<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 18, 1999 Commission File No. 0-25087
HOST MARRIOTT, L.P.
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-9000
Delaware 52-2095412
- -------------------------- ------------------
(State of Incorporation) (I.R.S. Employer
Identification Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
-----
<TABLE>
<CAPTION>
Units outstanding
Class at July 27, 1999
- --------------------- ----------------
<S> <C>
Units of limited partnership interest 292,854,286
Units of Cumulative Redeemable Preferred limited partnership interest 585,777
</TABLE>
<PAGE>
INDEX
-----
Part I. FINANCIAL INFORMATION (Unaudited): Page No.
--------
Condensed Consolidated Balance Sheets - 3
June 18, 1999 and December 31, 1998
Condensed Consolidated Statements of Operations - 4
Twelve Weeks and Twenty-four Weeks Ended
June 18, 1999 and June 19, 1998
Condensed Consolidated Statements of Cash Flows - 8
Twenty-four Weeks Ended June 18, 1999 and
June 19, 1998
Notes to Condensed Consolidated Financial Statements 9
Management's Discussion and Analysis of Results of 22
Operations and Financial Condition
-2-
<PAGE>
HOST MARRIOTT, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
June 18, December 31,
1999 1998
------- --------
(unaudited)
ASSETS
------
<S> <C> <C>
Property and equipment, net ................................................................ $ 7,214 $ 7,201
Notes and other receivables (including amounts due from
affiliates of $131 million and $134 million, respectively) ............................. 219 203
Rent receivable ............................................................................ 86 --
Due from managers .......................................................................... -- 19
Investments in affiliates .................................................................. 45 33
Other assets ............................................................................... 414 370
Cash and cash equivalents .................................................................. 310 436
------- -------
$ 8,288 $ 8,262
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Debt
Senior notes ........................................................................... $ 2,546 $ 2,246
Mortgage debt .......................................................................... 2,230 2,438
Convertible debt obligation to Host Marriott ........................................... 567 567
Other .................................................................................. 456 447
------- -------
5,799 5,698
Accounts payable and accrued expenses ...................................................... 150 204
Deferred income taxes ...................................................................... 96 97
Deferred rent .............................................................................. 253 --
Other liabilities .......................................................................... 420 460
------- -------
Total liabilities ..................................................................... 6,718 6,459
------- -------
Minority interest .......................................................................... 142 147
Limited Partnership interests of third parties at redemption value
(representing 64.6 million units at June 18, 1999
and December 31, 1998) ................................................................. 783 892
Partners' Capital
General partner ........................................................................ 1 1
Limited partner ........................................................................ 647 767
Accumulated other comprehensive loss ................................................... (3) (4)
------- -------
Total shareholders' equity ........................................................... 645 764
------- -------
$ 8,288 $ 8,262
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-3-
<PAGE>
HOST MARRIOTT, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve weeks ended June 18, 1999 and June 19, 1998
(unaudited, in millions)
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
REVENUES
Rental income (Note 2, 3) ................................................................ $ 187 $ --
Hotel sales
Rooms .................................................................................. -- 511
Food and beverage ...................................................................... -- 222
Other .................................................................................. -- 54
Interest income .......................................................................... 8 10
Net gains on property transactions ....................................................... 4 51
Equity (loss) in earnings of affiliates .................................................. 1 (2)
Other .................................................................................... 3 3
----- -----
Total revenues ......................................................................... 203 849
----- -----
EXPENSES
Depreciation ............................................................................. 67 60
Property-level expenses .................................................................. 62 60
Hotel operating expenses
Rooms .................................................................................. -- 113
Food and beverage ...................................................................... -- 158
Other department costs and deductions .................................................. -- 185
Management fees (including Marriott International
management fees of $55 million in 1998) ............................................. -- 50
Minority interest (benefit) .............................................................. 7 14
Interest expense ......................................................................... 109 76
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") ............................... -- 8
Corporate expenses ....................................................................... 8 9
REIT Conversion expenses ................................................................. -- 6
Other expenses ............................................................................... 5 5
----- -----
258 744
----- -----
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES ............................................................................. (55) 105
Provision for income taxes ................................................................... -- (43)
----- -----
INCOME (LOSS) FROM CONTINUING OPERATIONS ..................................................... (55) 62
INCOME FROM DISCONTINUED OPERATIONS, net of taxes ............................................ -- 4
----- -----
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN ...................................................... (55) 66
Extraordinary item-gain on forgiveness of debt ......................................... 13 --
----- -----
NET INCOME (LOSS) ............................................................................ $ (42) $ 66
===== =====
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-4-
<PAGE>
HOST MARRIOTT, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (cont.)
Twelve weeks ended June 18, 1999 and June 19, 1998
(unaudited)
<TABLE>
<CAPTION>
BASIC EARNINGS (LOSS) PER UNIT:
<S> <C> <C>
Continuing operations................................................................... $ (0.19) $ 0.29
Discontinued operations (net of income taxes)........................................... -- 0.02
Extraordinary item-gain on forgiveness of debt.......................................... 0.04 --
-------- --------
BASIC EARNINGS (LOSS) PER UNIT:......................................................... $ (0.15) $ 0.31
======== ========
DILUTED EARNINGS (LOSS) PER UNIT:
Continuing operations................................................................... $ (0.19) $ 0.26
Discontinued operations (net of income taxes)........................................... -- 0.02
Extraordinary item-gain on forgiveness of debt.......................................... 0.04 --
-------- --------
DILUTED EARNINGS (LOSS) PER UNIT........................................................ $ (0.15) $ 0.28
======== ========
</TABLE>
See notes to Condensed Consolidated Financial Statements
-5-
<PAGE>
HOST MARRIOTT, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twenty-four weeks ended June 18, 1999 and June 19, 1998
(unaudited, in millions)
<TABLE>
<CAPTION>
1999 1998
-------- ------
REVENUES
<S> <C> <C>
Rental income (Note 2, 3) .................................................................. $ 358 $ --
Hotel sales
Rooms .................................................................................... -- 1,020
Food and beverage ........................................................................ -- 444
Other .................................................................................... -- 110
Interest income ............................................................................ 16 24
Net gains on property transactions ......................................................... 16 52
Equity (loss) in earnings of affiliates .................................................... 2 (1)
Other ...................................................................................... 3 5
------- -------
Total revenues .......................................................................... 395 1,654
------- -------
EXPENSES
Depreciation ........................................................................... 133 113
Property-level expenses ................................................................ 120 122
Hotel operating expenses
Rooms ................................................................................ -- 227
Food and beverage .................................................................... -- 321
Other department costs and deductions ................................................ -- 374
Management fees (including Marriott International
management fees of $102 million in 1998) .......................................... -- 108
Minority interest (benefit) ............................................................ 11 30
Interest expense ....................................................................... 217 152
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") ........................................ -- 17
Corporate expenses ..................................................................... 16 21
REIT conversion expenses ............................................................... -- 6
Other expenses ......................................................................... 9 10
------- -------
506 1,501
------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES ............................................................................. (111) 153
Provision for income taxes ................................................................. -- (63)
------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS ................................................... (111) 90
INCOME FROM DISCONTINUED OPERATIONS, net of taxes .......................................... -- 6
------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM .................................................... (111) 96
Extraordinary item--gain on forgiveness of debt ...................................... 13 --
------- -------
NET INCOME (LOSS) .......................................................................... $ (98) $ 96
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-6-
<PAGE>
HOST MARRIOTT, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (cont.)
Twenty-four weeks ended June 18, 1999 and June 19, 1998
(unaudited)
<TABLE>
<CAPTION>
BASIC EARNINGS (LOSS) PER UNIT:
<S> <C> <C>
Continuing operations................................................................... $ (0.38) $ 0.42
Discontinued operations (net of income taxes)........................................... -- 0.03
Extraordinary item-gain on forgiveness of debt.......................................... 0.04 --
-------- --------
BASIC EARNINGS (LOSS) PER UNIT:......................................................... $ (0.34) $ 0.45
======== ========
DILUTED EARNINGS (LOSS) PER UNIT:
Continuing operations................................................................... $ (0.38) $ 0.39
Discontinued operations (net of income taxes)........................................... -- 0.02
Extraordinary item-gain on forgiveness of debt.......................................... 0.04 --
-------- --------
DILUTED EARNINGS (LOSS) PER UNIT........................................................ $ (0.34) $ 0.41
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-7-
<PAGE>
HOST MARRIOTT, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS
Twenty-four weeks ended June 18,
1999 and June 19, 1998
(unaudited, in millions)
<TABLE>
<CAPTION>
1999 1998
--------- ----------
OPERATING ACTIVITIES
<S> <C> <C>
Income (loss) from continuing operations................................................ $ (111) $ 153
Adjustments to reconcile to cash from continuing operations:
Depreciation and amortization....................................................... 135 114
Income taxes........................................................................ -- 45
Gain on sale of hotel properties.................................................... (16) (51)
Equity in earnings of affiliates........................................................ (2) 1
Changes in operating accounts........................................................... 83 (86)
Other................................................................................... 22 27
--------- ---------
Cash from continuing operations..................................................... 111 203
Cash from discontinued operations................................................... -- 3
--------- ---------
Cash from operations................................................................ 111 206
--------- ---------
INVESTING ACTIVITIES
Proceeds from sales of assets........................................................... 35 209
Acquisitions............................................................................ (4) (358)
Capital expenditures:
Renewals and replacements........................................................... (86) (77)
Development projects................................................................ (75) (18)
Other investment.................................................................... (16) (14)
Purchases of short-term marketable securities........................................... -- (97)
Sales of short-term marketable securities............................................... -- 405
Note receivable advances, net of collections............................................ (17) 4
Affiliate collections, net.............................................................. -- 14
Other................................................................................... -- (25)
--------- ----------
Cash (used in) from investing activities from continuing operations................. (163) 43
Cash used in investing activities from discontinued operations...................... -- (2)
--------- ---------
Cash (used in) from investing activities............................................ (163) 41
--------- ---------
FINANCING ACTIVITIES
Issuances of debt, net.................................................................. 413 5
Repurchase of units..................................................................... (3) --
Distribution............................................................................ (130) --
Scheduled principal repayments.......................................................... (23) (18)
Debt prepayments........................................................................ (323) (49)
Other................................................................................... (8) (31)
--------- ---------
Cash used in financing activities from continuing operations........................ (74) (93)
Cash used in financing activities from discontinued operations...................... -- (150)
--------- ----------
Cash used in financing activities................................................... (74) (243)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................................ $ (126) $ 4
========= =========
Non-cash financing activities:
Assumption of mortgage debt for the acquisition of, or purchase of
controlling interests in, certain hotel properties............................... $ -- $ 164
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-8-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Organization
Host Marriott Corporation ("Host Marriott"), operating through an umbrella
partnership REIT structure, is the owner of hotel properties. Host Marriott
operates as a self-managed and self-administered real estate investment
trust ("REIT") and its operations are conducted through an operating
partnership and its subsidiaries. As REITs are not currently permitted to
derive revenues directly from the operation of hotels, Host Marriott leases
substantially all of its hotels to subsidiaries of Crestline Capital
Corporation ("Crestline" or the "Lessee") and certain other lessees.
In these condensed consolidated financial statements, the "Company" or
"Host Marriott" refers to Host Marriott Corporation and its consolidated
subsidiaries before, and Host Marriott, L.P. and its consolidated
subsidiaries (the "Operating Partnership"), 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 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. 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 (the "Distribution"). 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 June 18, 1999,
Host Marriott owned approximately 78% of the Operating Partnership.
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. All historical
financial statements presented have been restated to conform to this
presentation.
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 generally accepted accounting
principles 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, 1998.
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 June 18, 1999
and December 31, 1998, and the results of operations for the twelve and
twenty-four weeks ended June 18, 1999 and June 19, 1998 and cash flows for
the twenty-four weeks ended June 18, 1999 and June 19, 1998.
-9-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The statements of operations for the twelve and twenty-four weeks ended
June 19, 1998 and the cash flows for the twenty-four weeks ended June 19,
1998 reflect the historical results of Host Marriott Corporation as
discussed in Note 1. Interim results are not necessarily indicative of
fiscal year performance because of the impact of seasonal and short-term
variations.
The Company's leases have remaining terms ranging from 2 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 sale 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.
The staff of the Securities & Exchange Commission issued Staff Accounting
Bulletin 101 "Revenue Recognition" (SAB 101) in December 1999. SAB 101
discusses factors to consider in determining when contingent revenue should
be recognized during interim periods. The Company has adopted SAB 101
effective January 1, 1999 and has therefore amended its previously filed
Form 10-Q to reflect this change in accounting principle. As a result of
the adoption of SAB 101, $138 million and $253 million of contingent rent
previously recognized as revenue during the twelve weeks and twenty-four
weeks ended June 18, 1999 has been deferred and recognized in subsequent
periods of fiscal year 1999. As of December 31, 1999 all of the thresholds
were reached and all contingent rent was recognized. SAB 101 has no impact
on the Company's annual revenue recognition, net income or earnings per
share. SAB 101 had no effect on prior year periods as the hotel leases were
not in effect prior to the REIT Conversion.
3. Rental Revenue
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. Also, in December 1998 the Company
retroactively adopted Emerging Issues Task Force Issue No. 97-2,
"Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician
Management Entities and Certain Other Entities with Contractual Management
Arrangements." The impact of the adoption of Issue 97-2 on the condensed
consolidated financial statements for the twelve and twenty-four weeks
ended June 19, 1998 was to increase both revenues and operating expenses by
approximately $456 million and $922 million, respectively, with no impact
on net income or earnings per share.
The comparison of the 1999 quarterly results with 1998 is also affected by
a change in the reporting period for the Company's hotels not managed by
Marriott International, which resulted in the 1998 year-to-date historical
results adjusted to exclude December 1997 and include May 1998 and the 1998
second quarter adjusted to reflect March through May 1998. The 1999 results
reflect comparable periods. The change in reporting was required as part of
the REIT Conversion.
The table below represents hotel sales for all periods presented.
-10-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
--------------------- -----------------------
June 18, June 19, June 18, June 19,
1999 1998 1999 1998
----------- -------- ---------- --------
(in millions) (in millions)
<S> <C> <C> <C> <C>
Hotel Sales
Rooms.................................................. $ 672 $ 511 $1,272 $1,020
Food and beverage ...................................... 310 222 578 444
Other .................................................. 72 54 135 110
------ ------ ------ ------
Total hotel sales................................. $1,054 $ 787 $1,985 $1,574
====== ====== ====== ======
</TABLE>
4. Earnings Per Unit
Basic earnings per unit is computed by dividing net income by the weighted
average number of units. Diluted earnings per unit is computed by dividing
net income as adjusted for potentially dilutive securities, by the weighted
average number of units outstanding plus other potentially dilutive
securities. No effect is shown for securities if they are anti-dilutive.
A reconciliation of the number of units utilized for the calculation of
diluted earnings per unit follows:
<TABLE>
<CAPTION>
Twelve Weeks Twenty-four Weeks
Ended Ended
------------------ ------------------
June 18, June 19, June 18, June 19,
1999 1998 1999 1998
-------- -------- -------- --------
(in millions) (in millions)
<S> <C> <C> <C> <C>
Weighted average number of units outstanding ....................... 292.5 216.1 292.0 215.9
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 -- 4.2 -- 4.3
Assuming distribution of common shares issuable for warrants, less
Shares assumes purchased at average market price ................. -- 0.1 -- 0.1
Assuming conversion of minority operating partnership units
issuable ......................................................... -- -- -- --
Assuming conversion of Convertible Preferred Securities ............ -- 35.8 -- 35.8
----- ----- ----- -----
Units utilized for the calculation of diluted earnings per unit .... 292.5 256.2 292.0 256.1
===== ===== ===== =====
</TABLE>
A reconciliation of net income to earnings used for the calculation of diluted
earnings per unit follows:
<TABLE>
<CAPTION>
Twelve Weeks Twenty-four Weeks
------------ -----------------
Ended Ended
----- -----
June 18, June 19, June 18, June 19,
1999 1998 1999 1998
---- ---- ---- ----
(in millions) (in millions)
<S> <C> <C> <C> <C>
Net income (loss) ................................................... $(42) $ 66 $(98) $ 96
Dividends of Convertible Preferred Securities, net of taxes ......... -- 5 -- 10
Minority interest expense, assuming conversion of OP units .......... -- -- -- --
---- ---- ---- ----
Earnings used for the calculation of diluted earnings (loss) per unit $(42) $ 71 $(98) $106
==== ==== ==== ====
</TABLE>
-11-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5. Dividends and Distributions Payable
On March 15, 1999 and June 15, 1999, the Board of Directors of Host Ended
Marriott declared cash dividends of $0.21 per share of Host Marriott June
Corporation common stock and corresponding distributions of $0.21 per 18,
1999 unit of limited partnership interest ("OP Unit"). The first quarter
dividend and distribution was paid on April 14, 1999 to shareholders and
unitholders of record on March 31, 1999. The second quarter dividend and
distribution was paid on July 14, 1999 to shareholders and unitholders of
record on June 30, 1999.
The 1998 earnings per share has been restated to reflect the impact of the
stock portion of a special dividend totaling 11.5 million shares of common
stock issued in February, 1999 as a result of the REIT Conversion.
6. Acquisitions and Property Expansions
On December 30, 1998, the Company acquired a portfolio of twelve luxury
hotels and other assets from the Blackstone Group, a Delaware limited
partnership, and a series of funds controlled by affiliates of Blackstone
Real Estate Partners. The Company issued approximately 47.7 million OP
Units and assumed debt and made cash payments of approximately $920 million
and distributed 1.4 million of the shares of Crestline common stock to the
Blackstone Real Estate Partners. Approximately 23.9 million OP Units were
redeemable as of June 30, 1999.
The Company also completed a 210-room extension of the Philadelphia
Marriott in April 1999 at a cost of approximately $37 million.
7. Disposition
In February 1999, the Company sold the 479-room Minneapolis/Bloomington
Marriott for $35 million and recorded a gain of $10 million, which was
followed by the May 1999 sale of the 221-room Saddle Brook Marriott for $15
million and resulting in a gain of $4 million.
8. Debt Issuances and Refinancing
In February 1999, the Company issued $300 million of 83/8% Series D senior
notes due in 2006. The senior notes were used to refinance, or purchase,
debt which had been acquired through the merger of certain partnerships or
the purchase of hotel properties in connection with the REIT Conversion in
December 1998.
The Company has offered to exchange Series D Senior notes for Series E
Senior notes on a one-for-one basis. The terms of the Series E Senior notes
and the Series D Senior notes will be substantially identical except that
the Series E Senior notes will be freely transferable by the holders. The
offer to exchange expires at 5:00 p.m. on August 25, 1999.
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.
The Company was required to make a principal payment of $1.25 million on
June 30, 1999. In connection with the refinancing, the Company renegotiated
the management agreement and recognized an extraordinary gain of $13
million on the forgiveness of accrued
-12-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
incentive management fees by the manager. This mortgage was subsequently
refinanced as part of the $665 million financing agreement discussed in
note 11.
9. 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.
Substantially all of the Company's revenues are earned through leases with
Crestline. With respect to 1998, the allocation of taxes is not evaluated
at the segment level or reflected in the following information because the
Company does not believe the information is material to the readers of the
financial statements.
The Company's segmented revenues and income (loss) from continuing
operations before income taxes are as follows (in millions):
<TABLE>
<CAPTION>
Twelve Weeks Ended June 18, 1999
--------------------------------
Hotels Corporate & Other Consolidated
-------- ----------------- ------------
<S> <C> <C> <C>
Revenues ............................... $ 197 $ 6 $ 203
Income (loss) from continuing operations
before income taxes .................. (40) (15) (55)
<CAPTION>
Twelve Weeks Ended June 19, 1998
--------------------------------
Hotels Corporate & Other Consolidated
-------- ----------------- ------------
<S> <C> <C> <C>
Revenues ............................... $797 $ 52 $ 849
Income from continuing operations before
income taxes ......................... 82 23 105
<CAPTION>
Twenty-four Weeks Ended June 18, 1999
-------------------------------------
Hotels Corporate & Other Consolidated
-------- ----------------- ------------
<S> <C> <C> <C>
Revenues ............................... $ 386 $ 9 $ 395
Income (loss) from continuing operations
before income taxes .................. (79) (32) (111)
<CAPTION>
Twenty-four Weeks Ended June 19, 1998
-------------------------------------
Hotels Corporate & Other Consolidated
-------- ----------------- ------------
<S> <C> <C> <C>
Revenues ............................... $1,598 $ 56 $ 1,654
Income from continuing operations before
income taxes ......................... 153 -- 153
</TABLE>
As of June 18, 1999, 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 rental
revenues in 1999 and hotel revenues in 1998 for each of the geographical
areas in which the Company owns hotels (in millions):
-13-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
------------------------ -------------------------
June 18, June 19, June 18, June 19,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
United States.................................. $ 199 $ 825 $ 389 $1,604
International.................................. 4 24 6 50
------ ------- ------ ------
Total...................................... $ 203 $ 849 $ 395 $1,654
====== ====== ====== ======
</TABLE>
10. Comprehensive Income
The Company's other comprehensive income consists of foreign currency
translation adjustments and the right to receive up to 1.4 million shares
of Host Marriott Services Corporation's common stock or an equivalent cash
value subsequent to the exercise of the options held by certain former and
current employees of Marriott International at Host Marriott Service
Corporation's option. For the twelve and twenty-four weeks ended June 18,
1999, comprehensive income totaled $97 million and $154 million,
respectively. Comprehensive income was $67 million and $97 million for the
twelve and twenty-four weeks ended June 18, 1998. As of June 18, 1999 and
December 31, 1998 the Company's accumulated other comprehensive loss was
approximately $3 million and $4 million, respectively.
11. Subsequent Events
In July 1999, the Company entered into a financing agreement pursuant to
which it borrowed $665 million due 2009 at a fixed interest rate of 7.47%.
The New York Marriott Marquis as well as seven other hotels serve as
collateral. The proceeds from this financing were used to refinance
existing mortgage indebtedness maturing at various times through 2000.
In July 1999, the Company sold 4.0 million shares of 10% Class A cumulative
redeemable preferred stock with a $0.01 par value. Holders of the stock are
entitled to receive cumulative cash dividends at a rate of 10% per annum of
the $25.00 per share liquidation preference. Dividends are payable
quarterly in arrears commencing October 15, 1999. After August 3, 2004 the
Company 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 stock ranks senior to the common stock, and the
authorized Series A Junior Participating preferred stock. The Class A
preferred stockholders generally have no voting rights.
In June 1999, the Company acquired by merger Timewell Group, L.P. and
Timeport, L.P. which each own limited partnership interests in the
partnership that owns the New York Marriott Marquis. As part of the merger,
the general partners of Timewell Group, L.P. and Timeport, L.P. received
345,559 and 240,218 cumulative redeemable preferred OP Units, respectively.
The preferred OP Units are convertible into OP Units on a one-for-one
basis, subject to certain adjustments, at any time beginning one year after
the merger at the option of the holders. At any time beginning two years
after the merger, the Company can redeem the preferred OP units for OP
Units or cash.
In June 1999, the Company refinanced the debt on the San Diego Marriott
Hotel and Marina. The mortgage is for $195 million for a term of 10 years
at a rate of 8.45%. In addition, the Company issued $23 million of mortgage
debt on the Philadelphia Marriott in July 1999 at an interest rate of
approximately 8.6%, maturing 2009.
12. Summarized Lease Pool Financial Statements
-14-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
As discussed in Note 2, as of June 18, 1999, almost all the properties of the
Company and its subsidiaries were leased to Crestline Capital Corporation and
managed by Marriott International, Inc. 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,
1998. The results of operations for the twelve and twenty-four weeks ended June
18, 1999 and summarized balance sheet data as of June 18, 1999 of the lease
pools in which the Company's hotels are organized are as follows (in millions):
<TABLE>
<CAPTION>
Twelve Weeks Ended June 18, 1999
--------------------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Hotel Sales
Rooms..................................... $ 144 $ 157 $ 141 $ 145 $ 587
Food and beverage......................... 68 76 67 81 292
Other..................................... 16 16 19 19 70
----- ----- ----- ----- -----
Total hotel sales.................... 228 249 227 245 949
Operating Costs and Expenses
Rooms..................................... 33 36 34 31 134
Food and beverage......................... 51 55 47 56 209
Other..................................... 57 55 57 55 224
Management fees........................... 11 16 10 17 54
Lease expense............................. 72 83 76 83 314
----- ----- ----- ----- -----
Total operating expenses............. 224 245 224 242 935
----- ----- ----- ----- -----
Operating Profit............................... 4 4 3 3 14
Corporate and Interest Expenses................ -- (1) -- -- (1)
----- ----- ----- ----- -----
Income before taxes...................... 4 3 3 3 13
Income taxes............................. (2) (1) (1) -- (4)
----- ----- ----- ----- -----
Net Income........................... $ 2 $ 2 $ 2 $ 3 $ 9
===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Twenty-four Weeks Ended June 18, 1999
-------------------------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Hotel Sales
Rooms..................................... $ 273 $ 294 $ 268 $ 273 $ 1,108
Food and beverage......................... 127 137 128 153 545
Other..................................... 30 29 38 34 131
----- ----- ----- ----- -------
Total hotel sales.................... 430 460 434 460 1,784
</TABLE>
-15-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Operating Costs and Expenses
Rooms..................................... 64 68 63 58 253
Food and beverage......................... 97 102 91 104 394
Other..................................... 110 107 107 103 427
Management fees........................... 20 30 21 33 104
Lease expense............................. 133 147 146 157 583
----- ----- ----- ----- -------
Total operating expenses............. 424 454 428 455 1,761
----- ----- ----- ----- -------
Operating Profit............................... 6 6 6 5 23
Corporate and Interest Expenses................ (1) (1) (1) (1) (4)
----- ----- ----- ----- -------
Income before taxes...................... 5 5 5 4 19
Income taxes............................. (2) (2) (2) (1) (7)
----- ----- ----- ----- -------
Net Income........................... $ 3 $ 3 $ 3 $ 3 $ 12
===== ===== ===== ===== =======
</TABLE>
<TABLE>
<CAPTION>
As of June 18, 1999
-------------------
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Assets......................................... $ 49 $ 43 $ 46 $ 46 $ 184
Liabilities.................................... 46 40 43 43 172
Equity......................................... 3 3 3 3 12
</TABLE>
13. 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 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 information sets forth the
financial position as of June 18, 1999 and December 31, 1998 and results of
operations and cash flows for the twelve weeks ended June 18, 1999 and June
19, 1998, respectively, and cash flows for the twenty-four weeks ended June
18, 1999 and June 19, 1998 of the parent, Guarantor Subsidiaries and the
Non-Guarantor Subsidiaries.
-16-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Supplemental Condensed Combined Consolidating Balance Sheets
(in millions)
June 18, 1999
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Property and equipment, net.................. $ 1,223 $ 3,784 $ 2,207 $ -- $ 7,214
Investments in affiliate..................... 1,366 -- -- (1,321) 45
Notes and other receivables.................. 817 54 19 (671) 219
Other assets................................. 144 194 189 (27) 500
Cash and cash equivalents.................... 157 122 31 -- 310
------- ------- ------- -------- -------
Total assets.............................. $ 3,707 $ 4,154 $ 2,446 $ (2,019) $ 8,288
======= ======= ======= ======== =======
Debt......................................... $ 1,599 $ 2,859 $ 1,128 $ (354) $ 5,232
Convertible debt obligations to Host Marriott 567 -- -- -- 567
Deferred income taxes........................ 51 38 7 -- 96
Other liabilities............................ 123 710 313 (323) 823
------- ------- ------- --------- -------
Total liabilities......................... 2,340 3,607 1,448 (677) 6,718
Minority interests........................... 15 56 71 -- 142
Limited partner interest of third parties at
redemption value............................ 783 -- -- -- 783
Owner's capital.............................. 569 491 927 (1,342) 645
------- ------- ------- --------- -------
Total liabilities and owner's capital..... $ 3,707 $ 4,154 $ 2,446 $ (2,019) $ 8,288
======= ======= ======= ======== =======
</TABLE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 affiliate..................... 1,038 -- -- (1,005) 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.............................. $ 3,581 $ 4,084 $ 2,408 $(1,811) $ 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............................ 97 600 252 (285) 664
------- ------- ------- ------- -------
Total liabilities......................... 2,153 3,476 1,442 (612) 6,459
Minority interests........................... 15 56 76 -- 147
Limited partner interest of third parties at
redemption value............................ 892 -- -- -- 892
Owner's capital.............................. 521 552 890 (1,199) 764
------- ------- ------- ------- -------
Total liabilities and owner's capital....... $ 3,581 $ 4,084 $ 2,408 $(1,811) $ 8,262
======= ======= ======= ======= =======
</TABLE>
-17-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Supplemental Condensed Combined Statements of Operations
(in millions)
Twelve Weeks Ended June 18, 1999
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
REVENUES..................................... $ 48 $ 104 $ 64 $ (13) $ 203
Depreciation................................. (15) (35) (17) -- (67)
Property-level expenses...................... (11) (23) (28) -- (62)
Hotel operating expenses..................... -- -- -- -- --
Minority interest............................ (17) (4) (1) 15 (7)
Interest expense............................. (27) (55) (25) (2) (109)
Dividends on convertible preferred securities -- -- -- -- --
Corporate expenses........................... (2) (5) (1) -- (8)
Other expenses............................... (3) (1) (1) -- (5)
-------- -------- -------- ------- -------
Loss before extraordinary gain............... (27) (19) (9) -- (55)
Extraordinary item-gain on forgiveness of debt -- -- 13 -- 13
------- ------- ------- ------- -------
NET INCOME (LOSS)............................ $ (27) $ (19) $ 4 $ -- $ (42)
======== ======= ======= ======= =======
</TABLE>
Twelve Weeks Ended June 19, 1998
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
REVENUES..................................... $ 309 $ 473 $ 56 $ 11 $ 849
Depreciation................................. (25) (30) (5) -- (60)
Property-level expenses...................... (30) (43) 13 -- (60)
Hotel operating expenses..................... (192) (279) (35) -- (506)
Minority interest............................ (15) 7 2 (8) (14)
Interest expense............................. (2) (48) (23) (3) (76)
Dividends on convertible preferred securities (8) -- -- -- (8)
Corporate expenses........................... (2) (5) (2) - (9)
REIT Conversion expenses..................... (6) -- -- -- (6)
Other expenses............................... (4) (1) -- -- (5)
------- ------- ------- ------- -------
Income from continuing operations before 25 74 6 -- 105
taxes........................................
Provision for income taxes................... (10) (31) (2) -- (43)
------- ------- ------- ------- -------
Income from continuing operations............ 15 43 4 -- 62
Income from discontinued operations.......... 4 -- -- -- 4
------- ------- ------- ------- -------
NET INCOME................................... $ 19 $ 43 $ 4 $ -- $ 66
======= ======= ======= ======= =======
</TABLE>
-18-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Supplemental Condensed Combined Statements of Operations
(in millions)
Twenty-four Weeks Ended June 18, 1999
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES..................................... $ 87 $ 205 $ 118 $ (15) $ 395
Depreciation................................. (28) (70) (35) -- (133)
Property-level expenses...................... (21) (45) (54) -- (120)
Hotel operating expenses..................... -- -- -- -- --
Minority interest............................ (18) (7) (1) 15 (11)
Interest expense............................. (68) (103) (46) -- (217)
Dividends on convertible preferred securities -- -- -- -- --
Corporate expenses........................... (3) (9) (4) -- (16)
Other expenses............................... (7) (1) (1) -- (9)
------- ------- ------- ------- -------
Loss before extraordinary gain............... (58) (30) (23) -- (111)
Extraordinary item-gain on forgiveness of
debt......................................... -- -- 13 -- 13
------- ------- ------- ------- -------
NET LOSS..................................... $ (58) $ (30) $ (10) $ -- $ (98)
=======- ======= ======= ======= =======
</TABLE>
Twenty-four Weeks Ended June 19, 1998
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES..................................... $ 558 $ 851 $ 250 $ (5) $ 1,654
Depreciation................................. (39) (57) (17) -- (113)
Property-level expenses...................... (41) (63) (18) -- (122)
Hotel operating expenses..................... (344) (530) (156) -- (1,030)
Minority interest............................ (27) (6) (2) 5 (30)
Interest expense............................. (21) (94) (37) -- (152)
Dividends on convertible preferred securities (17) -- -- -- (17)
Corporate expenses........................... (5) (11) (5) - (21)
REIT Conversion expenses..................... (6) -- -- -- (6)
Other expenses............................... (9) (1) -- -- (10)
-------- ------- ------- ------- -------
Income from continuing operations before
taxes........................................ 49 89 15 -- 153
Provision for income taxes................... (20) (37) (6) -- (63)
------- ------- ------- ------- -------
Income from continuing operations............ 29 52 9 -- 90
Income from discontinued operations.......... 6 -- -- -- 6
------- ------- ------- ------- -------
NET INCOME................................... $ 35 $ 52 $ 9 $ -- $ 96
======= ======= ======= ======= =======
</TABLE>
-19-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Supplemental Condensed Combined Statements of Cash Flows
(in millions)
Twenty-four Weeks Ended June 18, 1999
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
--------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Cash (used in) from operations.......................... $ (5) $ 116 $ -- $ 111
-------- --------- ------- --------
INVESTING ACTIVITIES
Cash received from sales of assets...................... 1 34 -- 35
Capital expenditures.................................... (49) (107) (21) (177)
Acquisitions............................................ -- -- (4) (4)
Other................................................... (17) -- -- (17)
-------- --------- ------- --------
Cash used in investing activities ...................... (65) (73) (25) (163)
-------- --------- ------- --------
FINANCING ACTIVITIES
Repayment of debt....................................... (25) (256) (65) (346)
Issuances of debt....................................... (2) 256 159 413
Transfers to/from Parent................................ 65 (12) (53) --
Dividends............................................... (130) -- -- (130)
Repurchase of common stock.............................. (3) -- -- (3)
Other................................................... (8) -- -- (8)
-------- --------- ------- --------
Cash (used in) from financing activities................ (103) (12) 41 (74)
-------- --------- ------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.......................................... $ (173) $ 31 $ 16 $ (126)
======== ========= ======= ========
</TABLE>
-20-
<PAGE>
HOST MARRIOTT, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Twenty-four Weeks Ended June 19, 1998
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
--------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Cash from continuing operations......................... $ 43 $ 144 $ 16 $ 203
Cash from discontinued operations....................... 3 -- -- 3
-------- ------- ------- -------
Cash from operations.................................... 46 144 16 206
-------- ------- ------- -------
INVESTING ACTIVITIES
Cash received from sales of assets...................... 209 -- -- 209
Capital expenditures.................................... (28) (62) (19) (109)
Acquisitions............................................ (229) (15) (114) (358)
Sales of short-term marketable securities, net.......... 308 -- -- 308
Other................................................... (7) -- -- (7)
-------- ------- ------- --------
Cash from (used in) investing activities from
continuing operations................................ 253 (77) (133) 43
Cash used in investing activities from discontinued
Operations........................................... (2) -- -- (2)
-------- ------- ------- -------
Cash from (used in) investing activities ............... 251 (77) (133) 41
-------- ------- ------- -------
FINANCING ACTIVITIES
Repayment of debt....................................... (55) (10) (2) (67)
Issuances of debt....................................... 5 -- -- 5
Transfers to/from Parent................................ (52) (51) 103 --
Other................................................... (31) -- -- (31)
-------- ------- ------- -------
Cash (used in) from financing activities from
continuing operations................................ (133) (61) 101 (93)
Cash used in financing activities from discontinued
operations........................................... (150) -- -- (150)
-------- ------- ------- -------
Cash (used in) from financing activities................ (283) (61) 101 (243)
-------- ------- ------- --------
INCREASE IN CASH AND CASH EQUIVALENTS................... $ 14 $ 6 $ (16) $ 4
======== ======= ======= =======
</TABLE>
-21-
<PAGE>
HOST MARRIOTT, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Forward-looking Statements
--------------------------
Certain matters discussed herein are forward-looking statements. Certain,
but not necessarily all, of such forward-looking statements can be
identified by the use of forward-looking terminology, such as "believes,"
"expects," "may," "will," "should," "estimates," or "anticipates," or the
negative thereof or other variations thereof or comparable terminology. All
forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause our actual transactions, results,
performance or achievements to be materially different from any future
transactions, results, performance or achievements expressed or implied by
such forward-looking statements. Although we believe the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, we can give no assurance that our expectations will be
attained or that any deviations will not be material. We undertake no
obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect any future events or
circumstances.
Results of Operations
---------------------
Revenues. Our historical revenues have primarily represented gross
property-level sales from hotels, net gains on property transactions,
interest income and equity in earnings of affiliates. As of January 1,
1999, we lease substantially all of our hotels to subsidiaries of Crestline
Capital Corporation. As a result of these leases, we no longer record
property-level revenues and expenses, rather we recognize rental income on
the leases. Also, as discussed in Note 2, the Company retroactively adopted
SAB 101 as of the beginning of its fiscal year, and restated its results of
operations for the first three quarters of 1999 to defer recognition of
rental income which is contingent upon annual thresholds until such period
as those thresholds are met. SAB 101 has no impact on the Company's annual
revenue recognition, net income or earnings per unit. Thus, 1999 revenues
and expenses are not comparable with prior periods. Note 3 to the financial
statements presents a table comparing gross hotel sales for all periods
presented to facilitate an investor's understanding of the operation of our
properties. The comparison of the 1999 quarterly results with 1998 is also
affected by a change in the reporting period for our hotels not managed by
Marriott International, which resulted in the 1998 year-to-date historical
results adjusted to exclude December 1997 and include May 1998 and the 1998
second quarter adjusted to reflect March through May 1998. The 1999 results
reflect comparable periods. The change in reporting was required as part of
the REIT conversion.
Year-to-date results for 1999 were driven by the addition of 36 properties
in 1998. The increase in hotel sales reflects growth in room revenues
generated per available room or REVPAR. For comparable properties, REVPAR
increased 3.7% to $120.85 for the second quarter of 1999. Year-to-date
REVPAR increased 4% to $120.67. On a comparable basis, average room rates
increased approximately 2% and 3% for the second quarter and year-to-date,
respectively, while average occupancy increased one percent for both
periods.
Interest income decreased as the result of a lower level of cash and
marketable securities held during the first half of 1999 compared to the
first half of 1998.
The net gain on property transactions for 1999 primarily resulted from the
$10 million gain on the sale of the 479-room Minneapolis/Bloomington
Marriott for approximately $35 million and the $4 million gain on the sale
of the 221-room Saddle Brook Marriott for approximately $15 million.
-22-
<PAGE>
HOST MARRIOTT, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Expenses. As discussed above, hotel revenues and hotel operating costs are
not comparable with the prior year. The lessee pays certain property-level
costs including management fees and we receive a rent payment, which is net
of those costs. Property-level costs which are comparable, including
depreciation, property taxes, insurance, ground and equipment rent
increased 8% to $129 million for the second quarter 1999 versus the second
quarter 1998 and increased $18 million or 8% to $253 million year-to-date,
primarily reflecting the depreciation from the 36 properties acquired
during 1998.
Minority Interest. Minority interest expense decreased $7 million to $7
million for the second quarter of 1999 and decreased $19 million to $11
million year-to-date, primarily reflecting the impact of the consolidation
of partnerships which occurred in connection with the REIT conversion.
Interest Expense. Interest expense increased 43% to $109 million in the
second quarter of 1999 and increased 43% to $217 million year-to-date,
primarily due to the issuance of senior notes, establishment of a new
credit facility, interest expense on the convertible debt obligation to
Host Marriott and additional mortgage debt on properties acquired in 1998.
Dividends on Convertible Preferred Securities. The dividends on Convertible
Preferred Securities reflect the dividends accrued for the first half of
fiscal year 1998 on the $550 million in 63/4% Convertible Preferred
Securities. The Convertible Preferred Securities are held by the REIT. The
dividends paid by the REIT are supported by the $567 million debt
obligation to Host Marriott on the balance sheet. The Operating Partnership
incurs interest expense on the debt obligation, and, therefore, no
dividends are included in the current period statement of operations.
Corporate Expenses. Corporate expenses decreased $1 million to $8 million
for the second quarter of 1999 and decreased $5 million to $16 million
year-to-date, resulting primarily from the timing of certain project costs
not incurred in 1999 and lower compensation costs.
Income from Discontinued Operations. Income from discontinued operations
represents the senior living communities business' results of operations
for the second quarter of 1998 and year-to-date as restated for the
spin-off of Crestline.
Extraordinary Gain. 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 for accrued incentive management fees by the manager.
Net Income (Loss). Our net loss was $42 million for the second quarter of
1999 compared to net income of $66 million in 1998. For year-to-date 1999
our net loss was $98 million compared to net income of $96 million in 1998.
FFO and EBITDA
--------------
We consider Funds From Operations or FFO as defined by the National
Association of Real Estate Investment Trusts and our consolidated earnings
before interest expense, income taxes, depreciation, amortization and other
non-cash items or EBITDA to be indicative measures of our operating
performance due to the significance of our long-lived assets and because
such data is considered useful by the investment community to better
understand our results, and can be used to measure our ability to service
debt, fund capital expenditures and expand our business. However, such
information should not
-23-
<PAGE>
HOST MARRIOTT, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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.
Management believes that FFO is a meaningful disclosure that will help the
investment community to better understand our financial performance,
including enabling its shareholders and analysts to more easily compare our
performance to other Real Estate Investment Trusts. FFO increased $37
million, or 32%, to $152 million in the second quarter of 1999 over the
second quarter of 1998. However, FFO as presented may not be comparable to
amounts calculated by other companies. For periods prior to 1999, the FFO
disclosed represents comparative FFO (FFO plus deferred tax expense). The
following is a reconciliation of income from continuing operations to FFO
(in millions):
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
--------------------- -----------------------
June 18, June 19, June 18, June 19,
1999 1998 1999 1998
------- ------- ------- -----
<S> <C> <C> <C> <C>
Income (loss) from continuing operations.............. $ (55) $ 62 $ (111) $ 90
Effect of SAB 101..................................... 138 -- 253 --
Depreciation and amortization......................... 67 62 135 114
Other real estate activities.......................... (5) (51) (16) (52)
Partnership adjustments............................... 7 (2) 8 (7)
REIT conversion expenses.............................. -- 6 -- 6
Deferred taxes........................................ -- 29 -- 39
Discontinued operations............................... -- 9 -- 16
------- ------- ------- -------
Funds From Operations.............................. $ 152 $ 115 $ 269 $ 206
======= ======= ======= =======
</TABLE>
EBITDA increased $47 million, or 23%, to $255 million in the second quarter
of 1999 and $70 million, or 17%, to $481 million year-to-date. Hotel EBITDA
increased $41 million, or 19%, to $263 million in the second quarter of
1999 and $67 million or 16% to $493 million year-to-date, reflecting
comparable hotel EBITDA growth, as well as incremental EBITDA from 1998
acquisitions offset by amounts representing hotel sales which are retained
by Crestline.
The following is a reconciliation of EBITDA to income from continuing
operations (in millions):
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
---------------------- -----------------------
June 18, June 19, June 18, June 19,
1999 1998 1999 1998
------- ------- ------- -----
<S> <C> <C> <C> <C>
EBITDA................................................ $ 255 $ 208 $ 481 $ 411
Effect of SAB 101..................................... (138) -- (253) --
Interest expense...................................... (109) (76) (217) (152)
Dividends on Convertible Preferred Securities......... -- (8) -- (17)
Depreciation and amortization......................... (67) (62) (135) (114)
Minority interest expense............................. (7) (14) (11) (30)
Income taxes.......................................... -- (43) -- (63)
Other non-cash charges, net........................... 11 57 24 55
------- ------- ------- -------
Income (loss) from continuing operations............ $ (55) $ 62 $ (111) $ 90
======= ======= ======= =======
</TABLE>
Our interest coverage, defined as EBITDA divided by cash interest expense,
was 2.7 times for the 1999 second quarter, 3.0 times for the 1998 second
quarter and 2.5 times for full year 1998. The
-24-
<PAGE>
HOST MARRIOTT, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
deficiency of earnings to fixed charges was $100 million for the second
quarter of 1999 and the ratio of earnings to fixed charges was 2.0 to 1.0
for the second quarter of 1998.
Cash Flows and Financial Condition
----------------------------------
We reported a decrease in cash and cash equivalents of $126 million during
the twenty-four weeks ended June 18, 1999. Cash from continuing operations
was $111 million through the second quarter of 1999 and $203 million
through the second quarter of 1998. The $92 million decrease in cash from
continuing operations resulted principally from an increase in rent
receivable resulting from the timing of the receipt of cash payments. There
was no cash activity related to discontinued operations for the second
quarter of 1999; however, cash from discontinued operations totaled $3
million through the second quarter of 1998.
Cash used in investing activities from continuing operations was $163
million through the second quarter of 1999. Cash from investing activities
from continuing operations was $43 million through the second quarter of
1998. Cash used in investing activities through the second quarter of 1999
includes capital expenditures of $177 million, mostly related to renewals
and replacements on existing properties and development projects. In
addition, we generated $35 million of cash from the net sale of assets,
primarily the Minneapolis/Bloomington property. There was no cash related
to investing activities from discontinued operations through the second
quarter 1999; however, cash used in investing activities from discontinued
operations totaled $2 million year-to-date 1998. Property and equipment
balances include $145 million and $78 million for construction in progress
as of June 18, 1999 and December 31, 1998, respectively. The current
balance primarily relates to properties in Tampa, Orlando, Memphis and
various other expansion and development projects.
Cash used in financing activities from continuing operations was $74
million through the second quarter of 1999 and $93 million through the
second quarter of 1998. Cash used in financing activities for 1999 includes
$323 million in prepayment of debt, offset by $413 million in debt
issuances for 1999. Both financing activities were related to our February
1999 issuance of $300 million of 83/8% Series D Senior notes due in 2006
and the refinancing of the New York Marriott Marquis.
The Series D Senior notes were used to refinance, or purchase, debt which
had been assumed through the merger of certain partnerships or the purchase
of hotel properties in connection with the REIT conversion in December
1998. In August 1999, we intend to exchange Series D Senior notes for
Series E Senior notes on a one-for-one basis. The terms of the Series E
Senior notes and the Series D Senior notes will be substantially identical
except that the Series E Senior notes are freely transferable by the
holders.
In April 1999, a subsidiary completed the refinancing of the $245 million
mortgage on the New York Marriott Marquis, maturing June 2000. We
subsequently refinanced this mortgage as part of the $665 financing
agreement completed in the third quarter of 1999.
Cash used in financing activities also reflects $73 million in dividend
payments for a special dividend declared in December 1998 and paid in
February 1999. In addition, on March 15, 1999 and June 15, 1999, the Board
of Directors declared regular cash distributions of $0.21 per OP unit. The
first quarter distribution was paid on April 14, 1999. The second quarter
distribution was paid on July 14, 1999 to unitholders and is not reflected
in the cash flow statement.
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<PAGE>
HOST MARRIOTT, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
There was no cash related to financing activities from discontinued
operations through the second quarter of 1999; however, cash used in
financing activities from discontinued operations totaled $150 million
through the second quarter of 1998.
In July 1999, the Company sold 4.0 million shares of 10% Class A Cumulative
Redeemable Preferred Stock with a $0.01 par value. Holders of the stock are
entitled to receive cumulative cash dividends at a rate of 10% per annum of
the $25.00 per share liquidation preference. Dividends are payable
quarterly in arrears on October 15, 1999. After August 3, 2004 we have 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 stock ranks prior to the common stock and the authorized Series A
Junior Participating preferred stock. The Class A preferred stockholders
generally have no voting rights.
We also entered into a financing agreement for $665 million due 2009 at a
fixed rate of 7.47%. The proceeds from this financing were used to
refinance existing mortgage indebtedness maturing at various times through
2000.
In June 1999, we acquired by merger Timewell Group, L.P. and Timeport,
L.P., which each own limited partnership interests in the partnership that
owns the New York Marriott Marquis. As part of the merger, the general
partners of Timewell Group, L.P. and Timeport, L.P. received 345,559 and
240,218 cumulative redeemable preferred OP Units, respectively. The
preferred OP Units are convertible into OP Units on a one-for-one basis,
subject to certain adjustments, at any time beginning one year after the
merger at the option of the holders. At any time, beginning two years after
the merger, we can redeem the preferred OP units for OP Units or cash.
Also in June 1999, we refinanced the debt on the San Diego Marriott Hotel
and Marina. The mortgage is for $195 million for a term of 10 years at a
rate of 8.45%. In addition, we completed a 210-room extension of the
Philadelphia Marriott in April 1999 at a cost of approximately $37 million.
The mortgage on the Philadelphia Marriott was refinanced in July 1999 for
$23 million at an interest rate of approximately 8.6%, maturing in 2009.
On December 30, 1998, we acquired a portfolio of twelve luxury hotels and
other assets from the Blackstone Group, a Delaware limited partnership, and
a series of funds controlled by affiliates of Blackstone Real Estate
Partners. We issued approximately 47.7 million OP Units and assumed debt
and made cash payments of approximately $920 million and distributed 1.4
million of the shares of Crestline common stock to the Blackstone Real
Estate Partners. Approximately 23.9 million OP Units were redeemable as of
June 30, 1999.
Year 2000 Issue
---------------
Year 2000 issues have arisen because many existing computer programs and
chip-based embedded technology systems use only the last two digits to
refer to a year, and therefore do not properly recognize a year that begins
with "20" instead of the familiar "19". If not corrected, many computer
applications could fail or create erroneous results. The following
disclosure provides information regarding the current status of our Year
2000 compliance program.
We have adopted the compliance program because we recognize the importance
of minimizing the number and seriousness of any disruptions that may occur
as a result of the Year 2000 issue. Our compliance program includes an
assessment of our hardware and software computer systems and
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<PAGE>
HOST MARRIOTT, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
embedded systems, as well as an assessment of the Year 2000 issues relating
to third parties with which we have a material relationship or whose
systems are material to the operations of our hotel properties. Our efforts
to ensure that our computer systems are Year 2000 compliant have been
segregated into two separate phases: in-house systems and third-party
systems. Following the REIT conversion, Crestline, as the lessee of most of
our hotels, will deal directly with Year 2000 matters material to the
operation of the hotels, and Crestline has agreed to adopt and implement
the program outlined below with respect to third-party systems for all
hotels for which it is lessee.
In-House Systems. Since the distribution of Marriott International on
October 8, 1993, we have invested in the implementation and maintenance of
accounting and reporting systems and equipment that are intended to enable
us to provide adequately for our information and reporting needs and which
are also Year 2000 compliant. Substantially all of our in-house systems
have already been certified as Year 2000 compliant through testing and
other mechanisms and we have not delayed any systems projects due to the
Year 2000 issue. We engaged a third party to review our Year 2000 in-house
readiness and found no problems with any mission critical systems.
Management believes that future costs associated with Year 2000 issues for
our in-house systems will be insignificant and therefore not impact our
business, financial condition and results of operations. We have not
developed, and do not plan to develop, a separate contingency plan for our
in-house systems due to their current Year 2000 compliance. We do, however,
have the normal disaster recovery procedures in place should we have a
systems failure.
Third-Party Systems. We rely upon operational and financial systems
provided by third parties, primarily the managers and operators of our
hotel properties, to provide the appropriate property-specific operating
systems, including reservation, phone, elevator, security, HVAC and other
systems, and to provide us with financial information. Based on discussion
with the third parties that are critical to our business, including the
managers and operators of our hotels, we believe that these parties are in
the process of studying their systems and the systems of their respective
vendors and service providers and, in many cases, have begun to implement
changes, to ensure that they are Year 2000 compliant. We continue to
receive verbal and written assurances that these third parties are, or will
be, Year 2000 compliant on time. To the extent these changes impact
property-level systems, we may be required to fund capital expenditures for
upgraded equipment and software. We do not expect these charges to be
material, but we are committed to making these investments as required. To
the extent that these changes relate to a third party manager's centralized
systems, including reservations, accounting, purchasing, inventory,
personnel and other systems, management agreements generally provide for
these costs to be charged to our properties subject to annual limitations,
which costs will be borne by Crestline under the leases. We expect that the
third party managers will incur Year 2000 costs in lieu of costs for their
centralized systems related to system projects that otherwise would have
been pursued and, therefore, the overall level of centralized systems
charges allocated to the properties will not materially increase as a
result of the Year 2000 compliance effort. We believe that this deferral of
certain system projects will not have a material impact on our future
results of operations, although it may delay certain productivity
enhancements at our properties. We and Crestline will continue to monitor
the efforts of these third parties to become Year 2000 compliant and will
take appropriate steps to address any non-compliance issues. We believe
that, in the event of material Year 2000 non-compliance, we will have the
right to seek recourse against the manager under our third party management
agreements. The management agreements, however, generally do not
specifically address the Year 2000 compliance issue. Therefore, the amount
of any recovery in the event of Year 2000 non-compliance at a property, if
any, is not determinable at this time, and only a portion of such recovery
would accrue to us through increased lease rental payments from Crestline.
-27-
<PAGE>
HOST MARRIOTT, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
We and Crestline will work with the third parties to ensure that
appropriate contingency plans will be developed to address the most
reasonably likely worst case Year 2000 scenarios, which may not have been
identified fully. In particular, we and Crestline have had extensive
discussions regarding the Year 2000 problem with Marriott International,
the manager of a substantial majority of our hotel properties. Due to the
significance of Marriott International to our business, a detailed
description of Marriott International's state of readiness follows.
Marriott International has adopted an eight-step process toward Year 2000
readiness, consisting of the following: (i) Awareness: fostering
understanding of, and commitment to, the problem and its potential risks;
(ii) Inventory: identifying and locating systems and technology components
that may be affected; (iii) Assessment: reviewing these components for Year
2000 compliance, and assessing the scope of Year 2000 issues; (iv)
Planning: defining the technical solutions and labor and work plans
necessary for each affected system; (v) Remediation/Replacement: completing
the programming to renovate or replace the problem software or hardware;
(vi) Testing and Compliance Validation: conducting testing, followed by
independent validation by a separate internal verification team; (vii)
Implementation: placing the corrected systems and technology back into the
business environment; and (viii) Quality Assurance: utilizing an internal
audit team to review significant projects for adherence to quality
standards and program methodology.
Marriott International has grouped its systems and technology into three
categories for purposes of Year 2000 compliance: (i) information resource
applications and technology (IT Applications)--enterprise-wide systems
supported by Marriott International's centralized information technology
organization ("IR"); (ii) Business-initiated Systems ("BIS")--systems that
have been initiated by an individual business unit, and that are not
supported by Marriott International's IR organization; and (iii) Building
Systems--non-IT equipment at properties that use embedded computer chips,
such as elevators, automated room key systems and HVAC equipment. Marriott
International is prioritizing its efforts based on how severe an effect
noncompliance would have on customer service, core business processes or
revenues, and whether there are viable, non-automated fallback procedures
(System Criticality).
Marriott International measures the completion of each phase based on
documentation and quantified results weighted for System Criticality. As of
June 18, 1999, the Awareness, Inventory, Assessment, and Planning phases
were complete for IT Applications, BIS, and Building Systems. For IT
Applications, the Remediation/Replacement and Testing phases were 95
percent complete. Compliance Validation had been completed for
approximately 85 percent of key systems, with most of the remaining work in
its final stage. For BIS and Building Systems, Remediation/Replacement is
substantially complete with a target date of September 1999. For BIS,
Testing and Compliance Validation is in progress. Testing is over 95%
complete for Building Systems for which approximately five percent require
further remediation/replacement and re-testing, and Compliance Validation
is in progress. Implementation and Quality Assurance is 80 percent complete
for IT Applications. For BIS, Implementation is substantially complete
while Quality Assurance is in progress. Both Implementation and Quality
Assurance are in progress for Building Systems.
Year 2000 compliance communications with Marriott International's
significant third party suppliers, vendors and business partners, including
its franchisees are ongoing. Marriott International's efforts are focused
on the connections most critical to customer service, core business
processes and revenues, including those third parties that support the most
critical enterprise-wide IT Applications, franchisees
-28-
<PAGE>
HOST MARRIOTT, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
generating the most revenues, suppliers of the most widely used Building
Systems and BIS, the top 100 suppliers, by dollar volume, of non-IT
products and services, and financial institutions providing the most
critical payment processing functions. Responses have been received from a
majority of the firms in this group. A majority of these respondents have
either given assurances of timely Year 2000 compliance or have identified
the necessary actions to be taken by them or Marriott International to
achieve timely Year 2000 compliance for their products. Where Marriott
International has not received satisfactory responses it is addressing the
potential risks of failure through its contingency planning process.
Marriott International has established a common approach for testing and
addressing Year 2000 compliance issues for its managed and franchised
properties. This includes guidance for operated properties, and a Year 2000
"Toolkit" for franchisees containing relevant Year 2000 compliance
information. Marriott International is also utilizing a Year 2000
best-practices sharing system. Marriott International is monitoring the
progress of the managed and franchised properties towards Year 2000
compliance.
Risks.There can be no assurances that Year 2000 remediation by us or third
parties will be properly and timely completed, and failure to do so could
have a material adverse effect on us, our business and our financial
condition. We cannot predict the actual effects to us of the Year 2000
problem, which depends on numerous uncertainties such as: whether
significant third parties properly and timely address the Year 2000 issue
and whether broad-based or systemic economic failures may occur. Moreover,
we are reliant upon Crestline to interface with third parties in addressing
the Year 2000 issue at the hotels leased by Crestline. We are also unable
to predict the severity and duration of any such failures, which could
include disruptions in passenger transportation or transportation systems
generally, loss of utility and/or telecommunications services, the loss or
disruption of hotel reservations made on centralized reservation systems
and errors or failures in financial transactions or payment processing
systems such as credit cards. Due to the general uncertainty inherent in
the Year 2000 problem and our dependence on third parties, including
Crestline following the REIT Conversion, we are unable to determine at this
time whether the consequences of Year 2000 failures will have a material
impact on us. Our Year 2000 compliance program and Crestline's adoption
thereof are expected to significantly reduce the level of uncertainty about
the Year 2000 problem and management believes that the possibility of
significant interruptions of normal operations should be reduced.
-29-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOST MARRIOTT, L.P.
BY: HOST MARRIOTT CORPORATION
Its General Partner
February 16, 2000 /s/ Donald D. Olinger
- ----------------- ---------------------------------
Date Donald D. Olinger
Senior Vice President and
Corporate Controller
(Chief Accounting Officer)
