............................................................ 155,465
2004............................................................ 155,465
Thereafter...................................................... 466,395
----------
Total minimum lease payments.................................. $1,250,269
==========
Lease expense for 1999 consisted of the following (in
thousands):
Base rent....................................................... $ 168,910
Percentage rent................................................. 126,653
----------
$ 295,563
==========
</TABLE>
Note 3. Working Capital Notes
Upon the commencement of the hotel leases, the Company purchased the working
capital of the leased hotels from Host Marriott for $22,046,000 with the
purchase price evidenced by notes that bear interest at 5.12%. Interest on each
note is due simultaneously with the rent payment of each hotel lease. The
principal amount of each note is due upon the termination of each hotel lease.
Upon termination of the hotel lease, the Company will sell Host Marriott the
existing working capital at its current value. To the extent the working
capital delivered to Host Marriott is less than the value of the note, the
Company will pay Host Marriott the difference in cash. However, to the extent
the working capital delivered to Host Marriott exceeds the value of the note,
Host Marriott will pay the Company the difference in cash. As of December 31,
1999, the outstanding balance of the working capital notes was $21,697,000.
Debt maturities at December 31, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000................................................................. $ --
2001................................................................. --
2002................................................................. --
2003................................................................. --
2004................................................................. --
Thereafter........................................................... 21,697
-------
$21,697
=======
</TABLE>
Cash paid for interest expense in 1999 totaled $1,042,000.
Note 4. Management Agreements
All of the Company's hotels are operated by hotel management companies under
long-term hotel management agreements between Host Marriott and hotel
management companies.
Assignment of Management Agreements
The existing management agreements were assigned to the Tenant Subsidiaries
upon the execution of the hotel leases for the term of each corresponding hotel
lease. The Tenant Subsidiaries are obligated to perform all of the obligations
of Host Marriott under the hotel management agreements including payment of
fees due under the management agreements other than certain obligations
including payment of property taxes, property
F-76
<PAGE>
CCHP III CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
casualty insurance and ground rent, maintaining a reserve fund for FF&E
replacements and capital expenditures for which Host Marriott retains
responsibility.
Marriott International Management Agreements
Marriott International manages 18 of the 29 hotels under long-term
management agreements assigned to the Tenant Subsidiaries, generally for an
initial term of 15 to 20 years with renewal terms at the option of Marriott
International of up to an additional 16 to 30 years. The management agreements
generally provide for payment of base management fees equal to one to four
percent of revenues and incentive management fees generally equal to 20% to 50%
of Operating Profit (as defined in the management agreements) over a priority
return (as defined) to the Tenant Subsidiaries, with total incentive management
fees not to exceed 20% of cumulative Operating Profit, or 20% of current year
Operating Profit.
Pursuant to the terms of the management agreements, Marriott International
is required to furnish the hotels with certain services ("Chain Services")
which are generally provided on a central or regional basis to all hotels in
the Marriott International hotel system. Chain Services include central
training, advertising and promotion, a national reservation system,
computerized payroll and accounting services, and such additional services as
needed which may be more efficiently performed on a centralized basis. Costs
and expenses incurred in providing such services are allocated among all
domestic hotels managed, owned or leased by Marriott International or its
subsidiaries. In addition, the Company's hotels also participate in the
Marriott Rewards program. The cost of this program is charged to all hotels in
the Marriott hotel system.
Ritz-Carlton Hotel Management Agreements
The Ritz-Carlton Hotel Company, LLC ("Ritz-Carlton"), an affiliate of
Marriott International, manages three of the leased hotels under long-term
Hotel Management Agreements assigned to the Company. These agreements have an
initial term of 15 to 25 years with renewal terms at the option of Ritz-Carlton
of up to an additional 10 to 40 years. Base Management fees vary from two to
four percent of revenues and incentive management fees are generally equal to
20% of available cash flow or operating profit, up to a maximum of 2.1% of
revenues, as defined in the agreements.
Other Hotel Management Agreements
The Company's remaining eight hotels are managed by other hotel management
companies. Two of the hotels are managed by Swissotel Management (USA) LLC, one
is managed by the Hyatt Corporation, and the remaining five hotels are managed
by other independent hotel management companies under the "Marriott" brand
pursuant to franchise agreements. The managers of the hotels provide similar
services as Marriott International under its management agreements and receive
base management fees, generally calculated as a percentage of revenues, and in
most cases, incentive management fees, which are generally calculated as a
percentage of operating profits.
The Company has the option to terminate certain management agreements if
specified performance thresholds are not satisfied, with the consent of Host
Marriott under certain conditions. No agreement with respect to a single
lodging facility is cross-collateralized or cross-defaulted to any other
agreement and a single agreement may be canceled under certain conditions,
although such cancellation will not trigger the cancellation of any other
agreement.
Franchise Agreements
Five of the Company's hotels are managed under franchise agreements between
Host Marriott and Marriott International for terms ranging from 15 to 30 years.
In connection with the assignment of the
F-77
<PAGE>
CCHP III CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
corresponding management agreement, the Tenant Subsidiaries assumed the
franchise agreements for these hotels and will be the franchisee for the term
of the corresponding hotel lease. Pursuant to the franchise agreements, the
Tenant Subsidiaries generally pay a franchise fee based on a percentage of room
revenues and food and beverage revenues as well as certain other fees for
advertising and reservations. Franchise fees for room revenues vary from four
to six percent, while fees for food and beverage revenues vary from two to
three percent of revenues.
Note 5. Income Taxes
The Company is included in the consolidated Federal income tax return of
Crestline and its affiliates (the "Group"). Tax expense is allocated to the
Company as a member of the Group based upon the relative contribution to the
Group's consolidated taxable income/loss and changes in temporary differences.
This allocation method results in Federal and net state tax expense allocated
for the period presented that is substantially equal to the expense that would
have been recognized if the Company had filed separate tax returns.
The provision for income taxes for 1999 consists of the following (in
thousands):
<TABLE>
<S> <C>
Current--Federal..................................................... $2,792
--State.......................................................... 478
------
3,270
------
Deferred--Federal.................................................... 292
--State.......................................................... 50
------
342
------
$3,612
======
</TABLE>
A reconciliation of the statutory Federal tax rate to the Company's
effective income tax rate for 1999 follows:
<TABLE>
<S> <C>
Statutory federal tax rate............................................. 35.0%
State income taxes, net of federal tax benefit......................... 6.0
----
41.0%
====
</TABLE>
As of December 31, 1999, the Company had no deferred tax assets. The tax
effect of the temporary differences that gives rise to the Company's deferred
tax liability is attributable to the hotel working capital.
Note 6. Sale of the Company's Lessee Entities (unaudited), Subsequent to Date
of Auditor's Report
On November 13, 2000, Crestline, the Company and other subsidiaries of
Crestline entered into an acquisition and exchange agreement with a subsidiary
of Host Marriott for the sale of Crestline's entities owning the lease rights
to Host Marriott's portfolio of full-service hotels, including the lessee
entities of the Company. The transaction will generally transfer ownership of
those lessee entities currently owned by Crestline, including the Company, to a
subsidiary of Host Marriott for a total consideration of $205 million, the
proceeds of which will be paid entirely in cash. The transaction is expected to
close at the beginning of 2001. In connection with the sale of its full-service
hotel lessee entities, Crestline's full-service hotel working capital and full-
service hotel working capital notes will be transferred to a subsidiary of Host
Marriott.
F-78
<PAGE>
CCHP IV CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
With Independent Public Accountants' Report Thereon
F-79
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CCHP IV Corporation:
We have audited the accompanying consolidated balance sheet of CCHP IV
Corporation and its subsidiaries (a Maryland corporation) as of December 31,
1999, and the related consolidated statements of operations, shareholder's
equity and cash flows for the fiscal year ended December 31, 1999. These
consolidated financial statements are the responsibility of CCHP IV
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CCHP IV
Corporation and its subsidiaries as of December 31, 1999 and the results of
their operations and their cash flows for the fiscal year then ended in
conformity with accounting principles generally accepted in the United States.
Arthur Andersen LLP
Vienna, Virginia
February 24, 2000
F-80
<PAGE>
CCHP IV CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As Of December 31, 1999
(in thousands, except share data)
<TABLE>
<S> <C>
ASSETS
Current assets
Cash and cash equivalents............................................ $ 3,487
Due from hotel managers.............................................. 14,571
Due from Crestline Capital........................................... 3,487
-------
21,545
Hotel working capital.................................................. 16,522
-------
$38,067
=======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Lease payable to Host Marriott....................................... $20,348
Other................................................................ 456
-------
20,804
Hotel working capital notes payable to Host Marriott................... 16,522
Deferred income taxes.................................................. 741
-------
Total liabilities.................................................. 38,067
-------
Shareholder's equity
Common stock (100 shares issued at $1.00 par value).................. --
Retained earnings.................................................... --
Total shareholder's equity......................................... --
-------
$38,067
=======
</TABLE>
See Notes to Consolidated Financial Statements.
F-81
<PAGE>
CCHP IV CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Fiscal Year Ended December 31, 1999
(in thousands)
<TABLE>
<S> <C>
REVENUES
Rooms............................................................... $578,321
Food and beverage................................................... 333,120
Other............................................................... 77,368
--------
Total revenues.................................................... 988,809
--------
OPERATING COSTS AND EXPENSES
Property-level operating costs and expenses
Rooms............................................................... 129,051
Food and beverage................................................... 234,310
Other............................................................... 231,547
Other operating costs and expenses
Lease expense to Host Marriott...................................... 316,654
Management fees..................................................... 66,514
--------
Total operating costs and expenses................................ 978,076
--------
OPERATING PROFIT BEFORE CORPORATE EXPENSES AND INTEREST............... 10,733
Corporate expenses.................................................... (1,449)
Interest expense...................................................... (846)
Interest income....................................................... 16
--------
INCOME BEFORE INCOME TAXES............................................ 8,454
Provision for income taxes............................................ (3,466)
--------
NET INCOME............................................................ $ 4,988
========
</TABLE>
See Notes to Consolidated Financial Statements.
F-82
<PAGE>
CCHP IV CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
Fiscal Year Ended December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Common Retained
Stock Earnings Total
------ -------- ------
<S> <C> <C> <C>
Balance, January 1, 1999................................ $-- $ -- $ --
Dividend to Crestline Capital......................... -- (4,988) (4,988)
Net income............................................ -- 4,988 4,988
---- ------ ------
Balance, December 31, 1999.............................. $-- $ -- $ --
==== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
F-83
<PAGE>
CCHP IV CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Fiscal Year Ended December 31, 1999
(in thousands)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income............................................................. $ 4,988
Change in amounts due from hotel managers.............................. (14,124)
Change in lease payable to Host Marriott............................... 20,348
Changes in other operating accounts.................................... 750
-------
Cash from operations................................................. 11,962
-------
INVESTING ACTIVITIES................................................... --
-------
FINANCING ACTIVITIES
Amounts advanced to Crestline Capital.................................. (3,487)
Dividend to Crestline Capital.......................................... (4,988)
-------
Cash used in financing activities.................................... (8,475)
-------
Increase in cash and cash equivalents.................................. 3,487
Cash and cash equivalents, beginning of year........................... --
-------
Cash and cash equivalents, end of year................................. $ 3,487
=======
</TABLE>
See Notes to Consolidated Financial Statements.
F-84
<PAGE>
CCHP IV CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Organization
CCHP IV Corporation (the "Company") was incorporated in the state of
Delaware on November 23, 1998 as a wholly owned subsidiary of Crestline Capital
Corporation ("Crestline"). On December 29, 1998, Crestline became a publicly
traded company when Host Marriott Corporation ("Host Marriott") completed its
plan of reorganizing its business operations by spinning-off Crestline to the
shareholders of Host Marriott as part of a series of transactions pursuant to
which Host Marriott converted into a real estate investment trust ("REIT").
On December 31, 1998, wholly owned subsidiaries of the Company (the "Tenant
Subsidiaries") entered into lease agreements with Host Marriott to lease 27 of
Host Marriott's full-service hotels with the existing management agreements of
the leased hotels assigned to the Tenant Subsidiaries. As of December 31, 1999,
the Company leased 27 full-service hotels from Host Marriott.
The Company operates as a unit of Crestline, utilizing Crestline's
employees, insurance and administrative services since the Company does not
have any employees. Certain direct expenses are paid by Crestline and charged
directly or allocated to the Company. Certain general and administrative costs
of Crestline are allocated to the Company, using a variety of methods,
principally including Crestline's specific identification of individual costs
and otherwise through allocations based upon estimated levels of effort devoted
by general and administrative departments to the Company or relative measures
of the size of the Company based on revenues. In the opinion of management, the
methods for allocating general and administrative expenses and other direct
costs are reasonable.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany transactions and balances
between the Company and its subsidiaries have been eliminated.
Fiscal Year
The Company's fiscal year ends on the Friday nearest December 31.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at date of purchase as cash equivalents.
Revenues
The Company records the gross property-level revenues generated by the
hotels as revenues.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
F-85
<PAGE>
CCHP IV CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 2. Leases
Hotel Leases
The Tenant Subsidiaries entered into leases with Host Marriott effective
January 1, 1999 for 27 full-service hotels. Each hotel lease has an initial
term of ten years. The hotel leases generally have four seven-year renewal
options at the option of the Company, however, Host Marriott may terminate any
unexercised renewal options. The Tenant Subsidiaries are required to pay the
greater of (i) a minimum rent specified in each hotel lease or (ii) a
percentage rent based upon a specified percentage of aggregate revenues from
the hotel, including room revenues, food and beverage revenues, and other
income, in excess of specified thresholds. The amount of minimum rent is
increased each year based upon 50% of the increase in CPI during the previous
twelve months. Percentage rent thresholds are increased each year based on a
blend of the increases in CPI and the Employment Cost Index during the previous
twelve months. The hotel leases generally provide for a rent adjustment in the
event of damage, destruction, partial taking or certain capital expenditures.
The rent during any renewal periods will be negotiated at fair market value at
the time this renewal option is exercised.
The Tenant Subsidiaries are responsible for paying all of the expenses of
operating the hotels, including all personnel costs, utility costs, and general
repair and maintenance of the hotels. In addition, the Tenant Subsidiaries are
responsible for all fees payable to the hotel manager, including base and
incentive management fees, chain services payments and franchise or system
fees. Host Marriott is responsible for real estate and personal property taxes,
property casualty insurance, equipment rent, ground lease rent, maintaining a
reserve fund for FF&E replacements and capital expenditures.
In the event that Host Marriott disposes of a hotel free and clear of the
hotel lease, Host Marriott would generally have to pay a termination fee equal
to the fair market value of the Company's leasehold interest in the remaining
term of the hotel lease using a discount rate of 12%. Alternatively, Host
Marriott would be entitled to (i) substitute a comparable hotel for any hotel
that is sold, with the terms agreed to by the Company, or (ii) sell the hotel
subject to the hotel lease, subject to the Company's approval under certain
circumstances, without having to pay a termination fee. In addition, Host
Marriott also has the right to terminate up to twelve of Crestline's leases
without having to pay a termination fee. During 1999, Host Marriott exercised
its right to terminate three of Crestline's hotel leases, however, none of
these were the Company's hotel leases. Conversely, Crestline may terminate up
to twelve full-service hotel leases without penalty upon 180 days notice to
Host Marriott. During 1999, Crestline exercised its right to terminate five of
its hotel leases, however, none of these were the Company's hotel leases.
As a result of the recent tax legislation discussed below, Host Marriott may
purchase all, but not less than all, of its hotel leases with Crestline
beginning January 1, 2001 with the purchase price calculated as discussed
above. The payment of the termination fee will be payable in cash or, subject
to certain conditions, shares of Host Marriott common stock at the election of
Host Marriott.
For those hotels where Marriott International is the manager, it has a
noneconomic membership interest with certain limited voting rights in the
Tenant Subsidiaries.
FF&E Leases
Prior to entering into the hotel leases, if the average tax basis of a
hotel's FF&E and other personal property exceeded 15% of the aggregate average
tax basis of the hotel's real and personal property (the "Excess FF&E"), the
Tenant Subsidiaries and affiliates of Host Marriott entered into lease
agreements (the "FF&E Leases") for the Excess FF&E. The terms of the FF&E
Leases generally range from two to three years and rent under the FF&E Leases
is a fixed amount. The Company will have the option at the expiration of the
F-86
<PAGE>
CCHP IV CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
FF&E Lease term to either (i) renew the FF&E Leases for consecutive one-year
renewal terms at fair market rental rate, or (ii) purchase the Excess FF&E for
a price equal to its fair market value. If the Company does not exercise its
purchase or renewal option, the Company is required to pay a termination fee
equal to approximately one month's rent.
Guaranty and Pooling Agreement
In connection with entering into the hotel leases, the Company, Crestline
and Host Marriott, entered into a pool guarantee and a pooling and security
agreement by which the Company provides a full guarantee and Crestline provides
a limited guarantee of all of the hotel lease obligations.
The cumulative limit of Crestline's guarantee obligation is the greater of
ten percent of the aggregate rent payable for the immediately preceding fiscal
year under all of the Company's hotel leases or ten percent of the aggregate
rent payable under all of the Company's hotel leases for 1999. In the event
that Crestline's obligation under the pooling and guarantee agreement is
reduced to zero, the Company can terminate the agreement and Host Marriott can
terminate the Company's hotel leases without penalty.
All of the Company's leases are cross-defaulted and the Company's
obligations under the guaranty are secured by all the funds received from its
Tenant Subsidiaries.
Recent Tax Legislation
On December 17, 1999 President Clinton signed the Work Incentives
Improvement Act of 1999. Included in this legislation are provisions that,
effect January 1, 2001, will allow a REIT to lease hotels to a "taxable REIT
subsidiary" if the hotel is operated and managed on behalf of such subsidiary
by an independent third party. A taxable REIT subsidiary is a corporation that
is owned more than 35 percent by a REIT. This law will enable Host Marriott,
beginning in 2001 to lease its hotels to a taxable REIT subsidiary. Host
Marriott may, at its discretion, elect to terminate the Company's leases,
beginning in 2001, and pay termination fees determined according to formulas
specified in the leases. If Host Marriott elects to terminate the full-service
hotel leases, it would have to terminate all of Crestline's full-service hotel
leases.
Future minimum annual rental commitments for all non-cancelable leases as of
December 31, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000............................................................ $ 186,420
2001............................................................ 186,420
2002............................................................ 186,420
2003............................................................ 186,420
2004............................................................ 186,420
Thereafter...................................................... 745,679
----------
Total minimum lease payments.................................. $1,677,779
==========
Lease expense for 1999 consisted of the following (in
thousands):
Base rent....................................................... $ 183,048
Percentage rent................................................. 133,606
----------
$ 316,654
==========
</TABLE>
F-87
<PAGE>
CCHP IV CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3. Working Capital Notes
Upon the commencement of the hotel leases, the Company purchased the working
capital of the leased hotels from Host Marriott for $16,522,000 with the
purchase price evidenced by notes that bear interest at 5.12%. Interest on each
note is due simultaneously with the rent payment of each hotel lease. The
principal amount of each note is due upon the termination of each hotel lease.
Upon termination of the hotel lease, the Company will sell Host Marriott the
existing working capital at its current value. To the extent the working
capital delivered to Host Marriott is less than the value of the note, the
Company will pay Host Marriott the difference in cash. However, to the extent
the working capital delivered to Host Marriott exceeds the value of the note,
Host Marriott will pay the Company the difference in cash. As of December 31,
1999, the outstanding balance of the working capital notes was $16,522,000
Debt maturities at December 31, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000................................................................. $ --
2001................................................................. --
2002................................................................. --
2003................................................................. --
2004................................................................. --
Thereafter........................................................... 16,522
-------
$16,522
=======
</TABLE>
Cash paid for interest expense in 1999 totaled $781,000.
Note 4. Management Agreements
All of the Company's hotels are operated by hotel management companies under
long-term hotel management agreements between Host Marriott and hotel
management companies.
Assignment of Management Agreements
The existing management agreements were assigned to the Tenant Subsidiaries
upon the execution of the hotel leases for the term of each corresponding hotel
lease. The Tenant Subsidiaries are obligated to perform all of the obligations
of Host Marriott under the hotel management agreements including payment of
fees due under the management agreements other than certain obligations
including payment of property taxes, property casualty insurance and ground
rent, maintaining a reserve fund for FF&E replacements and capital expenditures
for which Host Marriott retains responsibility.
Marriott International Management Agreements
Marriott International manages 20 of the 27 hotels under long-term
management agreements assigned to the Tenant Subsidiaries, generally for an
initial term of 15 to 20 years with renewal terms at the option of Marriott
International of up to an additional 16 to 30 years. The management agreements
generally provide for payment of base management fees equal to one to four
percent of revenues and incentive management fees generally equal to 20% to 50%
of Operating Profit (as defined in the management agreements) over a priority
return (as defined) to the Tenant Subsidiaries, with total incentive management
fees not to exceed 20% of cumulative Operating Profit, or 20% of current year
Operating Profit.
Pursuant to the terms of the management agreements, Marriott International
is required to furnish the hotels with certain services ("Chain Services")
which are generally provided on a central or regional basis to
F-88
<PAGE>
CCHP IV CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
all hotels in the Marriott International hotel system. Chain Services include
central training, advertising and promotion, a national reservation system,
computerized payroll and accounting services, and such additional services as
needed which may be more efficiently performed on a centralized basis. Costs
and expenses incurred in providing such services are allocated among all
domestic hotels managed, owned or leased by Marriott International or its
subsidiaries. In addition, the Company's hotels also participate in the
Marriott Rewards program. The cost of this program is charged to all hotels in
the Marriott hotel system.
Ritz-Carlton Hotel Management Agreements
The Ritz-Carlton Hotel Company, LLC ("Ritz-Carlton"), an affiliate of
Marriott International, manages three of the leased hotels under long-term
Hotel Management Agreements assigned to the Company. These agreements have an
initial term of 15 to 25 years with renewal terms at the option of Ritz-Carlton
of up to an additional 10 to 40 years. Base Management fees vary from two to
four percent of revenues and incentive management fees are generally equal to
20% of available cash flow or operating profit, as defined in the agreements.
Other Hotel Management Agreements
The Company's remaining four hotels are managed by other hotel management
companies. Two of the hotels are managed by the Hyatt Corporation, one of the
hotels is managed by Swissotel Management (USA) LLC, and one is managed by Four
Seasons Hotel Limited. The managers of the hotels provide similar services as
Marriott International under its management agreements and receive base
management fees, generally calculated as a percentage of revenues, and in most
cases, incentive management fees, which are generally calculated as a
percentage of operating profits.
The Company has the option to terminate certain management agreements if
specified performance thresholds are not satisfied, with the consent of Host
Marriott under certain conditions. No agreement with respect to a single
lodging facility is cross-collateralized or cross-defaulted to any other
agreement and a single agreement may be canceled under certain conditions,
although such cancellation will not trigger the cancellation of any other
agreement.
Note 5. Income Taxes
The Company is included in the consolidated Federal income tax return of
Crestline and its affiliates (the "Group"). Tax expense is allocated to the
Company as a member of the Group based upon the relative contribution to the
Group's consolidated taxable income/loss and changes in temporary differences.
This allocation method results in Federal and net state tax expense allocated
for the period presented that is substantially equal to the expense that would
have been recognized if the Company had filed separate tax returns.
The provision for income taxes for 1999 consists of the following (in
thousands):
<TABLE>
<S> <C>
Current--Federal...................................................... $2,326
--State........................................................... 399
------
2,725
------
Deferred--Federal..................................................... 633
--State........................................................... 108
------
741
------
$3,466
======
</TABLE>
F-89
<PAGE>
CCHP IV CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of the statutory Federal tax rate to the Company's
effective income tax rate for 1999 follows:
<TABLE>
<S> <C>
Statutory federal tax rate............................................. 35.0%
State income taxes, net of federal tax benefit......................... 6.0
----
41.0%
====
</TABLE>
As of December 31, 1999, the Company had no deferred tax assets. The tax
effect of the temporary differences that gives rise to the Company's deferred
tax liability is attributable to the hotel working capital.
Note 6. Sale of the Company's Lessee Entities (unaudited), Subsequent to Date
of Auditor's Report
On November 13, 2000, Crestline, the Company and other subsidiaries of
Crestline entered into an acquisition and exchange agreement with a subsidiary
of Host Marriott for the sale of Crestline's entities owning the lease rights
to Host Marriott's portfolio of full-service hotels, including the lessee
entities of the Company. The transaction will generally transfer ownership of
those lessee entities currently owned by Crestline, including the Company, to a
subsidiary of Host Marriott for a total consideration of $205 million, the
proceeds of which will be paid entirely in cash. The transaction is expected to
close at the beginning of 2001. In connection with the sale of its full-service
hotel lessee entities, Crestline's full-service hotel working capital and full-
service hotel working capital notes will be transferred to a subsidiary of Host
Marriott.
F-90
<PAGE>
HOST MARRIOTT, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
September 8, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Property and equipment, net.......................... $7,101 $7,108
Notes and other receivables (including amounts due
from affiliates of $125 million and $127 million,
respectively)....................................... 172 175
Rent receivable...................................... 72 72
Investments in affiliates............................ 99 49
Other assets......................................... 395 345
Restricted cash...................................... 155 170
Cash and cash equivalents............................ 188 277
------ ------
$8,182 $8,196
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Debt
Senior notes....................................... $2,540 $2,539
Mortgage debt...................................... 2,289 2,309
Convertible debt obligation to Host Marriott....... 492 514
Other.............................................. 272 221
------ ------
5,593 5,583
Accounts payable and accrued expenses................ 147 148
Deferred income taxes................................ 48 49
Deferred rent........................................ 366 --
Other liabilities.................................... 373 426
------ ------
Total liabilities................................ 6,527 6,206
------ ------
Minority interest.................................... 133 136
Cumulative redeemable preferred limited partnership
interests of third parties at redemption value
("Preferred OP Units") (representing 0.6 million
units).............................................. 7 5
Limited Partnership interests of third parties at
redemption value (representing 63.2 million and 64.0
million units at September 8, 2000 and December 31,
1999)............................................... 687 528
Partners' Capital
General partner.................................... 1 1
Cumulative redeemable preferred limited partner.... 196 196
Limited partner.................................... 628 1,120
Accumulated other comprehensive income............. 3 4
------ ------
Total partners' capital.......................... 828 1,321
------ ------
$8,182 $8,196
====== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
F-91
<PAGE>
HOST MARRIOTT, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve Weeks Ended September 8, 2000 and September 10, 1999
(unaudited, in millions, except per unit amounts)
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
REVENUES
Rental income............................................... $ 224 $ 188
Interest income............................................. 9 10
Net gains on property transactions.......................... 1 --
Equity in earnings of affiliates............................ 2 3
Other....................................................... 3 2
------ ------
Total revenues............................................ 239 203
------ ------
EXPENSES
Depreciation and amortization............................... 75 68
Property-level owner expenses............................... 66 62
Minority interest expense................................... 1 2
Interest expense............................................ 107 108
Corporate expenses.......................................... 7 5
Other expenses.............................................. -- 1
------ ------
Total expenses............................................ 256 246
------ ------
LOSS FROM OPERATIONS BEFORE INCOME TAXES AND EXTRAORDINARY
ITEMS........................................................ (17) (43)
Provision for income taxes.................................. (4) (1)
------ ------
LOSS FROM OPERATIONS BEFORE EXTRAORDINARY ITEMS............... (21) (44)
Extraordinary gain.......................................... -- 4
------ ------
NET LOSS...................................................... $ (21) $ (40)
====== ======
Less: Distributions on preferred limited partner units...... (6) (1)
------ ------
NET LOSS AVAILABLE TO COMMON UNITHOLDERS...................... $ (27) $ (41)
====== ======
BASIC LOSS PER UNIT:
Loss from operations before extraordinary items............. $(0.09) $(0.16)
Extraordinary gain (loss)................................... -- 0.02
------ ------
BASIC LOSS PER UNIT........................................... $(0.09) $(0.14)
====== ======
DILUTED LOSS PER UNIT:
Loss from operations before extraordinary items............. $(0.09) $(0.16)
Extraordinary gain (loss)................................... -- 0.02
------ ------
DILUTED LOSS PER UNIT......................................... $(0.09) $(0.14)
====== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
F-92
<PAGE>
HOST MARRIOTT, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Thirty-six Weeks Ended September 8, 2000 and September 10, 1999
(unaudited, in millions, except per unit amounts)
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
REVENUES
Rental income............................................... $ 580 $ 546
Interest income............................................. 26 26
Net gains on property transactions.......................... 4 16
Equity in earnings of affiliates............................ 5 5
Other....................................................... 8 5
------ ------
Total revenues............................................ 623 598
------ ------
EXPENSES
Depreciation and amortization............................... 224 203
Property-level owner expenses............................... 191 184
Minority interest expense................................... 11 13
Interest expense............................................ 315 325
Corporate expenses.......................................... 27 20
Other expenses.............................................. 9 5
------ ------
Total expenses............................................ 777 750
------ ------
LOSS FROM OPERATIONS BEFORE INCOME TAXES AND EXTRAORDINARY
ITEMS........................................................ (154) (152)
Provision for income taxes.................................. (7) (3)
------ ------
LOSS FROM OPERATIONS BEFORE EXTRAORDINARY ITEMS............... (161) (155)
Extraordinary gain.......................................... 3 17
------ ------
NET LOSS...................................................... $ (158) $ (138)
====== ======
Less: Distributions on preferred limited partner units...... (16) (1)
------ ------
NET LOSS AVAILABLE TO COMMON UNITHOLDERS...................... $ (174) $ (139)
====== ======
BASIC LOSS PER UNIT:
Loss from operations before extraordinary items............. $(0.62) $(0.54)
Extraordinary gain.......................................... 0.01 0.06
------ ------
BASIC LOSS PER UNIT: $(0.61) $(0.48)
====== ======
DILUTED LOSS PER UNIT:
Loss from operations before extraordinary items............. $(0.62) $(0.54)
Extraordinary gain.......................................... 0.01 0.06
------ ------
DILUTED LOSS PER UNIT......................................... $(0.61) $(0.48)
====== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
F-93
<PAGE>
HOST MARRIOTT, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirty-six Weeks Ended September 8, 2000 and Sept 10, 1999
(unaudited, in millions)
<TABLE>
<CAPTION>
2000 1999
----- -------
<S> <C> <C>
OPERATING ACTIVITIES
Loss from operations before extraordinary items................ $(161) $ (155)
Adjustments to reconcile to cash from continuing operations:
Depreciation and amortization................................ 224 203
Income taxes................................................. (20) (20)
Deferred contingent rental income............................ 366 339
Net gains on property transactions........................... (4) (16)
Equity in earnings of affiliates............................. (5) (5)
Changes in operating accounts................................ 22 (90)
Other........................................................ 17 --
----- -------
Cash from operations......................................... 439 256
----- -------
INVESTING ACTIVITIES
Proceeds from sales of assets.................................. -- 49
Acquisitions................................................... (40) (17)
Capital expenditures:
Capital expenditures for renewals and replacements........... (155) (143)
New investment capital expenditures.......................... (88) (102)
Other investments............................................ (28) (16)
Note receivable collections, net............................... 4 (47)
----- -------
Cash used in investing activities............................ (307) (276)
----- -------
FINANCING ACTIVITIES
Issuances of debt, net......................................... 292 1,282
Issuances of Class A Preferred Units........................... -- 100
Costs of extinguishment of debt................................ -- (2)
Scheduled principal repayments................................. (27) (26)
Debt prepayment................................................ (245) (1,275)
Issuances of common units...................................... 3 2
Distributions.................................................. (194) (195)
Redemptions or repurchases of OP Units......................... (47) --
Repurchases of Convertible Preferred Securities................ (15) --
Other.......................................................... 12 (12)
----- -------
Cash used in financing activities............................ (221) (126)
----- -------
DECREASE IN CASH AND CASH EQUIVALENTS.......................... $ (89) $ (146)
===== =======
</TABLE>
Supplemental schedule of noncash investing and financing activities:
Approximately 586,000 Class TS Preferred Units valued at $7.4 million were
issued during the third quarter of 1999 in connection with the acquisition by
merger of two partnerships that own limited partnership interests in the
partnership that owns the New York Marriott Marquis.
See Notes of Condensed Consolidated Financial Statements
F-94
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization
Host Marriott, L.P. (the "Operating Partnership" or "Host LP") is a Delaware
limited partnership whose sole general partner is Host Marriott Corporation
("Host REIT"). Host REIT, a Maryland corporation operating through an umbrella
partnership structure, is a self-managed and self-administered real estate
investment trust ("REIT") with its operations conducted solely through the
Operating Partnership and its subsidiaries. As REITs are not currently
permitted to derive revenues directly from the operation of hotels, Host REIT
leases all of the hotels to subsidiaries of Crestline Capital Corporation
("Crestline") or other lessees (collectively the "Lessee").
In these condensed consolidated financial statements, the "Company" or "Host
Marriott" refers to Host Marriott Corporation before, and Host LP, after Host
Marriott Corporation's conversion to a REIT (the "REIT Conversion"). Host
Marriott Corporation is presented as the predecessor to the Operating
Partnership since the Operating Partnership and its subsidiaries received
substantially all of the continuing operations, assets and liabilities of Host
Marriott Corporation and its subsidiaries.
On December 15, 1998, shareholders of Host Marriott Corporation approved a
plan to reorganize Host Marriott's business operations through the spin-off of
Host Marriott's senior living business as part of Crestline and the
contribution of Host Marriott's hotels and certain other assets and liabilities
to a newly formed Delaware limited partnership, Host Marriott, L.P. Host REIT
has elected, effective January 1, 1999, to be treated as a REIT for federal
income tax purposes and is the sole general partner of the Operating
Partnership. On December 29, 1998, Host Marriott completed the previously
announced spin-off of Crestline through a taxable stock dividend to its
shareholders. Each Host Marriott shareholder of record on December 28, 1998
received one share of Crestline for every ten shares of Host Marriott
Corporation owned. In connection with the REIT Conversion, Host Marriott
contributed its hotels and substantially all of its other assets and
liabilities to the Operating Partnership and subsidiaries (the "Contribution")
in exchange for units of partnership interest in the Operating Partnership. The
Contribution was accounted for at Host Marriott's historical basis. As of
September 8, 2000, Host REIT owned approximately 78% of the Operating
Partnership.
2. Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements of
the Company and its subsidiaries have been prepared without audit. Certain
information and footnote disclosures normally included in financial statements
presented in accordance with accounting principles generally accepted in the
United States have been condensed or omitted. The Company believes the
disclosures made are adequate to make the information presented not misleading.
However, the unaudited condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Company's annual report on Form 10-K for the fiscal
year ended December 31, 1999.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments necessary to present
fairly the financial position of the Company as of September 8, 2000, and the
results of operations for the twelve and thirty-six weeks ended September 8,
2000 and September 10, 1999, and cash flows for the thirty-six weeks ended
September 8, 2000 and September 10, 1999. Interim results are not necessarily
indicative of fiscal year performance because of the impact of seasonal and
short-term variations.
Certain reclassifications were made to the prior year financial statements
to conform to the current presentation.
The Company's leases have initial terms ranging from 2 to 10 years, subject
to earlier termination upon the occurrence of certain contingencies, as
defined. Effective November 15, 1999, the leases with Crestline
F-95
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
were amended to give Crestline the right to renew each of these leases for up
to four additional terms of seven years each. The rent due under each lease is
the greater of base rent or percentage rent, as defined. Percentage rent
applicable to room, food and beverage and other types of hotel sales varies by
lease and is calculated by multiplying fixed percentages by the total amounts
of such revenues over specified threshold amounts. Both the minimum rent and
the revenue thresholds used in computing percentage rents are subject to annual
adjustments based on increases in the United States Consumer Price Index and
the Labor Index, as defined.
Under the REIT Modernization Act, which was passed in December 1999 and is
effective beginning January 1, 2001, the Company will be able to lease its
hotels to a wholly-owned subsidiary that is a taxable corporation and that
elects to be treated as a "taxable REIT subsidiary," rather than to a third
party. Under the terms of the leases with Crestline, the Company has the right
to purchase the leases from Crestline on or after January 1, 2001, for a price
equal to the fair rental value of such leases.
The Company recognizes percentage rent when all contingencies have been met,
that is, when annual thresholds for percentage rent have been met or exceeded.
Percentage rent received pursuant to the leases but not recognized is included
on the balance sheet as deferred rent. Contingent rental revenue of $75 million
and $86 million, respectively, for the twelve weeks ended September 8, 2000 and
September 10, 1999, and $366 million and $339 million, respectively, for the
thirty-six weeks ended September 8, 2000 and September 10, 1999, have been
deferred.
3. Earnings Per Unit
Basic earnings per unit is computed by dividing net income available to
common unitholders by the weighted average number of common units outstanding.
Diluted earnings per unit is computed by dividing net income 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
Marriott Corporation for Host Marriott Corporation common shares granted under
comprehensive stock plans and the Convertible Preferred Securities. Dilutive
securities may also include those common and preferred Operating Partnership
Units ("OP Units") issuable or outstanding that are held by minority partners
which are assumed to be converted. No effect is shown for securities if they
are anti-dilutive.
<TABLE>
<CAPTION>
Twelve Weeks Ended
------------------------------------------------------------------
September 8, 2000 September 10, 1999
-------------------------------- --------------------------------
Per Per
Income Units Unit Income Units Unit
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Net Loss................ $(21) 283.8 $(.07) $(40) 292.9 $(.14)
Distributions on
preferred limited
partner units and
Preferred OP Units.... (6) -- (.02) (1) -- --
---- ----- ----- ---- ----- -----
Basic loss available to
common unitholders per
unit................... (27) 283.8 (.09) (41) 292.9 (.14)
Assuming distribution
of units to Host
Marriot Corporation
for Host Marriot
Corporation common
shares granted under
the Host Marriot
comprehensive stock
plan, less shares
assumed purchased at
average market price.. -- -- -- -- -- --
Assuming conversion of
Preferred OP Units.... -- -- -- -- -- --
Assuming issuance of
minority OP Units
issuable under certain
purchase agreements... -- -- -- -- -- --
Assuming conversion of
Convertible Preferred
Securities............ -- -- -- -- -- --
---- ----- ----- ---- ----- -----
Diluted Loss per Unit... $(27) 283.8 $(.09) $(41) 292.9 $(.14)
==== ===== ===== ==== ===== =====
</TABLE>
F-96
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-six Weeks Ended
------------------------------------------------------------------
September 8, 2000 September 10, 1999
-------------------------------- --------------------------------
Per Per
Income Units Unit Income Units Unit
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Net Loss................ $(158) 284.2 $(.55) $(138) 292.4 $(.48)
Distributions on
preferred limited
partner units and
Preferred OP Units.... (16) -- (.06) (1) -- --
----- ----- ----- ----- ----- -----
Basic loss available to
common unitholders per
unit................... (174) 284.2 (.61) (139) 292.4 (.48)
Assuming distribution
of units to Host
Marriott Corporation
for Host Marriott
Corporation common
shares granted under
the Host Marriott
comprehensive stock
plan, less shares
assumed purchased at
average market price.. -- -- -- -- -- --
Assuming conversion of
Preferred OP Units.... -- -- -- -- -- --
Assuming issuance of
minority OP Units
issuable under certain
purchase agreements... -- -- -- -- -- --
Assuming conversion of
Convertible Preferred
Securities............ -- -- -- -- -- --
----- ----- ----- ----- ----- -----
Diluted Loss per Unit... $(174) 284.2 $(.61) $(139) 292.4 $(.48)
===== ===== ===== ===== ===== =====
</TABLE>
4. Unit Repurchases
In September 1999, the Board of Directors of Host Marriott Corporation
approved the repurchase, from time to time on the open market and/or in
privately negotiated transactions, of up to 22 million of the outstanding
shares of Host REIT common stock, OP Units, or a corresponding amount (based on
the appropriate conversion ratio) of Host REIT's Convertible Preferred
Securities. Additionally, under the terms of the partnership agreement, an
equivalent number of OP Units will also be repurchased on a one-to-one basis
from Host Marriott Corporation. Such repurchases will be made at management's
discretion, subject to market conditions, and may be suspended at any time at
Host Marriott Corporation's discretion. During the twelve weeks ended March 24,
2000, Host Marriott repurchased approximately 4.9 million common shares,
325,000 OP Units, and 435,000 shares of the Convertible Preferred Securities
for a total investment of $62 million. During the first quarter of 2000, we
extinguished approximately $22 million of the convertible debt obligation to
Host REIT through the purchase of 435,000 shares of Host REIT's Convertible
Preferred Securities on the open market. We recorded an extraordinary gain of
approximately $5 million on this transaction, based on the discount at which we
purchased the Convertible Preferred Securities. No repurchases were made during
the second and third quarters of 2000. Since the inception of the program in
September 1999, Host Marriott has spent, in the aggregate, approximately $150
million to repurchase 16.2 million equivalent shares.
5. Dividends and Distributions Payable
On September 19, 2000, the Board of Directors of Host Marriott declared
quarterly cash dividends of $0.23 per share of Host REIT common stock and
corresponding distributions of $0.23 per unit of limited partnership interest.
The third quarter dividends and distributions were paid on October 16, 2000 to
shareholders and unitholders of record on September 29, 2000. First and second
quarter cash distributions of $0.21 per common OP Unit were paid on April 14
and July 14, 2000.
F-97
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
On September 19, 2000, the Board of Directors declared quarterly
distributions of $0.625 per cumulative redeemable preferred limited partner
unit, which were paid on October 16, 2000, to unitholders of record on
September 29, 2000. First and second quarter cash distributions of $0.625 per
cumulative redeemable preferred limited partner unit were paid on April 14 and
July 14, 2000.
6. Acquisitions and Developments
In February 2000, construction of the 717-room Tampa Waterside Marriott
adjacent to the convention center in downtown Tampa, Florida was completed at a
total development cost of approximately $104 million, not including a $16
million tax subsidy provided by the City of Tampa.
On May 16, 2000, the Company acquired a non-controlling partnership interest
in the JWDC Limited Partnership, which owns the JW Marriott Hotel, a 772-room
hotel located on Pennsylvania Avenue in Washington, DC. The Company, which
previously held a small interest in the venture, invested approximately $40
million in the form of a preferred equity contribution.
In late June 2000, an expansion that included the additions of a 500-room
tower and 15,000 square feet of meeting space at the Orlando World Center
Marriott was completed at an approximate development cost of $88 million. The
convention/resort property now offers 2,000 guest rooms.
7. Debt Issuances and Refinancings
In February 2000, the Company refinanced the $80 million mortgage on
Marriott's Harbor Beach Resort property in Fort Lauderdale, Florida. The new
mortgage is for $84 million, at a rate of 8.58%, and matures in March 2007.
During June 2000, the Company modified its bank credit facility. As
modified, the total facility has been permanently reduced to $775 million,
consisting of a $150 million term loan and a $625 million revolver. In
addition, the original term was extended for two additional years, through
August 2003. In connection with the renegotiation of the bank credit facility,
the Company recognized an extraordinary loss of approximately $2 million during
the second quarter of 2000, representing the write-off of deferred financing
costs and certain fees paid to the lender. As of September 8, 2000, $176
million was outstanding under the bank credit facility, and the available
capacity under the line of credit balance was $599 million.
In October 2000, the Company issued $250 million of 9 1/4% Series F senior
notes due in 2007, under the same indenture and with the same covenants as the
Series A, Series B, Series C, and Series E senior notes. The net proceeds to
the Company were approximately $245 million, after deduction of a discount at
issuance of approximately $3 million and commissions and expenses of
approximately $2 million. The proceeds have been used for the $26 million
repayment of the outstanding balance of the revolver portion of the bank credit
facility, and the remainder will be used for general working capital purposes,
which may include the purchase of the leases from Crestline, and litigation
settlements, as discussed in Note 12. As a result of the repayment, the
available capacity under the revolver was increased to $625 million, and total
borrowings under the bank credit facility were reduced to $150 million,
representing the term loan.
F-98
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
8. Geographic Information
As of September 8, 2000, the Company's foreign operations consisted of four
hotel properties located in Canada. There were no intercompany sales between
the properties and the Company. The following table presents revenues for each
of the geographical areas in which the Company owns hotels (in millions):
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
-------------------------- --------------------------
September 8, September 10, September 8, September 10,
2000 1999 2000 1999
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
United States............. $236 $199 $615 $588
International............. 3 4 8 10
---- ---- ---- ----
Total................... $239 $203 $623 $598
==== ==== ==== ====
</TABLE>
9. Comprehensive Income
The Company's other comprehensive income consists of unrealized gains and
losses on foreign currency translation adjustments and the right to receive
cash from Host Marriott Services Corporation subsequent to the exercise of the
options held by certain former and current employees of Marriott International,
pursuant to the distribution agreement between the Company and Host Marriott
Services Corporation. For the twelve and thirty-six weeks ended September 8,
2000, the comprehensive loss totaled $22 million and $159 million,
respectively. The comprehensive loss was $34 million and $131 million for the
twelve and thirty-six weeks ended September 10, 1999, respectively. As of
September 8, 2000 and December 31, 1999, the Company's accumulated other
comprehensive income was $3 million and $4 million, respectively.
10. Summarized Lease Pool Financial Statements
As discussed in Note 2, as of September 8, 2000, almost all the properties
of the Company and its subsidiaries were leased to Crestline. In conjunction
with these leases, Crestline and certain of its subsidiaries entered into
limited guarantees of the lease obligations of each lessee. The full-service
hotel leases are grouped into four lease pools, with Crestline's guarantee
limited to the greater of 10% of the aggregate rent payable for the preceding
year or 10% of the aggregate rent payable under all leases in the respective
pool. Additionally, the lessee's obligation under each lease agreement is
guaranteed by all other lessees in the respective lease pool. As a result, the
Company believes that the operating results of each full-service lease pool may
be material to the Company's financial statements. Financial information of
certain pools related to the sublease agreements for limited service properties
are not presented, as the Company believes they are not material to the
Company's financial statements. Financial information of Crestline may be found
in its quarterly and annual filings with the Securities and Exchange
Commission. Further information regarding these leases and Crestline's limited
guarantees may be found in the Company's annual report on Form 10-K for the
fiscal year ended December 31, 1999. The results of operations for the twelve
and thirty-six weeks ended September 8, 2000 and September 10, 1999 and
summarized balance sheet data as of September 8, 2000 and December 31, 1999 of
the lease pools in which the Company's hotels are organized are as follows (in
millions):
F-99
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
<TABLE>
<CAPTION>
Twelve Weeks Ended September 8, 2000
------------------------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Hotel Sales
Rooms.................................... $147 $156 $137 $141 $581
Food and beverage........................ 60 66 57 69 252
Other.................................... 14 16 16 19 65
---- ---- ---- ---- ----
Total hotel sales...................... 221 238 210 229 898
Operating Costs and Expenses
Rooms.................................... 36 40 34 33 143
Food and beverage........................ 49 54 45 54 202
Other.................................... 62 58 57 57 234
Management fees.......................... 10 15 10 14 49
Lease expense............................ 63 67 62 70 262
---- ---- ---- ---- ----
Total operating expenses............... 220 234 208 228 890
---- ---- ---- ---- ----
Operating Profit........................... 1 4 2 1 8
Corporate and Interest Expenses............ -- -- (1) -- (1)
---- ---- ---- ---- ----
Income before taxes...................... 1 4 1 1 7
Income taxes............................. (1) (2) -- -- (3)
---- ---- ---- ---- ----
Net Income............................. $-- $ 2 $ 1 $ 1 $ 4
==== ==== ==== ==== ====
<CAPTION>
Twelve Weeks Ended September 10,
1999
------------------------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Hotel Sales
Rooms.................................... $135 $142 $126 $128 $531
Food and beverage........................ 57 59 55 67 238
Other.................................... 16 15 16 17 64
---- ---- ---- ---- ----
Total hotel sales...................... 208 216 197 212 833
Operating Costs and Expenses
Rooms.................................... 34 40 32 30 136
Food and beverage........................ 46 48 44 50 188
Other.................................... 58 50 54 55 217
Management fees.......................... 9 13 9 13 44
Lease expense............................ 57 59 56 61 233
---- ---- ---- ---- ----
Total operating expenses............... 204 210 195 209 818
---- ---- ---- ---- ----
Operating Profit........................... 4 6 2 3 15
Corporate and Interest Expenses............ (1) (1) -- (1) (3)
---- ---- ---- ---- ----
Income before taxes...................... 3 5 2 2 12
Income taxes............................. (1) (3) (1) (1) (6)
---- ---- ---- ---- ----
Net Income............................. $ 2 $ 2 $ 1 $ 1 $ 6
==== ==== ==== ==== ====
</TABLE>
F-100
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-six Weeks Ended September 8,
2000
------------------------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Hotel Sales
Rooms.................................... $428 $469 $409 $433 $1,739
Food and beverage........................ 188 219 189 235 831
Other.................................... 44 46 59 60 209
---- ---- ---- ---- ------
Total hotel sales...................... 660 734 657 728 2,779
Operating Costs and Expenses
Rooms.................................... 102 116 96 96 410
Food and beverage........................ 145 165 140 167 617
Other.................................... 173 167 166 170 676
Management fees.......................... 32 50 32 52 166
Lease expense............................ 200 224 214 237 875
---- ---- ---- ---- ------
Total operating expenses............... 652 722 648 722 2,744
---- ---- ---- ---- ------
Operating Profit........................... 8 12 9 6 35
Corporate and Interest Expenses............ (1) (1) (1) (1) (4)
---- ---- ---- ---- ------
Income before taxes...................... 7 11 8 5 31
Income taxes............................. (3) (5) (3) (2) (13)
---- ---- ---- ---- ------
Net Income............................. $ 4 $ 6 $ 5 $ 3 $ 18
==== ==== ==== ==== ======
<CAPTION>
Thirty-six Weeks Ended September 10,
1999
------------------------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Hotel Sales
Rooms.................................... $408 $436 $394 $401 $1,639
Food and beverage........................ 184 196 183 220 783
Other.................................... 46 44 54 51 195
---- ---- ---- ---- ------
Total hotel sales...................... 638 676 631 672 2,617
Operating Costs and Expenses
Rooms.................................... 98 108 95 88 389
Food and beverage........................ 143 150 135 154 582
Other.................................... 168 157 161 158 644
Management fees.......................... 29 43 30 46 148
Lease expense............................ 190 206 202 218 816
---- ---- ---- ---- ------
Total operating expenses............... 628 664 623 664 2,579
---- ---- ---- ---- ------
Operating Profit........................... 10 12 8 8 38
Corporate and Interest Expenses............ (2) (2) (1) (2) (7)
---- ---- ---- ---- ------
Income before taxes...................... 8 10 7 6 31
Income taxes............................. (3) (5) (3) (2) (13)
---- ---- ---- ---- ------
Net Income............................. $ 5 $ 5 $ 4 $ 4 $ 18
==== ==== ==== ==== ======
</TABLE>
F-101
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
<TABLE>
<CAPTION>
As of September 8, 2000
------------------------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Assets..................................... $37 $34 $40 $37 $148
Liabilities................................ 30 27 34 34 125
Equity..................................... 7 7 6 3 23
<CAPTION>
As December 31, 1999
------------------------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Assets..................................... $39 $37 $41 $38 $155
Liabilities................................ 36 36 40 38 150
Equity..................................... 3 1 1 -- 5
</TABLE>
11. Supplemental Guarantor and Non-Guarantor Subsidiary Information
All subsidiaries of the operating partnership guarantee the Company's senior
notes except those among the twenty full service hotels listed below and HMH
HPT Residence Inn, LLC and HMH HPT Courtyard, LLC, the lessees of the Residence
Inn and Courtyard properties, respectively. The separate financial statements
of each guaranteeing subsidiary (each, a "Guarantor Subsidiary") are not
presented because management has concluded that such financial statements are
not material to investors. The guarantee of each Guarantor Subsidiary is full
and unconditional and joint and several. Certain of the Guarantor Subsidiaries
are not wholly-owned subsidiaries of the Company. In these cases, however, the
outside ownership percentage is less than 1%. Separate financial information of
those non-wholly-owned Guarantor Subsidiaries are not presented, as the Company
believes they are not material to investors. The non-guarantor subsidiaries
(the "Non-Guarantor Subsidiaries") own the following full-service hotels: the
Albany Marriott; Atlanta Marriott Marquis; Marriott's Harbor Beach Resort;
Hartford Marriott; Hyatt Regency, Cambridge; Hyatt Regency, Reston; Manhattan
Beach Marriott; Minneapolis Southwest Marriott; New York Marriott Marquis;
Ontario Airport Marriott; Pittsburgh City Center Marriott; The Ritz-Carlton,
Amelia Island; San Diego Marriott Hotel and Marina; San Diego Mission Valley;
Swissotel, Atlanta; Swissotel, Boston; Swissotel, Chicago; The Drake
(Swissotel) New York; and the Oklahoma City Waterford Marriott.
The following condensed combined consolidating information sets forth the
financial position as of September 8, 2000 and December 31, 1999, and results
of operations for the twelve weeks and thirty-six weeks ended September 8, 2000
and September 10, 1999, respectively, and cash flows for the thirty-six weeks
ended September 8, 2000 and September 10, 1999 of the parent, Guarantor
Subsidiaries and the Non-Guarantor Subsidiaries.
F-102
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Supplemental Condensed Combined Consolidating Balance Sheets
(in millions)
September 8, 2000
<TABLE>
<CAPTION>
Non
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Property and equipment,
net.................... $1,217 $3,791 $2,093 $ -- $7,101
Notes and other
receivables............ 393 208 23 (452) 172
Rent receivable......... 16 28 28 -- 72
Investments in
affiliate.............. 1,646 -- -- (1,547) 99
Other assets............ 11 232 207 (55) 395
Cash and cash
equivalents............ 275 43 25 -- 343
------ ------ ------ ------- ------
Total assets.......... $3,558 $4,302 $2,376 $(2,054) $8,182
====== ====== ====== ======= ======
Debt.................... $1,198 $2,974 $1,148 $ (219) $5,101
Convertible debt
obligations to Host
Marriott............... 492 -- -- -- 492
Deferred income taxes... 9 32 7 -- 48
Deferred rent........... 78 193 95 -- 366
Other liabilities....... 257 373 178 (288) 520
------ ------ ------ ------- ------
Total liabilities..... 2,034 3,572 1,428 (507) 6,527
Minority interests...... 2 131 -- -- 133
Limited partner interest
of third parties at
redemption value....... 694 -- -- -- 694
Owner's capital......... 828 599 948 (1,547) 828
------ ------ ------ ------- ------
Total liabilities and
owner's capital...... $3,558 $4,302 $2,376 $(2,054) $8,182
====== ====== ====== ======= ======
December 31, 1999
<CAPTION>
Non
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Property and equipment,
net.................... $1,221 $3,755 $2,132 $ -- $7,108
Notes and other
receivables............ 421 212 22 (480) 175
Rent receivable......... 10 26 36 -- 72
Investments in
affiliate.............. 1,794 -- -- (1,745) 49
Other assets............ 173 225 175 (58) 515
Cash and cash
equivalents............ 199 58 20 -- 277
------ ------ ------ ------- ------
Total assets.......... $3,818 $4,276 $2,385 $(2,283) $8,196
====== ====== ====== ======= ======
Debt.................... $1,139 $3,007 $1,168 $ (245) $5,069
Convertible debt
obligation to Host
Marriott............... 514 -- -- -- 514
Deferred income taxes... 10 32 7 -- 49
Other liabilities....... 297 375 195 (293) 574
------ ------ ------ ------- ------
Total liabilities..... 1,960 3,414 1,370 (538) 6,206
Minority interests...... 4 132 -- -- 136
Limited partner interest
of third parties at
redemption value....... 533 -- -- -- 533
Owner's capital......... 1,321 730 1,015 (1,745) 1,321
------ ------ ------ ------- ------
Total liabilities and
owner's capital...... $3,818 $4,276 $2,385 $(2,283) $8,196
====== ====== ====== ======= ======
</TABLE>
F-103
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Supplemental Condensed Combined Statements of Operations
(in millions)
Twelve Weeks Ended September 8, 2000
<TABLE>
<CAPTION>
Non
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES................ $ 42 $122 $73 $ 2 $239
Depreciation............ (17) (39) (19) -- (75)
Property-level
expenses............... (17) (23) (26) -- (66)
Minority interest....... -- (1) -- -- (1)
Interest expense........ (29) (66) (23) 11 (107)
Corporate expenses...... (1) (4) (2) -- (7)
Other expenses.......... 5 (3) (2) -- --
---- ---- --- --- ----
(Loss) income before
income taxes........... (17) (14) 1 13 (17)
(Provisions for) benefit
from income taxes...... (4) -- -- -- (4)
---- ---- --- --- ----
(Loss) income before
extraordinary item..... (21) (14) 1 13 (21)
Extraordinary loss...... -- -- -- -- --
---- ---- --- --- ----
NET INCOME (LOSS)....... $(21) $(14) $ 1 $13 $(21)
==== ==== === === ====
Twelve Weeks Ended September 10, 1999
<CAPTION>
Non
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES................ $ 29 $ 98 $64 $12 $203
Depreciation............ (14) (35) (19) -- (68)
Property-level
expenses............... (12) (24) (26) -- (62)
Minority interest....... (5) 3 -- -- (2)
Interest expense........ (34) (57) (23) 6 (108)
Corporate expenses...... (5) (2) 1 -- (6)
Other expenses.......... 2 (1) (1) -- --
---- ---- --- --- ----
(Loss) income before
income taxes and
extraordinary item..... (39) (18) (4) 18 (43)
Provision for income
tax.................... (1) -- -- -- (1)
---- ---- --- --- ----
(Loss) income before
extraordinary item..... (40) (18) (4) 18 (44)
Extraordinary gain...... -- 1 3 -- 4
---- ---- --- --- ----
NET INCOME (LOSS)....... $(40) $(17) $(1) $18 $(40)
==== ==== === === ====
</TABLE>
F-104
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Supplemental Condensed Combined Statements of Operations
(in millions)
Thirty-six Weeks Ended September 8, 2000
<TABLE>
<CAPTION>
Non
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES................ $ 37 $ 310 $208 $ 68 $ 623
Depreciation............ (51) (115) (58) -- (224)
Property-level
expenses............... (41) (69) (81) -- (191)
Minority interest....... (3) (8) -- -- (11)
Interest expense........ (91) (188) (69) 33 (315)
Corporate expenses...... (2) (16) (9) -- (27)
Other expenses.......... (2) (5) (2) -- (9)
----- ----- ---- ---- -----
(Loss) income before
income taxes and
extraordinary items.... (153) (91) (11) 101 (154)
(Provision for) benefit
from income taxes...... (8) 1 -- -- (7)
----- ----- ---- ---- -----
(Loss) income before
extraordinary item..... (161) (90) (11) 101 (161)
Extraordinary gain...... 3 -- -- -- 3
----- ----- ---- ---- -----
NET INCOME (LOSS)....... $(158) $ (90) $(11) $101 $(158)
===== ===== ==== ==== =====
Thirty-six Weeks Ended September 10, 1999
<CAPTION>
Non
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES................ $ 60 $ 297 $195 $ 46 $ 598
Depreciation............ (44) (105) (54) -- (203)
Property-level
expenses............... (34) (69) (79) -- (182)
Minority interest....... (7) (6) -- -- (13)
Interest expense........ (102) (172) (68) 17 (325)
Corporate expenses...... (4) (11) (6) -- (21)
Other expenses.......... (3) (2) (1) -- (6)
----- ----- ---- ---- -----
(Loss) income before
income taxes and
extraordinary item..... (134) (68) (13) 63 (152)
Provision for income
taxes.................. (4) 1 -- -- (3)
----- ----- ---- ---- -----
(Loss) income before
extraordinary item..... (138) (67) (13) 63 (155)
Extraordinary gain...... -- 1 16 -- 17
----- ----- ---- ---- -----
NET INCOME (LOSS)....... $(138) $ (66) $ 3 $ 63 $(138)
===== ===== ==== ==== =====
</TABLE>
F-105
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Supplemental Condensed Combined Statements of Cash Flows
(in millions)
Thirty-six Weeks Ended September 8, 2000
<TABLE>
<CAPTION>
Non
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Cash from operations........... $ 146 $ 178 $115 $ 439
----- ----- ---- -----
INVESTING ACTIVITIES
Cash received from sales of
assets........................ -- -- -- --
Acquisitions................... (40) -- -- (40)
Capital expenditures and other
investments................... (63) (168) (40) (271)
Other.......................... 4 -- -- 4
----- ----- ---- -----
Cash used in investing
activities.................... (99) (168) (40) (307)
----- ----- ---- -----
FINANCING ACTIVITIES
Issuances of debt.............. 207 2 83 292
Repayment of debt.............. (167) (9) (96) (272)
Issuances of common units...... 3 -- -- 3
Distributions.................. (194) -- -- (194)
Redemption or repurchase of OP
Units......................... (47) -- -- (47)
Repurchase of Convertible
Preferred Securities.......... (15) -- -- (15)
Other.......................... (9) 22 (1) 12
Transfers to/from Parent....... 96 (40) (56) --
----- ----- ---- -----
Cash used in financing
activities.................... (126) (25) (70) (221)
----- ----- ---- -----
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.............. $ (79) $ (15) $ 5 $ (89)
===== ===== ==== =====
</TABLE>
F-106
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Supplemental Condensed Combined Statements of Cash Flows--(Continued)
(in millions)
Thirty-six Weeks Ended September 10, 1999
<TABLE>
<CAPTION>
Non
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Cash from operations........... $ 11 $ 153 $ 92 $ 256
----- ----- ----- -------
INVESTING ACTIVITIES
Cash received from sales of
assets........................ 1 48 -- 49
Capital expenditures and other
investments................... (58) (173) (30) (261)
Acquisitions................... -- (12) (5) (17)
Other.......................... (47) -- -- (47)
----- ----- ----- -------
Cash used in investing
activities.................... (104) (137) (35) (276)
----- ----- ----- -------
FINANCING ACTIVITIES
Repayment of debt.............. (111) (333) (857) (1,301)
Issuances of debt.............. 290 35 957 1,282
Distributions.................. (195) -- -- (195)
Issuances of common units...... 2 -- -- 2
Issuance of Class A Preferred
Units......................... 100 -- -- 100
Cost of extinguishment of
debt.......................... -- -- (2) (2)
Transfers to/from Parent....... (192) 339 (147) --
Other.......................... (12) -- -- (12)
----- ----- ----- -------
Cash used in financing
activities.................... (118) 41 (49) (126)
----- ----- ----- -------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.............. $(211) $ 57 $ 8 $ (146)
===== ===== ===== =======
</TABLE>
12. Contingencies
On March 16, 1998, limited partners in several limited partnerships filed a
lawsuit, the Texas Multi-Partnership Lawsuit, naming the Company, Marriott
International Inc. ("Marriott International"), and others as defendants and
claiming that they conspired to sell hotels to the partnerships for inflated
prices, that they charged the partnerships excessive management fees to operate
the partnerships' hotels and otherwise breached their fiduciary duties. The
lawsuit involved the following partnerships: Courtyard by Marriott Limited
Partnership, Courtyard by Marriott II Limited Partnership, Marriott Residence
Inn Limited Partnership, Marriott Residence Inn II Limited Partnership,
Fairfield Inn by Marriott Limited Partnership, Desert Springs Marriott Limited
Partnership and Atlanta Marriott Marquis Limited Partnership. Three other
lawsuits, collectively, the Partnership Lawsuits, involving limited partners of
some of the aforementioned partnerships had also been filed, at various dates
beginning in June 1996, and include similar actions naming the Company,
Marriott International and others as defendants.
The Company and Marriott International have executed a definitive settlement
agreement to resolve the Texas Multi-Partnership Lawsuit and the Partnership
Lawsuits. The proposed settlement would involve a resolution of claims against
all defendants in all seven partnerships, except with respect to those partners
who have elected to opt out of the settlement. The holders of fewer than three
units in a single partnership have
F-107
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
made such an election, however. The proposed settlement would include an
acquisition of the limited partner interests in two partnerships by an
unconsolidated joint venture between a non-controlled subsidiary of the Company
and a subsidiary of Marriott International for approximately $372 million plus
interest and legal fees, of which the Company will pay approximately $91
million. The Company's share of funds required to resolve the litigation with
all seven partnerships, including the acquisitions, is expected to be
approximately $124 million. Of this amount, the Company funded the settlement
escrow for $31 million in cash on September 28, 2000, in settlement of
litigation with the plaintiffs in four of the partnerships. As part of the
settlement, the Company also expects to contribute to the joint venture its
existing interests in the partnerships. All conditions have been removed and
judicial fairness determinations have been obtained with respect to five of the
seven partnerships and they have been severed by court order from the remaining
two settlements. Accordingly, the defendants have consummated the settlements
with respect to those partnerships by funding the settlement escrows. Various
consents remain conditions to consummation with respect to the other two
partnerships, and there can be no assurance that these settlements will occur.
In the event the Company does not successfully finalize these two settlements,
the two cases could go to trial. As a result of the proposed settlement, the
Company recorded a one-time, non-recurring, pre-tax charge of $40 million in
1999.
The Company has also been named a defendant in other lawsuits involving
various hotel partnerships. The lawsuits are ongoing, and although the ultimate
resolution of lawsuits is not determinable, the Company does not believe the
outcome will be material to the financial position, statement of operations or
cash flows of the Company. See "Item 1--Legal Proceedings" for further detail
regarding current litigation.
13. Subsequent Event
On September 21, 2000, one of our non-controlled subsidiaries acquired for
$4.5 million a 4% preferred equity interest in STSN, a privately held company
that is a provider of in-room, high speed internet access to the lodging
industry, from an affiliate of First Media Corporation. Richard E. Marriott, a
director and officer of the Company, is also an officer, director and
controlling shareholder of First Media Corporation. The purchase price was
determined based on First Media's original investment in STSN in December 1999,
plus investment costs and accrued interest through September 2000.
F-108
<PAGE>
-------------------------------------------------------------------------------
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We have not authorized any dealer, salesperson or other person to give any
information or represent anything to you other than the information contained
in this prospectus. You must not rely on unauthorized information or
representations.
This offering memorandum does not offer to sell or ask for offers to buy
any of the securities in any jurisdiction where it is unlawful, where the
person making the offer is not qualified to do so, or to any person who can
not legally be offered the securities.
The information in this offering memorandum is current only as of the date
on its cover, and may change after that date. For any time after the cover
date of this offering memorandum, we do not represent that our affairs are the
same as described or that the information in this offering memorandum is
correct -- nor do we imply those things by delivering this offering memorandum
or selling securities to you.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Where You Can Find More Information........................................ i
Summary.................................................................... 1
Risk Factors............................................................... 8
Forward-Looking Statements................................................. 19
Use of Proceeds............................................................ 20
Capitalization............................................................. 20
Pro Forma Financial Information of Host Marriott, L.P...................... 21
Selected Financial Data.................................................... 29
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................. 31
Quantitative and Qualitative Disclosures About Market Risk................. 46
Business and Properties.................................................... 47
Management................................................................. 69
Certain Relationships and Related Transactions............................. 80
The Exchange Offer......................................................... 86
Description of Notes....................................................... 93
Material Federal Tax Consequences of the Exchange.......................... 135
Plan of Distribution....................................................... 136
Legal Matters.............................................................. 137
Experts.................................................................... 137
Index to Financial Statements.............................................. F-1
</TABLE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-----------------------------------
PROSPECTUS
-----------------------------------
Host Marriott, L.P.
Offer to Exchange
up to
$250,000,000
of
9 1/4% Series Senior Notes due 2007, which have been registered under the
Securities Act
for up to
$250,000,000
of outstanding
9 1/4% Series F Senior Notes Due 2007
, 2000
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Host Marriott Corporation's Articles of Amendment and Restatement of
Articles of Incorporation (the "Articles of Incorporation") authorize it, to
the maximum extent permitted by Maryland law, to obligate itself to indemnify
and to pay or reimburse reasonable expenses in advance of final disposition of
a proceeding to: (i) any present of former director of officer or (ii) any
individual who, while a director of Host Marriott and at the request of Host
Marriott, serves or has served another corporation, real estate investment
trust, partnership, joint venture, trust, employee benefit plan or any other
enterprise from and against any claim or liability to which such person may
become subject or which such person may incur by reason of his or her status as
a present or former director of Host Marriott Corporation. Host Marriott
Corporation's Bylaws obligate it, to the maximum extent permitted by Maryland
law, to indemnify and to pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to (a) any present or former director or
officer who is made a party to the proceeding by reason of his service in that
capacity or (b) any individual who, while a director of Host Marriott
Corporation and at the request of Host Marriott Corporation, serves or has
served another corporation, real state investment trust, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a director,
trustee, officer or partner of such corporation, real estate investment trust
partnership, joint venture, trust, employee benefit plan or other enterprise
and who is made a party to the proceeding by reason of his service in that
capacity, against any claim or liability to which he may become subject by
reason of such status. Host Marriott's Articles of Incorporation and Bylaws
also permit Host Marriott to indemnify and advance expenses to any person who
served as a predecessor of Host Marriott in any of the capacities described
above any to any employee or agent of Host Marriott or a predecessor of Host
Marriott. Host Marriott's Bylaws require Host Marriott to indemnify a director
or officer who has been successful, on the merits or otherwise, in the defense
of any proceeding to which he is made a party by reason of his service in that
capacity.
The Maryland General Corporation Law, as amended (the "MGCL"), permits a
Maryland corporation to indemnify and advance expenses to its directors,
officers, employees and agents, and permits a corporation to indemnify its
present and former directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason
of their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director of officer
actually received an improper personal benefit in money, property, or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However,
under the MGCL, a Maryland corporation may not indemnify a director or officer
in a suit by or in the right of the corporation if such director or officer has
been adjudged to be liable to the corporation. In accordance with the MGCL,
Host Marriott's Bylaws require it, as a condition to advancing expenses, to
obtain (1) a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification by
Host Marriott as authorized by Host Marriott's Bylaws and (2) a written
statement by or on his behalf to repay the amount paid of reimbursed by Host
Marriott shall ultimately be determined that the standard of conduct was not
met.
Host Marriott intends to enter into indemnification agreements with each of
its directors and officers. The indemnification agreements will require, among
other things, that Host Marriott indemnify its directors and officers to the
fullest extent permitted by law and advance to its directors and officers all
related expenses, subject to reimbursement if it is subsequently determined
that indemnification is not permitted.
The Amended and Restated Agreement of Limited Partnership of Host Marriott,
L.P. (the "Partnership Agreement") also provides for indemnification of Host
Marriott and its officers and directors to the same extent that indemnification
is provided to officers and directors of Host Marriott in its Articles of
Incorporation,
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<PAGE>
and limit liability of Host Marriott and its officers and directors to the
Operating Partnership and its respective partners to the same extent that the
liability of the officers and directors of Host Marriott to Host Marriott and
its stockholders is limited under Host Marriott's Articles of Incorporation.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, Host Marriott has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Item 21. Exhibits and Financial Statement Schedules
(A) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
2.1 Agreement and Plan by and among Host Marriott Corporation, HMC
Merger Corporation and Host Marriott L.P. (incorporated by
reference to Host Marriott Corporation Registration Statement No.
333-64793).
3.3 Bylaws of Host Marriott Corporation dated September 28, 1998
(incorporated by reference to Host Marriott Corporation
Registration Statement No. 333-64793).
3.4 Articles of Amendment and Restatement of Articles of Incorporation
of Host Marriott Corporation (incorporated by reference to Host
Marriott Corporation Registration Statement No. 333-64793).
4.1 Indenture by and among HMH Properties, Inc., as Issuer, and the
Subsidiary Guarantors named therein, and Marine Midland Bank, as
Trustee (incorporated by reference to Host Marriott Corporation
Current Report on Form 8-K dated August 6, 1998).
4.2 Sixth Supplemental Indenture, dated October 6, 2000, between Host
Marriott, L.P., the Subsidiary Guarantors named therein and Marine
Midland Bank, as Trustee.
5.1 Opinion of Christopher G. Townsend as to the legality of the
securities being registered.
8.1 Opinion of Latham & Watkins regarding certain tax matters.
10.1 Second Amended and Restated Agreement of Limited Partnership of
Host Marriott, L.P., (incorporated by reference to Exhibit 3.1 of
Host Marriott Corporation Registration Statement No. 333-55807).
10.2 Indenture between Host Marriott L.P., as Issuer, and Marine
Midland Bank, as Indenture Trustee, and Form of 6.56% Callable
Note due December 15, 2005 (incorporated by reference to Exhibit
4.1 of Host Marriott Corporation Registration Statement No. 333-
55807).
10.3 Amended and Restated Credit Agreement dated as of June 19, 1997
and Amended and Restated as of August 5, 1998 among Host Marriott
Corporation, Host Marriott Hospitality, Inc., HMH Properties,
Inc., Host Marriott, L.P., HMC Capital Resources Corp., Various
Banks, Wells Fargo Bank, National Association, The Bank of Nova
Scotia and Credit Lyonnais New York Branch, as Co-Arrangers, and
Bankers Trust Company as Arranger and Administrative Agent
(incorporated by reference to Host Marriott Corporation Current
Report on Form 8-K dated September 11, 1998).
10.4 First Amendment and Waiver of Amended and Restated Credit
Agreement dated as of June 19, 1997 and Amended and Restated as of
August 5, 1998, among Host Marriott Corporation, Host Marriott
Hospitality Inc., HMH Properties, Inc., Host Marriott, L.P., HMC
Capital Resources Corp., Various Banks, Wells Fargo Bank, National
Association, The Bank of Nova Scotia and Credit Lyonnais New York
Branch, as Co-Arrangers and Bankers Trust Company as Arranger and
Administrative Agent dated as of November 25, 1998 (incorporated
by reference to Exhibit 10.4 of Host Marriott Corporation's Form
10-K for the year ended December 31, 1998).
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
10.5 Second Amendment and Consent to Credit Agreement of Amended and Restated
Credit Agreement dated as of June 19, 1997 and Amended and Restated as
of August 5, 1998, among Host Marriott Corporation, Host Marriott
Hospitality Inc., HMH Properties, Inc., Host Marriott, L.P., HMC Capital
Resources Corp., Various Banks, Wells Fargo Bank, National Association,
The Bank of Nova Scotia and Credit Lyonnais New York Branch, as Co-
Arrangers and Bankers Trust Company as Arranger and Administrative Agent
dated as of December 17, 1998 (incorporated by reference to Exhibit 10.5
of Host Marriott Corporation's Form 10-K for the year ended December 31,
1998).
10.6 Third Amendment and Waiver to Credit Agreement of Amended and Restated
Credit Agreement dated as of June 19, 1997 and Amended and Restated as
of August 5, 1998, among Host Marriott Corporation, Host Marriott
Hospitality Inc., HMH Properties, Inc., Host Marriott, L.P., HMC Capital
Resources Corp., Various Banks, Wells Fargo Bank, National Association,
The Bank of Nova Scotia and Credit Lyonnais New York Branch, as Co-
Arrangers and Bankers Trust Company as Arranger and Administrative Agent
dated as of March 15, 1999 (incorporated by reference to Exhibit 10.6 of
Host Marriott Corporation's Form 10-K for the year ended December 31,
1998).
10.7 Host Marriott L.P. Executive Deferred Compensation Plan effective as of
December 29, 1998 (formerly the Marriott Corporation Executive Deferred
Compensation Plan) (incorporated by reference to Exhibit 10.7 of Host
Marriott Corporation's Form 10-K for the year ended December 31, 1998).
10.8 Host Marriott Corporation 1997 Comprehensive Incentive Stock Plan
(incorporated by reference to Host Marriott Corporation's Proxy
Statement filed April 3, 1997).
10.9 Distribution Agreement dated as of September 15, 1993 between Marriott
Corporation and Marriott International, Inc. (incorporated by reference
from Host Marriott Corporation Current Report on Form 8-K dated October
23, 1993).
10.10 Amendment No. 1 to the Distribution Agreement dated December 29, 1995 by
and among Host Marriott Corporation, Host Marriott Services Corporation
and Marriott International, Inc., (incorporated by reference to Host
Marriott Corporation Current Report on Form 8-K dated January 16, 1996).
10.11 Amendment No. 2 to the Distribution Agreement dated June 21, 1997 by and
among Host Marriott Corporation, Host Marriott Services Corporation and
Marriott International, Inc. (incorporated by reference to Host Marriott
Corporation Registration Statement No. 333-64793).
10.12 First Amendment and Waiver of Amended and Restated Credit Agreement
dated as of June 19, 1997 and Amended and Restated as of August 5, 1998,
among Host Marriott Corporation, Host Marriott Hospitality Inc., HMH
Properties, Inc., Host Marriott, L.P., HMC Capital Resources Corp.,
Various Banks, Wells Fargo Bank, National Association, The Bank of Nova
Scotia and Credit Lyonnais New York Branch, as Co-Arrangers and Bankers
Trust Company as Arranger and Administrative Agent dated as of November
25, 1998 (incorporated by reference to Exhibit 10.4 of Host Marriott
Corporation's Form 10-K for the year ended December 31, 1998).
10.13 Amendment No. 4 to the Distribution Agreement by and among Host Marriott
Corporation and Marriott International Inc. (incorporated by reference
to Host Marriott Corporation Registration Statement No. 333-64793).
10.14 Amendment No. 5 to the Distribution Agreement dated December 18, 1998 by
and among Host Marriott Corporation, Host Marriott Services Corporation
and Marriott International Inc., (incorporated by reference to Exhibit
10.14 of Host Marriott Corporation's Form 10-K for the year ended
December 31, 1998).
10.15 Distribution Agreement dated December 22, 1995 by and between Host
Marriott Corporation and Host Marriott Services Corporation
(incorporated by reference to Host Marriott Corporation Current Report
on Form 8-K dated January 16, 1996).
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
10.16 Amendment to Distribution Agreement dated December 22, 1995 by and
between Host Marriott Corporation and Host Marriott Services Corporation
(incorporated by reference to Exhibit 10.16 of Host Marriott
Corporation's Form 10-K for the year ended December 31, 1998).
10.17 Tax Sharing Agreement dated as of October 5, 1993 by and between
Marriott Corporation and Marriott International, Inc. (incorporated by
reference to Host Marriott Corporation Current Report on Form 8-K dated
October 23, 1993).
10.18 License Agreement dated as December 29, 1998 by and among Host Marriott
Corporation, Host Marriott, L.P., Marriott International, Inc., and
Marriott Worldwide Corporation (incorporated by reference to Exhibit
10.18 of Host Marriott Corporation's Form 10-K for the year ended
December 31, 1998).
10.19 Noncompetition Agreement between Host Marriott Corporation, Host
Marriott, L.P., and Crestline Capital Corporation and other parties
named therein (incorporated by reference to Exhibit 10.19 of Host
Marriott Corporation's Form 10-K for the year ended December 31, 1998).
10.20 Tax Administration Agreement dated as of October 8, 1993 by and between
Marriott Corporation and Marriott International, Inc., (incorporated by
reference to Host Marriott Corporation Current Report on Form 8-K dated
October 23, 1993).
10.21 Restated Noncompetition Agreement dated March, 1998 by and among Host
Marriott Corporation, Marriott International, Inc., and Sodexho Marriott
Services, Inc., (incorporated by reference to Host Marriott Corporation
Registration Statement No. 333-64793).
10.22 First Amendment to Restated Noncompetition Agreement by and among Host
Marriott Corporation, Marriott International, Inc., Sodexho Marriott
Services, Inc. (incorporated by reference to Host Marriott Corporation
Registration Statement No. 333-64793).
10.23 Host Marriott Lodging Management Agreement--Marriott Hotels, Resorts and
Hotels dated September 25, 1993 by and between Marriott Corporation and
Marriott International, Inc. (incorporated by reference to Host Marriott
Corporation registration Statement No. 33-51707)
10.24 Employee Benefits and Other Employment Matters Allocation Agreement
dated as of December 29, 1995 by and between Host Marriott Corporation
and Host Marriott Services Corporation (incorporated by reference to
Host Marriott Corporation Current Report on Form 8-K dated January 16,
1996).
10.25 Tax Sharing Agreement dated as of December 29, 1995 by and between Host
Marriott Corporation and Host Marriott Services Corporation
(incorporated by reference to Host Marriott Corporation Current Report
on Form 8-K dated January 16, 1996).
10.26 Host Marriott, L.P. Retirement and Savings Plan and Trust (incorporated
by reference to Exhibit 10.26 of Host Marriott Corporation's Form 10-K
for the year ended December 31, 1998).
10.27 Contribution Agreement dated as of April 16, 1998 among Host Marriott
Corporation, Host Marriott, L.P. and the contributors named therein,
together with Exhibit B (incorporated by reference to Exhibit 10.18 of
Host Marriott Corporation Registration Statement No. 333-55807).
10.28 Amendment No. 1 to Contribution Agreement dated May 8, 1998 among
Marriott Corporation, Host Marriott, L.P. and the contributors named
therein (incorporated by reference to Exhibit 10.19 of Host Marriott
Corporation Registration Statement No. 333-55807).
10.29 Amendment No. 2 to Contribution Agreement dated May 18, 1998 among Host
Marriott Corporation, Host Marriott, L.P. and the contributors named
therein (incorporated by reference to Exhibit 10.20 of Host Marriott
Corporation Registration Statement No. 333-55807).
10.30 Form of Lease Agreement (incorporated by reference to Host Marriott
Corporation Registration Statement No. 333-64793).
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
10.31 Form of Management Agreement of Full-Service Hotels (incorporated by
reference to Host Marriott Corporation Registration Statement No. 33-
51707).
10.32 Form of Owner's Agreement between Host Marriott Corporation, Marriott
International and Crestline Capital Corporation (incorporated by
reference to Crestline Capital Corporation Registration Statement No.
333-64657).
10.33 Employee Benefits and Other Employment Matters Allocation Agreement
between Host Marriott Corporation, Host Marriott, L.P. and Crestline
Capital Corporation (incorporated by reference to Host Marriott
Corporation Registration Statement No. 333-64793).
10.34 Amendment to the Employee Benefits and Other Employment Matters
Allocation Agreement effective as of December 29, 1998 by and between
Host Marriott Corporation, Marriott International, Sodexho Marriott
Services, Inc., Crestline Capital Corporation and Host Marriott, L.P.
(incorporated by reference to Exhibit 10.34 of Host Marriott
Corporation's Form 10-K for the year ended December 31, 1998).
10.35 Pool Guarantee Agreement between Host Marriott Corporation, the lessees
referred to therein and Crestline Capital Corporation (incorporated by
reference to Host Marriott Registration Statement No. 333-64793).
10.36 Pooling and Security Agreement by and among Host Marriott Corporation
and Crestline Capital Corporation (incorporated by reference to Host
Marriott Corporation Registration Statement No.
333-64793).
10.37 Amended and Restated Communities Noncompetition Agreement (incorporated
by reference to Host Marriott Corporation Registration Statement No.
333-64793).
10.38 Asset Management Agreement between Host Marriott, L.P., and Crestline
Capital Corporation (incorporated by reference to Crestline Capital
Corporation Registration Statement No. 333-64657).
10.39 Registration Rights Agreement, dated as of October 6, 2000, by and among
Host Marriott, L.P., the Guarantors named therein and the Purchasers
named therein.
10.40 Amended and Restated Credit Agreement dated as of June 19, 1997 and
Amended and Restated as of August 5, 1998 and further Amended and
Restated as of May 31, 2000 among Host Marriott Corporation, Host
Marriott, L.P., Various Banks, and Bankers Trust Company, as
Administrative Agent.
10.41 First Amendment to the Amended and Restated Credit Agreement dated as of
June 19, 1997 and Amended and Restated as of August 5, 1998 and further
Amended and Restated as of May 31, 2000 among Host Marriott Corporation,
Host Marriott, L.P., Various Banks, and Bankers Trust Company, as
Administrative Agent, dated as of October 6, 2000.
10.42 Acquisition and Exchange Agreement dated November 13, 2000 by Host
Marriott, L.P. and Crestline Capital Corporation (incorporated by
reference to Exhibit 99.2 of Host Marriott, L.P.'s Form 8-K/A filed
December 14, 2000).
12.1 Computation of Ratios of Earnings to Fixed Charges.
21.1 List of Subsidiaries of Host Marriott, L.P. (incorporated by reference
to Exhibit 21 of Host Marriott, L.P.'s Form 10-K for the year ended
December 31, 1998).
23.1 Consent of Christopher G. Townsend (included as part of Exhibit 5).
23.2 Consent of Latham & Watkins (included as part of Exhibit 8).
23.3 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (included on signature page).
25.1 Statement of Eligibility and Qualification on Form T-1 of HSBC Bank USA,
as trustee for the 9 1/4% Series G Senior Notes due 2007 of the
Registrant.
99.1 Form of Letter of Transmittal and related documents to be used in
conjunction with the exchange offer.
99.2 Form of Notice of Guaranteed Delivery to be used in conjunction with the
exchange offer.
</TABLE>
--------
(B) Financial Statement Schedules
<TABLE>
<S> <C>
Schedule III--Real Estate and Accumulated Depreciation...................... S-1
</TABLE>
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<PAGE>
Item 22. Undertakings
A. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expense incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted against the registrant by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's Annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's Annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
D. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
E. (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145, the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933, as amended,
and is used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
F. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
II-6
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information in the registration
statement. To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, That paragraphs (a)(1)(i) and (a)(1)(ii) of this section
do not apply if the registration statement is on Form S-3 or Form S-8 or Form
F-3, and the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed with or furnished to
the Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland on this 15th day of December, 2000.
HOST MARRIOTT, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By:
----------------------------------
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Host Marriott Corporation, do
hereby constitute and appoint Christopher G. Townsend, our true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
to do any and all acts and things in our names and on our behalf in our
capacities as directors and officers and to execute any and all instruments for
us in the capacities indicated below, which said attorney and agent may deem
necessary or advisable to enable said corporation to comply with the Securities
Act of 1933 and any rules, regulations and agreements of the Securities and
Exchange Commission, in connection with this registration statement, or any
registration statement for this offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, including
specifically, but without limitation, any and all amendments (including post-
effective amendments) hereto; and we hereby ratify and confirm all that said
attorney and agent shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement on Form S-4 has been signed below by the following
persons in their capacities on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Christopher J. Nassetta President, Chief Executive December 15, 2000
______________________________________ Officer and Director
Christopher J. Nassetta (Principal Executive
Officer)
/s/ Robert E. Parsons, Jr. Executive Vice President December 15, 2000
______________________________________ and Chief Financial
Robert E. Parsons, Jr. Officer (Principal
Financial Officer)
/s/ Donald D. Olinger Senior Vice President and December 15, 2000
______________________________________ Corporate Controller
Donald D. Olinger (Principal Accounting
Officer)
/s/ Richard E. Marriott Chairman of the Board of December 15, 2000
______________________________________ Directors
Richard E. Marriott
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
/s/ R. Theodore Ammon Director December 15, 2000
______________________________________
R. Theodore Ammon
/s/ Robert M. Baylis Director December 15, 2000
______________________________________
Robert M. Baylis
/s/ Terence C. Golden Director December 15, 2000
______________________________________
Terence C. Golden
/s/ J.W. Marriott, Jr. Director December 15, 2000
______________________________________
J.W. Marriott, Jr.
/s/ Ann Dore McLaughlin Director December 15, 2000
______________________________________
Ann Dore McLaughlin
/s/ John G. Schreiber Director December 15, 2000
______________________________________
John G. Schreiber
/s/ Harry L. Vincent, Jr. Director December 15, 2000
______________________________________
Harry L. Vincent, Jr.
</TABLE>
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMH Rivers, L.P
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMH Marina LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC SBM Two LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Retirement Properties, L.P.
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMH Pentagon LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
Airport Hotels LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
Chesapeake Financial Services LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Capital Resources LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
PRM LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
Host Park Ridge LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
Philadelphia Airport Hotel LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Hartford LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMH Norfolk LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMH Norfolk, L.P.
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Partnership Holdings LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Suites LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Suites Limited Partnership
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
Wellsford-Park Ridge Host Hotel
Limited Partnership
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
City Center Interstate Partnership
LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
Farrell's Ice Cream Parlor
Restaurants LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Burlingame LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC California Leasing LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Capital LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Grand LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Mexpark LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-34
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Polanco LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-35
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC NGL LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-36
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC OLS I L.P.
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-37
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC RTZ Loan I LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-38
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC RTZ II LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Seattle LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-40
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Swiss Holdings LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-41
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Waterford LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-42
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMH Restaurants LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-43
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMH Rivers LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-44
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMH WTC LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-45
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMP Capital Ventures LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-46
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
Host La Jolla LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-47
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
City Center Hotel Limited
Partnership
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-48
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
MFR of Illinois LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-49
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
MFR of Vermont LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-50
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
MFR of Wisconsin LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-51
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
PM Financial LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-52
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
PM Financial LP
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-53
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Chicago LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-54
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC HPP LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-55
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Desert LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-56
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Hanover LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-57
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Diversified LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-58
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Properties I LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-59
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Potomac LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-60
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC East Side II LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-61
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Manhattan Beach LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-62
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
Chesapeake Hotel Limited Partnership
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-63
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMH General Partner Holdings LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-64
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC IHP Holdings LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-65
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC OP BN LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-66
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
S.D. Hotels LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-67
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Gateway LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-68
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Pacific Gateway LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-69
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Market Street LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-70
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
New Market Street LP
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-71
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
Times Square LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-72
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
Times Square GP LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-73
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Atlanta LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-74
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
Ivy Street LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-75
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Properties II LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-76
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
Santa Clara HMC LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-77
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC BCR Holdings LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-78
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Palm Desert LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-79
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Georgia LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-80
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC SFO LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-81
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
Market Street Host LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-82
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Property Leasing LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-83
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Host Restaurants LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By:__________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-84
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
Durbin LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By:_________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-85
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC HT LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By:_________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-86
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC JWDC GP LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-87
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC JWDC LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-88
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC OLS I LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-89
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC OLS II L.P.
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-90
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
HMC Park Ridge LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-91
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
Host of Houston 1979
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-92
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
Host of Houston, Ltd.
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-93
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
Host of Boston, Ltd.
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-94
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Bethesda, State of Maryland, on this 15th day of December, 2000.
YBG Associates LLC
By: Host Marriott, L.P.
By: Host Marriott Corporation, as
General Partner of Host
Marriott, L.P.
/s/ Robert E. Parsons, Jr.
By: _________________________________
Name: Robert E. Parsons, Jr.
Title: Executive Vice President
and Chief Financial Officer
II-95
<PAGE>
SCHEDULE III
Page 1 of 3
HOST MARRIOTT, L.P. AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(in millions)
<TABLE>
<CAPTION>
Gross Amount at
Initial Costs December 31, 1999
----------------- ------------------------
Subsequent Date of
Buildings & Costs Buildings & Accumulated Completion of Date Depreciation
Description Debt Land Improvements Capitalized Land Improvements Total Depreciation Construction Acquired Life
----------------- ------ ---- ------------ ----------- ---- ------------ ------ ------------ ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Full-service
hotels:
New York
Marriott Marquis
Hotel, New York,
NY.............. $ 269 $-- $ 552 $ 45 $-- $ 597 $ 597 $(162) 1986 n/a 40
Other full-
service
properties, each
less than 5% of
total........... $2,040 $749 $5,510 $505 $687 $6,077 $6,764 $(677) various various 40
------ ---- ------ ---- ---- ------ ------ -----
Total full-
service......... 2,309 749 6,062 550 687 6,674 7,361 (839)
Other
properties, each
less than 5% of
total........... -- 40 27 (54) -- 13 13 (14) various n/a various
------ ---- ------ ---- ---- ------ ------ -----
Total........... $2,309 $789 $6,089 $496 $687 $6,687 $7,374 $(853)
====== ==== ====== ==== ==== ====== ====== ===== ------- ------- -------
</TABLE>
S-1
<PAGE>
SCHEDULE III
Page 2 of 3
HOST MARRIOTT, L.P. AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(in millions)
Notes:
(A) The change in total cost of properties for the fiscal years ended December
31, 1999 and 1998, and January 2, 1998 is as follows:
<TABLE>
<S> <C>
Balance at January 3, 1997........................................... $3,856
Additions:
Acquisitions....................................................... 1,459
Capital expenditures............................................... 117
Transfers from construction-in-progress............................ 30
Deductions:
Dispositions and other............................................. (145)
------
Balance at January 2, 1998........................................... 5,317
Additions:
Acquisitions....................................................... 2,849
Capital Expenditures............................................... 46
Transfers from construction-in-progress............................ 14
Deductions:
Dispositions and other............................................. (91)
Transfers to Non-Controlled Subsidiary............................. (139)
Transfers to Spin-Off (Crestline Capital Corporation).............. (643)
------
Balance at December 31, 1998......................................... 7,353
Additions:
Acquisitions....................................................... 100
Capital expenditures............................................... 69
Transfers from construction-in-progress............................ 7
Other.............................................................. 40
Deductions:
Dispositions and other............................................. (195)
------
Balance at December 31, 1999......................................... $7,374
======
</TABLE>
S-2
<PAGE>
SCHEDULE III
Page 3 of 3
HOST MARRIOTT, L.P. AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(in millions)
(B) The change in accumulated depreciation and amortization of real estate
assets for the fiscal years ended December 31, 1998, January 2, 1998 and
January 3, 1997 is as follows:
<TABLE>
<S> <C>
Balance at January 3, 1997............................................. $411
Depreciation and amortization.......................................... 126
Dispositions and other................................................. (31)
----
Balance at January 2, 1998............................................. 506
Depreciation and amortization.......................................... 132
Dispositions and other................................................. (13)
Transfers to Non-Controlled Subsidiary................................. (29)
Transfers to Spin-Off (Crestline Capital Corporation).................. (21)
----
Balance at December 31, 1998........................................... 575
Depreciation and amortization.......................................... 243
Dispositions........................................................... (4)
Other.................................................................. 39
----
Balance at December 31, 1999........................................... $853
====
</TABLE>
(C) The aggregate cost of properties for Federal income tax purposes is
approximately $5,221 million at December 31, 1999.
(D) The total cost of properties excludes construction-in-progress properties.
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
2.1 Agreement and Plan by and among Host Marriott Corporation, HMC
Merger Corporation and Host Marriott L.P. (incorporated by
reference to Host Marriott Corporation Registration Statement No.
333-64793).
3.3 Bylaws of Host Marriott Corporation dated September 28, 1998
(incorporated by reference to Host Marriott Corporation
Registration Statement No. 333-64793).
3.4 Articles of Amendment and Restatement of Articles of Incorporation
of Host Marriott Corporation (incorporated by reference to Host
Marriott Corporation Registration Statement No. 333-64793).
4.1 Indenture by and among HMH Properties, Inc., as Issuer, and the
Subsidiary Guarantors named therein, and Marine Midland Bank, as
Trustee (incorporated by reference to Host Marriott Corporation
Current Report on Form 8-K dated August 6, 1998).
4.2 Sixth Supplemental Indenture, dated October 6, 2000, between Host
Marriott, L.P., the Subsidiary Guarantors named therein and Marine
Midland Bank, as Trustee.
5.1 Opinion of Christopher G. Townsend as to the legality of the
securities being registered.
8.1 Opinion of Latham & Watkins regarding certain tax matters.
10.1 Second Amended and Restated Agreement of Limited Partnership of
Host Marriott, L.P., (incorporated by reference to Exhibit 3.1 of
Host Marriott Corporation Registration Statement No. 333-55807).
10.2 Indenture between Host Marriott L.P., as Issuer, and Marine
Midland Bank, as Indenture Trustee, and Form of 6.56% Callable
Note due December 15, 2005 (incorporated by reference to Exhibit
4.1 of Host Marriott Corporation Registration Statement No. 333-
55807).
10.3 Amended and Restated Credit Agreement dated as of June 19, 1997
and Amended and Restated as of August 5, 1998 among Host Marriott
Corporation, Host Marriott Hospitality, Inc., HMH Properties,
Inc., Host Marriott, L.P., HMC Capital Resources Corp., Various
Banks, Wells Fargo Bank, National Association, The Bank of Nova
Scotia and Credit Lyonnais New York Branch, as Co-Arrangers, and
Bankers Trust Company as Arranger and Administrative Agent
(incorporated by reference to Host Marriott Corporation Current
Report on Form 8-K dated September 11, 1998).
10.4 First Amendment and Waiver of Amended and Restated Credit
Agreement dated as of June 19, 1997 and Amended and Restated as of
August 5, 1998, among Host Marriott Corporation, Host Marriott
Hospitality Inc., HMH Properties, Inc., Host Marriott, L.P., HMC
Capital Resources Corp., Various Banks, Wells Fargo Bank, National
Association, The Bank of Nova Scotia and Credit Lyonnais New York
Branch, as Co-Arrangers and Bankers Trust Company as Arranger and
Administrative Agent dated as of November 25, 1998 (incorporated
by reference to Exhibit 10.4 of Host Marriott Corporation's Form
10-K for the year ended December 31, 1998).
10.5 Second Amendment and Consent to Credit Agreement of Amended and
Restated Credit Agreement dated as of June 19, 1997 and Amended
and Restated as of August 5, 1998, among Host Marriott
Corporation, Host Marriott Hospitality Inc., HMH Properties, Inc.,
Host Marriott, L.P., HMC Capital Resources Corp., Various Banks,
Wells Fargo Bank, National Association, The Bank of Nova Scotia
and Credit Lyonnais New York Branch, as Co-Arrangers and Bankers
Trust Company as Arranger and Administrative Agent dated as of
December 17, 1998 (incorporated by reference to Exhibit 10.5 of
Host Marriott Corporation's Form 10-K for the year ended December
31, 1998).
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10.6 Third Amendment and Waiver to Credit Agreement of Amended and Restated
Credit Agreement dated as of June 19, 1997 and Amended and Restated as
of August 5, 1998, among Host Marriott Corporation, Host Marriott
Hospitality Inc., HMH Properties, Inc., Host Marriott, L.P., HMC Capital
Resources Corp., Various Banks, Wells Fargo Bank, National Association,
The Bank of Nova Scotia and Credit Lyonnais New York Branch, as Co-
Arrangers and Bankers Trust Company as Arranger and Administrative Agent
dated as of March 15, 1999 (incorporated by reference to Exhibit 10.6 of
Host Marriott Corporation's Form 10-K for the year ended December 31,
1998).
10.7 Host Marriott L.P. Executive Deferred Compensation Plan effective as of
December 29, 1998 (formerly the Marriott Corporation Executive Deferred
Compensation Plan) (incorporated by reference to Exhibit 10.7 of Host
Marriott Corporation's Form 10-K for the year ended December 31, 1998).
10.8 Host Marriott Corporation 1997 Comprehensive Incentive Stock Plan
(incorporated by reference to Host Marriott Corporation's Proxy
Statement filed April 3, 1997).
10.9 Distribution Agreement dated as of September 15, 1993 between Marriott
Corporation and Marriott International, Inc. (incorporated by reference
from Host Marriott Corporation Current Report on Form 8-K dated October
23, 1993).
10.10 Amendment No. 1 to the Distribution Agreement dated December 29, 1995 by
and among Host Marriott Corporation, Host Marriott Services Corporation
and Marriott International, Inc., (incorporated by reference to Host
Marriott Corporation Current Report on Form 8-K dated January 16, 1996).
10.11 Amendment No. 2 to the Distribution Agreement dated June 21, 1997 by and
among Host Marriott Corporation, Host Marriott Services Corporation and
Marriott International, Inc. (incorporated by reference to Host Marriott
Corporation Registration Statement No. 333-64793).
10.12 First Amendment and Waiver of Amended and Restated Credit Agreement
dated as of June 19, 1997 and Amended and Restated as of August 5, 1998,
among Host Marriott Corporation, Host Marriott Hospitality Inc., HMH
Properties, Inc., Host Marriott, L.P., HMC Capital Resources Corp.,
Various Banks, Wells Fargo Bank, National Association, The Bank of Nova
Scotia and Credit Lyonnais New York Branch, as Co-Arrangers and Bankers
Trust Company as Arranger and Administrative Agent dated as of November
25, 1998 (incorporated by reference to Exhibit 10.4 of Host Marriott
Corporation's Form 10-K for the year ended December 31, 1998).
10.13 Amendment No. 4 to the Distribution Agreement by and among Host Marriott
Corporation and Marriott International Inc. (incorporated by reference
to Host Marriott Corporation Registration Statement No. 333-64793).
10.14 Amendment No. 5 to the Distribution Agreement dated December 18, 1998 by
and among Host Marriott Corporation, Host Marriott Services Corporation
and Marriott International Inc., (incorporated by reference to Exhibit
10.14 of Host Marriott Corporation's Form 10-K for the year ended
December 31, 1998).
10.15 Distribution Agreement dated December 22, 1995 by and between Host
Marriott Corporation and Host Marriott Services Corporation
(incorporated by reference to Host Marriott Corporation Current Report
on Form 8-K dated January 16, 1996).
10.16 Amendment to Distribution Agreement dated December 22, 1995 by and
between Host Marriott Corporation and Host Marriott Services Corporation
(incorporated by reference to Exhibit 10.16 of Host Marriott
Corporation's Form 10-K for the year ended December 31, 1998).
10.17 Tax Sharing Agreement dated as of October 5, 1993 by and between
Marriott Corporation and Marriott International, Inc. (incorporated by
reference to Host Marriott Corporation Current Report on Form 8-K dated
October 23, 1993).
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10.18 License Agreement dated as December 29, 1998 by and among Host Marriott
Corporation, Host Marriott, L.P., Marriott International, Inc., and
Marriott Worldwide Corporation (incorporated by reference to Exhibit
10.18 of Host Marriott Corporation's Form 10-K for the year ended
December 31, 1998).
10.19 Noncompetition Agreement between Host Marriott Corporation, Host
Marriott, L.P., and Crestline Capital Corporation and other parties
named therein (incorporated by reference to Exhibit 10.19 of Host
Marriott Corporation's Form 10-K for the year ended December 31, 1998).
10.20 Tax Administration Agreement dated as of October 8, 1993 by and between
Marriott Corporation and Marriott International, Inc., (incorporated by
reference to Host Marriott Corporation Current Report on Form 8-K dated
October 23, 1993).
10.21 Restated Noncompetition Agreement dated March, 1998 by and among Host
Marriott Corporation, Marriott International, Inc., and Sodexho Marriott
Services, Inc., (incorporated by reference to Host Marriott Corporation
Registration Statement No. 333-64793).
10.22 First Amendment to Restated Noncompetition Agreement by and among Host
Marriott Corporation, Marriott International, Inc., Sodexho Marriott
Services, Inc. (incorporated by reference to Host Marriott Corporation
Registration Statement No. 333-64793).
10.23 Host Marriott Lodging Management Agreement--Marriott Hotels, Resorts and
Hotels dated September 25, 1993 by and between Marriott Corporation and
Marriott International, Inc. (incorporated by reference to Host Marriott
Corporation registration Statement No. 33-51707).
10.24 Employee Benefits and Other Employment Matters Allocation Agreement
dated as of December 29, 1995 by and between Host Marriott Corporation
and Host Marriott Services Corporation (incorporated by reference to
Host Marriott Corporation Current Report on Form 8-K dated January 16,
1996).
10.25 Tax Sharing Agreement dated as of December 29, 1995 by and between Host
Marriott Corporation and Host Marriott Services Corporation
(incorporated by reference to Host Marriott Corporation Current Report
on Form 8-K dated January 16, 1996).
10.26 Host Marriott, L.P. Retirement and Savings Plan and Trust (incorporated
by reference to Exhibit 10.26 of Host Marriott Corporation's Form 10-K
for the year ended December 31, 1998).
10.27 Contribution Agreement dated as of April 16, 1998 among Host Marriott
Corporation, Host Marriott, L.P. and the contributors named therein,
together with Exhibit B (incorporated by reference to Exhibit 10.18 of
Host Marriott Corporation Registration Statement No. 333-55807).
10.28 Amendment No. 1 to Contribution Agreement dated May 8, 1998 among
Marriott Corporation, Host Marriott, L.P. and the contributors named
therein (incorporated by reference to Exhibit 10.19 of Host Marriott
Corporation Registration Statement No. 333-55807).
10.29 Amendment No. 2 to Contribution Agreement dated May 18, 1998 among Host
Marriott Corporation, Host Marriott, L.P. and the contributors named
therein (incorporated by reference to Exhibit 10.20 of Host Marriott
Corporation Registration Statement No. 333-55807).
10.30 Form of Lease Agreement (incorporated by reference to Host Marriott
Corporation Registration Statement No. 333-64793).
10.31 Form of Management Agreement of Full-Service Hotels (incorporated by
reference to Host Marriott Corporation Registration Statement No. 33-
51707).
10.32 Form of Owner's Agreement between Host Marriott Corporation, Marriott
International and Crestline Capital Corporation (incorporated by
reference to Crestline Capital Corporation Registration Statement No.
333-64657).
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10.33 Employee Benefits and Other Employment Matters Allocation Agreement
between Host Marriott Corporation, Host Marriott, L.P. and Crestline
Capital Corporation (incorporated by reference to Host Marriott
Corporation Registration Statement No. 333-64793).
10.34 Amendment to the Employee Benefits and Other Employment Matters
Allocation Agreement effective as of December 29, 1998 by and between
Host Marriott Corporation, Marriott International, Sodexho Marriott
Services, Inc., Crestline Capital Corporation and Host Marriott, L.P.
(incorporated by reference to Exhibit 10.34 of Host Marriott
Corporation's Form 10-K for the year ended December 31, 1998).
10.35 Pool Guarantee Agreement between Host Marriott Corporation, the lessees
referred to therein and Crestline Capital Corporation (incorporated by
reference to Host Marriott Registration Statement No. 333-64793).
10.36 Pooling and Security Agreement by and among Host Marriott Corporation
and Crestline Capital Corporation (incorporated by reference to Host
Marriott Corporation Registration Statement No.
333-64793).
10.37 Amended and Restated Communities Noncompetition Agreement (incorporated
by reference to Host Marriott Corporation Registration Statement No.
333-64793).
10.38 Asset Management Agreement between Host Marriott, L.P., and Crestline
Capital Corporation (incorporated by reference to Crestline Capital
Corporation Registration Statement No. 333-64657).
10.39 Registration Rights Agreement, dated as of October 6, 2000, by and among
Host Marriott, L.P., the Guarantors named therein and the Purchasers
named therein.
10.40 Amended and Restated Credit Agreement dated as of June 19, 1997 and
Amended and Restated as of August 5, 1998 and further Amended and
Restated as of May 31, 2000 among Host Marriott Corporation, Host
Marriott, L.P., Various Banks, and Bankers Trust Company, as
Administrative Agent.
10.41 First Amendment to the Amended and Restated Credit Agreement dated as of
June 19, 1997 and Amended and Restated as of August 5, 1998 and further
Amended and Restated as of May 31, 2000 among Host Marriott Corporation,
Host Marriott, L.P., Various Banks, and Bankers Trust Company, as
Administrative Agent, dated as of October 6, 2000.
10.42 Acquisition and Exchange Agreement dated November 13, 2000 by Host
Marriott, L.P. and Crestline Capital Corporation (incorporated by
reference to Exhibit 99.2 of Host Marriott, L.P.'s Form 8-K/A filed
December 14, 2000).
12.1 Computation of Ratios of Earnings to Fixed Charges.
21.1 List of Subsidiaries of Host Marriott, L.P. (incorporated by reference
to Exhibit 21 of Host Marriott, L.P.'s Form 10-K for the year ended
December 31, 1998).
23.1 Consent of Christopher G. Townsend (included as part of Exhibit 5).
23.2 Consent of Latham & Watkins (included as part of Exhibit 8).
23.3 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (included on signature page).
25.1 Statement of Eligibility and Qualification on Form T-1 of HSBC Bank USA,
as trustee for the 9 1/4% Series G Senior Notes due 2007 of the
Registrant.
99.1 Form of Letter of Transmittal and related documents to be used in
conjunction with the exchange offer.
99.2 Form of Notice of Guaranteed Delivery to be used in conjunction with the
exchange offer.
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(B) Financial Statement Schedules
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Schedule III--Real Estate and Accumulated Depreciation...................... S-1
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