<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[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 MARCH 26, 1999 COMMISSION FILE NO. 001-14625
HOST MARRIOTT CORPORATION
10400 FERNWOOD ROAD
BETHESDA, MARYLAND 20817
(301) 380-9000
Maryland 53-0085950
-------- ----------
(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 [_]
SHARES OUTSTANDING
Class AT MAY 5, 1999
----- ------------------
Common Stock, $.01 par value 227,963,051
par value per share
Purchase share rights for Series A Junior Participating
Preferred Stock, $.01 par value
================================================================================
<PAGE>
INDEX
-----
PART I. FINANCIAL INFORMATION (Unaudited): PAGE NO.
--------
Condensed Consolidated Balance Sheets - 3
March 26, 1999 and December 31, 1998
Condensed Consolidated Statements of Operations - 4
Twelve Weeks Ended March 26, 1999 and
March 27, 1998
Condensed Consolidated Statements of Cash Flows - 6
Twelve Weeks Ended March 26, 1999 and
March 27, 1998
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Results of
Operations and Financial Condition 13
Quantitative and Qualitative Disclosures about Market Risk 19
PART II. OTHER INFORMATION AND SIGNATURE 20
-2-
<PAGE>
HOST MARRIOTT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
March 26, December 31,
1999 1998
----------- ------------
(unaudited)
ASSETS
------
<S> <C> <C>
Property and equipment, net.............................................. $7,173 $7,201
Notes and other receivables (including amounts due from
affiliates of $133 million and $134 million, respectively)............. 202 203
Rent receivable.......................................................... 78 --
Due from managers........................................................ -- 19
Investments in affiliates................................................ 44 33
Other assets............................................................. 396 376
Cash and cash equivalents................................................ 284 436
------ ------
$8,177 $8,268
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Debt
Senior notes........................................................... $2,545 $2,246
Mortgage debt.......................................................... 2,111 2,438
Other.................................................................. 457 447
------ ------
5,113 5,131
Accounts payable and accrued expenses.................................... 162 204
Deferred income taxes.................................................... 97 97
Other liabilities........................................................ 439 460
------ ------
Total liabilities.................................................. 5,811 5,892
------ ------
Minority interest........................................................ 513 515
Company-obligated mandatorily redeemable convertible preferred
securities of a subsidiary whose sole assets are the convertible
subordinated debentures due 2026 ("Convertible Preferred Securities").. 550 550
Shareholders' equity
Common stock, 750 million shares authorized; 227.6 million shares
and 225.6 million shares issued and outstanding, respectively....... 2 2
Additional paid-in capital............................................... 1,864 1,867
Accumulated other comprehensive loss..................................... (5) (4)
Retained deficit......................................................... (558) (554)
------ ------
Total shareholders' equity......................................... $1,303 1,311
------ ------
$8,177 $8,268
====== ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-3-
<PAGE>
HOST MARRIOTT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve weeks ended March 26, 1999 and March 27 1998
(unaudited, in millions)
<TABLE>
<CAPTION>
1999 1998
------ -----
REVENUES
<S> <C> <C>
Rental income (Note 2)................................................... $286 $ --
Hotel sales
Rooms................................................................... -- 509
Food and beverage....................................................... -- 222
Other................................................................... -- 56
Interest income.......................................................... 8 14
Net gains on property transactions....................................... 12 1
Equity in earnings of affiliates......................................... 1 1
Other.................................................................... -- 2
---- -----
Total revenues........................................................... 307 805
---- -----
EXPENSES
Depreciation............................................................ 66 53
Property-level expenses................................................. 58 62
Hotel operating expenses
Rooms.................................................................. -- 114
Food and beverage...................................................... -- 163
Other department costs and deductions.................................. -- 189
Management fees (including Marriott International
management fees of $55 million in 1998)............................. -- 58
Minority interest....................................................... 18 16
Interest expense........................................................ 99 76
Dividends on Convertible Preferred Securities........................... 9 9
Corporate expenses...................................................... 8 12
Other expenses.......................................................... 4 5
---- -----
262 757
---- -----
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES............................................................. 45 48
Provision for income taxes.............................................. -- (20)
---- -----
INCOME FROM CONTINUING OPERATIONS........................................ 45 28
INCOME FROM DISCONTINUED OPERATIONS...................................... -- 2
---- -----
NET INCOME............................................................... $ 45 $ 30
==== =====
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-4-
<PAGE>
HOST MARRIOTT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (cont.)
Twelve weeks ended March 26, 1999 and March 27 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
------ -----
<S> <C> <C>
BASIC EARNINGS PER COMMON SHARE:
CONTINUING OPERATIONS.................................................... $.20 $.13
Discontinued operations (net of income taxes)............................ -- .01
---- ----
BASIC EARNINGS PER COMMON SHARE:......................................... $.20 $.14
==== ====
DILUTED EARNINGS PER COMMON SHARE:
CONTINUING OPERATIONS.................................................... $.19 $.13
Discontinued operations (net of income taxes)............................ -- .01
---- ----
DILUTED EARNINGS PER COMMON SHARE........................................ $.19 $.14
==== ====
</TABLE>
See Notes to Condensed Consolidated Financial Statements
-5-
<PAGE>
HOST MARRIOTT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve weeks ended March 26, 1999 and March 27 1998
(unaudited, in millions)
<TABLE>
<CAPTION>
1999 1998
------ -----
<S> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations...................................... $ 45 $ 28
Adjustments to reconcile to income from continuing operations:
Depreciation and amortization......................................... 68 54
Income taxes.......................................................... (4) 18
Gain on sale of hotel properties...................................... (12) (1)
Equity in earnings of affiliates....................................... (1) (1)
Changes in operating accounts.......................................... (110) (20)
Other.................................................................. 18 19
----- -----
Cash from continuing operations....................................... 4 97
Cash from discontinued operations..................................... - 2
----- -----
Cash from operations.................................................. 4 99
----- -----
INVESTING ACTIVITIES
Proceeds from sales of assets.......................................... 36 1
Acquisitions........................................................... (4) (118)
Capital expenditures:
Renewals and replacements............................................. (50) (40)
New development projects.............................................. (20) (12)
New investment capital expenditures................................... (6) (9)
Purchases of short-term marketable securities.......................... -- (53)
Sales of short-term marketable securities.............................. -- 246
Note receivable collections............................................ 2 --
Affiliate collections, net............................................. -- 14
Other.................................................................. -- (6)
----- -----
Cash (used in) from investing activities from continuing operations... (42) 23
Cash used in investing activities from discontinued operations........ -- (28)
----- -----
Cash used in investing activities..................................... (42) (5)
----- -----
FINANCING ACTIVITIES
Issuances of debt, net................................................. 299 1
Repurchase of common stock............................................. (4) --
Dividends.............................................................. (69) --
Scheduled principal repayments......................................... (12) (6)
Debt prepayments....................................................... (323) (1)
Other.................................................................. (5) (16)
----- -----
Cash used in financing activities from continuing operations.......... (114) (22)
Cash used in financing activities from discontinued operations........ -- (27)
----- -----
Cash used in financing activities..................................... (114) (49)
----- -----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... $(152) $ 45
===== =====
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
-6-
<PAGE>
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Host Marriott Corporation, a Maryland corporation formerly named HMC Merger
Corporation ("Host REIT"), operating through an umbrella partnership
structure, is the owner of full-service hotel properties. Host REIT operates
as a self-managed and self-administered real estate investment trust ("REIT")
and its operations are conducted solely through an operating partnership and
its subsidiaries. As REITs are not permitted to derive revenues directly
from the operations of hotels, Host REIT leases substantially all of its
hotels to subsidiaries of Crestline Capital Corporation ("Crestline" or the
"Lessee") and certain other lessees.
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. (the "Operating Partnership"). Host Marriott merged into HMC Merger
Corporation, a newly former 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 in exchange for
units of partnership interest in the Operating Partnership was accounted for
at Host Marriott's historical basis. As of March 26, 1999, Host REIT owned
approximately 78% of the Operating Partnership.
In these condensed consolidated financial statements, the "Company" or "Host
Marriott" refers to Host Marriott Corporation, both before and after the
Merger and its conversion to a REIT (the "REIT Conversion").
On December 29, 1998, the Company completed the previously discussed 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 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. All historical
financial statements presented have been restated to conform to this
presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated interim 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 interim 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 March 26, 1999 and
December 31, 1998, and the results of operations and cash flows for the
twelve weeks ended March 26, 1999 and March 27, 1998. Interim results are not
necessarily indicative of fiscal year performance because of the impact of
seasonal and short-term variations.
-7-
<PAGE>
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 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. Certain amounts of the percentage rent recognized are considered
contingent until such time as the revenue recognized exceeds annual
thresholds, which are determined individually by property. For the twelve
weeks ended March 26, 1999, $115 million of contingent rent is included in
the statement of operations.
3. RENTAL REVENUE
The Company's 1999 rental revenue represents earnings 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 weeks ended March 27, 1998 was to increase both
revenues and operating expenses by approximately $466 million 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 inclusion of only two months of
results in the 1999 first quarter versus three months in 1998 for the 24
such hotels (8,524 rooms) that the Company owned as of the beginning of 1998.
The change in reporting was required as part of the REIT Conversion. The
1998 hotel revenues include approximately $54 million representing the
incremental month of operations.
The table below represents hotel sales for both periods for comparative
purposes.
Twelve Weeks Ended
--------------------
March 26, March 27,
1999 1998
--------- ---------
(in millions)
Hotel Sales
Rooms............................................... $600 $509
Food and beverage................................... 268 222
Other............................................... 63 56
---- ----
Total sales...................................... $931 $787
==== ====
-8-
<PAGE>
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income by the
weighted average number of shares of common stock outstanding. Diluted
earnings per common share is computed by dividing net income as adjusted for
potentially dilutive securities, by the weighted average number of shares of
common stock outstanding plus other potentially dilutive securities. Diluted
earnings per common share was not adjusted for the impact of the Convertible
Preferred Securities as they were anti-dilutive for all periods presented.
A reconciliation of the number of shares utilized for the calculation of
diluted earnings per common share follows:
<TABLE>
<CAPTION>
Twelve Weeks Ended
--------------------
March 26, March 27,
1999 1998
--------- ---------
(in millions)
<S> <C> <C>
Weighted average number of common shares outstanding............................. 226.9 215.7
Assuming distribution of common shares granted under the comprehensive stock
plan, less shares assumed purchased at average market price.................... 5.9 4.4
Assuming distribution of common shares issuable for warrants, less shares
assumed purchased at average market price...................................... -- 0.3
Assuming conversion of minority operating partnership units
outstanding or issuable........................................................ 74.4 --
Assuming conversion of Convertible Preferred Securities.......................... -- --
----- -----
Shares utilized for the calculation of diluted earnings per share.............. 307.2 220.4
===== =====
</TABLE>
A reconciliation of net income to earnings used for the calculation of
diluted earnings per common share follows:
<TABLE>
<CAPTION>
Twelve Weeks Ended
--------------------
March 26, March 27,
1999 1998
--------- ---------
(in millions)
<S> <C> <C>
Net income................................................................... $45 $30
Dividends on Convertible Preferred Securities................................ -- --
Minority interest expense, assuming conversion of OP units................... 14 --
--- ---
Earnings used for the calculation of diluted earnings per share.............. $59 $30
=== ===
</TABLE>
5. DIVIDENDS AND DISTRIBUTIONS PAYABLE
On March 15, 1999, the Board of Directors declared a cash dividend of $0.21
per share of common stock and a corresponding distribution of $0.21 per unit
of limited partnership interest ("OP Unit") in the Company's subsidiary
operating partnership. The dividend and distribution was paid on April 14,
1999 to shareholders and unitholders of record on March 31, 1999.
On December 18, 1998, in conjunction with the REIT Conversion, the Company
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 $69 million and 11.9 million shares of common
stock that were elected in the Special Dividend were paid and/or issued on
February 10, 1999. The 1998 earnings per share has been restated to reflect
the impact of the stock portion of the Special Dividend.
-9-
<PAGE>
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. DISPOSITION
In February 1999, the Company sold the 479-room Minneapolis/Bloomington
Marriott for $35 million and recorded a pre-tax gain of $11 million.
7. DEBT ISSUANCES
In February 1999, the Company issued $300 million of 8 3/8% 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.
8. 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. 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.
The Company's segmented revenues and income (loss) from continuing operations
before income taxes are as follows (in millions):
<TABLE>
<CAPTION>
Twelve Weeks Ended March 26, 1999
-----------------------------------------
Hotels Corporate & Other Consolidated
------ ----------------- ------------
<S> <C> <C> <C>
Revenues................................... $ 304 $ 3 $ 307
Income (loss) from continuing operations
before income taxes....................... 62 (17) 45
Twelve Weeks Ended March 27, 1998
-----------------------------------------
Hotels Corporate & Other Consolidated
------ ----------------- ------------
Revenues................................... $ 801 $ 4 $ 805
Income (loss) from continuing operations
before income taxes....................... 71 (23) 48
</TABLE>
As of March 26, 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):
Twelve Weeks Ended
--------------------
March 26, March 27,
1999 1998
--------- ---------
United States........ $ 303 $ 779
International........ 4 26
----- -----
Total............... $ 307 $ 805
===== =====
-10-
<PAGE>
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. 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. For the twelve weeks ended March 26,
1999, comprehensive income totaled $44 million. Comprehensive income was
equivalent to net income for the twelve weeks ended March 27, 1998. As of
March 26, 1999 and December 31, 1998 the Company's accumulated other
comprehensive loss was approximately $5 million and $4 million, respectively.
10. SUBSEQUENT EVENTS
In April 1999, a subsidiary of the Company completed the refinancing of the
mortgage on the New York Marriott Marquis. The mortgage is for $245 million
maturing in June 2000 and bears interest at a rate of LIBOR plus 2.125% for
the period from March 31, 1999 through December 31, 1999 and LIBOR plus 2.5%
until maturity. The Company is required to make principal payments of $1.25
million on June 30, 1999 and September 30, 1999 in addition to $10 million
and $5 million on December 31, 1999 and March 31, 2000, respectively, as well
as pay an extension fee of 0.5% of the principal balance of the loan
outstanding at December 31, 1999.
On December 30, 1998, the Operating Partnership 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 Operating Partnership issued
approximately 43.9 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. An additional
3.8 million OP Units were issued in April 1999 in accordance with the
purchase agreement based on certain adjustments determined on March 31, 1999.
The Company also completed a 210-room extension of the Philadelphia Marriott
Convention Center in April 1999 at a cost of approximately $43 million
including debt of $9 million.
11. SUMMARIZED LEASE POOL FINANCIAL STATEMENTS
As discussed in Note 2, as of March 26, 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 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
-11-
<PAGE>
HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
weeks ended March 26, 1999 and summarized balance sheet data of the lease
pools in which the Company's hotels are organized are as follows (in
millions):
<TABLE>
<CAPTION>
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Hotel Sales
Rooms..................................... $129 $137 $127 $128 $521
Food and beverage......................... 59 61 61 72 253
Other..................................... 14 13 19 15 61
---- ---- ---- ---- ----
Total hotel sales...................... 202 211 207 215 835
Operating Costs and Expenses
Rooms..................................... 31 32 29 27 119
Food and beverage......................... 46 47 44 48 185
Other..................................... 53 52 50 48 203
Management fees........................... 9 14 11 16 50
Lease expense............................. 61 64 70 74 269
---- ---- ---- ---- ----
Total operating expenses............... 200 209 204 213 826
---- ---- ---- ---- ----
Operating Profit............................ 2 2 3 2 9
Corporate and Interest Expenses............. (1) -- (1) (1) (3)
---- ---- ---- ---- ----
Income before taxes....................... 1 2 2 1 6
Income taxes.............................. -- (1) (1) (1) (3)
---- ---- ---- ---- ----
Net Income............................. $ 1 $ 1 $ 1 $ -- $ 3
==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Pool 1 Pool 2 Pool 3 Pool 4 Combined
------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Assets................................ $ 47 $ 37 $ 46 $ 47 $ 177
Liabilities........................... $ 46 $ 36 $ 45 $ 46 $ 173
Equity................................ $ 1 $ 1 $ 1 $ 1 $ 4
</TABLE>
-12-
<PAGE>
HOST MARRIOTT CORPORATION
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.
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 the
Company's hotels not managed by Marriott International, which resulted in the
inclusion of only two months of results in the 1999 first quarter versus
three months in 1998 for the 24 of such hotels (8,524 rooms) the Company
owned as of the beginning of 1998. The change in reporting period was
required as part of the REIT Conversion. Results in the first quarter of 1999
were driven by the addition of 36 properties in 1998. The increase in hotel
sales reflects the growth in room revenues generated per available room or
REVPAR. For comparable properties, REVPAR increased 4.4% to $120.37 for the
first quarter of 1999. On a comparable basis, average room rates increased
approximately 3%, while average occupancy increased one percentage point.
Interest income decreased as the result of a lower level of cash and
marketable securities held in the first quarter of 1999 compared to the first
quarter of 1998.
The net gain on property transactions for 1999 resulted from the $11 million
pre-tax gain on the sale of the 479-room Minneapolis/Bloomington Marriott for
approximately $35 million.
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
$9 million or 8% to $124 million, primarily reflecting the depreciation from
the 36 properties added in 1998.
-13-
<PAGE>
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
MINORITY INTEREST. Minority interest expense increased $2 million to $18
million for the first quarter of 1999, primarily reflecting the impact of the
issuance of operating partnership units for the acquisition of certain hotel
properties partially offset by the consolidation of partnerships which
occurred as part of the REIT Conversion.
INTEREST EXPENSE. Interest expense increased 30% to $99 million in the first
quarter of 1999, primarily due to the issuance of senior notes, establishment
of a new credit facility and additional mortgage debt on properties acquired
in connection with the REIT Conversion.
DIVIDENDS ON CONVERTIBLE PREFERRED SECURITIES. The dividends on Convertible
Preferred Securities reflect the accrual for the first twelve weeks of fiscal
year 1999 and 1998 on the $550 million in 6 3/4% Convertible Preferred
Securities.
CORPORATE EXPENSES. Corporate expenses decreased $4 million to $8 million for
the first quarter of 1999 resulting primarily from the timing of certain
project costs not incurred in 1999.
INCOME FROM DISCONTINUED OPERATIONS. Income from discontinued operations
represents the senior living communities business' results of operations for
the first quarter of 1998 as restated for the spin-off of Crestline.
NET INCOME. Our net income for the first quarter of 1999 was $45 million
compared to $30 million for the first quarter of 1998. Basic earnings per
common share was $0.20 and $0.14 for the first quarter of 1999 and 1998,
respectively. Diluted earnings per share was $0.19 and $0.14 for the first
quarter of 1999 and 1998, respectively.
EBITDA and FFO
--------------
Our consolidated earnings before interest expense, taxes, depreciation,
amortization and other non-cash items ("EBITDA") increased $23 million, or
11%, to $226 million in the first quarter of 1999. Hotel EBITDA increased
$26 million, or 13%, to $230 million in the first quarter of 1999, reflecting
comparable full-service hotel EBITDA growth, as well as incremental EBITDA
from 1997 and 1998 acquisitions offset by amounts representing approximately
1% to 1.5% of hotel sales which are retained by Crestline.
The following is a reconciliation of EBITDA to the Company's income from
continuing operations (in millions):
Twelve Weeks Ended
------------------------
March 26, March 27,
1999 1998
----------- ---------
EBITDA.......................................... $226 $203
Interest expense................................ (99) (76)
Dividends on Convertible Preferred Securities... (9) (9)
Depreciation and amortization................... (68) (54)
Minority interest expense....................... (18) (16)
Income taxes.................................... -- (20)
Other non-cash charges, net..................... 13 --
---- ----
Income from continuing operations............. $ 45 $ 28
==== ====
-14-
<PAGE>
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Our interest coverage, defined as EBITDA divided by cash interest expense,
was 2.4 times for the 1999 first quarter, 2.8 times for the 1998 first
quarter and 2.5 times for full year 1998. The ratio of earnings to fixed
charges was 1.6 to 1.0 for the first quarter of 1999 and 1.7 to 1.0 for the
first quarter of 1998.
We also believe that Funds From Operations or FFO as defined by the National
Association of Real Estate Investment Trusts is a meaningful disclosure that
will help the investment community to better understand the financial
performance of the Company, including enabling its shareholders and analysts
to more easily compare the Company's performance to other Real Estate
Investment Trusts ("REITs"). FFO increased $32 million, or 38%, to $117
million in the first quarter of 1999. For periods prior to 1999, the FFO
disclosed represents comparative FFO (FFO plus deferred tax expenses). The
following is a reconciliation of the Company's income from continuing
operations to FFO (in millions):
Twelve Weeks Ended
-------------------------
March 26, March 27,
1999 1998
----------- -----------
Income from continuing operations... $ 45 $28
Depreciation and amortization....... 68 54
Other real estate activities........ (11) (1)
Partnership adjustments............. 15 (6)
Deferred taxes...................... -- 10
---- ---
Funds From Operations............. $117 $85
==== ===
On a pro forma basis adjusted for the December 1997 operations discussed
above FFO increased $39 million or 50% in the first quarter of 1999.
The Company considers EBITDA and FFO to be indicative measures of the
Company's operating performance due to the significance of the Company's
long-lived assets and because such data is considered useful by the
investment community to better understand the Company's results, and can be
used to measure the Company's ability to service debt, fund capital
expenditures and expand its business, however, such 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.
Cash Flows and Financial Condition
----------------------------------
The Company reported a decrease in cash and cash equivalents of $152 million
during the twelve weeks ended March 26, 1999. Cash from continuing operations
was $4 million for the first quarter of 1999 and $97 million for the first
quarter of 1998. The $93 million decrease in cash from continuing operations
resulted principally due to an increase in rent receivable resulting from the
timing of the receipt of cash payments under the leases versus management
agreement. There was no cash from (used in) discontinued operations for the
first quarter of 1999; however, cash from discontinued operations totaled $2
million for the first quarter of 1998.
Cash used in investing activities from continuing operations was $42 million
for the first quarter of 1999 and cash from investing activities from
continuing operations was $23 million for the first quarter of 1998.
Cash used in investing activities for the first quarter of 1999 includes
capital expenditures of $76 million, mostly related to renewals and
replacements on existing properties. In addition, the Company generated $36
million of cash from the net sale of assets, primarily the
Minneapolis/Bloomington property. There was no cash from (used in)
discontinued operations for the first quarter of 1999; however, cash used in
investing activities from discontinued operations totaled $28 million for the
first quarter of 1998.
-15-
<PAGE>
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Cash used in financing activities from continuing operations was $114 million
for the first quarter of 1999 and $22 million for the first quarter of 1998.
Cash used in financing activities for the first quarter of 1999 includes $323
million in prepayment of debt, offset by $299 million in debt issuances.
Both financing activities were related to the Company's February 1999
issuance of $300 million of 8 3/8% Series D Senior notes due in 2006. 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.
There was no cash from (used in) financing activities from discontinued
operations in the first quarter of 1999; however, cash used in financing
activities of discontinued operations totaled $27 million in the first
quarter of 1998.
Cash used in financing activities for the first quarter of 1999 also includes
a dividend distribution related to the REIT Conversion of $69 million.
On March 15, 1999, the Board of Directors declared a regular cash dividend of
$0.21 per share of common stock and a corresponding distribution of $0.21 per
unit of limited partnership interest ("OP Unit") in our subsidiary operating
partnership. The dividend and distribution was paid on April 14, 1999 to
shareholders and unitholders of record on March 31, 1999.
In April 1999, a subsidiary of the Company completed the refinancing of the
mortgage on the New York Marriott Marquis. The mortgage is for $245 million
maturing June 2000 and bears interest at a rate of LIBOR plus 2.125% for the
period from March 31, 1999 through December 31, 1999 and LIBOR plus 2.5%
until maturity. The Company is required to make principal payments of $10
million and $5 million on December 31, 1999 and March 31, 2000, respectively,
as well as pay an extension fee of 0.5% of the principal balance of the loan
outstanding at December 31, 1999.
On December 30, 1998, the Operating Partnership 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 Operating Partnership issued
approximately 43.9 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. An additional
3.8 million OP Units were issued in April 1999 in accordance with the
purchase agreement based on certain adjustments determined on March 31, 1999.
The Company also completed a 210-room extension of the Philadelphia Marriott
Convention Center in April 1999 at a cost of approximately $43 million
including debt of $9 million.
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 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
-16-
<PAGE>
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
readiness and found no problems with any mission critical systems, 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. 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 non-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 have started to receive written
assurances that these third parties 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.
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
-17-
<PAGE>
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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
documented and quantified results, weighted for System Criticality. As of
March 26, 1999, the Awareness and Inventory phases were complete for IT
Applications, BIS, and Building Systems. For IT Applications, the Assessment
and Planning phases were complete and Remediation/Replacement and Testing
phases were 95 percent complete. Compliance Validation had been completed for
approximately 75 percent of key systems, with most of the remaining work in
its final stage. For BIS and Building Systems, Assessment and Planning are
substantially complete. For BIS, Remediation/Replacement is substantially
complete and Testing is in progress. Marriott International is on track for
completion of Remediation/Replacement and Testing of Building Systems for
September of 1999. Compliance Validation is in progress for both BIS and
Building Systems. Implementation and Quality Assurance is in progress for IT
Applications, BIS and 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 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 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.
Marriott International has established a common approach for testing and
addressing Year 2000 compliance issues for its managed and franchised
properties. This includes a guidance protocol 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.
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
-18-
<PAGE>
HOST MARRIOTT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has certain derivative and other financial instruments that are
sensitive to changes in interest rates, including interest rate swaps and
debt obligations. The interest recognized on these instruments is based on
various LIBOR terms, which was 5.0% at March 26, 1999 and 5.1% at December
31, 1998 for the swaps and was approximately 5.8% for both periods for the
various debt obligations. The interest rates, fair values and future
maturities associated with these financial instruments have not changed
materially from the amounts reported in the Company's annual report on Form
10-K except for the refinancing and termination discussed below.
The Company repaid a $40 million variable rate mortgage with proceeds from
the $300 million senior notes offering discussed in Note 7 to the financial
statements. Additionally, the Company terminated the associated swap
agreement incurring a termination fee of approximately $1 million in February
1999.
-19-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is from time to time the subject of, or involved in, judicial
proceedings. Management believes that any liability or loss resulting from such
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 15, 1999, Host Marriott Corporation announced the Annual Meeting of
Shareholders to be held on May 20, 1999 to elect members of the Board of
Directors, among other matters.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
None.
b. Reports on Form 8-K:
. January 14, 1999--Report that Host Marriott Corporation, through its
subsidiary Host Marriott L.P., acquired ownership of, or controlling
interests in, twelve upscale and luxury full-service hotels and
certain other assets from the Blackstone Group and a series of funds
controlled by Blackstone Real Estate Partners, and financial
statements will be filed within 60 days of the filing of the report.
. January 14, 1999--Report on the December 29, 1998 Host Marriott
Corporation distribution of Crestline shares to shareholders of
record and Host Marriott belief that the fair market value of the
Crestline shares on December 29, 1998 was $15.30 per share (a
distribution of $1.53 per Host Marriott share) which is the value
determined by the Host Marriott Board of Directors.
. January 15, 1999--Report of the announcement that on December 30,
1998 Host Marriott Corporation had completed the final steps in its
conversion to a real estate investment trust ("REIT") and had
positioned itself to elect REIT status, effective January 1, 1999.
. January 22, 1999--Report that, based on its annual budget for 1999,
Host Marriott Corporation estimates that on a standalone basis its
1999 Earnings Before Interest, Expense, Taxes, Depreciation and
Amortization and other non-cash items will be in the range of
approximately $1.0 billion to $1.05 billion while its 1999 Funds
From Operations will be in the range of approximately $565 million
to $595 million.
. March 15, 1999--Report that on December 30, 1998, Host Marriott
Corporation, through its subsidiary Host Marriott, L.P. acquired
ownership of, or controlling interests in, 12 upscale and
-20-
<PAGE>
luxury full-service hotels and certain other assets from the
Blackstone Group, and a series of funds controlled by affiliates
Blackstone Real Estate Partners. In exchange for these assets, (1)
Host Marriott, L.P. issued approximately 43.9 million of its limited
partnership units, assumed debt and made cash payments totaling
approximately $920 million and (2) Host Marriott distributed 1.4
million shares of Crestline Capital Corporation. The actual number
of OP Units to be issued to the Blackstone Entities will fluctuate
based upon certain adjustments to be determined on March 31, 1999.
. May 3, 1999--Report of earnings release for the first quarter of
1999.
-21-
<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 CORPORATION
May 3, 1999 /s/ DONALD D. OLINGER
- ----------- -------------------------------------------
Date Donald D. Olinger
Senior Vice President and
Corporate Controller
(Chief Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HOST
MARRIOTT CORPORATION CONDENSED CONSOLIDATED INTERIM BALANCE SHEET AND CONDENSED
CONSOLIDATED INTERIM STATEMENT OF OPERATIONS AS OF AND FOR THE PERIOD ENDED
MARCH 26, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-26-1999
<CASH> 284
<SECURITIES> 0
<RECEIVABLES> 280
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 8,206
<DEPRECIATION> 1,033
<TOTAL-ASSETS> 8,177
<CURRENT-LIABILITIES> 0
<BONDS> 2,545
550
0
<COMMON> 2
<OTHER-SE> 1,301
<TOTAL-LIABILITY-AND-EQUITY> 8,177
<SALES> 286
<TOTAL-REVENUES> 307
<CGS> 0
<TOTAL-COSTS> 262
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99
<INCOME-PRETAX> 45
<INCOME-TAX> 0
<INCOME-CONTINUING> 45
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45
<EPS-PRIMARY> .20
<EPS-DILUTED> .19
</TABLE>
