CRESTLINE CAPITAL CORP, S-1/A, 1998-10-14

CRESTLINE CAPITAL CORP
S-1/A, 1998-10-14
HOTELS & MOTELS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1998

REGISTRATION NO. 333-64657

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

---------------

AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

---------------

CRESTLINE CAPITAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENTS)

---------------

DELAWARE 52-2039044
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)

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10400 FERNWOOD ROAD
BETHESDA, MARYLAND 20817
TELEPHONE: (301) 380-9000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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TRACY M. J. COLDEN
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
CRESTLINE CAPITAL CORPORATION
10400 FERNWOOD ROAD
BETHESDA, MARYLAND 20817
TELEPHONE: (301) 380-9000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

---------------

COPY TO:
J. WARREN GORRELL, JR., ESQ.
GEORGE P. BARSNESS, ESQ.
HOGAN & HARTSON L.L.P.
555 THIRTEENTH STREET, N.W.
WASHINGTON, D.C. 20004-1109

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]

---------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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- -------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 14, 1998

PROSPECTUS

CRESTLINE CAPITAL CORPORATION

COMMON STOCK

-----------

This Prospectus is being furnished to the common stockholders of Host
Marriott Corporation, a Delaware corporation ("Host"), in connection with the
proposed distribution (the "Distribution") by Host to its common stockholders
("Host Stockholders") of approximately 82% of the outstanding shares of common
stock, par value $0.01 per share (the "Common Stock"), of Crestline Capital
Corporation, a Delaware corporation (the "Company"). In the event the
Distribution is declared by the Board of Directors of Host but the proposed
acquisition by Host of certain hotels from The Blackstone Group and certain
affiliated funds is not consummated, the shares of Common Stock of the Company
distributed to Host Stockholders will represent 100% of the outstanding Common
Stock of the Company. The Distribution is part of a series of transactions
pursuant to which Host intends to convert into a real estate investment trust
("REIT") for federal income tax purposes (the "REIT Conversion"). As part of
the REIT Conversion, Host also intends to reincorporate from the State of
Delaware to the State of Maryland by means of a merger (the "Merger") of Host
with and into HMC Merger Corporation, a Maryland corporation ("Host REIT"),
pursuant to an Agreement and Plan of Merger (the "Agreement") and to effect
certain other transactions relating to its conversion into a REIT.

Upon completion of the Distribution, the Company and its subsidiaries will be
engaged in the business of leasing and subleasing full-service and limited-
service hotels from Host REIT, asset management of hotels and owning
independent living, assisted living and healthcare communities. The Company's
leased or subleased hotel properties and senior living communities will be
managed by Marriott International, Inc. or its subsidiaries and certain other
third party managers.

The Distribution is subject to declaration by the Board of Directors of Host,
which is expected to occur on or about December , 1998. The Board of Directors
of Host does not intend to declare the Distribution unless the Agreement is
approved by Host Stockholders at a special meeting of Host Stockholders to be
held on or about December , 1998 and the other transactions comprising the
REIT Conversion have occurred or are reasonably likely to occur after the
Merger. If declared by the Board of Directors of Host, Host Stockholders will
receive one share of Common Stock of the Company for each ten shares of common
stock, par value $1.00 per share, of Host held of record on the record date
fixed for the Distribution (currently expected to be 5:00 p.m. (Eastern
Standard Time) on December , 1998), and whether or not the Merger or the other
transactions comprising the REIT Conversion occur. Cash will be paid in lieu of
fractional shares. The distribution date for the Distribution is expected to
occur not later than December 31, 1998.

The Company's amended and restated certificate of incorporation will prohibit
any person (including Host REIT and/or any 10% or greater stockholder of Host
REIT) from owning (directly or by attribution under the applicable provisions
of the Internal Revenue Code of 1986, as amended) more than 9.8% of the lesser
of the number or value of any class or series of capital stock of the Company
(subject to an exception for shares in excess of such limit owned solely by
reason of the Distribution). See "Description of Capital Stock--Restrictions on
Ownership and Transfer."

The Company has applied to list the Common Stock on the New York Stock
Exchange under the symbol "CLJ."

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
RELEVANT TO THE DISTRIBUTION OF THE COMMON STOCK OF THE COMPANY.

-----------

NO SEPARATE VOTE OF HOST STOCKHOLDERS IS REQUIRED WITH RESPECT TO THE
DISTRIBUTION, AND NO HOST STOCKHOLDER WILL BE REQUIRED TO MAKE ANY PAYMENT OR
EXCHANGE ANY HOST COMMON STOCK IN ORDER TO RECEIVE COMMON STOCK OF THE COMPANY
OR CASH IN LIEU OF FRACTIONAL SHARES IN THE DISTRIBUTION.

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

-----------

THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information set forth elsewhere in this Prospectus, including the discussion of
certain factors set forth under "Risk Factors." Unless the context requires
otherwise, (i) all references to the "Company" in this Prospectus refer to
Crestline Capital Corporation and its consolidated subsidiaries; (ii) all
references to "Host" in this Prospectus refer to Host Marriott Corporation and
its consolidated subsidiaries prior to the Merger of Host with and into Host
REIT and the Distribution; (iii) all references to "Host REIT" in this
Prospectus refer to HMC Merger Corporation and its consolidated subsidiaries
following the Merger, including Host Marriott, L.P., a Delaware limited
partnership through which HMC Merger Corporation will conduct its business, and
subsidiaries of Host Marriott, L.P.; and (iv) all references to "Marriott
International" in this Prospectus refer to Marriott International, Inc. and its
subsidiaries. HMC Merger Corporation, as the successor and surviving
corporation to Host in the Merger, will change its name to Host Marriott
Corporation as part of the Merger. All references in this Prospectus to Host
REIT, as lessor, shall be deemed to refer to Host in the event the Merger of
Host with and into Host REIT is for any reason not consummated. The discussion
in this Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business and Properties," as well as those discussed elsewhere
in this Prospectus.

THE DISTRIBUTION

Distributing Company........ Host Marriott Corporation, a Delaware corporation
("Host"). It is presently contemplated that the
Merger will occur on or about December , 1998,
assuming the conditions precedent to the Merger,
including approval by Host Stockholders of the
Agreement and Plan of Merger by and among Host,
HMC Merger Corporation, a Maryland corporation
("Host REIT") and Host Marriott, L.P. (the
"Agreement"), are satisfied or waived (to the
extent legally permitted) by that date. If the
Merger is consummated, Host REIT will be the
successor to Host and surviving corporation in
the Merger.

Distributed Company......... Crestline Capital Corporation, a Delaware
corporation (the "Company"), which currently is a
wholly owned subsidiary of Host but will become a
separate public company as a result of the
Distribution.

Shares to be Distributed.... Approximately shares of Common Stock of the
Company, representing approximately 82% of the
Common Stock of the Company to be outstanding at
the time of the Distribution. The remaining
approximately 18% of the then outstanding Common
Stock of the Company, which also is currently
owned by Host, is expected to be transferred by
Host REIT as part of the consideration in
connection with Host REIT's proposed acquisition
of certain hotel properties from The Blackstone
Group and a series of funds controlled by
Blackstone Real Estate Partners (collectively,
the "Blackstone Entities;" such acquisition being
referred to herein as the "Blackstone
Acquisition.") (In the event the Distribution is
declared by the Board of Directors of Host but
the Blackstone Acquisition does not occur, the
shares of Common Stock of the Company distributed
to Host Stockholders in the Distribution will
represent 100% of the outstanding Common Stock of
the Company.) See "Business and Properties--
Blackstone Acquisition."

1
<PAGE>

Distribution Ratio.......... One share of Common Stock of the Company for each
ten shares of Host common stock held of record on
the Record Date (defined below) fixed by the
Board of Directors of Host for the Distribution.
Cash will be paid in lieu of fractional shares.
(The Distribution is subject to declaration by
the Board of Directors of Host, which is expected
to occur on or about December , 1998. The Board
of Directors of Host does not intend to declare
the Distribution unless the Agreement is approved
by Host Stockholders at the special meeting of
Host Stockholders (the "Special Meeting") to be
held on or about December , 1998 and the other
transactions comprising the REIT Conversion
(including the Blackstone Acquisition) have
occurred or are reasonably likely to occur after
the Merger.)

Record Date................. Currently expected to be 5:00 p.m. (Eastern
Standard Time) on December , 1998 (the "Record
Date").

Distribution Date........... Currently expected to occur not later than
December 31, 1998.

No Payment or Other Action
Required................... No separate vote of Host Stockholders is required
with respect to the Distribution, and no Host
Stockholders will be required to make any payment
or exchange any Host common stock in order to
receive Common Stock of the Company (or cash in
lieu of fractional shares) in the Distribution.

Background of and Reasons
for the Distribution....... The Distribution and the Merger are part of a
series of transactions pursuant to which Host
intends to convert into a real estate investment
trust ("REIT") for federal income tax purposes.
Assuming the Merger and the other transactions
necessary to restructure Host's business
operations so that it will qualify as a REIT are
completed on or prior to December 31, 1998, Host
expects to qualify as a REIT beginning with its
first full taxable year commencing after the REIT
Conversion is completed, which is currently
expected to be the year commencing January 1,
1999 (but which might not be until the year
commencing January 1, 2000).

Because REITs are not permitted under current
federal income tax law to derive revenues
directly from the operation of hotels, Host REIT
will lease and sublease substantially all of the
hotels currently owned and leased by Host (as
well as those acquired in the Blackstone
Acquisition if such transaction is consummated)
to an unrelated party. In addition, in order for
Host REIT to qualify as a REIT for federal income
tax purposes, Host or Host REIT will be required
to have distributed to its stockholders all
accumulated "earnings and profits" ("E&P"), as
determined for tax purposes, of Host prior to the
end of the first full taxable year for which the
REIT election of Host REIT is effective. As a
result of these requirements, Host has
determined, as part of the REIT Conversion, that
(i) Host REIT will lease and sublease
substantially all of the hotels currently owned
and leased by Host (as well as those acquired in
the Blackstone Acquisition if such transaction is
consummated) to subsidiaries of the Company,
which will lease or sublease from

2
<PAGE>

Host REIT such hotels under their existing brand
name pursuant to their existing management
agreements with Marriott International and
certain other third party managers (the "Non-MI
Managers"), and (ii) Host will, subject to
approval of the Agreement by Host Stockholders
and declaration by the Board of Directors of Host
after the date of the Special Meeting, make the
Distribution to help accomplish the requisite
distributions of the E&P of Host. In addition to
facilitating Host's conversion into a REIT for
federal income tax purposes, Host believes that
there may be greater opportunities to expand and
develop the Company's senior living community
business if such business is owned by a separate
public company whose senior management has a
greater focus on that business.

In connection with the Distribution, subsidiaries
of the Company will lease or sublease
substantially all of the hotels then owned or
leased by Host. The leases and subleases are
expected to be for a term of years (ranging
generally from seven to ten years, depending on
the particular hotel) effective January 1, 1999
(assuming the Merger occurs prior to that date;
otherwise as soon as practicable following the
Distribution Date) and will be binding upon Host
or Host REIT whether or not the Merger or other
aspects of the REIT Conversion are consummated.
Concurrently with entering into these leases and
subleases, the Company will assume certain of the
rights and obligations under the existing
management and franchise agreements between Host
and Marriott International or the Non-MI
Managers, pursuant to which Marriott
International or the Non-MI Managers will
continue to manage the hotels on behalf of the
Company. Marriott International also will
continue to manage the 31 senior living
communities currently owned by the Company
(collectively, the "Communities").

Relationship with Host
after the Distribution..... For purposes of governing certain ongoing
relationships between the Company and Host after
the Distribution and to provide for an orderly
transition, the Company and Host have entered
into or will enter into certain agreements. Such
agreements include: (i) a Distribution Agreement,
providing for, among other things, the
Distribution and the division between the Company
and Host of certain assets and liabilities; (ii)
a Tax Sharing Agreement, pursuant to which the
Company and Host would agree to allocate tax
liabilities that relate to periods prior to the
Distribution Date; (iii) an Asset Management
Agreement, pursuant to which the Company would
provide to Host asset management services related
to Host's rights and responsibilities as owner of
the hotels; (iv) a Corporate Transitional Service
Agreement, pursuant to which the Company and Host
would provide certain limited administrative
services to each other; (v) a Non-Competition
Agreement, pursuant to which the Company and Host
would agree to not engage in certain businesses;
(vi) an Employee Benefits and Other Employment

3
<PAGE>

Matters Allocation Agreement, providing for
certain allocations of responsibilities with
respect to employee compensation, benefit and
labor matters; (vii) Guaranty Agreements,
pursuant to which the Company and certain
subsidiaries would guarantee a certain amount of
the lease and related management agreement
obligations of the Company's subsidiaries that
will lease or sublease the hotels from Host REIT;
and (viii) a Pooling Agreement, pursuant to which
all leased full-service hotels would be separated
into four identified "pools" of hotels for
purposes of calculating the amount of the
guaranty. See "Business and Properties--
Relationship with Host after the Distribution."

Relationship with Marriott
International.............. Marriott International will serve as the manager
for a substantial majority of the full-service
and limited-service hotels leased and subleased
by the Company. In addition, Marriott
International is the manager for all 31
Communities. The Company will be bound by certain
existing non-competition agreements with Marriott
International, pursuant to which the Company's
business opportunities will be restricted. See
"Business and Properties--Non-Competition
Agreements" and "--Description of Other
Agreements for the Communities."

Distribution Agent.......... Bank of New York will be the distribution agent
(the "Distribution Agent") for the Distribution.

Transfer Agent and
Registrar.................. Bank of New York will be the Transfer Agent and
Registrar for the Common Stock of the Company.

Federal Income Tax
Consequences............... The Distribution will be a taxable dividend to a
Host Stockholder in an amount equal to the fair
market value of the Common Stock (plus any cash
received in lieu of fractional shares) received
in the Distribution (to the extent that the
Distribution is made out of the Host
Stockholder's share of the portion of the E&P of
Host and Host REIT allocable to the
Distribution). Host and Host REIT currently
believe that the entire Distribution (the fair
market value of which Host currently estimates
will be approximately $ per share of Host
common stock) will be made out of such E&P, and
thus will be a taxable dividend to Host
Stockholders who receive shares of Common Stock
of the Company in the Distribution. See "Federal
Income Tax Consequences."

Trading Market.............. There is currently no public market for the
Common Stock of the Company. The Company has
applied to list the Common Stock on the New York
Stock Exchange ("NYSE") under the symbol "CLJ."
There can be no assurance that an active trading
market will develop. See "Risk Factors--Absence
of a Prior Public Market; Possible Volatility of
Stock Price."

4
<PAGE>

THE COMPANY

General..................... In June 1997, the Company acquired all of the
outstanding stock of Forum Group, Inc. ("Forum")
from Marriott International. As a result, the
Company currently owns, through Forum and its
wholly or majority-owned subsidiaries, 31
Communities located in 13 states. In connection
with the Distribution, the Company expects to
lease from Host REIT approximately 125 full-
service hotels, representing substantially all of
the full-service hotels owned by Host REIT, the
substantial majority of which are operated under
"Marriott" brands. In addition, the Company will
sublease from Host REIT approximately 71 limited-
service hotels, which are currently leased by
Host from Hospitality Properties Trust, a
separate publicly traded REIT ("HPT").
Substantially all of the leased or subleased
hotels and the Communities will be managed by
Marriott International. If the Blackstone
Acquisition is consummated, the Company also will
acquire a 25% interest in the management company
that operates Swissotel hotels in the United
States.

The Company's executive offices are located at
10400 Fernwood Road, Bethesda, Maryland 20817,
and its telephone number is (301) 380- .

The Company's activities are and will be limited
for certain specified periods by certain
agreements with Host REIT and Marriott
International to which the Company is or will
become a party. See "Business and Properties--
Non-Competition Agreements."

Management of the Company... Following the Distribution, none of the members
of the Company's senior management, including
Bruce D. Wardinski, Chairman of the Board,
President and Chief Executive Officer, and James
L. Francis, Executive Vice President and Chief
Financial Officer, will be a director, officer or
employee of Host REIT, and none of the Company's
directors will be a director, officer or employee
of Host REIT (other than Christopher J. Nassetta,
who is an officer but not a director of Host
REIT).

Dividend Policy............. The Company does not anticipate paying any cash
dividends on the Common Stock in the foreseeable
future. See "Dividend Policy."

RISK FACTORS

Host Stockholders should carefully consider, in addition to the other
information contained in this Prospectus, the matters set forth under the
caption "Risk Factors."

5
<PAGE>

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA

The following table presents summary historical consolidated financial data
derived from the Company's audited consolidated financial statements and
summary pro forma financial information derived from the Company's unaudited
pro forma financial statements included elsewhere herein. The Company was
formed in 1997 as a subsidiary of Host to own its senior living communities.
Although the Company currently owns 31 Communities, none of these properties
were owned by the Company or Host prior to June 21, 1997. The historical
financial data reflect the operating results of the acquired senior living
communities for the periods during which the properties have been owned by the
Company and do not reflect the leases and subleases to be entered into by the
Company and Host REIT at the time of the Distribution. See "Selected Historical
Financial Data" for a summary of historical information of the Company and its
predecessors. The pro forma financial data set forth below may not necessarily
be indicative of the results that would have been achieved had the transactions
been consummated as of the dates indicated or that may be achieved in the
future. The information in the table should be read in conjunction with
"Selected Historical Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Pro Forma Financial
Statements," the consolidated financial statements of the Company and the
financial statements of certain acquired senior living communities included
elsewhere herein. The Company's fiscal year ends on the Friday closest to
December 31.

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
----------------------- -------------------------------------------
WITH BLACKSTONE WITHOUT BLACKSTONE
PERIOD FROM --------------------- ---------------------
JUNE 21, 1997
FIRST TWO THROUGH FIRST TWO FIRST TWO
QUARTERS JANUARY 2, QUARTERS FISCAL QUARTERS FISCAL
1998 1998 1998 YEAR 1997 1998 YEAR 1997
--------- ------------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $39,252 $36,900 $2,061,456 $4,088,093 $1,845,752 $3,683,593
Operating profit....... 20,046 15,971 41,366 72,317 38,520 60,992
Corporate expenses..... 1,616 2,304 7,923 13,500 7,923 13,500
Interest expense....... 13,185 13,396 11,154 23,832 11,154 23,832
Interest and dividend
income................ 681 336 948 1,501 948 1,501
Net income............. 3,497 358 13,710 21,528 12,031 14,845
OTHER OPERATING DATA:
EBITDA(2).............. $28,797 $24,638 $ 45,950 $ 87,005 $ 43,105 $ 75,680
Cash interest
expense(3)............ 15,950 8,183 11,870 24,483 11,870 24,483
Depreciation and
amortization.......... 9,686 10,635 9,713 22,687 9,713 22,687
Cash provided by
operations............ 6,938 25,376
Cash used in investing
activities............ 3,597 33,412
Cash provided by (used
in) financing
activities............ (1,872) 25,680
RATIO DATA:
EBITDA to cash interest
expense............... 1.8x 3.0x 3.9x 3.6x 3.6x 3.1x
Ratio of earnings to
fixed charges(4)...... 1.5x 1.1x 1.1x 1.1x 1.1x 1.1x
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 19, 1998
-------------------------------------------
PRO FORMA(1)
----------------------------------
ACTUAL WITH BLACKSTONE WITHOUT BLACKSTONE
-------- --------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........................ $687,339 $808,821 $ 808,821
Total debt.......................... 321,752 214,757(5) 214,757(5)
Stockholder's equity................ 282,638 411,115 411,115
</TABLE>
- --------
(1) See "Pro Forma Financial Statements."
(2) Earnings before interest expense, taxes, depreciation, amortization and
certain other non-cash items ("EBITDA"). There are no non-cash items, other
than depreciation and amortization, included in EBITDA for the periods
presented. EBITDA data is presented because such data is used by certain
investors to determine the Company's ability to meet debt service
requirements. The Company considers EBITDA to be an indicative measure of
the Company's operating performance due to the significance of the
Company's long-lived assets and because EBITDA 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 flows from operations, or
any other operating or liquidity performance measure prescribed by
generally accepted accounting principles ("GAAP"). Cash expenditures for
various long-term assets, interest expense and income taxes have been, and
will be, incurred which are not reflected in the EBITDA presentation.
(3) Cash interest expense is calculated as GAAP interest expense less
amortization of deferred financing costs.
(4) The ratio of earnings to fixed charges is computed by dividing income
before taxes, interest expense and other fixed charges by total fixed
charges, including interest expense, amortization of debt issuance costs
and the portion of rent expense that is deemed to represent interest.
(5) Amount excludes approximately $100 million due to Host to pay for hotel
working capital purchased from Host.

6
<PAGE>

RISK FACTORS

Host Stockholders should carefully consider and evaluate all of the
information set forth in this Prospectus, including the risk factors listed
below.

DEPENDENCE ON MARRIOTT INTERNATIONAL

Marriott International will manage substantially all of the hotels to be
leased or subleased by the Company from Host REIT and all of the Communities
owned by the Company under long-term management agreements. Therefore, the
Company's revenue, profitability, and ability to make lease payments to Host
REIT will depend upon the ability of Marriott International to effectively
manage such hotels and the Communities. Factors that may affect Marriott
International's performance and the Company's results of operations include
the following: the general economic climate, local market conditions (such as
an oversupply of, or a reduction in demand for, hotel space and senior living
communities), the attractiveness of the hotels and the Communities to
consumers, the quality, philosophy and performance of management, competition
from comparable hotels and senior living communities, changes in room rates,
increases in operating costs or reductions in operating margins due to
inflation, market conditions and other factors, which increases may not
necessarily be passed through fully to guests of the hotels or residents of
the Communities. In addition, certain situations could arise where actions
taken by Marriott International, in its capacity as manager of competing
lodging or senior living communities, would not necessarily be in the best
interests of the Company. As of the date hereof, Marriott International owned
or operated 98 senior living communities, of which 31 are owned by the
Company.

CONFLICTS OF INTEREST IN ESTABLISHING THE TERMS OF THE HOTEL LEASES

The terms of the hotel leases and subleases (collectively, the "Hotel
Leases") to be entered into by subsidiaries of the Company with subsidiaries
of Host REIT were negotiated by the Company with Host, but because the Company
was a wholly owned subsidiary of Host at such time, such negotiation may not
necessarily have been on an arms-length basis and, accordingly, may not
necessarily reflect fair market value or terms. The rental payments required
to be made by the subsidiaries of the Company under the Hotel Leases were
negotiated based upon historical and projected operating and financial
performance of the hotels. There can be no assurance, however, that the
projected operating and financial performance of the hotels used in
negotiating the lease payments will be met, and any failure to do so could
have a material adverse effect on the Company's financial condition and
results of operations.

DEPENDENCE OF HOTEL REVENUES ON CONTINUATION OF THE HOTEL LEASES

Revenues from operation of the hotels will comprise a substantial portion of
the Company's revenues, and the Company will be able to continue to earn such
revenues only as long as the Hotel Leases remain in effect. The Hotel Leases
generally have terms ranging from seven to ten years and do not provide the
Company with any renewal rights. In addition, Host or Host REIT may terminate
a Hotel Lease upon payment to the Company of a termination fee equal to the
fair market value of the Company's leasehold interests for the remaining term
of the lease if Host REIT enters into an agreement to sell or otherwise
transfer the particular hotel free and clear of the lease and in certain other
circumstances. Host REIT also may elect to terminate the Hotel Leases upon a
"Change in Control" of the Company or any of its subsidiaries that will lease
the hotels from Host REIT. Host REIT would be required to pay a termination
fee equal to the previous year's operating profit of the lessee in connection
with any such lease termination unless an "Adverse Party" is the acquiring
person, in which event no termination fee would be payable by Host REIT. A
"Change of Control" includes a change of a majority of the Board of Directors
of the Company in any fiscal year or the accumulation of more than 35% of the
Company's stock or any change of ownership of a lessee, and an "Adverse Party"
includes, among other persons, any hotel ownership, management or franchisor
company. In addition, in the event that changes in the federal income tax laws
allow Host REIT, or subsidiaries or affiliates of Host REIT, to directly
operate the hotels without jeopardizing Host REIT's status as a REIT, Host
REIT will have the right to terminate the Hotel Leases, in return for paying
the Company the fair market value of the Company's leasehold interests for the
remaining

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terms of such leases. The payment would be payable in cash or shares of Host
REIT, at the election of Host REIT. Host REIT and the Company also will each
have the right to terminate up to 12 Hotel Leases without being required to
pay any fee or other compensation as a result of such termination, but Host
REIT only will be permitted to exercise such right in connection with a sale
of a hotel to an unrelated third party or the transfer of a hotel to a joint
venture in which Host Marriott, L.P., Host REIT's operating subsidiary, does
not have a two-thirds or greater interest. See "Business and Properties--
Description of the Hotel Leases for Full-Service Hotels Managed by Marriott
International." The Company's financial condition and results of operations
would be materially and adversely affected by termination of a substantial
number of the Hotel Leases.

NO RIGHTS OF FIRST REFUSAL OR OTHER CONTRACTUAL COMMITMENTS ENABLING THE
COMPANY TO LEASE ADDITIONAL HOTELS FROM HOST REIT

There are no rights of first refusal or other contractual arrangements
enabling the Company to lease any hotels acquired by Host REIT in the future.
In the absence of such commitments, there can be no assurance that Host REIT
will lease any additional hotels to the Company, which could adversely affect
the Company's ability to expand its leasing business.

POTENTIAL ADVERSE IMPACT ON COMPANY'S PROFITABILITY OF DECLINES IN OPERATING
MARGINS ON HOTELS UNDER LEASE OR SUBLEASE

At the time of the Distribution, the Company expects to lease approximately
125 full-service hotels and to sublease approximately 71 limited-service
hotels from Host REIT. Substantially all of the hotels to be leased or
subleased from Host REIT will be managed for the Company by Marriott
International. On a pro forma basis after giving effect to the leases and
subleases, the Company would have had total hotel revenues of $3,865 million
and total hotel operating costs and expenses, including pro forma lease
payments payable to Host REIT and pro forma management fees payable to
Marriott International, of $3,826 million for the fiscal year ended January 2,
1998, or an operating margin of $39 million. For the First Two Quarters 1998,
total hotel revenues would have been $1,951 million and total hotel operating
costs and expenses would have been $1,930 million, or an operating margin of
$21 million. In view of the size of the portfolio to be leased and the
magnitude of the lease payments due Host REIT, the management fees payable to
Marriott International and the other costs and expenses associated with the
Hotel Leases, any material increase in hotel operating costs and expenses that
is not offset by a corresponding increase in hotel revenues, or a material
decline in hotel revenues which is not offset by a corresponding decrease in
hotel operating costs and expenses, would have a material adverse impact on
the Company's financial condition and results of operations.

INABILITY OF THE COMPANY TO TERMINATE THE HOTEL LEASES AND THE MANAGEMENT
AGREEMENTS

A substantial amount of the Company's operating expenses will consist of
lease payments to Host REIT, management and hotel franchise fees payable to
Marriott International in connection with its management of the hotels, and
management fees payable to Marriott International in connection with its
management of the Communities. Under the Hotel Leases and the management
agreements for the hotels, the Company will be responsible for paying all the
expenses of operating the hotels, including all personnel costs, utility costs
and general repair and maintenance (other than capital expenditures,
furniture, fixtures and equipment expenditures (with certain exceptions),
property and casualty insurance, real estate taxes and other assessments and
ground lease rent payments, for which Host REIT will be responsible). The
Company will be solely responsible for the expenses of operating the
Communities. Except in certain events specified therein, the Company will not
be able to terminate the Hotel Leases or the management agreements prior to
the expiration of their respective terms.

INABILITY OF THE COMPANY TO OBTAIN FINANCING SECURED BY THE HOTEL LEASES
WITHOUT HOST REIT'S CONSENT; OTHER FINANCING RESTRICTIONS

Pursuant to the terms of the Hotel Leases, the Company will not be entitled
to obtain financing secured by its leasehold interests in the hotels without
the consent of Host REIT, which may be withheld in its sole

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discretion. Even if Host REIT were to consent to the Company obtaining
financing secured by its leasehold interests, a number of hotels have pre-
existing third-party financing that prohibits any additional secured
financing. The management agreements with Marriott International and the Non-
MI Managers typically require a secured lender to keep the management
agreement in effect following a foreclosure. The rights of each lessee will be
expressly subordinate to qualifying mortgage debt and any refinancing of
property level debt of the hotel. A default under the loan documents may
result in the termination of the Hotel Lease by the lender. The lender will
not be required to provide a non-disturbance agreement to the lessee.

RISKS OF LEVERAGE

The Company will have substantial indebtedness. As of June 19, 1998, on a
pro forma basis assuming the Distribution, the Company had outstanding
indebtedness, excluding the amount due to Host to pay for hotel working
capital purchased from Host of approximately $100 million, totaling
approximately $215 million. Giving effect to the Hotel Leases and management
agreements to be entered into by the Company with Host REIT and Marriott
International, as the case may be, in connection with the Distribution, pro
forma interest, lease and management fee expenses would have been $1,454
million and $782 million for the fiscal year ended January 2, 1998 and the
first two quarters 1998. The Company's existing leverage, together with its
obligation to make lease and management fee payments under the Hotel Leases
and related management agreements, could affect its ability to obtain
financing in the future or undertake refinancings on terms and subject to
conditions favorable to the Company.

GUARANTY OF THE HOTEL LEASES

The Company and certain subsidiaries will enter into certain limited
guaranty agreements of a certain amount of the Hotel Leases and related
management agreement obligations of the Company's subsidiaries that will lease
or sublease the hotels from Host REIT. For each of four identified "pools" of
hotels, the cumulative limit of the guarantee at any time will be 10% of the
aggregate rents under all full-service Hotel Leases in such pool paid with
respect to the preceding 12 full calendar months.

RESTRICTIONS ON SALES AND OTHER TRANSFERS OF HOTEL LEASEHOLD INTERESTS AND
COMMUNITIES

The Hotel Leases and the management agreements with Marriott International
and the Non-MI Managers of the hotels and the Communities impose certain
conditions and restrictions on sales and other transfers of the Hotel Leases
and the Communities. These conditions and restrictions, or the Company's
inability to obtain a consent, modification or waiver from Host REIT, Marriott
International or the Non-MI Managers, could adversely affect the Company's
ability to consummate such sale or other transfer.

FRAUDULENT CONVEYANCE CONSIDERATIONS

It is a condition to the consummation of the Distribution that the Board of
Directors of Host shall have received a satisfactory opinion regarding the
solvency of Host. There is no certainty, however, that a court would find the
solvency opinion rendered by Host's financial advisor to be binding on
creditors of Host or that a court would reach the same conclusions set forth
in such opinion in determining whether Host was insolvent at the time of, or
after giving effect to, the Distribution.

If a court in a lawsuit by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy, were to find that at the time Host
effected the Distribution, Host (i) was insolvent; (ii) was rendered insolvent
by reason of the Distribution; (iii) was engaged in a business or transaction
for which Host's remaining assets constituted unreasonably small capital; or
(iv) intended to incur, or believed it would incur, debts beyond its ability
to pay as such debts matured, such court may be asked to void the Distribution
(in whole or in part) as a fraudulent conveyance and require, among other
possible remedies, that the stockholders return the Distribution or the value
thereof (in whole or in part) to Host. The measure of insolvency for purposes
of the foregoing will vary depending upon the jurisdiction whose law is being
applied. Generally, however, Host would be considered insolvent if the fair
value of its assets were less than the amount of its liabilities or if it
incurred debt beyond its ability to repay such debt as it matures. No
assurance can be given as to what standard a court would apply in

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<PAGE>

determining insolvency. In addition, under Section 170 of the Delaware General
Corporation Law (the "DGCL") (which is applicable to the Distribution), a
corporation generally may make distributions to its stockholders only out of
its surplus (net assets minus capital) and not out of capital.

Host's Board of Directors and management believe that Host will be solvent
at the time of the Distribution (in accordance with the foregoing
definitions), will be able to repay its debts as they mature following the
Distribution and will have sufficient capital to carry on its businesses, and
the Distribution will be made entirely out of surplus, as provided under
Section 170 of the DGCL.

RESTRICTIONS ON THE COMPANY'S BUSINESS AND FUTURE OPPORTUNITIES

The Company's activities are and will be limited by certain agreements to
which it is or will become a party.

Non-Competition Agreement with Marriott International Regarding the
Hotels. Host and Marriott International entered into a non-competition
agreement (the "Hotel Non-Competition Agreement") in 1993 when Host and
Marriott International became separate public companies. Under the Hotel Non-
Competition Agreement, Host and its subsidiaries generally are prohibited
prior to October 8, 2000, subject to certain limited exceptions, from entering
into or acquiring any business that competes with the hotel management
business as conducted by Marriott International. Under the Hotel Non-
Competition Agreement, certain activities are permitted, including, (i) the
operation by Host of an unlimited number of hotel properties so long as Host
does not operate more than ten such properties under a common brand name, (i)
contracting by Host with a third party manager for operation of an unlimited
number of hotel properties, so long as the number of properties under such
third party management is not more than the greater of (a) ten such properties
operated under a common name or (b) 25% of the system operated by such third
party manager under a common name brand, and (iii) franchising by Host as
franchisor an unlimited number of hotel properties so long as Host is not
franchisor for more than ten such properties under a common name. The Company
also will be bound by the Hotel Non-Competition Agreement following the
Distribution.

Non-Competition Agreement with Marriott International Regarding the
Communities. In connection with the Company's acquisition of Forum from
Marriott International in 1997, Host and Marriott International entered into a
non-competition agreement (the "Community Non-Competition Agreement"). Under
the Community Non-Competition Agreement, Host and its subsidiaries generally
are prohibited prior to June 21, 2007, subject to certain limited exceptions,
from competing with Marriott International by (i) financing, conducting,
participating or engaging in the business of operating, managing or
franchising (as franchisor) senior living communities or (ii) providing
operational or managerial services relating thereto with respect to health
care, therapy, home health care, assisted living, nursing and related medical,
residential, supportive and personal care services. Until the term of the
Community Non-Competition Agreement expires on June 21, 2007, Host is
prohibited from entering into a transaction or a series of transactions
whereby ten or more Communities or a controlling interest therein would be
transferred to another party unless such party agrees to be bound by the
Community Non-Competition Agreement. The Company, as the current owner of all
of Host's senior living communities, is bound by the Community Non-Competition
Agreement and will continue to be bound by it following the Distribution.

Non-Competition Agreement with Host or Host REIT Regarding the Hotels. The
Company, Host REIT and the non-controlled subsidiary of Host REIT which will
lease to the Company any Excess FF&E existing at the time of commencement of
the Hotel Leases (the "Initial FF&E Lessor") will enter into a non-competition
agreement in connection with the Distribution. Pursuant to this non-
competition agreement, the Company will agree, among other things, that until
the earlier of December 31, 2008 and the date on which it is no longer a
lessee for more than 25% of the hotels owned by Host REIT at the time of the
Distribution it will not (i) own, operate or otherwise control (as owner or
franchisor) any full-service hotel brand or franchise, or purchase, finance or
otherwise invest in full-service hotels, or act as an agent or consultant with
respect to any of the foregoing activities (except for acquisitions of
property used in the hotels as to which the Company is the lessee, and for
investments in full-service hotels which represent an immaterial portion of a
merger or similar transaction

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<PAGE>

or a minimal portfolio investment in another entity, limited investments
(whether debt or equity) in full-service hotels as to which the Company is the
Lessee or activities undertaken with respect to its business of providing
asset management services to hotel owners), or (ii) without the consent of
Host or Host REIT, manage any of hotels owned by Host or Host REIT, other than
to provide asset management services as described in "Business and
Properties--Relationship with Host after the Distribution--Asset Management
Agreement." Host REIT and the Initial FF&E Lessor will agree, among other
things, that, (i) until December 31, 2003, neither of them will purchase,
finance or otherwise invest in senior living communities, or act as an agent
or consultant with respect to any of the foregoing activities (except for
acquisitions of communities which represent an immaterial portion of a merger
or similar transaction or for minimal portfolio investments in other entities)
and (ii) until the earlier of December 31, 2008 and the date on which the
Company is no longer a Lessee for more than 25% of the hotels owned by Host
REIT at the time of the Distribution, neither of them will lease, as tenant or
subtenant, limited-service or full-service hotel properties and act as
operator or franchisee thereof or provide asset management services to owners
of hotels, or purchase, finance or otherwise invest in persons or entities
which engage in any of the foregoing activities, or act as an agent or
consultant with respect to any of the foregoing activities (except for
acquisitions of entities which engage in any of the foregoing activities where
the prohibited activities represent an immaterial portion of a merger or
similar transaction, or minimal portfolio investments in other entities which
engage in any of the foregoing activities, or certain leasing arrangements
existing at the time of the Distribution or entered into in the future between
Host REIT and the Initial FF&E Lessor or Host REIT and certain other related
parties, or the management by Host REIT of any hotels in which Host REIT or
the Initial FF&E Lessor has an equity interest). In addition, both the Company
and Host REIT will agree not to attempt to hire or hire any of the other
company's senior employees at any time prior to December 31, 2000. See
"Business and Properties--Relationship with Host after the Distribution--Non-
Competition Agreement" and "Business and Properties--Non-Competition
Agreements."

COMPETITION IN THE LODGING AND SENIOR LIVING INDUSTRIES

The profitability of the hotels leased and subleased by the Company and the
profitability of the Communities are subject to general economic conditions,
the management abilities of Marriott International and the Non-MI Managers (in
the case of certain hotels), competition, the desirability of particular
locations and other factors relating to their operation. The full-service
segment of the lodging industry, in which the hotels primarily operate, is
highly competitive, and the hotels generally operate in geographical markets
that contain numerous competitors. The success of the hotels will be
dependent, in large part, upon the ability to compete in such areas as access,
location, quality of accommodations, room rate structure, the quality and
scope of food and beverage facilities and other services and amenities.
Further, competing properties may be built or existing projects enhanced. The
lodging industry, including the hotels to be leased or subleased by the
Company, also may be adversely affected in the future by (i) national and
regional economic conditions, (ii) changes in travel patterns, (iii) taxes and
government regulations which influence or determine wages, prices, interest
rates, construction procedures and costs, (iv) the availability of credit and
(v) other factors beyond the control of the Company.

The long-term care industry, including the senior living segment, also is
highly competitive. The Company competes with numerous other companies
providing long-term care alternatives to the elderly, such as home health care
agencies, facility-based service programs, retirement communities,
convalescent centers, nursing home operators and other assisted living
companies. In general, regulatory and other barriers to competitive entry in
the senior living industry are not substantial. Some of the Company's present
and potential competitors are significantly larger and have, or may obtain,
greater financial resources than the Company. Consequently, there can be no
assurance that the Company will not encounter increased competition that could
limit its ability to attract residents or expand its senior living business in
the future. Moreover, if development of new senior living communities outpaces
demand for those communities in certain markets, such markets may become
oversaturated. Such an oversupply of senior living communities could cause the
Company's Communities to experience decreased occupancy, depressed margins and
lower operating results. See "Business and Properties--Competition--Senior
Living."

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RISKS ASSOCIATED WITH INVESTMENTS IN REAL ESTATE

The stockholders of the Company will bear risks associated with real estate
investments. Real estate investments are relatively illiquid and, therefore,
will tend to limit the ability of the Company to sell and purchase senior
living communities promptly in response to changes in economic or other
conditions. This could make it difficult for the Company to sell any of its
Communities, even if a sale were in the interest of the stockholders.

SEASONALITY

The hotel industry is seasonal in nature. The seasonality of the hotel
industry may, from time to time, affect the ability of the Company to make
timely rent payments under the Hotel Leases.

STAFFING AND LABOR COSTS

Marriott International competes with various other lodging companies in
attracting and retaining qualified and skilled personnel to operate the hotels
managed by it. Marriott International also competes with various health care
services providers, including other elderly care providers, in attracting and
retaining qualified or skilled personnel for the Communities. A shortage of
such personnel or general inflationary pressure may require Marriott
International to enhance its wage and benefits package to compete effectively
for personnel necessary to operate the hotels and the Communities, which could
adversely affect the Company's net income attributable to the hotels and the
Communities.

REGULATION OF THE HEALTHCARE INDUSTRY

The long-term care segment of the healthcare industry is highly regulated.
Operators of healthcare communities are subject to federal, state and local
laws relating to the delivery and adequacy of medical care, fraud and abuse,
distribution of pharmaceuticals, equipment, personnel, operating policies,
fire prevention, rate-setting and reimbursement, and compliance with safety
codes and environmental laws. Operators of healthcare communities also are
subject to periodic inspection by governmental and other authorities to assure
continued compliance with various standards, the continued licensing of the
community under state law, certification under the Medicare and Medicaid
programs and the ability to participate in other third party payment programs.
Many states have adopted Certificate of Need or similar laws which generally
require that the appropriate state agency approve certain acquisitions of
healthcare communities and reimbursement, and determine that need exists for
certain bed additions, new services and capital expenditures or other changes
prior to beds and/or new services being added or capital expenditures being
undertaken. The failure to obtain or maintain any required regulatory
approvals or licenses could prevent an operator from offering services or
adversely affect its ability to receive reimbursement for services and could
result in the denial of reimbursement, temporary suspension of admission of
new patients, suspension or decertification from the Medicaid or Medicare
programs, fines, restrictions on the ability to acquire new communities or
expand existing communities and, in extreme cases, revocation of the
community's license or closure of a community.

Although not currently regulated at the federal level (except under laws of
general applicability to businesses, such as work place safety and income tax
requirements), senior living communities are increasingly becoming subject to
more stringent regulation and licensing by state and local health and social
service agencies and other regulatory authorities. In general, these
requirements address, among other things: personnel education, training and
records, community services, including administration of medication,
assistance with self-administration of medication and limited nursing
services; monitoring of wellness; physical plant inspections; furnishing of
resident units; food and housekeeping services; emergency evacuation plans;
and resident rights and responsibilities, including in certain states the
right to receive certain healthcare services from providers of a resident's
choice. In several states, assisted living communities also require a
Certificate of Need before the community can be opened, expand or reduce its
resident capacity or make other significant capital expenditures. Like
healthcare communities, assisted living communities are subject to periodic
inspection by government authorities. In most states, assisted living
communities, as well as healthcare communities, also are subject to state or
local building code, fire code and food service licensure or certification
requirements. Any failure by the

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<PAGE>

managers of the Company's Communities to meet applicable regulatory
requirements may result in the imposition of fines, imposition of a
provisional or conditional license or suspension or revocation of a license or
other sanctions or adverse consequences, including delays in expanding a
community. Any failure by the managers of the Company's Communities to comply
with such requirements could have a material adverse effect on the Company.

Healthcare operators also are subject to federal and state anti-remuneration
laws and regulations, such as the Medicare/Medicaid anti-kickback law, which
govern certain financial arrangements among healthcare providers and others
who may be in a position to refer or recommend patients to such providers.
These laws prohibit, among other things, the offer, payment, solicitation or
receipt of any form of remuneration in return for the referral of Medicare and
Medicaid patients or the purchasing, leasing, ordering or arranging for any
goods, facilities, services or items for which payment can be made under
Medicare or Medicaid. A violation of the federal anti-kickback law could
result in the loss of eligibility to participate in Medicare or Medicaid, or
in civil or criminal penalties. The federal government, private insurers and
various state enforcement agencies have increased their scrutiny of providers,
business practices and claims in an effect to identify and prosecute
fraudulent and abusive practices. In addition, the federal government has
issued fraud alerts concerning nursing services, double billing, home health
services and the provision of medical supplies to nursing facilities;
accordingly, these areas may come under closer scrutiny by the government.
Furthermore, some states restrict certain business corporations from
providing, or holding themselves out as a provider of, medical care. Possible
sanctions for violation of any of these restrictions or prohibitions include
loss of licensure or eligibility to participate in reimbursement programs and
civil and criminal penalties. State laws vary from state to state, are often
vague and have seldom been interpreted by the courts or regulatory agencies.
There can be no assurance that these federal and state laws will ultimately be
interpreted in a manner consistent with the Company's practices.

LIABILITY AND INSURANCE

The provision of personal and healthcare services entails an inherent risk
of liability. In recent years, participants in the long-term care industry
have become subject to an increasing number of lawsuits alleging malpractice
or related legal theories, many of which have involved large claims and
resulted in the incurrence of significant defense costs. In addition, compared
to more institutional long-term care facilities, assisted living communities
of the type operated by the Company offer residents a greater degree of
independence in their daily lives. This increased level of independence,
however, may subject the resident and the Company to certain risks that would
be reduced in more institutionalized settings. The Company currently maintains
liability insurance intended to cover such claims which it believes is
adequate based on the nature of the risks, historical experience and industry
standards.

As lessee of the hotels, the Company also will carry comprehensive general
liability insurance with policy specifications and insured limits required
under the leases. There can be no assurance, however, that claims in excess of
such insurance or claims not covered by insurance will not arise. A successful
claim against the Company not covered by, or in excess of, its insurance could
have a material adverse effect upon the Company's financial condition and
results of operations.

POSSIBLE LIABILITY FOR ENVIRONMENTAL MATTERS

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<PAGE>

can be given that (i) a prior owner, operator or occupant, such as a tenant,
did not create a material environmental condition not known to the Company,
(ii) a material environmental condition with respect to any leased hotel or
community owned by the Company does not exist or (iii) future uses or
conditions (including, without limitation, changes in applicable environmental
laws and regulations) will not result in the imposition of environmental
liability.

No assurances can be given that all potential environmental liabilities have
been identified or properly quantified or that no prior owner, operator or
past or current guest or occupant has created an environmental condition not
known to the Company. Moreover, no assurances can be given that (i) future
laws, ordinances, or regulations will not impose any material environmental
liability or (ii) the current environmental condition of the leased hotels or
the Communities will not be affected by the condition of land or operations in
the vicinity of the leased hotels or the Communities (such as the presence of
underground storage tanks) or by third parties unrelated to the Company.

ABSENCE OF A PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

There is currently no public market for the Common Stock. The Company has
applied to list the Common Stock on the New York Stock Exchange under the
symbol "CLJ." Until the Common Stock is fully distributed and an orderly
trading market develops, the prices at which trading in such stock occurs may
fluctuate significantly. There can be no assurance that an active trading
market in the Common Stock will develop or be sustained in the future. In the
event no active trading market develops for the Common Stock, holders of
shares of Common Stock may not be able to sell their shares promptly at a
reasonable price. Accordingly, holders of Common Stock should consider the
Common Stock a long-term investment.

The prices at which the Common Stock trades will be determined by the
marketplace and may be influenced by many factors, including, among others,
the Company's performance and prospects, the depth and liquidity of the market
for the Common Stock, investor perception of the Company and of the industries
in which the Company operates and economic conditions in general, changes in
earnings estimates by securities analysts or the Company's ability to meet
those estimates, the Company's dividend policy, and general financial and
other market conditions. In addition, financial markets have experienced
extreme price and volume fluctuations that have affected the market price of
the stocks of many companies and that, at times, could be viewed as unrelated
or disproportionate to the operating performance of such companies. Such
fluctuations have also affected the share prices of many newly public issuers.
Such volatility and other factors may materially adversely affect the market
price of the Common Stock.

ABSENCE OF DIVIDENDS ON COMMON STOCK

The Company does not expect to pay cash dividends in the foreseeable future.
See "Dividend Policy."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market following
the Distribution could adversely affect the prevailing market price of the
Common Stock and the Company's ability to raise capital in the future. Upon
completion of the Distribution, the Company will have a total of shares of
Common Stock outstanding, of which shares will be freely tradable without
restriction under the Securities Act of 1933, as amended (the "Securities
Act"), by persons other than "affiliates" of the Company, as defined under the
Securities Act. The remaining shares of Common Stock outstanding will be
"restricted securities" as that term is defined by Rule 144 promulgated under
the Securities Act. These shares will be eligible for sale in the public
market beginning , 1999. See "Shares Eligible for Future Sale."

Following the Distribution, the Company intends to register on one or more
registration statements on Form S-8 under the Securities Act the shares of
Common Stock issuable under the Company's stock option and other employee
benefit plans for directors, officers and employees of the Company and its
subsidiaries, of shares to be reserved for issuance under these plans,
approximately shares will be subject to stock options or restricted stock
granted concurrently upon completion of the Distribution.

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<PAGE>

If the Blackstone Acquisition is consummated by Host REIT, the Blackstone
Entities will have certain registration rights with respect to approximately
18% of the outstanding shares of Common Stock of the Company. If such holders
cause a large number of shares to be sold in the public market, such sales
could have an adverse effect on the trading price of the Common Stock. In
addition, if the Company is required, pursuant to such registration rights, to
include shares held by such persons in any registration statement that the
Company files to raise additional capital, the inclusion of such shares could
have an adverse effect on the Company's ability to raise needed capital. See
"Description of Capital Stock--Registration Rights Agreement," "Management--
Employee Benefit Plans" and "Shares Eligible for Future Sale."

ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS

The Company's Charter and Bylaws, as well as Delaware corporate law, contain
certain provisions that could have the effect of delaying, deferring or
preventing a change in control of the Company. These provisions could limit
the price that certain investors might be willing to pay in the future for
shares of the Common Stock. Certain of these provisions provide for a
staggered board and allow the Company to issue, without stockholder approval,
preferred stock having rights senior to those of the Common Stock. Other
provisions impose various procedural and other requirements that could make it
difficult for stockholders to effect certain corporate actions. The Charter
also provides that no person or persons acting as a group may own (directly or
by attribution under the applicable provisions of the Internal Revenue Code of
1986, as amended (the "Code") ) more than 9.8% (in number or value) of the
outstanding shares of any class or series of capital stock of the Company
(subject to an exception for shares in excess of such limit owned solely by
reason of the Distribution). The Company also intends to adopt a Stockholder
Rights Agreement. As a Delaware corporation, the Company is subject to Section
203 of the DGCL which, in general, prevents an "interested stockholder"
(defined generally as a person owning 15% or more of a corporation's
outstanding voting stock) from engaging in a "business combination" (as
defined) for three years following the date such person became an interested
stockholder unless certain conditions are satisfied. Because prior to the
Distribution the Company is a wholly owned subsidiary of Host, the Section 203
limitations will not apply to Host or Host REIT or its affiliates or
associates following the Distribution. See "Management" and "Description of
Capital Stock."

DEPENDENCE ON KEY PERSONNEL

The Company is dependent upon the efforts of its executive officers, most of
whom previously served as officers of Host. While the Company believes that it
could find replacements for these key personnel, the loss of their services
could have an adverse effect on the operations of the Company.

15
<PAGE>

THE DISTRIBUTION

BACKGROUND OF AND REASONS FOR THE DISTRIBUTION

The Distribution and the Merger are part of a series of transactions
pursuant to which Host intends to convert into a REIT for federal income tax
purposes. Assuming the Merger and the other transactions necessary to
restructure Host's business operations so that it will qualify as a REIT are
completed on or prior to December 31, 1998, Host expects to qualify as a REIT
beginning with its first full taxable year commencing after the REIT
Conversion is completed, which is currently expected to be the year commencing
January 1, 1999 (but which might not be until the year commencing January 1,
2000).

Because REITs are not permitted under current federal income tax law to
derive revenues directly from the operation of hotels, Host REIT will lease
and sublease the hotels currently owned and leased by Host (as well as those
acquired in the Blackstone Acquisition if such transaction is consummated) to
an unrelated party. In addition, in order for Host REIT to qualify as a REIT
for federal income tax purposes, Host or Host REIT will be required to have
distributed to its stockholders all E&P, as determined for tax purposes, of
Host prior to the end of the first full taxable year for which the REIT
election of Host REIT is effective. As a result of these requirements, Host
has determined, as part of the REIT Conversion, that (i) Host REIT will lease
and sublease substantially all of the hotels currently owned and leased by
Host (as well as those acquired in the Blackstone Acquisition if such
transaction is consummated) to subsidiaries of the Company, which will lease
from Host REIT the hotels under their existing brand name pursuant to their
existing management agreements with Marriott International and the Non-MI
Managers, and (ii) Host will, subject to approval of the Agreement by Host
Stockholders and declaration by the Board of Directors of Host after the date
of the Special Meeting, make the Distribution to help accomplish the requisite
distributions of E&P of Host. In addition to facilitating Host's conversion
into a REIT for federal income tax purposes, Host believes that there may be
greater opportunities to expand and develop the Company's senior living
community business if such business is owned by a separate public company
whose senior management has a greater focus on that business.

In connection with the Distribution, subsidiaries of the Company will lease
and sublease substantially all of the hotels then owned and leased by Host.
The Hotel Leases are expected to be for a term of years (ranging generally
from seven to ten years, depending on the particular hotel) commencing on or
before January 1, 1999 (assuming the Merger occurs prior to that date;
otherwise as soon as practicable following the Distribution Date) and will be
binding upon Host or Host REIT whether or not the Merger or other aspects of
the REIT Conversion are consummated. Concurrently with entering into the Hotel
Leases, the Company will assume certain of the rights and obligations under
the existing management and franchise agreements between Host and Marriott
International or the Non-MI Managers, pursuant to which Marriott International
or the Non-MI Managers will continue to manage the hotels on behalf of the
Company. Marriott International also will continue to manage the 31
Communities currently owned by the Company.

MANNER OF EFFECTING THE DISTRIBUTION

On the Distribution Date, Host will make the Distribution to Host
Stockholders, pro rata in accordance with their respective interests in Host
held of record as of 5:00 p.m. (Eastern Standard Time) on the Record Date, and
will cause the Distribution Agent to mail certificates representing such
shares to the Host Stockholders entitled thereto. Cash will be paid in lieu of
fractional shares. The Common Stock distributed in the Distribution will
represent approximately 82% of the then outstanding Common Stock of the
Company. The remaining approximately 18% of the then outstanding Common Stock
of the Company will be transferred by Host REIT to the Blackstone Entities in
connection with Host REIT's purchase of certain hotel properties from these
entities. (If the Blackstone Acquisition does not occur, the shares of the
Common Stock of the Company distributed in the Distribution will represent
100% of the then outstanding Common Stock of the Company.) See "Business and
Properties--Blackstone Acquisition."

Inquiries relating to the Distribution should be directed to the
Distribution Agent, at Bank of New York, , Attention: ; or
by telephone at 1-800- - , Monday through Friday, 9:00 a.m. to 5:00 p.m.
(Eastern Standard Time).

16
<PAGE>

The Company expects to have approximately stockholders of record
immediately following the Distribution, based on the number of record holders
of Host common shares as of September 15, 1998. The Transfer Agent and
Registrar and the Distribution Agent for the Common Stock will be Bank of New
York.

FEDERAL INCOME TAX CONSEQUENCES

The Distribution will be a taxable dividend to a Host Stockholder in an
amount equal to the fair market value of the Common Stock (plus any cash
received in lieu of fractional shares) received in the Distribution (to the
extent that the Distribution is made out of the Host Stockholder's share of
the portion of the E&P of Host through the end of 1998 allocable to the
Distribution). Host and Host REIT currently believe that the entire
Distribution (the fair market value of which Host currently estimates will be
approximately $ per share of Host common stock) will be made out of such
E&P and will be a taxable dividend. There can be no assurance, however, that
Host and Host REIT's calculation of such E&P or Host's estimate of the fair
market value of the Distribution will be respected by the Internal Revenue
Service (the "IRS") or that a challenge by the IRS to either such calculation
or such estimate would not be sustained by a court. To the extent that the
fair market value of a Host Stockholder's share of the Distribution exceeds
his or her share of the portion of the E&P of Host and Host REIT through the
end of 1998 allocable to the Distribution, the Distribution would be treated
first as a tax-free return of capital to such Host Stockholder, reducing the
adjusted basis in his or her Host common stock by the amount of such excess
(but not below zero) and then, if such basis is reduced to zero and there is
remaining excess, as capital gain to the extent of such remaining excess
(provided that such Host Stockholder has held the Host common stock as a
capital asset). A Host Stockholder's initial tax basis in the Common Stock
received in the Distribution will equal the fair market value of such stock on
the Distribution Date, and its holding period in the Common Stock will begin
on the date after the Distribution Date. THE SPECIFIC TAX ATTRIBUTES OF A
PARTICULAR HOST STOCKHOLDER COULD HAVE A MATERIAL IMPACT ON THE TAX
CONSEQUENCES TO THAT HOST STOCKHOLDER OF THE DISTRIBUTION. THEREFORE, IT IS
ESSENTIAL THAT EACH HOST STOCKHOLDER CONSULT WITH HIS OR HER OWN TAX ADVISORS
WITH REGARD TO THE APPLICATION OF THE FEDERAL INCOME TAX LAWS TO SUCH
STOCKHOLDER'S PARTICULAR TAX SITUATION, AS WELL AS ANY TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION. For
a more detailed discussion of the federal income tax consequences reasonably
anticipated by Host to be material to a Host Stockholder in connection with
the Distribution, see "Federal Income Tax Consequences."

DIVIDEND POLICY

The Company intends to use its available funds to pursue investment and
business opportunities and, therefore, does not anticipate the payment of any
cash dividends on the Common Stock in the foreseeable future. The declaration
of any cash dividends in the future will be subject to the discretion of the
Company's Board of Directors.

17
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
19, 1998, and pro forma capitalization as of June 19, 1998, after giving
effect to the transactions described in the "Pro Forma Financial Statements."
The capitalization of the Company should be read in conjunction with the
Company's consolidated financial statements and the notes thereto, the "Pro
Forma Financial Statements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," each contained elsewhere
herein.

<TABLE>
<CAPTION>
AS OF JUNE 19, 1998
--------------------
PRO
ACTUAL FORMA(1)
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Debt.................................................. $ 321,752 $ 214,757(2)
Equity................................................ 282,638 411,115
--------- ---------
Total capitalization................................ $ 604,390 $625,872
========= =========
</TABLE>
- --------
(1) Pro forma for the forgiveness of the approximate $107 million of
intercompany debt between Host and the Company in connection with the
Distribution. See "Pro Forma Financial Statements."
(2) Amount excludes approximately $100 million due to Host to pay for working
capital purchased from Host.

18
<PAGE>

PRO FORMA FINANCIAL STATEMENTS

The unaudited pro forma condensed consolidated statements of operations of
the Company reflect the following transactions for the First Two Quarters 1998
and for the fiscal year ended January 2, 1998, as if such transactions had
been completed at the beginning of the fiscal year:

. 1997 acquisition of Forum (the "Forum Acquisition") and one additional
senior living community;

. 1998 refinancing of a $92 million note payable to Marriott International
with a $92 million note payable to Host, which will be contributed to
capital in connection with the Distribution;

. 1998 retirement of $26 million of debt through a capital contribution
from Host;

. 1998 acquisition of one senior living community;

. 1998 acquisition of minority interests in certain consolidated
subsidiaries of the Company through contributions from Host;

. 1998 spin-off of the Company by Host and the concurrent lease or sublease
of hotels from Host REIT;

. 1998 adoption of EITF 97-2 to reflect the change in presentation to
present property-level sales and operating expenses;

. Contribution of $14.8 million of unsecured intercompany debt by Host to
the Company in connection with the Distribution;

. Contribution to the Company from Host of a 5% interest in a joint venture
which holds an approximate $130 million mortgage note from a consolidated
subsidiary of Host in connection with the Distribution; and

. Adjustment to corporate expenses as if the Company were operated on a
stand alone basis, partially offset by the asset management fee charged
to Host REIT.

The adjustments to the unaudited pro forma balance sheet of the Company
reflect the lease and sublease of substantially all of Host's owned or leased
hotels and certain other transactions as described herein in conjunction with
the Distribution.

In 1998, the Company acquired one senior living community for $21 million.
Also, during 1998, Host prepaid approximately $26 million of the Company's
mortgage debt and repaid $92 million of unsecured debt to Marriott
International. The prepayment was recorded as a capital contribution to the
Company and the $92 million was repaid in exchange for a $92 million note due
to Host with similar terms. The $92 million note will be contributed to
capital in connection with the Distribution.

In 1997, Host acquired 29 senior living communities from Marriott
International and concurrently contributed all of the assets and liabilities
obtained in the Forum Acquisition to the Company. In addition, during 1997,
the Company acquired 49% of the remaining 50% interest in Leisure Park Venture
Limited Partnership which owns a 418-unit retirement community in New Jersey
for approximately $23 million, including the assumption of approximately $15
million in debt. The Company currently owns 99% of the partnership.

If all components of Host's conversion to a REIT are not completed by
January 1, 1999, Host REIT may be precluded from electing REIT status until
January 1, 2000 and the Blackstone Transaction may not be consummated.
Accordingly a separate column ("Pro Forma without Blackstone") has been
included in the pro forma financials that assumes that the Blackstone
Acquisition does not occur.

The unaudited pro forma financial statements present the financial position
and the results of operations of the Company as if the transactions described
above were completed. These presentations do not purport to represent what the
Company's results of operations would actually have been if the transactions
described above had in fact occurred on such date or at the beginning of such
period or to project the Company's results of operations for any future date
or period.

The unaudited pro forma financial statements are based upon certain
assumptions, as set forth in the notes to the unaudited pro forma financial
statements, that the Company believes are reasonable under the circumstances
and should be read in conjunction with the consolidated financial statements
and notes thereto of the Company included elsewhere herein.

19
<PAGE>

CRESTLINE CAPITAL CORPORATION

UNAUDITED PRO FORMA BALANCE SHEET

AS OF JUNE 19, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA WITHOUT
HISTORICAL ADJUSTMENTS PRO FORMA BLACKSTONE
---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
ASSETS
Property and equipment, net.... $643,641 $ -- $643,641 $643,641
Amounts due from Marriott In-
ternational................... 9,006 -- 9,006 9,006
Other assets................... 3,523 100,000(A) 110,005 110,005
6,482(B)
Restricted cash................ 12,056 -- 12,056 12,056
Cash and cash equivalents...... 19,113 15,000(B) 34,113 34,113
-------- -------- -------- --------
Total assets................. $687,339 $121,482 $808,821 $808,821
======== ======== ======== ========
LIABILITIES AND STOCKHOLDER'S
EQUITY
Debt, including $107,000 in
notes due to Host Marriott $321,752 $(92,195)(B) $214,757 $214,757
Corporation................... (14,800)(B)
Deferred income taxes.......... 61,715 -- 61,715 61,715
Due to Host Marriott Corpora-
tion, net..................... 10,580 100,000(A) 110,580 110,580
Accounts payable and other ac-
crued liabilities............. 9,122 -- 9,122 9,122
Deferred revenue............... 1,532 -- 1,532 1,532
-------- -------- -------- --------
Total liabilities............ 404,701 (6,995) 397,706 397,706
-------- -------- -------- --------
Stockholder's equity
Common stock, 100 shares autho-
rized, issued and outstand-
ing/(1)/ ..................... -- -- -- --
Additional paid-in capital..... 278,783 92,195(B) 407,260 407,260
15,000(B)
6,482(B)
14,800(B)
Retained earnings.............. 3,855 -- 3,855 3,855
-------- -------- -------- --------
Total stockholder's equity... 282,638 128,477 411,115 411,115
-------- -------- -------- --------
Total liabilities and stock-
holder's equity............. $687,339 $121,482 $808,821 $808,821
======== ======== ======== ========
</TABLE>

See Notes to Unaudited Pro Forma Financial Statements.

20
<PAGE>

CRESTLINE CAPITAL CORPORATION

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

FIRST TWO QUARTERS 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
D E F G H I
DEBT PRO FORMA
REFINANCING/ COMMUNITY CORPORATE HOTEL ADOPTION OF WITHOUT
HISTORICAL REPAYMENTS ACQUISITIONS EXPENSES LEASES EITF 97-2 PRO FORMA BLACKSTONE
---------- ------------ ------------ --------- -------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Hotels
Rooms................. $ -- $ -- $ -- $ -- $ -- $1,253,965 $1,253,965 $1,126,564
Food and beverage..... -- -- -- -- -- 580,929 580,929 509,731
Other................. -- -- -- -- -- 116,217 116,217 99,112
House profit.......... -- -- -- -- 792,500 (792,500) -- --
-------- ------- ----- ------- -------- ---------- ---------- ----------
Total hotels.......... -- -- -- -- 792,500 1,158,611 1,951,111 1,735,407
-------- ------- ----- ------- -------- ---------- ---------- ----------
Senior living
communities
Routine............... 37,256 -- 84 -- -- 62,066 99,406 99,406
Ancillary............. 1,996 -- 1 -- -- 8,942 10,939 10,939
-------- ------- ----- ------- -------- ---------- ---------- ----------
Total senior living
communities.......... 39,252 -- 85 -- -- 71,008 110,345 110,345
-------- ------- ----- ------- -------- ---------- ---------- ----------
Total revenues........ 39,252 -- 85 -- 792,500 1,229,619 2,061,456 1,845,752
-------- ------- ----- ------- -------- ---------- ---------- ----------
OPERATING COSTS AND
EXPENSES
Hotels
Property-level costs
and expenses
Rooms................. -- -- -- -- -- 481,114 481,114 424,533
Food and beverage..... -- -- -- -- -- 498,705 498,705 440,055
Other department costs
and deductions....... -- -- -- -- -- 178,792 178,792 157,765
-------- ------- ----- ------- -------- ---------- ---------- ----------
Total property-level
hotel cost and
expenses............ -- -- -- -- -- 1,158,611 1,158,611 1,022,353
-------- ------- ----- ------- -------- ---------- ---------- ----------
Management fees....... -- -- -- -- 148,300 -- 148,300 141,300
Lease expense......... -- -- -- -- 622,916 -- 622,916 553,316
-------- ------- ----- ------- -------- ---------- ---------- ----------
Total hotels......... -- -- -- -- 771,216 1,158,611 1,929,827 1,716,969
-------- ------- ----- ------- -------- ---------- ---------- ----------
Senior living
communities
Property-level costs
and expenses
Routine............... -- -- -- -- -- 62,066 62,066 62,066
Ancillary............. -- -- -- -- -- 8,942 8,942 8,942
-------- ------- ----- ------- -------- ---------- ---------- ----------
Total property-level
community costs and
expenses............ -- -- -- -- -- 71,008 71,008 71,008
Other operating costs
and expenses......... 19,206 -- 49 -- -- -- 19,255 19,255
-------- ------- ----- ------- -------- ---------- ---------- ----------
Total senior living
communities......... 19,206 -- 49 -- -- 71,008 90,263 90,263
-------- ------- ----- ------- -------- ---------- ---------- ----------
Total operating costs
and expenses........ 19,206 -- 49 -- 771,216 1,229,619 2,020,090 1,807,232
-------- ------- ----- ------- -------- ---------- ---------- ----------
Operating profit ...... 20,046 -- 36 -- 21,284 -- 41,366 38,520
Corporate expenses..... (1,616) -- -- (6,307) -- -- (7,923) (7,923)
Interest expense....... (13,185) 4,800 -- -- (2,769) -- (11,154) (11,154)
Interest and dividend
income................ 681 -- 6 -- 261 -- 948 948
-------- ------- ----- ------- -------- ---------- ---------- ----------
Income (loss) before
income taxes.......... 5,926 4,800 42 (6,307) 18,776 -- 23,237 20,391
Benefit (provision) for
income taxes.......... (2,429) (1,969) (17) 2,586 (7,698) -- (9,527) (8,360)
-------- ------- ----- ------- -------- ---------- ---------- ----------
Income (loss) before
extraordinary item.... $ 3,497 $ 2,831 $ 25 $(3,721) $ 11,078 $ -- $ 13,710 $ 12,031
======== ======= ===== ======= ======== ========== ========== ==========
Pro forma earnings per
share................. $ .14(2) $ .55(2) $ .59(3)
======== ========== ==========
</TABLE>

See Notes to Unaudited Pro Forma Financial Statements.

21
<PAGE>

CRESTLINE CAPITAL CORPORATION

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

FISCAL YEAR ENDED JANUARY 2, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
C D E F G H
DEBT
FORUM REFINANCING/ COMMUNITY CORPORATE HOTEL ADOPTION OF PRO
HISTORICAL ACQUISITION REPAYMENT ACQUISITIONS EXPENSES LEASES EITF 97-2 FORMA
---------- ----------- ------------ ------------ --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Hotels
Room............. $ -- $ -- $ -- $ -- $ -- $ -- $ 2,460,816 $2,460,816
Food and bever-
age............. -- -- -- -- -- -- 1,156,017 1,156,017
Other............ -- -- -- -- -- -- 248,471 248,471
House profit..... -- -- -- -- -- 1,469,400 (1,469,400) --
-------- ------- ------- ------- ------- ---------- ----------- ----------
Total hotels.... -- -- -- -- -- 1,469,400 2,395,904 3,865,304
-------- ------- ------- ------- ------- ---------- ----------- ----------
Senior living
communities......
Routine.......... 35,473 30,859 -- 7,031 -- -- 127,135 200,498
Ancillary........ 1,427 1,983 -- 188 -- -- 18,693 22,291
-------- ------- ------- ------- ------- ---------- ----------- ----------
Total senior
living
communities.... 36,900 32,842 -- 7,219 -- -- 145,828 222,789
-------- ------- ------- ------- ------- ---------- ----------- ----------
Total revenues.. 36,900 32,842 -- 7,219 -- 1,469,400 2,541,732 4,088,093
-------- ------- ------- ------- ------- ---------- ----------- ----------
OPERATING COSTS AND EXPENSES
Hotels
Property-level costs and expenses
Rooms............ -- -- -- -- -- -- 939,345 939,345
Food and bever-
age............. -- -- -- -- -- -- 1,048,661 1,048,661
Other department
costs and
deductions...... -- -- -- -- -- -- 407,898 407,898
-------- ------- ------- ------- ------- ---------- ----------- ----------
Total property-
level hotel
costs and
expenses....... -- -- -- -- -- -- 2,395,904 2,395,904
Management fees.. -- -- -- -- -- 267,000 -- 267,000
Lease expense.... -- -- -- -- -- 1,163,405 -- 1,163,405
-------- ------- ------- ------- ------- ---------- ----------- ----------
Total hotels.... -- -- -- -- -- 1,430,405 2,395,904 3,826,309
-------- ------- ------- ------- ------- ---------- ----------- ----------
Senior living com-
munities
Property-level costs and expenses --
Routine.......... -- -- -- -- -- -- 127,135 127,135
Ancillary........ -- -- -- -- -- -- 18,693 18,693
-------- ------- ------- ------- ------- ---------- ----------- ----------
Total property-
level community
costs and
expenses....... -- -- -- -- -- -- 145,828 145,828
Other operating
costs and
expenses........ 20,929 17,977 -- 4,733 -- -- -- 43,639
-------- ------- ------- ------- ------- ---------- ----------- ----------
Total senior
living
communities.... 20,929 17,977 -- 4,733 -- -- 145,828 189,467
-------- ------- ------- ------- ------- ---------- ----------- ----------
Total operating
costs and
expenses....... 20,929 17,977 -- 4,733 -- 1,430,405 2,541,732 4,015,776
-------- ------- ------- ------- ------- ---------- ----------- ----------
Operating profit
................. 15,971 14,865 -- 2,486 -- 38,995 -- 72,317
Corporate
expenses......... (2,304) (5,115) -- 745 (6,826) -- -- (13,500)
Interest expense.. (13,396) (9,630) 7,312 (2,118) -- (6,000) -- (23,832)
Interest and
dividend income.. 336 598 -- -- -- 567 -- 1,501
-------- ------- ------- ------- ------- ---------- ----------- ----------
Income (loss)
before income
taxes............ 607 718 7,312 1,113 (6,826) 33,562 -- 36,486
Benefit
(provision) for
income taxes..... (249) (294) (2,998) (456) 2,799 (13,760) -- (14,958)
-------- ------- ------- ------- ------- ---------- ----------- ----------
Income (loss)
before
extraordinary
item............. $ 358 $ 424 $ 4,314 $ 657 $(4,027) $ 19,802 $ -- $ 21,528
======== ======= ======= ======= ======= ========== =========== ==========
Pro forma earnings
per share........ $ .01(2) $ .87(2)
======== ==========
<CAPTION>
I
PRO
FORMA
WITHOUT
BLACKSTONE
-------------
<S> <C>
REVENUES
Hotels
Room............. $2,203,294
Food and bever-
age............. 1,035,041
Other............ 222,469
House profit..... --
-------------
Total hotels.... 3,460,804
-------------
Senior living
communities......
Routine.......... 200,498
Ancillary........ 22,291
-------------
Total senior
living
communities.... 222,789
-------------
Total revenues.. 3,683,593
-------------
OPERATING COSTS AND EXPENSES
Hotels
Property-level costs and expenses
Rooms............ 838,594
Food and bever-
age............. 936,186
Other department
costs and
deductions...... 364,149
-------------
Total property-
level hotel
costs and
expenses....... 2,138,929
Management fees.. 253,000
Lease expense.... 1,041,205
-------------
Total hotels.... 3,433,134
-------------
Senior living com-
munities
Property-level costs and e-- xpenses
Routine.......... 127,135
Ancillary........ 18,693
-------------
Total property-
level community
costs and
expenses....... 145,828
Other operating
costs and
expenses........ 43,639
-------------
Total senior
living
communities.... 189,467
-------------
Total operating
costs and
expenses....... 3,622,601
-------------
Operating profit
................. 60,992
Corporate
expenses......... (13,500)
Interest expense.. (23,832)
Interest and
dividend income.. 1,501
-------------
Income (loss)
before income
taxes............ 25,161
Benefit
(provision) for
income taxes..... (10,316)
-------------
Income (loss)
before
extraordinary
item............. $ 14,845
=============
Pro forma earnings
per share........ $ .73(3)
=============
</TABLE>

See Notes to Unaudited Pro Forma Financial Statements.

22
<PAGE>

NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS

A. Represents the adjustment to record the transfer of hotel working capital
to the Company related to the leasing of Host's hotels by increasing working
capital and recording a loan from Host of $100 million.

B. Represents the following transactions in connection with the
Distribution:

. Host's contribution of capital of $92 million and $14.8 million of
intercompany loans between Host and the Company.
. Host's contribution of $15 million in cash to the Company.
. Host's contribution of a 5% limited partner interest in a joint
venture with Host that owns an approximate $130 million note
receivable from a consolidated subsidiary of Host.

C. Represents the adjustment to reflect the historical revenues, operating
expenses, corporate expenses, interest expense and interest income for the
Forum Acquisition as if such acquisition occurred at the beginning of 1997
(actual acquisition date was June 21, 1997).

D. Represents the adjustment to eliminate the interest expense on $92
million and $14.8 million of intercompany loans, which will be contributed to
capital by Host upon the Distribution. The adjustment also includes the
elimination of interest expense on $26.4 million of debt repaid by the Company
during 1998 through a capital contribution by Host.

E. Represents the adjustment to record the historical revenues, operating
expenses, corporate expenses, and interest income related to the acquisition
of one senior living community in 1998 and the acquisition of one senior
living community in 1997. The adjustment also includes the elimination of
$745,000 of minority interest expense included in corporate expenses related
to the purchase of minority interests in certain consolidated subsidiaries of
the Company in 1997.

F. Represents the adjustment to record additional corporate expenses
anticipated to be incurred when the Company is operated on a stand alone basis
subsequent to the Distribution, net of the asset management contract of $4.5
million per annum. The adjustment includes the following (in thousands):
<TABLE>
<CAPTION>
FIRST TWO FISCAL YEAR
QUARTERS 1998 1997
------------- -----------
<S> <C> <C>
Payroll costs......................................... $5,103 $6,894
Rent and insurance.................................... 740 1,267
Other general and administrative costs................ 2,541 3,165
------ ------
8,384 11,326
Less: asset management fee............................ (2,077) (4,500)
------ ------
Net corporate expense adjustment.................... $6,307 $6,826
====== ======
</TABLE>

G. Represents the adjustment to record the historical hotel revenues and
hotel expenses and pro forma lease expense associated with the leasing of
certain hotel properties from Host, interest expense on the $100 million
working capital loan at 6%, and dividend income from the 5% investment in the
joint venture with Host that owns a $130 million note receivable from a
consolidated subsidiary of Host.

Rental revenues under the leases are based on the greater of Percentage Rent
or Minimum Rent. Total rent in the pro forma statement of operations is
calculated based on the historical gross sales of the property and the
negotiated rental rates and thresholds by property as if the leases were
entered into on the first day of fiscal year 1997. There are generally three
sales categories utilized in the rent calculation: rooms, food and beverage
and other. For rooms and food and beverage, there are three tiers of rent with
two thresholds, while the other category generally has two tiers of rent and
one threshold. The percentage rent thresholds are increased annually on the
first day of each year after the initial lease year based on a blended
increase of the Consumer Price Index ("CPI") and a wage and benefit index. For
purposes of the pro formas, 1997 is the assumed initial lease year and the
blended increase applied to the thresholds at January 3, 1998 is assumed to be
3%. Minimum rent is

23
<PAGE>

expressed as a fixed dollar amount that increases annually on the first day of
each year after the initial lease year at 50% of the CPI increase.
Accordingly, the 1998 rent thresholds and minimum rent included in the pro
formas were adjusted as of January 3, 1998 for the 1997 increases in the
indices. Rental revenues are recognized only for leases to be executed with
Host REIT at or prior to completion of the Distribution. The execution of the
leases is dependent upon the successful consummation of the Distribution,
which is subject to contingencies that are outside the control of the Company,
including consent of shareholders, lenders, debt holders, partners and ground
lessors of Host. The Company believes that negotiations with third parties to
complete the Distribution will not result in any material change to the
leases. The table below details gross sales, minimum rent and total rent for
all full-service properties to be leased and summarized amounts for the
limited-service properties to be subleased:

<TABLE>
<CAPTION>
FIRST TWO QUARTERS
FISCAL YEAR 1997 1998
------------------- -------------------
GROSS MINIMUM TOTAL GROSS MINIMUM TOTAL
PROPERTY SALES RENT RENT SALES RENT RENT
- -------- ----- ------- ----- ----- ------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Grand Hotel Resort and Golf Club....... $23.4 $4.0 $4.3 $11.8 $1.9 $2.5
Scottsdale Suites...................... 11.9 3.1 5.0 6.6 1.5 2.9
The Ritz-Carlton, Phoenix.............. 23.3 4.8 7.1 12.5 2.2 4.0
Coronado Island Resort................. 22.0 4.2 6.6 10.9 2.0 4.0
Costa Mesa Suites...................... 9.7 2.1 3.3 4.6 1.0 1.7
Desert Springs Resort and Spa.......... 103.3 21.0 27.9 65.1 9.8 18.7
Manhattan Beach........................ 16.3 3.4 4.9 7.0 1.6 2.5
Marina Beach .......................... 21.1 4.6 7.1 11.5 2.2 4.1
Newport Beach.......................... 33.5 5.6 8.7 16.0 2.6 4.6
Newport Beach Suites................... 11.0 2.6 4.0 5.1 1.2 2.0
Ontario Airport........................ 12.1 2.1 3.2 5.5 1.0 1.6
San Diego Marriott Hotel and Marina.... 103.3 37.3 39.8 55.0 17.5 22.3
San Diego Mission Valley............... 16.7 2.9 4.8 7.7 1.4 2.4
San Francisco Airport.................. 43.8 8.7 12.8 21.3 4.1 6.6
San Francisco Fisherman's Wharf........ 17.8 4.4 6.6 6.8 2.1 2.7
San Francisco Moscone Center........... 120.2 20.3 38.6 61.8 9.5 20.7
San Ramon.............................. 19.7 3.0 5.0 9.7 1.4 2.8
Santa Clara............................ 47.3 7.9 16.3 25.3 3.7 9.4
The Ritz-Carlton, Marina del Rey....... 32.4 5.5 10.7 15.0 2.6 5.2
The Ritz-Carlton, San Francisco........ 50.1 7.9 15.1 20.8 3.7 6.7
Torrance............................... 20.5 4.0 6.2 10.0 1.8 3.2
Denver Southeast....................... 21.5 3.7 6.0 9.6 1.7 2.8
Denver Tech Center..................... 26.8 5.3 8.4 13.2 2.5 4.4
Denver West............................ 13.7 2.1 4.2 6.2 1.0 2.0
Marriott's Mountain Resort at Vail..... 17.6 3.0 5.1 9.9 1.4 3.0
Hartford/Farmington.................... 18.4 3.5 4.6 9.0 1.6 2.5
Hartford/Rocky Hill.................... 11.6 1.6 2.6 5.7 0.8 1.4
Fort Lauderdale Marina................. 28.5 4.2 7.9 16.0 2.0 4.7
Harbor Beach Resort.................... 58.1 16.1 19.5 32.8 7.6 11.3
Jacksonville........................... 11.8 1.9 3.8 5.2 0.9 1.7
Miami Airport.......................... 29.7 3.9 8.6 15.7 1.8 4.7
Orlando World Center................... 128.2 23.4 37.9 69.9 11.0 21.8
Palm Beach Gardens..................... 11.8 2.0 3.7 6.2 0.9 2.0
Singer Island (Holiday Inn)............ 6.6 1.4 2.5 3.8 0.6 1.4
Tampa Airport.......................... 17.1 1.6 3.9 9.6 0.7 2.3
Tampa Westshore........................ 15.0 1.9 4.1 7.9 0.9 2.3
</TABLE>

24
<PAGE>

<TABLE>
<CAPTION>
FIRST TWO QUARTERS
FISCAL YEAR 1997 1998
--------------------- ---------------------
GROSS MINIMUM TOTAL GROSS MINIMUM TOTAL
PROPERTY SALES RENT RENT SALES RENT RENT
- -------- ------ ------- ------ ------ ------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
The Ritz-Carlton, Naples.......... $ 66.4 $ 14.9 $ 23.5 $ 38.3 $ 7.0 $ 14.1
Atlanta Marriott Marquis.......... 85.4 21.3 33.3 42.0 10.0 17.1
Atlanta Midtown Suites............ 10.5 1.7 3.3 5.3 0.8 1.8
Atlanta Norcross.................. 7.6 0.9 1.6 3.8 0.4 0.9
Atlanta Northwest................. 14.9 2.5 4.3 7.8 1.2 2.3
Atlanta Perimeter................. 16.6 2.4 4.7 8.6 1.1 2.5
JW Marriott Hotel at Lenox........ 24.8 3.7 6.9 12.7 1.7 3.7
The Ritz-Carlton, Atlanta......... 30.2 5.8 8.8 13.9 2.7 4.5
The Ritz-Carlton, Buckhead........ 49.3 10.3 16.9 22.5 4.8 7.9
Chicago/Deerfield Suites.......... 10.2 1.8 3.2 4.7 0.9 1.6
Chicago/Downers Grove Suites...... 9.0 1.8 2.8 4.4 0.9 1.5
Chicago/Downtown Courtyard........ 16.3 3.0 4.9 8.1 1.4 2.6
Chicago O'Hare.................... 40.0 9.4 11.4 18.9 4.4 5.9
South Bend........................ 9.9 1.1 2.1 4.4 0.5 1.0
New Orleans ...................... 66.4 14.4 23.0 33.8 6.7 12.3
Bethesda.......................... 23.2 3.1 5.9 12.2 1.5 3.2
Gaithersburg/Washingtonian
Center........................... 13.2 2.4 3.7 6.7 1.1 2.0
Boston/Newton..................... 27.4 4.8 7.7 12.5 2.3 3.8
Detroit Romulus................... 8.8 1.1 1.8 4.4 0.5 1.0
The Ritz-Carlton, Dearborn........ 25.7 4.9 7.8 10.7 1.9 3.5
Minneapolis/Bloomington........... 20.2 3.7 6.5 8.8 1.7 3.0
Minneapolis City Center........... 27.5 3.4 6.4 13.6 1.6 3.5
Minneapolis Southwest............. 14.9 2.9 4.4 6.0 1.3 2.0
Kansas City Airport............... 14.3 1.8 3.9 6.4 0.9 1.8
St. Louis Pavilion................ 27.5 6.0 6.7 11.9 2.8 3.2
Nashua............................ 7.5 0.8 1.3 3.3 0.4 0.6
Hanover........................... 22.4 4.6 6.5 9.9 2.2 3.1
Newark Airport.................... 39.4 8.0 11.7 19.7 3.7 6.1
Park Ridge........................ 16.0 2.2 3.8 7.8 1.0 2.1
Saddle Brook...................... 10.7 1.4 2.3 5.2 0.7 1.2
Albany............................ 18.5 3.6 6.0 7.5 1.7 2.6
New York Marriott Financial
Center........................... 39.6 7.5 13.4 19.9 3.5 7.4
New York Marriott Marquis......... 210.3 42.2 60.5 103.6 19.8 31.8
Marriott World Trade Center....... 65.4 10.4 19.3 33.5 4.9 10.8
Charlotte Executive Park.......... 14.0 2.2 3.7 6.0 1.0 1.6
Raleigh Crabtree Valley........... 14.9 2.4 3.9 7.4 1.1 2.0
Oklahoma City..................... 15.6 2.2 3.3 7.3 1.0 1.7
Oklahoma City Waterford........... 9.1 1.8 2.7 3.7 0.9 1.2
Portland.......................... 26.4 4.7 7.7 10.9 2.2 3.3
Philadelphia (Convention Center).. 80.7 15.3 25.6 40.2 7.1 13.1
Philadelphia Airport.............. 25.0 5.1 7.9 12.9 2.4 4.3
Pittsburgh City Center............ 16.4 1.7 2.9 6.5 0.8 1.2
Memphis........................... 10.6 1.5 3.2 3.8 0.7 1.2
Dallas/Fort Worth................. 28.9 5.8 9.3 15.2 2.7 5.1
Dallas Quorum..................... 25.7 4.4 8.2 12.7 2.0 4.3
El Paso........................... 11.6 1.4 2.4 5.6 0.7 1.2
Houston Airport .................. 21.6 4.2 6.4 11.8 2.0 3.7
JW Marriott Houston............... 27.2 4.9 7.9 15.1 2.3 4.8
Plaza San Antonio................. 13.8 2.9 4.6 6.2 1.3 2.2
San Antonio Rivercenter........... 68.9 14.4 25.5 36.1 6.7 14.0
San Antonio Riverwalk............. 29.3 6.0 10.2 15.4 2.8 5.6
Salt Lake City.................... 28.5 6.0 9.6 14.9 2.8 5.4
Dulles Airport.................... 14.6 2.6 4.1 7.4 1.2 2.1
Key Bridge........................ 29.4 5.7 10.0 14.7 2.7 5.3
Norfolk Waterside................. 18.1 3.3 5.0 8.0 1.5 2.4
Pentagon City Residence Inn....... 11.7 3.5 5.5 5.7 1.7 2.8
The Ritz-Carlton, Tysons Corner... 34.4 5.7 10.4 14.9 2.7 4.8
Washington Dulles Suites.......... 10.3 2.6 3.9 5.1 1.2 2.1
</TABLE>

25
<PAGE>

<TABLE>
<CAPTION>
FISCAL YEAR 1997 FIRST TWO QUARTERS 1998
------------------------- -----------------------
GROSS MINIMUM TOTAL GROSS MINIMUM TOTAL
PROPERTY SALES RENT RENT SALES RENT RENT
- -------- -------- ------- -------- -------- ------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Westfields................... $ 28.1 $ 4.8 7.4 13.7 2.3 3.8
Williamsburg................. 12.6 1.8 2.8 5.8 0.9 1.4
Washington Metro Center...... 25.2 4.5 7.6 13.4 2.1 4.2
Calgary...................... 13.4 2.1 2.1 6.3 1.0 1.6
Toronto Eaton Centre......... 21.1 5.1 7.0 10.4 2.4 3.6
Toronto Delta Meadowvale..... 16.1 2.6 4.0 6.5 1.2 1.9
Fairview Park................ 22.5 5.5 7.4 11.4 2.6 4.3
Dayton....................... 18.2 3.7 5.6 9.0 1.7 3.0
Research Triangle Park....... 9.1 1.8 2.7 4.6 0.8 1.5
Detroit Marriott Southfield.. 8.8 1.4 2.2 4.5 0.7 1.2
Detroit Marriott Livonia..... 10.0 1.7 2.6 5.0 0.8 1.4
Fullerton.................... 6.8 0.9 1.9 3.6 0.4 1.0
Marriott O'Hare Suites....... 14.4 2.7 4.9 7.1 1.3 2.7
Albuquerque.................. 16.4 1.9 3.5 7.4 0.9 1.7
Greensboro-High Point........ 13.6 1.9 3.4 7.0 0.9 1.8
Houston Medical Center....... 16.5 2.0 3.9 8.6 1.0 2.2
Miami Biscayne Bay........... 26.8 3.3 6.6 15.3 1.5 4.0
Marriott Mountain Shadows
Resort...................... 24.1 2.6 4.4 14.0 1.2 2.7
Seattle SeaTac Airport....... 23.1 4.0 6.4 11.4 1.9 3.4
Four Seasons, Atlanta(4)..... 15.6 3.9 4.7 10.2 1.8 3.3
Four Seasons,
Philadelphia(4)............. 41.1 7.9 12.4 20.9 3.7 6.7
Grand Hyatt, Atlanta(4)...... 25.3 5.9 7.7 15.4 2.7 5.0
Hyatt Regency,
Burlingame(4)............... 47.9 10.0 14.5 26.3 4.7 8.5
Hyatt Regency, Cambridge(4).. 32.4 6.3 9.8 16.4 2.9 5.3
Hyatt Regency, Reston(4)..... 30.5 6.1 9.2 16.0 2.9 5.2
Swissotel, Atlanta(4)........ 22.2 4.5 6.7 11.9 2.1 3.8
Swissotel, Boston(4)......... 26.8 4.8 8.1 12.6 2.3 4.1
Swissotel, Chicago(4)........ 38.1 6.8 11.5 17.8 3.2 5.7
The Drake (Swissotel), New
York(4)..................... 38.8 8.8 11.7 23.2 4.1 7.5
The Ritz-Carlton, Amelia
Island(4)................... 45.7 9.5 13.8 24.9 4.5 8.0
The Ritz-Carlton, Boston(4).. 40.1 7.7 12.1 20.1 3.6 6.5
-------- ------ -------- -------- ------ ------
Total Full-service
Properties.................. 3,583.8 690.6 1,083.6 1,811.7 323.8 583.7
Total Courtyard Properties... 212.0 50.6 59.2 105.7 23.3 29.4
Total Residence Inns......... 69.9 17.2 20.3 33.8 8.0 9.6
-------- ------ -------- -------- ------ ------
Total...................... $3,865.7 $758.4 $1,163.4 $1,951.2 $355.1 $622.9
======== ====== ======== ======== ====== ======
</TABLE>

H. Represents the adjustment to reflect the Company's anticipated adoption
of EITF 97-2 in the fourth quarter of 1998 by recording property-level sales
and operating expenses. The adjustment has no impact on operating profit or
net income.

I. The "Pro Forma without Blackstone" column reflects the adjustment to
eliminate the revenues and operating expenses which assumes the Blackstone
Acquisition does not occur.
- --------
(1) On a pro forma basis as of June 19, 1998, the Company had 75 million
shares of common stock authorized with 24.8 million shares issued and
outstanding. In addition, on a pro forma basis, 10 million shares of preferred
stock are authorized with none issued or outstanding.

(2) Reflects the pro forma earnings per share based on 24.8 million shares
outstanding subsequent to the Distribution. Pro forma shares are based on
Host's shares outstanding, adjusted for a one-for-ten share distribution, and
the issuance of shares to the Blackstone Entities.

(3) Reflects the pro forma earnings per share based on 20.4 million shares
outstanding subsequent to the Distribution. Pro forma shares are based on
Host's shares outstanding, adjusted for a one-for-ten share distribution, and
assumes that the Blackstone acquisition does not occur.

(4) Represent the Blackstone properties.

26
<PAGE>

SELECTED HISTORICAL FINANCIAL DATA

The following table presents selected historical consolidated financial
statement data derived from the Company's consolidated financial statements
for the period from June 21, 1997 through January 2, 1998 and the First Two
Quarters 1998. The historical data reflects only operations of the
Communities. The leases of hotels from Host will be entered into concurrently
with the Distribution and will be effective January 1, 1999 (assuming the
Merger occurs prior to that date; otherwise as soon as practicable following
the Distribution Date). The financial statement data for periods prior to June
21, 1997 is the data for the predecessor business of the Company which was
owned by Marriott International for the period from April 1, 1996 through June
20, 1997 and by Forum Group, Inc. for periods prior to April 1, 1996. The
following data should be read in conjunction with the Company's consolidated
financial statements and the notes thereto, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the other
financial information included elsewhere herein.

<TABLE>
<CAPTION>
HOST MARRIOTT MARRIOTT INTERNATIONAL FORUM GROUP, INC.
---------------------- ----------------------------- ------------------
PERIOD
FROM JUNE
21, 1997 TWENTY-FOUR YEAR ENDED
FIRST TWO THROUGH WEEK PERIOD FORTY WEEK MARCH 31,
QUARTERS JANUARY 2, ENDED PERIOD ENDED ------------------
1998 1998 JUNE 20, 1997 JANUARY 3, 1997 1996 1995
----------- ---------- ------------- --------------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIO
(UNAUDITED) DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.............. $ 39,252 $ 36,900 $ 33,570 $ 55,987 $ 59,525 $ 48,055
Operating costs and
expenses............. 19,206 20,929 15,595 20,646 20,772 16,693
Operating profit...... 20,046 15,971 17,975 35,341 38,753 31,362
Corporate expenses.... 1,616 2,304 4,519 6,380 915 431
Interest expense...... 13,185 13,396 9,141 14,283 29,119 23,018
Interest income....... 681 336 598 1,111 2,321 1,743
Net income (1)........ 3,497 358 2,628 9,334 5,717 6,714
Pro forma earnings per
share (2)............ .14 .01 .11 .38 .23 .27
OTHER DATA:
Depreciation and amor-
tization............. 9,686 10,635 6,698 8,494 10,712 8,360
Cash provided by (used
in) operating
activities........... 6,938 25,376 (479) 26,870 26,327 21,518
Cash used in investing
activities........... (3,597) (33,412) (16,407) (159,586) (43,253) (34,269)
Cash provided by (used
in) financing
activities........... (1,872) 25,680 12,673 132,650 5,896 24,184
BALANCE SHEET DATA:
Total assets.......... $687,339 $663,502 $ -- $565,094 $417,436 $379,127
Total debt............ 321,752 349,934 -- 244,318 325,756 267,228
Total stockholder's
equity............... 282,638 227,064 -- 284,665 49,496 60,636
</TABLE>
- --------
(1) Net income for the fiscal years ended March 31, 1996 and 1995 includes
$2,078,000 and $253,000, respectively, from an extraordinary loss on the
extinguishment of debt. Net income for the fiscal year ended March 31,
1996 includes a $666,000 gain from the cumulative effect of an accounting
charge.
(2) Pro forma earnings per share reflects historical net income divided by the
pro forma shares outstanding subsequent to the Distribution. Pro forma
shares of 24.8 million are based on Host's shares outstanding, adjusted
for a one-for-ten share distribution and the issuance of shares to the
Blackstone Entities.

27
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LACK OF COMPARABILITY FOLLOWING THE DISTRIBUTION

Because the Company will lease and sublease substantially all of Host's
hotels following the Distribution and because prior to the Distribution the
Company's business consisted only of owning the Communities acquired since the
Company's inception in June 1997, the Company does not believe that the
historical results of operations will be comparable to its results of
operations following the Distribution. For pro forma information giving effect
to the Leases to be entered into with Host REIT effective January 1, 1999
(assuming the Merger occurs prior to that date; otherwise as soon as
practicable following the Distribution Date), see "Pro Forma Financial
Statements."

HISTORICAL RESULTS OF OPERATIONS

Revenues primarily represent house profit from the Communities. House profit
reflects the net revenues flowing to the Company as property owner and
represents gross community operating sales less property-level expenses
excluding depreciation and amortization, management fees, property taxes,
insurance and certain other costs which are classified as operating costs and
expenses included in the accompanying financial statements.

FIRST TWO QUARTERS 1998 (HISTORICAL)

Revenues. Revenues represent gross property routine and ancillary sales less
property-level expenses. Routine service revenues are generated from monthly
charges for independent living units and daily charges for assisted living
suites and nursing beds which are recognized monthly based on the terms of the
residents' agreement. Ancillary service revenues are generated on a "fee for
service" basis for supplementary items requested by residents and are
recognized as the services are provided.

Revenues generated from the Communities totaled $39.3 million for the First
Two Quarters 1998. During the First Two Quarters 1998, average occupancy of
the Communities was 92% and the average per diem rate was $88, which resulted
in revenue per available unit ("REVPAU") of $81 for the First Two Quarters
1998. Overall occupancies were lower than the historical occupancies due to
the significant number of expansion units added during the year, the overall
disruption to the Communities as a result of the construction and the time
required to fill the expansion units. Senior living communities' gross sales
totaled $110 million for the First Two Quarters 1998.

Operating Costs and Expenses. Operating costs and expenses principally
consist of depreciation and amortization, management fees, property taxes,
insurance and certain other costs. The Company's operating costs and expenses
were $19.2 million (49% of revenues) for the First Two Quarters 1998.

Operating Profit. The Company's operating profit was $20.0 million (51% of
revenues) for the First Two Quarters 1998.

Corporate Expenses. Corporate expenses were $1.6 million for the First Two
Quarters 1998. As a percentage of revenues, corporate expenses were 4.1% of
revenues.

Interest Expense. Interest expense was $13.2 million for the First Two
Quarters 1998.

Interest Income. Interest income was $0.7 million for the First Two Quarters
1998, primarily reflecting interest earned on cash and certain escrow
accounts.

Net Income. Net income for the First Two Quarters 1998 was $3.5 million.

28
<PAGE>

PERIOD FROM JUNE 21, 1997 THROUGH JANUARY 2, 1998 (HISTORICAL)

Revenues. Revenues generated from the 1997 third quarter acquisition of 29
senior living communities totaled $36.9 million. During the period from June
21, 1997 through January 2, 1998, average occupancy of the Communities was 92%
and the average per diem rate was $84, which resulted in revenue per available
unit of $77. Overall occupancies were lower than the historical occupancies
due to the significant number of expansion units added during the year, the
overall disruption to the communities as a result of the construction and the
time required to fill the expansion units. Senior living communities' gross
sales totaled $111 million.

Operating Costs and Expenses. The Company's operating costs and expenses
were $20.9 million (57% of revenues).

Operating Profit. The Company's operating profit was $16.0 million (43% of
revenues).

Corporate Expenses. Corporate expenses were $2.3 million. As a percentage
of revenues, corporate expenses were 6.2% of revenues.

Interest Expense. Interest expense was $13.4 million.

Net Income. The Company's net income was $0.4 million.

PRO FORMA RESULTS OF OPERATIONS

Because the Company will lease substantially all the hotels owned or leased
by Host following the Distribution, the Company does not believe that the
historical results of operations will be comparable to the results of
operations of the Company following the Distribution. Accordingly, a
comparison of the Company's pro forma results of operations for the First Two
Quarters 1998 to First Two Quarters 1997 and fiscal year 1997 to fiscal year
1996 have been included below. The following discussion and analysis should be
read in conjunction with the Company's combined consolidated financial
statements and the Company's unaudited pro forma financial statements and
related notes thereto included elsewhere in this Prospectus. The following
discussion and analysis has been prepared assuming that Host's acquisition of
a 100% ownership interest in 13 hotels, in which Host currently serves as
general partner in the entities that currently own the hotels, together with
the acquisition of 12 hotels from the Blackstone Entities promptly following
the Distribution. The following pro forma financial information includes the
Company's anticipated fourth quarter 1998 adoption of Emerging Issues Task
Force ("EITF") 97-2, "Application of FASB Statement No. 94 and APB Opinion No.
16 to Physician Practice Management Entities and Certain Other Entities with
Contractual Management Arrangements." EITF 97-2 requires the Company to
include property-level sales and operating expenses of the leased hotels and
owned senior living communities in its statement of operations.

The unaudited pro forma financial statements do not purport to represent
what the Company's results of operations or cash flows would actually have
been if the Distribution and Host's conversion to a REIT had in fact occurred
on such date or at the beginning of such period or to project the Company's
results of operations for any future date or period.

29
<PAGE>

The following table presents the results of operations for the First Two
Quarters 1998 and the First Two Quarters 1997 on the pro forma basis discussed
above:

FIRST TWO QUARTERS 1998 COMPARED TO FIRST TWO QUARTERS 1997 (PRO FORMA)

<TABLE>
<CAPTION>
FIRST TWO QUARTERS
----------------------
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Hotel revenues................................ $1,951,111 $1,807,919
Senior living community revenues.............. 110,345 102,156
Total revenues................................ 2,061,456 1,910,075
Hotel operating costs and lease expenses...... 1,929,827 1,789,342
Senior living community operating costs and
expenses..................................... 90,263 86,162
Operating costs and expenses.................. 2,020,090 1,875,504
Operating profit before minority interest,
corporate expenses and interest expense...... 41,366 34,571
Corporate expenses............................ (7,923) (5,923)
Interest expense.............................. (11,154) (11,548)
Interest and dividend income.................. 948 860
---------- ----------
Income before income taxes.................... 23,237 17,960
Provision for income taxes.................... (9,527) (7,364)
---------- ----------
Net income.................................... $ 13,710 $ 10,596
========== ==========
</TABLE>

Revenues. Revenues primarily represent gross sales from leased and subleased
hotels and owned senior living communities. Revenues increased by $151
million, or 7.9%, to $2,061 million for the First Two Quarters 1998 from
$1,910 million for the First Two Quarters 1997.

Hotel revenues increased $143 million, or 7.9%, to $1,951 million in the
First Two Quarters 1998, reflecting the REVPAR increases for the Company's
leased hotels. Improved results for the Company's leased full-service hotels
were driven by strong increases in REVPAR of 8.3% to $113.67 for the First Two
Quarters 1998. Average room rates increased 9%, while average occupancy
decreased slightly to 77.8% for the full-service properties. REVPAR for the
Company's leased Courtyard by Marriott hotel properties increased 7.9% to
$74.28 due to an increase in average room rates of nearly 10%, while average
occupancy decreased more than one percentage point to 80.5%. REVPAR for the
Company's 18 leased Residence Inn properties increased 6.4% to $87.82 due to
an increase in average room rates of 5%, while average occupancy increased one
percentage point to 84.4%.

Senior living community revenues increased by $8 million, or 8.0%, to $110
million. For the First Two Quarters 1998, REVPAU increased 3.4% to $80.65. The
average per diem increased 6% to $87.89 while average occupancy decreased 2.3%
percentage points to 91.8%.

Operating Costs and Expenses. Hotel operating costs and expenses principally
consist of hotel property-level operating costs and expenses plus hotel
management fees and lease expenses. Senior living community operating costs
and expenses consist of property-level expenses plus depreciation, property
taxes, ground rent, insurance and certain other costs. Operating costs and
expenses increased $145 million, or 7.7%, to $2,020 million in the First Two
Quarters 1998. Overall hotel operating costs and expenses increased $140
million, or 7.8%, to $1,930 million. Hotel property-level operating costs and
expenses increased $60 million, or 5.5%, to $1,159 million. Hotel management
fees increased $20 million to $148 million, while lease expense increased $58
million, or 10%, to $623 million. Senior living community property-level
operating costs and expenses increased $5 million, or 7%, to $71 million,
while other operating costs and expenses decreased $1 million to $19 million
for the First Two Quarters 1998.

Operating Profit. As a result of the changes in revenues and operating costs
and expenses discussed above, the Company's operating profit increased $6.8
million, or 19.7%, to $41 million for the First Two Quarters 1998.

30
<PAGE>

Hotel operating profit increased $2.7 million, or 14.6%, to $21 million for
the First Two Quarters 1998 from $17 million for the First Two Quarters 1997.
The Company's leased hotels recorded significant improvements in comparable
operating results. Specifically, hotels in New York City, Boston, Toronto and
Atlanta reported significant improvements for the First Two Quarters 1998.
Properties in Florida reported some temporary declines in operating results
due to exceptionally poor weather in 1998.

Senior living community operating profit increased $4 million, or 25.6%, to
$20 million. The Communities' increase in operating profit is primarily due to
increases in residency fees and charges in the independent living, assisted
living and healthcare revenue components, the favorable impact of new
expansion units offset by increased healthcare and a reduction in food service
cost. The Company experienced the most improvement in the Delaware, Texas and
Florida properties. As a percentage of total senior living revenues, operating
profit increased to 18.2% in the First Two Quarters 1998 as compared to 15.7%
for the First Two Quarters 1997.

Corporate Expenses. Corporate expenses increased $2 million to $8 million
for the First Two Quarters 1998. As a percentage of total revenues, corporate
expenses increased to 0.4% in the First Two Quarters 1998 from 0.3% for the
First Two Quarters 1997.

Interest Expense. Interest expense decreased slightly to $11 million in the
First Two Quarters 1998.

Interest and Dividend Income. Interest and dividend income remained
unchanged at $1 million for the First Two Quarters 1998.

Net Income. Net income for the First Two Quarters 1998 was nearly $14
million, compared to nearly $11 million for the First Two Quarters 1997.

1997 COMPARED TO 1996 (PRO FORMA)

The following table presents the results of operations 1997 and 1996 on a
pro forma basis:

<TABLE>
<CAPTION>
FISCAL YEAR
----------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Hotel revenues........................................ $3,865,304 $3,572,032
Senior living community revenues...................... 222,789 220,272
Total revenues........................................ 4,088,093 3,792,304
Hotel operating costs and lease expenses.............. 3,826,309 3,541,648
Senior living community operating costs and expenses.. 189,467 183,205
Operating costs and expenses.......................... 4,015,776 3,724,853
Operating profit before minority interest, corporate
expenses and interest expense........................ 72,317 67,451
Corporate expenses.................................... (13,500) (11,500)
Interest expense...................................... (23,832) (24,241)
Interest and dividend income.......................... 1,501 2,058
---------- ----------
Income before income taxes............................ 36,486 33,768
Provision for income taxes............................ (14,958) (13,845)
---------- ----------
Net income ........................................... $ 21,528 $ 19,923
========== ==========
</TABLE>

Revenues. Revenues increased $296 million, or 7.8% to $4,088 million for
1997 from $3,792 million in 1996. The 1997 results included 52 weeks versus 53
weeks in 1996.

Hotel sales increased $293 million, or 8.2%, to $3,865 million in 1997,
reflecting the increases in REVPAR. Improved results for the Company's leased
full-service hotels were driven by strong increases in REVPAR of 9.8% to
$103.30 in 1997. Average room rates increased 9%, while average occupancy
increased slightly to

31
<PAGE>

77.7% for the leased full-service properties. REVPAR for the Company's leased
Courtyard by Marriott hotels properties increased 9.6% to $68.38 due to an
increase in average room rate of 8%, which average occupancy increased one
percentage point to 81.1%. REVPAR for the Company's leased Residence Inn
properties increased 7.7% to $83.27 due to an increase in average room rates
of 10%, while average occupancy decreased nearly two percentage points to
83.3%.

Senior living community revenues increased $3 million, or 1.1%, to $223
million. For 1997, REVPAU increased % to $77.45. The average per diem
increased % to $83.28, while average occupancy decreased one and one half
percentage points to 93%.

Operating Costs and Expenses. Operating costs and expenses increased $291
million to $4,016 million for 1997. Overall hotel operating costs and expenses
increased $285 million, or 8.0%, to $3,826 million. Hotel property-level
operating costs and expenses increased $132 million, or 5.8%, to $2,396
million. Hotel management fees increased $69 million to $267 million, while
lease expense increased $83 million, or 7.7%, to $1,163 million. Senior living
community property-level operating costs and expenses increased $3 million, or
2.0%, to $146 million, while other operating costs and expenses increased $3
million to $44 million.

Operating Profit. As a result of the changes in revenues and operating
costs and expenses discussed above, the Company's operating profit increased
$4.9 million, or 7.2%, to $72 million in 1997. Hotel operating profit
increased $8.6 million, or 28.3%, to $39 million for 1997 compared to $30
million for 1996. In nearly all markets, the Company's leased full-service
hotels recorded improvements in comparable operating results. In particular,
the Company's leased full-service hotels in the Northeast, Mid-Atlantic and
Pacific coast regions benefited from the upscale and luxury full-service room
supply and demand imbalance. Hotels in New York City, Philadelphia, San
Francisco/Silicon Valley and in Southern California performed particularly
well. In 1998, the Company expects results to be strong in these markets and
other gateway cities in which the Company owns hotels. In 1997, the Company's
suburban Atlanta properties (three properties totaling 1,022 rooms) generally
reported decreased results due to higher activity in 1996 related to the
Summer Olympics and the impact of the additional supply added to the suburban
areas. However, the majority of the Company's leased full-service hotel rooms
in Atlanta are in the core business districts in downtown and Buckhead where
they realized strong year-over-year results and were only marginally impacted
by the additional supply.

Senior living community operating profit decreased $4 million, or 10.1%, to
$33 million.

Corporate Expenses. Corporate expenses increased $2 million to $14 million
in 1997. As a percentage of total revenues, corporate expenses remained
unchanged at 0.3% for 1997.

Interest Expense. Interest expense remained unchanged at approximately $24
million for 1997.

Interest and Dividend Income. Interest and dividend income remained
unchanged at approximately $2 million for 1997.

Net Income. Net income for 1997 was nearly $22 million, compared to net
income of $20 million for 1996.

LIQUIDITY AND CAPITAL RESOURCES

In 1997, Host acquired all of the outstanding common stock of Forum from
Marriott Senior Living Services, Inc., ("MSLS") a subsidiary of Marriott
International. Host purchased Forum, which consisted of a portfolio of 29
senior living communities for approximately $460 million, including
approximately $270 million in assumed debt. The Communities will continue to
be operated by MSLS. In addition, the Company plans to add approximately 1,060
units to these Communities for approximately $107 million through a expansion
plan which will be completed in 1999. In 1997, approximately $56 million (549
units) of the expansion plan had been completed (including $33 million of debt
financing provided by Marriott International). The Company also acquired 49%
of the remaining 50% interest in the venture which owned the 418-unit Leisure
Park senior living community from Marriott International for approximately $23
million, including approximately $15 million of debt.

32
<PAGE>

During the first quarter of 1998, the Company acquired the Gables at
Winchester in suburban Boston, a 124-unit senior living community, for $21
million and entered into conditional purchase agreements to acquire two
Marriott Brighton Gardens assisted living communities from the Summit
Companies of Denver, Colorado. After the anticipated completion of
construction in the first quarter of 1999, the Company may acquire these two
160-unit properties located in Denver and Colorado Springs, Colorado, for $35
million, if they achieve certain operating performance criteria. All three of
these communities will be operated by MSLS under long-term operating
agreements.

Under the terms of its senior living communities' management agreements, the
Company is generally required to spend an amount of gross revenues to cover
certain routine repairs and maintenance and replacements and renewals to the
communities' property and improvements. The amount Host is required to spend
will be 2.65% through fiscal year 2002, 2.85% for fiscal years 2003 through
2007, and 3.5% thereafter. The Company anticipates spending approximately $6
million in 1998.

EBITDA

The Company's consolidated earnings before interest expense, taxes,
depreciation, amortization and other non-cash items ("EBITDA") on a historical
basis was $28.8 million in the First Two Quarters 1998 and $24.6 million for
the period from June 21, 1997 through January 2, 1998.

The following is a reconciliation of historical EBITDA to the Company's
income before extraordinary item (in thousands):

<TABLE>
<CAPTION>
PERIOD FROM
JUNE 21, 1997
FIRST TWO QUARTERS THROUGH
1998 JANUARY 2, 1998
------------------ ---------------
(IN THOUSANDS)
<S> <C> <C>
EBITDA....................................... $ 28,797 $ 24,638
Interest expense............................. (13,185) (13,396)
Depreciation and amortization................ (9,686) (10,635)
Income taxes................................. (2,429) (249)
-------- --------
Income before extraordinary item........... $ 3,497 $ 358
======== ========
</TABLE>

The Company's interest coverage, defined as EBITDA divided by cash interest
expense, was 1.8 times for the First Two Quarters 1998 compared to 3.0 times
for the period from June 21, 1997 through January 2, 1998. The ratio of
earnings to fixed charges was 1.5 to 1.0 for the First Two Quarters of 1998
and 1.1 to 1.0 for the period from June 21, 1997 through January 2, 1998.

The Company's pro forma EBITDA increased $6.0 million, or 15.3%, to $46.0
million in the First Two Quarters 1998 as compared to First Two Quarters 1997
and increased $3.7 million, or 4.5%, to $87.0 million for fiscal year 1997 as
compared to fiscal year 1996.

The following is a reconciliation of pro forma EBITDA to the Company's
income before extraordinary item (in thousands):

<TABLE>
<CAPTION>
FIRST TWO QUARTERS FISCAL YEARS
-------------------- ------------------
1998 1997 1997 1996
--------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
EBITDA................................ $ 45,950 $ 39,869 $ 87,005 $ 83,292
Interest expense...................... (11,154) (11,548) (23,832) (24,241)
Depreciation and amortization......... (9,713) (10,192) (22,687) (21,168)
Income taxes.......................... (9,527) (6,676) (14,958) (13,892)
Other non-cash charges, net........... (1,846) (1,846) (4,000) (4,000)
--------- --------- -------- --------
Income before extraordinary item.... $ 13,710 $ 9,607 $ 21,528 $ 19,991
========= ========= ======== ========
</TABLE>

33
<PAGE>

Cash Flows. Cash flow from operations for the First Two Quarters 1998 and
the period from June 21, 1997 through January 2, 1998 totaled $7 million and
$25 million, respectively. Cash used in investing activities was $4 million
and $33 million for the First Two Quarters 1998 and the period from June 21,
1997 through January 2, 1998, respectively. Cash from investing activities
primarily consists of the acquisition of expansion units and renewals and
replacements.

Cash used in financing activities was $2 million for the First Two Quarters
1998, while cash from financing activities was $26 million for the period from
June 21, 1997 through January 2, 1998. Cash from financing activities
primarily consists of the proceeds from debt offerings, offset by prepayments
on certain debt and other scheduled principal payments.

DEBT

At June 19, 1998 and January 2, 1998, the Company and its subsidiaries had
$322 million and $350 million of debt, respectively, which included
approximately $185 million and $213 million of non-recourse mortgage debt
secured by real estate assets and approximately $137 million of unsecured and
other debt, respectively. Included in debt balances at June 19, 1998 and
January 2, 1998 was approximately $92 million in unsecured debt due to
Marriott International, which was prepaid by Host in the second quarter of
1998.

Scheduled maturities over the next five years are approximately $180 million
as of January 2, 1998. During 1998, Host prepaid approximately $26 million of
mortgage debt and approximately $92 million of unsecured debt originally
maturing in 1999 and 2001, respectively. Additionally, Host will contribute
$107 million in debt to capital in connection with the Distribution.

At June 19, 1998, property level debt included the following:

FRP Financing Limited, L.P. FRP Financing Limited, L.P. ("FRP"), a
subsidiary of Forum, owns nine Communities which are subject to a mortgage
pursuant to a loan agreement between FRP and Nomura Asset Capital Corporation
("NACC"). The original principal amount of the loan is approximately $50
million and it matures on January 2001 unless earlier repaid. Any changes to
the management agreement or the replacement of the manager are subject to
NACC's consent. Other extraordinary events, such as a transfer of partnership
interest in FRP and entering into other financing arrangements, are also
subject to NACC's consent. As of June 19, 1998, the remaining balance of the
loan is $46 million.

FGI Financing I Corporation and Forum Ohio Healthcare, Inc. FGI Financing I
Corporation ("FGI") and Forum Ohio Healthcare, Inc. ("FOH") are wholly owned
subsidiaries of Forum that own seven Communities and one Community,
respectively. Both FGI and FOH are subject to a single loan agreement, dated
September 1, 1995, with NACC in the original amount of $124.6 million. The
loans are supported by two promissory notes for the amount of $104.4 million
and $20.2 million, which mature on September 2003 and September 2018,
respectively. Consent of NACC is necessary for any (i) amendments to the
management agreements, (ii) replacement of the manager, (iii) transfer of a
Community which secures the loan, (iv) other financing, (v) changes to
existing leases, including ground leases, or (vi) transfers of FGI and FOH
stock. As of June 19, 1998, $122 million remain outstanding.

Leisure Park Joint Venture Limited Partnership. Leisure Park Joint Venture
Limited Partnership ("Leisure Park"), a subsidiary of the Company, owns one
Community. Leisure Park has outstanding $14.7 million in tax free bonds held
by outside bondholders (the "Leisure Park Bonds"). Host is the guarantor of
the Leisure Park Bonds.

INFLATION

The hotel lodging properties expected to be leased or subleased by the
Company from Host REIT and owned Communities are impacted by inflation through
its effect on increasing costs and on the managers' ability to increase rates.
Unlike other real estate, the Company believes that hotels have the ability to
change room rates

34
<PAGE>

on a daily basis, so the impact of higher inflation generally can be passed on
to customers. The rates charged for the delivery of services at the Company's
owned Communities are highly dependent upon local market conditions and the
competitive environment in which the Communities operate. Although resident
agreements are for short terms, and thus may enable the Company to seek
increases in daily fees at the time of renewal in response to inflation or
other factors, any such increases would be subject to market and competitive
conditions.

YEAR 2000 ISSUES

The Company has invested in implementing new accounting systems which are
Year 2000 compliant. Accordingly, the Company believes that future costs
associated with Year 2000 issues will be minimal and not material to the
Company's consolidated financial statements.

However, Host relies upon computer systems used by the managers and
operators of its properties to obtain financial information. Management
believes that the managers and operators have begun to implement changes to
the property specific software to ensure that software will function properly
in the Year 2000 and does not expect to incur significant costs related to
these modifications.

IMPACT OF FINANCIAL ACCOUNTING STANDARDS

During 1997, the Company adopted SFAS No. 128, "Earnings Per Share," SFAS
No. 129, "Disclosure of Information About Capital Structure" and SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." The
adoption of these statements did not have a material effect on the Company's
consolidated financial statements and the appropriate disclosures required by
these statements have been incorporated herein.

In the First Quarter 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in financial statements.
The objective of SFAS No. 130 is to report a measure of all changes in equity
of an enterprise that result from transactions and other economic events of
the period other than transactions with owners. Comprehensive income is the
total of net income and all other nonowner changes in equity. For all periods
presented the Company had no items of other comprehensive income.
Consequently, comprehensive income equals net income and the Company has no
accumulated other comprehensive income for all periods presented.

On November 20, 1997, the EITF of the Financial Accounting Standards Board
reached a consensus on EITF 97-2. EITF 97-2 addresses the circumstances in
which a management entity may include the revenues and expenses of a managed
entity in its financial statements.

The Company has considered the impact of EITF 97-2 on its financial
statements and has determined that EITF 97-2 requires the Company to include
property-level sales and operating expenses of its leased hotels and owned
senior living communities in its statements of operations. The Company will
adopt EITF 97-2 in the fourth quarter of 1998, with retroactive effect in
prior periods to conform to the new presentation. Application of EITF 97-2 to
the consolidated financial statements for the First Two Quarters 1998 and the
period from June 21, 1997 through January 2, 1998 would have increased both
revenues and operating expenses by approximately $71 million and $74 million,
respectively, and would have had no impact on operating profit, net income or
earnings per share.

35
<PAGE>

BUSINESS AND PROPERTIES

GENERAL

Following the Distribution, the Company and its subsidiaries will be engaged
in the business of leasing and subleasing full-service and limited-service
hotels, asset management of hotels and owning senior living communities. In
June 1997, the Company acquired all of the outstanding stock of Forum from
Marriott International. The Company currently owns, 31 Communities located in
13 states. The Company expects to lease from Host REIT approximately 125 full-
service hotels, representing substantially all of the hotels owned by Host
REIT. In addition, the Company expects to sublease from Host REIT
approximately 71 limited-service hotels. Concurrently with entering into the
Hotel Leases, the Company will assume the existing management agreements
between Host and Non-MI Managers, pursuant to which Marriott International and
the Non-MI Managers will continue to manage the hotels that are owned by Host
and subsidiaries of HPT. Marriott International also will continue to manage
the Communities. The Company's activities are and will be limited for certain
specified periods by certain agreements with Host REIT and Marriott
International to which the Company is or will become a party. See "Business
and Properties--Non-Competition Agreements."

The Company was incorporated in Delaware on May 15, 1997, as a wholly-owned
subsidiary of Host. In September 1998, the Company changed its name from "HMC
Senior Communities, Inc." to "Crestline Capital Corporation." The principal
executive offices of the Company are located at 10400 Fernwood Road, Bethesda,
Maryland 20817, and its telephone number at that location is (301) 380- .

OVERVIEW

Lodging and Asset Management Services

Upon completion of the Distribution, the Company will be one of the leading
publicly traded hotel leasing companies by virtue of its lease of
approximately 125 full-service hotels and sublease of approximately 71
limited-service hotels from Host REIT. The full-service hotel portfolio will
be managed by Marriott International and the Non-MI Managers under the
Marriott, Ritz-Carlton, Four Seasons, Swissotel, Hyatt, Holiday Inn and Delta
brand names, and the limited-service hotels will be managed by Marriott
International under the Courtyard by Marriott and Residence Inn brand names.
The Company also will enter into a contract with Host REIT to provide asset
management services for a substantial majority of Host's hotel portfolio.

The full-service hotels to be leased by the Company from Host REIT are in
the upscale and luxury segments of the lodging industry. Based on data
provided by Smith Travel Research, the upscale and luxury segments achieved an
average occupancy of 71.1%. The Company's full- service hotel lease portfolio
achieved a 78.4% occupancy and 12.6% REVPAR increase in 1997, which,
significantly outperformed the competitive set. The Company believes this is
due to the quality and positioning of the assets, as well as the strength of
the brands and management companies in the portfolio.

The Company believes that there are significant barriers to entry,
particularly in urban and airport locations, that have limited supply
increases in the upscale and luxury segments of the full service hotel
industry to an average of approximately 1% from 1992 through 1997. These
barriers to entry have included: the affordability, availability and location
of quality land; the lead time for the development of a comparable hotel which
can now range from three to five years or more from conception to completion
of construction; the limited availability of financing for new hotel
construction; and the availability of existing comparable hotels that have
sold at a discount to their replacement cost.

The Company does not believe, however, that the limited-service hotel sector
has the same barriers to entry for new supply limitations that exist in the
full-service sector. For 1998, room supply within the moderate-price and
extended-stay segments has exceeded room demand. The Company believes that
this trend will have an

36
<PAGE>

effect on the feasibility of additional new limited-service construction
starts and certain of the supply/demand imbalances may create acquisition and
leasing opportunities for the Company.

Senior Living

At the time of the Distribution, the Company will own a portfolio of 31
Communities that contain over 7,200 units located in 13 states. These assets
were acquired by the Company in 1997 and 1998 and are managed by MSLS, a
subsidiary of Marriott International, under long-term operating agreements.
This portfolio is positioned in the quality tier segment of the senior living
industry. The Communities generally offer the residents the full continuum of
care: independent living; assisted living; and healthcare units.

The senior living industry encompasses the independent living, assisted
living and healthcare segments. In general, residents in independent living
units participate in a community's dining plan and other social functions and
may utilize other services such as housekeeping, laundry or transportation. In
general, these residents do not need assistance with activities of daily
living ("ADLs") such as eating, bathing, grooming, dressing or medicine
reminders. Assisted living residents typically require some assistance with
some or all of these ADLs. Certain assisted living communities may also
provide personal assistance with Alzheimer's disease or other forms of
dementia. Residents who develop further physical or cognitive frailties that
require more intensive medical attention often reside in healthcare units.

The Communities generally offer its residents the full continuum of care,
from independent living through assisted living and healthcare. The Company
believes that few competitors offer this continuum which allows residents to
age in place over time.

The Company believes that the senior living industry is supported by strong
long-term fundamentals. The aging of the American population should increase
demand for senior living housing and services across the full continuum of
care. The U.S. Bureau of Census estimates that the number of seniors 85 years
and older will increase by approximately 100% from 3.0 million in 1990 to 6.0
million in 2010. The traditional alternative of family based care also is
disappearing as the prevalence of dual income families and increased
geographic mobility has reduced the potential role of family care givers. In
addition, the affordability of senior housing has improved as seniors are
becoming increasingly affluent with the number of wealthy senior households
(households over age 65 with net worth above $500,000) increasing at a rate of
14% per annum from 1983-1992. Finally, a supply/demand imbalance is being
created as the supply of skilled nursing beds per thousand persons age 85 and
older has declined from 690 per thousand in 1976 to an estimated 350 per
thousand in the year 2000.

The Company believes, however, that many assisted living markets have become
or are on the verge of becoming overbuilt. The rapid development of assisted
living may cause some supply/demand imbalances which the Company believes
could create acquisition/leasing opportunities in markets that possess strong
long-term fundamentals.

BUSINESS STRATEGY

The Company's primary business strategy is to take advantage of
opportunities to enhance the profitability of its three strategic business
units: lodging; asset management; and senior living.

Lodging

Based on the number of hotels to be leased or subleased from Host REIT, the
Company will be one of the leading public hotel leasing companies in the
lodging industry. The Company intends to expand its full-service hotel lease
portfolio through additional lease transactions with Host REIT that may arise
from Host REIT's own growth through acquisition. Since 1994, Host has acquired
79 full-service hotels for an aggregate purchase price of approximately $3.9
billion and Host believes its acquisition opportunities remain significant
with Marriott and non-Marriott brand opportunities. However, there are no
rights of first refusal or other contractual arrangements

37
<PAGE>

enabling the Company to lease any hotels acquired by Host REIT in the future.
The Company may also pursue the acquisition and/or leasing of limited-service
hotels from Host and its affiliates, which currently hold interests in
partnerships owning 120 Courtyard by Marriott and 50 Residence Inn hotels. The
Company expects to pursue the acquisition and/or leasing of other limited-
service hotels as the effects of overbuilding in this sector may create
opportunities in markets with strong long-term fundamentals.

The Company also plans to seek to establish strategic relationships with
hotel REITs other than Host REIT. Current federal income tax law does not
allow REIT's to derive revenues directly from the operations of hotels. As a
result, hotel REITs generally enter into leases with lessees who agree to pay
a base rent plus a percentage rent based on increases in gross revenues of a
hotel. The Company, therefore, believes that there will be leasing
opportunities with some hotel REITs other than Host REIT that have been unable
to pursue acquisition opportunities because certain hotel management companies
have been unwilling to enter into such leases. The Company intends to pursue
these leasing opportunities for both full-service and limited-service hotels.

In addition, many hotel REITs have established related-party hotel leasing
companies that are generally small and privately held. The Company believes
that some of these REITs, in an effort to reduce conflicts of interest, may
seek to establish independent leasing relationships which could create an
opportunity for the Company to act as a consolidator of these leasing
companies.

The Company also intends to explore the feasibility of other lodging related
business opportunities, such as hotel management and timeshare investments.

Asset Management

The Company's asset management team (which will be moved from Host to the
Company in connection with the Distribution) is experienced in managing one of
the largest and highest quality hotel portfolios in the industry. This team
has developed significant expertise in enhancing the value of lodging real
estate. Asset management's key objectives include:

. Maximize the cash return on investment through cost reduction and
revenue enhancement opportunities;

. Enhance, preserve and maximize the long-term value and life of the
assets; and

. Ensure optimal positioning of each property.

In connection with the Distribution, the Company will enter into a contract
with Host REIT to continue to provide asset management services to Host REIT
for the Host hotel portfolio. These services will include: (i) monitoring
property/brand performance; (ii) pursuing expansion and repositioning
opportunities; (iii) overseeing capital expenditure budgets and forecasts;
(iv) assessing return on investment expenditure opportunities; and (v)
analyzing competitive supply conditions in each market.

In connection with the Distribution, the Company intends to leverage the
asset management team's industry expertise to expand its customer base to
include new third-party asset management contracts with entities such as hotel
REITs, pension funds, life insurance companies, opportunity funds and offshore
owners. In addition, the Company's asset management team may expand the range
of services it provides to include feasibility analyses, valuations,
acquisition/disposition due diligence and similar services.

Senior Living

The Company owns a premier portfolio of senior living communities and was
ranked as the fourth largest owner of senior living communities by The
American Senior Housing Association in 1997. The portfolio encompasses the
full continuum of care by offering a combination of independent living (54% of
units), assisted living (22% of units) and healthcare accommodations (24% of
units). During 1997, the portfolio achieved an average occupancy of
approximately 92% and an average daily rate of $84 for the period in which
Host owned the properties.

38
<PAGE>

In 1999, the Company expects to complete the final phase of an $88 million
expansion program that will result in the addition of 864 units at its
Communities. Upon completion, this expansion program will bring the total
number of units in the Company's portfolio to 7,540. The Company's objective
in completing the expansion program has been to further solidify the
competitive position of its Communities through the provision of a continuum
of housing accommodations on one campus. These expansions have typically
involved the addition of assisted living units to a community which offered
only independent living or to a community which offered only independent
living and healthcare units. The Company believes that its portfolio will
continue to enjoy a competitive advantage as the result of its emphasis on the
provision of multiple levels of care.

The Company expects to continue selectively pursuing the acquisition of
upscale senior living communities and to engage premier operators to manage
these communities. The Company expects to continue to target primarily assets
which offer at least two levels of care and which are located in established
neighborhoods where land for development is scarce and where community groups
and local authorities are less likely to encourage the development of
additional senior living communities.

The Company has entered into a conditional purchase agreement in connection
with the acquisition of two Brighton Gardens senior living communities in
Denver and Colorado Springs, Colorado. Both of these communities are under
construction and are expected to be completed in the second quarter of 1999.
Under the terms of the agreement, the Company can elect to acquire these
communities for approximately $35 million on the first anniversary of their
opening. The communities will be managed by MSLS under long-term operating
agreements.

In addition to pursuing single asset and portfolio acquisitions, the Company
may also pursue the acquisition of senior living companies to the extent that
the real estate assets of these companies complement its own. The senior
living industry is currently highly fragmented and many markets are dominated
by two or three regional companies. The Company believes that as this industry
consolidates, some of these regional companies will seek to align themselves
with larger companies in an effort to solidify their growth. The Company may
be a logical partner for one or more of these companies.

HOTEL LODGING INDUSTRY

The upscale and luxury full-service segments of the lodging industry
continue to benefit from a favorable cyclical imbalance in the supply/demand
relationship in which room demand growth has exceeded supply growth, which has
remained fairly limited. The lodging industry posted strong gains in revenues
and profits in 1997, as demand growth continued to outpace additions to
supply. The Company believes that upscale and luxury full-service hotel room
supply growth will remain limited through at least year 2000. Accordingly, the
Company believes this supply/demand imbalance will result in improving
occupancy and room rates which should result in improved REVPAR and operating
profit.

Following a period of significant overbuilding in the mid-to-late 1980s, the
lodging industry experienced a severe downturn. Since 1991, new hotel
construction, excluding casino-related construction, has been modest and
largely offset by the number of rooms taken out of service each year. Due to
an increase in travel and an improving economy, hotel occupancy has grown
steadily over the past several years and room rates have improved. The Company
believes that room demand for upscale and luxury full-service properties will
continue to grow at approximately the rate of inflation. Increased room demand
should result in increased hotel occupancy and room rates. According to Smith
Travel Research, upscale and luxury full-service occupancy for the Company and
its competitive set grew in 1997 to 72.5%, while room rate growth continued to
exceed inflation. While room demand has been rising, new hotel supply growth
has been minimal. Smith Travel Research data shows that upscale and luxury
full-service room supply increased an average of only 1% annually from 1991
through 1997. According to PricewaterhouseCoopers LLP, hotel supply in the
upscale and luxury full-service segment is expected to grow annually at 1.8%
to 1.9% through 1998. The increase in room demand and minimal growth in new
hotel supply has also led to increased room rates. The Company believes that
these recent trends will continue, with overall occupancy increasing slightly
and room rates increasing at more than one and one-half times the rate of
inflation in 1998.

39
<PAGE>

LEASED AND SUBLEASED HOTEL PROPERTIES

The full-service hotel lodging properties expected to be leased from Host
represent quality assets in the upscale and luxury full-service lodging
segments and substantially all of the full-service hotel properties are
currently operated under the Marriott or Ritz-Carlton brand names. In
addition, the Company will sublease Courtyard by Marriott (moderate-price) and
Residence Inn (extended-stay) properties, all of which are managed by Marriott
International.

The following tables set forth certain information with respect to the
operations of the hotels to be leased or subleased by the Company following
the Distribution on a historical and pro forma basis for fiscal year 1997 and
for the First Two Quarters 1998.

<TABLE>
<CAPTION>
FISCAL YEAR 1997
-------------------------------------------
NUMBER NUMBER AVERAGE
OF HOTELS OF ROOMS HOTEL REVENUES OCCUPANCY DAILY RATE REVPAR(2)
--------- -------- -------------- --------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Full-service (histori-
cal)................... 91 44,606 $ 924,712 78.8% $134.42 $105.90
Full-service (pro
forma)(1) ............. 125 58,518 1,313,494 77.7 133.01 103.30
Limited-service (histor-
ical).................. 53 7,606 116,236 81.1 84.30 68.38
Extended-stay (histori-
cal)................... 18 2,178 39,670 83.3 99.96 83.27
<CAPTION>
FIRST TWO QUARTERS 1998
-------------------------------------------
NUMBER NUMBER AVERAGE
OF HOTELS OF ROOMS HOTEL REVENUES OCCUPANCY DAILY RATE REVPAR(2)
--------- -------- -------------- --------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Full-service (histori-
cal)................... 97 47,597 $ 563,903 78.7% $145.93 $114.82
Full-service (pro
forma)(1) ............. 125 58,518 718,253 77.8 146.18 113.67
Limited-service (histor-
ical).................. 53 7,606 55,629 80.5 92.31 74.28
Extended-stay (histori-
cal)................... 18 2,178 18,618 84.4 104.05 87.82
</TABLE>
- --------
(1) Includes the hotels owned by all hotel partnerships which Host proposes to
acquire in connection with the REIT Conversion and the Blackstone Hotels,
assuming all such hotel partnerships participate in the mergers.
(2) REVPAR, measures daily room revenues generated on a per room basis. REVPAR
does not include food and beverage or other ancillary revenues generated
by the property. REVPAR represents the combination of the average daily
room rate charged and the average daily occupancy achieved.

Full-Service. The Company's leased full-service hotels average nearly 500
rooms. Twelve of the Company's leased hotels have more than 750 rooms. Hotel
facilities typically include meeting and banquet facilities, a variety of
restaurants and lounges, swimming pools, gift shops and parking facilities.
The Company's leased hotels primarily serve business and pleasure travelers
and group meetings at locations in downtown and suburban areas, near airports
and at resort convention locations throughout the United States. The
properties are generally well situated in locations where there are
significant barriers to entry by competitors, including downtown areas of
major metropolitan cities, at airports and at resort/convention locations
where there are limited or no development sites. Marriott International serves
as the manager for 86 of the 100 full-service hotels currently owned by Host
Marriott and to be leased by the Company and all but three are part of
Marriott International's full-service hotel system. The average age of the
properties is 15 years.

40
<PAGE>

The chart below sets forth performance information for the full-service
hotels expected to be leased by the Company from Host REIT on a comparable
basis:

<TABLE>
<CAPTION>
FIRST TWO QUARTERS FISCAL YEAR
-------------------- ----------------
1998 1997 1997 1996
--------- --------- ------- -------
<S> <C> <C> <C> <C>
Comparable Full-Service Hotels(1)
---------------------------------
Number of properties................ 74 74 53 53
Number of rooms..................... 37,167 37,167 26,959 26,959
Average daily rate.................. $ 147.76 $ 135.99 $134.49 $121.58
Occupancy percentage................ 79.7% 80.3% 79.4% 78.0%
REVPAR.............................. $ 117.75 $ 109.21 $106.76 $ 94.84
REVPAR % change..................... 7.8% -- 12.6% --
</TABLE>
- --------
(1) Consists of the 74 full-service properties owned by Host for the entire
First Two Quarters 1998 and First Two Quarters 1997, respectively, and the
53 properties owned by Host for the entire 1997 and 1996 fiscal years,
respectively, except for four hotel properties which will not be leased
from Host. These properties, for the respective periods, represent the
"comparable properties." Properties held for less than all of the periods
discussed above, respectively, are not considered comparable.

The chart below sets forth certain performance information for the full-
service hotels expected to be leased by the Company from Host REIT in
connection with the Distribution and were owned by Host prior to June 19,
1998:

<TABLE>
<CAPTION>
FIRST TWO QUARTERS FISCAL YEAR
-------------------- ----------------
1998 1997 1997 1996
--------- --------- ------- -------
<S> <C> <C> <C> <C>
Number of properties................ 97 82 91 75
Number of rooms..................... 47,597 38,965 44,606 35,302
Average daily rate.................. $145.93 $136.50 $134.42 $120.71
Occupancy percentage................ 78.7% 80.2% 78.8% 77.8%
REVPAR.............................. $114.82 $109.47 $105.90 $ 93.92
</TABLE>

Revenues in 1997 for nearly all of the full-service hotels to be leased by
the Company from Host REIT were improved or comparable to 1996. This
improvement was achieved through steady increases in customer demand, as well
as yield management techniques applied by the manager to maximize REVPAR on a
property-by-property basis. REVPAR for comparable properties increased 12.6%
for fiscal year 1997 as average room rates increased almost 11% and average
occupancy increased over one percentage point. Overall, this resulted in
strong sales growth. Sales expanded at a 9% rate for comparable hotels and
house profit margins increased by over two percentage points. REVPAR in 1997
for all such leased full-service properties (including both comparable and
non-comparable properties) increased 12.8% as average room rates increased
over 11% and average occupancy increased over one percentage point. For the
First Two Quarters 1998, REVPAR for comparable properties increased 7.8% as
average room rates increased 8.7% and average occupancy decreased slightly.
Sales for the First Two Quarters 1998 expanded at 9% rate for comparable
hotels and the house profit margin increased by one percentage point. REVPAR
for the First Two Quarters 1998 for full-service expected to be leased by the
Company from Host REIT properties increased 4.9% as average room rates
increased nearly 7% and average occupancy decreased over one percentage point.
The Company believes that the full-service hotels expected to be leased by the
Company from Host REIT have outperformed the industry's average REVPAR growth
rates. The relatively high occupancy rates of the hotels, along with increased
demand for upscale and luxury full-service hotel rooms, allowed the managers
of the hotels to increase average room rates by selectively raising room rates
and replacing certain discounted group business with higher-rate group and
transient business. The Company believes that these favorable REVPAR growth
trends should continue due to the limited new construction of full-service
properties and the expected improvements from the conversion of eight
properties to the "Marriott" brand in 1996, 1997 and 1998.

41
<PAGE>

Following the REIT Conversion, the Company and the managers will continue to
focus on cost control in an attempt to ensure that hotel sales increases serve
to maximize house and operating profit. While control of fixed costs serves to
improve profit margins as hotel sales increase, it also results in more
properties reaching financial performance levels that allow the managers to
share in the growth of profits in the form of incentive management fees. The
Company believes this is a positive development as it strengthens the
alignment of the Company's interests, as lessee, and the managers' interests.

The following table presents certain information for the full-service hotels
expected to be leased by the Company from Host REIT by geographic region for
fiscal year 1997:

<TABLE>
<CAPTION>
AVERAGE
NUMBER AVERAGE
NUMBER OF GUEST AVERAGE DAILY
GEOGRAPHIC REGION OF HOTELS ROOMS OCCUPANCY RATE REVPAR
----------------- --------- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Atlanta......................... 7 441 76.5% $131.69 $100.74
Florida......................... 11 511 80.9 131.78 106.64
Mid-Atlantic.................... 12 364 76.1 111.71 85.00
Midwest......................... 10 418 74.3 107.65 79.99
New York........................ 10 708 84.7 173.85 147.22
Northeast....................... 6 358 75.2 96.75 72.72
South Central................... 15 525 76.5 120.81 92.39
Western......................... 21 519 79.5 140.07 111.39
Average-all regions........... -- 485 78.8 134.42 105.90
</TABLE>

Limited-Service--Courtyard by Marriott Hotels. The Company's leased
Courtyard by Marriott hotels are moderate-priced, limited-service hotels aimed
at individual business and pleasure travelers, as well as families. Courtyard
by Marriott hotels typically have approximately 150 rooms at locations in
suburban areas or near airports throughout the United States. The Courtyard by
Marriott hotels include well-landscaped grounds, a courtyard with a pool and
socializing areas. Each hotel features meeting rooms and a restaurant and
lounge with approximately 80 seats. The Courtyard by Marriott hotels leased by
the Company average only eight years of age. The Company's leased Courtyard by
Marriott hotels have substantially matured and are operating at high occupancy
rates. The Company believes this competitive position will enable the manager
to continue to improve profitability by adjusting the mix of business to
increase room rates. The table below sets forth comparable performance
information for the Company's leased Courtyard by Marriott hotels:

<TABLE>
<CAPTION>
FIRST TWO
QUARTERS FISCAL YEAR
-------------- --------------
1998 1997 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Number of properties......................... 53 53 53 53
Number of rooms.............................. 7,606 7,606 7,606 7,606
Average daily rate........................... $92.31 $84.16 $84.30 $77.80
Occupancy percentage......................... 80.5% 81.8% 81.1% 80.2%
REVPAR....................................... $74.28 $68.86 $68.38 $62.40
REVPAR % change.............................. 7.9% 10.9% 9.6% 7.0%
</TABLE>

The Company's Courtyard by Marriott hotels benefited in 1997 from higher
demand, REVPAR increased 9.6% due to increases in room rates of nearly 8.4%
and an increase in occupancy of one percentage point. House profit margins
also increased by almost one percentage point, reflecting the operating
leverage inherent in properties already running at close to capacity. For the
First Two Quarters 1998, REVPAR increased 7.9% due to increases in room rates
of nearly 10%, while average occupancy decreased over one percentage point.
The Company's leased Courtyard by Marriott hotels were generally fully
occupied during the business week and enjoyed high occupancies during the
weekends. The Company believes this competitive position will enable the
manager to continue to improve profitability through yield management and
selective room rate increases. However, there can be no assurance that
profitability will continue to improve.

42
<PAGE>

The following table presents limited-service properties information by
geographic region for fiscal year 1997:

<TABLE>
<CAPTION>
AVERAGE
NUMBER AVERAGE
NUMBER OF GUEST AVERAGE DAILY
GEOGRAPHIC REGION OF HOTELS ROOMS OCCUPANCY RATE REVPAR
----------------- --------- -------- --------- ------- ------
<S> <C> <C> <C> <C> <C>
Southeast........................ 9 140 78.90% $78.61 $62.02
Mid-Atlantic..................... 11 144 82.75% 85.32 70.60
Midwest.......................... 6 142 75.87% 78.28 59.39
Northeast........................ 15 142 82.25% 86.77 71.38
South Central.................... 3 153 76.26% 77.66 59.22
Western.......................... 9 141 84.62% 90.06 76.21
Average-all-regions............ 144 81.10% 84.30 68.38
</TABLE>

Limited-Service--Residence Inns. The Company's leased Residence Inns are
extended-stay, limited-service hotels which cater primarily to business and
family travelers who stay more than five consecutive nights. Residence Inns
typically have 80 to 130 studio and two-story penthouse suites. Residence Inns
generally are located in suburban settings throughout the United States and
feature a series of residential style buildings with landscaped walkways,
courtyards and recreational areas. Residence Inns do not have restaurants, but
offer complimentary continental breakfast. In addition, most Residence Inns
provide a complimentary evening hospitality hour. Each suite contains a fully
equipped kitchen, and many suites have woodburning fireplaces. The 18
Residence Inns leased by the Company average eight years of age.

The table below sets forth comparable performance information for the
Residence Inns hotels expected to be subleased by the Company from Host REIT.

<TABLE>
<CAPTION>
FIRST TWO
QUARTERS FISCAL YEAR
--------------- --------------
1998 1997 1997 1996
------- ------ ------ ------
<S> <C> <C> <C> <C>
Number of properties........................ 18 18 18 18
Number of rooms............................. 2,178 2,178 2,178 2,178
Average daily rate.......................... $104.05 $99.09 $99.96 $90.82
Occupancy %................................. 84.4% 83.3% 83.3% 85.1%
REVPAR...................................... $87.82 $82.54 $83.27 $77.29
REVPAR % change............................. 6.4% 7.5% 7.7% 4.9%
</TABLE>

For 1997, the Residence Inn expected to be subleased by the Company from
Host REIT performed well with REVPAR increasing 7.7% due to increase in room
rates of 10% although occupancy decreased by over one percentage point.
Continued popularity of this product with customers combined with increasing
business travel resulted in strong performance for 1997. At an average
occupancy rate of 83.3% for 1997, these properties were near full occupancy
during the business week and enjoyed high occupancies during the weekends.
Given this strong demand, the manager of the Residence Inns was able to
improve room rates through managing the mix of business. For the First Two
Quarters 1998, REVPAR increased 6.4% due to increase in average room rates of
5% and a one percentage point increase in occupancy.

The following table presents certain information for extended-stay
properties expected to be subleased by the Company from Host REIT by
geographic region for fiscal year 1997:

<TABLE>
<CAPTION>
AVERAGE
NUMBER AVERAGE
NUMBER OF GUEST AVERAGE DAILY
GEOGRAPHIC REGION OF HOTELS ROOMS OCCUPANCY RATE REVPAR
----------------- --------- -------- --------- ------- ------
<S> <C> <C> <C> <C> <C>
Southeast........................ 2 107 80.75% $ 94.70 $76.47
Mid-Atlantic..................... 2 112 83.97% 96.35 80.91
Midwest.......................... 3 153 80.95% 114.85 92.97
Northeast........................ 3 110 86.28% 97.60 84.21
South Central.................... 3 119 82.08% 89.34 73.33
Western.......................... 5 119 84.83% 99.62 84.51
Average-all-regions............ 120 83.30% 99.96 83.27
</TABLE>

43
<PAGE>

BLACKSTONE ACQUISITION

In April 1998, Host entered into a definitive agreement with the Blackstone
Entities to acquire ownership of, or controlling interests in, twelve hotels
and two mortgage loans, one secured by one of the acquired hotels and one
secured by an additional hotel. In addition, Host will acquire a 25% interest
in the Swissotel management company from the Blackstone Entities, which Host
REIT will transfer to the Company. If the Blackstone Acquisition is
consummated, Host REIT, among other things, will transfer to the Blackstone
Entities approximately 4,370,000 shares of Common Stock of the Company then
owned by Host REIT. The Blackstone Acquisition is expected to occur promptly
following the Merger. Consequently, the Blackstone Entities will own
approximately 18% of the Common Stock of the Company to be issued and
outstanding following the Distribution, assuming the Merger is consummated. In
connection with the Blackstone Acquisition, the Company has granted to the
Blackstone Entities certain registration rights with respect to such shares of
Common Stock of the Company. See "Description of Capital Stock--Registration
Rights Agreement." At the closing of the Blackstone Acquisition, the
Blackstone portfolio will be contributed to Host REIT and its hotels will be
leased to subsidiaries of the Company and will continue to be managed on
behalf of such subsidiaries of the Company under the Blackstone Entities'
existing management agreements. The Blackstone Acquisition is subject to
certain conditions, including the Merger being consummated by March 31, 1999.
In the event the Distribution is declared by the Board of Directors of Host
but the Blackstone Acquisition does not occur, the shares of Common Stock of
the Company distributed to Host Stockholders in the Distribution will
represent 100% of the outstanding Common Stock of the Company as of the
Distribution.

The Blackstone portfolio is one of the premier collections of hotel
properties. It includes: The Ritz-Carlton, Amelia Island; The Ritz-Carlton,
Boston; Hyatt Regency Burlingame at San Francisco Airport; Hyatt Regency
Cambridge, Boston; Hyatt Regency Reston, Virginia; Grand Hyatt Atlanta; Four
Seasons Philadelphia; Four Seasons Atlanta; The Drake (Swissotel) New York;
Swissotel Chicago; Swissotel Boston; and Swissotel Atlanta.

44
<PAGE>

HOTEL PROPERTIES TO BE LEASED OR SUBLEASED BY THE COMPANY UNDER THE HOTEL
LEASES

The following table sets forth, as of the date hereof, the location and
number of rooms relating to each of the hotels to be leased or subleased to
the Company by Host REIT. All of the properties are operated under Marriott
brands by Marriott International, unless otherwise indicated.

Full-Service:

<TABLE>
<CAPTION>
LOCATION ROOMS
- -------- -----
<S> <C>
Alabama
Grand Hotel Resort and Golf Club......................................... 306
Arizona
Scottsdale Suites........................................................ 251
The Ritz-Carlton, Phoenix (1)............................................ 281
California
Coronado Island Resort................................................... 300
Costa Mesa Suites........................................................ 253
Desert Springs Resort and Spa............................................ 884
Manhattan Beach (2)...................................................... 380
Marina Beach ............................................................ 368
Newport Beach............................................................ 570
Newport Beach Suites..................................................... 250
Ontario Airport (2)...................................................... 299
San Diego Marriott Hotel and Marina...................................... 1,355
San Diego Mission Valley................................................. 350
San Francisco Airport.................................................... 684
San Francisco Fisherman's Wharf (2)...................................... 285
San Francisco Moscone Center............................................. 1,498
San Ramon................................................................ 368
Santa Clara.............................................................. 754
The Ritz-Carlton, Marina del Rey (1)..................................... 306
The Ritz-Carlton, San Francisco (1)...................................... 336
Torrance................................................................. 487
Colorado
Denver Southeast......................................................... 595
Denver Tech Center....................................................... 625
Denver West.............................................................. 307
Marriott's Mountain Resort at Vail....................................... 349
Connecticut
Hartford/Farmington (2).................................................. 380
Hartford/Rocky Hill...................................................... 251
Florida
Fort Lauderdale Marina................................................... 580
Harbor Beach Resort...................................................... 624
Jacksonville (2)......................................................... 256
Miami Airport............................................................ 782
Orlando World Center..................................................... 1,503
Palm Beach Gardens....................................................... 279
Singer Island (Holiday Inn) (3).......................................... 222
Tampa Airport............................................................ 295
Tampa Westshore.......................................................... 309
The Ritz-Carlton, Naples (1)............................................. 463
Georgia
Atlanta Marriott Marquis................................................. 1,671
Atlanta Midtown Suites................................................... 254
Atlanta Norcross......................................................... 222
Atlanta Northwest........................................................ 400
Atlanta Perimeter........................................................ 400
JW Marriott Hotel at Lenox............................................... 371
The Ritz-Carlton, Atlanta (1)............................................ 447
The Ritz-Carlton, Buckhead (1)........................................... 553
</TABLE>
<TABLE>
<CAPTION>
LOCATION ROOMS
- -------- -----
<S> <C>
Illinois
Chicago/Deerfield Suites................................................. 248
Chicago/Downers Grove Suites............................................. 254
Chicago/Downtown Courtyard............................................... 334
Chicago O'Hare........................................................... 681
Indiana
South Bend............................................................... 300
Louisiana
New Orleans ............................................................. 1,290
Maryland
Bethesda................................................................. 407
Gaithersburg/Washingtonian Center........................................ 284
Massachusetts
Boston/Newton............................................................ 430
Michigan
Detroit Romulus.......................................................... 245
The Ritz-Carlton, Dearborn (1)........................................... 308
Minnesota
Minneapolis/Bloomington.................................................. 479
Minneapolis City Center.................................................. 583
Minneapolis Southwest.................................................... 320
Missouri
Kansas City Airport...................................................... 382
St. Louis Pavilion....................................................... 672
New Hampshire
Nashua................................................................... 251
New Jersey
Hanover.................................................................. 353
Newark Airport........................................................... 590
Park Ridge............................................................... 289
Saddle Brook............................................................. 221
New York
Albany (2)............................................................... 359
New York Marriott Financial Center....................................... 504
New York Marriott Marquis................................................ 1,911
Marriott World Trade Center.............................................. 820
North Carolina
Charlotte Executive Park (2)............................................. 298
Raleigh Crabtree Valley.................................................. 375
Oklahoma
Oklahoma City............................................................ 354
Oklahoma City Waterford (2).............................................. 197
Oregon
Portland................................................................. 503
Pennsylvania
Philadelphia (Convention Center)......................................... 1,200
Philadelphia Airport..................................................... 419
Pittsburgh City Center (2)............................................... 400
Tennesee
Memphis.................................................................. 404
Texas
Dallas/Fort Worth........................................................ 492
Dallas Quorum............................................................ 547
El Paso.................................................................. 296
Houston Airport ......................................................... 566
</TABLE>

45
<PAGE>

HOTEL PROPERTIES (CONTINUED)
<TABLE>
<CAPTION>
LOCATION ROOMS
- -------- ------
<S> <C>
JW Marriott Houston.................................................... 503
Plaza San Antonio (2).................................................. 252
San Antonio Rivercenter................................................ 999
San Antonio Riverwalk.................................................. 500
Utah
Salt Lake City......................................................... 510
Virginia
Dulles Airport......................................................... 370
Key Bridge............................................................. 588
Norfolk Waterside (2).................................................. 404
Pentagon City Residence Inn............................................ 300
The Ritz-Carlton, Tysons Corner........................................ 397
Washington Dulles Suites............................................... 254
Westfields............................................................. 335
Williamsburg........................................................... 295
Washington, D.C.
Washington Metro Center................................................ 456
Canada
Calgary................................................................ 380
Toronto Eaton Centre................................................... 459
Toronto Delta Meadowvale (3)........................................... 374
------
Total.................................................................. 48,645
======
</TABLE>

Full-service hotel properties that are currently not consolidated by Host
but in which Host REIT intends to acquire a 100% ownership interest promptly
following the Distribution:

<TABLE>
<CAPTION>
HOTEL STATE ROOMS
- ----- ----- -----
<S> <C> <C>
Marriott Diversified American
Hotels, L.P.
Fairview Park............................................. Virginia 395
Dayton.................................................... Ohio 399
Research Triangle Park.................................... North Carolina 224
Detroit Marriott Southfield............................... Michigan 226
Detroit Marriott Livonia.................................. Michigan 224
Fullerton................................................. California 224
-----
1,692
-----
</TABLE>
<TABLE>
<CAPTION>
HOTEL STATE ROOMS
- ----- ----- -----
<S> <C> <C>
Mutual Benefit Chicago Marriott Suite Hotel Partners, L.P.
Marriott O'Hare Suites.................................... Illinois 256
-----
Potomac Hotel Limited Partnership
Albuquerque............................................... New Mexico 411
Greensboro-High Point..................................... North Carolina 299
Houston Medical Center.................................... Texas 386
Miami Biscayne Bay........................................ Florida 605
Marriott Mountain Shadows Resort.......................... Arizona 337
Seattle SeaTac Airport.................................... Washington 459
-----
2,497
-----
Total.................................................................... 4,445
=====
</TABLE>

Full-service hotel properties that are included in the Blackstone portfolio
to be acquired by Host REIT are as follows:

<TABLE>
<CAPTION>
HOTEL STATE ROOMS
- ----- ----- -----
<S> <C> <C>
Four Seasons, Atlanta...................................... Georgia 246
Four Seasons, Philadelphia................................. Pennsylvania 365
Grand Hyatt, Atlanta....................................... Georgia 439
Hyatt Regency, Burlingame.................................. California 793
Hyatt Regency, Cambridge................................... Massachusetts 469
Hyatt Regency, Reston...................................... Virginia 514
Swissotel, Atlanta......................................... Georgia 348
Swissotel, Boston.......................................... Massachusetts 498
Swissotel, Chicago......................................... Illinois 630
The Drake (Swissotel), New York............................ New York 494
The Ritz-Carlton, Amelia Island............................ Florida 449
The Ritz-Carlton, Boston................................... Massachusetts 275
-----
Total................................................................... 5,520
=====
</TABLE>
Limited-Service -- Courtyard by Marriott Hotels:

<TABLE>
<CAPTION>
LOCATION ROOMS
- -------- -----
<S> <C>
Arizona
Phoenix Camelback........................................................ 155
Scottsdale Mayo.......................................................... 100
California
Camarillo................................................................ 130
Fountain Valley.......................................................... 150
Los Angeles Airport...................................................... 146
Laguna Hills............................................................. 137
San Jose Airport......................................................... 151
Torrance................................................................. 151
Delaware
Wilmington............................................................... 152
Florida
Boca Raton............................................................... 152
Jacksonville............................................................. 146
Miami Lakes.............................................................. 151
Georgia
Atlanta Airport.......................................................... 152
Atlanta Cumberland....................................................... 182
Atlanta Jimmy Carte Blvd................................................. 121
Atlanta Midtown.......................................................... 168
Macon.................................................................... 108
Illinois
Arlington Heights........................................................ 152
</TABLE>

<TABLE>
<CAPTION>
LOCATION ROOMS
- -------- -----
<S> <C>
Indiana
Indianapolis Carmel...................................................... 149
Iowa
Quad Cities.............................................................. 113
Kansas
Kansas City South........................................................ 149
Maryland
Columbia................................................................. 152
Greenbelt................................................................ 152
Massachusetts
Boston Danvers........................................................... 121
Boston Foxborough........................................................ 149
Boston Lowell............................................................ 121
Boston Milford........................................................... 151
Boston Stoughton......................................................... 152
Norwood.................................................................. 148
Woburn................................................................... 125
Michigan
Detroit Auburn Hills..................................................... 148
Minnesota
Minneapolis/Eden Prarie.................................................. 149
Missouri
Kansas City Airport...................................................... 149
</TABLE>

46
<PAGE>

Limited-Service -- Courtyard by Marriott Hotels (Continued):
<TABLE>
<CAPTION>
LOCATION ROOMS
- -------- -----
<S> <C>
New Jersey
Hanover................................................................ 149
Mahwah................................................................. 146
Tinton Falls........................................................... 121
New York
Fishkill............................................................... 152
Syracuse............................................................... 149
North Carolina
Charlotte.............................................................. 152
Fayetteville........................................................... 108
Raleigh Durham......................................................... 151
Pennsylvania
Philadelphia Airport................................................... 152
Pittsburgh Airport..................................................... 148
Willow Grove........................................................... 149
Rhode Island
Middletown............................................................. 148
<CAPTION>
LOCATION ROOMS
- -------- -----
<S> <C>
South Carolina
Spartanburg............................................................ 113
Tennessee
Chattanooga............................................................ 114
Texas
Dallas Central......................................................... 160
Virginia
Arlington/Rosslyn...................................................... 162
Dulles Fairfax......................................................... 149
Williamsburg........................................................... 151
Washington
Seattle Bellevue....................................................... 152
Wisconsin
Brookfield (Milwaukee)................................................. 148
-----
Total.................................................................. 7,606
=====
</TABLE>
Limited-Service -- Residence Inns:

<TABLE>
<CAPTION>
LOCATION ROOMS
- -------- -----
<S> <C>
Arizona
Flagstaff.............................................................. 102
Scottsdale............................................................. 122
Tempe.................................................................. 126
California
Fountain Valley........................................................ 122
Rancho Bernardo........................................................ 123
Georgia
Atlanta Alpharetta..................................................... 103
Illinois
Chicago................................................................ 221
Maryland
Annapolis.............................................................. 102
Massachusetts
Westborough............................................................ 109
Michigan
Warren................................................................. 133
<CAPTION>
LOCATION ROOMS
- -------- -----
<S> <C>
New Mexico
Albuqerque............................................................. 112
New York
Syracuse............................................................... 102
North Carolina
Durham................................................................. 122
Ohio
Columbus............................................................... 106
Pennsylvania
Willow Grove........................................................... 118
Tennessee
Nashville.............................................................. 110
Texas
Dallas Northpark....................................................... 103
Dallas Market Center................................................... 142
-----
Total.................................................................. 2,178
=====
</TABLE>
- --------
(1) Property is operated as a Ritz-Carlton. The Ritz-Carlton Hotel Company,
L.L.C. manages the property and is wholly owned by Marriott International.
(2) Property is operated as a Marriott franchised property.
(3) Property is not operated under a Marriott brand and is not managed by
Marriott International.

SENIOR LIVING COMMUNITIES

As of the date hereof, the Company's senior living communities portfolio
consists of 31 upscale properties with over 7,200 units. The Communities
represent high quality assets in the senior living lodging segment. The
Communities offer a combination of independent living, assisted living and
healthcare components that differ mostly by the level of senior care services
provided.

Independent living components, which represent 55% of the Company's senior
living units, contain a variety of accommodations, together with amenities
such as dining facilities, lounges, and game and craft rooms. All residents of
the independent living components are provided security, meals, housekeeping
and scheduled transportation from on-site staff is available upon demand 24
hours a day, and each independent living unit is equipped with an emergency
call system to assist with emergency situations. The independent living
components
47
<PAGE>

of the properties generally consist of apartments or villas. Each resident
enters into a residency agreement that may be terminated by the resident on
short notice. Although there can be no assurance that available independent
living units will be reoccupied as residency agreements expire or are
terminated, since 1988 at least 80% of the residents of the apartments and
villas managed by Marriott International have renewed their residency
agreements from year to year.

Assisted living components, which represent 23% of the Company's senior
living units, provide a supportive environment that encourages independent
living. Residents have private or semi-private units, eat meals in a separate
dining room, and are provided the added services of scheduled activities,
housekeeping and linen service, preventive health surveillance, periodic
health monitoring, assistance with activities of daily living, and emergency
care. Certain of the Company's Communities also provide personal assistance
with Alzheimer's disease and other forms of dementia.

Healthcare components, which represent 24% of the Company's senior living
units, provide residents a full range of healthcare. Residents have private or
semi-private rooms and share communal dining and social facilities. In most
instances, each resident of the independent living component of a property is
entitled to priority admission in the assisted living (if any) or healthcare
component.

Some Communities also provide ancillary healthcare services, including
physical occupational and speech and learning therapy, respite care and adult
daycare centers on the premises of some Communities. All Communities are
managed by Marriott International under long-term management agreements. The
average age of the Communities is 14 years.

Similar to the hotel segment, one commonly used indicator of market
performance for senior living communities is REVPAU, which measures charges
for independent living units and assisted living suites and nursing beds on a
per unit basis. This does not include any ancillary revenues from the
properties, which are generated on a "fee for service" basis for supplementary
items requested by residents. REVPAU represents the combination of the average
daily unit rate charged and the average daily occupancy achieved.

The chart below sets forth performance information for the Company's senior
living communities for the First Two Quarters and the period from June 21,
1997 through January 2, 1998:

<TABLE>
<CAPTION>
PERIOD FROM
JUNE 21, 1997
FIRST TWO THROUGH
QUARTERS 1998 JANUARY 2, 1998
------------- ---------------
<S> <C> <C>
Number of properties........................ 31 30
Number of units............................. 7,225 7,094
Average daily rate.......................... $87.89 $83.88
Occupancy percentage........................ 91.8% 91.7%
REVPAU...................................... $80.65 $76.92
</TABLE>

During 1997, the average occupancy at the Communities was approximately 92%
and the average daily rate was $84, resulting in REVPAU of $77. Overall
occupancies for 1997 were lower than the historical and anticipated future
occupancies due to the significant number of expansion units added during the
year and the time required to fill the expansion units. For the First Two
Quarters 1998, average occupancy was approximately 92% and the average daily
rate was $88, resulting in REVPAU of $81.

The Company is an active owner of its senior living communities portfolio.
The Company focuses on maximizing profitability throughout the portfolio. The
Company's asset management department works closely with Marriott
International to identify and evaluate opportunities to increase profitability
by making selective investments where favorable incremental returns are
expected, including the expansion of certain properties, or implementing new
cost control programs.

48
<PAGE>

The following table sets forth certain information as of the date hereof,
relating to each of the Communities. The Company holds the fee interest in
each of the Communities, except as otherwise indicated. All of the properties
are operated under Marriott brands by Marriott International.

<TABLE>
<CAPTION>
LOCATION UNITS
- -------- -----
<S> <C>
Arizona
The Forum at Desert Harbor(1)............................. 240
The Forum--Pueblo Norte................................... 296
The Forum at Tucson(1).................................... 327
California
The Remington Club I...................................... 205
The Remington Club II..................................... 200
Delaware
Forwood Manor............................................. 212
Foulk Manor North(1)...................................... 115
Foulk Manor South(1)...................................... 106
Millcroft(1).............................................. 198
Shipley Manor(1).......................................... 159
Florida
Coral Oaks................................................ 254
The Forum at Deer Creek(1)................................ 292
Fountainview.............................................. 343
Park Summit(1)............................................ 281
Springwood Court.......................................... 100
Tiffany House............................................. 123
Indiana
The Forum at the Crossing................................. 221
</TABLE>
<TABLE>
<CAPTION>
LOCATION UNITS
- -------- -----
<S> <C>
Kansas
The Forum at Overland Park(1)............................. 205
Kentucky
The Forum at Brookside(1)................................. 324
The Lafayette at Country Place(2)......................... 149
The Lexington at Country Place(2)......................... 133
Massachusetts
Gables at Winchester...................................... 124
New Jersey
Leisure Park(3)........................................... 418
New Mexico
The Montebello on Academy(1).............................. 209
Ohio
The Forum at Knightsbridge(1)(2).......................... 316
South Carolina
Myrtle Beach Manor(3)..................................... 164
Texas
The Forum at Lincoln Heights(1)........................... 241
The Forum at Memorial Woods(1)............................ 431
The Montevista at Coronado(1)............................. 251
The Forum at Park Lane(1)................................. 318
The Forum at The Woodlands................................ 304
-----
Total.................................................. 7,259
=====
</TABLE>
- --------
(1) Property is encumbered by secured debt.
(2) The land on which the community is built is leased by the Company under a
long-term lease agreement.
(3) A subsidiary of Marriott International holds a 1% limited partnership
interest in this property.

In the first quarter of 1998, LTJ Senior Living Communities Corporation, a
wholly owned subsidiary of the Company, entered into conditional purchase
agreements for two communities located in Colorado with Summit Companies of
Denver, Colorado. After the anticipated completion of construction in the
first quarter of 1999, the Company may acquire these two communities located
in Denver and Colorado Springs, Colorado, for approximately $35 million, if
the communities achieve certain operating performance criteria. Both
communities will be managed by Marriott International under long-term
operating agreements.

MARKETING

As of September 29, 1998, 85 of the 100 full-service hotels expected to be
leased by the Company are managed or franchised by Marriott International as
Marriott or Ritz-Carlton brand hotels. Thirteen of the 15 remaining full-
service hotels are operated as Marriott brand hotels under franchise
agreements with Marriott International. All 71 of the leased Courtyard by
Marriott and Residence Inn hotels and all 31 of the Communities are managed by
Marriott International. The Company believes that these Marriott-managed and
franchised hotels will continue to enjoy competitive advantages arising from
their participation in the Marriott International hotel system. Marriott
International's nationwide marketing programs and reservation systems as well
as the advantage of the strong customer preference for "Marriott" brands
should also help these properties to maintain or increase their premium over
competitors in both occupancy and room rates. Repeat guest business in the
Marriott hotel system is enhanced by the Marriott Rewards program, which
expanded the previous Marriott Honored Guest Awards program. Marriott Rewards
membership includes more than 7.5 million members.

The Marriott reservation system provides Marriott reservation agents
complete descriptions of the rooms available for sale and up-to-date rate
information from the hotels. The reservation system also features

49
<PAGE>

connectivity to airline reservation systems, providing travel agents with
access to available rooms inventory for all Marriott and Ritz-Carlton hotels.
In addition, software at Marriott's centralized reservations centers enables
agents to immediately identify the nearest Marriott or Ritz-Carlton brand
hotel with available rooms when a caller's first choice is fully occupied.

COMPETITION

Lodging

The United States lodging industry generally is comprised of two broad
segments: full-service hotels and limited-service hotels. Full-service hotels
generally offer restaurant and lounge facilities and meeting spaces, as well
as a wide range of services, typically including bell service and room
service. Limited-service hotels generally offer accommodations with limited or
no services and amenities. The lodging industry in general, is highly
competitive, but the degree of competition varies from location to location
and over time. The hotels' success will be dependent in large part, upon the
ability to compete in such areas as access, location, quality of
accommodations, room rates, structure, the quality and scope of food and
beverage facilities and other service amenities. The Company's leased hotels
compete with several other major lodging brands in each segment in which they
operate. Competition in the industry is based primarily on the level of
service, quality of accommodations, convenience of locations and room rates.
Further, competing properties may be built or existing projects enhanced. The
lodging industry, including the hotels, also may be adversely affected in the
future by (i) national and regional economic conditions, (ii) changes in
travel patterns, (iii) taxes and government regulations which influence or
determine wages, prices, interest rates, construction procedures and costs,
(iv) the availability of credit and (v) other factors beyond the control of
the Company. Although the competitive position of each of the hotel properties
differs from market to market, the Company believes that its leased properties
will compare favorably to their competitive set in the markets in which they
operate on the basis of these factors. The following table presents key
participants in segments of the lodging industry in which the Company
competes:

<TABLE>
<CAPTION>
SEGMENT REPRESENTATIVE PARTICIPANTS
- ------- ---------------------------
<S> <C>
Luxury Full-Service..... Ritz-Carlton; Four Seasons
Upscale Full-Service.... Marriott Hotels, Resorts and Suites; Crowne Plaza; Doubletree; Hyatt;
Hilton; Radisson; Red Lion; Sheraton; Swissotel; Westin; Wyndham
Moderate-priced......... Courtyard by Marriott, Hampton Inn and Suites, Hilton Inn, Holiday Inn,
Ramada Inn, Sheraton Four Points, Wyndham Garden
Extended-stay........... Residence Inn by Marriott, AmeriSuites, Hawthorne Suites,
Homewood Suites, Summerfield Suites
</TABLE>

Senior Living

The Company's senior living communities compete with facilities of varying
similarity in the respective geographical market areas in which the
communities are located. Competing facilities are generally operated on a
regional and local basis by religious groups and other nonprofit
organizations, as well as by public and private operators. There are a limited
number of operators on a national basis. The independent living components of
the communities face competition from various types of residential
opportunities available to the elderly. However, the number of communities
that offer on-premises healthcare services is limited. The assisted living and
healthcare components of the Communities compete with other assisted living
and healthcare communities.

Significant competitive factors for attracting residents to the independent
living components of the Communities include price, physical appearance, and
amenities and services offered. Additional competitive factors for attracting
residents to the assisted living and healthcare components of the Communities
include quality of care, reputation, physician and nursing services available,
and family preferences. The Company believes that its senior living
communities rate high in each of these categories, except that its senior
living communities are generally more expensive than competing communities.

50
<PAGE>

Some of the Company's present and potential competitors are significantly
larger and have, or may obtain, greater financial resources than the Company.
Consequently, there can be no assurance that the Company will not encounter
increased competition that could limit its ability to attract residents or
expand its senior living care business in the future. Moreover, if development
of new senior living care communities outpaces demand for those communities in
certain markets, such markets may become oversaturated. Such an oversupply of
senior living communities could cause the Company's Communities to experience
decreased occupancy, depressed margins and lower operating results.

RELATIONSHIP WITH HOST AFTER THE DISTRIBUTION

For the purposes of governing certain of the ongoing relationships between
the Company and Host after the Distribution and to provide mechanisms for an
orderly transitions, the Company and Host will enter into, in addition to the
Hotel Leases, various agreements, as described below.

DISTRIBUTION AGREEMENT

Prior to the Distribution Date, the Company and Host will enter into a
distribution agreement (the "Distribution Agreement"), which provides among
other things, (i) the Distribution; (ii) the division between the Company and
Host of certain assets and liabilities; (iii) contribution of Host's 3%
general partnership interest in Boynton Beach Limited Partnership, which owns
a Community located in Boynton Beach to the Company; and (iv) certain other
agreements governing the relationship between the Company and Host following
the Distribution.

Subject to certain exceptions, the Distribution Agreement provides for,
among other things, assumptions of liabilities and cross-indemnities designed
to allocate, effective as of the Distribution Date, financial responsibilities
for liabilities arising out of or in connection with the business of the
Communities to the Company.

The Distribution Agreement also provides that by the Distribution Date, the
Company and Host will take all necessary actions which may be required to
amend the Company's Charter and Bylaws. See "Description of Capital Stock" and
"Management."

The Distribution Agreement also provides that each of the Company and Host
will be granted access to certain records and information in the possession of
the other, and requires the retention by each of the Company and Host for a
period of ten years following the Distribution of all such information in its
possession, and thereafter requires that each party give the other prior
notice of its intention to dispose of such information. The Distribution
Agreement also requires the allocation of shared privileges with respect to
certain information and requires each of the Company and Host to obtain the
consent of the other prior to waiving any shared privilege.

TAX SHARING AGREEMENT

The Company and Host will enter into a tax sharing agreement which defines
each parties' rights and obligations with respect to deficiencies and refunds
of federal, state and other income or franchise taxes relating to the
Company's business for taxable years prior to the Distribution and with
respect to certain tax attributes of the Company after the Distribution.
Generally, Host is responsible for filing consolidated returns and paying
taxes for periods prior to the date of the Distribution, and the Company is
responsible for filing returns and paying taxes for subsequent periods.

ASSET MANAGEMENT AGREEMENT

The Company and Host REIT will enter into an asset management agreement (the
"Asset Management Agreement"), pursuant to which the Company will agree to
provide review and advice on the management and operation of the hotels in
order to assist Host REIT in making strategic decisions. Generally, the
Company will

51
<PAGE>

provide the following consulting services in its capacity as the lessee of the
hotels: (i) review of operating and financial results (including site visits)
and meet with Host, at least quarterly, to review such results of the hotels;
(ii) review of financial statements and budgets, including period accounting
statements, annual operating budgets, FF&E budgets and management analysis
reports; (iii) revenue and capital spending projections; (iv) administration
of hotel mortgages; (v) advice relating to any changes to the hotel management
agreements; (vi) review of market conditions and competition for each of the
hotels; and (vii) monitoring and negotiating with governmental agencies in
connection with any condemnation proceedings against the hotels. The Company
will be paid a fee of $4.5 million for each fiscal year for its consulting
services under the Asset Management Agreement. The Asset Management Agreement
has a term of two years with an automatic one year renewal, unless earlier
terminated by either party in accordance with the terms thereof.

CORPORATE TRANSITIONAL SERVICES AGREEMENT

The Company and Host will, prior to the Distribution Date, enter into a
transitional services agreement, pursuant to which the Company and Host will
provide certain limited administrative services to each other for a fee. Among
other things, Host will provide centralized administrative and computer
systems services to the Company.

NON-COMPETITION AGREEMENT

The Company and Host will enter into a non-competition agreement that limits
the respective parties' future business opportunities. See "Business and
Properties--Non-Competition Agreements."

EMPLOYEE BENEFITS AND OTHER EMPLOYMENT MATTERS ALLOCATION AGREEMENT

The Company and Host will enter into an employee benefits agreement which
will govern the allocation of responsibilities with respect to various
compensation, benefits and labor matters. See "Management--Employee Benefit
Plans."

GUARANTY AND POOLING AGREEMENTS

The Company and certain of its subsidiaries will enter into a limited
guaranty of the Hotel Lease and management agreement obligations of each
Lessee. For each of the four identified "pools" of hotels, the cumulative
limit of the guaranty at any time will be 10% of the aggregate rents under all
Hotel Leases in such pool paid with respect to the preceding 12 full calendar
months (with an annualized amount based upon the Minimum Rent for those full-
service Hotel Leases that have not been in effect for twelve full calendar
months).

RELATIONSHIP WITH MARRIOTT INTERNATIONAL

Marriott International will serve as the manager for substantially all of
the full-service and limited-service hotels to be leased and subleased by the
Company. In addition, Marriott International is the manager for all 31
Communities. The Company will be bound by certain non-competition agreements
with Marriott International whereby the Company's business opportunities will
be restricted. See "Business and Properties--Non-Competition Agreements" and
"--Description of Other Agreements for the Communities."

DESCRIPTION OF THE HOTEL LEASES FOR FULL-SERVICE HOTELS MANAGED BY MARRIOTT
INTERNATIONAL

In order for Host REIT to qualify as a REIT, Host REIT may not operate the
hotels or related properties. Accordingly, subsidiaries of Host REIT (the
"Host REIT Lessor") will lease substantially all of the full-service hotels
owned by Host REIT to subsidiaries of the Company. The following summary of
the principal terms of the Hotel Leases between subsidiaries of the Company
and subsidiaries of Host REIT is qualified in its entirety by reference to the
Hotel Leases, the form of which is included as an exhibit to the Registration
Statement of which this Prospectus is a part. All references herein to Host
REIT or its subsidiaries, as Lessor, shall be deemed to refer to Host in the
event the Merger of Host with and into Host REIT for any reason is not
consummated.

52
<PAGE>

Lessees. There generally will be a separate lessee, which will be an
indirect subsidiary of the Company (the "Lessee"), for each hotel or group of
hotels that is owned by a separate subsidiary of Host REIT. Each Lessee will
be a Delaware limited liability company, whose purpose will be limited to
acting as lessee under the applicable lease(s). For those hotels where it is
the manager, Marriott International or a subsidiary will have a noneconomic
membership interest in the Lessee entitling it to certain voting rights but no
economic rights. The operating agreements for such Lessees will provide that
the Company member of the Lessee will have full control over the management of
the business of the Lessee, except with respect to certain decisions for which
the consent of both members will be required. These decisions are (i)
dissolving, liquidating, consolidating, merging, selling, or leasing all or
substantially all of the assets of the Lessee; (ii) engaging in any other
business or acquiring any assets or incurring any liabilities not reasonably
related to the conduct of the Lessee's business; (iii) instituting voluntary
bankruptcy or similar proceedings or consenting to involuntary bankruptcy or
similar proceedings, (iv) terminating the management agreement relating to the
Lessee's hotel, other than by reason of a breach by the manager or upon
exercise of express termination rights in the management agreement; (v)
challenging the status or rights of the manager or the enforceability of the
membership rights; or (vi) incurring debt in excess of certain limits. Upon
any termination of the applicable management agreement, these special voting
rights of Marriott International (or its subsidiary) will cease.

Full-Service Hotel Lease Terms. Each full-service Hotel Lease will have a
fixed term ranging from seven to ten years (depending upon the Hotel Lease),
subject to earlier termination upon the occurrence of certain contingencies
described in the Hotel Leases (including, particularly, the provisions
described herein under "--Damage or Destruction," "--Termination of the Hotel
Leases upon Disposition of Full-Service Hotels" and "--Termination of the
Hotel Leases upon Changes in Tax Laws").

Minimum Rent; Percentage Rent; Additional Charges. Each lease will require
the Lessee to pay (i) Minimum Rent (as defined below) in a fixed dollar amount
per annum plus (ii) to the extent it exceeds Minimum Rent, Percentage Rent
based upon specified percentages of aggregate sales from the applicable hotel,
including room sales, food and beverage sales, and other income ("Gross
Revenues"), in excess of specified thresholds.

"Minimum Rent" will be a fixed dollar amount specified in each lease less
the FF&E Adjustment (which is described under "Personal Property Limitation"
below). Any amounts other than Minimum Rent and Percentage Rent due to the
Host REIT lessor under the Hotel Leases are deemed to be "Additional Charges."

The amount of Minimum Rent and the Percentage Rent thresholds will be
adjusted each year (the "Annual Adjustment"). The Annual Adjustment with
respect to Minimum Rent shall equal a percentage of any increase in the
Consumer Price Index ("CPI") during the previous twelve months. The Annual
Adjustment with respect to Percentage Rent thresholds shall be a specified
percentage equal to the weighted average of a percentage of any increase in
CPI plus a specified percentage of any increase in a regional labor cost index
agreed upon by the Lessor and the Lessee during the previous twelve months.
Neither Minimum Rent nor Percentage Rent thresholds will be decreased because
of the Annual Adjustment.

Rental payments will be made on a Fiscal Year basis. The "Fiscal Year" shall
mean the fiscal year used by the hotel manager. Payments of Rent (defined
herein) will be made within two business days after the required payment date
under the management agreement for each Accounting Period. "Accounting Period"
shall mean for those hotels where Marriott International is the manager, any
of the thirteen four-week accounting periods which are used in the hotel
manager's accounting system. Rent payable for each Accounting Period will be
the sum of (i) the excess (if any) of (x) the greater of cumulative Minimum
Rent year-to-date or cumulative Percentage Rent year-to-date over (y) the
total amount of Minimum Rent and Percentage Rent paid year-to-date plus (ii)
any Additional Charges due ("Rent"). If the total amount of Minimum Rent and
Percentage Rent paid year-to-date, as of any rent payment date, is greater
than both cumulative Minimum Rent year-to-date and cumulative Percentage Rent
year-to-date, then the Host REIT Lessor will remit the difference to the
Lessee.

53
<PAGE>

The full-service Hotel Leases will generally provide for a Rent adjustment
in the event of damage, destruction, partial taking, certain capital
expenditures or an FF&E Adjustment.

Lessee Expenses. Each Lessee will be responsible for paying all of the
expenses of operating the applicable hotel(s), including all personnel costs,
utility costs and general repair and maintenance of the hotels. The Lessee
also will be responsible for all fees payable to the applicable manager,
including base and incentive management fees, chain services payments, and
franchise or system fees, with respect to periods covered by the term of the
Lease. The Lessee will not be obligated to bear the cost of any capital
improvements or capital repairs to the hotels or the other expenses borne by
the Host REIT Lessor, as described below.

Host REIT Lessor Expenses. The Host REIT Lessor will be responsible for the
following expenses: real estate taxes, personal property taxes (to the extent
the Host REIT Lessor owns the personal property), casualty insurance on the
structures, ground lease rent payments, required expenditures for FF&E
(including maintaining the FF&E Reserve, to the extent such is required by the
applicable manager) and capital expenditures.

The consent of the Host REIT Lessor will be required for any capital
expenditures funded by the Lessor (except in an emergency or where the owner's
consent is not required under the management agreement) or a change in the
amount of the FF&E Reserve payment.

Company Guarantee. The Company and certain of its subsidiaries will enter
into a limited guarantee of the Hotel Lease and management agreement
obligations of each Lessee. For each of four identified "pools" of hotels, the
cumulative limit of the guarantee at any time will be 10% of the aggregate
rents under all full-service Hotel Leases in such pool paid with respect to
the preceding 13 full Accounting Periods (with an annualized amount based upon
the Minimum Rent for those full-service Hotel Leases that have not been in
effect for 13 full Accounting Periods). In the event of a payment default
under any Hotel Lease or failure of the Company to maintain minimum net worth
or debt service coverage ratios, the obligations under the guarantees of the
Hotel Leases in each pool will be secured by excess such cash flow of each
Lessee in such pool, which will be collected, held in a cash collateral
account, and disbursed in accordance with agreed cash management procedures.

Security. The obligations of the Lessee will be secured by a pledge of all
personal property (tangible and intangible) of the Lessee related to or used
in connection with the operation of the hotels (including any cash and
receivables from the manager or others held by the Lessee as part of "working
capital").

Working Capital. Each Host REIT Lessor will sell the existing working
capital (including Inventory and Fixed Asset Supplies (as defined in the
Uniform System of Accounts for Hotels) and net receivables due from the
manager, net of accounts payable and accrued expenses) to the applicable
Lessee upon the commencement of the Lease at a price equal to the fair market
value of such assets (which shall be deemed to be book value). The purchase
price will be represented by a note evidencing a loan that bears interest at a
rate per annum equal to the "long-term applicable federal rate" in effect on
the commencement of the Lease. Interest owed on the working capital loan will
be due simultaneously with each periodic Rent payment and the amount of each
payment of interest will be credited against such Rent payment. The principal
amount of the working capital loan will be payable upon termination of the
Lease. At the termination or expiration of the Hotel Lease, the Lessee will
sell to the Host REIT Lessor the then existing working capital at a price
equal to the value of such assets at that time. The Host REIT Lessor will pay
the purchase price of the working capital by offsetting against the
outstanding principal balance of the working capital loan. To the extent that
the value of the working capital delivered to the Host REIT Lessor exceeds the
value of the working capital delivered by the Host REIT Lessor to the Lessee
at the commencement of the Lease, the Host REIT Lessor shall pay to the Lessee
an amount equal to the difference in cash. To the extent that the value of the
working capital delivered to the Host REIT Lessor is less than the value of
the working capital delivered by the Host REIT Lessor to the Lessee at the
commencement of the lease, the Lessee shall pay to the Host REIT Lessor an
amount equal to the difference in cash.

54
<PAGE>

Termination of the Hotel Leases upon Disposition of Full-Service Hotels. In
the event the applicable Host REIT Lessor enters into an agreement to sell or
otherwise transfer any full-service hotel free and clear of the applicable
lease, the Host REIT Lessor must pay the Lessee a termination fee equal to the
fair market value of the Lessee's leasehold interest in the remaining term of
the Lease. For purposes of determining the fair market value, a discount rate
of 12% will be assumed, and the annual income for each remaining year of the
Lease will be assumed to be the average annual income generated by the Lessee
during the three fiscal years preceding the termination date or if the hotel
has not been in operation for at least three fiscal years, then the average
during the preceding fiscal years that have elapsed, and if the hotel has not
been in operation for at least twelve months, then the assumed annual income
shall be determined on a pro forma basis. Alternatively, the Host REIT Lessor
will be entitled to (i) substitute a comparable hotel or hotels (in terms of
economics and quality for the Host REIT Lessor and the Lessee as agreed to by
the Lessee) for any hotel that is sold or (ii) sell the hotel subject to the
lease (subject to the Lessee's reasonable approval if the sale is to an entity
that does not have sufficient financial resources and liquidity to fulfill the
"owner's" obligations under the management agreement and the Host REIT
Lessor's obligations under the lease, or is or controls or is controlled by a
person convicted of a felony involving moral turpitude), without being
required to pay a termination fee. Pursuant to a separate pooling agreement,
the Host REIT Lessor and the Lessee will each have the right to terminate up
to 12 Hotel Leases without being required to pay any fee or other compensation
as a result of such termination, but the Host REIT Lessor only will be
permitted to exercise such right in connection with a sale of a hotel to an
unrelated third party or the transfer of a hotel to a joint venture in which
Host Marriott, L.P. does not have a two-thirds or greater interest.

Termination of the Hotel Leases upon Changes in Tax Laws. In the event that
changes in the federal income tax laws allow the Host REIT Lessors, or
subsidiaries or affiliates of the Host REIT Lessors, to directly operate the
hotels without jeopardizing Host REIT's status as a REIT, the Host REIT
Lessors will have the right to terminate all, but not less than all, of the
full-service Hotel Leases, in return for paying the Lessees the fair market
value of the remaining terms of the full-service Hotel Leases, valued in the
same manner as provided above under "--Termination of the Hotel Leases upon
Disposition of Full-Service Hotels." The payment will be payable in cash or,
subject to certain conditions, shares of Host REIT common stock, at the
election of Host REIT.

Damage or Destruction. If a Hotel is partially or totally destroyed and is
no longer suitable for use as a hotel (as reasonably determined by the Host
REIT Lessor), the Lease of such hotel shall automatically terminate and the
insurance proceeds shall be retained by the Host REIT Lessor, except to the
extent of any personal property owned by the Lessee. In this event, no
termination fee shall be owed to the Lessee. If a hotel is partially destroyed
but is still suitable for use as a hotel (as reasonably determined by the Host
REIT Lessor), the Lessee, subject to Host REIT Lessor agreeing to release the
insurance proceeds to fund any shortfall in the insurance proceeds, shall
apply the insurance proceeds to restore the hotel to its preexisting
condition. The Host REIT Lessor shall fund any shortfall in insurance proceeds
less than or equal to 5% of the estimated cost of repair. The Host REIT Lessor
shall fund, in its sole discretion, any shortfall in insurance proceeds
greater than 5% of the estimated cost of the repair, provided that if the Host
REIT Lessor elects not to fund such shortfall, the Lessee may terminate the
Lease and the Host REIT Lessor shall pay to the Lessee a termination fee equal
to the Lessee's operating profit for the immediately preceding fiscal year. If
and to the extent any damage or destruction results in a reduction of Gross
Revenues which would otherwise be realizable from the operation of the hotel,
the Host REIT Lessor shall receive all loss of income insurance and the Lessee
shall have no obligation to pay rent, for any Accounting Period until the
effects of the damage are restored, in excess of the greater of (i) one-
thirteenth of the total Rent paid in the fiscal year prior to the casualty or
(ii) Percentage Rent calculated for the current Accounting Period.

Events of Default. Except as otherwise provided below, and subject to the
notice and some cure periods in the Hotel Lease, the Hotel Lease may be
terminated without penalty by the applicable Host REIT Lessor if any of the
following Events of Default occur:

. Failure to pay Rent within ten days after the due date;

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. Failure to comply with, or observe any of, the terms of the Hotel Lease
(other than the failure to pay Rent) for 30 days after notice from the
Host REIT Lessor, including failure to properly maintain the hotel
(other than by reason of the failure of the Host REIT Lessor to perform
its obligations under the Hotel Lease), such period to be extended for
up to an additional 90 days if such default cannot be cured with due
diligence within 30 days;

. Acceleration of maturity of certain indebtedness of the Lessee with a
principal amount in excess of $1,000,000;

. Failure of the Company to maintain minimum net worth or debt service
coverage ratio requirements;

. Filing of any petition for relief, bankruptcy or liquidation by or
against the Lessee or any parent company of the Lessee;

. The Lessee voluntarily ceases to operate the hotel for 30 consecutive
days, except as a result of a casualty, condemnation or emergency
situation; or

. A change in control of the Company, the Lessee or OpCo, a subsidiary of
the Company that is a direct or indirect parent of the Lessees. Unless
the change involves an "Adverse Party," which would include a competitor
in the hotel business, a party without adequate financial resources, a
party that has been convicted of a felony, or a party who would
jeopardize Host REIT's qualification as a REIT, Host REIT Lessor must
pay a termination fee equal to the Lessee's operating profit from the
Hotel for the immediately preceeding fiscal year).

. The Lessee, or the Company or the Lessee's direct parent defaults under
the assignment of management agreement. The guarantees described above,
the noncompetition agreement described below and certain other related
agreements between the parties or their affiliates.

Assignment of Lease. A Lessee will be permitted to sublet all or part of the
hotel or assign its interest under its Hotel Lease, without the consent of the
Host REIT Lessor, to any wholly owned and controlled subsidiary of the
Company, provided that the Company continues to meet the minimum net worth
test and all other requirements of the lease. Transfers to other parties will
be permitted if approved by the Host REIT Lessor.

Subordination to Qualifying Mortgage Debt. The rights of each Lessee will be
expressly subordinate to qualifying mortgage debt and any refinancing thereof.
A default under the loan documents may result in the termination of the Hotel
Lease by the lender. The lender will not be required to provide a non-
disturbance agreement to the Lessee.

The Host REIT Lessor will be obligated to compensate the Lessee, on a basis
equal to the lease termination provision described in "Termination of the
Hotel Leases upon Disposition of Full-Service Hotels" above, if the full-
service Hotel Lease is terminated because of a non-monetary default under the
terms of a loan that occurs because of an action or omission by the Host REIT
Lessor (or its affiliates) or a monetary default where there is not an uncured
monetary Event of Default of the Lessee. In addition, if any loan is not
refinanced in a timely manner, and the loan amortization schedule is converted
to a cash flow sweep structure, the Lessee has the right to terminate the
Hotel Lease after a twelve-month cure period and the Lessor will owe a
termination fee as provided above. During any period of time that a cash flow
sweep structure is in effect, the Host REIT Lessor will compensate the Lessee
for any lost revenue resulting from such cash flow sweep. Host Marriott, L.P.
will guarantee these obligations.

Each Lessee will indemnify the applicable Host REIT Lessor for any liability
resulting from environmental matters caused by the Lessee's negligence or
willful misconduct.

Personal Property Limitation. If a Host REIT Lessor reasonably anticipates
that the average tax basis of the items of the Host REIT Lessor's FF&E and
other personal property that are leased to the applicable Lessee will exceed
15% of the aggregate average tax basis of the real and personal property
subject to the applicable Lease, the following procedures will apply, subject
to obtaining lender consent where required:

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. The Host REIT Lessor will acquire any replacement FF&E that would cause
the applicable limits to be exceeded (the "Excess FF&E"), and
immediately thereafter the Lessee would be obligated either to acquire
such Excess FF&E Lessor or to cause a third party to purchase such FF&E.

. The Lessee would agree to give a right of first opportunity to an
affiliate of Host REIT to acquire the Excess FF&E and to lease the
Excess FF&E to the Lessee at an annual rental equal to the Market
Leasing Factor (as defined below) times the cost of the Excess FF&E. If
such affiliate does not agree to acquire the Excess FF&E and to such
lease, then the Lessee may either acquire the Excess FF&E itself or
arrange for another third party to acquire such Excess FF&E and to lease
the same to Lessee.

. The annual Rent under the applicable Hotel Lease would be reduced in
accordance with a fomula based on Market Recovery rates.

Certain Actions under the Hotel Leases. The leases prohibit the Lessee from
taking the following actions with respect to the management agreement without
notice to the Host REIT Lessor and, if the action would have a material
adverse effect on the Host REIT Lessor, the consent of the Lessor: (i)
terminate the management agreement prior to the expiration of the term
thereof; (ii) amend, modify or assign the management agreement; (iii) waive
(or fail to enforce) any right of the "owner" under the management agreement;
(iv) waive any breach or default by the manager under the management agreement
(or fail to enforce any right of the "owner" in connection therewith);
(v) agree to any change in the manager or consent to any assignment by the
manager; or (vi) take any other action which reasonably could be expected to
materially adversely affect the Host REIT Lessor's rights or obligations under
the management agreement for periods following the termination of the Hotel
Lease (whether upon the expiration of its term or upon earlier termination as
provided for therein).

Change in Manager. A Lessee will be permitted to change the manager or the
brand affiliation of a hotel only with the approval of the applicable Lessor,
which approval may be withheld in the Host REIT Lessor's sole discretion;
provided, that the replacement manager is a nationally recognized manager with
substantial experience in managing hotels of comparable quality. No such
replacement can extend beyond the term of the Lease without the consent of the
Host REIT Lessor, which consent may be withheld in the Host REIT Lessor's sole
discretion.

DESCRIPTION OF HOTEL LEASES FOR LIMITED-SERVICE HOTELS MANAGED BY MARRIOTT
INTERNATIONAL

Subsidiaries of HPT (the "HPT Lessors") own 71 limited-service hotels under
the Residence Inn and Courtyard by Marriott brands (the "HPT Hotels") that it
leases to subsidiaries of Host (the "HPT Lessees"). The HPT Hotels are subject
to substantially similar leases (the "HPT Leases"). In connection with the
REIT Conversion, the applicable Host subsidiary will sublease the HPT Hotels
to a subsidiary of the Company subject to the terms of the HPT Leases.

The Sublessees. There generally will be a separate sublessee, which will be
an indirect subsidiary of the Company (the "Sublessee"), for each hotel or
group of hotels that is owned by a separate subsidiary of HPT. Each Sublessee
will be a Delaware limited liability company, whose purpose will be limited to
acting as sublessee under the applicable sublease(s). Marriott International
or a subsidiary will have a noneconomic membership interest in the Sublessee
entitling it to certain voting rights but no economic rights. The operating
agreements for such Sublessees will provide that the Company member of the
Sublessee will have full control over the management of the business of the
Sublessee, except with respect to certain decisions for which the consent of
both members will be required. These decisions are (i) dissolving,
liquidating, consolidating, merging, selling, or leasing all or substantially
all of the assets of the Sublessee; (ii) engaging in any other business or
acquiring any assets or incurring any liabilities not reasonably related to
the conduct of the Sublessee's business or (iii) instituting voluntary
bankruptcy or similar proceedings or consenting to involuntary bankruptcy or
similar proceedings. Upon any termination of the applicable management
agreement, these special voting rights of Marriott International (or its
subsidiary) will cease.

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HPT Lease Terms. The initial terms of the HPT Leases expire within seven to
eleven years. The HPT Leases will automatically be extended subject to certain
conditions. The HPT Lessee may not elect not to renew less than all of the HPT
Leases for the Residence Inn properties or the Courtyard by Marriott
properties.

Minimum Rent; Additional Rent; Additional Charges. Each HPT Lease requires
the HPT Lessee to pay (i) Minimum Rent (as defined below) in a fixed dollar
amount per annum plus (ii) Additional Rent based upon a specified percentage
of collective gross revenues from the HPT Hotels to the extent they exceed the
gross revenues for a specified fiscal year. "Minimum Rent" will be a fixed
dollar amount specified in each HPT Lease less the cost of any repairs,
maintenance, renovations or replacements of the hotel or the personal
property. Minimum Rent payments are due in advance on the first business day
of each Accounting Period. "Accounting Period" means each of the four week
accounting periods which are used in the management company's accounting
system, except that an Accounting Period may occasionally contain five weeks
when necessary to conform management company's accounting system to the
calendar. Additional Rent payments are calculated quarterly for each fiscal
year or portion thereof and are paid quarterly in arrears on the same date as
the Minimum Rent for the next Accounting Period. A final adjustment of the
Additional Rent for each fiscal year will be made after financial statements
are available. The amount of Additional Rent due on any payment date will not
be less than zero.

In addition to the Minimum Rent and Additional Rent, the HPT Lessee is
required to pay Impositions, utility charges, insurance premiums and all
amounts payable under the HPT management agreements, equipment leases and
agreements to indemnify the HPT Lessor. "Impositions" means, collectively, all
taxes, assessments, water, sewer or other rents and charges, excises, tax
levies, fees and all other governmental charges levied in respect of the HPT
Hotels and the business conducted by the HPT Lessee in connection therewith.

HPT Lessee Expenses. The HPT Lessee is responsible for all repairs and
replacements to the HPT Hotels and the personal property, except in limited
circumstances where damage to the property exceeds insurance proceeds
received.

HPT Lessor Expenses. In the event that the HPT management agreement or the
HPT Leases require that funds be disbursed for repairs, maintenance,
renovations or replacements at or to the HPT Hotels, and the FF&E Reserve is
insufficient to handle such disbursements, HPT Lessor is required to disburse
such required funds to the HPT Lessee or the manager, as the case may be.

The consent of the HPT Lessor is required for all capital expenditures
(except in an emergency) and for amendment, termination or assignment of the
HPT management agreement.

Security. The obligations of the HPT Lessee are secured by a pledge of all
personal property (except motor vehicles) and all records of the HPT Lessee
related to the operation of the HPT Hotels and all proceeds therefrom.

Damage or Destruction. If an HPT Hotel is partially or totally destroyed,
and is no longer suitable for use as a hotel (as determined in good faith by
the HPT Lessee or the manager), either the HPT Lessee or the HPT Lessor may
terminate the HPT Lease and the HPT Lessor shall be entitled to retain the
insurance proceeds, except to the extent of any personal property owned by the
HPT Lessee. If an HPT Hotel is partially destroyed but is still suitable for
use as a hotel (as determined in good faith by the HPT Lessee or the manager),
the HPT Lessee shall promptly restore the HPT Hotel using the insurance
proceeds. If there is a shortfall in the amount of insurance proceeds, the HPT
Lessee shall decide in its sole discretion whether it will assume the amount
of the deficiency. If the HPT Lessee elects not to assume the deficiency, the
HPT Lessor in it's sole discretion may elect to cover the shortfall. If
neither the HPT Lessee nor the HPT Lessor elects to assume the deficiency
required for restoration of the HPT Hotel, either party may terminate the HPT
Lease.

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Events of Default. Subject to notice and some cure periods in the HPT Lease,
the HPT Lease may be terminated without penalty by the HPT Lessor if any of
the following Events of Default occur:

. Failure to pay rent or any other amount payable under the HPT Lease when
due and such failure shall continue for ten days after notice thereof;

. Failure to maintain required insurance coverage and such failure shall
continue for ten days after notice thereof;

. Failure to observe or perform any term, covenant or agreement contained
in the HPT Lease and such failure shall continue for 30 days after
notice thereof;

. Any obligation in respect of Indebtedness for money borrowed or retained
funds of any material property or services shall be declared due and
payable prior to the stated maturity date thereof, or an event of
default shall occur and be continuing under any instrument evidencing or
securing the same;

. An event of default shall occur and be continuing under any other HPT
Lease;

. Revocation or limitation of any material license, permit, certification
or approval required for lawful operation of the HPT Hotel for its
permitted use;

. A material representation or warranty made by the HPT Lessee shall have
been false or misleading on the date when made or deemed made;

. Non-payment by HPT Lessee of its debts as they become due or general
assignment for the benefit of creditors;

. Filing of any petition for relief, bankruptcy or liquidation by the HPT
Lessee;

. Commencement by the HPT Lessee of any proceeding for its dissolution or
termination;

. Occurrence and continuation of an event of default under any mortgage
which is secured by the HPT Lessee's leasehold interest under the HPT
Lease;

. Levy or attachment of the HPT Lessee's estate or interest in the HPT
Hotel; or

. An event of default by the HPT Lessee shall occur under the HPT
management agreement and continue beyond the expiration of any
applicable cure period.

Assignment of Lease. The HPT Lessee may not assign, mortgage, pledge,
hypothecate, encumber or otherwise transfer the HPT Lease or sublease all or
any part of the HPT Hotel without the HPT Lessor's prior written consent.

Subordination to Mortgage Debt. The rights of the HPT Lessee are subject and
subordinate to mortgage debt.

Indemnification. The HPT Lessee will indemnify the HPT Lessor for any loss
suffered by the HPT Lessor by reason of (i) accident, injury of or death of
persons or loss of or damage to property occurring on or about the HPT Hotel,
(ii) any action or inaction by the HPT Lessee of the HPT Hotel or personal
property, (iii) any Imposition (as defined above in "Minimum Rent; Additional
Rent; Additional Charges") and (iv) failure of the HPT Lessee to comply with
the terms of the HPT Lease.

The HPT Lessee will indemnify the HPT Lessor for any liability resulting
from environmental matters caused by the HPT Lessee to the extent that such
matters arise by reason of the HPT Lessee's failure to comply with the HPT
Lease. However, the HPT Lessee will not be responsible for indemnifying for
environmental matters to the extent they are the result of the HPT Lessor's
gross negligence or willful misconduct.

Certain Actions Under the HPT Leases. Except as otherwise provided in the
HPT management agreement, the HPT Lease prohibits the HPT Lessee from agreeing
to the following without the prior written consent of the HPT Lessor: (i) any
change in the manager; (ii) any change in the HPT management agreement; (iii)
termination of the HPT management agreement; or (iv) assignment of the HPT
management agreement. Further, the HPT

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Lessee may not take any action, grant any consent or, except as provided in
the HPT management agreement, permit any action under the HPT management
agreement which might have a material adverse affect on the HPT Lessor,
without HPT Lessor's prior written consent.

DESCRIPTION OF HOTEL LEASES FOR HOTELS MANAGED BY OTHER MANAGEMENT COMPANIES

Of 104 hotel properties currently owned by Host, 15 hotels that are expected
to be leased by the Company are, and will continue to be, managed by the Non-
MI Managers. See "--Description of Other Hotel Management Agreements." Host
REIT will lease these hotels to the lessees, most of which will be indirect
majority owned subsidiaries of the Company. Generally, there will be a
separate lessee for each hotel or group of hotels that has a separate manager.
The terms of these leases will be substantially similar to the leases of
hotels that are managed by Marriott International. See "--Description of the
Hotel Leases for Full-Service Hotels Managed by Marriott International."

DESCRIPTION OF BLACKSTONE HOTEL LEASES

Subsidiaries of the Company, which will be wholly owned Delaware limited
liability companies formed to lease the hotels, will lease from Host REIT the
12 hotels to be contributed by the Blackstone Entities to Host REIT pursuant
to Host REIT's acquisition of these hotels from the Blackstone Entities (the
"Blackstone Hotels"). The Blackstone Hotels will continue to be managed by the
existing hotel management companies. See "--Description of Hotel Management
Agreements for Blackstone Hotels." Generally, there will be a separate lessee
and a separate lease (the "Blackstone Leases") for a hotel or group of hotels
that has a separate manager: (i) Four Seasons; (ii) Hyatt; (iii) Ritz-Carlton;
and (iv) Swissotel. The terms of the Blackstone Leases will be substantially
similar to leases of hotels managed by Marriott International. See "--
Description of the Hotel Leases for Full-Service Hotels Managed by Marriott
International." In addition, the Company will acquire a 25% interest in the
management company that operates Swissotel hotels in the United States.

DESCRIPTION OF MARRIOTT INTERNATIONAL HOTEL MANAGEMENT AGREEMENTS FOR FULL-
SERVICE HOTELS

Marriott International or its subsidiaries serve as the managers for 88 of
Host's 104 hotels which are expected to be leased to the Lessees. In addition,
for those hotels which are managed by managers other than Marriott
International, Host is given the right by franchise agreements with Marriott
International or its subsidiaries to use the "Marriott" brandname. Marriott
International and its subsidiaries also provide various other services to the
Company and Host and its affiliates. The hotel management agreements
applicable to each hotel will be assigned to the applicable Lessee for the
term of the Lease of such hotel. The Lessee will be obligated to perform all
of the obligations of the Host REIT Lessor under the hotel management
agreement during the term of its Hotel Lease, other than certain retained
obligations including, without limitation, payment of property taxes, property
casualty insurance and ground lease rent, maintaining a reserve fund for FF&E
replacements, and capital expenditures, for which the Host REIT Lessor will
retain responsibility. Although the Lessee will assume certain obligations of
the Host REIT Lessor under the hotel management agreement, the Host REIT
Lessor will not be released from its obligations and, if the Lessee fails to
perform any such obligations, the manager will be entitled to seek performance
by or damages from the Host REIT Lessor.

Other provisions of the management agreements for the full-service hotels to
be leased by the Company from Host REIT include the following:

Operational Services. The managers will have sole responsibility and
exclusive authority for all activities necessary for the day-to-day operation
of the hotels, including establishment of all room rates, the processing of
reservations, procurement of inventories, supplies and services, periodic
inspection and consultation visits to the hotels by the managers' technical
and operational experts, and promotion and publicity of the hotels. The
manager will receive compensation from the Lessee in the form of a Base
Management Fee and an Incentive Management Fee, which are normally calculated
as percentages of gross revenues and operating profits, respectively.

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Executive Supervision and Management Services. The managers generally
provide all managerial and other employees for the hotels; review the
operation and maintenance of the hotels; prepare reports, budgets and
projections; provide other administrative and accounting support services,
such as planning and policy services, financial planning, divisional financial
services, risk planning services, product planning and development, employee
planning, corporate executive management, legislative and governmental
representation and certain in-house legal services; and protect the "Marriott"
trademark and other tradenames and service marks. The manager also will
provide a national reservations system.

Chain Services. The hotel management agreements require the manager to
furnish certain services (the "Chain Services") that are furnished generally
on a central or regional basis to hotels in the Marriott hotel system. Such
services will include the following: (i) the development and operation of
computer systems and reservation services, (ii) regional management and
administrative services, regional marketing and sales services, regional
training services, manpower development and relocation costs of regional
personnel and (iii) such additional central or regional services as may from
time to time be more efficiently performed on a regional or group level. Costs
and expenses incurred in providing such services are allocated among all
hotels in the Marriott hotel system managed by the manager or its affiliates
and each applicable Lessee will be required to reimburse the manager for its
allocable share of such costs and expenses.

Working Capital and Fixed Asset Supplies. The Lessee will be required to
maintain working capital for each hotel and fund the cost of fixed asset
supplies, which principally consist of linen and similar items. The applicable
Lessee will also be responsible for providing funds to meet the cash needs for
the operations of the hotels if at any time the funds available from
operations are insufficient to meet the financial requirements of the hotels.

Use of Affiliates. The manager employs the services of its affiliates to
provide certain services under the hotel management agreements. Certain of the
management agreements provide that the terms of any such employment must be no
less favorable to the applicable Lessee, in the reasonable judgment of the
manager, than those that would be available from the manager.

FF&E Replacements. The hotel management agreements generally provide that
once each year the manager will prepare a list of FF&E to be acquired and
certain routine repairs that are normally capitalized to be performed in the
next year ("FF&E Replacements") and an estimate of the funds necessary
therefor. Under the terms of the Hotel Leases, the Host REIT Lessor is
required to provide to the Lessee, all necessary FF&E for the operation of the
hotels (including funding any required FF&E Replacements). For purposes of
funding the FF&E Replacements, a specified percentage (generally 5%) of the
gross revenues of the hotel will be deposited by the manager into a book entry
account (the "FF&E Reserve Account"). If the manager determines that more than
5% of the gross revenues of the hotel will be required to fund repairs for a
fiscal year, the manager may request an increase in the percentage of gross
revenues to be deposited into the FF&E Reserve Account for such periods. In
such event, Host REIT may elect to fund such increases through annual
increases in the amount deposited by the manager in the FF&E Reserve Account
or to make a lump-sum contribution to the FF&E Reserve Account of the
additional amounts required. If Host REIT adopts the first election, increased
amounts withheld by the managers and deposited in the FF&E Reserve Account
will be credited against the rental obligations of the lessees. If Host REIT
fails to elect either option within thirty days of the request for additional
funds or fails to pay the lump-sum within 60 days of its election to do so,
the manager may terminate the management agreement. Under certain
circumstances, the manager may make repairs in addition to those set forth on
its list (the "FF&E Estimate"), but in no event may it expend more than the
amount in the FF&E Reserve Account without the consent of Host REIT Lessor.

Under certain of the management agreements, Host REIT must approve the FF&E
Replacements, including any FF&E Replacements proposed by the manager that are
not contained on the annual FF&E Estimate which was approved by Host REIT. If
the manager and Host REIT agree, Host REIT will acquire or otherwise provide
the FF&E Replacements set forth on the approved FF&E Estimate. If Host REIT
and the manager are unable to

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agree on the list within 60 days of its submission, Host REIT will be required
to make only those FF&E Replacements specified on such list that are no more
extensive than the system standards for FF&E Replacements that the manager
requires for Marriott hotels. For purposes of funding the FF&E Replacements
required to be paid for by Host REIT, each management agreement and Host
REIT's loan agreements require Host REIT to deposit a designated amount into
the FF&E Reserve Account periodically. The Lessees will have no obligation to
fund the FF&E Reserve Accounts (and any amounts deposited therein by the
manager from funds otherwise due the Lessee under the hotel management
agreement will be credited against the Lessee's rental obligation to the Host
REIT Lessor.)

Under each full-service Hotel Lease, Host REIT will be responsible for the
costs of FF&E Replacements and for decisions with respect thereto (subject to
its obligations to the Lessee under the Hotel Lease).

Building Alterations, Improvements and Renewals. The hotel management
agreements require the manager to prepare an annual estimate of the
expenditures necessary for major repairs, alterations, improvements, renewals
and replacements to the structural, mechanical, electrical, heating,
ventilating, air conditioning, plumbing and vertical transportation elements
of each hotel. Such estimate will be submitted to Host REIT and the Lessee for
their approval. In addition to the foregoing, the management agreements
generally provide that the manager may propose such changes, alterations and
improvements to the hotel as are required, in the manager's reasonable
judgment, to keep the hotel in a competitive, efficient and economical
operating condition or in accordance with Marriott standards. The cost of the
foregoing generally shall be paid from the FF&E Reserve Account; to the extent
that there are insufficient funds in such account, Host REIT is required to
pay any shortfall. Under the hotel management agreements (and the Hotel
Leases), neither Host REIT nor the Lessee may unreasonably withhold consent to
repairs and other changes which are required under applicable law or any of
the manager's "life-safety" standards and, if Host REIT and the Lessee fail to
approve any of the other proposed repairs or other changes within 60 days of
the request therefor, the manager may terminate the management agreement.
Under certain other of the management agreements, if Host REIT and the manager
are unable to agree on the estimate within 60 days of its submission, Host
REIT will be required to make only those expenditures that are no more
extensive than the manager requires for Marriott hotels generally, as the case
may be. Under the terms of the Hotel Leases, Host REIT will be responsible for
the costs of the foregoing items and for decisions with respect thereto
(subject to its obligations to the Lessees under the Leases, including an
obligation to consult with the Lessees with respect to such matters.)

Service Marks. During the term of the hotel management agreements, the
service mark "Marriott" and other symbols, logos and service marks currently
used by the manager and its affiliates may be used in the operation of the
hotels. Marriott International (or its applicable affiliates) intends to
retain its legal ownership of these marks. Any right to use the service marks,
logo and symbols and related trademarks at a hotel will terminate with respect
to that hotel upon termination of the management agreement with respect to
such hotel.

Termination Fee. Certain of the hotel management agreements provide that if
the management agreement is terminated prior to its full term due to casualty,
condemnation or the sale of the hotel, the manager will receive a termination
fee as specified in the specific management agreement.

Termination for Failure to Perform. Substantially all of the hotel
management agreements may be terminated based upon a failure to meet certain
financial performance criteria, subject to the manager's right to prevent such
termination by making certain payments to the Lessee based upon the shortfall
in such criteria.

Events of Default. Events of default under the hotel management agreements
include, among others, the following: (i) the failure of either party to make
payments pursuant to the management agreement within ten days after written
notice of such nonpayment has been made, (ii) the failure of either party to
perform, keep or fulfill any of the covenants, undertakings, obligations or
conditions set forth in the management agreement and the continuance of such
default for a period of 30 days after notice of said failure or, if such
default is not susceptible of being cured within 30 days, the failure to
commence said cure within 30 days or thereafter the failure to diligently
pursue such efforts to completion, (iii) if either party files a voluntary
petition in bankruptcy

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or insolvency or a petition for reorganization under any bankruptcy law or
admits that it is unable to pay its debts as they become due, (iv) if either
party consents to an involuntary petition in bankruptcy or fails to vacate,
within 90 days from the date of entry thereof, any order approving an
involuntary petition by such party; or (v) if an order, judgment or decree by
any court of competent jurisdiction, on the application of a creditor,
adjudicating either party as bankrupt or insolvent or approving a petition
seeking reorganization or appointing a receiver, trustee, or liquidator of all
or a substantial part of such party's assets is entered, and such order,
judgment or decree continues unstayed and in effect for any period of 90 days.

As described above, all fees payable under the hotel management agreements
(excluding termination fee, if any) will become obligations of the Lessees, to
be paid by the Lessees, for so long as the Leases remain in effect. The
Lessees' obligations to pay these fees, however, could adversely affect the
ability of one or more Lessees to pay Minimum Rent or Percentage Rent payable
under the full-service Hotel Leases, even though such amounts otherwise are
due and owing to Host or Host REIT.

DESCRIPTION OF MARRIOTT INTERNATIONAL HOTEL MANAGEMENT AGREEMENTS FOR LIMITED-
SERVICE HOTELS

Subsidiaries of Marriott International serve as the managers for the HPT
Hotels which will be subleased by Host REIT to the Sublessee. The management
agreements will be assigned to the Sublessee for the term of the HPT Lease of
each HPT Hotel. The Sublessee will be obligated to perform all of the
obligations of the HPT Lessor under the management agreement during the term
of the HPT Lease, other than the obligations including, without limitation,
payment of property taxes, property casualty insurance and ground lease rent,
maintaining a reserve fund for FF&E replacements, and capital expenditures,
for which the HPT Lessor will retain responsibility. Although the Sublessee
will assume certain obligations of the HPT Lessor under the management
agreement, the HPT Lessor will not be released from its obligations and, if
the Sublessee fails to perform any such obligations, the manager will be
entitled to seek performance by or damages from the HPT Lessor.

Other provisions of the management agreements for the HPT Hotels to be
subleased by the Company from Host REIT include the following:

Operational Services. The manager will have sole responsibility and
exclusive authority for all activities necessary for the day-to-day operation
of the HPT Hotels, including, among other things, the establishment of all
room rates, the processing of reservations, the procurement of inventories,
supplies and services, periodic inspection and consultation visits to the HPT
Hotels by the manager's technical and operational experts, and promotion and
publicity of the HPT Hotels. The manager will receive compensation from the
Sublessee in the form of a Base Management Fee and a Residence Inn System Fee
or a Courtyard by Marriott System Fee, as applicable, which are calculated as
percentages of gross revenues, and an Incentive Management Fee, which is
calculated as a percentage of operating profits.

Executive Supervisors and Management Services. The manager will provide all
managerial and other employees for the HPT Hotels; review of operation and
maintenance of the HPT Hotels; prepare reports, budgets and projections;
provide other administrative and accounting support services, such as planning
and policy services, financial planning, divisional financial services, risk
planning services, product planning and development, employee planning,
corporate executive management, legislative and governmental representation
and certain in-house legal services; and protect the "Residence Inn,"
"Residence Inn by Marriott," "Marriott Residence Inn," "Marriott," "Courtyard
by Marriott" and "Courtyard Club" service marks, as applicable, and other
trademarks and service marks. The manager will also provide a national
reservations system.

Chain Services. The management agreements require that the manager furnish
certain services ("Chain Services") that are generally on a central or
regional basis to hotels in the Residence Inn or Courtyard by Marriott hotel
system, as applicable. Such services include, among other things, (i) national
sales office services, central training services, career development and the
Residence Inn or Courtyard by Marriott, as applicable,

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computer payroll and central accounting services; and (ii) such additional
central or regional services as may from time to time be more efficiently
performed on a regional or group level. Costs and expenses incurred in
providing such services are allocated among all hotels in the Residence Inn or
Courtyard by Marriott hotel system, as applicable, managed by the manager or
its affiliates and the Sublessee is required to reimburse the manager for its
allocable share of such costs and expenses.

Working Capital and Fixed Asset Supplies. The Sublessee is required to
maintain working capital for each HPT Hotel and fund the cost of fixed asset
supplies, which principally consist of linen and similar items. The applicable
Sublessee also is responsible for providing funds to meet the cash needs for
the operations of the HPT Hotels if at any time the funds available from
operations are insufficient to meet the financial requirements of the HPT
Hotels.

FF&E Replacements. The management agreements provide that once each year the
manager will prepare a list of FF&E to be acquired and certain routine repairs
that are normally capitalized to be performed in the next year ("FF&E
Replacements") and an estimate of the funds necessary therefor. For purposes
of funding the FF&E Replacements, 5% of the gross revenues of the applicable
HPT Hotel will be deposited by the manager into a book entry account (the
"FF&E Reserve Account"). If the manager determines that more than 5% of the
gross revenues of the applicable HPT Hotel will be required to fund repairs
for a certain period, the manager may increase the percentage of gross
revenues to be deposited into the FF&E Reserve Account for such periods,
provided that such percentage is not greater than 6% of gross revenues. If the
manager determines that 6% of gross revenues of the applicable HPT Hotel will
not be enough to cover the FF&E Replacements, the HPT Lessor may elect to
agree to further increases which shall be treated as deductions for purposes
of calculating operating profits under the management agreement or to make a
lump-sum contribution to the FF&E Reserve Account of the additional amounts
required. If the HPT Lessor fails to elect either option within 30 days of the
request for additional funds or fails to pay the lump-sum within 60 days of
its election to do so, the manager may terminate the management agreement.
Under certain circumstances, the manager may make repairs in addition to those
set forth on its list, but in no event may it expend more than the amount in
the FF&E Reserve Account without the consent of the HPT Lessor.

Building Alterations, Improvements and Renewals. The management agreements
require the manager to prepare an annual estimate of the expenditures
necessary for major repairs, alterations, improvements, renewals and
replacements to the structural, mechanical, electrical, heating, ventilating,
air conditioning, plumbing and vertical transportation elements of each HPT
Hotel. Such estimate will be submitted to the HPT Lessor and the Sublessee for
their approval. In addition to the foregoing, the management agreements
generally provide that the manager may propose such changes, alterations and
improvements to the hotel as are required, in the manager's reasonable
judgment, to keep the hotel in a competitive, efficient and economical
operating condition or in accordance with Residence Inn or Courtyard by
Marriott standards, as applicable. The cost of the foregoing shall be paid
from the FF&E Reserve Account; to the extent that there are insufficient funds
in such account, the HPT Lessor is required to pay any shortfall. Under the
management agreements, neither the HPT Lessor nor the Sublessee may
unreasonably withhold consent to repairs and other charges which are required
under applicable law or any of the manager's "life-safety" standards and, if
the HPT Lessor and the Sublessee fail to approve any of the other proposed
repairs or other charges within 60 days of the request therefor, the manager
may terminate the management agreement.

Service Marks. During the term of the management agreements, the service
marks "Residence Inn," "Residence Inn by Marriott," "Marriott Residence Inn,"
"Marriott," "Courtyard by Marriott" and "Courtyard Club," as applicable, and
other symbols, logos and service marks currently used by the manager and its
affiliates may be used in the operation of the HPT Hotels. Marriott
International (or its applicable affiliates) intends to retain its legal
ownership of these marks. Any right to use the service marks, logo and symbols
and related trademarks at a hotel will terminate with respect to that hotel
upon termination of the management agreement with respect to such HPT Hotel.

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Termination for Failure to Perform. The management agreement may be
terminated based upon a failure to meet certain financial performance
criteria, subject to the manager's right to prevent such termination by making
certain payments to the Sublessee based upon the shortfall in such criteria.

Events of Default. Events of default under the management agreement include
the following: (i) the filing of a petition in bankruptcy or insolvency or a
petition for reorganization under any bankruptcy law, or the admission by
either party that it is unable to pay its debts as they become due; (ii) the
consent to an involuntary petition in bankruptcy or the failure to vacate,
within 90 days from the date of entry thereof, any order approving an
involuntary petition by either party; (iii) the entering of an order, judgment
or decree by any court of competent jurisdiction, on the application of a
creditor, adjudicating either party as bankrupt or insolvent or approving a
petition seeking reorganization or appointing a receiver, trustee, or
liquidator of all or a substantial part of such party's assets, and such
order, judgment or decree is continuing unstayed and in effect for any period
of 90 days; (vi) the failure of either party to make any payment required to
be made in accordance with the terms of the management agreement, as of the
due date which is specified therein; or (v) the failure of either party to
perform, keep or fulfill any of the other covenants, undertakings, obligations
or conditions set forth in the management agreement.

As stated above, all fees payable under the management agreements will
become obligations of the Sublessee, to be paid by the Sublessee, for so long
as the HPT Leases remain in effect. The Sublessee's obligation to pay these
fees, however, could adversely affect the ability of such Sublessee to pay
rent under the HPT Leases, even though such amounts are otherwise due and owed
to the HPT Lessor.

DESCRIPTION OF OTHER HOTEL MANAGEMENT AGREEMENTS

Of the approximately 125 hotels expected to be leased from Host or Host REIT
to the Company, 15 hotels are, and will continue to be, managed by the
following four Non-MI Managers: (i) The Durbin Companies, Inc.; (ii)
Interstate Hotels Corporation; (iii) Outrigger Lodging Services; and (iv)
Stormont Trice Corporation. Thirteen of these 15 Non-MI Managed Hotels operate
under the "Marriott" namebrand pursuant to existing franchise agreements
between either the hotel owner or the Non-MI Managers and Marriott
International, whereby Marriott International receives a franchise fee for
allowing the use of the "Marriott" namebrand. See "Other Relationships with
Marriott International--Franchise Agreements." The remaining two Non-MI
Managed Hotels are operated as "Holiday Inn" and "Delta" hotels.

Each management agreement has a fixed term ranging from three to 16 years
with some extension options. Under the management agreements, the Non-MI
Managers shall provide similar management and operating services which are
provided by Marriott International under its management agreements. In return
for these services, the Non-MI Managers generally receive a fixed base
management fee ranging from 1.0% to 3.0% of gross revenues. In some instances,
the Non-MI Managers are also entitled to receive an incentive management fee
in the range of 10% to 35% of the amount by which the operating profit for the
applicable hotel exceeds the owner's required minimum return. For one such
Non-MI Manager, the incentive management fee is equal to 10% of the amount by
which the current operating profit exceeds the operating profit for the
immediately preceding year.

The Lessees will assume the management agreements and will be obligated to
perform certain of the obligations of the Lessor for the term of the Hotel
Lease of such hotel.

DESCRIPTION OF HOTEL MANAGEMENT AGREEMENTS FOR BLACKSTONE HOTELS

The Blackstone Entities' hotels (the "Blackstone Hotels") are, and will
continue to be, managed by the existing management companies. Except for the
Ritz-Carlton Hotel Company, which manages two Blackstone Hotels and is a
wholly owned subsidiary of Marriott International, the managers for the
Blackstone Hotels are not affiliated with either the Company, Host or Marriott
International. In addition, none of the Blackstone Hotels are operated under
"Marriott" brands. The management agreements for the Blackstone Hotels are
substantially

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similar to the Marriott International management agreements. For management
services provided, the managers of the Blackstone Hotels receive basic
management fees, generally calculated as a percentage of gross revenue, and in
most cases, incentive management fees, which are generally calculated as a
percentage of operating profits. In connection with the Blackstone
Acquisition, the Blackstone Entities' 25% ownership interest in Swissotel
Management (U.S.) L.L.C. will be contributed to the Company.

DESCRIPTION OF OPERATING AGREEMENTS FOR THE COMMUNITIES

The Communities are managed by Marriott Senior Living Services, Inc., a
subsidiary of Marriott International, as manager ("MSLS"), pursuant to
operating agreements entered into with the subsidiaries of the Company that
own the applicable Community.

Management Services Provided by MSLS under the Operating Agreements. Under
each of the operating agreements, MSLS provides complete management services
to the Company in connection with its management of such Communities.
Generally, each of the operating agreements have initial terms of 30 years
with one five-year renewal option. The services provided by MSLS include the
following:

Operational Services. MSLS has the sole responsibility and exclusive
authority for all activities for the day-to-day operation and management of
the Communities, including obtaining all licenses necessary for the operation,
establishing resident care and healthcare policies and procedures, carrying
out and supervising all necessary repairs and maintenance, procuring food
stuff, supplies, equipment, furniture and fixtures, and establishing prices,
rates and charges for services provided. MSLS recruits, employs, supervises,
directs and discharges all of the employees, and provides all managerial and
other employees for the Communities. In addition, MSLS has exclusive
supervision and control in all matters relating to the management and
operation of the Communities, including the following: fees and charges for
providing accommodations, food, health care and related services to residents
and their guests; supervision of resident care; health care policies; credit
policies; food and beverage services; employment policies; executing,
modifying and terminating leases, licenses and concessions and agreements for
commercial space within the Communities; receipt, holding and reimbursement of
funds; maintenance of bank accounts; and procurement of inventories, supplies
and services; and promotion and publicity. In return for these services, MSLS
will receive compensation from the Company in the form of (i) a non-cumulative
base fee calculated as a percentage of revenue and (ii) an incentive fee
calculated as 20% of operating profit in excess of owner's priority.

Central Administrative Services. The operating agreements require MSLS to
furnish certain central administrative services ("Central Administrative
Services") which are generally furnished on a central or regional basis to
other senior living communities in the Marriott retirement community system.
Such services will include the following: (i) marketing and public relations
services; (ii) human resources program development; (iii) information systems
support and development; and (iv) centralized computer payroll and accounting
services. In lieu of reimbursement for such services, MSLS is paid an amount
equal to 2% of gross revenues. Generally, through the earlier of (i) the end
of the seventh year of the operating agreement or (ii) the date upon which
certain performance criteria have been met, 50% of the Central Administrative
Services fee is payable only to the extent that operating profit exceeds
owner's priority. However, the payment of fees for the Central Administrative
Services is waived for the first year of the operating agreement with the
exception of one Community in which it is waived for the first two years of
the operating agreement.

Working Capital. The Company is required to maintain certain working capital
for each Community, and from time to time advance, at the request of MSLS, any
additional funds necessary to maintain working capital at levels generally
consistent with the Marriott senior living community system standard.

FF&E Replacements and Reserves. MSLS establishes a reserve account (the
"FF&E Reserve") to cover the cost of (i) replacements and renewals to the
furniture, furnishing, fixtures, soft goods, case goods, vehicles and
equipment, and for routine building repairs and maintenance which are normally
capitalized. Generally, throughout the term, MSLS is required to transfer into
the FF&E Reserve an amount equal to (i) 2.65% of gross

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revenue until the end of fiscal year 2002, (ii) 2.85% of gross revenue during
the period from fiscal year 2003 until the end of fiscal year 2007, and (iii)
3.5% of gross revenue during the period from fiscal year 2008 until the end of
the term (the "FF&E Reserve Payment"). Each year, MSLS will provide an
estimate of the expenditures necessary for such replacement of FF&E and
repairs to the Communities (the "FF&E Estimate"). In replacing the FF&E and
making routine repairs, MSLS may not expend more than the balance in the FF&E
Reserve, except in certain circumstances where such expenditures in excess of
the FF&E Reserve (i) could not have been reasonably foreseeable at the time of
the submission of the FF&E Estimate, (ii) result from circumstances which
require prompt repair or replacement necessary to comply with any federal,
state or local laws, code, regulations, ordinances and requirements ("Legal
Requirements"), and (iii) are reflected in a revised FF&E Estimate provided by
MSLS to the Company. Any remaining balance in the FF&E Reserve at the end of
the fiscal year will be carried over as a beginning balance of the next fiscal
year.

Major Building Alteration, Improvements and Renewals. The operating
agreements require MSLS to prepare an annual estimate of the expenditures
necessary for major repairs, alterations, improvements, renewals and
replacements to the structural, mechanical, electrical, heating, ventilating,
air conditioning, plumbing and vertical transportation elements of each
Community (the "Capital Expenditures"). Such estimate of the Capital
Expenditures will be submitted to the Company for its approval. Except in
certain circumstances necessitated by Legal Requirements or potential harm to
the Communities, their guests, invitees or employees, MSLS may not make any
Capital Expenditures without the prior written consent of the Company. Under
the operating agreements, the Company may not unreasonably withhold consent to
repairs and other changes arising out of Legal Requirements or which are
required under MSLS's "life-safety" standards. The costs of these Capital
Expenditures are paid by the Company.

Events of Default. Events of default under the operating agreements ("Events
of Default") include, among others, the following: (i) the failure of either
party to make prompt payments pursuant to the operating agreement, (ii) the
failure of either party to perform, keep or fulfill any of the covenants,
undertakings, obligations or conditions set forth in the operating agreement,
(iii) if either party commences any proceeding under any bankruptcy,
reorganization, readjustment of debt, dissolution or liquidation law or
statute or an assignment for the benefit of creditors or application for the
appointment of at a trustee or receiver for a substantial part of the assets,
(iv) if either party consents to an involuntary petition in bankruptcy or
fails to vacate, within 90 days from the date of entry thereof, any order
approving an involuntary petition by such party; or (v) if an order, judgment
or decree by any court of competent jurisdiction, on the application of a
creditor, adjudicating either party as bankrupt or insolvent or approving a
petition seeking reorganization or appointing a receiver, trustee, or
liquidator of all or a substantial part of such party's assets is entered, and
such order, judgment or decree's continues unstayed and in effect for any
period of 90 days.

Termination. Upon the occurrence of an Event of Default, the non-defaulting
party shall have the right to terminate the operating agreement with 30 days'
notice, if such default is a material breach by the defaulting party of its
obligations under the operating agreement. MSLS also is entitled to terminate
the operating agreement if the Community Owner fails to approve certain
repairs which arise out of Legal Requirements.

DESCRIPTION OF OTHER AGREEMENTS FOR THE COMMUNITIES

The Communities also are subject to the following agreements:

THE INDEMNITY AGREEMENT

In connection with the Forum Acquisition, Host, the Company, Marriott
International and MSLS entered into an indemnity agreement which defines the
parties' rights and obligations for indemnification with respect to
liabilities arising prior to and after the Forum Acquisition Date. Together
with Host, the Company will indemnify and hold harmless Marriott
International, MSLS and their affiliates against certain liabilities that
arise after the date of the agreement, including any costs and expenses
incurred as a result of defending such claims. In addition, together with
Host, the Company will agree to pay or reimburse Marriott International and
MSLS for

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all environmental liabilities arising subsequent to the Forum Acquisition Date
which, under the applicable environmental laws, would be the responsibility of
the Company and Host had the Company acquired title to the Communities on the
Forum Acquisition Date, rather than acquiring the common stock of Forum.

TAX MATTERS AGREEMENT

Host, the Company, Forum, Marriott International and MSLS entered into a tax
matters agreement which defines the parties' rights and obligations with
respect to certain tax matters, including deficiencies, assessments and
refunds of federal, state, local or foreign income or other taxes relating to
the Community business for tax years prior to and after June 21, 1997 (the
date Forum was acquired by Host) (the "Tax Matters Agreement"). Together with
Host, the Company will indemnify and hold harmless Marriott International,
MSLS and their affiliates from and against tax liabilities relating to the
business of the Communities which accrue or are attributable or allocable to
any taxable year beginning after June 21, 1997. In addition, the parties have
agreed to cooperate and consult with each other in preparing tax returns or
dealing in any tax matters.

The Tax Matters Agreement will be in effect until all the obligations of the
respective parties have been carried out and until the expiration of any
applicable statute of limitations relating to tax matters covered by the Tax
Matters Agreement. In connection with the Distribution, the Company will
assume all of Host's obligation under the Tax Matters Agreement relating to
periods subsequent to the Distribution Date and indemnify Host with respect to
any claims made with respect thereto.

THE EXPANSION AGREEMENTS

The Company entered into Expansion Agreements with MSLS, pursuant to which
the parties agreed that MSLS would construct additional independent living,
assisted living and healthcare units to some of the existing Communities. The
Expansion Agreements require MSLS to provide all services related to such
construction of additional units, including all labor, materials, equipment,
tools, construction equipment and machinery, water, heat, utilities,
transportation, and other facilities and services necessary for proper
execution and completion of the work necessary to expand the Community to
include additional units. In providing these services, it is contemplated that
MSLS would retain the services of its affiliate, Marriott International Design
& Construction Services, Inc.

As of September 29, 1998, the Company and MSLS have entered into eight
separate expansions for projects. The construction for six of these projects
is in progress and is expected to be completed by 1999. The number of units
for the remaining two projects have been partially completed with the
construction of the remaining units for these two projects to be determined
after a feasibility analysis. The determination to proceed with the
construction of these remaining units is at the sole option of MSLS.

The Company will pay MSLS a predetermined fixed price for each expansion
project upon completion of the project. The fixed price for each expansion
project has been agreed upon in each project's respective expansion agreement.
The expansion payment may be payable either in all cash or (i) up to 35% of
such amount by cash and (ii) 65% of such amount by expansion notes. These
notes are obligations of the Company and are guaranteed by Host.

THE POOLING AGREEMENTS

As of September 29, 1998, 29 of the Communities are subject to Pooling
Agreements between the Company and MSLS. The Pooling Agreements aggregate the
Communities into five distinct "pools." The gross revenues, operating
expenses, operating profits, net operating profits and owner's priority of the
Communities within a particular pool are aggregated to determine incentive
management fees, Central Administrative Service fees and performance
termination thresholds.

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THE GROUND LEASES

The Company owns all of the Communities in fee simple, except for the
following Communities, which are subject to ground leases: (i) the
Knightbridge Community; (ii) the Lexington at Country Place Community; and
(iii) the Lafayette at Country Place Community. All three ground leases
generally provide for initial terms of 25 years with certain renewal options.
In the case of the Knightbridge Community, the Company has the option to
purchase the ground leased property after the death of the landlord for a
consideration as provided in the lease. Under the Lexington and Lafayette
ground leases, the Company has the right of first refusal to purchase the land
if the landlord receives a bona fide offer from a third party to purchase the
underlying real property.

OTHER RELATIONSHIPS WITH MARRIOTT INTERNATIONAL

NON-COMPETITION AGREEMENTS

The Company will be bound by certain non-competition agreements with
Marriott International, pursuant to which the Company's business opportunities
will be restricted. See "Business and Properties--Non-Competition Agreements."

FRANCHISE AGREEMENTS

As of June 19, 1998, 13 of the 15 Non-MI Hotels expected to be leased by the
Company are operated or managed under franchise agreements between either the
owner or the Non-MI Manager and Marriott International. See "Business and
Properties--Description of Other Hotel Management Agreements." The franchise
agreements permit Host REIT and the Non-MI Managers to use the "Marriott"
namebrand, associated trademarks, reservation systems and other related items
(collectively, the "Marriott Franchise") in connection with the operation of
the hotels. The remaining two hotels are managed by Non-MI Managers under
"Holiday Inn" or "Delta" brand names. The Company will assume the franchise
agreements with respect to the hotels it leases from Host REIT and will be the
franchisee during the term of the Hotel Leases.

Franchise and Other Fees. As consideration for the use of the Marriott
Franchise, Marriott International is paid franchise fees. Generally, Marriott
International receives a fixed non-refundable initial fee. In addition,
Marriott International has a right to receive franchise fees, equal to (i) the
applicable percentage of gross room sales plus (ii) the applicable percentage
of gross food and beverage sales. The percentages used to calculate the
franchise fees vary, although they are generally 3% to 6% of the gross room
sales, and gross food and beverage sales, as the case may be.

In addition to franchise fees, Marriott International is entitled to receive
monthly fees in connection with advertising, promotional, sales and marketing
("Chain-Wide APS Fees"), generally equal to 1% of gross room sales for the
previous month.

Marketing. The franchisee is responsible, at its own costs and expenses, for
all local advertising, marketing, promotional and public relations programs
and activities for the hotel. All such advertising and promotional activities
shall be in accordance with the Marriott Standard and shall conform to
specifications as Marriott International may from time to time prescribe. In
addition, such advertising and marketing materials shall be submitted to
Marriott International for prior approval.

As part of the Marriott Franchise, Marriott International will make
available specifications and/or all required application software for the
Marriott property system. The franchisee shall, at is own expense, purchase,
install, and use the Marriott property system hardware and software. As long
as the franchisee is in compliance with the franchise agreement, Marriott
International shall also make available for use, the Marriott Hotel
Reservation System.

Financing of the Hotels. Under the Franchise Agreements, the franchisee is
not permitted to incur or replace any indebtedness which is secured by a lien
on the applicable hotel without the prior written consent of Marriott
International, which consent shall not be unreasonably withheld. In some
instances, the franchisee may replace any indebtedness which is secured by a
lien on the applicable hotel without the prior written consent of

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Marriott International, if (i) the franchisee provides written notice of such
indebtedness and the terms thereof to Marriott International, (ii) the terms
of such indebtedness are commercially reasonable, (iii) the maximum loan
amount will not exceed 75% of the appraised value of the hotel, and (iv) the
debt coverage ratio is equal to or greater than 1.3.

Alteration, Renovation and Refurbishment of the Hotels. If the applicable
hotels requires significant renovations or refurbishment of the hotel
affecting the design, character or appearance, any such renovation or
refurbishment shall be subject to the prior written approval of Marriott
International. Any such renovation or refurbishment must be completed in
accordance with the Marriott International criteria.

FF&E, Uniforms and Supplies. The franchisee is only permitted to use such
FF&E, inventories, fixed asset supplies and other items which conform to the
standards and specifications designated and approved by Marriott
International. The franchisee is not permitted to enter into any binding
purchase agreements to purchase FF&E for the hotel until Marriott
International has approved in writing the proposed FF&E acquisition.

FF&E Reserves. The franchisee shall establish an escrow account ("FF&E
Reserve") and fund it monthly in an amount generally equal to 3% to 5% of the
gross revenue. The FF&E shall be used to fund significant renovations and
other necessary replacement and renewals of FF&E. Generally, all soft goods,
such as textile, fabric, vinyl, floor coverings, draperies, cornice coverings,
carpeting, bedspreads, lamp shades, an reupholstering of furniture and
furnishings, shall be replaced every five to six years. Case goods, such as
furniture and fixtures, chests, chairs, beds, headboards, desks, lamps,
tables, television sets, mirrors, pictures, and wall decorations shall be
replace every 10 to 12 years. Under the Leases, Host REIT will remain
responsible for the FF&E Reserve.

The franchisee shall submit to Marriott International an estimate of the
expenditures necessary each year from the FF&E Reserve to fund the necessary
replacements and renewals of FF&E and significant renovations.

Non-Competition. During the term of the franchise agreements, the franchisee
and its affiliates generally may not, without the prior written consent of
Marriott International, directly or indirectly own any interest in or in any
manner be connected or associated with any full-service hotel located within
five miles of the applicable hotel other than a hotel operated by Marriott
International or its affiliates.

In addition, in the event of termination of the franchise agreement due to a
default by the franchisee, the franchisee and its affiliates shall not operate
the applicable hotel as part of any first-class hotel brand, including, but
not limited to Hilton, Sheraton, Hyatt, Radisson and Westin, for a period of
24 months after the date the franchise agreement is terminated.

Events of Default. The franchisee is deemed to be in default under the
franchise agreement upon occurrence of the following events: (i) franchisee
becomes insolvent or makes a general assignment for the benefit of creditors;
(ii) franchisee files a voluntary petition in bankruptcy or insolvency or a
petition for reorganization under any bankruptcy law; (iii) franchisee
consents to an involuntary petition in bankruptcy filed against it or an order
approving an involuntary petition in bankruptcy filed against the franchisee
shall remain unvacated 90 days after the date of entry thereof; (iv) court
enters an order or judgment adjudicating the franchisee as bankrupt; (v)
proceedings for a compromise with creditors is instituted and not vacated
within 90 days after being instituted; (vi) execution is levied against the
hotel or any real or personal property comprising the hotel; or (vii) suit to
foreclose any lien or mortgage against the hotel or any real or personal
property which is a party of the hotel is initiated and not vacated within 60
days.

In addition, the franchisee is deemed in default of the franchise agreement
if: (i) immediate closing of the hotel is deemed necessary by Marriott
International to avoid substantial liability arising out of dangerous or
unsafe condition of the property; (ii) franchisee or any owner of officers of
the franchisee is convicted of a felony or other crime or offense; (iii)
franchisee divulges any confidential information in violation of the franchise
agreement; (iv) the hotel is no longer operated by the franchisee as
"Marriott" brand; (v) franchisee purports to

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transfer any rights or obligations arising out of the franchise agreement
without complying with the terms therein; (vi) franchisee fails to repair and
maintain the premises, or fails to replace FF&E, as required; or (vii)
franchisee fails to perform in accordance with any of the provisions of the
franchise agreement.

NON-COMPETITION AGREEMENTS

The Company's activities are and will be limited by certain agreements to
which it is or will become a party.

Non-Competition Agreement with Marriott International Regarding the
Hotels. Host and Marriott International entered into the Hotel Non-Competition
Agreement in 1993 when Host and Marriott International became separate public
companies. Under the Hotel Non-Competition Agreement, Host and its
subsidiaries generally are prohibited prior to October 8, 2000, subject to
certain limited exceptions, from entering into or acquiring any business that
competes with the hotel management business as conducted by Marriott
International. Under the Hotel Non-Competition Agreement, certain activities
are permitted, including, (i) the operation by Host of an unlimited number of
hotel properties as long as Host does not operate more than ten such
properties under a common brand name, (ii) contracting by Host with a third
party manager for operation of an unlimited number of hotel properties, so
long as the number of properties under such third party management is not more
than the greater of (a) ten such properties operated under a common name or
(b) 25% of the system operated by such third party manager under a common name
brand, and (iii) franchising by Host as franchisor an unlimited number of
hotel properties so long as Host is not franchisor for more than ten such
properties under a common name. The Company also will be bound by the Hotel
Non-Competition Agreement following the Distribution.

Non-Competition Agreement with Marriott International Regarding the
Communities. In connection with the Company's acquisition of Forum from
Marriott International in 1997, Host and Marriott International entered into
the Community Non-Competition Agreement. Under the Community Non-Competition
Agreement, Host and its subsidiaries generally are prohibited prior to June
21, 2007, subject to certain limited exceptions, from competing with Marriott
International by (i) financing, conducting, participating or engaging in the
business of operating, managing or franchising (as franchiser) senior living
communities or (ii) providing operational or managerial services relating
thereto with respect to health care, therapy, home health care, assisted
living, nursing and related medical, residential, supportive and personal care
services. Until the term of the Community Non-Competition Agreement expires on
June 21, 2007, Host is prohibited from entering into a transaction or a series
of transactions whereby ten or more Communities or a controlling interest
therein would be transferred to another party unless such party agrees to be
bound by the Community Non-Competition Agreement. The Company, as the current
owner of all of Host's senior living communities, is bound by the Community
Non-Competition Agreement and will continue to be bound by it following the
Distribution.

Non-Competition Agreement with Host or Host REIT Regarding the Hotels. The
Company, Host REIT and the Initial FF&E Lessor will enter into a non-
competition agreement in connection with the Distribution. Pursuant to this
non-competition agreement, the Company will agree, among other things that,
until the earlier of December 31, 2008 and the date on which it is no longer
Lessee for more than 25% of the hotels owned by Host REIT at the time of the
Distribution it will not (i) own, operate or otherwise control (as owner or
franchisor) any full-service hotel brand or franchise or purchase, finance or
otherwise invest in full-service hotels or act as an agent or consultant with
respect to any of the foregoing activities, (except for acquisitions of
property used in hotels as to which the Company is the Lessee and for
investments in full-service hotels which represent an immaterial portion of a
merger or similar transaction or a minimal portfolio investment in another
entity, limited investments (whether debt or equity) in full-service hotels as
to which the Company is the Lessee or activities undertaken with respect to
its business of providing asset management services to hotel owners), or (ii)
without the consent of Host or Host REIT, manage any of hotels owned by Host
or Host REIT, other than to provide asset management services as described in
"Business and Properties--Relationship with Host after the Distribution--Asset
Management Agreement." Host REIT will agree, among other things, that, (i)
until December 31, 2003, neither of them will purchase, finance or otherwise
invest in senior living communities, or

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act as an agent or consultant with respect to any of the foregoing activities
(except for acquisitions of communities which represent an immaterial portion
of a merger or similar transaction or for minimal portfolio investments in
other entities) and (ii) until the earlier of December 31, 2008, and the date
on which the Company is no longer a Lessee for more than 25% of the hotels
owned by Host REIT at the time of the Distribution, neither of them will
lease, as tenant or subtenant, limited or full-service hotel properties and
act as operator or franchisee thereof or provide asset management services to
owners of hotels, or purchase, finance or otherwise invest in persons or
entities which engage in any of the foregoing activities, or act as an agent
or consultant with respect to any of the foregoing activities (except for
acquisitions of entities which engage in any of the foregoing activities where
the prohibited activities represent an immaterial portion of a merger or
similar transaction, or minimal portfolio investments in other entities which
engage in any of the foregoing activities, or certain leasing arrangements
existing at the time of the Distribution or entered into in the future between
Host REIT and the Initial FF&E Lessor or Host REIT and certain other related
parties, or the management by Host REIT of any hotels in which Host REIT or
the Initial FF&E Lessor has an equity interest). In addition, both the Company
and Host REIT will agree not to attempt to hire or hire any of the other
company's other senior employees at any time prior to December 31, 2000. See
"Business and Properties--Relationship with Host after the Distribution--Non-
Competition Agreement."

SEASONALITY

The hotel industry is seasonal in nature. The seasonality of the industry
may, from time to time, affect the ability of the Company to make timely rent
payment under the Hotel Leases.

STAFFING AND LABOR COSTS

Marriott International competes with various other lodging companies in
attracting and retaining qualified and skilled personnel to operate the hotels
managed by it. Marriott International also competes with various health care
services providers, including other care providers for the elderly, in
attracting and retaining qualified or skilled personnel for the Communities. A
shortage of such personnel or general inflationary pressure may require
Marriott International to enhance its wage and benefits package to compete
effectively for personnel necessary to operate the hotels and the Communities,
which could adversely affect the Company's net income attributable to the
hotels and the Communities.

REGULATION OF THE HEALTHCARE INDUSTRY

The long-term care segment of the healthcare industry is highly regulated.
Operators of healthcare communities are subject to federal, state and local
laws relating to the delivery and adequacy of medical care, fraud and abuse,
distribution of pharmaceuticals, equipment, personnel, operating policies,
fire prevention, rate-setting and reimbursement, and compliance with safety
codes and environmental laws. Operators of healthcare communities also are
subject to periodic inspection by governmental and other authorities to assure
continued compliance with various standards, the continued licensing of the
community under state law, certification under the Medicare and Medicaid
programs and the ability to participate in other third party payment programs.
Many states have adopted Certificate of Need or similar laws which generally
require that the appropriate state agency approve certain acquisitions of
healthcare communities and reimbursement, and determine that need exists for
certain bed additions, new services and capital expenditures or other changes
prior to beds and/or new services being added or capital expenditures being
undertaken. The failure to obtain or maintain any required regulatory
approvals or licenses could prevent an operator from offering services or
adversely affect its ability to receive reimbursement for services and could
result in the denial of reimbursement, temporary suspension of admission of
new patients, suspension or decertification from the Medicaid or Medicare
program, fines, restrictions on the ability to acquire new communities or
expand existing communities and, in extreme cases, revocation of the
community's license or closure of a community.

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becoming subject to more stringent regulation and licensing by state and local
health and social service agencies and other regulatory authorities. In
general, these requirements address, among other things: personnel education,
training and records; community services, including administration of
medication, assistance with self-administration of medication and limited
nursing services; monitoring of wellness; physical plant inspections;
furnishing of resident units; food and housekeeping services; emergency
evacuation plans; and resident rights and responsibilities, including in
certain states the right to receive certain healthcare services from providers
of a resident's choice. In several states, assisted living facilities also
require a Certificate of Need before the facility can be opened, expand or
reduce its resident capacity or make other significant capital expenditures.
Like healthcare communities, assisted living communities are subject to
periodic inspection by government authorities. In most states, assisted living
communities, as well as healthcare communities, also are subject to state or
local building code, fire code and food service licensure or certification
requirements. Any failure by the managers of the Company's Communities to meet
applicable regulatory requirements may result in the imposition of fines,
imposition of a provisional or conditional license or suspension or revocation
of a license or other sanctions or adverse consequences, including delays in
expanding a community. Any failure by the managers of the Company's
Communities to comply with such requirements could have a material adverse
effect on the Company.

Healthcare operators also are subject to federal and state anti-remuneration
laws and regulations, such as the Medicare/Medicaid anti-kickback law, which
govern certain financial arrangements among healthcare providers and others
who may be in a position to refer or recommend patients to such providers.
These laws prohibit, among other things, the offer, payment, solicitation or
receipt of any form of remuneration in return for the referral of Medicare and
Medicaid patients or the purchasing, leasing, ordering or arranging for any
goods, facilities, services or items for which payment can be made under
Medicare or Medicaid. A violation of the federal anti-kickback law could
result in the loss of eligibility to participate in Medicare or Medicaid, or
in civil or criminal penalties. The federal government, private insurers and
various state enforcement agencies have increased their scrutiny of providers,
business practices and claims in an effort to identify and prosecute
fraudulent and abusive practices. In addition, the federal government has
issued fraud alerts concerning nursing services, double billing, home health
services and the provision of medical supplies to nursing facilities;
accordingly, these areas may come under closer scrutiny by the government.
Furthermore, some states restrict certain business corporations from
providing, or holding themselves out as a provider of medical care. Possible
sanctions for violation of any of these restrictions or prohibitions include
loss of licensure or eligibility to participate in reimbursement programs and
civil and criminal penalties. State laws vary from state to state, are often
vague and have seldom been interpreted by the courts or regulatory agencies.
There can be no assurance that these federal and state laws will ultimately be
interpreted in a manner consistent with the Company's practices.

ENVIRONMENTAL MATTERS

Under various federal, state and local laws, ordinances and regulations,
owners or operators of real estate may be required to investigate and clean up
certain hazardous substances released at a property, and may be held liable to
a governmental entity or to third parties for property damage or personal
injuries and for investigation and clean-up costs incurred by the parties in
connection with any contamination. In addition, some environmental laws create
a lien on a contaminated site in favor of the government for damages and costs
it incurs in connection with the contamination. The presence of contamination
or the failure to remediate contamination may adversely affect the owner's
ability to sell or lease real estate or to borrow using the real estate as
collateral. No assurances can be given that (i) a prior owner, operator or
occupant, such as a tenant, did not create a material environmental condition
not known to the Company, (ii) a material environmental condition with respect
to any hotel or community does not exist or (iii) future uses or conditions
(including, without limitation, changes in applicable environmental laws and
regulations) will not result in the imposition of environmental liability.

No assurances can be given, that all potential environmental liabilities
have been identified or properly quantified or that no prior owner, operator
or past or current guest or occupant has created an environmental

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condition not known to the Company. Moreover, no assurances can be given that
(i) future laws, ordinances, or regulations will not impose any material
environmental liability or (ii) the current environmental condition of the
hotels or the Communities will not be affected by the condition of land or
operations in the vicinity of the hotels or the Communities (such as the
presence of underground storage tanks) or by third parties unrelated to the
Company.

EMPLOYEES

Upon completion of the Distribution, the Company expects to have
approximately 80 employees.

LEGAL PROCEEDINGS

The Company is involved in various lawsuits and claims arising in the normal
course of business. In the opinion of management of the Company, although the
outcomes of these suits and claims are uncertain, in the aggregate they should
not have a material adverse effect on the Company's business, financial
condition and results of operations.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to those
persons who have agreed to serve as the directors and executive officers of
the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
<S> <C> <C>
Bruce D. Wardinski(1)... 38 Chairman of the Board, President and Chief Executive Officer
James L. Francis........ 36 Executive Vice President, Chief Financial Officer and Treasurer
Bruce F. Stemerman...... 43 Executive Vice President--Asset Management
Steven J. Fairbanks..... 34 Executive Vice President--Lodging Investments
Larry K. Harvey......... 34 Senior Vice President and Corporate Controller
Tracy M. J. Colden...... 36 Senior Vice President, General Counsel and Secretary
Christopher J.
Nassetta(1)............ 36 Director
Adam M. Aron(2)(3)...... 44 Director Nominee
Louise M. Crom-
well(2)(4)............. 53 Director Nominee
Kelvin L. Davis(1)(4)... 34 Director Nominee
John B. Morse,
Jr.(1)(4).............. 51 Director Nominee
Michael A. Wild-
ish(2)(3).............. 38 Director Nominee
William L.
Wilson(3)(4)........... 58 Director Nominee
</TABLE>
- --------
(1) Member of Executive Committee.
(2) Member of Nominating and Corporate Governance Committee
(3) Member of Compensation Committee.
(4) Member of Audit Committee.

Executive officers are appointed by and serve at the discretion of the Board
of Directors. The following is a biographical summary of the experience of the
directors, director nominees and executive officers of the Company:

Bruce D. Wardinski. Mr. Wardinski, Chairman of the Board, President and
Chief Executive Officer of the Company, joined Host in 1987 as a Senior
Financial Analyst of Financial Planning and Analysis and was named Manager in
June 1988. He was appointed Director of Financial Planning and Analysis of
Host in 1989, Director of Project Finance in January 1990, Senior Director of
Project Finance in June 1993, Vice President of Project Finance in June 1994
and Senior Vice President of International Development in October 1995. In
June 1996, Mr. Wardinski was elected Senior Vice President and Treasurer of
Host. Prior to joining Host, Mr. Wardinski was with the public accounting firm
of PricewaterhouseCoopers LLP.

James L. Francis. Mr. Francis, Executive Vice President and Chief Financial
Officer of the Company, joined Host in July 1997 as Vice President of Finance
and became Assistant Treasurer of Host in February 1998. He was Vice President
and Division Controller, Courtyard by Marriott/Fairfield Inn at Marriott
International from 1993 to 1994, served as Brand Executive, Courtyard by
Marriott at Marriott International from 1994 to 1995, served as Vice President
of Finance, Lodging-Reengineering Team Leader of Marriott International from
1995 to 1997 and was promoted to Vice President of Finance, Lodging-Asset
Management and Owner Relations of Marriott International in 1997 prior to his
joining Host in that year.

Bruce F. Stemerman. Mr. Stemerman, Executive Vice President--Asset
Management of the Company, joined Host in 1989 as Director--Partnership
Services. He was promoted to Vice President--Lodging Partnerships of Host in
1994 and became Senior Vice President--Asset Management of Host in 1996. Prior
to joining Host, Mr. Stemerman was with the public accounting firm of
PricewaterhouseCoopers LLP.

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Steven J. Fairbanks. Mr. Fairbanks, Executive Vice President, joined Host in
1996 as Vice President--Acquisitions. In 1997, he was elected Senior Vice
President--Acquisitions of Host. Prior to joining Host, he served as Vice
President of Capital Management and Development Corporation from 1992 until
1996. He had previously served as a principal with Eastbanc from 1988 to 1992.

Larry K. Harvey. Mr. Harvey, Senior Vice President and Corporate Controller
of the Company, joined Host in 1994 as Senior Manager--Corporate Accounting.
In 1995, Mr. Harvey was promoted to Director--Corporate Accounting of Host. He
was promoted to Senior Director--Corporate Accounting of Host in 1997 and Vice
President--Corporate Accounting of Host in 1998. Prior to joining Host, Mr.
Harvey was with the public accounting firm of PricewaterhouseCoopers LLP.

Tracy M. J. Colden. Ms. Colden, Senior Vice President, General Counsel and
Secretary of the Company, joined Host as an Attorney in 1996. She was promoted
to Senior Attorney of Host in June 1996 and became Assistant General Counsel
of Host in June 1997. Prior to joining Host, Ms. Colden was an attorney with
the law firm of Hogan & Hartson L.L.P.

Christopher J. Nassetta. Mr. Nassetta, a director of the Company, joined
Host in October 1995 as Executive Vice President and was elected Chief
Operating Officer of Host in 1997. Prior to joining Host, Mr. Nassetta served
as President of Bailey Realty Corporation from 1991 until 1995. He had
previously served as Chief Development Officer and in various other positions
with The Oliver Carr Company from 1984 through 1991.

Adam M. Aron. Mr. Aron, a director nominee of the Company, has held the
position of Chairman of the Board and Chief Executive Officer of Vail Resorts,
Inc. since 1996. Prior to joining Vail Resorts, Inc., Mr. Aron served as
President and Chief Executive Officer of Norwegian Cruise Line Ltd. from 1993
until 1996. He had previously served as Senior Vice President--Marketing of
United Airlines from 1990 to 1993. Prior to joining United Airlines, Mr. Aron
was the Senior Vice President--Marketing for Hyatt Hotels Corporation from
1987 to 1990. Mr. Aron currently serves on the Board of Directors of the
Sunterra Corporation and the Florsheim Group, Inc.

Louise M. Cromwell. Ms. Cromwell, a director nominee of the Company,
currently serves as Senior Counsel in the Real Estate Practice Group of Shaw,
Pittman, Potts & Trowbridge. She acts as General Counsel of Federal City
Council. Ms. Cromwell is a member of the National Association of Corporate
Directors, The Greater Washington Board of Trade, Leadership Washington and
the Board of Directors of The Economic Club of Washington.

Kelvin L. Davis. Mr. Davis, a director nominee of the Company, is the
President and Chief Operating Officer of Colony Capital, Inc. Prior to the
formation of Colony Capital, Inc., Mr. Davis served as a principal of RMB
Realty, Inc., the real estate development vehicle of Robert M. Bass. Prior to
his affiliation with RMB Realty, Inc., Mr. Davis worked at Goldman, Sachs &
Co. in New York City and with Trammell Crow Company in Dallas and Los Angeles.

John B. Morse, Jr. Mr. Morse, a director nominee of the Company, has held
the position of Vice President, Finance, and Chief Financial Officer of The
Washington Post Company since 1989. Prior to holding such position, Mr. Morse
served as Vice President and Controller of The Washington Post Company from
July 1989 to November 1989. Mr. Morse also currently serves as the President
of Washington Post Telecommunications, Inc. and Washington Post Productions,
Inc., subsidiaries of The Washington Post Company. Mr. Morse formerly was the
Chairman of the Board of Directors of MLJ, an engineering consulting firm in
which The Washington Post Company previously was the largest shareholder.
Prior to joining The Washington Post Company, Mr. Morse was a Partner with the
public accounting firm of PricewaterhouseCoopers LLP.

Michael A. Wildish. Mr. Wildish, a director nominee of the Company, has been
a Managing Director in the investment firm of Donaldson, Lufkin & Jenrette
since 1997. Prior to joining Donaldson, Lufkin & Jenrette,

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Mr. Wildish worked in the investment firm of Lazard Freres & Co. LLC, where he
served as a General Partner from 1996 to 1997, as Vice President from 1992 to
1995 and as an Associate from 1989 to 1991. Prior to joining Lazard Freres &
Co. LLC, Mr. Wildish served as an Associate with the firm of Goldman, Sachs &
Co. from 1986 to 1989.

William L. Wilson. Mr. Wilson, a director nominee of the Company, currently
serves as Principal-In-Charge with Synterra, Ltd., a firm comprised of
architects, development planners and project and construction managers. Mr.
Wilson has served as the interim chairman of the Graduate Landscape
Architecture program at Morgan State University, Baltimore, Maryland. Mr.
Wilson serves on the Board of Trustees for the Pennsylvania School for the
Deaf and on the Board of Directors for the Kutztown University School of
Visual and Performing Arts, the City of Philadelphia Art Commission and the
City of Philadelphia Percent for Art Commission.

Upon completion of the Distribution, the Board of Directors will be divided
into three classes, each consisting of approximately one-third of the total
number of directors. At the Distribution Date, there will be eight directors.
Class I directors, consisting of Louise M. Cromwell, Bruce D. Wardinski and
William L. Wilson, will hold office until the 1999 annual meeting of
stockholders; Class II directors, consisting of Adam M. Aron, Christopher J.
Nassetta and Michael A. Wildish, will hold office until the 2000 annual
meeting of stockholders; and Class III directors, consisting of Kelvin L.
Davis and John B. Morse, will hold office until the 2001 annual meeting of
stockholders.

COMMITTEES OF THE BOARD OF DIRECTORS

Promptly following consummation of the Distribution, the Board of Directors
of the Company will establish the following committees:

Executive Committee. The Executive Committee will possess and may exercise
all the authority and powers of the Board in the management of the business
and affairs of the Company, except those reserved to the Board by the DGCL.
The Executive Committee will consist of four members: Messrs. Davis, Morse,
Nassetta and Wardinski. Mr. Wardinski will be Chairman of the Executive
Committee.

Audit Committee. The Audit Committee will recommend to the Board of
Directors appointment of independent auditors; approve the scope of audits and
other services to be performed by the independent and internal auditors;
consider whether the performance of any professional service by the auditors
other than services provided in connection with the audit function could
impair the independence of the outside auditors; and review the results of
internal and external audits, the accounting principles applied in financial
reporting and financing and operational controls. The Audit Committee will
consist of four members: Messrs. Davis, Morse and Wilson and Ms. Cromwell. Mr.
Morse will be the Chairman of the Audit Committee.

Compensation Committee. The Compensation Committee's functions will include
recommendations on policies and procedures relating to senior officers'
compensation and various employee stock plans, and approval of individual
salary adjustments and stock awards in those areas. The Compensation Committee
will consist of three members, Messrs. Aron, Wildish and Wilson. Mr. Wilson
will be the Chairman of the Compensation Committee.

Nominating and Corporate Governance Committee. The Nominating and Corporate
Governance Committee will consider candidates for election as directors and
will be responsible for keeping abreast of, and making recommendations with
regard to, corporate governance. In addition, the Nominating and Corporate
Governance Committee will advise the Board of Directors on a range of matters
affecting the Board of Directors and its committees, including qualification
of director candidates, compensation of directors, selection of committee
chairs, committee assignments and related matters. The Nominating and
Corporate Governance Committee will consist of three members: Messrs. Aron and
Wildish and Ms. Cromwell. Ms. Cromwell will be the Chairperson of the
Nominating and Corporate Governance Committee.

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EXECUTIVE COMPENSATION

None of the Company's executive officers has received compensation from or
on behalf of the Company since its inception.

COMPENSATION OF DIRECTORS

Directors who are also officers of the Company will receive no additional
compensation for their services as directors. Directors elected by the holders
of the Company's Common Stock who are not officers will receive an annual
retainer fee of $25,000 as well as an attendance fee of $1,250 for each
stockholders' meeting, meeting of the Board of Directors or meeting of a
committee of the Board of Directors, regardless of the number of meetings held
on a given day. The chair of each committee of the Board of Directors will
receive an annual additional retainer fee of $1,000. Any individual director
receiving these fees may elect to defer payment of all such fees or any
portion thereof pursuant to the Company's Executive Deferred Compensation Plan
and/or the Company's Deferred Compensation Plan for Non-Employee Directors.
Under the Company's Deferred Compensation Plan for Non-Employee Directors,
each non-employee director will receive an annual director stock award of
shares. Directors also will be reimbursed for travel expenses and other out-
of-pocket costs incurred in attending meetings or in visiting Marriott or
other hotel properties or Communities controlled by the Company, Host REIT or
Marriott International.

EMPLOYEE BENEFIT PLANS

Employee Benefits and Other Employment Matters Allocation Agreement. Prior
to the Distribution Date, the Company and Host will enter into an Employee
Benefits and Other Employment Matters Allocation Agreement ("Benefits
Allocation Agreement"). The Benefits Allocation Agreement will govern the
allocation of responsibilities with respect to various compensation, benefits
and labor matters. The Benefits Allocation Agreement is expected to provide
that effective on the Distribution Date the Company (or one of its
subsidiaries) will assume from Host certain liabilities relating to covered
benefits and labor matters with respect to individuals who were employed by
Host (or one of its subsidiaries) before the Distribution Date who will be
employed by the Company (or one of its subsidiaries) on or after the
Distribution Date (the "Transferred Employees"). Additionally, the Benefits
Allocation Agreement will govern the treatment of awards held by Transferred
Employees under the Host 1997 Comprehensive Stock Incentive Plan (the "Host
Stock Plan"). Generally, awards issued pursuant to the Benefits Allocation
Agreement will be subject to the same terms and conditions that applied under
the Host Stock Plan immediately before the Distribution Date.

Comprehensive Stock Incentive Plan. The Company will establish the
Comprehensive Stock Incentive Plan for purposes of attracting and retaining
highly qualified employees. The terms of the Comprehensive Stock Incentive
Plan will be substantially similar to the Host Stock Plan, as in effect before
the Distribution Date. The Company will reserve approximately shares of
Common Stock for issuance under the Comprehensive Stock Incentive Plan.

The Comprehensive Stock Incentive Plan will be administered by the
Compensation Committee of the Board. The Compensation Committee's
responsibilities in administering the Comprehensive Stock Incentive Plan are
to take actions authorized by the Comprehensive Stock Incentive Plan or
reasonably necessary to carry out its purposes. The Board is also authorized
to interpret the Comprehensive Stock Incentive Plan, and its decisions,
determinations and interpretations are final and binding.

Under the terms of the Comprehensive Stock Incentive Plan, the Company may
award eligible full-time employees (i) options to purchase Common Stock, (ii)
deferred Common Stock, (iii) restricted Common Stock, (iv) stock appreciation
rights ("SARs"), (v) special recognition awards or (vi) other equity-based
awards, including but not limited to, phantom Common Stock, performance-based
Common Stock, bonus Common Stock or similar securities or rights. All grants
under the Comprehensive Stock Incentive Plan will be for Common Stock.

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Options granted to officers and key employees will have an exercise price of
not less than the fair market value on the date of grant. Incentive stock
options granted under the Comprehensive Stock Incentive Plan will expire no
later than 10 years after the date of grant and non-qualified stock options
will expire up to 15 years after the date of grant.

Under the terms of the Comprehensive Stock Incentive Plan, the Company may
award deferred Common Stock to eligible full-time employees. Deferred Common
Stock may be granted as part of a bonus award or deferred stock agreement.
Deferred Common Stock will generally vest over ten years in annual
installments commencing one year after the date of grant.

The Comprehensive Stock Incentive Plan also provides for the issuance of
restricted shares of Common Stock to officers and key executives to be
distributed over three or five years in annual installments based on continued
employment and the attainment of certain performance criteria.

Under the terms of the Comprehensive Stock Incentive Plan, the Company may
grant bonus awards to eligible full-time employees. Bonus awards may be part
of a management incentive program which pays part of the annual performance
bonus awarded to managers and other key employees in shares of Common Stock. A
bonus award entitles the holder to receive a distribution of Common Stock in
accordance with the underlying agreement. Holders of bonus awards vest in the
shares covered by their award over ten years in annual installments commencing
one year after grant. Unless the holder of a bonus award elects otherwise,
vested shares are distributed in 10 consecutive, approximately equal, annual
installments.

The Comprehensive Stock Incentive Plan authorizes the Company to grant SARs
to eligible full-time employees. SARs awarded under the Comprehensive Stock
Incentive Plan give the holder the right to an amount equal to the
appreciation in the value of the Common Stock over the specified price. SARs
may be paid in the Common Stock, cash or other form or combination form of
payout.

Under the Comprehensive Stock Incentive Plan, the Company may award an
eligible full-time employee or officer a Special Recognition Award. Special
Recognition Awards may be paid in the form of Common Stock or an option to
purchase Common Stock at an amount not less than fair market value on the date
of grant.

401(k) Plan. The Company will establish the Company Retirement and Saving
Plan (the "401(k) Plan"), effective as of the Distribution Date. The 401(k)
Plan will be available to all eligible employees. A participant may elect to
contribute from 1% to 15% of his compensation to the 401(k) Plan. Each year,
the Company intends to make a fixed matching contribution equal to 50% of the
first 6% of the compensation contributed to the 401(k) Plan by eligible
employees. In addition, the Company may make a discretionary contribution, in
an amount, if any, determined annually by the Board, to the 401(k) Plan for
the benefit of eligible employees.

Deferred Compensation Plan for Non-Employee Directors. The Company will
establish the Company Deferred Compensation Plan for Non-Employee Directors
(the "Deferred Compensation Plan") for purposes for attracting and retaining
qualified non-employee directors. Under the terms of the Deferred Compensation
Plan, a non-employee director may elect to defer payment of part or all of his
director's fees from the Company until such individual is no longer a member
of the Board. Non-employee directors may elect to receive payment of their
benefits under the Deferred Compensation Plan in cash or Common Stock.

LIMITATION OF LIABILITY AND INDEMNIFICATION

Section 102(b)(7) of the DGCL authorizes a Delaware corporation to include a
provision in its Charter of incorporation limiting or eliminating the personal
liability of its directors to the corporation and its stockholders for
monetary damages for breach of the directors' fiduciary duty of care. Although
Section 102(b)(7) of the DGCL does not change a director's duty of care, it
enables corporations to limit available relief to equitable remedies such as
injunction or rescission. The Company's Charter limits the personal liability
of directors to the

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Company or its stockholders to the fullest extent permitted by Section
102(b)(7). Specifically, directors of the Company are not personally liable
for monetary damages to the Company or its stockholders for breach of the
director's fiduciary duty as a director, except for liability for: (i) any
breach of the director's duty of loyalty to the Company or its stockholders;
(ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) unlawful payments of dividends
or unlawful stock repurchases or redemptions as provided in Section 174 of the
DGCL; or (iv) any transaction from which the director derived an improper
personal benefit.

To the maximum extent permitted by law, the Bylaws provide for mandatory
indemnification of directors and officers of the Company against any expense,
liability or loss to which they may become subject, or which they may incur,
as a result of being or having been a director or officer of the Company. In
addition, the Company is required to advance or reimburse directors and
officers for expenses incurred by them in connection with indemnifiable
claims.

The directors and officers of the Company are insured under policies of
insurance maintained by the Company, subject to the limits of the policies,
against certain losses arising from any claim made against them by reason of
serving or having served in such capacities.

INDEMNIFICATION AGREEMENTS

The Company intends to enter into separate indemnification agreements with
its directors and officers. The indemnification agreements will provide for,
among other things, (i) indemnification against any and all expenses,
liabilities and losses (including attorney's fees, judgments, fines, taxes,
penalties and amounts paid in settlement) of any claim against an indemnified
party unless it is determined, as provided in the indemnification agreement,
that indemnification is not permitted under applicable law and (ii) prompt
advancement of expenses to any indemnified party in connection with his or her
defense of any claim.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AFTER THE DISTRIBUTION

Executive officers, directors and director nominees will receive shares of
Common Stock of the Company in the Distribution in respect of Host common
stock held by them on the Record Date. The Distribution will be made on the
basis of one share of Common Stock of the Company for every ten shares of Host
common stock held on the Record Date.

For purposes of providing an indication of the beneficial ownership of
certain persons following the Distribution, the following table sets forth the
number of shares of Common Stock of the Company that will be beneficially
owned immediately following the Distribution, based on a record date of ,
1998, by each person then serving as an executive officer and director of the
Company, all such executive officers, and directors of the Company as a group,
and persons or entities owning 5% or more of the outstanding shares of Host
common stock.

BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
NAME AND ADDRESS
OF PERCENT
BENEFICIAL NUMBER OF OF
OWNER(1) SHARES(2) SHARES(3)
---------------- --------- ---------
<S> <C> <C>
Bruce D. Wardinski........................................
James L. Francis..........................................
Bruce F. Stemerman........................................
Steven J. Fairbanks.......................................
Larry K. Harvey...........................................
Tracy M. J. Colden........................................
Christopher J. Nassetta...................................
Adam M. Aron..............................................
Louise M. Cromwell........................................
Kelvin L. Davis...........................................
John B. Morse, Jr. .......................................
Michael A. Wildish........................................
William L. Wilson.........................................
J. W. Marriott, Jr. ......................................
Richard E. Marriott.......................................
Blackstone Entities(4)....................................
Dresdner RCM Global Investors LLC(5)......................
FMR Corp.(6)..............................................
Southeastern Asset Management, Inc.(7)....................
All Directors, Director Nominees and Executive Officers as
a Group ( persons)......................................
</TABLE>
- --------
* Less than 1%.
(1) Unless otherwise indicated, the address of each beneficial owner is 10400
Fernwood Road, Bethesda, Maryland 20817.
(2) As of , 1998, shares of Host common stock were outstanding.
Based on a record date of , 1998, such number of shares of Host
common stock outstanding would result in the distribution of approximately
shares of Common Stock of the Company in the Distribution. For
purposes of this table, a person is deemed to have "beneficial ownership"
of the number of shares of Common Stock of the Company that such person
would have had the right to acquire within 60 days of , 1998 upon
exercise of options to purchase shares of Host common stock granted
pursuant to Host's stock incentive plans.
(3) For purposes of computing the percentage of outstanding shares held by
each person, all shares of Host common stock that such person has the
right to acquire within 60 days pursuant to the exercise of options are
deemed to be outstanding, but are not deemed to be outstanding for the
purposes of computing the ownership percentage of any other person.

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(4) The Blackstone Entities constitute a series of affiliated partnerships.
Initially, a majority of the Common Stock received pursuant to the
Blackstone Acquisition will be held by such affiliated partnerships, but
it is expected that eventually they will be distributed by such affiliated
partnerships to their partners.
(5) Represents shares of Common Stock of the Company that would be held by
Dresdner RCM Global Investors LLC ("Dresdner RCM") and its affiliates, RCM
Limited L.P. ("RCM Limited") and RCM General Corporation ("RCM General"),
and by Dresdner Bank AG, of which Dresdner RCM is a wholly owned
subsidiary. Dresdner RCM has reported in a Schedule 13G under the Exchange
Act, filed with the Commission, sole dispositive power over 12,943,675
shares of Host common stock and shared dispositive power over 282,000
shares of Host common stock. Of these shares, Dresdner RCM has reported
sole voting power over 8,854,200 shares and does not share voting power
with respect to any shares. In addition, Dresdner Bank AG has reported in
a separate Schedule 13G under the Exchange Act, filed with the Commission,
sole dispositive and voting power over 370,300 shares of Host common
stock, and such shares are included in the number reported in this table.
The principal business address of Dresdner RCM, RCM Limited and RCM
General is Four Embarcadero Center, San Francisco, California 94111. The
principal business address of Dresdner Bank AG is Jurgen Ponto-Platz 1,
60301 Frankfurt, Germany.
(6) Represents the shares of Common Stock of the Company that would be held by
FMR Corp. ("FMR") and its subsidiaries, Fidelity Management Trust Company
("FMT") and Fidelity Management & Research Company ("FM&R"). FMR has
reported in a Schedule 13G under the Exchange Act filed with the
Commission, that FMR, through its control of FM&R and certain investment
funds for which FM&R acts as an investment adviser, has sole power to
dispose of 22,474,835 shares of Host common stock owned by such investment
funds, including the 15,610,500 shares of Host common stock (or 7.64% of
the total shares outstanding of Host common stock as of July 31, 1998)
held by the Fidelity Magellen Fund. FMR has no power to vote or direct the
voting of the shares of Host common stock owned by the investment funds,
which power resides with the Board of Directors of such investment funds.
FMR, through its control of FMT and certain institutional accounts for
which FMT serves as investment manager, has sole dispositive power over
57,739 shares, the sole power to vote or direct the voting of 44,301
shares of Host common stock, and no power to vote or direct the voting of
13,438 shares of Host common stock owned by institutional accounts. The
principal business address for FMR, FMT and FM&R is 82 Devonshire Street,
Boston, Massachusetts 02109.
(7) Represents shares of Common Stock of the Company that are held by
Southeastern Asset Management, Inc. ("SAM"). SAM reported in a Schedule
13G under the Exchange Act, filed with the Commission, sole dispositive
power over 21,730,700 shares of Host common stock and shared dispositive
power over 14,968,300 shares of Host common stock. Of these shares, SAM
has reported sole voting power over 18,338,100 shares, shared voting power
over 14,968,300 and no power to vote 3,451,600 shares. The principal
business address of SAM is 6075 Poplar Avenue, Suite 900, Memphis,
Tennessee 38119.

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CERTAIN TRANSACTIONS

For purposes of governing certain ongoing relationships between the Company
and Host after the Distribution and to provide for an orderly transition, the
Company and Host have entered into or will enter into certain agreements. Such
agreements include: (i) a Distribution Agreement, providing for, among other
things, the Distribution and the division between the Company and Host of
certain assets and liabilities; (ii) a Tax Sharing Agreement, pursuant to
which the Company and Host would agree to allocate tax liabilities that
related to periods prior to the Distribution Date; (iii) an Asset Management
Agreement, pursuant to which the Company would provide to Host asset
management services related to Host's rights and responsibilities as owner of
the hotels; (iv) a Corporate Transitional Service Agreement, pursuant to which
the Company and Host would provide certain limited administrative services to
each other; (v) a Non-Competition Agreement, pursuant to which the Company and
Host would agree to not to engage in certain businesses; (vi) an Employee
Benefits and Other Employment Matters Allocation Agreement, providing for
certain compensation, benefit and labor matters; (vii) Guaranty Agreements,
pursuant to which the Company would guarantee a certain amount of the lease
and related management agreement obligations of the Company subsidiaries that
will lease or sublease hotels from Host REIT; and (viii) a Pooling Agreement,
pursuant to which all leased full-service hotels would be separated into four
identified "pools" of hotels for purposes of calculating the amount of the
guaranty. See "Business and Properties--Relationship with Host after the
Distribution."

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DESCRIPTION OF CAPITAL STOCK

The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Charter and Bylaws and by
the provisions of applicable law. A copy of the Charter and Bylaws are
included as exhibits to the Registration Statement of which this Prospectus is
a part.

Upon completion of the Distribution, the Company's authorized capital stock
will consist of 75,000,000 shares of Common Stock, par value $.01 per share
(the "Common Stock"), and 10,000,000 shares of Preferred Stock, par value $.01
per share (the "Preferred Stock"). Upon completion of the Distribution, the
Company will have outstanding approximately shares of Common Stock and no
outstanding shares of Preferred Stock. All of the shares of Common Stock of
the Company that will be outstanding immediately following the Distribution
will be validly issued, fully paid and non-assessable.

COMMON STOCK

Each holder of Common Stock is entitled to one vote for each share on all
matters submitted to a vote of stockholders. The Charter does not provide for
cumulative voting, and accordingly, the holders of a majority of shares of
Common Stock entitled to vote in any election of directors may elect all of
the directors standing for election. The Charter provides that whenever there
is paid, or declared and set aside for payment, to the holders of the
outstanding shares of any class or series of stock having preference over the
Common Stock as to the payment of dividends, the full amount of dividends and
of sinking fund or retirement fund or other retirement payments, if any, to
which such holders are entitled, then dividends may be paid on the Common
Stock out of any assets legally available therefor, but only when and as
declared by the Board of Directors. The Charter also provides that in the
event of any liquidation, dissolution or winding up of the Company, after
there is paid to or set aside for the holders of any class or series of stock
having preference over the Common Stock the full amount to which such holders
are entitled, then the holders of the Common Stock shall be entitled, after
payment or provision for payment of all debts and liabilities of the Company,
to receive the remaining assets of the Company available for distribution, in
cash or in kind. The holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. The rights, preferences and privileges of
holders of Common Stock will be subject to the rights of holders of any shares
of any series of Preferred Stock that the Company may issue in the future.

PREFERRED STOCK

The Charter provides that the Board of Directors of the Company is
authorized to issue Preferred Stock in series and to fix and state the voting
powers, full or limited, or no voting powers, and such designations,
preferences and relative participating, optional or other special rights of
the shares of each such series and the qualifications, limitations and
restrictions thereof. Such action may be taken by the Board without
stockholder approval. Under the Charter, each share of each series of
Preferred Stock is to have the same relative rights as, and be identical in
all respects with, all other shares of the same series. While providing
flexibility in connection with possible financing, acquisitions and other
corporate purposes, the issuance of Preferred Stock, among other things, could
adversely affect the voting power of the holders of Common Stock and, under
certain circumstances, be used as a means of discouraging, delaying or
preventing a change in control of the Company. The Company has no present plan
to issue shares of its Preferred Stock.

REGISTRATION RIGHTS AGREEMENT

The Company has granted the Blackstone Entities certain registration rights
with respect to the shares of the Common Stock of the Company to be
transferred to them by Host REIT as a portion of the consideration in the
Blackstone Acquisition. While these registration rights require the Company to
register all such shares by , the Blackstone Entities may only offer for
sale (i) up to % of such shares beginning July 1, 1999, (ii) an additional %
of the shares beginning October 1, 1999 and (iii) the remaining % of the
shares

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beginning January 1, 2000. In addition the Company has granted certain
piggyback registration rights to the Blackstone Entities allowing them to
participate in registered offerings by the Company or other shareholders. The
Company will bear expenses incident to its registration requirements under the
registration rights agreement, except that such expenses shall not include any
underwriting discounts or commissions or transfer taxes, if any, relating to
such shares.

CERTAIN ANTI-TAKEOVER PROVISIONS

The Charter and the Bylaws contain, among other things, certain provisions
described below that may reduce the likelihood of a change in the Board of
Directors or voting control of the Company without the consent of the Board of
Directors. These provisions could have the effect of discouraging, delaying or
preventing tender offers or takeover attempts that some or a majority of the
stockholders might consider to be in the stockholders' best interest,
including offers or attempts that might result in a premium over the market
price for the Common Stock.

Classified Board. The number of directors of the Company shall be such
number as from time to time is fixed by, or in the manner provided in, the
Bylaws within a range of a minimum of two and a maximum of ten directors
specified in the Charter. Pursuant to the Bylaws, the number of directors
within the range set forth in the Charter shall be determined by resolution of
the Board passed by at least two-thirds of the directors then in office.
Directors are divided into three classes, each consisting of approximately
one-third of the total number of directors. The term of office of each class
is three years and expires in successive years at the time of the annual
meeting of stockholders.

Filling of Board Vacancies; Removal. Any vacancy occurring in the Board of
Directors shall be filled for the unexpired term by the concurring vote of a
majority of the directors then in office, whether or not a quorum, and any
director so chosen shall hold office for the remainder of the full term of the
class in which the vacancy occurred and until such director's successor shall
have been elected and qualified. Any vacancy created in the Board of Directors
by an increase in the number of directors shall be filled for the unexpired
term by the concurring vote of a majority of the directors then in office and
any director so chosen shall hold office for the remainder of the full term of
the class in which the new directorship was created and until such director's
successor shall have been elected and qualified. Directors may only be removed
with cause by the affirmative vote of the holders of at least two-thirds of
the outstanding shares of capital stock then entitled to vote at an election
of directors.

Other Constituencies. The Charter will provide that, in determining whether
a merger, consolidation, sale of all or substantially all of its assets or
other business combination involving the Company is advisable, a director
shall consider the interests of the stockholders of the Company and, in his
sole discretion, may consider (i) the interests of the Company's employees,
suppliers, creditors and customers, (ii) the economy of the nation, (iii)
community and societal interests and (iv) the long-term as well as short-term
interests of the Company and its stockholders, including the possibility that
such interests may be best served by the continued independence of the
Company.

Stockholder Action by Unanimous Written Consent. Any action required or
permitted to be taken by the stockholders must be effected at a duly called
annual or special meeting of such holders, and may not be effected by any
consent in writing by such holders, unless such consent is unanimous.

Call of Special Meetings. Special meetings of stockholders may be called
only by the Board of Directors. Stockholders are not permitted to call a
special meeting of stockholders or to require that the Board call a special
meeting of stockholders.

Charter Amendments. Except as set forth in the Charter or as otherwise
specifically required by law, no amendment of any provision of the Charter
shall be made unless such amendment has been first proposed by the Board of
Directors upon the affirmative vote of at least two-thirds of the directors
then in office and thereafter approved by the affirmative vote of the holders
of at least a majority of the outstanding shares of stock of the

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Company entitled to vote thereon; provided however, if such amendment is to
the provisions described above or the provisions of the Charter relating to
the authorized number of shares of Preferred Stock, Board authority to issue
Preferred Stock or the limitation on directors' liability, such amendment must
be approved by the affirmative vote of the holders of at least two-thirds of
the outstanding shares of stock entitled to vote thereon.

Bylaw Amendments. The stockholders may amend the Bylaws by the affirmative
vote of the holders of at least two-thirds of the outstanding shares of stock
of the Company entitled to vote thereon. Directors may amend the Bylaws by a
two-thirds vote of the directors then in office.

Stockholder Nominations and Proposals. With certain exceptions, the
Company's Bylaws require that stockholders intending to present nominations
for directors or other business for consideration at a meeting of stockholders
notify the Company's Secretary by not later than the close of business on the
60th day nor earlier than the 90th day prior to the first anniversary of the
preceding years annual meeting.

Certain Statutory Provisions. Section 203 of the DGCL provides, in general,
that a stockholder acquiring more than 15% of the outstanding voting shares of
a corporation subject to the statute (an "Interested Stockholder"), but less
than 85% of such shares, may not engage in certain "Business Combinations"
with the corporation for a period of three years subsequent to the date on
which the stockholder became an Interested Stockholder unless (i) prior to
such date the corporation's board of directors approved either the Business
Combination or the transaction in which the stockholder became an Interested
Stockholder or (ii) the Business Combination is approved by the corporation's
board of directors and authorized by a vote of at least two-thirds of the
outstanding voting stock of the corporation not owned by the Interested
Stockholder.

Section 203 defines the term "Business Combination" to encompass a wide
variety of transactions with or caused by an Interested Stockholder in which
the Interested Stockholder receives or could receive a benefit on other than a
pro rata basis with other stockholders, including mergers, certain asset
sales, certain issuances of additional shares to the Interested Stockholder,
transactions with the corporation which increase the proportionate interest of
the Interested Stockholder or a transaction in which the Interested
Stockholder receive certain other benefits.

Because prior to the Distribution, the Company is a subsidiary of Host, the
Section 203 limitations will not apply to Host or Host REIT or its affiliates
or associates (as defined in Section 203) following the Distribution.

RESTRICTIONS ON OWNERSHIP AND TRANSFER

For Host REIT to qualify as a REIT under the Code, Host REIT cannot own,
either directly or by attribution from one or more actual or constructive
owners (actually or constructively) of 10% or more of Host REIT, 10% or more
of the Company or any other tenant of Host REIT. In order to assist Host REIT
in meeting this requirement, the Company has adopted the Ownership Limit,
which provides that no person or persons acting as a group may own, or be
deemed to own by virtue of certain attribution provisions of the Code, more
than (i) 9.8% of the lesser of the number or value of shares of the Common
Stock of the Company outstanding or (ii) 9.8% of the lesser of the number or
value of the issued and outstanding preferred shares of any class or series of
Company capital stock. The ownership attribution rules under the Code are
complex and may cause the Common Stock of the Company owned actually or
constructively by a group of related individuals and/or entities to be owned
constructively by one individual entity. As a result, the acquisition of less
than 9.8% of the Common Stock of the Company (or the acquisition or ownership
of an interest in an entity that owns, actually or constructively, the Common
Stock of the Company) by an individual or entity, could, nevertheless cause
that individual or entity, or another individual or entity, to own
constructively in excess of 9.8% of the outstanding Common Stock of the
Company and thus subject such Common Stock of the Company to the Ownership
Limit. The Board of Directors of the Company may grant an exemption from the
Ownership Limit with respect to a person if it is satisfied that such
ownership will not jeopardize Host REIT's status as a REIT (for example, by
causing any tenant of Host REIT (including but not limited to the Company) to
be considered a "related party tenant" for purposes of the REIT qualification
rules), and Host REIT consents thereto. As a condition of such

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<PAGE>

waiver, the Board of Directors and Host REIT may require undertakings or
representations from the applicant with respect to preserving the REIT status
of Host REIT. Pursuant to the terms of the Charter, the Ownership Limit will
become effective to all stockholders of the Company as of the Distribution
Date, with an exception for a person who would exceed the Ownership Limit
solely by reason of the receipt of shares of the Common Stock of the Company,
in the Distribution. Any person who acquires or attempts or intends to acquire
actual or constructive ownership of shares of Company capital stock that will
or may violate the Ownership Limit is required to give notice immediately to
the Company and Host REIT and provide the Company and Host REIT with such
other information as the Company and Host REIT may request in order to
determine the effect of such transfer on Host REIT's status as a REIT.

If any purported transfer of shares of Company capital stock or any other
event would otherwise result in any person violating the Ownership Limit, then
any such purported transfer will be void and of no force or effect with
respect to the purported transferee (the "Prohibited Transferee") as to that
number of shares that exceeds the Ownership Limit (referred to as "excess
shares") and the Prohibited Transferee shall acquire no right or interest (or,
in the case of any event other than a purported transfer, the person or entity
holding record title to any such shares in excess of the Ownership Limit (the
"Prohibited Owner") shall cease to own any right or interest) in such excess
shares. Any such excess shares described above will be transferred
automatically, by operation of law, to a trust, the beneficiary of which will
be a qualified charitable organization selected by the Company (the
"Beneficiary"). Such automatic transfer shall be deemed to be effective as of
the close of business on the Business Day (as defined in the Charter) prior to
the date of such violating transfer. Within 20 days of receiving notice from
the Company of the transfer of shares to the trust, the trustee of the trust
(who shall be designated by the Company and be unaffiliated with the Company
or Host REIT and any Prohibited Transferee or Prohibited Owner) will be
required to sell such excess shares to a person or entity who could own such
shares without violating the Ownership Limit, and distribute to the Prohibited
Transferee an amount equal to the lesser of the price paid by the Prohibited
Transferee for such excess shares or the sales proceeds received by the trust
for such excess shares. In the case of any excess shares resulting from any
event other than a transfer, or from a transfer for no consideration (such as
a gift), the trustee will be required to sell such excess shares to a
qualified person or entity and distribute to the Prohibited Owner an amount
equal to the lesser of the fair market value of such excess shares as of the
date of such event or the sales proceeds received by the trust for such excess
shares. In either case, any proceeds in excess of the amount distributable to
the Prohibited Transferee or Prohibited Owner, as applicable, will be
distributed to the Beneficiary. Prior to a sale of any such excess shares by
the trust, the trustee will be entitled to receive, in trust for the
Beneficiary, all dividends and other distributions paid by the Company with
respect to such excess shares, and also will be entitled to exercise all
voting rights with respect to such excess shares. Subject to Delaware law,
effective as of the date that such shares are transferred to the trust, the
trustee shall have the authority (at the trustee's sole discretion and subject
to applicable law) (i) to rescind as void any vote cast by a Prohibited
Transferee prior to the discovery by the Company that such shares have been
transferred to the trust and (ii) to recast such vote in accordance with the
desires of the trustee acting for the benefit of the Beneficiary. However, if
the Company has already taken irreversible corporate action, then the trustee
shall not have the authority to rescind and recast such vote. Any dividend or
other distribution paid to the Prohibited Transferee or Prohibited Owner
(prior to the discovery by the Company that such shares had been automatically
transferred to a trust as described above) will be required to be repaid to
the trustee upon demand for distribution to the Beneficiary. If the transfer
to the trust as described above is not automatically effective (for any
reason) to prevent violation of the Ownership Limit, then the Charter provides
that the transfer of the excess shares will be void. In addition, shares of
Company capital stock held in the trust shall be deemed to have been offered
for sale to the Company, or its designee, at a price per share equal to the
lesser of (i) the price per share in the transaction that resulted in such
transfer to the trust (or, in the case of a devise or gift, the market value
at the time of such devise or gift) and (ii) the market value of such shares
on the date the Company, or its designee, accepts such offer. The Company will
have the right to accept such offer until the trustee has sold the shares held
in the Trust. Upon such a sale to the Company, the interest of the Beneficiary
in the shares sold will terminate and the trustee will distribute the net
proceeds of the sale to the Prohibited Owner.

The foregoing restrictions on transferability and ownership will not apply
if Host REIT determines that it is no longer in the best interests of Host
REIT to attempt to qualify, or to continue to qualify, as a REIT, or if the

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Company and its subsidiaries no longer lease any hotels from Host REIT. All
certificates representing shares of Company capital stock shall bear a legend
referring to the restrictions described above. These ownership limitations
could have the effect of delaying, deferring or preventing a takeover or other
transaction in which holders of some, or a majority, of Common Stock of the
Company might receive a premium for their Common Stock over the then
prevailing market price or which such holders might believe to be otherwise in
their best interest.

STOCKHOLDER RIGHTS AGREEMENT

In connection with the Distribution, the Board of Directors intends to adopt
a Stockholder Rights Plan ("Rights Agreement") and declare a dividend of one
preferred share purchase right (a "Right") for each outstanding share of
Common Stock. All Common Stock issued by the Company between the date of
adoption of the Rights Agreement and the Rights Distribution Date (as defined
below), or the date, if any, on which the Rights are redeemed will have Rights
attached to them. The Rights will expire ten years after adoption of the
Rights Agreement, unless earlier redeemed or exchanged. Each Right, when
exercisable, entitles the holder to purchase one one-thousandth of a share of
Series A Junior Participating Preferred Stock ("Junior Preferred Stock") at a
price of $ (the "Purchase Price"). Until a Right is exercised, the holder
thereof, as such, will have no rights as a stockholder of the Company
including, without limitation, the right to vote or to receive dividends.

The Rights Agreement provides that the Rights initially attach to all
certificates representing shares of Common Stock then outstanding. The Rights
will separate from the Common Stock and a distribution of Rights certificates
will occur (a "Rights Distribution Date") upon the earlier to occur of (i) ten
days following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 20% or more of the outstanding shares of
Common Stock (the "Stock Acquisition Date") or (ii) ten business days (or such
later date as the Board of Directors may determine) following the commencement
of a tender offer or exchange offer, the consummation of which would result in
the beneficial ownership by a person of 20% or more of the outstanding shares
Common Stock. Until the Rights Distribution Date, the Rights will be evidenced
by the Common Stock certificates, and will be transferred with, and only with,
the Common Stock certificates.

If a Person becomes the beneficial owner of 20% or more of the then
outstanding Common Stock (except pursuant to an offer for all outstanding
Common Stock which the Outside Directors determine to be fair to and otherwise
in the best interests of the Company and its stockholders), each holder of a
Right will, after the end of a redemption period, have the right to exercise
the Right by purchasing Common Stock (or, in certain circumstances, cash,
property or other securities of the Company) having a value equal to two times
such amount.

If at any time following the Stock Acquisition Date, (i) the Company is
acquired in a merger or other business combination transaction in which it is
not the surviving corporation (other than a merger which follows an offer
described in the preceding paragraph), or (ii) 50% or more of the Company's
assets or earning power is sold or transferred, each holder of a Right shall
have the right to receive, upon exercise, common shares of the acquiring
company having a value equal to two times the purchase price of the Right,
subject to the Ownership Limit.

In general, the Board of Directors of the Company may redeem the Rights at a
price of $.005 per Right at any time until ten days after an Acquiring Person
has been identified as such. If the decision to redeem the Rights occurs after
a person becomes an Acquiring Person, the decision will require the
concurrence of a majority of the Continuing Directors, defined as any member
of the Board of Directors who was a member of the Board of Directors prior to
the date of the Rights Agreement, and any person who is subsequently elected
to the Board if such person is recommended or approved by a majority of the
Continuing Directors. The term "Outside Directors" means "Continuing
Directors" who are not officers of the Company.

88
<PAGE>

The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the
Company. The Rights, however, will not interfere with any merger or other
business combination approved by the Board of Directors since the Board may,
at its option, at any time prior to any person becoming an Acquiring Person,
redeem all rights or amend the Rights Agreement to exempt the person from the
Rights Agreement.

TRANSFER AGENT AND REGISTRAR

The transfer agent and the registrar for the Common Stock is Bank of New
York.

89
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market following
the Distribution could adversely affect the prevailing market price of the
Common Stock and the Company's ability to raise capital in the future. Upon
completion of the Distribution, the Company will have a total of shares of
Common Stock outstanding, of which the shares will be freely tradable
without restriction under the Securities Act of 1933, as amended (the
"Securities Act"), by persons other than "affiliates" of the Company, as
defined under the Securities Act. The remaining shares of Common Stock
outstanding will be "restricted securities" as that term is defined by Rule
144 promulgated under the Securities Act. These shares will be eligible for
sale in the public market beginning , 1999.

In general, under Rule 144, a person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned restricted
shares for at least one year is entitled to sell, within any three-month
period, a number of such shares that does not exceed the greater of (i) one
percent of the then outstanding shares of Common Stock or (ii) the average
weekly trading volume in the Common Stock on the NYSE during the four calendar
weeks preceding the date on which notice of such sale is filed, provided
certain requirements concerning availability of public information, manner of
sale and notice of sale are satisfied. In addition, affiliates must comply
with the restrictions and requirements of Rule 144, other than the one-year
holding period requirement, in order to sell shares of Common Stock that are
not restricted securities. Under Rule 144(k), a person who is not an affiliate
and has not been an affiliate for at least three months prior to the sale and
who has beneficially owned restricted shares for at least two years may resell
such shares without compliance with the foregoing requirements. In meeting the
one-year and two-year holding periods described above, a holder of Restricted
Shares can include the holding periods of a prior owner who was not an
affiliate. The one-year and two-year holding periods described above do not
begin to run until the full purchase price or other consideration is paid by
the person acquiring the restricted shares from the issuer or an affiliate.

Following the Distribution, the Company intends to register on one or more
registration statements on Form S-8 under the Securities Act the shares of
Common Stock issuable under the Company's stock option and other employee
benefit plans for directors, officers and employees of the Company and its
subsidiaries. Of the shares to be reserved for issuance under these plans,
approximately shares will be subject to stock options or restricted stock
granted concurrently upon completion of the Distribution.

Upon completion of the Distribution, the holders of approximately shares
of Common Stock will be entitled to certain registration rights with respect
to such shares. If such holders, by exercising their registration rights,
cause a large number of shares to be registered and sold in the public market,
such sales could have an adverse effect on the trading price of the Common
Stock. In addition, if the Company is required, pursuant to such registration
rights, to include shares held by such persons in any registration statement
that the Company files to raise additional capital, the inclusion of such
shares could have an adverse effect on the Company's ability to raise needed
capital. See "Management--Employee Benefit Plans--Comprehensive Stock
Incentive Plan" and "Description of Capital Stock--Registration Rights
Agreement."

90
<PAGE>

FEDERAL INCOME TAX CONSEQUENCES

INTRODUCTION

The following discussion summarizes the federal income tax consequences
reasonably anticipated to be material to Host Stockholders in connection with
the Distribution. The following discussion is intended to address only those
federal income tax consequences that are generally relevant to all Host
Stockholders. Accordingly, it does not discuss all aspects of federal income
taxation that might be relevant to a specific Host Stockholder in light of his
particular investment or tax circumstances. Therefore, it is imperative that a
common stockholder of Host review the following discussion and consult with
his or her own tax advisors to determine the interaction of his individual tax
situation with the anticipated tax consequences of the Distribution.

The following discussion provides general information only, is not
exhaustive of all possible tax considerations and is not intended to be (and
should not be construed as) tax advice. For example, this summary does not
give a detailed description of any state, local or foreign tax considerations.
In addition, the discussion does not purport to deal with all aspects of
taxation that may be relevant to a Host Stockholder subject to special
treatment under the federal income tax laws, including, without limitation,
insurance companies, financial institutions or broker-dealers, tax-exempt
organizations (except to the extent discussed under the heading "Tax
Consequences of the Distribution to Tax-Exempt Host Stockholders") or foreign
corporations and persons who are not citizens or residents of the United
States (except to the extent discussed under the heading "Tax Consequences of
the Distribution to Non-U.S. Host Stockholders").

The information in this section is based on the Code, current, temporary and
proposed Treasury Regulations thereunder, the legislative history of the Code,
current administrative interpretations and practices of the IRS (including its
practices and policies as endorsed in private letter rulings, which are not
binding on the IRS), and court decisions, all as of the date hereof. No
assurance can be given that future legislation, Treasury Regulations,
administrative interpretations and court decisions will not significantly
change the current law or adversely affect existing interpretations of current
law. Any such change could apply retroactively to transactions preceding the
date of the change. No assurance can be provided that the statements set forth
herein (which do not bind the IRS or the courts) will not be challenged by the
IRS or will be sustained by a court if so challenged. Neither Host nor Host
REIT has requested or plans to request any rulings from the IRS concerning the
tax consequences of the Distribution.

The following discussion is not intended to be, and should not be construed
by a common stockholder of Host as, tax advice. THE SPECIFIC TAX ATTRIBUTES OF
A PARTICULAR HOST STOCKHOLDER COULD HAVE A MATERIAL IMPACT ON THE TAX
CONSEQUENCES OF THE DISTRIBUTION. THEREFORE, IT IS ESSENTIAL THAT EACH HOST
STOCKHOLDER CONSULT WITH HIS OR HER OWN TAX ADVISORS WITH REGARD TO THE
APPLICATION OF THE FEDERAL INCOME TAX LAWS TO SUCH STOCKHOLDER'S PARTICULAR
TAX SITUATION, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, LOCAL OR FOREIGN TAXING JURISDICTION. THE FOLLOWING DISCUSSION IS NOT
INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.

FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION

Tax Consequences of the Distribution to U.S. Host Stockholders. As used
herein, the term "U.S. Host Stockholder" means a Host Stockholder who (for
United States federal income tax purposes) is (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate or trust the income of which is subject
to United States federal income taxation regardless of its source, or (iv) a
trust whose administration is subject to the primary supervision of a United
States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust.

A U.S. Host Stockholder will include the fair market value of his or her
share of the Distribution on the Distribution Date in gross income as ordinary
income (to the extent that the Distribution is considered made out

91
<PAGE>

of the U.S. Host Stockholder's share of the portion of the current and
accumulated E&P of Host and Host REIT through the end of 1998 allocable to the
Distribution). The fair market value of the Distribution will equal the sum of
(i) the fair market value (on the Distribution Date) of the Common Stock that
he or she receives in the Distribution, plus (ii) the amount of any cash he or
she receives in lieu of fractional shares of Common Stock. Host currently
estimates that the fair market value of the Distribution will be approximately
$ per share of Host common stock. No assurance can be provided that Host's
current estimate of the fair market value of the Distribution will be
accurate. If the fair market value of the Distribution on the Distribution
Date is greater than Host's current estimate, then a U.S. Host Stockholder
will include such additional amount in gross income as ordinary income to the
extent of the U.S. Host Stockholder's share of the portion of the current and
accumulated E&P of Host and Host REIT through the end of 1998 allocable to the
Distribution. In this regard, it should be noted that federal income tax law
does not provide definitive guidance regarding the determination of the fair
market value of publicly traded securities (which the Common Stock will be on
the Distribution Date). Several courts have held that the fair market value of
such securities for federal income tax purposes equals the average of the high
and low sales prices of such securities on the date of determination, and Host
intends to take this position, but there can be no assurance that the IRS
would not seek to establish a different fair market value for the Common Stock
(e.g., the final sales price of the Common Stock on the New York Stock
Exchange on the Distribution Date).

Host and Host REIT currently believe that the entire Distribution will be
considered made out of the portion of Host and Host REIT's current and
accumulated E&P through the end of 1998 allocable to the Distribution. The
calculation of such earnings and profits, however, is very complex. The amount
will include (i) the allocated consolidated E&P of Host (including each of its
predecessors) accumulated from 1929, the first year that the predecessor of
Host was a "C" corporation, through and including Host's 1998 taxable year,
and (ii) the current E&P of Host and Host REIT in 1998. In addition, the
calculation depends upon a number of factual and legal interpretations related
to the activities and operations of Host and its corporate affiliates during
its entire corporate existence and is subject to review and challenge by the
IRS. There can be no assurance that Host and Host REIT's calculation of this
E&P will be respected by the IRS or that a challenge to such calculation by
the IRS would not be sustained by a court. Hogan & Hartson L.L.P. will express
no opinion as to the amount of the current and accumulated E&P of Host and
Host REIT.

In the event that the fair market value of the Distribution received by a
U.S. Host Stockholder were to exceed his or her share of the portion of Host
and Host REIT's current and accumulated E&P through the end of 1998 allocable
to the Distribution, it would be treated first as a tax-free return of capital
to such U.S. Host Stockholder, reducing the adjusted basis in his or her Host
common stock by the amount of such excess (but not below zero) and then, if
such basis is reduced to zero and there is remaining excess, as capital gain
to the extent of such remaining excess (provided that such Host Stockholder
has held the Host common stock as a capital asset).

A U.S. Host Stockholder's initial tax basis in the Common Stock received in
the Distribution will equal the fair market value of such stock on the
Distribution Date. A U.S. Host Stockholder's holding period in the Common
Stock of the Company will begin on the day after the Distribution Date.

Backup Withholding for the Distribution. Under the backup withholding rules,
a U.S. Host Stockholder may be subject to backup withholding at the rate of
31% with respect to the Distribution paid unless such holder (a) is a
corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (b) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding
rules. A U.S. Host Stockholder that does not provide Host with a correct
taxpayer identification number may also be subject to penalties imposed by the
IRS. Any amount paid as backup withholding will be creditable against the Host
Stockholder's income tax liability. See "--Tax Consequences of the
Distribution to Non-U.S. Host Stockholders."

92
<PAGE>

Tax Consequences of the Distribution to Tax-Exempt Host
Stockholders. Provided that a tax-exempt Host Stockholder (except certain tax-
exempt Host Stockholders) has not held its Host common stock as "debt financed
property" within the meaning of the Code and such Host common stock is not
otherwise used in a trade or business, the Distribution will not constitute
unrelated business taxable income ("UBTI"). For a tax-exempt Host Stockholder
that is a social club, voluntary employee benefit association, supplemental
unemployment benefit trust or qualified group legal services plan exempt from
federal income taxation under Code Sections 501 (c)(7), (c)(9), (c)(17) or
(c)(20), respectively, the Distribution will constitute UBTI unless the
organization is properly able to deduct amounts set aside or placed in reserve
for certain purposes so as to offset the income generated by its investment in
Host. Such Host Stockholders should consult their own tax advisors concerning
these "set aside" and reserve requirements.

Tax Consequences of the Distribution to Non-U.S. Host Stockholders. A Host
Stockholder that is a nonresident alien individual, foreign corporation,
foreign partnership or foreign estate or trust (collectively, a "Non-U.S. Host
Stockholder") will include the fair market value of his or her share of the
Distribution on the Distribution Date in gross income as ordinary income to
the extent that the Distribution is considered made out of the portion of the
current and accumulated E&P of Host and Host REIT through the end of 1998
allocable to the Distribution. For a discussion regarding the fair market
value of the Distribution and the extent to which the Distribution will be
attributable to such E&P, see "--Tax Consequences of the Distribution to U.S.
Host Stockholders" above.

For Non-U.S. Host Stockholders, the Distribution will be subject to
withholding of United States federal income tax on a gross basis (that is,
without allowance of deductions) at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty, unless it is treated as
effectively connected with the conduct by the Non-U.S. Host Stockholder of a
United States trade or business. Certain certification and disclosure
requirements must be satisfied to be exempt from withholding under the
effectively connected income exemption. If the Distribution is effectively
connected with such a trade or business, a Non-U.S. Host Stockholder will be
subject to tax on the Distribution on a net basis (that is, after allowance of
deductions) at graduated rates, in the same manner as U.S. Host Stockholders
are taxed with respect to the Distribution and generally will not be subject
to withholding. A Non-U.S. Host Stockholder that is a corporation also may be
subject to an additional branch profits tax on the Distribution at a 30% rate
or such lower rate as may be specified by an applicable income tax treaty.
Host expects to withhold United States income tax at the rate of 30% on any
distribution made to a Non-U.S. Host Stockholder unless (i) a lower treaty
rate applies and any required form or certification evidencing eligibility for
that lower rate is filed with Host or (ii) a Non-U.S. Host Stockholder files
an IRS Form 4224 with Host claiming that the distribution is effectively
connected income. Any such withholding taxes will have the effect of reducing
the number of shares of Common Stock (or any cash in lieu of fractional stock)
that a Non-U.S. Host Stockholder would receive in the Distribution.

In the event that the sum of the fair market value of the Distribution
received by a Non-U.S. Host Stockholder were to exceed his or her share of the
portion of Host and Host REIT's current and accumulated earnings and profits
through the end of 1998 allocable to the Distribution, it would be treated
first as a tax-free return of capital to such Non-U.S. Host Stockholder,
reducing the adjusted basis in his or her Host common stock by the amount of
such excess (but not below zero). If such basis is reduced to zero and there
is remaining excess, the Distribution would give rise to gain from the sale or
exchange of such Host common stock.

Gain recognized upon a deemed sale or exchange of Host common stock pursuant
to the Distribution by a Non-U.S. Host Stockholder who owned more than 5% of
the Host common stock at any time during the five-year period ending on the
Distribution Date generally would be subject to United States taxation because
such stock constitutes a "United States real property interest" within the
meaning of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA").
However, such gain would not be subject to United States taxation under FIRPTA
as a sale of a "United States real property interest" for a Non-U.S. Host
Stockholder who did not own more than 5% of the Host common stock at any time
during the five-year period ending on the Distribution Date because Host
common stock is "regularly traded" (as defined by applicable Treasury

93
<PAGE>

Regulations) on an established securities market (e.g., the NYSE).
Notwithstanding the foregoing, gain from a deemed sale or exchange of Host
common stock pursuant to the Distribution not otherwise subject to FIRPTA
would be taxable to any Non-U.S. Host Stockholder who is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States. In such case, the
nonresident alien individual would be subject to a 30% United States
withholding tax on the amount of such individual's gain.

If gain on a deemed sale or exchange of Host common stock pursuant to the
Distribution were subject to taxation under FIRPTA, the Non-U.S. Host
Stockholder would be subject to regular United States income tax with respect
to such gain in the same manner as a taxable U.S. Host Stockholder (subject to
any applicable alternative minimum tax, a special alternative minimum tax in
the case of nonresident alien individuals and the possible application of the
30% branch profits tax in the case of foreign corporations).

As a result of a legislative change made by the Small Business Job
Protection Act of 1996, it appears that Host would be required to withhold 10%
of any distribution to a Non-U.S. Host Stockholder in excess of Host and Host
REIT's current and accumulated earnings and profits through the end of 1998.
Consequently, although Host intends to withhold at a rate of 30% on the entire
amount of any distribution (or a lower applicable treaty rate), to the extent
that Host does not do so, any portion of the Distribution not subject to
withholding at a rate of 30% (or a lower applicable treaty rate) would be
subject to withholding at a rate of 10%. However, a Non-U.S. Host Stockholder
may seek a refund of such amounts from the IRS if it is subsequently
determined that the Distribution was, in fact, in excess of such earnings and
profits, and the amount withheld exceeded the Non-U.S. Host Stockholder's
United States tax liability, if any, with respect to the Distribution.

To the extent that withholding tax is owned with respect to any Non-U.S.
Host Stockholder with respect to Common Stock received in the Distribution,
the Company anticipates that the transfer agent would sell in the market a
portion of the shares of Common Stock distributable to such Non-U.S. Host
Stockholder to pay such withholding taxes and the actual number of shares of
Common Stock received pursuant to the Distribution would be net of any shares
sold to pay such withholding taxes.

LEGAL MATTERS

The validity of the Common Stock to be distributed in the Distribution and
certain tax matters will be passed upon for the Company by Hogan & Hartson
L.L.P.

EXPERTS

The financial statements and schedule of HMC Senior Communities, Inc. as of
January 2, 1998 and for the period from June 21, 1997 (inception) through
January 2, 1998 and the financial statements of Forum Group, Inc. and
Subsidiaries, as Partitioned for Sale to Host Marriott Corporation, as of
January 3, 1997 and for the twenty-four week period ended June 20, 1997 and
the forty-week period ended January 3, 1997 included in this registration
statement have been audited by Arthur Andersen, LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.

The combined financial statements of Forum Group, Inc. and subsidiaries, as
partitioned for sale to Host Marriott Corporation as of March 31, 1996 and
1995 and for the years then ended have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.

94
<PAGE>

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Common Stock of the Company described herein. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information, reference is made hereby to the Registration Statement, exhibits
and schedules. Statements contained herein concerning any documents are not
necessarily complete and, in each instance, reference is made to the copies of
such documents filed as exhibits to the Registration Statement. Each such
statement is qualified in its entirety by such reference. Copies of these
documents may be inspected without charge at the principal office of the
Commission at 450 5th Street, N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission at 7 World Trade Center, Suite 1300, New
York, New York 10048, at Citicorp Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661, and at 5670 Wilshire Boulevard, Suite 1100, Los
Angeles, California 90036, and copies of all or any part thereof may be
obtained from the Commission upon payment of the charges prescribed by the
Commission. Copies of such material may also be obtained from the Commission's
Web Site (http://www.sec.gov).

Following the Distribution, the Company will be required to comply with the
reporting requirements of the Securities Exchange Act of 1934 (the "Exchange
Act") and will file annual, quarterly and other reports with the Commission.
The Company will also be subject to the proxy solicitation requirements of the
Exchange Act and, accordingly, will furnish audited financial statements to
its stockholders in connection with its annual meetings of stockholders.

95
<PAGE>

INDEX TO FINANCIAL STATEMENTS

The following financial information is included on the pages indicated:

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HMC SENIOR COMMUNITIES, INC., WHICH IS THE SENIOR LIVING COMMUNITIES'
BUSINESS OF
HOST MARRIOTT CORPORATION
Report of Independent Public Accountants............................. F-2
Consolidated Balance Sheet as of January 2, 1998..................... F-3
Consolidated Statement of Operations for the Period from June 21,
1997 (inception) through January 2, 1998............................ F-4
Consolidated Statement of Stockholders' Equity for the Period from
June 21, 1997 (inception) through January 2, 1998................... F-5
Consolidated Statement of Cash Flows for the Period from June 21,
1997 (inception) through January 2, 1998............................ F-6
Notes to Consolidated Financial Statements........................... F-7
Condensed Consolidated Balance Sheet as of June 19, 1998
(unaudited)......................................................... F-17
Condensed Consolidated Statement of Operations for the Twenty-four
Weeks Ended June 19, 1998 (unaudited)............................... F-18
Condensed Consolidated Statement of Cash Flows for the Twenty-four
Weeks Ended June 19, 1998 (unaudited)............................... F-19
Notes to Condensed Consolidated Financial Statements (unaudited)..... F-20
FORUM GROUP, INC. AND SUBSIDIARIES, AS PARTITIONED FOR SALE TO HOST
MARRIOTT CORPORATION
Report of Independent Public Accountants............................. F-22
Balance Sheet as of January 3, 1997.................................. F-23
Statement of Operations for the twenty-four week period ended June
20, 1997 and the forty-week period ended January 3, 1997............ F-24
Statement of Cash Flows for the twenty-four week period ended June
20, 1997 and the forty-week period ended January 3, 1997............ F-25
Notes to Financial Statements........................................ F-26
Independent Auditors' Report......................................... F-34
Combined Balance Sheets as of March 31, 1996 and 1995................ F-35
Combined Statements of Operations for the years ended March 31, 1996
and 1995............................................................ F-36
Combined Statements of Cash Flows for the years ended March 31, 1996
and 1995............................................................ F-37
Notes to Combined Financial Statements............................... F-38
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Host Marriott Corporation:

We have audited the accompanying consolidated balance sheet of HMC Senior
Communities, Inc. ("HMCSC"), which is the senior living communities' business
of Host Marriott Corporation, as defined in Note 1 to the consolidated
financial statements, as of January 2, 1998, and the related consolidated
statements of operations, stockholder's equity and cash flows for the period
from June 21, 1997 (inception) through January 2, 1998. These consolidated
financial statements are the responsibility of Host Marriott Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of HMCSC as
of January 2, 1998 and the results of its operations and its cash flows for
the period from June 21, 1997 (inception) through January 2, 1998 in
conformity with generally accepted accounting principles.

Arthur Andersen LLP

Washington, D.C.
May 1, 1998

F-2
<PAGE>

HMC SENIOR COMMUNITIES, INC.,
WHICH IS THE SENIOR LIVING COMMUNITIES' BUSINESS
OF HOST MARRIOTT CORPORATION

CONSOLIDATED BALANCE SHEET
JANUARY 2, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<S> <C>
ASSETS
Property and equipment, net.......................................... $633,840
Other assets......................................................... 1,332
Restricted cash...................................................... 10,686
Cash and cash equivalents............................................ 17,644
--------
Total assets....................................................... $663,502
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Debt................................................................. $349,934
Deferred income taxes................................................ 58,705
Accounts payable and other accrued liabilities....................... 15,543
Amounts due to Marriott International, net........................... 3,172
Accrued interest..................................................... 4,906
Due to Host Marriott Corporation..................................... 2,151
Deferred revenue..................................................... 2,027
--------
Total liabilities.................................................. 436,438
--------
Stockholder's equity:
Common stock, 100 shares authorized, issued and outstanding, no par
value............................................................... --
Additional paid-in capital........................................... 226,706
Retained earnings.................................................... 358
--------
Total stockholder's equity......................................... 227,064
--------
Total liabilities and stockholder's equity....................... $663,502
========
</TABLE>

See Notes to Consolidated Financial Statements.

F-3
<PAGE>

HMC SENIOR COMMUNITIES, INC.,
WHICH IS THE SENIOR LIVING COMMUNITIES' BUSINESS
OF HOST MARRIOTT CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE PERIOD FROM JUNE 21, 1997 (INCEPTION) THROUGH JANUARY 2, 1998
(IN THOUSANDS)

<TABLE>
<S> <C>
REVENUES.............................................................. $ 36,900
--------
OPERATING COSTS AND EXPENSES
Depreciation and amortization......................................... 10,635
Base management fees to Marriott International........................ 6,481
Property taxes........................................................ 3,626
Other................................................................. 187
--------
Total operating costs and expenses.................................. 20,929
--------
OPERATING PROFIT BEFORE CORPORATE EXPENSES AND INTEREST............... 15,971
Corporate expenses.................................................... (2,304)
Interest expense...................................................... (13,396)
Interest income....................................................... 336
--------
INCOME BEFORE INCOME TAXES............................................ 607
Provision for income taxes............................................ (249)
--------
NET INCOME............................................................ $ 358
========
</TABLE>

See Notes to Consolidated Financial Statements.

F-4
<PAGE>

HMC SENIOR COMMUNITIES, INC.,
WHICH IS THE SENIOR LIVING COMMUNITIES' BUSINESS
OF HOST MARRIOTT CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY

FOR THE PERIOD FROM JUNE 21, 1997 (INCEPTION) THROUGH JANUARY 2, 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------ ---------- --------
<S> <C> <C> <C>
Balance, June 21, 1997.............................. $-- $ -- $--
Common stock issued............................... -- -- --
Capital contributions by Host Marriott Corpora-
tion............................................. -- 226,706 --
Net income........................................ -- -- 358
---- -------- ----
Balance, January 2, 1998............................ $-- $226,706 $358
==== ======== ====
</TABLE>

See Notes to Consolidated Financial Statements.

F-5
<PAGE>

HMC SENIOR COMMUNITIES, INC.,
WHICH IS THE SENIOR LIVING COMMUNITIES' BUSINESS
OF HOST MARRIOTT CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM JUNE 21, 1997 (INCEPTION) THROUGH JANUARY 2, 1998
(IN THOUSANDS)

<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income.......................................................... $ 358
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization..................................... 10,635
Change in amounts due to Marriott International................... 10,073
Change in amounts due to Host Marriott............................ 2,151
Equity in earnings of affiliate................................... (997)
Change in other operating accounts................................ 3,156
---------
Cash provided by operating activities............................... 25,376
---------
INVESTING ACTIVITIES
Capital expenditures.............................................. (33,345)
Increase in capital improvement reserve........................... (67)
---------
Cash used in investing activities................................... (33,412)
---------
FINANCING ACTIVITIES
Contribution of cash.............................................. 7,319
Repayments of debt................................................ (2,142)
Issuances of debt................................................. 20,407
Change in financing reserves...................................... 96
---------
Cash provided by financing activities............................... 25,680
---------
Increase in cash and cash equivalents............................... 17,644
Cash and cash equivalents, beginning of period...................... --
---------
Cash and cash equivalents, end of period............................ $ 17,644
=========
SUPPLEMENTAL INFORMATION--NON-CASH ACTIVITY:
Contributions from Host Marriott Corporation:
Property and equipment............................................ $ 601,033
Other assets...................................................... 9,892
Debt assumed...................................................... (331,669)
Other liabilities................................................. (9,479)
Deferred revenue.................................................. (2,054)
Deferred income taxes............................................. 58,435
Expansion costs paid by Host Marriott Corporation, which have been
included in additional paid-in capital........................... 10,099
</TABLE>

See Notes to Consolidated Financial Statements.

F-6
<PAGE>

HMC SENIOR COMMUNITIES, INC.,
WHICH IS THE SENIOR LIVING COMMUNITIES' BUSINESS
OF HOST MARRIOTT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

On June 21, 1997, Host Marriott Corporation ("Host Marriott") acquired all
of the outstanding stock of Forum Group Inc. ("Forum Group") from Marriott
Senior Living Services, Inc. ("MSLS"), a subsidiary of Marriott International,
Inc. ("Marriott International") and concurrently contributed all of the assets
and liabilities of Forum Group to HMC Senior Communities, Inc. ("HMCSC"). In
connection with the acquisition, Forum Group assigned to Marriott
International its interest as manager under long-term operating agreements
(See Note 6).

On April 16, 1998, the Board of Directors of Host Marriott approved a plan
to reorganize Host Marriott's current business operations by spinning-off
HMCSC to the shareholders of Host Marriott, and contributing Host Marriott's
hotels and certain other assets and liabilities to a newly formed Delaware
limited partnership, Host Marriott, L.P., whose sole general partner will be
HMC Merger Corporation, a newly formed Maryland corporation which will be
renamed Host Marriott Corporation upon its merger with Host Marriott. After
the proposed reorganization, HMCSC will lease hotels from Host Marriott, L.P.
and Marriott International will continue to manage the hotels under long-term
management agreements.

Consummation of the reorganization is subject to significant contingencies,
including final Board approval and consent of stockholders, partners,
bondholders, lenders and ground lessors of Host Marriott, its affiliates and
other third parties. Accordingly, there can be no assurance that the
reorganization will be completed.

The accompanying consolidated financial statements include the historical
accounts of HMCSC, representing 31 senior living communities (the
"Communities") located in 13 states, expected to be spun-off as part of the
reorganization described above.

HMCSC operates as a unit of Host Marriott utilizing Host Marriott's
employees, insurance and administrative services. HMCSC has no employees.
Periodically, certain operating expenses, capital expenditures and other cash
requirements of HMCSC are paid by Host Marriott and charged directly or
allocated to HMCSC. Certain general and administrative costs of Host Marriott
are allocated to HMCSC using a variety of methods, principally including Host
Marriott's specific identification of individual cost items and otherwise
through allocations based upon estimated levels of effort devoted by its
general and administrative departments to individual entities or relative
measures of size of the entities based on assets. In the opinion of
management, the methods for allocating corporate, general and administrative
expenses and other direct costs are reasonable. It is not practical to
estimate the costs that would have been incurred by HMCSC if it had been
operated on a stand-alone basis.

The consolidated financial statements present the financial position,
results of operations and cash flows of HMCSC beginning on June 21, 1997 (the
date Host Marriott acquired the stock of the Forum Group) through January 2,
1998. Host Marriott's basis in the assets and liabilities of HMCSC has been
carried over to these financial statements. All material intercompany
transactions and balances between HMCSC and its subsidiaries have been
eliminated.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of HMCSC and its
subsidiaries and controlled affiliates. Investments in affiliates over which
HMCSC has the ability to exercise significant influence, but does not control,
are accounted for using the equity method. All material intercompany
transactions and balances have been eliminated.

F-7
<PAGE>

HMC SENIOR COMMUNITIES, INC.,
WHICH IS THE SENIOR LIVING COMMUNITIES' BUSINESS
OF HOST MARRIOTT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Fiscal Year

HMCSC's fiscal year ends on the Friday nearest to December 31.

Revenues

Revenues represent house profit from the Communities. House profit reflects
the net revenues flowing to HMCSC as property owner and represents gross
community operating sales less property-level expenses excluding depreciation
and amortization, real and personal property taxes, insurance, management fees
and certain other costs which are classified as operating costs and expenses
in the accompanying statement of operations.

Resident fees and health care service revenues are generated primarily from
monthly charges for independent living units and daily charges for assisted
living suites and nursing beds, and are recognized monthly based on the terms
of the residents' agreements. Advance payments received for services are
deferred until the services are provided. Included in resident fees revenue is
ancillary revenue, which is generated on a "fee for service" basis for
supplemental items requested by residents and is recognized as the services
are provided.

A portion of revenues from health care services were attributable to
patients whose bills are paid by Medicare or Medicaid under contractual
arrangements. Reimbursements under these contractual arrangements are subject
to retroactive adjustments based on agency reviews. Revenues from health care
services are recorded net of estimated contractual allowances in the
accompanying consolidated financial statements. Management believes that
reserves recorded are adequate to cover any adjustments arising from
retroactive adjustments.

HMCSC has considered the impact of EITF 97-2 on its financial statements and
has determined that it requires HMCSC to include property-level revenues and
operating expenses of its senior living communities in its statements of
operations. HMCSC will adopt EITF 97-2 in the fourth quarter of 1998 with
retroactive effect in prior periods to conform to the new presentation. The
effect of this change will be to increase 1997 revenues and operating costs
and expenses by approximately $74.1 million and will have no impact on
operating profit or net income. See Note 3.

Cash and Cash Equivalents

All highly liquid investments with a maturity of three months or less at
date of purchase are considered cash equivalents.

Property and Equipment

Property and equipment is recorded at cost, or if contributed by Host
Marriott, is recorded at Host Marriott's basis. Replacements and improvements
that extend the useful life of property and equipment are capitalized.

Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, generally 40 years for buildings and three to 10
years for furniture and equipment. Leasehold improvements are amortized over
the shorter of the lease term or the useful lives of the related assets.

In cases where management is holding for sale a particular Community, HMCSC
assesses impairment based on whether the estimated sales price less cost of
disposal of each individual property to be sold is less than the net book
value. A property is considered to be held for sale when a decision is made to
dispose of the Community. Otherwise, impairment is assessed based on whether
it is probable that undiscounted future cash flows from each Community will be
less than its net book value. If a Community is impaired, its basis is
adjusted to its fair value.

F-8
<PAGE>

HMC SENIOR COMMUNITIES, INC.,
WHICH IS THE SENIOR LIVING COMMUNITIES' BUSINESS
OF HOST MARRIOTT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Concentration of Credit Risk

Financial instruments that potentially subject HMCSC to significant
concentration of credit risk consist principally of cash and cash equivalents.
HMCSC maintains cash and cash equivalents with various high credit-quality
financial institutions and limits the amount of credit exposure with any
institution.

Working Capital

Pursuant to the terms of HMCSC's Operating Agreements (see Note 6), HMCSC is
required to provide Marriott International with working capital and supplies
to meet the operating needs of the Communities. Marriott International
converts cash advanced by HMCSC into other forms of working capital consisting
primarily of operating cash, inventories, resident deposits and trade
receivables and payables which are maintained and controlled by Marriott
International. Upon the termination of the Operating Agreements, Marriott
International is required to convert working capital and supplies into cash
and return it to HMCSC. As a result of these conditions, the individual
components of working capital and supplies controlled by Marriott
International are not reflected in the accompanying consolidated balance
sheet.

Deferred Revenue

Monthly fees deferred for the non-refundable portion of the entry fees are
included as deferred revenue in the accompanying balance sheet. These amounts
are recognized as revenue as health care services are performed over the
expected term of the residents' contracts.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

New Accounting Standards

In 1997, the Company adopted Statement of Financial Accounting Standards No.
129 "Disclosure of Information About Capital Structure." The adoption of this
statement did not have a material effect on these consolidated financial
statements.

F-9
<PAGE>

HMC SENIOR COMMUNITIES, INC.,
WHICH IS THE SENIOR LIVING COMMUNITIES' BUSINESS
OF HOST MARRIOTT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3. REVENUES

House profit generated by the Communities consist of the following for the
period from June 21, 1997 (inception) through January 2, 1998 (in thousands):

<TABLE>
<S> <C>
Community Sales
Routine.......................................................... $ 99,989
Ancillary........................................................ 10,980
--------
Total Community Sales.......................................... 110,969
--------
Department Costs
Routine.......................................................... 64,516
Ancillary........................................................ 9,553
--------
Total Department Costs......................................... 74,069
--------
Department Profit
Routine.......................................................... 35,473
Ancillary........................................................ 1,427
--------
Revenues....................................................... $ 36,900
========
</TABLE>

Community sales consist of routine and ancillary sales. Routine sales are
generated from monthly charges for independent living units and daily charges
for assisted living suites and nursing beds, and are recognized monthly based
on the terms of the residents' agreements. Advance payments received for
services are deferred until the services are provided. Ancillary sales are
generated on a "fee for service" basis for supplementary items requested by
residents, and are recognized as the services are provided.

Total sales include amounts estimated by management to be reimbursable
through Medicare, Medicaid and other third party payor agreements. Medicare
and Medicaid represented 11% and 3%, respectively, of sales for the period
from June 21, 1997 (inception) through January 2, 1998. Reimbursement
arrangements are subject to audit and retroactive adjustment. Provisions are
made for potential adjustments that may result. To the extent those provisions
vary from settlements, sales are charged or credited when the adjustments
become final. Changes in the estimate of amounts reimbursable by third party
payors from prior years resulted in the recognition of $1,689,000 of
additional sales for the period from June 21, 1997 (inception) through January
2, 1998. In management's opinion, any adjustments related to current and prior
years' operations will be immaterial to current and future financial
statements.

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following at January 2, 1998 (in
thousands):

<TABLE>
<S> <C>
Land and land improvements...................................... $102,714
Buildings and leasehold improvements............................ 518,056
Furniture and equipment......................................... 23,705
--------
644,475
Less accumulated depreciation and amortization.................. (10,635)
--------
$633,840
========
</TABLE>

F-10
<PAGE>

HMC SENIOR COMMUNITIES, INC.,
WHICH IS THE SENIOR LIVING COMMUNITIES' BUSINESS
OF HOST MARRIOTT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In December 1997, LTJ Senior Communities Corporation ("LTJ"), a wholly owned
subsidiary of HMCSC, acquired 49% of the remaining 50% interest in Leisure
Park Venture Limited Partnership (the "Partnership") which owns a 418-unit
retirement community in New Jersey for approximately $23 million, including
the assumption of approximately $15 million of debt. Subsequent to this
acquisition, HMCSC indirectly owns a 99% interest in the Partnership. Marriott
International owns the remaining 1% limited partner interest.

In the first quarter of 1998, LTJ also acquired the Gables of Winchester in
suburban Boston, a 124-unit upscale senior living community, for $21 million
and entered into conditional purchase agreements for two Marriott Brighton
Gardens assisted living communities with the Summit Companies of Denver,
Colorado. After the anticipated completion of construction in the first
quarter of 1999, HMCSC may acquire these two 160-unit properties located in
Denver and Colorado Springs, Colorado, for approximately $35 million, if they
achieve certain operating performance criteria. All three of these communities
will be operated by Marriott International under long-term operating
agreements.

5. RESTRICTED CASH

Restricted cash consists of the following at January 2, 1998 (in thousands):

<TABLE>
<S> <C>
Debt service reserve fund........................................ $ 1,528
Fixed asset reserve fund......................................... 4,300
Real estate tax reserve fund..................................... 3,590
Insurance reserve fund........................................... 1,268
-------
$10,686
=======
</TABLE>

The debt service, fixed asset, real estate tax and insurance reserve funds
consist of cash transferred into segregated escrow accounts out of sales
generated by the Communities, pursuant to HMCSC's secured debt agreements.
These funds are periodically disbursed by the collateral agent to pay for debt
service, capital expenditures, insurance premiums and real estate taxes
relating to the secured properties. In some cases, to ensure prompt payment,
HMCSC utilizes its unrestricted cash to pay for capital expenditures,
insurance premiums and real estate taxes and is subsequently reimbursed for
such payments out of funds held in the appropriate escrow account.

6. OPERATING AGREEMENTS

The Communities are subject to operating agreements (the "Operating
Agreements") which provide for Marriott International to operate the
Communities, generally for an initial term of 25 to 30 years with renewal
terms subject to certain performance criteria at the option of Marriott
International of up to an additional five to ten years. The Operating
Agreements provide for payment of base management fees generally equal to five
to eight percent of gross sales and incentive management fees generally equal
to zero to 20% of Operating Profit (as defined in the Operating Agreements)
over a priority return to HMCSC. In the event of early termination of the
Operating Agreements, Marriott International will receive additional fees
based on the unexpired term and expected future base and incentive management
fees. HMCSC has the option to terminate certain, but not all, management
agreements if specified performance thresholds are not satisfied. No Operating
Agreement with respect to a single Community is cross-collateralized or cross-
defaulted to any other Operating Agreement, and any single Operating Agreement
may be terminated following a default by HMCSC or Marriott International,
although such termination will not trigger the cancellation of any other
Operating Agreement.

F-11
<PAGE>

HMC SENIOR COMMUNITIES, INC.,
WHICH IS THE SENIOR LIVING COMMUNITIES' BUSINESS
OF HOST MARRIOTT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Pursuant to the terms of the Operating Agreements, Marriott International is
required to furnish the Communities with certain services ("Central
Administrative Services") which are provided on a central or regional basis to
all properties in the Marriott Retirement Community System. These services
include the development and operation of computer systems, computer payroll
and accounting services, marketing and public relations services, and such
additional services as may from time-to-time be performed more efficiently on
a central or regional level. The Operating Agreements require payment of
Central Administrative Services fees equal to 2% of gross sales beginning in
the third quarter of 1998.

Marriott International is required under the Operating Agreements to deduct
an amount from gross sales and place the funds into an interest-bearing
reserve account to cover the cost of (a) certain routine repairs and
maintenance to the Communities which are normally capitalized and (b)
replacements and renewals to the Communities' property and improvements. The
annual payment amount (expressed as a percentage of gross sales) generally
will be 2.65% through fiscal year 2002, 2.85% for fiscal years 2003 through
2007, and 3.5% thereafter. The amount contributed for the period June 21, 1997
(inception) through January 2, 1998 was $2,025,000. The Operating Agreements
provide that HMCSC shall provide Marriott International with sufficient funds
to cover the cost of certain major or non-routine repairs, alterations,
improvements, renewals and replacements to the Communities which are required
to maintain a competitive, efficient and economical operating condition in
accordance with Marriott standards or for the continued safe and orderly
operation of the Communities.

7. AMOUNTS DUE TO MARRIOTT INTERNATIONAL

The components of the amounts due to Marriott International, net, at January
2, 1998 are as follows (in thousands):

<TABLE>
<S> <C>
Community operating expenses payable to Marriott International..... $ 7,648
Management fees payable to Marriott International.................. 1,262
Community working capital due to HMCSC............................. (6,093)
Other, net......................................................... 355
-------
Total............................................................ $ 3,172
=======
</TABLE>

F-12
<PAGE>

HMC SENIOR COMMUNITIES, INC.,
WHICH IS THE SENIOR LIVING COMMUNITIES' BUSINESS
OF HOST MARRIOTT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

8. DEBT

Debt consists of the following at January 2, 1998 (in thousands):

<TABLE>
<S> <C>
Mortgage Debt:
Secured by eight Communities with $232 million of assets, with an
interest rate of 10.01%, maturing through 2020 (balance includes
fair value adjustment of $15.5 million)............................ $137,713
Secured by nine Communities with $110 million of assets, with an
interest rate of 9.93%, maturing through 2001 (balance includes
fair value adjustment of $2.6 million)............................. 49,353
Secured by one Community with $29 million of assets, with an average
rate of 7.45%, maturing through 1999 (repaid in 1998).............. 26,403
--------
213,469
--------
Notes payable to Marriott International, with a rate of 9%, maturing
through 2001 (repaid in 1998)........................................ 92,195
--------
Other notes:
Revenue Bonds with a rate of 5.875%, maturing through 2027.......... 14,700
Other notes, with an average rate of 6.6%, maturing through December
2027............................................................... 18,943
Capital lease obligations........................................... 10,627
--------
44,270
--------
Total debt........................................................ $349,934
========
</TABLE>

Debt maturities at January 2, 1998, excluding the unamortized fair value
adjustments of approximately $18 million resulting from recording the
mortgages at their fair value on June 21, 1997, are as follows (in thousands):

<TABLE>
<S> <C>
1998............................................................. $ 54,515
1999............................................................. 30,197
2000............................................................. 4,503
2001............................................................. 88,043
2002............................................................. 2,504
Thereafter....................................................... 152,046
--------
$331,808
========
</TABLE>

In conjunction with the acquisition of Forum Group Inc., HMCSC recorded the
debt assumed at its fair value, which exceeded the face value by approximately
$19 million. HMCSC is amortizing this adjustment to interest expense over the
remaining life of the related debt. The amortization for the period from June
21, 1997 (inception) through January 2, 1998 totaled $834,000. Cash paid for
interest for the period from June 21, 1997 (inception) through January 2, 1998
totaled $8,183,000.

In conjunction with the June 21, 1997 acquisition of Forum Group Inc., HMCSC
assumed approximately $197 million in mortgage debt, $11 million in capital
lease obligations (see Note 9), as well as issued $72 million in notes payable
to Marriott International. Subsequent to the acquisition, HMCSC issued
additional notes payable to Marriott International for additional expansion
units totaling approximately $20 million. These notes were guaranteed by Host
Marriott. In the second quarter of 1998, Host Marriott repaid the $92 million
in notes payable to Marriott International.

F-13
<PAGE>

HMC SENIOR COMMUNITIES, INC.,
WHICH IS THE SENIOR LIVING COMMUNITIES' BUSINESS
OF HOST MARRIOTT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In December 1997, in connection with the acquisition of the remaining 50%
interest in the Leisure Park Venture Limited Partnership (see Note 4), HMCSC
assumed approximately $15 million of debt.

The net assets of 17 of the Communities are subject to mortgage debt which
places restrictions on their assets. The net assets of the Communities totaled
approximately $150 million at January 2, 1998. The indentures governing these
mortgages contain covenants that, among other things, require maintenance of
segregated cash collection of all rents, separate cash reserves for debt
service, property improvements, real estate taxes and insurance, limit the
ability to incur additional indebtedness, issue stock or admit additional
partners, pay dividends or make certain distributions, enter into or cancel
leases, enter into certain transactions with affiliates or sell certain
assets.

During the first quarter of 1998, Host Marriott prepaid $26.4 million in
mortgage debt. Host Marriott's prepayment of the debt was recorded as a
capital contribution to HMCSC, there was no gain or loss on the prepayment.

9. LEASES

HMCSC leases certain property under non-cancelable capital and operating
leases. Future minimum annual rental commitments for all non-cancelable leases
are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASE
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1998................................................... $ 1,274 $ 278
1999................................................... 1,287 278
2000................................................... 1,300 278
2001................................................... 1,320 278
2002................................................... 1,338 278
Thereafter............................................. 13,672 3,062
------- ------
Total minimum lease payments........................... 20,191 $4,452
======
Less amount representing interest...................... (9,564)
-------
Present value of minimum lease payments................ $10,627
=======
</TABLE>

HMCSC leases two communities under capital leases expiring in 2016. Upon the
expiration of the lease or anytime prior to lease expiration, HMCSC has the
first right of refusal (the "Option") to submit a counter offer to any
acceptable bona fide offer from a third party within 30 days of notice from
the lessor. If HMCSC fails to exercise its Option, then the lessor may proceed
with the sale of the leased property and all assets therein.

HMCSC also has one long-term operating ground lease which expires in 2013.
The operating lease includes three renewal options exercisable in five year
increments through the year 2028.

Rent expense for the period from June 21, 1997 (inception) through January
2, 1998 was $141,000.

F-14
<PAGE>

HMC SENIOR COMMUNITIES, INC.,
WHICH IS THE SENIOR LIVING COMMUNITIES' BUSINESS
OF HOST MARRIOTT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

10. INCOME TAXES

Total deferred tax assets and liabilities as of January 2, 1998 were as
follows (in thousands):

<TABLE>
<S> <C>
Deferred tax assets................................................ $ 15,125
Deferred tax liabilities........................................... (73,830)
--------
Net deferred income tax liability................................ $(58,705)
========
</TABLE>

The tax effect of each type of temporary difference and carryforward that
gives rise to a significant portion of deferred tax assets and liabilities as
of January 2, 1998 was as follows (in thousands):

<TABLE>
<S> <C>
Property and equipment............................................. $(68,687)
Debt adjustment to fair value at acquisition....................... 7,591
Other, net......................................................... 2,391
--------
Net deferred income tax liability................................ $(58,705)
========
</TABLE>

The provision for income taxes consists of the following for the period from
June 21, 1997 (inception) through January 2, 1998 (in thousands):

<TABLE>
<S> <C>
Current--Federal..................................................... $ (25)
--State........................................................... (5)
-----
(30)
-----
Deferred--Federal.................................................... 238
--State........................................................... 41
-----
279
-----
$249
=====
</TABLE>

A reconciliation of the statutory Federal tax rate to HMCSC's effective
income tax rate for the period from June 21, 1997 (inception) through January
2, 1998 follows:

<TABLE>
<S> <C>
Statutory federal tax rate............................................. 35.0%
State income taxes, net of federal tax benefit......................... 6.0
----
41.0%
====
</TABLE>

HMCSC is included in the consolidated federal income tax return of Host
Marriott and its affiliates (the "Group") for the period from June 21, 1997
(inception) through January 2, 1998. Tax expense is allocated to HMCSC as a
member of the Group based upon the relative contribution to the Group's
consolidated taxable income/loss and changes in temporary differences. This
allocation method results in federal and net state tax expense allocated for
all periods presented that is substantially equal to the expense that would
have been recognized if HMCSC had filed separate tax returns. HMCSC reimburses
Host Marriott for the allocable share of current taxes payable relating to the
period that HMCSC has been included in Host Marriott's consolidated federal
income tax return.

F-15
<PAGE>

HMC SENIOR COMMUNITIES, INC.,
WHICH IS THE SENIOR LIVING COMMUNITIES' BUSINESS
OF HOST MARRIOTT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

11. COMMITMENTS AND CONTINGENCIES

On June 15, 1995, The Russell F. Knapp Revocable Trust (the "Plaintiff")
filed a complaint in the United States District Court for the Southern
District of Indiana (the "Indiana Court") against the general partner of one
of HMCSC's subsidiary partnerships, Forum Retirement Partners, L.P. alleging
breach of the partnership agreement, breach of fiduciary duty, fraud, insider
trading and civil conspiracy/aiding and abetting. On February 4, 1998, the
Plaintiff, MSLS, the general partner, Forum Group and HMCSC entered into a
Settlement and Release Agreement (the "Settlement Agreement"), pursuant to
which Host Marriott agreed to purchase, at a price of $4.50 per unit, the
partnership units of each limited partner electing to join in the Settlement
Agreement. HMCSC held 79% of the outstanding limited partner units in the
partnership at that time. HMCSC also agreed to pay as much as an additional
$1.25 per unit to the settling limited partners, under certain conditions, in
the event that HMCSC within three years following the date of settlement
initiates a tender offer for the purchase of units not presently held by HMCSC
or the settling limited partners. On February 5, 1998, the Indiana Court
entered an order approving the dismissal of the Plaintiff's case.

In connection with the Settlement Agreement on March 25, 1998, HMCSC
acquired 1,000,894 limited partner unit shares for approximately $4,504,000.
The purchase price of the shares approximated fair value and accordingly, no
portion of the purchase price has been expensed. As a result of this purchase,
HMCSC's ownership interest in the partnership was increased to approximately
86%.

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

HMCSC believes the carrying amount of its financial instruments (excluding
property indebtedness) approximates their fair value due to the relatively
short maturity of these instruments. There is no quoted market value available
for any of HMCSC's financial instruments.

Valuations of debt are determined based on expected future payments
discounted at risk-adjusted rates. The debt was adjusted to its fair value in
conjunction with Host Marriott's acquisition of the Communities on June 21,
1997. As of January 2, 1998, the fair value of debt approximated its carrying
value.

F-16
<PAGE>

HMC SENIOR COMMUNITIES, INC.,
WHICH IS THE SENIOR LIVING COMMUNITIES' BUSINESS
OF HOST MARRIOTT CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 19, 1998
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<S> <C>
ASSETS
Property and equipment, net...................................... $643,641
Amounts due from Marriott International, net..................... 9,006
Other assets..................................................... 3,523
Restricted cash.................................................. 12,056
Cash and cash equivalents........................................ 19,113
--------
Total assets................................................... $687,339
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Debt, including $107 million in notes due to Host Marriott Corpo-
ration.......................................................... $321,752
Deferred income taxes............................................ 61,715
Due to Host Marriott Corporation, net............................ 10,580
Accounts payable and other accrued liabilities................... 9,122
Deferred revenue................................................. 1,532
--------
Total liabilities.............................................. 404,701
--------
Stockholder's equity:
Common stock, 100 shares authorized, issued and outstanding, no
par value....................................................... --
Additional paid-in capital....................................... 278,783
Retained earnings................................................ 3,855
--------
Total stockholder's equity..................................... 282,638
--------
Total liabilities and stockholder's equity..................... $687,339
========
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

F-17
<PAGE>

HMC SENIOR COMMUNITIES, INC.,
WHICH IS THE SENIOR LIVING COMMUNITIES' BUSINESS
OF HOST MARRIOTT CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWENTY-FOUR WEEKS ENDED JUNE 19, 1998
(UNAUDITED, IN THOUSANDS)

<TABLE>
<S> <C>
REVENUES............................................................... $39,252
-------
OPERATING COSTS AND EXPENSES
Depreciation and amortization.......................................... 9,686
Base management fees to Marriott International......................... 6,068
Property taxes and insurance........................................... 3,080
Other.................................................................. 372
-------
Total operating costs and expenses................................... 19,206
-------
OPERATING PROFIT BEFORE CORPORATE EXPENSES AND INTEREST................ 20,046
Corporate expenses..................................................... (1,616)
Interest expense....................................................... (13,185)
Interest income........................................................ 681
-------
INCOME BEFORE INCOME TAXES............................................. 5,926
Provision for income taxes............................................. (2,429)
-------
NET INCOME............................................................. $ 3,497
=======
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

F-18
<PAGE>

HMC SENIOR COMMUNITIES, INC.,
WHICH IS THE SENIOR LIVING COMMUNITIES' BUSINESS
OF HOST MARRIOTT CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE TWENTY-FOUR WEEKS ENDED JUNE 19, 1998
(UNAUDITED, IN THOUSANDS)

<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income........................................................... $ 3,497
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization...................................... 9,686
Change in amounts due to Marriott International.................... (9,602)
Change in amounts due to Host Marriott Corporation................. 8,986
Equity in earnings of affiliate.................................... (26)
Change in other operating accounts................................. (5,603)
-------
Cash provided by operating activities................................ 6,938
-------
INVESTING ACTIVITIES
Capital expenditures............................................... (2,515)
Increase in capital improvement reserve............................ (1,082)
-------
Cash used in investing activities.................................... (3,597)
-------
FINANCING ACTIVITIES
Repayments of debt................................................. (1,779)
Change in financing reserves....................................... (93)
-------
Cash used in financing activities.................................... (1,872)
-------
Increase in cash and cash equivalents................................ 1,469
Cash and cash equivalents, beginning of period....................... 17,644
-------
Cash and cash equivalents, end of period............................. $19,113
=======
SUPPLEMENTAL INFORMATION--NON-CASH ACTIVITY:
Contributions from Host Marriott Corporation:
Property and equipment........................................... $16,972
Other............................................................ 8,701
Mortgage debt paid by Host Marriott.............................. 26,403
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

F-19
<PAGE>

HMC SENIOR COMMUNITIES, INC.,
WHICH IS THE SENIOR LIVING COMMUNITIES' BUSINESS
OF HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. On June 21, 1997, Host Marriott Corporation ("Host Marriott") acquired
all of the outstanding stock of Forum Group Inc. ("Forum Group"), from
Marriott Senior Living Services, Inc. ("MSLS"), a subsidiary of Marriott
International, Inc. ("Marriott International") and concurrently contributed
all of the assets and liabilities of Forum Group, Inc. to HMC Senior
Communities, Inc. ("HMCSC"). In connection with the acquisition, Forum Group
assigned to Marriott International its interest as manager under long-term
operating agreements.

On April 16, 1998, the Board of Directors of Host Marriott approved a plan
to reorganize Host Marriott's current business operations by spinning-off Host
Marriott's senior living business ("Senior Living") into a separate
corporation, the Senior Living Communities Company and contributing Host
Marriott's hotels and certain other assets and liabilities to a newly formed
Delaware limited partnership, Host Marriott, L.P., whose sole general partner
will be HMC Merger Corporation, a newly formed Maryland corporation which will
be renamed Host Marriott Corporation upon its merger with Host Marriott (the
"REIT Conversion"). After the proposed REIT Conversion, HMCSC will lease
hotels from Host Marriott, L.P. and Marriott International will continue to
manage the hotels under long term management agreements.

Consummation of the REIT Conversion is subject to significant contingencies,
including final Board approval, consent of shareholders, partners,
bondholders, lenders and ground lessors of Host Marriott, its affiliates and
other third parties. Accordingly, there can be no assurance that the REIT
Conversion will be completed.

The accompanying condensed consolidated financial statements have been
prepared by HMCSC 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. HMCSC
believes the disclosures made are adequate to make the information presented
not misleading. However, the condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's audited financial statements for the
period from June 21, 1997 (inception) through January 2, 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 19, 1998 and the
results of operations and cash flows for the twelve weeks ended June 19, 1998.
Interim results are not necessarily indicative of fiscal year performance
because of the impact of seasonal and short-term variations.

2. Revenues represent house profit from the Communities. House profit
reflects the net revenues flowing to HMCSC as property owner and represents
gross community operating sales less property-level expenses excluding
depreciation and amortization, real and personal property taxes, insurance,
management fees and certain other costs which are classified as operating
costs and expenses.

F-20
<PAGE>

HMC SENIOR COMMUNITIES, INC.,
WHICH IS THE SENIOR LIVING COMMUNITIES' BUSINESS
OF HOST MARRIOTT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

are subject to retroactive adjustments based on agency reviews. Revenues and
receivables from health care services are recorded net of estimated
contractual allowances in the accompanying consolidated financial statements.
Management believes that reserves recorded are adequate to cover any
adjustments arising from retroactive adjustments.

House profit generated by the Communities consist of the following for the
twenty-four weeks ended June 19, 1998 (in thousands):

<TABLE>
<S> <C>
Community Sales
Routine............................................................... $99,240
Ancillary............................................................. 10,937
-------
Total Community Sales............................................... 110,177
-------
Department Costs
Routine............................................................... 61,984
Ancillary............................................................. 8,941
-------
Total Department Costs.............................................. 70,925
-------
Department Profit
Routine............................................................... 37,256
Ancillary............................................................. 1,996
-------
Revenues............................................................ $39,252
=======
</TABLE>

HMCSC has considered the impact of EITF 97-2 on its financial statements and
has determined that it requires HMCSC to include property-level revenues and
operating expenses of its senior living communities in its statements of
operations. HMCSC will adopt EITF 97-2 in the fourth quarter of 1998 with
retroactive effect in prior periods to conform to the new presentation. The
effect of this change will be to increase revenues and operating costs and
expenses for the twenty-four weeks ended June 19, 1998 by approximately $71
million and will have no impact on operating profit or net income.

3. In the first quarter of 1998, HMCSC also acquired the Gables of
Winchester in suburban Boston, a 124-unit upscale senior living community, for
$21 million and entered into conditional purchase agreements for two Marriott
Brighton Gardens assisted living communities from the Summit Companies of
Denver, Colorado. After the anticipated completion of construction in the
first quarter of 1999, HMCSC may acquire these two 160-unit properties located
in Denver and Colorado Springs, Colorado, for approximately $35 million, if
they achieve certain operating performance criteria. All three of these
communities will be operated by Marriott International under long-term
operating agreements.

4. During the first quarter of 1998, Host Marriott prepaid $26.4 million in
mortgage debt. Host Marriott's prepayment of debt was recorded as a capital
contribution to HMCSC. In the second quarter of 1998, Host Marriott prepaid
$92 million of 9% unsecured debt provided by Marriott International related to
the Communities. Host Marriott now holds a $92 million, 9% note, which is
included as debt in the accompanying condensed consolidated balance sheet.
Combined with the 1997 $14.8 million, 6.375% notes which mature in December
2027, Host Marriott holds a total of approximately $107 million in notes due
from HMCSC.

5. During the first quarter of 1998, Host Marriott prepaid $26.4 million in
mortgage debt. Host Marriott's prepayment of debt was recorded as a capital
contribution to HMCSC.

F-21
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Marriott Senior Living Services, Inc.:

We have audited the accompanying consolidated balance sheet of Forum Group,
Inc. (a business unit wholly-owned by Marriott Senior Living Services, Inc.
("MSLSI")) as partitioned for sale to Host Marriott Corporation (see Note 1),
as of January 3, 1997, and the related consolidated statements of operations
and cash flows for the 40-week period ended January 3, 1997, and the 24-week
period ended June 20, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Forum
Group, Inc., as Partitioned for Sale to Host Marriott Corporation as of
January 3, 1997, and the results of their operations and their cash flows for
the 40-week period ended January 3, 1997 and for the 24-week period ended June
20, 1997, in conformity with generally accepted accounting principles.

Arthur Andersen LLP

Washington, D.C.
September 28, 1998

F-22
<PAGE>

FORUM GROUP, INC., AS PARTITIONED FOR SALE
TO HOST MARRIOTT CORPORATION

CONSOLIDATED BALANCE SHEET
JANUARY 3, 1997
(IN THOUSANDS)

<TABLE>
<S> <C>
ASSETS
Property and Equipment, net............................................ $507,325
Due from Manager....................................................... 18,908
Other Assets........................................................... 20,221
Cash and Cash Equivalents.............................................. 18,640
--------
Total Assets......................................................... $565,094
========
LIABILITIES AND EQUITY
Debt................................................................... $244,318
Other Liabilities...................................................... 36,111
--------
Total Liabilities.................................................... 280,429
Equity
Investments and Advances from Parent................................... 284,665
--------
Total Liabilities and Equity......................................... $565,094
========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-23
<PAGE>

FORUM GROUP, INC., AS PARTITIONED FOR SALE
TO HOST MARRIOTT CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 24-WEEK PERIOD ENDED JUNE 20, 1997 AND THE 40-WEEK PERIOD ENDED JANUARY
3, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
24-WEEK PERIOD 40-WEEK PERIOD
ENDED ENDED
JUNE 20, 1997 JANUARY 3, 1997
-------------- ---------------
<S> <C> <C>
REVENUES....................................... $33,570 $ 55,987
------- --------
OPERATING COSTS AND EXPENSES
Depreciation and amortization.................. 6,698 8,494
Base management fees........................... 5,586 7,935
Property taxes................................. 2,920 3,616
Ground rent, insurance and other............... 391 601
------- --------
Total operating costs and expenses........... 15,595 20,646
------- --------
OPERATING PROFIT BEFORE INTEREST AND MINORITY
INTEREST...................................... 17,975 35,341
Corporate expenses............................. (4,519) (6,380)
Interest expense............................... (9,141) (14,283)
Interest income................................ 598 1,111
Minority interest expense...................... (596) (482)
------- --------
INCOME BEFORE INCOME TAXES..................... 4,317 15,307
Provision for income taxes..................... (1,689) (5,973)
------- --------
NET INCOME..................................... $ 2,628 $ 9,334
======= ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-24
<PAGE>

FORUM GROUP, INC., AS PARTITIONED FOR SALE
TO HOST MARRIOTT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 24-WEEK PERIOD ENDED JUNE 20, 1997 AND THE 40-WEEK PERIOD ENDED JANUARY
3, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
24-WEEK 40-WEEK
PERIOD ENDED PERIOD ENDED
JUNE 20, 1997 JANUARY 3, 1997
------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
NET INCOME.................. $ 2,628 $ 9,334
Adjustments to reconcile
cash from operations:
Depreciation and
amortization............. 6,698 8,494
Changes in operating
accounts:
Other assets............ (225) 2,891
Other liabilities....... (9,580) 6,151
-------- ---------
Cash (used in)/provided by
operating activities....... (479) 26,870
-------- ---------
INVESTING ACTIVITIES
Capital expenditures...... (16,407) (65,577)
Acquisition of Forum
Group, Inc. ............. -- (94,009)
-------- ---------
Cash used in investing
activities................. (16,407) (159,586)
-------- ---------
FINANCING ACTIVITIES
Repayment of debt......... (1,324) (2,281)
Debt prepayments.......... -- (92,111)
Other..................... -- 1,208
Advances from parent...... 13,997 225,834
-------- ---------
Cash provided by financing
activities................. 12,673 132,650
-------- ---------
DECREASE IN CASH AND CASH
EQUIVALENTS................ (4,213) (66)
CASH AND CASH EQUIVALENTS,
beginning of period........ 18,640 18,706
-------- ---------
CASH AND CASH EQUIVALENTS,
end of period.............. $ 14,427 $ 18,640
======== =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Noncash investing and
financing activities:
Property, Plant and
Equipment, net......... $ (3,977) --
Debt.................... 3,977 --
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-25
<PAGE>

FORUM GROUP, INC., AS PARTITIONED FOR SALE
TO HOST MARRIOTT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

On June 21, 1997, HMC Senior Communities, Inc., ("HMCSC") a wholly-owned
subsidiary of Host Marriott Corporation ("Host Marriott"), acquired all of the
outstanding stock of Forum Group, Inc. and subsidiaries ("Forum") from
Marriott Senior Living Services, Inc. (MSLSI"), a subsidiary of Marriott
International, Inc. ("MI" or the Parent Company), pursuant to a Stock Purchase
Agreement (the "Agreement") dated June 21, 1997. Certain operations and other
assets and liabilities of Forum including seven communities, management fees
and Lifecare bonds, specifically excluded from the Agreement, are not included
in these financial statements. Accordingly, these financial statements include
only assets and liabilities, along with the results from operations generated
therefrom, included in the Agreement (the "Partitioned Business").

The primary operations of the Partitioned Business is the ownership of 29
retirement communities ("Communities"), located in 11 states, managed by a
subsidiary of MSLSI.

The Partitioned Business was an organizational unit of MSLSI and its
majority owned and controlled subsidiaries and affiliates. The Parent Company
is incorporated in the state of Delaware. Its subsidiaries and affiliates are
incorporated or registered in other jurisdictions in the U.S. and a number of
other countries. The Partitioned Business is not a distinct legal entity.

On March 25, 1996, FG Acquisition Corp. ("Acquisition"), an Indiana
corporation and wholly-owned indirect subsidiary of MI acquired approximately
99.1% of the outstanding shares of common stock of Forum. Acquisition paid
total cash consideration of $297 million for the common stock it acquired,
plus certain warrants to purchase common stock.

The Securities and Exchange Commission, in Staff Accounting Bulletin Number
55 ("SAB" 55), requires that historical financial statements of a subsidiary,
division, or lesser business component of another entity include certain
expenses incurred by the parent on its behalf. These expenses include officer
and employee salaries, rent or depreciation, advertising, accounting and legal
services, other selling, general and administrative expenses and other such
expenses. Investments and advances from parent represents the net amount of
investments and advances made by MI as a result of the acquisition and
operation of the Partitioned Business. These financial statements include the
adjustments necessary to comply with SAB 55.

Historically, the Partitioned Business' results of operations have been
included in the consolidated U.S. federal income tax return of MI. For
operations that do not pay their own income tax, MI internally allocates
income tax expense at the statutory rate after adjustment for state income
taxes and several other items. The income tax expense and other tax related
information in these statements has been calculated as if the Partitioned
Business had not been eligible to be included in the consolidated tax returns
of MI. The calculation of tax provisions and deferred taxes required certain
assumptions, allocations and estimates, which management believes are
reasonable to accurately reflect the tax reporting for the Partitioned
Business as a stand-alone taxpayer.

These consolidated financial statements include the results of operations
and cash flows of the Partitioned Business previously included in the MI
consolidated financial statements. These consolidated financial statements
have been prepared by management in accordance with generally accepted
accounting principles and include such estimates and adjustments as deemed
necessary to present fairly the consolidated financial position as of January
3, 1997 and the results of operations and cash flows of the Partitioned
Business for the 24-week period ended June 20, 1997 and the 40-week period
ended January 3, 1997.

The Partitioned Business receives certain services and participates in
certain centralized MI activities, the allocated costs of which are included
in these financial statements.

F-26
<PAGE>

FORUM GROUP, INC., AS PARTITIONED FOR SALE
TO HOST MARRIOTT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The consolidated financial statements include the accounts of the
Partitioned Business after elimination of intercompany accounts and
transactions other than those with other units of MI.

Corporate Services

The Partitioned Business utilized the MI centralized systems for cash
management, payroll, purchasing and distribution, employee benefit plans,
insurance, administrative services and legal services. As a result, cash for
many communities was commingled with MI's general corporate funds. Similarly,
operating expenses, capital expenditures and other cash requirements of the
Partitioned Business were paid by MI and charged directly or allocated to the
Partitioned Business. Amounts are allocated to the Partitioned Business based
primarily on their use of the centralized systems. In the opinion of
management, MI's methods for allocating costs are reasonable; however, such
costs are not necessarily indicative of the costs that would have been
incurred if the Partitioned Business had been operated as an unaffiliated
entity. It is not practicable for the Partitioned Business to estimate what
those costs would have been had the Partitioned Business operated on a stand-
alone basis.

Property and Equipment

Property and equipment is recorded at cost, including interest, land rent
and real estate taxes capitalized during development and construction, net of
accumulated depreciation. Interest capitalized as a cost of property and
equipment for the twenty-four week period ended June 20, 1997 and the forty-
week period ended January 3, 1997 was approximately $252,000 and $440,000
respectively. Interest costs are paid to MI and computed using MI's borrowing
rate for construction expenditures of 9.08% for the twenty-four-week period
ended June 20, 1997 and 7.35% for the forty-week period ended January 3, 1997.
Property and equipment includes capitalized costs incurred in developing the
real estate, including construction in progress for ongoing expansion programs
at various Communities as of January 3, 1997, which will be conveyed to Host
Marriott upon completion. Replacements and improvements that extend the useful
life of property and equipment are capitalized. Depreciation is computed using
the straight-line method over estimated useful lives as follows:

<TABLE>
<S> <C>
Buildings..................... 40 years
Furniture and Equipment....... 4-10 years
</TABLE>

A provision for value impairment is recorded whenever the estimated
undiscounted future cash flows from the property are less than the property's
net carrying value. No such provision was necessary at January 3, 1997.

Due from Manager

The principal component of Due from Manager is working capital under the
control of and utilized by a subsidiary of MSLSI in conjunction with the
operation of Forum's retirement communities. Both majority-owned and wholly-
owned partnerships and corporations within the Partitioned Business have
management agreements in effect with Forum, which require fees of 5% to 8% of
gross operating revenues.

Cash and Cash Equivalents

Cash and cash equivalents include cash and highly liquid investments with an
original maturity of three months or less.

F-27
<PAGE>

FORUM GROUP, INC., AS PARTITIONED FOR SALE
TO HOST MARRIOTT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Deferred Revenue from Non-refundable Fees

Monthly fees deferred for the non-refundable portion of the entry fees are a
component of other liabilities. These amounts are recognized as health care
services revenue as services are performed over the expected term of the
resident's contract. See Note 3 for further discussion of entry fees.

Liability for Future Health Care Services

Certain resident and admission agreements at the Communities entitled
residents to receive limited amounts of health care up to defined maximums.
The estimated liabilities associated with the health care obligation have been
accrued in the consolidated balance sheet.

Revenue Recognition

Revenues primarily represent house profit from the Partitioned Business'
Communities. House profit reflects the net revenues flowing to the Partitioned
Business as property owner and represents gross community operating results,
less property-level expenses, excluding depreciation and amortization, real
and personal property taxes, ground and equipment rent, insurance, management
fees and certain other costs, which are classified as operating costs and
expenses in the accompanying statement of operations.

A portion of revenues from health care services were attributable to
patients whose bills are paid by Medicare or Medicaid under contractual
arrangements. Reimbursement under these contractual arrangements are subject
to retroactive adjustments based on agency reviews. Revenues and receivables
from health care services are presented net of estimated contractual
allowances in the accompanying consolidated financial statements. Management
believes allowances recorded are adequate to cover any adjustments arising
from retroactive adjustments.

On November 20, 1997, the Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board reached a consensus on EITF 97-2,
"Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician
Practice Management Entities and Certain Other Entities with Contractual
Management Arrangements." EITF 97-2 addresses the circumstances in which a
management entity may include the revenues and expenses of a managed entity in
its financial statements.

The Partitioned Business has considered the impact of EITF 97-2 on its
financial statements and has determined that it is preferable for it to
include property-level revenues and operating expenses of its senior living
communities in its statements of operations. The Partitioned Business will
adopt EITF 97-2 in the fourth quarter of 1998 and restate prior periods to
conform to the new presentation. The effect of this change will be to increase
1996 and 1997 revenues and operating costs and expenses by approximately $61.8
and $94.8 million for the 24-week period ended June 20, 1997 and the 40-week
period ended January 3, 1997, respectively, and would have no impact on
operating profit or net income.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Accordingly, actual results could differ from those
estimates.

Reclassification

Certain previously reported amounts have been reclassified to conform with
the current period presentation.

F-28
<PAGE>

FORUM GROUP, INC., AS PARTITIONED FOR SALE
TO HOST MARRIOTT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Fiscal Year

Forum's fiscal year ends on the Friday nearest to December 31st.

3. CONTINUING CARE AGREEMENTS

Residents of the Lifecare Communities (Brookside, Overland Park and Pueblo
Norte) are required to sign a continuing care agreement ("Care Agreement")
with Forum. The Care Agreements stipulate, among other things, the amount of
all entry fees and monthly fees, the type of residential unit being provided,
and Forum's obligations to provide both health care and non-health care
services. In addition, the Care Agreements provide Forum with the right to
increase future monthly fees. The Care Agreements are terminated upon the
receipt of written termination notice from the resident, or the death of the
resident.

When estimated costs to be incurred under continuing care agreements exceed
estimated revenues, excess costs are accrued currently. Based upon the
expected positive net cash flow, relating to the agreements no liability or
expense has been recorded in the accompanying financial statements.

The components of the entry fees are as follows:

(i) Lifecare Bonds--This component is refundable to the resident or the
resident's estate upon termination or cancellation of the Care Agreement.
Lifecare Bonds are substantially non-interest bearing and equal to either
100%, 90% or 50% initially, depending on the type of plan, of the total
entry fee less any Additional Occupant Lifecare Fee. Lifecare Bonds and
corresponding cash reserves at January 3, 1997 are excluded from the
consolidated balance sheet. Pursuant to the Agreement, MSLSI will retain
the liability for redemption of these bonds.

(ii) Additional Occupant Lifecare Fee--This is a non-refundable fee for
each additional occupant in a residential unit.

(iii) Lifecare Fee--This component is non-refundable and equals the total
entry fee less the two components described in (i) and (ii). These fees are
generally amortized over a 50 to 60 month period, depending on the
individual plan.

4. OTHER ASSETS

Security deposits, normally for one month's rent at the Community, are
recorded as a current liability because residents typically terminate their
rental agreement with a 30-day notice. The liability had a balance of
$5,148,000 at January 3, 1997. In addition, certain states require that
security deposits be placed in an escrow account. These escrow balances
amounted to $7,696,000 at January 3, 1997, and are classified as other assets
in the accompanying consolidated balance sheet. In some cases, to ensure
prompt payment to a resident, unrestricted cash is utilized to pay the
security deposits and is thereafter reimbursed out of funds held in the
appropriate escrow account. Other assets also consists of prepaid real estate
taxes and restricted cash accounts for property additions, debt service and
insurance.

5. DEBT

Debt at January 3, 1997 consisted of the following (in millions):

<TABLE>
<S> <C>
Secured debt, average interest rate 7.6% at
January 3, 1997 maturing through 2020..... $221
Debt due to related party.................. 15
Capital lease obligations.................. 8
----
$244
====
</TABLE>

F-29
<PAGE>

FORUM GROUP, INC., AS PARTITIONED FOR SALE
TO HOST MARRIOTT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Included in debt due to related party is approximately $15.5 million of
secured bonds owed to MI.

Aggregate debt maturities, including capital lease obligations, are: 1997 -
$22.3 million; 1998 - $7.1 million; 1999 - $33.2 million; 2000 - $50.4
million, 2001 - $5.5 million and $125.7 million thereafter. Interest paid for
the 24-week period ended June 20, 1997, and the 40-week period ended January
3, 1997, was approximately $9.7 million and $14.3 million, respectively.

6. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of current assets, current liabilities and amounts due to MI
are assumed to be equal to their reported carrying amounts. The fair value of
the Partitioned Business' debt instruments approximates the carrying amount,
with the exception of two fixed-rate debt instruments. These instruments,
which represent property indebtedness, have been calculated to have a fair
value, by discounting the scheduled loan payments to maturity using rates that
are believed to be currently available for debt of similar terms and
maturities. Due to restrictions of transferability and prepayment, previously
modified debt terms and other property specific competitive conditions, the
Partitioned Business may be unable to refinance the indebtedness to obtain
such calculated debt amounts reported. The carrying amount and fair value at
January 3, 1997 of these two fixed-rate debt instruments is $171,264,000 and
$180,979,000 respectively.

7. REVENUES

Revenues are comprised of the following (in thousands):

<TABLE>
<CAPTION>
24-WEEK PERIOD 40-WEEK PERIOD
ENDED ENDED
JUNE 20, 1997 JANUARY 3, 1997
-------------- ---------------
<S> <C> <C>
Community Sales
Routine.................................... $84,646 $136,910
Ancillary.................................. 10,757 13,872
------- --------
Total Community Sales.................... 95,403 150,782
------- --------
Department Costs
Routine.................................... 53,059 82,779
Ancillary.................................. 8,774 12,016
------- --------
Total Department Costs................... 61,833 94,795
------- --------
Department Profit
Routine.................................... 31,587 54,131
Ancillary.................................. 1,983 1,856
------- --------
Revenues................................. $33,570 $ 55,987
======= ========
</TABLE>

Community sales consist of routine and ancillary sales. Routine sales are
generated from monthly charges for independent living units and daily charges
for assisted living suites and nursing beds, and are recognized monthly based
on the terms of the residents' agreements. Advance payments received for
services are deferred until the services are provided. Ancillary sales are
generated on a "fee for service" basis for supplementary items required by
residents and are recognized as the services are provided.

8. INCOME TAXES

Income taxes are calculated under the basis described in Note 1. The
Partitioned Business adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109"), effective

F-30
<PAGE>

FORUM GROUP, INC., AS PARTITIONED FOR SALE
TO HOST MARRIOTT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

January 2, 1993. The Partitioned Business' deferred tax assets or liabilities
are included in investments and advances from parent on the consolidated
balance sheet because those amounts are currently being paid to or accrued
from MI. The temporary differences that give rise to significant deferred tax
assets or liabilities are property and equipment, debt premiums and reserves.

The income tax provision (benefit) is determined as if the Partitioned
Business filed a separate income tax return. The provision (benefit) for
income taxes consists of (in thousands):

<TABLE>
<CAPTION>
24-WEEK PERIOD 40-WEEK PERIOD
ENDED ENDED
JUNE 20, 1997 JANUARY 3, 1997
-------------- ---------------
<S> <C> <C>
Current--Federal ............................. $(3,125) $ 617
--State................................... (357) 71
------- ------
(3,482) 688
------- ------
Deferred--Federal ............................ 4,641 4,743
--State................................... 530 542
------- ------
5,171 5,285
------- ------
$ 1,689 $5,973
======= ======
</TABLE>

A reconciliation of the statutory Federal tax rate to the Partitioned
Business' effective income tax rate for the 24-week period ended June 20, 1997
and the 40-week period ended January 3, 1997 follows:

<TABLE>
<S> <C>
Statutory federal tax rate........................................... 35.0%
State income taxes, net of federal tax benefit....................... 4.0%
----
39.0%
====
</TABLE>

The provision or benefit is not indicative of what should have been recorded
if the Partitioned Business had determined the tax provision or benefit based
on its share of MI's allocation of a tax provision or benefit to all entities
included in the consolidated return based on taxable income or loss. However,
the Partitioned Business will reimburse or be reimbursed by MI for its share
of the consolidated provision or benefit based on MI's allocation of the
provision or benefit to all entities included in the consolidated return based
on taxable income or loss. The difference between the liability to or the
receivable from MI and the tax provision or benefit determined as if the
Partitioned Business filed a separate tax return will be recorded as a capital
contribution or a dividend.

9. RELATED PARTY TRANSACTIONS

Due to Marriott International, Inc.

Cash from the Partitioned Business is deposited with MI's general corporate
funds. Similarly, operating expenses, capital expenditures, centralized
services and other cash requirements of the Partitioned Business are

F-31
<PAGE>

FORUM GROUP, INC., AS PARTITIONED FOR SALE
TO HOST MARRIOTT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

paid by MI and charged directly or allocated to the Partitioned Business. The
intercompany rate for non-capitalization borrowings was 6% for the 24-week
period ended June 20, 1997 and the 40-week period ended January 3,1997. These
borrowings have no specific repayment term.

The Partitioned Business is insured through MI's self-insurance program for
property damage, general liability, workers' compensation and employee medical
coverage. MI charges the Partitioned Business on a per occurrence basis.

Costs Allocated from Marriott International, Inc.

The costs allocated to the Partitioned Business, contained in its
consolidated statements of operations, are approximately $4.7 million and $6.6
million for the 24-week period ended June 20, 1997 and the 40-week period
ended January 3, 1997, respectively.

10. COMMITMENTS AND CONTINGENCIES

Effective June 21, 1997, the management agreements between Forum, as
manager, and entities included in the Partitioned Business have either been
assigned to MSLSI or new agreements between MSLSI and those entities have been
executed.

11. LITIGATION

On June 15, 1995, The Russell F. Knapp Revocable Trust (the "Plaintiff")
filed a complaint in the United States District Court of the Southern District
of Indiana (the "Indiana Court") against Forum Retirement Inc.,
("FRI") a wholly-owned subsidiary of Forum, and general partner of Forum
Retirement Partners L.P. (the "Partnership"), alleging breach of the
partnership agreement, breach of fiduciary duty, fraud, insider trading and
civil conspiracy/aiding and abetting. On February 4, 1998, the Plaintiff,
MSLSI, FRI, Forum and Host Marriott entered into a Settlement and Release
Agreement (the "Settlement Agreement"), pursuant to which Host Marriott agreed
to pay each limited partner electing to join in the Settlement Agreement $4.50
per unit in exchange for (i) the transfer of all Partnership units owned by a
settling limited partner; (ii) an agreement by each settling limited partner
not to purchase additional Partnership units; (iii) a release of all claims
asserted in the litigation; and (iv) a dismissal of the litigation. Because of
the derivative nature of the allegations contained in the Plaintiff's
complaint, the General Partner invited all limited partners, in their sole
discretion, to participate in the Settlement Agreement, and detailed the
requirements for participation in two notices to unitholders, dated March 27,
1998, and May 6, 1998, respectively. Initially, the period within which a
limited partner could elect to participate in the Settlement Agreement was
scheduled to expire on April 27, 1998. This period was extended to May 22,
1998. Host Marriott also agreed to pay as much as an additional $1.25 per unit
to the settling Limited Partners, under certain conditions, in the event that
Host Marriott within three years following the date of settlement initiates a
tender offer for the purchase of units not presently held by Host Marriott or
the settling Limited Partners. On February 5, 1998, the Indiana Court entered
an order approving the dismissal of the Plaintiff's case.

In connection with the Settlement Agreement, Host Marriott initially
acquired 1,000,894 limited partner units from the Plaintiff and related
parties for $4,504,023 on March 25, 1998. Host Marriott subsequently acquired
additional 1,140,901 limited partner units from other limited partners
electing to participate in the Settlement Agreement for $5,134,055. As a
result of these purchases, Host Marriott's current ownership interest in the
Partnership, directly or through affiliates, increased to approximately 93%.

F-32
<PAGE>

FORUM GROUP, INC., AS PARTITIONED FOR SALE
TO HOST MARRIOTT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

On July 21, 1998, Forum Retirement, Inc. announced that it had received a
proposal from Host Marriott to acquire all remaining outstanding Partnership
Units for $4.50 per Unit. Host Marriott currently owns 14,151,169 of the
15,285,248 outstanding Units of the Partnership. Completion of the proposed
transaction is contingent on several items including but not limited to, FRI
Board approval and approval of an advisory committee of the Board which will
consider the transaction from the perspective of the holders of the remaining
Units and the issuance of a fairness opinion with respect to the proposed
transaction by the financial advisors to such advisory committee.

On July 22, 1998, Harbor Finance Partners, LTD. ("Harbor Finance"), a
Partnership unitholder, filed a purported class action lawsuit relating to
Host Marriott's proposal in Delaware State Chancery Court against Host
Marriott, FRI, two of their affiliates, the Partnership, and FRI's directors.
Harbor Finance alleges in the complaint that these defendants breached their
fiduciary duties to the unitholders by offering an inadequate price for the
units, attempting to improperly influence the market price of the units, and
failing to provide for a mechanism that would establish a fair price for the
units. Harbor Finance is seeking certification of a class, an injunction to
prevent completion of the proposed transaction or, in the alternative,
rescission of the transaction, and compensatory damages. Punitive damages are
not sought in the action. FRI believes that there is no merit to the
allegations contained in the complaint, and that this litigation will not have
a material, adverse effect on the financial performance of the Partnership.
The appointment of the Board's advisory committee and the required fairness
opinion will ensure that an adequate price will be paid.

F-33
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Forum Group, Inc.:

We have audited the accompanying combined balance sheets of Forum Group,
Inc. and subsidiaries, as partitioned for sale to Host Marriott Corporation as
of March 31, 1996 and 1995 and the related combined statements of operations
and cash flows for the years then ended. These combined financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Forum Group, Inc.
and subsidiaries, as partitioned for sale to Host Marriott Corporation as of
March 31, 1996 and 1995 and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted
accounting principles.

As discussed in note 1 to the combined financial statements, the Company
changed its method of recognizing vacation expense in 1996.

KPMG Peat Marwick LLP

Indianapolis, Indiana
September 3, 1997

F-34
<PAGE>

FORUM GROUP, INC. AND SUBSIDIARIES, AS PARTITIONED
FOR SALE TO HOST MARRIOTT CORPORATION

COMBINED BALANCE SHEETS

MARCH 31, 1996 AND 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1995
ASSETS -------- -------
<S> <C> <C>
Property and equipment, net.................................... $343,278 312,987
Cash and cash equivalents...................................... 18,706 29,736
Other assets................................................... 55,452 36,404
-------- -------
$417,436 379,127
======== =======
<CAPTION>
LIABILITIES AND EQUITY
<S> <C> <C>
Long-term debt................................................. 325,756 267,228
Due to Community Manager....................................... 13,432 10,906
Other liabilities.............................................. 28,752 40,357
-------- -------
Total liabilities.......................................... 367,940 318,491
Equity
Investments and advances from parent......................... 49,496 60,636
-------- -------
$417,436 379,127
======== =======
</TABLE>

See accompanying notes to combined financial statements.

F-35
<PAGE>

FORUM GROUP, INC. AND SUBSIDIARIES, AS PARTITIONED
FOR SALE TO HOST MARRIOTT CORPORATION

COMBINED STATEMENTS OF OPERATIONS

YEARS ENDED MARCH 31, 1996 AND 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Revenues...................................................... $59,525 $48,055
------- -------
Operating costs and expenses:
Depreciation and amortization............................... 10,712 8,360
Management fees............................................. 10,060 8,333
------- -------
20,772 16,693
------- -------
Operating profit before minority interest, corporate expenses,
interest expense and investment income....................... 38,753 31,362
Minority interest............................................. 1,015 289
Corporate expenses............................................ 915 431
Interest expense.............................................. 29,119 23,018
Investment income............................................. 2,321 1,743
------- -------
Income before income taxes, extraordinary loss and cumulative
effect of accounting change.................................. 10,025 9,367
Income taxes.................................................. 1,564 2,400
------- -------
Income before extraordinary loss and cumulative effect of ac-
counting change.............................................. 8,461 6,967
Extraordinary loss on extinguishment of debt.................. 2,078 253
------- -------
Income before cumulative effect of accounting change.......... 6,383 6,714
Cumulative effect of accounting change........................ 666 --
------- -------
Net income.................................................... $ 5,717 $ 6,714
======= =======
</TABLE>

See accompanying notes to combined financial statements.

F-36
<PAGE>

FORUM GROUP, INC. AND SUBSIDIARIES, AS PARTITIONED
FOR SALE TO HOST MARRIOTT CORPORATION

COMBINED STATEMENTS OF CASH FLOWS

YEARS ENDED MARCH 31, 1996 AND 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 5,717 $ 6,714
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization expense................. 10,172 8,360
Amortization of deferred financing costs.............. 1,775 2,383
Cumulative effect of accounting change, net........... 666 --
Net income of investors on equity method.............. -- (73)
Other owners' interest in operations of combined
companies............................................ 1,015 289
Income from interest rate cap agreement, net.......... (104) --
Loss on sale of facility.............................. 203 --
Tax benefit recorded as additional equity............. -- 4,000
Non-cash portion of extraordinary loss................ 1,887 241
Other accrued revenues and expenses, net.............. 4,996 (396)
--------- --------
Net cash provided by operating activities........... 26,327 21,518
--------- --------
Cash flows from investing activities:
Purchases of retirement communities..................... -- (22,681)
Additions to property and equipment..................... (21,792) (5,803)
Proceeds from facility sales and other investments...... 1,300 --
Purchase of mortgage loans.............................. (18,370) --
Proceeds from sale of interest rate cap................. 5,847 --
Additional investment in Forum Retirement Partners,
L.P., net of acquired cash of $4,872 in 1995........... (6,520) (3,374)
Other................................................... (3,718) (2,411)
--------- --------
Net cash used by investing activities............... (43,253) (34,269)
--------- --------
Cash flows from financing activities:
Proceeds from long-term debt............................ 151,907 21,441
Payments on long-term debt.............................. (108,829) (9,121)
Advances (to) from parent............................... (16,857) 15,146
Deferred financing costs................................ (7,951) (2,824)
Distributions to other partners......................... (324) (313)
Resident deposits and restricted cash................... (12,050) (145)
--------- --------
Net cash provided by financing activities........... 5,896 24,184
--------- --------
Net increase (decrease) in cash and cash equivalents...... (11,030) 11,433
Cash and cash equivalents at beginning of year............ 29,736 18,303
--------- --------
Cash and cash equivalents at end of year.................. $ 18,706 $ 29,736
========= ========
</TABLE>

See accompanying notes to combined financial statements.

F-37
<PAGE>

FORUM GROUP, INC. AND SUBSIDIARIES, AS PARTITIONED
FOR SALE TO HOST MARRIOTT CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS

MARCH 31, 1996 AND 1995

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Effective June 21, 1997, Host Marriott Corporation ("Host") acquired all of
the outstanding common stock of Forum Group, Inc. ("Forum"), pursuant to a
Stock Purchase Agreement (the "Agreement") dated June 21, 1997 with Marriott
International, Inc. ("Marriott"). Certain operations and related assets and
liabilities of Forum, including certain communities and management fees,
specifically excluded from the Agreement, are not included in these combined
financial statements. Accordingly, these combined financial statements include
only the assets and liabilities, along with results of operations, of the
communities included in the Agreement ("Partitioned Business").

The primary operations of the Partitioned Business is 29 retirement
communities ("RCs"), located in 11 states, managed by a subsidiary of Marriott
Senior Living Services, Inc. ("MSLSI"), a Marriott subsidiary.

On March 25, 1996, an acquiring subsidiary of Marriott completed a tender
offer for the shares of Forum and purchased over 99% of its outstanding common
stock at $13 per share, an aggregate of approximately $300 million. On June
12, 1996, the acquiring subsidiary merged into Forum, with Forum as the
surviving entity. Costs incurred by Forum to effect Marriott's acquisition
have been excluded from the accompanying combined financial statements.
Additionally, Forum changed its policy regarding the recognition of vacation
expense to conform with Marriott's policy, resulting in a cumulative
adjustment of $1,010,000 in the accompanying combined financial statements,
net of the related income tax benefit of $344,000.

The Securities and Exchange Commission, in Staff Accounting Bulletin Number
55, requires that historical financial statements of a subsidiary, division,
or lesser business component of another entity include certain expenses
incurred by the parent on its behalf. These expenses include officer and
employee salaries, rent or depreciation, advertising, accounting and legal
services, other selling, general and administrative expenses and other such
expenses. These financial statements include such adjustments.

For operations that do not pay income taxes, Marriott internally allocates
income tax expense at the statutory rate after adjustment for state income
taxes and several other items. The income tax expense and related tax
information in these financial statements has been calculated as if the
Partitioned Business had not been eligible to be included in Marriott's
consolidated tax returns. The calculation of tax expense and deferred taxes
necessarily required certain assumptions, allocations and estimates, which
management believes are reasonable to accurately reflect the tax reporting for
the Partitioned Business as a stand-alone taxpayer.

These combined financial statements include the historical financial
position, results of operations and cash flows of the Partitioned Business
previously included in the Forum consolidated financial statements. These
combined financial statements have been prepared by management in accordance
with generally accepted accounting principles and include such estimates and
adjustments as deemed necessary to present fairly the consolidated financial
position, results of operations and cash flows for the Partitioned Business as
of and for the years ended March 31, 1996 and 1995.

Revenues and Expenses

Revenues represent the operating profit from the RCs because Forum has
delegated substantially all of the operating decisions related to the
generation of operating profit from its RCs to the community manager.
Operating profit reflects the net operating revenues flowing to Forum as RC
owner and represents operating

F-38
<PAGE>

FORUM GROUP, INC. AND SUBSIDIARIES, AS PARTITIONED
FOR SALE TO HOST MARRIOTT CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

results, less property-level expenses, excluding depreciation, management fees
and minority interests, which are classified as operating costs and expenses
in the accompanying financial statements.

Cash Equivalents

Cash equivalents represent commercial paper and other income-producing
securities having an original maturity of less than three months, are readily
convertible to cash and are stated at cost, which approximates market.

Property and Equipment

Property and equipment are carried at management's estimate of their value
as of March 31, 1992, the effective date of Forum's reorganization, with
subsequent additions recorded at cost. Capital leases are recorded at the
lower of the estimated market value of the assets leased or the present value
of the minimum lease payments. Depreciation is computed on a straight-line
method. The annual rate of depreciation is based on a composite lives of 40
years for buildings and primarily from seven years to ten years for furniture
and equipment. A provision for value impairment is recorded whenever the
estimated undiscounted future cash flows from a property are less than the
property's net carrying value.

Deferred Costs

Fees and other costs incurred to obtain long-term financing are amortized to
interest expense over the term of the related debt on a straight-line basis,
and are a component of other assets. Any unamortized costs are written off and
included with extraordinary charges upon extinguishment.

Costs incurred in the initial occupancy of RCs are amortized on the
straight-line method over the shorter of the life expectancy of the initial
residents or the term of the initial residency agreement, generally one year,
and are a component of other assets.

Due to Community Manager

The principal component of due to community manager is working capital
provided on the behalf of Forum by the community manager in conjunction with
the operation of Forum's retirement communities. The Partitioned Business has
management agreements in effect with Forum, which require fees of 5% to 8% of
gross operating revenues.

Income Taxes

Income taxes are provided to the extent expected to be payable for the
current year, plus or minus the change in deferred income tax liabilities or
assets established for expected future income tax consequences resulting from
differences between the book and tax bases of assets and liabilities.

Use of Estimates

F-39
<PAGE>

FORUM GROUP, INC. AND SUBSIDIARIES, AS PARTITIONED
FOR SALE TO HOST MARRIOTT CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(2) SIGNIFICANT TRANSACTIONS

In August 1994, Forum purchased additional limited partner units of Forum
Retirement Partners, L.P. ("Forum Partners") to reach a 57% equity ownership
interest, and consequently its operations are combined into Forum's combined
financial statements from that date. Forum Partners owns and operates nine
RCs. In September 1995, Forum made a tender offer for all outstanding limited
partner units at $2.83 per unit, and an additional 2,644,724 limited partner
units were acquired in December 1995, which increased Forum's ownership to 79%
of the limited partner units. Pro forma unaudited operating results for the
year ended March 31, 1995 as if Forum Partners" results were consolidated from
April 1, 1994 are as follows:

<TABLE>
<S> <C>
Total revenues..................................................... $160,553
Income before extraordinary charge................................. 8,519
Net income......................................................... 8,266
</TABLE>

Other income for 1995 includes Forum's share of Forum Partners' operating
income before extraordinary charge of $73,000 for the four months ended July
31, 1994.

During fiscal 1995, Forum commenced implementation of an approximate $60
million long-term growth plan which included the following transactions:

. In August 1994, acquired an 80% equity interest in Tiffany House
("Tiffany"), a 130-unit assisted living facility in Fort Lauderdale,
Florida,

. In January 1995, acquired a 100% equity interest in The Forum at
Fountainview, an RC in West Palm Beach, Florida with 276 independent
living units and 64 assisted living units,

. In May 1995, acquired an 80% interest in The Forum at the Woodlands, an
RC near Houston, Texas with 240 independent living units and 63 assisted
living units, and

. In June 1995, purchased two delinquent mortgage loans secured by RCs
located in southern Florida for $18,370,000, which was funded through a
$14,063,000 draw on a line of credit and $4,307,000 of working capital.
(On February 16, 1996, Forum foreclosed on the mortgage loan of one RC
containing 88 assisted living units, and subsequent operations of the RC
are included in the accompanying combined financial statements. The other
mortgage loan, which related to a RC containing 152 independent living
units and 102 assisted living units, was foreclosed in May 1996).

During fiscal 1996, Forum relocated its headquarters to Fairfax, Virginia
from Indianapolis, Indiana and costs incurred have been excluded from the
accompanying combined financial statements.

(3) PROPERTY AND EQUIPMENT, NET

Property and equipment, net consist of the following at March 31:

<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Land and land improvements.................................. $ 52,573 49,737
Buildings and leasehold improvements........................ 286,956 263,411
Furniture and equipment..................................... 22,960 18,780
Construction in progress.................................... 10,992 879
-------- -------
373,481 332,807
Less accumulated depreciation............................... 30,203 19,820
-------- -------
$343,278 312,987
======== =======
</TABLE>

F-40
<PAGE>

FORUM GROUP, INC. AND SUBSIDIARIES, AS PARTITIONED
FOR SALE TO HOST MARRIOTT CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(4) OTHER ASSETS

At March 31, 1996 and 1995, other assets includes restricted cash of
$704,000 and $1,436,000, respectively, deposited by present and prospective
residents of lifecare RCs; $7,576,000 and $5,115,000, respectively, of
resident security deposits; and $13,569,000 and $5,343,000, respectively,
funded under long-term debt and restricted to specific purposes.

(5) LONG-TERM DEBT

Long-term debt is comprised of the following at March 31 (in thousands):

<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Mortgage loans:
Secured by eight Forum RCs requiring monthly payments
based on a 25-year term including interest at 10.01% to
maturity in 2003....................................... $124,140 --
Secured by seven Forum RCs requiring monthly payments
based on a 25-year term including interest at LIBOR
plus 4.180%, not to exceed 8.805%, (8.805% at March 31,
1995) to maturity in 2001. Requires a prepayment
penalty until 1997 with a yield maintenance premium
thereafter and additional payments if debt service
coverage ratio is below specified levels............... -- 92,146
Secured by nine Forum Partners RCs requiring monthly
payments based on a 20-year term including interest at
9.93% to maturity in 2001. Requires a prepayment
penalty until 1997 with a yield maintenance premium
thereafter and additional payments if debt service
coverage ratio is below specified levels............... 48,760 49,711
Secured by one Forum RC requiring quarterly interest
payments at LIBOR plus 1.50% (7.40% and 7.81% at March
31, 1996 and 1995, respectively) with quarterly
principal payments based on a 30-year term to maturity
in 1999................................................ 25,653 25,832
Secured by three Forum RCs requiring quarterly interest
payments at LIBOR plus 1.30% (7.20% and 7.61% at March
31, 1996 and 1995, respectively) with quarterly
principal payments based on a 30-year term to maturity
in 1996................................................ 45,490 46,036
Secured by one Forum RC requiring monthly payments based
on a 30-year term including interest at 10.5% to
maturity in 1997....................................... -- 14,321
Other mortgages......................................... 2,845 3,139
-------- -------
246,888 231,185
Acquisition line of credit................................ 29,929 15,865
Bonds payable............................................. 15,450 --
Demand note............................................... 11,500 --
Senior subordinated notes................................. 10,000 10,000
Working capital credit facility........................... 2,500 --
Capitalized leases........................................ 7,859 8,171
Other..................................................... 1,630 2,007
-------- -------
$325,756 267,228
======== =======
</TABLE>

F-41
<PAGE>

FORUM GROUP, INC. AND SUBSIDIARIES, AS PARTITIONED
FOR SALE TO HOST MARRIOTT CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

In September 1995, Forum obtained a new mortgage loan to retire two existing
mortgage loans totaling $106,000,000 and to pay fees and expenses of
approximately $3,000,000. As a result of the mortgage refinancing, Forum
wrote-off $3,148,000 of deferred financing costs related to the retired
mortgage loans, which was recognized as an extraordinary loss in the
accompanying combined statement of operations, net of the related income tax
benefit of $1,070,000. An interest rate cap agreement was retained as an
investment after the extinguishment of the related mortgage refinancing, and a
mark-to-market gain of $1,554,000, a loss upon subsequent sale of $1,450,000,
and other income of $485,000 was realized while the agreement was held as an
investment, all of which were recorded as components of investment income in
the accompanying combined statement of operations.

During September 1994, Forum Investments I, L.L.C. ("FII"), a wholly-owned
subsidiary of Forum, obtained a $70,000,000 line of credit to finance the
acquisition, rehabilitation and/or expansion of RCs, which are pledged to
secure the line of credit. Interest payments are due monthly at LIBOR plus
5.450% including service costs and other fees of 2.075%, (10.763% at March 31,
1996), and principal amounts borrowed must be paid or converted to a ten-year
term loan by December 7, 1996. Additional principal payments, $6,455,000 as of
March 31, 1996 are required if the debt service coverage ratio is below
specified levels. The lender waived the March 31, 1996 additional principal
payment in exchange for a guarantee of that portion of the mortgage loan by
Forum. Prepayment of amounts converted to long-term debt after October 1, 1999
require a yield maintenance premium.

Bonds payable require variable rate semi-annual interest payments, at 7.375%
at March 31, 1996 and mature in 2008. The bonds payable were purchased by
Marriott in July, 1996.

The demand note resulted from a cash advance from Marriott to help fund
working capital requirements and requires quarterly interest payments at LIBOR
plus 4.5% (9.813% at March 31, 1996).

The senior subordinated notes require interest semi-annually at 12.5% to
maturity in 2003 and a premium payment if prepaid or redeemed.

The working capital credit facility requires interest monthly at LIBOR plus
5.00% including a servicer's fee and a fixed rate fee of 1.55% (10.313% at
March 31, 1996).

Future minimum payments under capitalized leases approximate $1,200,000 for
each of the five years ended March 31, 2001, with approximately $7,200,000 due
thereafter, including imputed interest of approximately $5,300,000. Property
and equipment at March 31, 1996 and 1995 include $11,392,000 and $10,965,000,
respectively, of assets under capital leases, consisting principally of
buildings and leasehold improvements, and related accumulated depreciation was
$1,359,000 and $977,000, respectively. During fiscal 1995, a lease obligation
was refinanced, which resulted in a $253,000 extraordinary loss, net of income
tax benefit of $59,000, in the accompanying combined statement of operations.

At March 31, 1996, scheduled maturities of long-term debt during the next
five years (based on current interest rates) are $91,954,000 in 1997,
$3,906,000 in 1998, $29,690,000 in 1999, $3,648,000 in 2000 and $48,640,000 in
2001. Cash paid for interest was $27,447,000 and $20,005,000 in fiscal years
1996 and 1995.

F-42
<PAGE>

FORUM GROUP, INC. AND SUBSIDIARIES, AS PARTITIONED
FOR SALE TO HOST MARRIOTT CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(6) INCOME TAXES

Income tax expense differs from the amount computed by applying the U.S.
federal income tax rate of 34% to income before income tax expense,
extraordinary loss and cumulative effect of accounting change as a result of
the following (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Computed "expected" tax expense.................... $ 1,995 3,079
Reduction of valuation allowance for deferred tax
assets............................................ (691) (4,946)
Tax benefit recorded as additional equity.......... -- 4,000
Amounts added to net deferred tax assets........... (757) --
Other.............................................. (397) 208
---------- ----------
150 2,341
Income taxes allocated to:
Extraordinary charge............................. 1,070 59
Cumulative effect of accounting change........... 344 --
---------- ----------
$ 1,564 2,400
========== ==========
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at March 31 are as follows
(in thousands):

<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Deferred tax assets:
Property and equipment, principally due to differences in
the bases of assets as a result of fresh-start
accounting and depreciation methods..................... $18,488 19,403
Net operating loss carryforwards......................... 13,730 11,290
Accrued expenses......................................... 862 818
Losses in consolidated taxable entities.................. -- 3,571
Deferred income.......................................... 958 1,136
Deferred compensation.................................... 699 667
Other.................................................... 826 151
------- ------
Total gross deferred tax assets........................ 35,563 37,036
Less valuation allowance............................... 33,841 34,532
------- ------
Net deferred tax assets................................ 1,722 2,504
------- ------
Deferred tax liabilities:
Gains on property sales.................................. (769) (1,542)
Deferred management fees................................. (593) (593)
Investments, principally due to differences in the bases
of assets as a result of fresh-start accounting......... (360) (369)
------- ------
Total gross deferred tax liabilities................... (1,722) (2,504)
------- ------
Net deferred tax liabilities........................... $ -- --
======= ======
</TABLE>

F-43
<PAGE>

FORUM GROUP, INC. AND SUBSIDIARIES, AS PARTITIONED
FOR SALE TO HOST MARRIOTT CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Due to the utilization of net operating loss carryforwards and the
recognition of net deferred tax assets, Forum had no federal income tax
liability at March 31, 1996 and 1995. Other assets included federal income
taxes receivable of $1,250,000 at March 31, 1996 and 1995.

As of March 31, 1996, net operating loss carryforwards for income tax
purposes were estimated to be approximately $167 million before the
application of certain net operating loss carryforward limitations resulting
from changes in ownership. As a result of these limitations, Forum expects the
utilization of net operating loss carryforwards will be limited to
approximately $40 million. These net operating loss carryforwards will expire
in varying amounts through fiscal year 2010. For financial reporting purposes,
any future benefit of net operating loss carryforwards and net deferred tax
assets arising prior to Forum's reorganization will be reported as additional
equity. The maximum tax benefit to be recognized through equity was estimated
to be approximately $34 million at March 31, 1996.

(7) REVENUE

Revenue is comprised of the following for the year ended March 31 (in
thousands):

<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Net operating revenues...................................... $179,926 142,527
Other income................................................ 397 746
-------- -------
180,323 143,273
-------- -------
Property level expenses..................................... 120,325 95,080
Other expenses.............................................. 473 138
-------- -------
120,798 95,218
-------- -------
$ 59,525 48,055
======== =======
</TABLE>

Net operating revenues include routine and ancillary service revenues and
amounts estimated by management to be reimbursable by Medicare and other cost-
based programs. Routine service revenues, generated by monthly charges for
independent living units and daily or monthly charges for assisted living
suites and nursing beds, are recognized based on the terms of the residency
and admission agreements. Ancillary service revenues, generated on a fee for
service basis for supplementary items requested by residents, are recognized
as the services are provided. Cost-based reimbursements are subject to audit
by agencies administering the programs, and estimates are recorded for
potential adjustments that may result. To the extent estimated amounts are
expected to be adjusted, revenues are charged or credited when the adjustments
become determinable.

Resident advance fees under lifecare residency agreements are recognized as
income over the estimated useful lives of the RCs.

(8) COMMITMENTS AND CONTINGENCIES

On January 24, 1994, the Russell F. Knapp Revocable Trust (the "Plaintiff")
filed a complaint (the "Iowa Complaint") in the United States District Court
for the Northern District of Iowa (the "Iowa Court") against Forum Retirement,
Inc. ("FRI"), the wholly-owned subsidiary of Forum which serves as general
partner of Forum Partners, alleging breach of the Partnership Agreement,
breach of fiduciary duty, fraud, insider trading, and civil conspiracy/aiding
and abetting. The Plaintiff subsequently amended the Iowa Complaint, adding
Forum as a defendant. The Iowa Complaint alleged, among other things, that the
Plaintiff holds a substantial number of Units, that the Board of Directors of
FRI is not comprised of a majority of independent directors as required by

F-44
<PAGE>

FORUM GROUP, INC. AND SUBSIDIARIES, AS PARTITIONED
FOR SALE TO HOST MARRIOTT CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

the Partnership Agreement and as allegedly represented in the Partnership's
1986 Prospectus for its initial public offering, and that FRI's Board of
Directors has approved and/or acquiesced to an 8% management fee charged by
Forum under the Management Agreement. The Iowa Complaint further alleged that
the "industry standard" for such fees is 4%, thereby resulting in an
"overcharge" to the Partnership estimated by the Plaintiff at $1.8 million per
annum beginning in 1994. The Plaintiff sought the restoration of certain
former directors to the Board of Directors of FRI and the removal of certain
other Directors from the Board, an injunction prohibiting the payment of an 8%
management fee, and unspecified compensatory and punitive damages. On April 3,
1995, the Iowa Court entered an order dismissing the Iowa Complaint on
jurisdictional grounds. Although the Plaintiff filed a notice of appeal of the
Iowa Court's ruling, it subsequently dismissed this appeal.

On June 15, 1995, the Plaintiff filed a complaint (the "Indiana Complaint")
in the United States District Court for the Southern District of Indiana (the
"Indiana Court") against FRI and Forum seeking essentially the same relief.
The defendants moved to dismiss the Indiana Complaint for failure to state a
claim for which relief could be granted and, in response, on December 11, 1995
the Plaintiff amended the Indiana Complaint.

The defendants moved to dismiss the amended complaint on similar grounds,
and on May 17, 1996, the Indiana Court ruled on the defendant's motion by
dismissing without prejudice two of the four counts contained in the amended
complaint, namely, the counts for alleged insider trading and civil
conspiracy/aiding and abetting. The litigation is currently in the discovery
stage. FRI intends to vigorously defend against this litigation.

Forum has retirement agreements with certain current and former officers
under which each officer is to be paid 50% of average annual compensation, as
defined, for a period of fifteen years upon reaching age 65. Upon disability
or death prior to retirement, benefits are to be paid for a period of ten
years based on compensation as calculated for retirement benefits. At March
31, 1996 and 1995, Forum had an accrued expense relating to these agreements
of $2,055,000 and $1,963,000, respectively.

(9) FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires disclosure of the fair value of all
financial assets and liabilities for which it is practicable to estimate. Fair
value is defined in the Statement as the amount at which the instrument could
be exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. Forum believes the carrying amount of its
financial instruments other than certain property indebtedness approximates
their fair value due to the relatively short maturity of these instruments.
There is no quoted market value available for any of Forum"s instruments.
Property indebtedness with a carrying amount of $198,350,000 and $166,178,000
has been calculated to have a fair value of $185,340,000 and $158,473,000 by
discounting the scheduled loan payments to maturity using rates that are
believed to be currently available for debt of similar terms and maturities at
March 31, 1996 and 1995, respectively. Due to restrictions of transferability
and prepayment, previously modified debt terms and other property specific
competitive conditions, Forum may be unable to refinance the indebtedness to
obtain such calculated debt amounts reported.

F-45
<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESEN-
TATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICI-
TATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT
RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECU-
RITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UN-
DER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CON-
TAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 7
The Distribution......................................................... 16
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Pro Forma Financial Statements........................................... 19
Management's Discussion and Analysis of Results of Operations and
Financial Condition..................................................... 25
Business and Properties.................................................. 33
Management............................................................... 75
Security Ownership of Certain Beneficial Owners and Management after the
Distribution............................................................ 81
Certain Transactions..................................................... 83
Description of Capital Stock............................................. 84
Federal Income Tax Consequences.......................................... 91
Legal Matters............................................................ 94
Experts.................................................................. 94
Available Information.................................................... 95
Index to Financial Statements............................................ F-1
</TABLE>

---------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

CRESTLINE CAPITAL
CORPORATION

COMMON STOCK

---------------

PROSPECTUS

---------------

, 1998

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table itemizes the expenses incurred by the Registrant in
connection with the issuance and distribution of the securities being
registered. All of the amounts shown are estimates except for the SEC
registration fee and the NYSE listing fee:

<TABLE>
<S> <C>
SEC registration fee................................................ $68,703
NYSE listing fee....................................................
Legal fees and expenses (other than blue sky).......................
Accounting fees and expenses........................................
Blue sky fees and expenses, including legal fees....................
Printing and engraving expenses.....................................
Transfer agent and registrar fees...................................
Premium paid for indemnification insurance relating to securities
law matters
(see Item 14)......................................................
Miscellaneous fees and expenses.....................................
-------
Total............................................................. $
=======
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Under Section 145 of the Delaware General Corporation Law (the "DGCL"), a
corporation may indemnify its directors, officers, employees and agents and
its former directors, officers, employees and agents and those who serve, at
the corporation's request, in such capacities with another enterprise, against
expenses (including attorneys' fees), as well as judgments, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The DGCL provides,
however, that such person must have acted in good faith and in a manner he or
she reasonably believed to be in (or not opposed to) the best interests of the
corporation and, in the case of a criminal action, such person must have had
no reasonable cause to believe his or her conduct was unlawful. In addition,
the DGCL does not permit indemnification in an action or suit by or in the
right of the corporation, where such person has been adjudged liable to the
corporation, unless, and only to the extent that, a court determines that such
person fairly and reasonably is entitled to indemnity for expenses the court
deems proper in light of liability adjudication. Indemnity is mandatory to the
extent a claim, issue or matter has been successfully defended.

The Company's Amended and Restated Bylaws (the "Bylaws") provide for
mandatory indemnification of directors and officers generally to the same
extent authorized by the DGCL. Under the Bylaws, the Company shall advance
expenses incurred by a director or officer in defending any such action if the
director or officer undertakes to repay such amount if it is determined that
he or she is not entitled to indemnification.

The Company intends to enter into indemnification agreements with each of
its directors and officers. The indemnification agreements will require, among
other things, that the Company indemnify its directors and officers to the
fullest extent permitted by law and advance to its trustees and officers all
related expenses, subject to reimbursement if it is subsequently determined
that indemnification is not permitted.

The directors and officers of the Company are insured under policies of
insurance maintained by the Company, subject to limits of the policies,
against certain losses arising from any claim made against them by reason of
being or having been such officers or directors, including with respect to
securities law claims.

II-1
<PAGE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The Company was incorporated in Delaware on May 5, 1997 as a wholly-owned
subsidiary of Host. On that date, the Company issued 100 shares of common
stock to Host for an aggregate purchase price of $1,000. The issuance of such
shares was affected in reliance on an exemption from registration under
Section 4(2) of the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1* --Certificate of Incorporation, as amended.
3.2* --Bylaws, as amended.
3.3** --Form of Amended and Restated Certificate of Incorporation
3.4** --Form of Amended and Restated By-laws
4.1** --Form of Specimen Stock Certificate
4.2** --Form of Stockholder Rights Agreement
5.1** --Opinion of Hogan & Hartson L.L.P. regarding the legality of the
shares being registered
8.1** --Opinion of Hogan & Hartson L.L.P. regarding tax matters
#10.1** --Form of Hotel Lease Agreement between the Company and Host REIT
for Full-Service Hotels Managed by Marriott International
#10.2** --Form of Hotel Lease Agreement between Host REIT and HPT for
Limited-Service Hotels
10.3** --Form of Hotel Sublease Agreement between the Company and Host
REIT for Limited-Service Hotels
#10.4** --Form of Full-Service Hotel Management Agreement between the
Company and Marriott International
#10.5** --Form of Limited-Service Hotel Management Agreement between the
Company and Marriott International
#10.6** --Form of Communities Operating Agreement between the Company and
Marriott International
10.7** --Form of Non-Competition Agreement between the Company and Host
REIT
10.8** --Non-Competition Agreement entered into as of June 21, 1997 by
and between Host, Forum, MSLS and Marriott International
10.9** --Form of Amendment to the Non-Competition Agreement dated as of
June 21, 1997 by and between Host, Forum, MSLS and Marriott
International, among the Company, Host REIT and Marriott
International
10.10** --Non-Competition Agreement entered into as of October 3, 1993 by
and between Host and Marriott International
10.11** --Form of Amendment to the Non-Competition Agreement entered into
as of October 3, 1993 by and between Host and Marriott
International, among the Company, Host REIT and Marriott
International
10.12** --Form of Distribution Agreement between the Company and Host REIT
10.13** --Form of Tax Sharing Agreement between the Company and Host REIT
10.14** --Form of Corporate Transitional Service Agreement between the
Company and Host REIT
10.15** --Form of Guaranty Agreement between the Company, the Lessees and
Host REIT
10.16** --Form of Employee Benefits and Other Employment Matters
Allocation Agreement between the Company and Host REIT
10.17** --Form of Pooling Agreement between the Company and Host REIT
10.18** --Form of Asset Management Agreement between the Company and Host
REIT
10.19** --Registration Rights Agreement between the Company and Blackstone
10.20** --Tax Matters Agreeement dated June 21, 1997 among the Company,
Host, Forum, Marriott International and MSLS
10.21** --Indemnity Agreement dated June 21, 1997 among the Company, Host,
Marriott International and MSLS
12.1** --Computation of Ratio of Earnings to Fixed Charges
21.1** --Subsidiaries of the Company
23.1 --Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1 and
Exhibit 8.1)
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
23.2 --Consent of Arthur Andersen LLP
23.3 --Consent of KPMG Peat Marwick LLP
24.1* --Powers of attorney from officers and directors of the Company
signing by an attorney in fact (included on Signature Page)
27.1** --Financial Data Schedule
99.1** --Consents of Certain Persons Named as Directors
</TABLE>
- --------
*Previously filed.
**To be filed by amendment.
#Agreement filed is illustrative of numerous other agreements to which the
Company will be a party.

(b) Financial Statement Schedules.

SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (JULY 2, 1998)
(PREVIOUSLY FILED)

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

II-3
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Bethesda, State of Maryland, on
October 14, 1998.

Crestline Capital Corporation

/s/ James L. Francis
By: _________________________________
James L. Francis
Executive Vice President, Chief
Financial Officer and Treasurer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities and on the dates
indicated.

SIGNATURE TITLE DATE

* Chairman of the October 14, 1998
- ------------------------------------- Board, President
Bruce D. Wardinski and Chief Executive
Officer (Principal
Executive Officer)

/s/ James L. Francis Executive Vice October 14, 1998
- ------------------------------------- President, Chief
James L. Francis Financial Officer
and Treasurer
(Principal
Financial Officer)

/s/ Larry K. Harvey Senior Vice October 14, 1998
- ------------------------------------- President and
Larry K. Harvey Corporate
Controller
(Principal
Accounting Officer)

* Director October 14, 1998
- -------------------------------------
Christopher J. Nassetta
- --------
* James L. Francis, by signing his name hereto, does sign this document on
behalf of the persons indicated above pursuant to powers of attorney duly
executed by such persons and filed with the Securities and Exchange
Commission.

/s/ James L. Francis
By___________________________________
Attorney-in-Fact

II-4

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.

Arthur Andersen LLP

Washington, D.C.
October 13, 1998

<PAGE>

EXHIBIT 23.3

The Board of Directors
Forum Group, Inc.:

We consent to the use of our report included herein dated September 3, 1997,
with respect to the combined balance sheets of Forum Group, Inc. and
subsidiaries as partitioned for sale to Host Marriott Corporation as of March
31, 1996 and 1995, and the related combined statements of operations, and cash
flows for the years then ended, and to the reference to our firm under the
heading "Experts" in the prospectus.

KPMG Peat Marwick LLP

Indianapolis, Indiana
October 13, 1998