HOST MARRIOTT CORP, 10-K, 1994-03-31

HOST MARRIOTT CORP
10-K, 1994-03-31
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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 COMMISSION FILE NO. 1-5664

HOST MARRIOTT CORPORATION

DELAWARE 53-0085950
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)

10400 FERNWOOD ROAD
BETHESDA, MARYLAND 20817
(301) 380-9000

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------------
<S> <C>
Common Stock, $1.00 par value (129,700,000 shares New York Stock Exchange
outstanding as of December 31, 1993) Chicago Stock Exchange
Pacific Stock Exchange
Philadelphia Stock Exchange

8 1/4% Series A Cumulative Convertible Preferred New York Stock Exchange
Stock, without par value (286,000 depositary
shares outstanding as of December 31, 1993)

$52,860,000 (principal amount at maturity) Liquid New York Stock Exchange
Yield Option Notes due 2006 (zero coupon-subordi-
nated)
</TABLE>

The aggregate market value of shares of common stock held by non-affiliates
at February 28, 1994 was $1,501,000,000.

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No

DOCUMENT INCORPORATED BY REFERENCE
Notice of 1994 Annual Meeting and Proxy Statement

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PART I

ITEMS 1 & 2. BUSINESS AND PROPERTIES

GENERAL

Host Marriott Corporation (the "Company") is one of the largest owners of
lodging properties in the world. The Company's 127 owned lodging properties are
operated under Marriott brand names and managed by Marriott International, Inc.
("Marriott International"), formerly a wholly-owned subsidiary of the Company.
The Company also holds minority interests in various partnerships that own an
additional 268 properties operated by Marriott International. The Company's
properties span several market segments, including full service (Marriott
Hotels, Resorts and Suites), moderate-priced (Courtyard by Marriott), extended-
stay (Residence Inn by Marriott) and economy (Fairfield Inn by Marriott).

The Company is also the leading operator of airport and tollroad food and
merchandise concessions, with facilities in most major commercial airports in
the U.S (the "Host/Travel Plazas Business"). The Company operates restaurants,
gift shops and related facilities at 73 airports, on 14 tollroads (including 93
travel plazas) and at 42 tourist attractions, stadiums and arenas. Many of the
Company's concessions operate under branded names, including Pizza Hut, Burger
King, Taco Bell, Sbarro's, Dunkin' Donuts, Starbucks, TCBY yogurt, Mrs. Fields
cookies, Nathan's Famous hot dogs and Cheers. In addition, the Company owns 14
senior living communities which are leased to Marriott International under
long-term leases.

THE DISTRIBUTION

Prior to October 8, 1993, the Company was named Marriott Corporation. In
addition to conducting its existing businesses of developing and owning lodging
properties and senior living service communities (the "Ownership Business") and
operating restaurants, cafeterias, gift shops and related facilities at
airports, stadiums, arenas, tourist attractions and on highway systems, the
Company engaged in lodging and senior living services management, timeshare
resort development and operation, food service and facilities management and
other contract services businesses (the "Management Business"). On October 8,
1993, the Company made a special tax-free dividend consisting of the
Distribution (the "Distribution") to holders of outstanding shares of common
stock, on a share-for-share basis, of all outstanding shares of its wholly-
owned subsidiary, Marriott International, which at the time of the Distribution
held all of the assets relating to the Management Business. Marriott
International now conducts the Management Business as a separate publicly-
traded company.

The Distribution was designed to separate two types of businesses with
distinct financial, investment and operating characteristics so that each could
adopt strategies and pursue objectives appropriate to its specific needs. As a
result of the Distribution, the Company believes it is better able to
concentrate its attention and financial resources on its core businesses and to
manage its Ownership Business and Host/Travel Plazas Business for cash flow.
The Company and Marriott International are parties to several important ongoing
arrangements, including (i) management agreements pursuant to which the
Company's portfolio of lodging properties are managed by Marriott
International, (ii) leases whereby the Company leases its senior living
communities to Marriott International, (iii) a Revolving Line of Credit
agreement (the "Revolving Line of Credit") pursuant to which Marriott
International provides a $630 million line of credit to the Company's wholly-
owned subsidiary, HMH Holdings, Inc. ("Holdings"), (iv) up to $125 million of
first mortgage financing for up to 60% of the development and construction
costs of the Philadelphia Convention Center Hotel, (v) assumption by Marriott
International of 90% of the Company's LYONs obligation, (vi) guarantees by
Marriott International of the Company's performance to certain lenders and
other third parties under certain Company guarantees and other obligations and
(vii) various transitional services agreements.
<PAGE>

THE EXCHANGE OFFER

In connection with the Distribution, the Company also completed an Exchange
Offer (the "Exchange Offer") pursuant to which holders of the Company's
existing Senior Notes (the "Old Notes") in the aggregate principal amount of
approximately $1.2 billion exchanged the Old Notes for a combination of (i)
cash, (ii) common stock and (iii) New Notes (the "New Notes") issued by Host
Marriott Hospitality, Inc. ("Hospitality"), an indirect wholly-owned subsidiary
of the Company. The interest rate for each series of New Notes is 100 basis
points higher and the maturity date is four years later than the series of Old
Notes for which it was exchanged (except that the maturity of the New Notes
issued in exchange for the Old Series L Senior Notes due 2012 was shortened by
five years). The Company also conducted a consent solicitation pursuant to
which, as a condition to participation in the Exchange Offer, holders of Old
Notes were required to deliver a consent to the Distribution and a waiver of
any defaults, claims or rights under the Old Note Indenture relating thereto, a
release and discharge of legal or equitable claims relating to the Distribution
and a consent to the deletion of a negative pledge covenant in the Old Note
Indenture to permit the Restructuring (see below) and grant of a stock pledge
under the New Note Indenture.

The Company received tenders for approximately $1.2 billion of Old Notes.
Excluding the Series F Senior Notes due 1995 (the "Old Series F Notes") and the
Series I Senior Notes due 1995 (the "Old Series I Notes"), the Company received
tenders for 82% of the aggregate amount of Old Notes subject to the Exchange
Offer. The Company has redeemed all of the Old Series F Notes that did not
tender in the Exchange Offer, and has secured the Old Series I Notes equally
and ratably with the New Notes issued in the Exchange Offer. The Company
recognized an extraordinary loss of approximately $5 million (net-of-tax) in
the fourth quarter of fiscal 1993 in connection with the extinguishment of the
Old Notes in the Exchange Offer.

THE RESTRUCTURING

In connection with the Exchange Offer, the Company effected the Restructuring
of its assets (the "Restructuring"). As a result of the Restructuring, the
Company's primary asset is the capital stock of Holdings, although the Company
conducts certain operations directly and holds interests in various other
subsidiaries. Holdings is a holding company, the primary asset of which is the
capital stock of Hospitality, and is the borrower under the Revolving Line of
Credit. Hospitality is also a holding company which owns the capital stock of
HMH Properties, Inc. ("HMH Properties") and Host Marriott Travel Plazas, Inc.
("HMTP"). In the Restructuring, most of the assets relating to the Ownership
Business were transferred to HMH Properties and its subsidiaries, and most of
the assets relating to the Host/Travel Plazas Business were transferred to HMTP
and its subsidiaries.

LODGING SEGMENT

The Company's lodging segment, after the Distribution, consists of its
ownership of hotels operated by Marriott International and its subsidiaries
under four Marriott brands.

The four lodging concepts under which the Company's hotels operate offer
distinct choices to meet consumers' specialized needs whenever they travel.
These brands have achieved favorable results compared to competitive hotels.

One commonly used indicator of market performance for hotels is revenue per
available room, or REVPAR, which measures daily room revenues generated on a
per room basis. This does not include food and beverage or other ancillary
revenues generated by the property. REVPAR represents the combination of the
average daily room rate charged and the average daily occupancy achieved. Each
of the Company's four lodging concepts reported increases in REVPAR during 1993
and 1992 with a particularly strong improvement in 1993 by the Courtyard and
Residence Inn products.

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The following table sets forth information as of December 31, 1993 regarding
the hotel properties that comprise the Company's lodging segment. Each of these
properties is operated by Marriott International pursuant to lodging management
agreements, in the case of a hotel property.

<TABLE>
<CAPTION>
NUMBER NUMBER
OF FACILITIES OF ROOMS
------------- --------
<S> <C> <C>
Marriott Hotels, Resorts and Suites (full service)... 28(1) 14,774
Courtyard Hotels (moderate-priced)................... 54 7,940
Residence Inns (extended-stay)....................... 18 2,178
Fairfield Inns (economy)............................. 30 3,632
--- ------
Total.............................................. 130 28,524
=== ======
</TABLE>
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(1) Includes (i) two hotels currently under development and scheduled for
completion in 1995, (ii) the New York Marriott Marquis, which was
consolidated on the Company's balance sheet as of December 31, 1993 and
(iii) the Fort Lauderdale Marina Marriott which was acquired in January
1994.

Marriott Hotels, Resorts and Suites. The full service Marriott hotels owned
by the Company are part of the Marriott full service hotel system. These
Company-owned Marriott hotels generally contain from 300 to 600 rooms. The
Company's convention hotels are larger and contain up to 1,900 rooms. Hotel
facilities typically include swimming pools, gift shops, convention and banquet
facilities, a variety of restaurants and lounges, and parking facilities. The
Company's full service hotels primarily serve business and pleasure travelers
and group meetings at locations in downtown and suburban areas, near airports
and at resort locations. These hotels achieved an average occupancy rate of
74.9 percent for 1993. The chart below sets forth comparable performance
information for such hotels for fiscal years 1991 through 1993.

<TABLE>
<CAPTION>
1993 (B) 1992 (A,B) 1991 (A,B)
-------- ---------- ----------
<S> <C> <C> <C>
Number of properties............................. 24 23 23
Number of rooms.................................. 10,560 10,276 10,276
Average daily rate............................... $ 89.61 $ 88.81 $ 85.35
Occupancy percentage............................. 74.9% 72.3% 69.4%
REVPAR........................................... $ 67.12 $ 64.21 $ 59.23
REVPAR % change.................................. 4.5% 8.4% N/A
</TABLE>
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(a) Excludes seven properties which were sold during 1992.
(b) Excludes the New York Marriott Marquis, which was not treated as an owned
hotel until December 31, 1993 and the Fort Lauderdale Marina Marriott,
which was acquired in January 1994.

The Company is developing two other full service Marriott hotels, the
Philadelphia Convention Center Hotel (1,200 rooms, completion scheduled for the
first quarter of 1995) and the Philadelphia Airport Hotel (419 rooms,
completion scheduled for the fourth quarter of 1995), which, when completed,
will be operated by Marriott International. The Philadelphia Airport Hotel has
been largely pre-financed through the issuance of $40 million of industrial
revenue bonds. The Philadelphia Convention Center Hotel will be financed
initially, in part, by a mortgage loan provided by Marriott International.

In addition, the Company purchased the 580-room Fort Lauderdale Marina
Marriott in January 1994.

Courtyard Hotels. The Company's moderate-priced hotel product, "Courtyard",
is positioned to compete directly with major national franchised moderate-
priced hotel chains. Aimed at individual business and pleasure travelers as
well as families, Courtyard hotels typically have about 150 rooms. Well-
landscaped grounds include a courtyard with a pool and socializing areas. Each
hotel features meeting rooms and a restaurant and lounge with approximately 80
seats. The operating systems developed for these hotels allow

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Courtyard to be price competitive while providing value through superior
product and guest service. The 54 Courtyard hotels owned by the Company are
among the newest in the Courtyard hotel system, averaging only four years old.
The chart below sets forth comparable performance information for fiscal years
1991 through 1993.

<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Number of properties.................................... 54 54 52
Number of rooms......................................... 7,940 7,896 7,395
Average daily rate...................................... $64.58 $61.54 $61.12
Occupancy percentage.................................... 79.7% 76.3% 63.7%
REVPAR.................................................. $51.47 $46.96 $38.93
REVPAR % change......................................... 9.6% 20.6% N/A
</TABLE>

Residence Inns. Residence Inn is the market leader in the extended-stay
lodging segment, enjoying solid customer preference, high guest satisfaction
and strong intent-to-return. The extended-stay lodging segment caters primarily
to business and family travelers who stay more than five consecutive nights.
Residence Inns generally have 80 to 130 studio and two-story penthouse suites.
Each inn features a series of residential style buildings with landscaped
walkways, courtyards and recreational areas. The Inns do not have restaurants
but offer complimentary continental breakfast, and most provide a complimentary
evening hospitality hour. Each suite contains a fully equipped kitchen, and
many suites have woodburning fireplaces.

The 18 Residence Inns owned by the Company are among the newest in the
Residence Inn system. The chart below sets forth performance information for
such Inns for fiscal years 1991 through 1993. During 1993, the Company sold the
majority of its equity interest in a partnership owning eleven Residence Inns.
The following table excludes information with respect to the eleven Residence
Inns that are no longer consolidated with the Company as of December 31, 1993.
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Number of properties.................................... 18 18 17
Number of rooms......................................... 2,178 2,178 2,072
Average daily rate...................................... $74.70 $73.38 $73.69
Occupancy percentage.................................... 84.5% 77.4% 68.7%
REVPAR.................................................. $63.12 $56.80 $50.62
REVPAR % change......................................... 11.1% 12.2% N/A
</TABLE>

Fairfield Inns. The Company's economy lodging product, Fairfield Inn, is
positioned to compete directly with major national economy motel chain
operators. Aimed at budget conscious individual business and pleasure
travelers, Fairfield Inns typically have 104 to 138 rooms. A Fairfield Inn has
limited public space and does not include a restaurant, however, they do offer
a complimentary breakfast program. The 30 Fairfield Inns owned by the Company
are among the newest in the Fairfield Inn system. The chart below sets forth
performance information for such Inns for fiscal years 1991 through 1993.

<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Number of properties.................................... 30 30 30
Number of rooms......................................... 3,632 3,632 3,632
Average daily rate...................................... $39.82 $38.41 $36.46
Occupancy percentage.................................... 79.3% 78.7% 71.2%
REVPAR.................................................. $31.58 $30.23 $25.96
REVPAR % change......................................... 4.5% 16.4% N/A
</TABLE>

Subsequent to December 31, 1993, the Company executed a letter of intent to
sell 26 of its Fairfield Inns. The net proceeds from the sale of such Inns is
expected to be approximately $115 million, of which approximately $27 million
will be payable in the form of a note from the purchaser. The letter of intent
is non-binding, and consummation of the transaction is subject to certain
conditions, including the completion

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of a due diligence review by the purchaser and the execution of a definitive
agreement with respect to the sale. In the fourth quarter of 1993, the Company
considered these Inns as held for sale and recorded a charge to earnings of $11
million to write down 15 such properties to their individual estimated net
realizable value. Although these individual inns had an indicated net
realizable value below their carrying value, the proposed transaction is
expected to result in an aggregate gain.

CONTRACT SERVICES

The Contract Services segment includes the Host/Travel Plazas Business and
senior living communities. Host/Travel Plazas operates food, beverage and
merchandise concessions at airports, travel plazas and other locations. The
Company owns 14 senior living communities which are leased to Marriott
International under long-term agreements.

Host/Travel Plazas Business. The Company's Host/Travel Plazas Business is the
leading operator of airport concessions in the United States with restaurants,
gift shops and related facilities at 70 domestic airports and three foreign
airports. The Company's foreign airport operations include concessions at two
airports in New Zealand and one airport in Australia. The Company's airport
concessions operate primarily under the trade name "Host" and include
restaurants, cafeterias, snack bars and gift shops. Payments by the Company
under operating contracts with airport authorities are typically based on
percentages of sales subject to an annual minimum. The terms of such agreements
vary but many have initial terms of ten or more years for food and beverage
concessions, and five or more years for merchandise facilities. Additionally,
the Company operates restaurants, gift shops and related facilities at 42 major
tourist attractions, stadiums and arenas.

During the fourth quarter of 1992, a wholly-owned subsidiary of the Company,
acquired the airport concessions business of Dobbs Houses, Inc. for
approximately $47 million, adding 32 contracts at 19 airports and two hotel
gift shops to the concessions business. In addition, during 1993, the Company
acquired the National Airport concession contract in Washington, D.C. for $9
million.

The Company is also the leading operator of travel plazas in the United
States, with 93 travel plazas on 14 tollroads. The Company currently operates
such facilities under contracts with the highway authorities which typically
extend 15 years. The highway systems are located primarily in the Mid-Atlantic,
Midwest and New England states as well as in Florida. Travel plazas typically
include restaurants, snack bars, vending areas and merchandise facilities.

The Host/Travel Plazas Business now employs 17 different food, beverage and
merchandise concepts at many of its airports and tollroads, including Pizza
Hut, Burger King, Taco Bell, Sbarro's, Dunkin Donuts, Starbucks, TCBY yogurt,
Mrs. Fields cookies, Nathan's Famous hot dogs and Cheers. As a licensee of
these brands, the Company typically pays royalties based on a percentage of
sales.

In November 1993, the Host/Travel Plazas Business announced a plan to
redesign its operations structure to improve the effectiveness and
competitiveness of the business. Implementation of the new structure is
expected to be completed in early 1994. In the fourth quarter of 1993, the
Company recorded a restructuring charge of approximately $7 million,
principally for severance, relocation, and the closing of certain offices.

Senior Living Communities. The Company also owns 14 senior living communities
(one of which opened in February 1994), located in seven states, which offer
independent living apartments, assisted living services and skilled nursing
care. Certain of these senior living communities are operated under the trade
names Brighton Gardens and Stratford Court. Commencing with the Distribution,
these communities are leased to and operated by Marriott International. Units
open more than one year at the beginning of 1993 achieved an average occupancy
rate in excess of 90 percent for 1993. Each of these properties is leased to
and operated by Marriott International.

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<TABLE>
<CAPTION>
1993 (A) 1992 1991
-------- ----- -----
<S> <C> <C> <C>
Number of properties..................................... 13 12 9
Number of rooms.......................................... 3,589 3,437 2,359
Occupancy percentage..................................... 83.0% 72.1% 72.2%
</TABLE>
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(a) Includes a Brighton Gardens community in Port St. Lucie, Florida (128
units) completed in the third quarter of 1993 but excludes a Stratford
Court community in Boca Raton (Boca Point), Florida (353 units) completed
in February 1994.

Included in the Company's total of 14 communities is The Jefferson senior
living community in Arlington, Virginia which is being sold as condominium
units. Approximately 96 of these units remain unsold as of December 31, 1993.
The average price per unit sold in 1993 was approximately $209,000.

Subsequent to year-end, the Company signed an agreement to sell its 14 senior
living communities to an unrelated entity for $320 million which exceeds the
communities' carrying value. The sale is expected to close near the end of the
second quarter of 1994. Consumation of the transaction is subject to certain
conditions including regulatory approvals and filings.

PARTNERSHIP INVESTMENTS

The Company and certain of its subsidiaries also monitor the Company's
partnership investments and conduct the partnership services business (the
"Partnership Business"). The Company and/or its subsidiaries own an equity
investment in, and serve as the managing general partner for, various
partnerships which collectively own 48 Marriott full service hotels, 120
Courtyard hotels, 50 Residence Inns and 50 Fairfield Inns. In addition, the
Company holds notes receivable (net of reserves) from partnerships totalling
$180 million.

As a managing general partner, the Company or its subsidiaries are
responsible for the day-to-day management of partnership operations, which
includes payment of partnership obligations from partnership funds, preparation
of financial reports and tax returns and communications with lenders, limited
partners and regulatory bodies. As managing general partner, the Company or its
subsidiary is usually reimbursed for the cost of providing these services.

Hotel properties owned by the partnerships generally were acquired from the
Company or its subsidiaries in connection with limited partnership offerings.
These hotel properties are currently operated under existing management
agreements with Marriott International. As the general partner of such
partnerships, the Company and its subsidiaries oversee and monitor Marriott
International's performance pursuant to these agreements.

The Company's interests in these partnerships range from 1% to 50%. Cash
distributions provided from these partnerships are tied to the overall
performance of the underlying properties and the overall level of debt owed by
the partnership. Partnership distributions to the Company approximated $6
million in 1993. All partnership debt is non-recourse to the Company except to
the extent of limited debt service guarantees discussed below.

The Company is contingently liable under various guarantees of debt
obligations of certain of these partnerships. Such commitments are limited in
the aggregate to $271 million at December 31, 1993. Management believes
fundings under these guarantees will decline significantly in 1994 as the
Company's obligations expire or maturities of partnership debts are extended.
In most cases, fundings of such guarantees represent loans to the respective
partnerships.

OTHER ASSETS AND OPERATIONS

The Company owns 63 undeveloped parcels of vacant land originally purchased
for the development of hotels or senior living communities. In addition, the
Company owns a 210-acre parcel of undeveloped land in Germantown, Maryland,
suitable for commercial use. The Company may sell these properties from time

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to time when market conditions are favorable. Some of the properties may be
developed as part of a long-term strategy to realize the maximum value of these
parcels.

The Company also holds notes receivable arising from the previous disposition
of properties and businesses, including its airline catering business and
restaurant business.

COMPETITION

Competition in the U.S. lodging industry is strong. Room revenues, which are
determined by occupancy levels and room rates, have continued to be constrained
in 1993 as a result of a slow growth economy, overbuilt markets and price-
sensitive customers. However, the Company has experienced increases in
occupancy and room rates in each of its lodging product lines in 1993 compared
to 1992. Room supply growth is expected to be minimal over the next few years.

The cyclical nature of the U.S. lodging industry has been demonstrated over
the past two decades. Low hotel profitability during the 1974-75 recession led
to a prolonged slump in new construction and, over time, high occupancy rates
and real price increases in the late 1970s and early 1980s. Changes in tax and
banking laws during the early 1980s precipitated a construction boom that
peaked in 1986 but created an oversupply of hotel rooms that has not yet been
fully absorbed by increased demand. The Company expects the U.S. hotel
supply/demand imbalance to continue to improve gradually over the next few
years.

The Company believes that its lodging properties will enjoy competitive
advantages arising from their participation in the Marriott hotel system.
Repeat guest business in the Marriott hotel system is enhanced by the Marriott
Honored Guest Awards program, which awards frequent travelers with free stays
at Marriott Hotels, Resorts and Suites, and by frequent stay programs
established by the Courtyard (Courtyard Club) and Fairfield Inn (INNsiders
Club) systems. Marriott International's nationwide marketing programs and
reservation systems as well as the advantage of increasing customer preference
for Marriott brands should also help these properties to maintain or increase
their premium over competitors in both occupancy and room rates.

In connection with the Host/Travel Plazas Business, the Company competes with
several national and regional companies to obtain the rights from airport and
highway authorities to operate food, beverage and merchandise concessions. To
compete effectively, the Company regularly updates and refines its product
offerings (including the addition of branded products) and facilities. By
providing facilities that best meet customers' needs, the Company is able to
generate higher sales and thereby increase returns both to the airport and
highway authorities and the Company. By generating these financial results, as
well as achieving high satisfaction with the products and services provided,
better positions the Host/Travel Plazas Business to be a preferred choice when
renewing contracts or obtaining new ones.

Three major Host/Travel Plazas airport contracts will expire in 1994. These
contracts represent approximately 18% of the total airport concessions business
annual revenue. The Company has detailed development strategies in place with
respect to each of these airports in order to maintain significant presence on
a profitable basis. Based on the Company's successful track record in achieving
extensions of existing contracts and gaining new contracts, management expects
that most of these contracts will be renewed.

EMPLOYEES

At December 31, 1993, the Company and its subsidiaries collectively have
approximately 23,000 employees engaged in the Host/Travel Plazas Business, the
Ownership Business and the Partnership Business. Approximately 5,900 of the
employees of the Company and its subsidiaries are covered by collective
bargaining agreements.

ITEM 3. LEGAL PROCEEDINGS

Between October 9, 1992 and approximately January 4, 1993, following the
announcement of the Distribution, ten plaintiffs (United Apple Sales
Incorporated Profit Sharing Trust U/A DTD 8/1/71;

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<PAGE>

Bernard Fintz, Administrator of the Fintz Pension Plan; John D. Halford,
Trustee of the John D. Halford Trust; Harvey Levy, as Trustee for the National
Rubber Footwear, Inc. Profit Sharing Plan; Moges Gebremariam, as Trustee for
the Moges Gebremariam Profit Sharing Plan; Howard W. Bleiman; Edmond Tomlinson;
Robert Seigle; Matthew Harlib and Paul L. Stone, collectively the "Class Action
Plaintiffs") filed lawsuits against the Company purportedly brought on behalf
of classes of holders and purchasers of Old Notes and other Senior Notes and
debentures of the Company (the "Class Action Lawsuits"). The Class Action
Plaintiffs were all holders, or former holders, of Old Notes. The Class Action
Lawsuits were consolidated under the caption United Apple Sales Incorporated
Profit Sharing Trust U/A DTD 8/1/71, et al. v. Marriott Corp., et al. in the
United States District Court for the District of Maryland. A similar lawsuit
filed by one of the Class Action Plaintiffs in Maryland state court was stayed
pending resolution of the cases in the Unites States District Court for the
District of Maryland.

On October 29, 1992, a second group of plaintiffs (the "PPM Group")
purporting to hold approximately $120 million of principal amount of Old Notes
filed lawsuits against the Company (the "PPM Lawsuit"). The PPM Group consists
of PPM America, Inc.; London Pacific Life and Annuity Company; Transamerica
Life Insurance and Annuity Company; Transamerica Income Shares, Inc.; National
Home Life Assurance Company; Commonwealth Life Insurance Company; Provident
Mutual Life Insurance Company of Philadelphia; Vanguard Fixed Income Securities
Fund, Inc.; Wellington Fund, Inc.; Anchor Series Trust; High Yield Plus Fund,
Inc.; New America High Income Fund, Inc.; Security Mutual Life Insurance
Company of New York; Security Equity Life Insurance Company; and Utica National
Life Insurance Company. People's Security Life Insurance Company, which
purchased approximately $16 million in Old Notes, was later added as an
additional plaintiff in the PPM Lawsuit. The PPM group alleges that it has
incurred damages of approximately $30 million.

On or about March 25, 1993, the State Board of Administration of Florida (the
"Florida Plaintiff"), purporting to hold approximately $7.5 million principal
amount of Old Notes, filed an additional lawsuit purportedly brought on behalf
of certain classes of holders of Old Notes and other Senior Notes and
debentures of the Company (the "Florida Lawsuit"). The Florida Lawsuit has been
consolidated with the PPM Lawsuit.

The Class Action Lawsuits and the Florida Lawsuit alleged, among other
things, that (i) the Distribution, if effected, would violate the terms of the
Old Note Indenture, (ii) federal securities laws (and similar state laws) had
been violated in connection with the sale by the Company of certain series of
its Old Notes (the "Disclosure Claims"), (iii) the Distribution, if effected,
would be a fraudulent conveyance as to creditors of the Company and (iv) the
Distribution, if effected, would constitute a breach of fiduciary duty and a
breach of implied covenants of good faith and fair dealing allegedly owed by
the Company to holder of Old Notes. The PPM Lawsuit is limited to claims that
the sale by the Company of certain series of its Old Notes was fraudulent and
violated federal securities laws and similar state laws. The Company has
counterclaimed against certain members of the PPM Group, asserting tortious
interference with business relationships.

The Company reached an agreement to settle the Class Action Lawsuits (the
"Class Action Settlement"), which settlement was approved by the United States
District Court on August 30, 1993. The Class Action Settlement disposes of all
legal claims challenging the Distribution, other than Disclosure Claims by
certain holders and former holders of Old Notes (principally members of the PPM
Group and the Florida Plaintiff) who have "opted out" of the Class Action
Settlement. The Florida Plaintiff has filed an appeal with the United States
Court of Appeals for the Fourth Circuit, challenging the District Court's
approval of the Class Action Settlement.

As part of the Class Action Settlement, the Company effected the Exchange
Offer, paid certain legal fees and expenses of the Class Action Plaintiffs and
agreed to issue warrants to purchase up to 7.7 million shares of the Company's
common stock, subject to acceptance by 100% of the class of claimants. Such
warrants

8
<PAGE>

would be exercisable for five years after the Distribution, at $8.00 per share
during the first three years and $10.00 per share during the last two years.
The warrants are not expected to be issued until the appeal by the Florida
Plaintiff is resolved.

The PPM Group and the Florida Plaintiff continue to litigate their Disclosure
Claims. On December 17, 1993, the Company filed a motion for summary judgement
asking the District Court to enter judgment in favor of the Defendants on all
the claims. The PPM Group also filed a motion for summary judgment with respect
to the Company's counterclaim. Final briefs by the parties were submitted on
March 4, 1994, argument on these motions took place on March 11, 1994 and the
parties are awaiting decision from the court. The Company believes the
Disclosure Claims are without merit and that the litigation pursued by those
who have opted out of the Class Action Settlement will not have a material
effect of the financial condition of the Company. Nevertheless, there can be no
certainty as to the ultimate outcome of such litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The common stock is listed on the New York Stock Exchange and on several
regional exchanges, and since consummation of the Distribution is traded under
the symbol "HMT." The following table sets forth, for the fiscal periods
indicated, the high and low sales prices per share of the common stock as
reported on the New York Stock Exchange Composite Tape and traded during such
periods under the symbol "MHS," and the cash dividends paid per share of common
stock. Except for the fourth quarter of fiscal 1993, all periods presented in
the table below were prior to the Distribution. Therefore the stock prices and
dividends paid are not indicative of the Company's current stock price or
dividend policies. As of December 31, 1993, there were approximately 66,413
holders of record of common stock.

<TABLE>
<CAPTION>
CASH
DIVIDENDS
HIGH LOW PAID
---- ---- ---------
<S> <C> <C> <C>
1992
1st Quarter......................................... $19 5/8 $15 3/4 $.07
2nd Quarter......................................... 18 13 3/8 .07
3rd Quarter......................................... 17 1/2 15 1/8 .07
4th Quarter......................................... 21 7/8 16 7/8 .07
1993
1st Quarter......................................... $27 3/8 $20 3/4 $.07
2nd Quarter......................................... 26 5/8 24 .07
3rd Quarter......................................... 29 24 3/8 .07
4th Quarter
pre-Distribution.................................... 33 3/8 27 5/8 --
post-Distribution (1)............................... 10 6 1/8 --
</TABLE>
- --------
(1) The Company currently intends to retain future earnings, if any, for use in
its business and does not currently anticipate paying dividends on the
common stock.

9
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA (in millions, except per share amounts)

<TABLE>
<CAPTION>
1993(1)(2) 1992(2) 1991 1990(3) 1989(4)(5)
---------- ------- ------ ------- ----------
<S> <C> <C> <C> <C> <C>
Sales............................. $1,791 $8,722 $8,331 $7,646 $7,536
Operating profit before corporate
expenses and interest............ 156 483 464 353 535
Interest expense.................. 201 235 251 183 185
Income before extraordinary item
and cumulative effect of account-
ing changes (6).................. 57 85 82 47 181
Net Income........................ 50 85 82 47 177
Earnings per common share:(7)
Income before extraordinary item
and cumulative effect of ac-
counting changes (6)........... .40 .64 .80 .46 1.62
Net Income...................... .35 .64 .80 .46 1.58
Total Assets...................... 3,893 6,346 6,509 7,034 6,600
Long-term debt(8)................. 2,099 2,960 3,189 3,598 3,050
Cash dividends declared per common
share............................ .14 .28 .28 .28 .25
</TABLE>
- --------
(1) Operating results for 1993 include the operations of Marriott International
only through the Distribution date of October 8, 1993. These operations had
a net pre-tax effect on income of $211 million and are recorded as "Profit
from operations distributed to Marriott International" on the Company's
consolidated statement of operations for 1993 and are, therefore, not
included in sales, operating profit before corporate expenses and interest,
interest expense and interest income for the same period. The net pre-tax
effect of these operations is, however, included in income before income
taxes, extraordinary item and cumulative effect of changes in accounting
principles and in net income for 1993.
(2) Operating results in 1993 and 1992 included pre-tax costs related to the
Distribution totaling $13 million and $21 million, respectively, and a $7
million pre-tax restructuring charge for Host/Travel Plazas in 1993.
(3) Operating results in 1990 included pre-tax Restructuring charges and
writeoffs, net of certain non- recurring gains, of $153 million related to
continuing operations.
(4) Operating results in 1989 included pre-tax Restructuring charges and
writeoffs of $256 million related to continuing operations, a $231 million
pre-tax gain on the transfer of the airline catering division, and a $39
million after-tax charge recorded in conjunction with the planned disposal
of restaurant operations.
(5) The Company's restaurant operations were discontinued in 1989.
(6) Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," was adopted in the first fiscal quarter of 1993. In the second
fiscal quarter of 1993, the Company changed its accounting method for
assets held for sale. Also, the Company recognized a $5 million loss (net-
of-tax) on the completion of the Exchange Offer.
(7) Earnings per common share is computed on a fully diluted basis by dividing
net income available for common stock by the weighted average number of
outstanding common and common equivalent shares, plus other potentially
dilutive securities.
(8) Includes convertible subordinated debt of $20 million at December 31, 1993,
$228 million at January 1, 1993 and $210 million at January 3, 1992.

10
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

As described in Part I, Items 1 & 2, "Business and Properties", on October 8,
1993, the Company completed the Distribution, Exchange Offer and Restructuring.
As a result, the assets, liabilities, and business operations of the Company as
of December 31, 1993 and for the fiscal year then ended have changed
substantially.

Accordingly, the December 31, 1993 consolidated financial statements differ
substantially compared to the 1992 consolidated financial statements. In
particular, the most significant differences relate to the following:

. The 1992 and 1991 consolidated statements of operations include revenues,
operating costs and expenses, corporate expenses, interest expense and
interest income of operations distributed to Marriott International on
October 8, 1993. In the 1993 consolidated statement of operations, such
operations through the Distribution Date are combined and included as
"Profit from operations distributed to Marriott International." See Note 2
to the consolidated financial statements.

. As described in Note 1 to the consolidated financial statements, the Company
included the sales and operating expenses of its owned hotels in lodging
revenues and lodging operating costs and expenses, respectively, prior to
the Distribution. Subsequent to the Distribution, lodging revenues represent
house profit from these properties. House profit represents hotel operating
results less property level expenses excluding depreciation, real and
personal property taxes, ground rent, insurance and management fees which
are classified as operating costs and expenses.

Due to these substantial differences in comparability between the Company's
historical operating results for 1993 versus 1992, management believes that it
is more meaningful and relevant in understanding the present and ongoing
Company operations to compare the Company's pro forma operating results for
1993 and 1992. Accordingly, the Company's pro forma consolidated statements of
operations for fiscal 1993 and 1992 are presented below. These pro forma
consolidated statements of operations were prepared as if the Distribution,
Exchange Offer, Restructuring and the implementation of the various related
agreements entered into with Marriott International, including the lodging
management and senior living community leases, occurred at the beginning of
each period and include only the operations of the businesses retained by the
Company, and exclude, among other items, certain non-recurring costs. These
non-recurring costs include (i) costs of the Distribution of $13 million in
1993 and $21 million in 1992, (ii) an extraordinary loss related to the
completion of the Exchange Offer of $5 million, net-of-tax, (iii) the
cumulative effect of a change in accounting for income taxes ($30 million
credit) adopted in the first quarter of 1993 and (iv) the cumulative effect of
a change in accounting for assets held for sale ($32 million after-tax charge)
adopted in the second quarter of 1993. See the notes to the consolidated
financial statements for discussion of the Distribution, Exchange Offer,
Restructuring and the related transactions and agreements.

The following pro forma consolidated statements of operations for 1993 and
1992 and the management's discussion and analysis related thereto are presented
in the format that the Company intends to use in its future filings. This
format breaks down the Company's operations into the Real Estate Group,
consisting of the results of all of the Company's owned hotel properties and
senior living communities as well as its partnership investments and
investments in certain other financial assets, and the Operating Group,
consisting of the Host/Travel Plazas Business and certain discontinued
restaurant operations. These pro forma consolidated statements of operations do
not purport to be indicative of results which may occur in the future.

11
<PAGE>

The following pro forma consolidated statements of operations and related
analysis should be read in conjunction with the Company's consolidated
financial statements and notes thereto included in Part II, Item 8.
<TABLE>
<CAPTION>
FISCAL YEARS
----------------------
1993 1992
---------- ----------
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenues
Real Estate Group
Hotels............................................... $ 251 $ 239
Senior living communities............................ 23 21
Net gains(losses) on property transactions........... (1) 3
---------- ----------
273 263
---------- ----------
Operating Group
Airports............................................. 690 566
Travel Plazas........................................ 296 279
Other................................................ 95 90
---------- ----------
1,081 935
---------- ----------
Total revenues...................................... 1,354 1,198
---------- ----------
Operating Costs and Expenses
Real Estate Group
Hotels............................................... 157 151
Senior living communities............................ 12 10
Other................................................ 25 21
---------- ----------
194 182
---------- ----------
Operating Group
Airports............................................. 659 523
Travel Plazas........................................ 282 261
Other (including Restructuring charges of $7 million
in 1993)............................................ 97 94
---------- ----------
1,038 878
---------- ----------
Total operating costs and expenses.................. 1,232 1,060
---------- ----------
Operating Profit
Real Estate Group..................................... 79 81
Operating Group....................................... 43 57
---------- ----------
Operating profit before corporate expenses and inter-
est................................................. 122 138
Corporate expenses..................................... (28) (24)
Interest expense....................................... (190) (198)
Interest income........................................ 26 28
---------- ----------
Loss before income taxes, extraordinary item and ac-
counting changes...................................... (70) (56)
Benefit for income taxes............................... (10) (19)
---------- ----------
Loss before extraordinary item and accounting changes
(1)(2)................................................ $ (60) $ (37)
========== ==========
Loss per common share before extraordinary item and ac-
counting changes...................................... $ (.51) $ (.33)
========== ==========
Weighted average shares outstanding (3)................ 116.7 112.2
========== ==========
</TABLE>
- --------
(1) Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" was adopted in the first fiscal quarter of 1993. In the second
quarter of 1993, the Company changed its accounting method for assets held
for sale. See the notes to the consolidated financial statements included
in Part II, Item 8.

12
<PAGE>

(2) The Company recognized a $5 million loss (net-of-tax) on the completion of
the Exchange Offer. See Note 2 to the consolidated financial statements
included in Part II, Item 8.
(3) Based on weighted average common shares of Marriott Corporation adjusted to
reflect (i) the conversion of Marriott Corporation preferred stock into
10.6 million shares of common stock prior to the Distribution, and (ii) the
issuance by Marriott Corporation of 1.8 million shares of its common stock,
prior to the Distribution, in connection with the refinancing of certain of
its senior debt.

The Company reported a pro forma loss before extraordinary item and
accounting changes in 1993 of $60 million, versus the 1992 pro forma loss of
$37 million. Comparisons of the pro forma 1993 results to the preceding year
were affected by the following items:

. The $11 million charge recorded in 1993 to write down the carrying value of
Fairfield Inns held as available for sale.

. The restructuring costs of $7 million recorded in 1993 as a result of the
reorganization of the Operating Group.

. The effect on the income tax provision in 1993 resulting from the increase in
corporate income tax rates due to tax legislation.

Excluding the impact of these items, the loss before extraordinary item and
accounting changes was relatively unchanged between years.

Hotel revenues represent house profit which is hotel operating results less
property-level expenses, excluding depreciation, property taxes, ground rent
expense, insurance and management fees. As described in Note 1 to the
consolidated financial statements, subsequent to the Distribution, the Company
does not report the gross operations of the individual hotels but, rather, the
net results which are distributed to it in accordance with the terms of the
management agreements. Revenues and operating costs and expenses have been
reclassified in the pro forma operating data to reflect those operations
consistently with the new policy. Pro forma hotel revenues increased 5% from
$239 million in 1992 to $251 million in 1993 due to (i) the combined increase
in room revenues generated per available room (REVPAR) for comparable
properties of approximately 7% and (ii) higher house profit margins offset by
the sale of seven properties in mid-1992.

Hotel operating profits increased 7% over 1992 to $94 million as a result of
increased revenues, as discussed above, offset by higher ground rent expense
and management fees tied to improved property performance. Excluding the impact
of the Fairfield Inn write-down in 1993, the sale of seven full service hotels
and 13 Courtyard hotels in 1992 and higher deferred gain amortization in 1992,
the Real Estate Group's operating profit increased 29% to $90 million in 1993.

Senior living community revenues consist of rentals earned under the lease
agreements with Marriott International. The terms of the leases call for annual
payments of $28 million (with all 14 properties fully operational) plus a
percentage of certain annual revenues from operation of the facilities in
excess of $72 million on a combined basis. The increase in pro forma revenues
is due to the opening of additional properties through 1993 and the
corresponding commencement of the rental payments for such properties. On March
17, 1994, the Company executed an agreement to sell all of its senior living
communities to an unrelated entity for $320 million, which represents an amount
in excess of the communities' carrying value. The agreement, which is subject
to certain conditions, including regulatory approvals and filings, is expected
to close in June 1994.

Operating profits for senior living communities represent rentals less
depreciation expense. The increase in operating profits for these senior living
communities in 1993 is in direct relation to their increase in revenues.

13
<PAGE>

Net gains (losses) on property transactions consists of gains and losses on
the sale of real estate or financial assets. Included, as well, are writedowns
in connection with other property-related transactions. Such transactions are
included in lodging operating profit in the Company's historical consolidated
financial statements with respect to owned hotel transactions and corporate
expenses with respect to partnership and other financial asset transactions. In
1993, profits were earned from the sales of the Company's interests in the
Boston Copley Marriott and The Jefferson senior living community condominium
units and were reduced by the charge recorded to write down the carrying value
of certain Fairfield Inns held as available for sale and by certain partnership
transactions. The amount of net gain on property transactions in 1992 primarily
consisted of gains on the sales of condominium units at The Jefferson.

Included in Other Expenses for the Real Estate Group are the net equity in
earnings for the Company's equity investments in partnerships and the carrying
costs of the Company's undeveloped land parcels. Such expenses are included in
Corporate expenses in the Company's historical consolidated financial
statements. There was an increase in these expenses to $25 million in 1993,
principally from an increase in the proportion of losses recorded for the New
York Marriott Marquis partnership.

Revenues for the Operating Group grew by 16% in 1993 to $1,081 million due to
the acquisition of 32 Dobbs contracts in September 1992. Operating profit for
the Operating Group was down 12% from the prior year to $43 million excluding
restructuring charges of $7 million, despite higher revenues. This decline was
due to (i) higher employee benefit costs, (ii) reduced operating efficiencies
as locally and minority-owned business participation reduced market share and
(iii) higher rents and depreciation expense for certain contracts. Depreciation
increased $13 million (24%) on higher asset balances, principally from the
Dobbs contract acquisitions.

During the fourth quarter of 1993, the Company recorded a $7 million pre-tax
restructuring charge for the costs of redesigning its operating structure. Such
costs primarily consist of severance payments, relocation charges and the costs
of vacating certain office locations. The Company expects most of these
expenditures to be incurred in the first quarter of 1994.

Corporate expenses include executive management and administrative costs. On
a pro forma basis, these costs were up $4 million in 1993 to $28 million,
principally due to increased minority interest expense and higher
administrative costs.

Interest expense decreased by 4% to $190 million in 1993 due to the paydown
in debt from the proceeds of hotel sales in 1992 and other asset sales
occurring in late 1993. Declining interest rates on variable rate debt also had
a favorable impact on interest expense.

The Company also considers Earnings Before Interest, Taxes, Depreciation and
Amortization and other non-cash items ("EBITDA") to be an insightful measure of
the Company's operating performance due to the significance of the Company's
long-lived assets. EBITDA measures the Company's economic profitability, its
ability to service debt, fund capital expenditures and expand the business,
however, such information should not be considered as an alternative to net
income, operating performance or any other performance measure prescribed by
generally accepted accounting principles.

The Company's pro forma EBITDA increased by 5% to $346 million in 1993. After
excluding the EBITDA from hotels sold during 1992 of $12 million, the pro forma
EBITDA increase was 9%.

For the year, the Company reported $224 million of pro forma EBITDA for its
Real Estate Group, including $179 million of pro forma EBITDA from its hotels
($66 million for full service hotels, $113 million for Courtyard, Residence Inn
and Fairfield Inn branded hotels) and $24 million from senior living
communities. The remaining $21 million of real estate pro forma EBITDA
primarily relates to gains on sales, partnership distributions and senior
living community condominium dispositions.

14
<PAGE>

The Company's Host/Travel Plazas Operating Group, the nation's leading
operator of airport and tollroad food, beverage and merchandise concessions,
contributed $116 million of pro forma EBITDA.

The remaining pro forma EBITDA was primarily earned from interest income on
notes receivable net of corporate expenses.

HISTORICAL RESULTS OF OPERATIONS

The following discussion represents an analysis of the comparative operating
results of the Company for 1992 versus 1991 on an historical basis, including
the operations of Marriott International for both periods as these operations
were not distributed to shareholders until October 8, 1993.

1992 Compared to 1991

Net Income totaled $85 million in 1992, compared to $82 million in 1991, on a
5% increase in sales. The Company's earnings per common share were $.64, down
from $.80 in 1991. Comparisons of 1992 earnings to the preceding year were
affected by several noncomparable items, including operating results and
financing costs for recently opened lodging and senior living services
properties, reduced gain amortization from earlier asset sales, lodging
dispositions in both years, the issuance of preferred stock in 1991, and
approximately $21 million of costs related to the Distribution planned for
1993.

Excluding the impact of these items, the Company's operating profit and net
income increased by 11% and 56%, respectively, principally due to strong
improvement in four of the Company's five lodging divisions and growth in its
senior living services operations.

Lodging sales and operating profit both increased 4% in 1992. Excluding the
impact of the noncomparable items cited above, lodging profits were up 14%
compared to the preceding year. Lodging sales growth was generated primarily by
the net addition of 107 hotels (16,750 rooms) since the beginning of 1991, and
higher occupancy rates. Average room rates across the Marriott system increased
slightly. Food and beverage sales were flat with the prior year due to more
rapid expansion of product lines with limited food service facilities, and the
closing of certain low volume restaurants. At year-end 1992, the Company's
lodging business encompassed 746 hotels with over 167,000 rooms, including the
net addition of 48 hotels (5,800 rooms) during 1992.

Marriott Hotels, Resorts and Suites, the full service lodging division,
posted increases in occupancy for comparable U.S. hotels of two percentage
points for 1992--to the mid-70s--while the average room rate was unchanged.
Profits were flat excluding the impact of the aforementioned noncomparable
items.

Courtyard, the moderate price lodging product, posted strong increases in
sales and profits for 1992. Occupancy for comparable units advanced nearly
eight percentage points for 1992 to the upper 70s. Average room rates were
slightly lower, reflecting the division's strategy of increasing occupancy and
total revenues. Reduced administrative expenses also improved results.

Residence Inn, the extended stay lodging product, reported solid sales and
profit growth for 1992. Occupancy for comparable units increased nearly three
percentage points--to the low 80s--as business travel and weekend leisure
business improved from 1991 levels. Average room rates were slightly higher.

Fairfield Inn, the economy lodging product, generated higher sales and
profits for 1992 on occupancy growth of more than three percentage points--to
the upper 70s--for comparable units. Average room rate growth matched
inflation.

Marriott Ownership Resorts, the timeshare division, posted higher sales and
profits in 1992 due to increased sales at existing timesharing properties, the
addition of two new properties, and greater cost efficiencies in marketing and
product development.

15
<PAGE>

Contract Services reported increases in sales and operating profit of 6% and
3%, respectively, compared to 1991, largely due to significant growth for
Marriott Senior Living Services, although all four divisions in the group
reported higher sales.

Marriott Management Services, benefitted from increased profits in its health
care, higher education and school services divisions. Overall results increased
only modestly due to the offsetting effect of losses at a west coast laundry
facility and lower profits for Canadian operations.

Host/Travel Plazas results were helped by operating efficiencies, and the
increased travel resulting from low summer airfares, the September 1992
acquisition of the Dobbs airport concessions, and improved performance in
stadiums and arenas. However, lower profits reflected reduced results on
several major tollroads served by the Company, and at merchandise operations in
Las Vegas and Atlantic City.

Marriott Senior Living Services reported strong sales and profit increases in
1992, aided by the sale of condominium units at a new retirement community in
the Washington, D.C. area, and the maturing of units opened in prior years.
Occupancy for comparable units increased by more than nine percentage points to
nearly 90 percent.

Marriott Distribution Services had higher sales in 1992. Profits were
slightly lower due to costs associated with new distribution center openings,
and reduced volume at certain distribution centers resulting from the Company's
disposition of its family restaurant division.

Corporate expenses increased 16% in 1992 due to $21 million of costs
associated with the Distribution. Corporate expenses decreased 3% in 1992
excluding these costs, following a 19% decline in the preceding year. After a
major administrative downsizing program conducted in 1990-91, the Company
eliminated additional administrative staff positions in 1992.

Interest expense declined 6% in 1992 due to lower average borrowings as well
as lower interest rates, which were partially offset by reduced interest
capitalization. Interest income was down 28% primarily as a result of lower
temporary cash investments. The Company's effective tax rate was 43.3% in 1992
compared to 43.4% in the preceding year.

During 1992, the Company sold thirteen Courtyard hotels for $146 million in a
sale/leaseback transaction. The Company also sold seven full service hotels in
1992 for total proceeds of $200 million. Pre-tax gains on these full service
hotel sales of approximately $15 million were offset by adjustments to
previously established reserves, resulting in no net gain or loss. Most of the
reserve adjustment was a valuation allowance, related to the in-substance
foreclosure of a 28.7% interest in the Times Square Hotel Company (the owner of
the New York Marriott Marquis hotel), equal to the difference between the
estimated fair value of the in-substance foreclosed ownership interest and the
carrying amount of the receivable.

Sources and Uses of Capital

The Company has historically funded its capital requirements with a
combination of operating cash flow, proceeds from sales of hotels and other
properties, and debt and equity financing. Operating cash flow is generated
principally by the Company's Ownership Business and by the Host/Travel Plazas
Business. The Company believes that financial resources from ongoing operations
as well as funds available under the Revolving Line of Credit from Marriott
International will be sufficient to enable it to meet its debt service needs
and finance its capital expenditures for the foreseeable future.

Financing Activities. The Company had long-term debt of $2.1 billion at
December 31, 1993. Substantially all of this debt carries fixed interest rates
and the weighted average rate approximated 9.2% at December 31, 1993. The
Company is also party to $500 million aggregate notional amount of interest
rate exchange agreements. These agreements require the Company to pay interest
based on specified floating rates (average rate 3.5% at December 31, 1993) and
collect interest at fixed rates (average rate of 7.6% at December 31, 1993)
through 1997.

16
<PAGE>

The Company owns a portfolio of real estate which can be sold or used to
secure new financings. Property and equipment totaled $3 billion at December
31, 1993, $1.8 billion of which had not been pledged or mortgaged. The Company
may secure long-term financing and (subject, among other things, to compliance
with its existing debt agreements, including requirements to use the proceeds
of certain refinancings to repay indebtedness) may use unencumbered assets as
security for future financings, if such financings are determined to be
advantageous. Such financings could take the form of traditional secured real
estate financings or could be effected through vehicles such as formation of a
real estate investment trust (REIT) or collateralized mortgage financings.

In addition, the Company may, from time to time, consider opportunities to
sell certain of its real estate properties if price targets can be achieved.
The Company currently has outstanding agreements to sell substantially all of
its Fairfield Inns and all of its senior living properties. In cases where
there is an intent to sell particular properties, the Company assesses
impairment of each individual property to be sold, on the basis of expected
sales price less estimated costs of disposal. Otherwise, the Company assesses
impairment of its real estate properties based on whether it is probable that
undiscounted future cash flows from such properties will be less than their net
book value. As previously discussed, the Company recorded an $11 million charge
in the fourth quarter of 1993 to write-down 15 individual Fairfield Inn
properties to their net realizable value although the overall sales transaction
is anticipated to generate a gain.

All of the Fairfield Inns and the senior living communities to be sold are
owned by subsidiaries of Hospitality, the issuer of the New Notes. Under the
terms of the New Note Indenture, Hospitality will be obligated to use 50% of
the net proceeds of these asset sales to prepay New Notes on a pro rata basis
and must offer to utilize an additional 25% of the net proceeds to make
additional New Note prepayments on a pro rata basis.

In January 1994, the Company completed the sale of 20.1 million shares of its
common stock for net proceeds of $231 million.

Lodging properties formerly held for sale. Historically, the Company
developed and sold lodging properties to syndicated limited partnerships, while
continuing to operate the properties under long-term agreements. Those
agreements provided the Company with specified percentages of sales and
operating profits as compensation for operating the properties for the owners.

Most lodging properties developed by the Company since the early 1980s were
reported as assets held for sale prior to 1992. The Company used this
classification because the sale of newly-developed lodging properties, subject
to long-term operating agreements, was the principal method of financing the
Company's lodging property development during this period. Sales of such
properties also enabled the Company to transfer the risk of real estate
ownership. Most of these properties were in the Company's Courtyard, Fairfield
Inn and Residence Inn brands, and were sold in large groups with a balanced
geographical mix of properties of the same brand.

In April 1992, as a result of continuing unfavorable conditions in the real
estate markets, the Company decided it was no longer appropriate to view such
sales of lodging properties as a primary means of long-term financing.
Accordingly, the Company discontinued classification of these properties as
assets held for sale.

During the period the Company classified lodging properties as assets held
for sale, it determined the net realizable value of such assets on a property-
by-property basis in the case of full service hotels, resorts and suites, and
on an aggregate basis, by brand, in the case of its limited service (i.e.,
Courtyard, Fairfield Inn and Residence Inn) lodging properties. On this basis,
carrying value of these properties was not in excess of their net realizable
value based on estimated selling prices, although, as a result of deteriorating
market conditions, certain individual properties within a limited service brand
had carrying values in excess of their estimated selling prices. In certain
cases, these unrealized losses related to properties constructed during 1990

17
<PAGE>

and 1991 where total development and construction costs exceeded net realizable
value. Following the reclassification of these properties, the Company assesses
impairment of its owned real estate properties based on whether it is probable
that undiscounted future cash flows from such properties will be less than
their net book value.

Beginning in the second fiscal quarter of 1993, under a new accounting policy
adopted by the Company, net realizable value of assets held for sale are
determined on a property-by-property basis as to all lodging properties,
whereas formerly such determination was made on an aggregate basis by hotel
brand as to Courtyard hotels, Fairfield Inns and Residence Inns. The after-tax
cumulative effect of this change on years prior to 1993 of $32 million was
recorded in the quarter ended June 18, 1993. The reduction in the annual
depreciation charge as a result of this change did not have a material effect
on 1993 results of operations.

Capital Expenditures and Acquisitions. Management estimates that capital
spending for renovation and refurbishment of the Company's existing lodging
properties will approximate $45 million annually. The majority of this amount
is expected to be reserved in accordance with the terms of the management
agreements for the lodging properties. Additionally management anticipates that
an additional $50 million will be spent annually to maintain and expand the
Host/Travel Plazas Business.

In addition, the Company is completing construction of two hotels. Capital
expenditures for these projects were $60 million in 1993 (including amounts
incurred before the Distribution), and are estimated to be $125 million in 1994
and $50 million in 1995. The Company has obtained a $40 million industrial
development bond to finance a portion of the construction costs for the
Philadelphia Airport Hotel and will receive mortgage financing from Marriott
International of up to $125 million to finance 60% of the development and
construction costs for the Philadelphia Convention Center Hotel, of which
approximately $40 million was borrowed as of December 31, 1993. The remaining
portion of capital expenditures will be funded from operating cash or
borrowings under the Revolving Line of Credit with Marriott International.

Capital expenditures amounted to $235 million in 1993 compared to $210
million in 1992. Proceeds from sales of assets totaled $83 million in 1993,
compared to $484 million in 1992. Asset dispositions during 1992 included the
sale of 13 Courtyard hotels for $146 million in a sale/leaseback transaction,
203 family restaurants for total proceeds of $84 million and seven full service
hotels for total proceeds of $200 million.

In September 1992, the Company acquired 32 Dobbs House concession contracts
at 19 airports for approximately $47 million. In addition, during 1993, the
Company acquired the National Airport concession contract in Washington, D.C.
for $9 million.

The Company expects to use the majority of the net proceeds of its January
1994 common stock offering for acquisitions of full service lodging properties
or related assets, to the extent that attractive acquisition opportunities
become available. The Company may seek additional debt or equity financing in
connection with such acquisitions, including debt secured by properties
acquired. The Company believes it will have adequate sources of funding to
permit it to pursue its acquisition strategy.

Partnership Activities. The Company serves as the managing general partner of
numerous limited partnerships which own hotels. Debt of the hotel limited
partnerships is typically secured by first mortgages on the properties and
generally is nonrecourse to the partners. However, the Company has committed to
advance amounts to affiliates, if necessary, to cover certain future debt
service requirements. Such commitments were limited, in the aggregate, to $271
million at December 31, 1993. Funding under these guarantees amounted to $14
million in 1993 and should decline significantly in 1994 as the Company's
obligations expire or maturities of partnership debt are extended.

18
<PAGE>

Divestitures. The Company disposes of businesses that no longer meet its
financial return or growth objectives. In 1989, the Company divested its
airline catering business for over $500 million. In 1990, the Company sold its
fast food restaurant division for more than $365 million. In 1991, 138 family
restaurants were sold. The Company sold 10 family restaurants in 1993 and 203
family restaurants in 1992 for cash proceeds of $4 million and $23 million,
respectively.

Revolving Line of Credit. An additional source of liquidity for the Company
is the $630 million Revolving Line of Credit from Marriott International
available through 2007. As of December 31, 1993, $193 million was outstanding
under the Revolving Line of Credit.

Inflation. The Company's lodging properties are impacted by inflation through
its effect on increasing costs and on the operator's ability to increase room
rates. Unlike other real estate, hotels have the ability to change room rates
on a daily basis, so the impact of higher inflation can be passed on
immediately to customers.

The Host/Travel Plazas Business expenses are similarly impacted by inflation,
especially with regard to employee benefits. While price increases can be
instituted as inflation occurs, several contracts require landlord approval
before prices can be increased. Over time, this should not inhibit the
Company's ability to raise prices and improve profitability.

Nearly all of the Company's debt bears interest at fixed rates. This debt
structure largely mitigates the impact of changes in the rate of inflation on
future interest costs.

19
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial information is included on the pages indicated:

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants.................................. 21
Consolidated Balance Sheets............................................... 22
Consolidated Statements of Income......................................... 23
Consolidated Statements of Shareholders' Equity........................... 24
Consolidated Statements of Cash Flows..................................... 25
Notes to Consolidated Financial Statements................................ 26-45
</TABLE>

20
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Host Marriott Corporation:

We have audited the accompanying consolidated balance sheets of Host Marriott
Corporation (formerly Marriott Corporation) and subsidiaries as of December 31,
1993 and January 1, 1993, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended December 31, 1993. These financial statements and the schedules
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Host
Marriott Corporation and subsidiaries as of December 31, 1993 and January 1,
1993, and the results of their operations and their cash flows for each of the
three fiscal years in the period ended December 31, 1993 in conformity with
generally accepted accounting principles.

As discussed in Notes 3 and 7 to the consolidated financial statements, in
1993 the Company changed its methods of accounting for assets held for sale and
income taxes.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index at
Item 14(a)(2) are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

Arthur Andersen & Co.

Washington, D.C.
February 25, 1994

21
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1993 AND JANUARY 1, 1993
(IN MILLIONS)

<TABLE>
<CAPTION>
1993 1992
------- ------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.................................... $ 103 $ 325
Accounts receivable.......................................... 112 606
Inventories, at lower of average cost or market.............. 52 316
Other current assets......................................... 110 249
------- ------
377 1,496
------- ------
Property and Equipment......................................... 3,026 3,461
Investments in Affiliates...................................... 211 381
Intangibles.................................................... 25 452
Notes Receivable and Other..................................... 254 556
------- ------
$ 3,893 $6,346
======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable............................................. $ 86 $ 710
Accrued payroll and related benefits......................... 41 331
Other current liabilities.................................... 110 434
Notes payable and capital leases............................. 400 21
------- ------
637 1,496
------- ------
Long-term Debt................................................. 2,079 2,732
Deferred Income................................................ 26 119
Deferred Income Taxes.......................................... 487 585
Other Long-term Liabilities.................................... 139 401
Convertible Subordinated Debt.................................. 20 228
------- ------
Total liabilities.............................................. 3,388 5,561
------- ------
Shareholders' Equity
Convertible preferred stock.................................. 14 200
Common stock, 129.7 million and 105 million shares issued,
respectively................................................ 130 105
Additional paid-in capital................................... 253 34
Retained earnings............................................ 108 555
Treasury stock, 4.2 million common shares in 1992, at cost... -- (109)
------- ------
Total shareholders' equity..................................... 505 785
------- ------
$ 3,893 $6,346
======= ======
</TABLE>

See Notes To Consolidated Financial Statements.

22
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

FISCAL YEARS ENDED DECEMBER 31, 1993, JANUARY 1, 1993 AND JANUARY 3, 1992
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)

<TABLE>
<CAPTION>
1993 1992 1991
------ ------- -------
<S> <C> <C> <C>
SALES
Lodging........................................... $ 614 $ 4,551 $ 4,379
Contract Services................................. 1,177 4,171 3,952
------ ------- -------
1,791 8,722 8,331
OPERATING COSTS AND EXPENSES
Lodging........................................... 515 4,218 4,061
Contract Services (including restructuring charges
of $7 million in 1993)........................... 1,120 4,021 3,806
------ ------- -------
1,635 8,239 7,867
OPERATING PROFIT
Lodging........................................... 99 333 318
Contract Services................................. 57 150 146
------ ------- -------
Operating profit before profit from distributed
operations, corporate expenses and interest...... 156 483 464
Corporate expenses, (including restructuring charges
of $13 million and $21 million in 1993 and 1992,
respectively)...................................... (63) (129) (111)
Interest expense.................................... (201) (235) (251)
Interest income..................................... 26 31 43
Profit from operations distributed to Marriott In-
ternational, Inc................................... 211 -- --
------ ------- -------
INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLES......................................... 129 150 145
Provision for income taxes.......................... 72 65 63
------ ------- -------
INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES......... 57 85 82
Extraordinary item -- Loss on extinguishment of debt
(net of income taxes of $4 million)................ (5) -- --
Cumulative effect of a change in accounting for in-
come taxes......................................... 30 -- --
Cumulative effect of a change in accounting for
assets held for sale (net of income taxes of $22
million)........................................... (32) -- --
------ ------- -------
NET INCOME.......................................... $ 50 $ 85 $ 82
Dividends on preferred stock........................ (8) (17) (1)
------ ------- -------
NET INCOME AVAILABLE FOR COMMON STOCK............... $ 42 $ 68 $ 81
====== ======= =======
EARNINGS PER COMMON SHARE
Income before extraordinary item and cumulative
effects of accounting changes...................... $ .40 $ .64 $ .80
Extraordinary item -- Loss on extinguishment of debt
(net of income taxes).............................. (.04) -- --
Cumulative effect of a change in accounting for in-
come taxes......................................... .25 -- --
Cumulative effect of a change in accounting for
assets held for sale (net of income taxes)......... (.26) -- --
------ ------- -------
NET INCOME.......................................... $ .35 $ .64 $ .80
====== ======= =======
</TABLE>

See Notes To Consolidated Financial Statements.

23
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FISCAL YEARS ENDED DECEMBER 31, 1993, JANUARY 1, 1993 AND JANUARY 3, 1992

<TABLE>
<CAPTION>
COMMON CONVERTIBLE ADDITIONAL
SHARES PREFERRED COMMON PAID-IN RETAINED TREASURY
OUTSTANDING STOCK STOCK CAPITAL EARNINGS STOCK
- -------------------------------------------------------------------------------------------
(IN MILLIONS) (IN MILLIONS, EXCEPT PER COMMON SHARE)
<C> <S> <C> <C> <C> <C> <C>
Balance, December 28,
93.6 1990.................... $-- $ 105 $ 69 $ 528 $ (295)
-- Net income.............. -- -- -- 82 --
Issuance of convertible
-- preferred stock......... 200 -- (5) -- --
1.5 Common stock issued for
employee stock purchase
and stock option plans.. -- -- (22) -- 40
Cash dividends ($.28 per
-- share).................. -- -- -- (27) --
Deferred stock compensa-
.4 tion.................... -- -- (2) -- 11
Foreign currency trans-
-- lation adjustments...... -- -- (5) -- --
- -------------------------------------------------------------------------------------------
Balance, January 3,
95.5 1992.................... 200 105 35 583 (244)
-- Net income.............. -- -- -- 85 --
5.0 Common stock issued for
employee stock purchase,
stock option, and profit
sharing plans........... -- -- (1) (68) 127
-- Cash dividends on common
stock ($.28 per share).... -- -- -- (28) --
-- Cash dividends on con-
vertible preferred stock
($4.125 per share)........ -- -- -- (17) --
Deferred stock compensa-
.3 tion.................... -- -- 2 -- 8
Foreign currency trans-
-- lation adjustments...... -- -- (2) -- --
- -------------------------------------------------------------------------------------------
Balance, January 1,
100.8 1993.................... 200 105 34 555 (109)
-- Net income.............. -- -- -- 50 --
-- Distribution of stock of
Marriott
International, Inc...... -- -- (40) (417) --
7.5 Common stock issued for
the comprehensive stock
and employee stock pur-
chase plans............. -- 4 10 (53) 99
-- Cash dividends on common
stock ($.14 per share).... -- -- -- (14) --
-- Cash dividends on con-
vertible preferred stock
($2.062 per share)........ -- -- -- (8) --
Conversion of subordi-
8.3 nated debt.............. -- 8 15 -- --
1.8 Common stock issued in
conjunction with the Ex-
change Offer............ -- 2 58 -- --
10.9 Conversion of preferred
stock to common stock... (186) 11 175 -- --
Deferred stock compensa-
.4 tion.................... -- -- 3 (5) 10
Foreign currency trans-
-- lation adjustments...... -- -- (2) -- --
- -------------------------------------------------------------------------------------------
Balance, December 31,
129.7 1993.................... $ 14 $ 130 $ 253 $ 108 $ --
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>

See Notes To Consolidated Financial Statements.

24
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

FISCAL YEARS ENDED DECEMBER 31, 1993, JANUARY 1, 1993 AND JANUARY 3, 1992

<TABLE>
<CAPTION>
1993 1992 1991
----- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income............................................ $ 50 $ 85 $ 82
Adjustments to reconcile to cash from operations:
Depreciation and amortization....................... 265 284 272
Income taxes........................................ 11 (28) 27
Extraordinary loss on extinguishment of debt, net of
taxes.............................................. 5 -- --
Cumulative effect of a change in accounting for in-
come taxes......................................... (30) -- --
Cumulative effect of a change in accounting for as-
sets held for sale, net of taxes................... 32 -- --
Restructuring charges............................... 20 21 --
Proceeds from sales of timeshare notes receivable... -- 41 83
Amortization of deferred income..................... (14) (19) (38)
Other............................................... 61 1 6
Changes in operating accounts:
Accounts receivable................................ (101) (40) 88
Inventories........................................ (10) (16) 63
Accounts payable and accrued liabilities........... 132 (14) 13
Other.............................................. 8 106 (47)
----- ------- -------
Cash from continuing operations..................... 429 421 549
Cash from (used in) discontinued operations......... -- (11) 3
----- ------- -------
Cash from operations................................ 429 410 552
----- ------- -------
INVESTING ACTIVITIES
Proceeds from sales of assets....................... 83 484 84
Less noncash proceeds.............................. (5) (97) --
----- ------- -------
Cash received from sales of assets.................. 78 387 84
Capital expenditures................................ (235) (210) (427)
Acquisitions........................................ (9) (47) --
Other............................................... (96) (82) (126)
----- ------- -------
Cash from (used in) investing activities............ (262) 48 (469)
----- ------- -------
FINANCING ACTIVITIES
Issuances of long-term and convertible subordinated
debt............................................... 375 917 815
Issuance of convertible preferred stock............. -- -- 195
Issuances of common stock........................... 12 7 3
Repayment of debt................................... (471) (1,179) (1,316)
Dividends paid...................................... (33) (41) (27)
Cash distributed to Marriott International.......... (272) -- --
----- ------- -------
Cash used in financing activities................... (389) (296) (330)
----- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... (222) 162 (247)
CASH AND CASH EQUIVALENTS, beginning of year.......... 325 163 410
----- ------- -------
CASH AND CASH EQUIVALENTS, end of year................ $ 103 $ 325 $ 163
===== ======= =======
</TABLE>

See Notes To Consolidated Financial Statements.

25
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

The structure of Host Marriott Corporation (the "Company," formerly Marriott
Corporation) was substantially altered on October 8, 1993 when the Company
distributed the stock of a wholly-owned subsidiary, Marriott International,
Inc. ("Marriott International") in a special dividend (see Note 2). The Company
owns 127 lodging properties operated under Marriott brand names and managed by
Marriott International. The Company also holds minority interests in various
partnerships that own an additional 268 properties operated by Marriott
International. The Company's properties span several market segments, including
full service (Marriott Hotels, Resorts and Suites), moderate-priced (Courtyard
by Marriott), extended stay (Residence Inn by Marriott) and economy (Fairfield
Inn by Marriott). In addition, the Company owns 14 senior living communities
which are leased to Marriott International under long-term leases.

The Company also operates restaurants, gift shops and related facilities at
73 airports, on 14 tollroads (including 93 travel plazas) and at 42 tourist
attractions, stadiums and arenas. Many of the Company's concessions operate
under branded names.

The Company's financial statements include the results of operations and cash
flows of Marriott International through the Distribution Date (see Note 2).
Accordingly, the financial disclosures herein do not reflect the results of
operations of the Company as it now exists.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its subsidiaries and controlled affiliates. Investments in 50% or less owned
affiliates over which the Company has the ability to exercise significant
influence are accounted for using the equity method. The Company's equity in
net losses of these affiliates is included in corporate expenses. All material
intercompany transactions and balances have been eliminated. Certain prior year
amounts have been reclassified to conform with the 1993 presentation.

In late 1992, the Board of Directors approved the special dividend of
Marriott International stock (see Note 2). Marriott International's results of
operations through the Distribution Date included in the accompanying
consolidated financial statements consist of the following:

<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Sales................................................ $5,555 $6,971 $6,707
Operating Costs and Expenses......................... (5,283) (6,645) (6,385)
Corporate Expenses................................... (46) (67) (72)
Net Interest Expense................................. (15) (22) (20)
------ ------ ------
Income Before Income Taxes........................... $ 211 $ 237 $ 230
====== ====== ======
</TABLE>

Fiscal Year

The Company's fiscal year ends on the Friday nearest to December 31 for U.S.
operations and on November 30 for most non-U.S. operations. Fiscal 1993 and
1992, which ended December 31, 1993 and January 1, 1993, respectively, include
52 weeks. Fiscal 1991, which ended January 3, 1992, includes 53 weeks.

Revenues

Subsequent to the Distribution (see Note 2), lodging revenues include house
profit from the Company's owned hotel properties, and contract services
revenues include sales of food, beverage and merchandise at

26
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

various Host/Travel Plazas locations and lease revenues from the Company's
owned senior living communities. House profit represents hotel operating
results, less property-level expenses, excluding depreciation, real and
personal property taxes, ground rent, insurance and management fees which are
classified as operating costs and expenses.

Prior to the Distribution, lodging revenues included room sales and food and
beverage sales at both owned and managed hotel properties, franchise fees for
franchised hotel properties, and sales of timeshare units. Contract Services
revenues included sales of food, beverages and merchandise at various
Host/Travel Plazas locations as well as contract revenue from various facility
management contracts, distribution service revenues and sales from senior
living communities. In 1993, revenues related to Marriott International are
included in profits from operations distributed to Marriott International in
the accompanying statement of income.

Prior to the Distribution, the Company operated 388 hotels under long-term
management agreements whereby payments to owners were based primarily on hotel
profits. Working capital and operating results of managed hotels operated with
the Company's employees were consolidated because the operating
responsibilities associated with such hotels were substantially the same as
those for owned and leased hotels. The consolidated financial statements
include the following amounts related to managed hotels: current assets and
current liabilities of $246 million at January 1, 1993; sales of $2,276 million
in 1993, $2,896 million in 1992, and $2,809 million in 1991; and operating
expenses, including payments to owners, of $2,148 million in 1993, $2,721
million in 1992, and $2,616 million in 1991.

International Operations

The consolidated statements of income include the following amounts related
to non-U.S. subsidiaries and affiliates; sales of $258 million in 1993
(including $223 million related to Marriott International), $355 million in
1992, and $329 million in 1991; and income before income taxes of $26 million
in 1993, $24 million in 1992, and $26 million in 1991. International sales and
income before income taxes, subsequent to the Distribution, were not material.

Property and Equipment

Property and equipment is recorded at cost, including interest, rent and real
estate taxes incurred during development and construction. Replacements and
improvements are capitalized.

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

Gains upon the sales of properties are recognized at the time of sale or
deferred to the extent required by generally accepted accounting principles.
Deferred gains are recognized as income in subsequent periods as conditions
requiring deferral are satisfied or expire without further cost to the Company.

In cases where management is holding for sale particular lodging properties,
the Company assesses impairment based on whether the net realizable value
(estimated sales price less costs of disposal) of each individual property to
be sold is less than the net book value. Otherwise, the Company assesses
impairment of its real estate properties based on whether it is probable that
undiscounted future cash flows from each individual property will be less than
their net book value.

27
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pre-Opening Costs

Costs of an operating nature incurred prior to opening of lodging and senior
living service properties are deferred and amortized over three years.

Self-Insurance Programs

Prior to the Distribution Date (see Note 2), the Company was self-insured for
certain levels of general liability, workers' compensation and employee medical
coverage. Estimated costs of these self-insurance programs were accrued at
present values of projected settlements for known and anticipated claims. The
Company discontinued its self-insurance program for claims arising subsequent
to the Distribution Date. Self-insurance claims arising prior to the
Distribution Date continue to be administered by Marriott International.

Earnings Per Common Share

Earnings per common share are computed on a fully diluted basis by dividing
net income available for common stock by the weighted average number of
outstanding common and common equivalent shares, plus other potentially
dilutive securities, aggregating 121.3 million in 1993, 106.5 million in 1992,
and 101.5 million in 1991.

During 1993, the Company issued 1.8 million common shares to former holders
of certain Senior Notes and debentures of the Company as part of the Exchange
Offer (see Note 2), 10.9 million common shares to former holders of the
Company's preferred stock and, during 1993 and subsequent to year-end, 9.0
million common shares to holders of the LYONs notes upon their conversion (see
Note 10). Supplemental earnings per share, giving effect to the transactions
discussed above as if they had occurred as of the first day of the period
presented was $.42 and $.74 for the fiscal years ended December 31, 1993 and
January 1, 1993, respectively. Weighted average shares outstanding, giving
effect to the transactions discussed above as if they had occurred as of the
first day of the period presented, were 138 million and 128 million for the
fiscal years ended December 31, 1993 and January 1, 1993, respectively.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three
months or less at date of purchase to be cash equivalents.

New Statements of Financial Accounting Standards

The Company is required to adopt Statements of Financial Accounting Standards
("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits," and SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," no
later than its fiscal year ending December 30, 1994. The Company is also
required to adopt SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," no later than its fiscal year ending December 29, 1995. Application of
these statements will not have any material effect on the Company's
consolidated financial statements.

2. THE DISTRIBUTION

On October 8, 1993 (the "Distribution Date"), Marriott Corporation
distributed, through a special tax-free dividend (the "Distribution"), to
holders of Marriott Corporation's common stock (on a share-for-share basis),
approximately 116.4 million outstanding shares of common stock of an existing
wholly-owned

28
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
subsidiary, Marriott International, resulting in the division of Marriott
Corporation's operations into two separate companies. The distributed
operations included the former Marriott Corporation's lodging management,
franchising and resort timesharing operations, senior living service
operations, and the institutional food service and facilities management
business. The Company retained the former Marriott Corporation's airport and
tollroad food, beverage and merchandise concessions operations, as well as most
of its real estate properties. Effective at the Distribution Date, Marriott
Corporation changed its name to Host Marriott Corporation. As a result of the
Distribution, the Company incurred Restructuring costs of $13 million in 1993
and $21 million in 1992. The other notes to the financial statements discuss
further the agreements and events relating to the Distribution.

In connection with the Distribution, the Company completed an Exchange Offer
("Exchange Offer") pursuant to which holders of Senior Notes in an aggregate
principal amount of approximately $1.2 billion ("Old Notes") exchanged such Old
Notes for a combination of (i) cash, (ii) common stock and (iii) New Notes
("New Notes") issued by an indirect wholly-owned subsidiary of the Company,
Host Marriott Hospitality, Inc. ("Hospitality"). The coupon and maturity date
for each series of New Notes is 100 basis points higher and four years later,
respectively, than the series of Old Notes for which it was exchanged (except
that the maturity of the New Notes issued in exchange for the Series L Senior
Notes due 2012 was shortened by five years). The Company has redeemed all of
the old Series F Senior Notes that did not tender in the Exchange Offer, and
has secured the old Series I Notes equally and ratably with the New Notes
issued in the Exchange Offer. The Exchange Offer was treated as an
extinguishment of debt and, accordingly, the Company recognized an
extraordinary loss of $5 million, net of taxes of $4 million.

In connection with the Exchange Offer, the Company effected a Restructuring
(the "Restructuring"). As a result of the Restructuring, the Company's primary
asset is the capital stock of a wholly-owned subsidiary, HMH Holdings, Inc.
("Holdings"). Holdings' primary asset is the capital stock of Hospitality, and
Holdings is the borrower under a Revolving Line of Credit with Marriott
International. In the Restructuring, most of the Company's real estate and
operating assets were transferred to subsidiaries of Hospitality. Certain
assets relating to such businesses (the "retained business") were retained
directly by the Company and certain of its other subsidiaries (the "retained
business subsidiaries"). In addition, HMC Ventures, Inc. ("HMC Ventures") was
created as an unrestricted subsidiary that was capitalized subsequent to year-
end with approximately $50 million from recent asset dispositions.

The following condensed unaudited pro forma income statement data for the
Company is presented as if the Distribution, Exchange Offer and Restructuring
had occurred at the beginning of each period shown, and the unaudited pro forma
balance sheet data (the 1993 amounts represent historical data) is presented as
if the same transactions had occurred at the end of the fiscal year shown. This
pro forma data has been presented for informational purposes only. It does not
purport to be indicative of the results which may occur in the future.

<TABLE>
<CAPTION>
1993 1992
------ ------
(IN MILLIONS)
<S> <C> <C>
Revenues.................................................... $1,354 $1,198
Operating profit before corporate expenses and interest..... $ 122 $ 138
Loss before extraordinary item and accounting changes....... $ (60) $ (37)
Property and equipment...................................... $3,026 $2,689
Total assets................................................ $3,893 $3,723
Debt (including LYONs)...................................... $2,499 $2,455
Shareholders' equity........................................ $ 505 $ 363
</TABLE>

29
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
1993 1992
------ ------
(IN MILLIONS)
<S> <C> <C>
Land and land improvements.................................. $ 432 $ 776
Buildings and leasehold improvements........................ 2,707 2,550
Furniture and equipment..................................... 585 899
Construction in progress.................................... 151 133
------ ------
3,875 4,358
Less accumulated depreciation and amortization.............. (849) (897)
------ ------
$3,026 $3,461
====== ======
</TABLE>

Interest cost capitalized in connection with the Company's development and
construction activities totaled $11 million in 1993, $14 million in 1992, and
$55 million in 1991.

Most hotels developed by the Company since the early 1980s were reported as
assets held for sale prior to 1992. In early 1992, the Company decided it was
no longer appropriate to view sales of lodging properties, subject to operating
agreements, as a primary means of long-term financing. Accordingly, the Company
discontinued classification of these properties (with an aggregate carrying
value of approximately $1,150 million at that time) as assets held for sale.

Following discussions with the Staff of the Securities and Exchange
Commission, the Company agreed in the second quarter of 1993 to change its
method of determining net realizable value of assets reported as held for sale.
The Company previously determined net realizable value of such assets on a
property-by-property basis in the case of full service hotels, resorts and
suites, and on an aggregate basis, by hotel brand, in the case of Courtyard
hotels, Fairfield Inns and Residence Inns. Beginning in the second fiscal
quarter of 1993 and thereafter, under the Company's new accounting policy, net
realizable value of all assets held for sale is determined on a property-by-
property basis. The after-tax cumulative effect of this change on periods prior
to the second quarter of 1993 of $32 million is reflected as a cumulative
effect of a change in accounting for assets held for sale in the accompanying
consolidated statement of income for the fiscal year ended December 31, 1993.
The reduction in the annual depreciation charge as a result of this change did
not have a material effect on results of operations.

The following amounts have been adjusted to show the pro forma effect of this
change had the new accounting policy been applied in prior years. There is no
pro forma impact on the results for 1993. All amounts are in millions, except
per common share amounts.

<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
Amounts previously reported:
Net income..................................................... $ 85 $ 82
==== ====
Earnings per common share (fully diluted)...................... $.64 $.80
==== ====
Pro forma amounts assuming the new method of determining net re-
alizable value had been applied in prior years:
Net income..................................................... $ 85 $ 71
==== ====
Earnings per common share (fully diluted)...................... $.64 $.69
==== ====
</TABLE>

30
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the fourth quarter of 1993, the Company engaged in formal negotiations
to sell the majority of its Fairfield Inns and executed a letter of intent in
January 1994. In the fourth quarter of 1993, the Company considered these
hotels as held for sale and recorded a pre-tax charge to earnings of $11
million to write-down the carrying value of 15 such properties to their
individual estimated net realizable value. Although these individual hotels had
an indicated net realizable value below their carrying value, the proposed
transaction is expected to result in an aggregate gain.

4. INVESTMENTS IN AFFILIATES

Investments in affiliates consist of the following:

<TABLE>
<CAPTION>
OWNERSHIP
INTERESTS 1993 1992
--------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Equity investments
Times Square Hotel Company, owner of the New York
Marriott Marquis hotel.......................... See Below $ -- $ 62
Other hotel partnerships which own 48 Marriott
Hotels, 120 Courtyard hotels, 50 Residence Inns
and 50 Fairfield Inns operated by Marriott In-
ternational, Inc................................ 1%--50% 31 32
Other............................................ 20%--50% -- 57
Receivables........................................ -- 180 230
------ ------
$211 $381
====== ======
</TABLE>

Hotel properties owned by affiliates generally were acquired from the Company
in connection with limited partnership offerings. The Company or one of its
subsidiaries typically serve as a general partner of each partnership and the
hotels are operated under long-term agreements by Marriott International.
Included in the 48 Marriott hotels owned by affiliates is the Company's 49%
interest in one international hotel, in Budapest, Hungary.

At year-end, the Company owned a 50% interest in Times Square Hotel Company
("TSHCO"), the owner of the New York Marriott Marquis, and held security
interests in an additional 39% of the partnership interests as collateral for
loans made to certain partners. The partners were in default on the loans and
the Company, for accounting purposes, realized an in-substance foreclosure of
their partnership interests. In early 1994, the Company foreclosed on a 29%
interest and finalized arrangements to transfer another 7% interest to the
Company. In 1993, the Company began reporting substantially all the losses of
TSHCO and on December 31, 1993 began consolidating TSHCO. The Company's balance
sheet has been impacted by an increase in debt and other long-term liabilities
of approximately $451 million, and a corresponding increase in assets
(principally property and equipment).

Of the $451 million of long-term liabilities of TSHCO, $375 million
represents a non-recourse first mortgage loan, $27 million represents a non-
recourse second mortgage loan, and $49 million represents non-recourse deferred
ground rent and related accrued interest. The first mortgage loan matured
December 7, 1993 and a preliminary agreement has been reached for the extension
of the loan for a term of five years, which is subject to final approval of the
lenders and completion of definitive documentation. The preliminary agreement
calls for a paydown of the loan by $37 million at, or before, closing. However,
there can be no assurance that a final agreement will be reached and that the
loan will not enter into default.

In December 1993, the Company sold its 15% interest in the partnership owning
the Boston Copley Marriott Hotel for $10.4 million.

31
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In 1993, the Company sold portions of its equity interests in Residence Inns
USA partnership for $31 million. These sales reduced the Company's ownership by
the fourth quarter of 1993 to 16.6% and allowed the Company to be released from
certain debt guarantee obligations. Accordingly, the Company is no longer
consolidating the partnership and has removed the $64 million of debt and $96
million of property, plant and equipment from its consolidated balance sheet at
December 31, 1993. A gain on this transaction totalling $12 million was
deferred and is being amortized over three years.

In the fourth quarter of 1993, a Company-owned addition to a hotel owned by a
partnership in which the Company is a general partner was taken through
foreclosure by the hotel's lender. The Company's investment in the addition was
written off at that time.

The Company recorded a net gain of $4 million in 1993 as a result of the
aforementioned affiliate transactions.

The Company's equity in three affiliates exceeded its proportionate share of
net assets by $28 million at December 31, 1993. This excess is being amortized
over the estimated useful lives of the related assets.

Receivables from affiliates are reported net of reserves of $196 million at
December 31, 1993 and $266 million at January 1, 1993. Receivables from
affiliates at December 31, 1993 included a $154 million mortgage note at 9%
which amortizes through 2003, and net debt service and other advances totalling
$20 million which are generally secured by subordinated liens on the
properties. The Company has committed to advance additional amounts to
affiliates, if necessary, to cover certain debt service requirements and has
accrued $7 million in connection therewith. Such commitments are limited, in
the aggregate, to an additional $271 million at December 31, 1993. Net amounts
funded under these commitments totalled $14 million in 1993 and $22 million in
1992.

The Company's pre-tax income from affiliates includes the following:

<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Management fees, net of direct costs....................... $67 $82 $81
Ground rental income....................................... 14 19 18
Interest income............................................ 16 16 19
Equity in net losses....................................... (27) (24) (21)
--- --- ---
$70 $93 $97
=== === ===
</TABLE>

Combined summarized balance sheet information for the Company's affiliates
follows:

<TABLE>
<CAPTION>
1993 1992
------ ------
(IN MILLIONS)
<S> <C> <C>
Current assets................................................ $ 166 $ 204
Non-current assets............................................ 3,649 4,589
Current liabilities........................................... 1,005 1,464
Long-term debt, principally mortgages......................... 2,858 3,162
Other long-term liabilities................................... 729 694
</TABLE>

32
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Combined summarized operating results reported by these affiliates follow:

<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Sales............................................ $ 1,857 $ 1,900 $ 1,855
Operating expenses, including depreciation and
other noncash charges of $299 million in 1993,
and $347 million in 1992 and 1991............... (1,936) (2,082) (2,076)
------- ------- -------
$ (79) $ (182) $ (221)
======= ======= =======
</TABLE>

5. INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
1993 1992
------ -------
(IN MILLIONS)
<S> <C> <C>
Goodwill.................................................... $ 9 $ 147
Contract rights and other................................... 21 14
Marriott Management Services contracts...................... -- 366
Hotel management and franchise agreements................... -- 107
----- -------
30 634
Less accumulated amortization............................... (5) (182)
----- -------
$ 25 $ 452
===== =======
</TABLE>

The Company's intangible assets at December 31, 1993 primarily arose from
purchase business combinations and are being amortized on a straight-line basis
over periods of five to 40 years. The Marriott Management Services contracts,
hotel management and franchise agreements, and most of the goodwill were
distributed to Marriott International on the Distribution Date. Amortization
expense totaled $26 million in 1993 and $33 million in 1992 and 1991.

6. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS

<TABLE>
<CAPTION>
1993 1992
------ ------
(IN MILLIONS)
<S> <C> <C>
Other Current Assets
Current deferred income taxes............................... $ 45 $ 159
Escrow deposit.............................................. 40 --
Other....................................................... 25 90
------ ------
$ 110 $249
====== ======
Other Current Liabilities
Casualty insurance.......................................... $ 17 $ 89
Accrued interest............................................ 41 50
Other....................................................... 52 295
------ ------
$ 110 $ 434
====== ======
</TABLE>

33
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. INCOME TAXES

The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), during the first quarter of 1993.
Prior to such adoption, the Company deferred the past tax effects of timing
differences between amounts recorded for financial reporting purposes and
taxable income. SFAS 109 requires the recognition of deferred tax assets and
liabilities equal to the expected future tax consequences of temporary
differences.

The $30 million cumulative credit resulting from this change in accounting
principle has been reflected as a cumulative effect of a change in accounting
for income taxes in the consolidated statements of income. Adjustments to the
carrying values of certain assets and liabilities acquired in prior purchase
business combinations, required under SFAS 109, did not affect the Company's
income before income taxes for 1993.

Total deferred tax assets and liabilities at December 31, 1993 were as
follows (in millions):

<TABLE>
<S> <C>
Gross deferred tax assets............................................ $ 257
Less: Valuation allowance............................................ (22)
-----
Net deferred tax assets.............................................. 235
Gross deferred tax liabilities....................................... (677)
-----
Net deferred income tax liability.................................... $(442)
=====
</TABLE>

The valuation allowance required under SFAS 109 primarily represents prior
purchase business combination tax credits ($17 million) and net operating loss
carryforwards (NOLs) ($4 million), the benefits of which were not previously
recorded, but which have been recorded under SFAS 109 as deferred tax assets
with an offsetting valuation allowance. Any subsequent reduction in the
valuation allowance related to the prior purchase business combination tax
credits and NOLs will be recorded as a reduction of income tax expense. There
was no change in the valuation allowance during 1993.

The tax effect of each type of temporary difference and carryforward that
gives rise to a significant portion of deferred tax assets and liabilities as
of December 31, 1993 follows (in millions):

<TABLE>
<S> <C>
Deferred tax gain.................................................... $ (90)
Reserves............................................................. 150
Tax credit carryforwards............................................. 50
Property and equipment............................................... (199)
Investments in affiliates............................................ (279)
Safe harbor lease investments........................................ (109)
Other, net (including valuation allowance)........................... 35
-----
Net deferred income taxes............................................ $(442)
=====
</TABLE>

34
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The provision for income taxes consists of:

<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Current--Federal........................................... $57 $39 $(2)
--State............................................. 30 3 8
--Foreign........................................... 11 20 10
---- ---- ----
98 62 16
---- ---- ----
Deferred--Federal.......................................... (16) (6) 38
--State............................................ (10) 10 4
--Foreign.......................................... -- (1) 5
---- ---- ----
(26) 3 47
---- ---- ----
$ 72 $ 65 $ 63
==== ==== ====
</TABLE>

Prior to 1993, deferred income taxes resulted from timing differences in the
recognition of income and expenses for financial and tax reporting purposes.
Tax effects of these differences, as reported under the Company's previous
method of accounting for income taxes, consist of the following:

<TABLE>
<CAPTION>
1992 1991
------ ------
(IN MILLIONS)
<S> <C> <C>
Depreciation................................................ $ (15) $ (3)
Capitalized interest........................................ 2 13
Partnership interests....................................... 41 45
Purchased tax lease benefits................................ (4) (2)
Asset dispositions.......................................... (31) 38
Capitalized operations...................................... -- (3)
Casualty claims............................................. (17) (33)
Employee benefit plans...................................... (2) (8)
Restructuring costs......................................... 1 16
Other, net.................................................. 28 (16)
------ ------
$ 3 $ 47
====== ======
</TABLE>

At December 31, 1993, the Company has net operating loss carryforwards of $12
million which expire in 1997 through 2001. Additionally, the Company has
approximately $41 million of alternative minimum tax credit carryforwards which
do not expire, and $9 million of other tax credits which expire through 2007.

A reconciliation of the U.S. statutory tax rate to the Company's effective
income tax rate follows:

<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Statutory federal tax rate................................. 35.0% 34.0% 34.0%
State income taxes, net of Federal tax benefit............. 10.1 6.4 5.7
Goodwill amortization...................................... 1.4 1.8 1.9
Tax credits................................................ (2.9) (2.3) (3.1)
Additional tax on foreign source income.................... 3.2 -- 2.2
Enacted tax rate increase.................................. 5.1 -- --
Other, net................................................. 4.1 3.4 2.7
---- ---- ----
Effective income tax rate................................. 56.0% 43.3% 43.4%
==== ==== ====
</TABLE>

As part of the Distribution, the Company and Marriott International entered
into a tax sharing agreement which reflects each party's rights and obligations
with respect to deficiencies and refunds, if any, of federal, state or other
taxes relating to the businesses of the Company and Marriott International
prior to the Distribution.

35
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash paid for income taxes, net of refunds received, was $64 million in 1993,
$93 million in 1992, and $36 million in 1991.

8. LEASES

Future minimum annual rental commitments for all non-cancelable leases are as
follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
----------- ------- ---------
(IN MILLIONS)
<S> <C> <C>
1994..................................................... $ 2 $ 129
1995..................................................... 2 96
1996..................................................... 2 91
1997..................................................... 2 82
1998..................................................... 1 79
Thereafter............................................... 13 524
---- ------
Total minimum lease payments............................... 22 $1,001
======
Less amount representing interest.......................... (9)
----
Present value of minimum lease payments.................... $ 13
====
</TABLE>

Certain of the leases included above relate to facilities used in the
discontinued restaurant business. Most leases contain one or more renewal
options, generally for five or 10-year periods. Future rentals on leases have
not been reduced by aggregate minimum sublease rentals of $194 million payable
to the Company under non-cancelable subleases.

The Company remains contingently liable at December 31, 1993 on certain
leases relating to divested properties. Such contingent liabilities aggregated
$195 million. However, management considers the likelihood of any substantial
funding related to these leases to be remote.

Rent expense consists of:

<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Minimum rentals on operating leases.......................... $199 $195 $166
Additional rentals based on sales............................ 87 88 80
Payments to owners of managed and leased hotels based
primarily on profits........................................ 476 607 596
---- ---- ----
$762 $890 $842
==== ==== ====
</TABLE>

The Company leases its 14 owned senior living communities to Marriott
International for initial terms of 20 years, with renewal options covering an
additional 20 years. The leases require aggregate fixed rental payments of $28
million per year, with all of the communities open, and additional rentals
equal to 4.5% of certain annual revenues from operation of the communities in
excess of $72 million on a combined basis beginning in 1994.

36
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. LONG-TERM DEBT

Debt consists of the following:
<TABLE>
<CAPTION>
1993 1992
------- -------
(IN MILLIONS)
<S> <C> <C>
New Senior Notes (New Notes), with an average rate of
10.5% at December 31, 1993 maturing through 2011......... $ 1,234 $ --
Old Senior Notes (Old Notes), with an average rate of 9.0%
at December 31, 1993 maturing through 2012............... 143 1,868
Notes secured by $1,174 million of real estate assets,
with an average rate of 8.4% at December 31, 1993 matur-
ing through 2012......................................... 799 485
Revolving Line of Credit, variable rate of 7.5% at Decem-
ber 31, 1993 due 2008.................................... 193 --
Other revolving loans..................................... -- 175
Other notes, with an average rate of 3.8% at December 31,
1993 maturing through 2017............................... 97 188
Capital lease obligations................................. 13 37
------- -------
2,479 2,753
Less current portion...................................... (400) (21)
------- -------
$ 2,079 $ 2,732
======= =======
</TABLE>

In connection with the Distribution, the Company entered into the Revolving
Line of Credit with Marriott International. Pursuant to the Revolving Line of
Credit, Holdings may borrow up to $630 million for certain permitted uses from
Marriott International through 2007, with all unpaid advances due August 31,
2008. Borrowings under the Revolving Line of Credit bear interest at LIBOR plus
4%, with any interest in excess of 10.5% per annum deferred. An annual fee of
one percent is charged on the unused portion of the commitment. The Revolving
Line of Credit is guaranteed by the Company and certain subsidiaries.

The Revolving Line of Credit imposes certain restrictions on the ability of
the Company and certain of its subsidiaries to incur additional debt, impose
liens or mortgages on their properties (other than various types of liens
arising in the ordinary course of business), extend new guarantees (other than
replacement guarantees), pay dividends, repurchase their common stock, make
investments and incur capital expenditures.

Hospitality is the issuer of the New Notes secured by a pledge of the stock
of, and guaranteed by, Holdings, Hospitality and certain of its subsidiaries.
The indenture governing these notes contains covenants that, among other
things, limit the ability of Hospitality to pay dividends and make other
distributions and restricted payments. It also limits the ability of
Hospitality and its subsidiaries to incur additional debt, create additional
liens on their assets, engage in certain transactions with related parties,
enter into agreements which restrict a subsidiary in paying dividends or making
certain other payments and limit the activities and businesses of Holdings. The
net assets of Hospitality at December 31, 1993 were $655 million, substantially
all of which are restricted.

The Company has available up to $125 million of first mortgage financing from
Marriott International for approximately 60% of the construction and
development costs of the Philadelphia Convention Center Hotel. As of December
31, 1993, the outstanding loan balance was approximately $40 million. The loan
bears interest at LIBOR plus 3% for the period ending two years after
construction. For the following 10 years, the loan bears interest at 10% per
annum with an additional 2% per annum deferred.

During 1993, the Company defeased $100 million of Old Series G Senior Notes
due in February 1994 for an amount substantially equal to its net carrying
value.

37
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

At December 31, 1993, the Company was party to $500 million aggregate
notional amount of interest rate exchange agreements. Under these agreements,
the Company collects interest at fixed rates (average rate of 7.6% at December
31, 1993), and pays interest based on specified floating interest rates
(average rate of 3.5% at December 31, 1993) through 1997.

Aggregate debt maturities at December 31, 1993, excluding capital lease
obligations, are (in millions):

<TABLE>
<S> <C>
1994................................................................. $ 400*
1995................................................................. 134
1996................................................................. 119
1997................................................................. 36
1998................................................................. 2
Thereafter........................................................... 1,775
------
$2,466
======
</TABLE>
- --------
* Includes the outstanding balance of the TSHCO first mortgage loan pending
closing of the loan extension (see Note 4).

Cash paid for interest, net of amounts capitalized, was $214 million in 1993,
$209 million in 1992, and $224 million in 1991.

Deferred financing costs, which are included in other assets, amounted to $42
million and $32 million at December 31, 1993 and January 1, 1993, respectively.

10. CONVERTIBLE SUBORDINATED DEBT

In June 1991, the Company issued $675 million (principal amount at maturity)
of zero coupon convertible subordinated debt in the form of Liquid Yield Option
Notes (LYONs) due 2006. Net proceeds from the LYONs issuance approximated $200
million, representing a yield to maturity of 8.25% per annum.

Pursuant to the LYONs Allocation Agreement which was executed in connection
with the Distribution, Marriott International assumed 90% and the Company
retained 10% of the debt obligations evidenced by the LYONs. The LYONs were
convertible into 13.277 shares of the Company common stock and 13.277 shares of
Marriott International common stock for each $1,000 principal amount of LYONs.

On December 13, 1993, the Company initiated a call of the LYONs to be
redeemed on January 25, 1994. Substantially all of the LYONs' holders elected
to convert their LYONs into the Company's common stock and Marriott
International common stock prior to the redemption. LYONs were converted into
8.3 million shares of the Company's common stock through December 31, 1993.
Subsequent to year-end, substantially all of the remaining LYONs were converted
into .7 million additional shares of the Company's common stock.

11. SHAREHOLDERS' EQUITY

Three hundred million shares of common stock, with a par value of $1 per
share, are authorized, of which 129.7 million and 105.0 million were issued as
of December 31, 1993 and January 1, 1993, respectively. One million shares of
preferred stock, without par value, are authorized, of which 286 (equivalent to
286,000 depositary shares) were issued as of December 31, 1993. Additional
paid-in capital at December 31, 1993 includes deferred compensation credits of
$10 million.

38
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In December 1991, the Company issued four million non-voting depositary
shares, each representing 1/1,000th share of 8.25% Series A cumulative
convertible preferred stock (no par value) for net proceeds totaling $195
million. Each depositary share was convertible at any time at the option of the
holder into approximately 2.87 shares of common stock. In September 1993,
approximately 92% or 3.7 million depositary shares were converted into 10.6
million shares of Company common stock. As a result, holders of the common
shares issued upon conversion participated in the Distribution. On September
30, 1993, the Company's Board of Directors adjusted the conversion rate of the
Company's remaining depositary shares to reflect the Distribution. Each
depositary share is currently convertible at any time at the option of the
holder into 19.16 shares of common stock of the Company. Dividends, if
declared, are payable quarterly. The Company intends to pay dividends only to
the extent of earnings, and the Company did not pay a dividend in the fourth
quarter of 1993. Beginning on January 15, 1996, the Series A preferred stock is
redeemable, in whole or in part, at the Company's option, at $52.48 per
depositary share, declining ratably to $50 per depositary share in 2002, plus
accrued and unpaid dividends to the redemption date.

In February 1989, the Board of Directors adopted a shareholder rights plan
under which a dividend of one preferred stock purchase right was distributed
for each outstanding share of the Company's common stock to shareholders of
record on February 20, 1989. Each right entitles the holder to buy 1/1,000th of
a share of a newly issued series of junior participating preferred stock of the
Company at an exercise price of $150 per share. The rights will be exercisable
10 days after a person or group acquires beneficial ownership of 20% or more of
the Company's common stock, or begins a tender or Exchange Offer for 30% or
more of the Company's common stock. Shares owned by a person or group on
February 3, 1989 and held continuously thereafter are exempt for purposes of
determining beneficial ownership under the rights plan. The rights are
nonvoting and will expire on February 2, 1999, unless exercised or previously
redeemed by the Company for $.01 each. If the Company is involved in a merger
or certain other business combinations not approved by the Board of Directors,
each right entitles its holder, other than the acquiring person or group, to
purchase common stock of either the Company or the acquirer having a value of
twice the exercise price of the right.

In connection with the class action settlement, the Company has agreed to
issue warrants to purchase up to 7.7 million shares of the Company's common
stock (see Note 17).

12. EMPLOYEE STOCK PLANS

Total shares of common stock reserved under employee stock plans at December
31, 1993 are:

<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Comprehensive plan............................................. 22.9
Employee stock purchase plan................................... 3.8
----
26.7
====
</TABLE>

Under the comprehensive stock plan (the "comprehensive plan"), the Company
may award to participating employees (i) options to purchase the Company's
common stock, (ii) deferred shares of the Company's common stock and (iii)
restricted shares of the Company's common stock. In addition, the Company has
an employee stock purchase plan (the "stock purchase plan"). The principal
terms and conditions of the two plans are summarized on the following page.

Employee stock options may be granted to officers and key employees at not
less than fair market value on the date of grant. Options granted before May
11, 1990 expire 10 years after the date of grant and nonqualified options
granted on or after May 11, 1990 expire up to 15 years after the date of grant.
Most options vest ratably over each of the first four years. In connection with
the Distribution, the Company issued

39
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
an equivalent number of Marriott International options and adjusted the
exercise prices of its options then outstanding based on the relative trading
prices of the common stock of the two companies. Therefore, the options
outstanding at December 31, 1993 reflect these revised exercise prices. Option
activity is summarized as follows:

<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
------------- ------------
(IN MILLIONS)
<S> <C> <C>
Balance at December 28, 1990...................... 12.9 $7-39
Granted........................................... 3.3 16
Exercised......................................... (.5) 7-20
Canceled.......................................... (1.2) 9-39
----
Balance at January 3, 1992........................ 14.5 7-39
Granted........................................... 3.2 15-19
Exercised......................................... (.8) 7-18
Canceled.......................................... (1.2) 8-37
----
Balance at January 1, 1993........................ 15.7 8-39
Granted........................................... 1.2 8-26
Exercised......................................... (2.3) 2-29
Canceled.......................................... (1.0) 2-39
----
Balance at December 31, 1993...................... 13.6 2- 8
Exercisable at December 31, 1993.................. 7.6
====
</TABLE>

Deferred stock incentive plan shares granted to officers and key employees
after 1990 generally vest over 10 years in annual installments commencing one
year after the date of grant. Certain employees may elect to defer payments
until termination or retirement. Deferred stock incentive plan shares granted
in 1990 and prior years generally vest in annual installments commencing one
year after the date of grant and continuing until retirement. Employees also
could elect to forfeit one-fourth of their deferred stock incentive plan award
in exchange for accelerated vesting over a 10-year period. The Company accrues
compensation expense for the fair market value of the shares on the date of
grant, less estimated forfeitures. In 1993, 1992 and 1991, 489,000, 671,000 and
1,180,000 shares were granted, respectively, under this plan.

In 1993, restricted stock plan shares under the comprehensive plan were
issued to officers and key executives and will be distributed over the next
three to five years in annual installments based on continued employment and
the attainment of certain performance criteria. The Company recognizes
compensation expense over the restriction period equal to the fair market value
of the shares on the date of issuance adjusted for forfeitures, and where
appropriate, the level of attainment of performance criteria and fluctuations
in the fair market value of the stock. Prior to 1993, restricted stock shares
were issued to officers and key employees and are distributed over 10 years in
annual installments, subject to certain prescribed conditions including
continued employment. The Company recognizes compensation expense on these pre-
1993 awards over the restriction period equal to the fair market value of the
shares on the date of issuance. The Company issued 3,537,000, 32,000 and 40,000
shares under these plans in 1993, 1992 and 1991, respectively.

Under the terms of the stock purchase plan, eligible employees may purchase
common stock through payroll deductions at the lower of market value at the
beginning or end of the plan year.

40
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

13. PROFIT SHARING PLANS AND POSTEMPLOYMENT BENEFIT PLANS

The Company contributes to profit sharing and other defined contribution
plans for the benefit of employees meeting certain eligibility requirements and
electing participation in the plans. Company contributions are determined
annually by the Board of Directors, and totaled $20 million for 1993, $25
million for 1992, and $24 million for 1991.

The Company provides medical benefits to a limited number of retired
employees meeting restrictive eligibility requirements. The Company's adoption
of Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" during 1992 did not have any
material effect.

14. HOST/TRAVEL PLAZAS RESTRUCTURING

In November 1993, the Company's Host/Travel Plazas Business announced a plan
to redesign its operations structure to improve the effectiveness and
competitiveness of the business. Implementation of the new structure is
expected to be completed in the first quarter of 1994. The Company will incur
costs of approximately $7 million, principally for severance, relocation, and
the closing of certain offices. The Company took a restructuring charge in the
fourth quarter of 1993 to reflect these costs.

15. DISPOSITIONS

During the fourth quarter of 1993, the Company realized proceeds of
approximately $42 million on the disposition of two preferred stock
investments.

In February 1992, the Company sold 13 Courtyard hotels for $146 million in a
sale/leaseback transaction. The Company also sold seven full service hotels in
1992, for total proceeds of $200 million. Pre-tax gains on these full service
hotel sales of approximately $15 million were offset by adjustments to
previously established reserves, resulting in no net gain or loss.

In 1992 and 1991, the Company sold with recourse certain timeshare notes
receivable taken by its vacation resorts division in connection with the sale
of timesharing units. Net proceeds from these transactions totaled $34 million
in 1992 and $73 million in 1991.

During 1991, the Company sold four Courtyard hotels to the Marriott
Corporation Employees' Profit Sharing, Retirement and Savings Plan and Trust
for total proceeds of $33 million. As a result of the Distribution, Marriott
International currently operates these hotels under a long-term agreement.

In December 1989, the Company announced a decision to sell its fast food and
family restaurant operations. A pre-tax provision of $61 million was recorded
at that time to reduce restaurant assets to net realizable value, and to
provide for other costs related to the discontinuance of these businesses. In
April 1990, the Company sold its Roy Rogers fast food restaurant division to
Hardee's Food Systems, Inc. for $365 million in cash, plus the assumption of
certain liabilities by the buyer. Sale proceeds were reported as a reduction of
the Company's remaining investment in restaurant properties held for sale. The
Company sold 10 family restaurants in 1993, 203 in 1992 and 138 in 1991 for
cash proceeds of $4 million, $23 million and $43 million, respectively.

16. RELATIONSHIP WITH MARRIOTT INTERNATIONAL

In connection with the Distribution, the Company and Marriott International
have entered into various agreements which provide, among other things, that
(i) lodging properties owned by the Company as of the Distribution Date will be
managed by Marriott International under agreements with initial terms of 20
years and which are subject to renewal at the option of Marriott International
for up to three additional 10-year terms, (ii) the Company will lease its owned
senior living communities to Marriott International (see Note

41
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8), (iii) Marriott International will guarantee the Company's performance in
connection with certain loans and other obligations, (iv) the Company can
borrow up to $630 million for certain permitted uses under the Revolving Line
of Credit and up to $125 million of first mortgage financing for construction
of the Philadelphia Convention Center Hotel (see Note 9) and (v) Marriott
International assumes 90% of the LYONs obligation (see Note 10).

From the Distribution Date through December 31, 1993, the Company paid to
Marriott International $5 million in lodging management fees, $5 million in
interest and commitment fees under the Revolving Line of Credit and
Philadelphia Convention Center Hotel mortgage, and $3 million under the various
transitional services agreements, and earned $5 million under the senior living
community leases during 1993. The Company purchased $14 million of food and
supplies in 1993, after the Distribution Date, from affiliates of Marriott
International.

Additionally, Marriott International has the right to purchase up to 20% of
the voting stock of the Company if certain events involving a change in control
of the Company occur. Marriott International also has the right of first offer
if the Company decides to sell the Host/Travel Plazas Business.

17. LITIGATION

In March 1993, the Company reached agreement in principle (the "class action
settlement") with certain holders and recent purchasers of the Company's Old
Notes, who had either instituted or threatened litigation in response to the
Distribution. In August 1993, the United States District Court approved the
settlement with the members of certain classes of the Company's holders and
recent purchasers of the Senior Notes.

A group of bond holders, purported to have at one time owned approximately
$120 million of Senior Notes, and another group purporting to hold
approximately $7.5 million of Senior Notes, have opted out of the settlement.
The two groups allege that laws had been violated in connection with the sale
by the Company of certain series of its Senior Notes and debentures and claim
damages of approximately $30 million. The Company believes the claims are
without merit and that the ultimate outcome of such litigation pursued by those
who opted out of the settlement will not have a material effect on the
financial condition or results of operations of the Company.

The class action settlement included a settlement for the benefit of certain
persons who sold Senior Notes of the Company after October 5, 1992, the date on
which the planned Distribution was publicly announced and, therefore, were not
in position to participate in the Exchange Offer. In connection with this
settlement, the Company has agreed to issue warrants to purchase up to 7.7
million shares of Host Marriott common stock, subject to acceptance by 100% of
the class of claimants. Such warrants would be exercisable for five years, at
$8.00 per share during the first three years and $10.00 per share during the
last two years.

18. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair values of certain financial assets and liabilities and other
financial instruments are shown below.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1993 AS OF JANUARY 1, 1993
------------------------ ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------------------ ----------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Receivables from affiliates. $ 185 $ 183 $ 263 $ 185
Notes receivable and other.. 150 232 316 423
FINANCIAL LIABILITIES
Debt........................ 2,466 2,470 2,701 2,628
OTHER FINANCIAL INSTRUMENTS
Affiliate debt service com-
mitments................... 271 5 328 5
Interest rate swap agree-
ments...................... 500 33 627 24
</TABLE>

42
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Receivables from affiliates, notes and other financial assets are valued
based on the expected future cash flows discounted at risk adjusted rates.
Valuations for secured debt are determined based on the expected future
payments discounted at risk adjusted rates. The fair values of current assets
and current liabilities, the Revolving Line of Credit and other notes are
assumed to be equal to their carrying value. Senior Notes are valued based on
quoted market prices.

The fair value of affiliate debt service commitments is based on the net
expected future payments discounted at risk adjusted rates. A value was not
assigned to commitments with no expected fundings. The carrying amount
represents the Company's remaining unfunded commitments at December 31, 1993
and January 1, 1993.

The fair value of interest rate swap agreements is based on the estimated
amount the Company would receive to terminate the swap agreements. The carrying
amount represents the aggregate notional amount of the agreements at December
31, 1993 and January 1, 1993.

19. BUSINESS SEGMENTS

<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Identifiable assets
Lodging.............................................. $2,588 $3,536 $3,952
Contract Services.................................... 839 1,886 1,839
Corporate............................................ 466 880 592
------ ------ ------
3,893 6,302 6,383
Discontinued operations.............................. -- 44 126
------ ------ ------
$3,893 $6,346 $6,509
====== ====== ======
Capital expenditures
Lodging.............................................. $ 129 $ 86 $ 256
Contract Services.................................... 99 118 159
Corporate............................................ 7 4 7
------ ------ ------
235 208 422
Discontinued operations.............................. -- 2 5
------ ------ ------
$ 235 $ 210 $ 427
====== ====== ======
Depreciation and amortization
Lodging.............................................. $ 114 $ 131 $ 130
Contract Services.................................... 135 139 125
Corporate............................................ 16 14 17
------ ------ ------
$ 265 $ 284 $ 272
====== ====== ======
</TABLE>

The Lodging segment is, subsequent to the Distribution, comprised of the
ownership business which includes the owned properties of Marriott Hotels,
Resorts and Suites, Courtyard hotels, Residence Inns and Fairfield Inns. Prior
to the Distribution, this segment also included the lodging management and
vacation ownership resort operations which were distributed to Marriott
International.

The Contract Services segment now consists of food, beverage and merchandise
operations at airports, on tollroads and at stadiums, arenas and other
attractions and owned senior living communities. The business units providing
food and facilities management services, operation of senior living
communities, and distribution services of food and related products were also
distributed to Marriott International.

43
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The results of operations of the Company's business segments are reported in
the consolidated statement of income. Segment operating expenses include
selling, general and administrative expenses directly related to the operations
of the businesses, aggregating $61 million in 1993 (excluding $316 million
related to Marriott International), $457 million in 1992 and 1991. Gains and
losses resulting from the disposition of assets identified with each segment
are included in segment operating profit.

The following table presents detail of lodging segment revenues and expenses:

<TABLE>
<CAPTION>
1993 (1) 1992 1991
-------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Rooms............................................... $2,264 $2,843 $2,699
Food and Beverage................................... 914 1,190 1,194
Other............................................... 399 518 486
------ ------ ------
$3,577 $4,551 $4,379
====== ====== ======
Expenses
Rooms............................................... $ 535 $ 676 $ 628
Food and Beverage................................... 709 917 915
Other............................................... 2,052 2,620 2,511
------ ------ ------
$3,296 $4,213 $4,054
====== ====== ======
</TABLE>
- --------
(1) Includes revenues and expenses for the 1993 period prior to the
Distribution Date (40 weeks).

20. QUARTERLY FINANCIAL DATA

<TABLE>
<CAPTION>
1993
---------------------------------------------------------------
FIRST SECOND THIRD FOURTH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
- ---------------------------------------------------------------------------------------------
(UNAUDITED, IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales................... $ 395 $ 367 $ 575 $ 454 $ 1,791
Operating profit before
profit of distributed
operations, corporate
expenses and interest.. 26 40 77 13 156
Income (loss) before ex-
traordinary item and
cumulative effect of
accounting changes..... 19 36 27 (25) 57
Net income (loss)....... 17 36 27 (30) 50
Dividends on preferred
stock.................. (4) (4) -- -- (8)
Net income (loss) avail-
able for common stock.. 13 32 27 (30) 42
Income (loss) per common
share:
Income (loss) before
extraordinary item
and cumulative effect
of accounting
changes.............. .14 .29 .25 (.21) .40
Net income (loss)..... .12 .29 .25 (.25) .35
<CAPTION>
1992
---------------------------------------------------------------
FIRST SECOND THIRD FOURTH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales................... $ 1,953 $ 2,036 $ 1,948 $ 2,785 $ 8,722
Operating profit before
corporate expenses and
interest............... 95 125 124 152 496
Net income.............. 11 29 26 19 85
Dividends on preferred
stock.................. (4) (4) (4) (5) (17)
Net income available for
common stock........... 7 25 22 14 68
Net income per common
share.................. .07 .24 .21 .13 .64
</TABLE>

44
<PAGE>

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The first three quarters consist of 12 weeks each, and the fourth quarter
includes 16 weeks.

Fourth quarter 1993 results include pre-tax costs of $13 million and fourth
quarter 1992 results include pre-tax costs of $21 million related to the
Distribution (see Note 2). Also, fourth quarter 1993 results include a charge
of $11 million related to a write-down of lodging properties (see Note 3), a
charge of $7 million related to the Host/Travel Plazas Business restructuring
(see Note 14) and the extraordinary loss of $5 million (net-of-tax) on the
extinguishment of debt (see Note 2). As a result of the Distribution, Marriott
International's operations have been substantially eliminated from the fourth
quarter 1993 data.

The sum of the earnings (loss) per common share for the four quarters in 1993
and 1992 differs from the annual earnings per common share due to the required
method of computing the weighted average number of shares in the respective
periods.

The first and second quarter 1993 income and per share data have been
restated to reflect the cumulative effect of the change in accounting for
assets held for sale as if it had occurred in the first quarter of 1993 (see
Note 3). First quarter 1993 earnings per common share was also impacted by the
Company's accounting change for income taxes (see Note 7).

21. SUBSEQUENT EVENTS

On January 27, 1994 the Company completed the issuance of 20.1 million shares
of common stock for net proceeds of $231 million. HMC Acquisitions, Inc. ("HMC
Acquisitions"), a newly-formed subsidiary, was capitalized with a portion of
the proceeds from the common stock offering. The amount used to capitalize HMC
Acquisitions and any earnings therefrom will be available for investment on an
unrestricted basis. HMC Acquisitions is a guarantor under the Revolving Line of
Credit.

45
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

The information called for by Items 10--13 is incorporated by reference from
the Host Marriott Corporation 1994 Annual Meeting of the Shareholders--Notice
and Proxy Statement--(to be filed pursuant to Regulation 14A not later than 120
days after the close of fiscal year).

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT

(1) FINANCIAL STATEMENTS

All financial statements of the registrant as set forth under Item 8 of
this Report on Form 10-K.

(2) FINANCIAL STATEMENT SCHEDULES

The following financial information is filed herewith on the pages
indicated.

Financial Schedules:

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
III. Condensed Financial Information of Registrant........... S-1 to S-5
V. Property and Equipment.................................. S-6
VI. Accumulated Depreciation and Amortization of Property
and Equipment........................................... S-7
X. Supplementary Income Statement Information.............. S-8
</TABLE>

All other schedules are omitted because they are not applicable or the
required information is included in the consolidated financial statements or
notes thereto.

46
<PAGE>

(3) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
--------- -----------
<C> <S>
2.(i) Memorandum of Understanding between Marriott Corporation and
Certain Bondholders dated as of March 10, 1993 (incorporated by
reference to Current Report on Form 8-K dated March 17, 1993).
2.(ii) Stipulation and Agreement of Compromise and Settlement
(incorporated by reference to Registration Statement No. 33-
62444).
3.1 Restated Certificate of Incorporation of Host Marriott
Corporation (incorporated by reference to Current Report on Form
8-K dated October 23, 1993).
3.2 Amended Host Marriott Corporation Bylaws (incorporated by
reference to Current Report on Form 8-K dated October 23, 1993).
4.1(i) Indenture between Marriott Corporation and The First National
Bank of Chicago dated as of March 1, 1985 (incorporated by
reference to Registration Statement No. 2-97034).
4.1(ii) Second Supplemental Indenture between Marriott Corporation and
the First National Bank of Chicago dated as of February 1, 1986
(incorporated by reference to Current Report on Form 8-K dated
February 4, 1986).
4.1(iii) Third Supplemental Indenture between Marriott Corporation and
The First National Bank of Chicago dated as of December 1, 1986
(incorporated by reference to Current Report on Form 8-K dated
December 10, 1986).
4.1(iv) Fourth Supplemental Indenture between Marriott Corporation and
The First National Bank of Chicago dated as of May 1, 1987
(incorporated by reference to Current Report on Form 8-K dated
May 7, 1987).
4.1(v) Fifth Supplemental Indenture between Marriott Corporation and
The First National Bank of Chicago dated as of June 12, 1987
(incorporated by reference to Current Report on Form 8-K dated
June 18, 1987).
4.1(vi) Sixth Supplemental Indenture between Marriott Corporation and
The First National Bank of Chicago dated as of October 23, 1987
(incorporated by reference to Current Report on Form 8-K dated
October 30, 1987).
4.1(vii) Seventh Supplemental Indenture between Marriott Corporation and
The First National Bank of Chicago dated as of January 15, 1988
(incorporated by reference to Current Report on Form 8-K dated
January 26, 1988).
4.1(viii) Eighth Supplemental Indenture between Marriott Corporation and
The First National Bank of Chicago dated as of February 1, 1988
(incorporated by reference to Current Report on Form 8-K dated
February 8, 1988).
4.1(ix) Ninth Supplemental Indenture between Marriott Corporation and
The First National Bank of Chicago dated as of May 1, 1988
(incorporated by reference to Current Report on Form 8-K dated
May 9, 1988).
4.1(x) Tenth Supplemental Indenture between Marriott Corporation and
The First National Bank of Chicago dated as of May 2, 1988
(incorporated by reference to Current Report on Form 8-K dated
May 24, 1988).
4.1(xi) Eleventh Supplemental Indenture between Marriott Corporation and
The First National Bank of Chicago dated as of August 27, 1990
(incorporated by reference to Current Report on Form 8-K dated
September 4, 1990).
4.1(xii) Twelfth Supplemental Indenture between Marriott Corporation and
The First National Bank of Chicago dated as of July 11, 1991
(incorporated by reference to Current Report on Form 8-K dated
July 19, 1991).
</TABLE>

47
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
--------- -----------
<C> <S>
4.1(xiii) Thirteenth Supplemental Indenture between Marriott Corporation
and The First National Bank of Chicago dated as of April 22,
1992 (incorporated by reference to Current Report on Form 8-K
dated April 29, 1992).
4.1(xiv) Fourteenth Supplemental Indenture between Marriott Corporation
and The First National Bank of Chicago dated as of April 28,
1992 (incorporated by reference to Current Report on Form 8-K
dated May 5, 1992).
4.1(xv) Fifteenth Supplemental Indenture between Marriott Corporation
and Bank One, Columbus, NA. dated as of October 8, 1993
(incorporated by reference to Current Report on Form 8-K dated
October 23, 1993).
4.2(i) Indenture between Marriott Corporation and Chemical Bank dated
as of June 5, 1991 (incorporated by reference to Registration
Statement No. 33-39858).
4.2(ii) First Supplemental Indenture dated as of September 30, 1993
among Marriott Corporation, Chemical Bank and Marriott
International, Inc. (incorporated by reference to Current Report
on Form 8-K dated October 23, 1993).
4.3(i) Marriott Corporation Certificate of Designation of the Series A
Cumulative Convertible Preferred Stock dated December 17, 1991
(incorporated by reference to Current Report on Form 8-K dated
December 23, 1991).
4.3(ii) Marriott Corporation Certificate of Designation, Preferences and
Rights of Series A Junior Participating Preferred Stock
(incorporated by reference to Registration Statement No.
33-39858).
4.4(i) Rights Agreement between Marriott Corporation and the Bank of
New York as Rights Agent dated February 3, 1989 (incorporated by
reference to Registration Statement No. 33-62444).
4.4(ii) First Amendment to Rights Agreement between Marriott Corporation
and Bank of New York as Rights Agent dated as of October 8, 1993
(incorporated by reference to Registration Statement No. 33-
51707).
4.5 Indenture by and among Host Marriott Hospitality, Inc. as
Issuer, HMH Holdings, Inc., as Parent Guarantor, HMH Properties,
Inc., Host Marriott Travel Plazas, Inc., Gladieux Corporation,
Host International, Inc., Marriott Family Restaurants, Inc.,
Marriott Financial Services, Inc., HMH Courtyard Properties,
Inc., and Marriott Retirement Communities, Inc. and certain of
their Subsidiaries as Subsidiary Guarantors and Marine Midland
Bank, N.A., as Trustee, with respect to the New Notes (including
the Form of New Notes) (incorporated by reference to Current
Report on Form 8-K dated October 23, 1993).
10.1 Marriott Corporation Executive Deferred Compensation Plan dated
as of December 6, 1990 (incorporated by reference to Exhibit
19(i) of the Annual Report on Form 10-K for the fiscal year
ended December 28, 1991).
10.2 Host Marriott Corporation 1993 Comprehensive Stock Incentive
Plan effective as of October 8, 1993 (incorporated by reference
to Current Report on Form 8-K dated October 23, 1993).
10.3 Distribution Agreement dated as of September 15, 1993 between
Marriott Corporation and Marriott International, Inc.
(incorporated by reference to Current Report on Form 8-K dated
October 23, 1993).
10.4 Tax Sharing Agreement dated as of October 5, 1993 by and between
Marriott Corporation and Marriott International, Inc.
(incorporated by reference to Current Report on Form 8-K dated
October 23, 1993).
</TABLE>

48
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
--------- -----------
<C> <S>
10.5 Assignment and License Agreement dated as of October 8, 1993 by
and between Marriott Corporation and Marriott International,
Inc. (incorporated by reference to Current Report on Form 8-K
dated October 23, 1993).
10.6 Corporate Services Agreement dated as of October 8, 1993 by and
between Marriott Corporation and Marriott International, Inc.
(incorporated by reference to Current Report on Form 8-K dated
October 23, 1993).
10.7 Procurement Services Agreement dated as of October 8, 1993 by
and between Marriott Corporation and Marriott International,
Inc. (incorporated by reference to Current Report on Form 8-K
dated October 23, 1993).
10.8 Supply Agreement dated as of October 8, 1993 by and between
Marriott Corporation and Marriott International, Inc.
(incorporated by reference to Current Report on Form 8-K dated
October 23, 1993).
10.9 Casualty Claims Administration Agreement dated as of October 8,
1993 by and between Marriott Corporation and Marriott
International, Inc. (incorporated by reference to Current
Report on Form 8-K dated October 23, 1993).
10.10 Employee Benefits Administration Agreement dated as of October
8, 1993 by and between Marriott Corporation and Marriott
International, Inc. (incorporated by reference to Current
Report on Form 8-K dated October 23, 1993).
10.11 Tax Administration Agreement dated as of October 8, 1993 by and
between Marriott Corporation and Marriott International, Inc.
(incorporated by reference to Current Report on Form 8-K dated
October 23, 1993).
10.12 Employee Benefits and Other Employment Matters Allocation
Agreement dated as of October 8, 1993 by and between Marriott
Corporation and Marriott International, Inc. (incorporated by
reference to Current Report on Form 8-K dated October 23,
1993).
10.13 Noncompetition Agreement dated as of October 8, 1993 by and
between Marriott Corporation and Marriott International, Inc.
(incorporated by reference to Current Report on Form 8-K dated
October 23, 1993).
10.14(i) Host Marriott Lodging Management Agreement--Marriott Hotels,
Resorts and Suites by and between Marriott Corporation and
Marriott International, Inc. dated September 25, 1993
(incorporated by reference to Registration Statement No. 33-
51707).
10.14(ii) Host Marriott Lodging Management Agreement--Courtyard Hotels by
and between Marriott Corporation and Marriott International,
Inc. dated September 25, 1993 (incorporated by reference to
Registration Statement No. 33-51707).
10.14(iii) Host Marriott Lodging Management Agreement--Residence Inns by
and between Marriott Corporation and Marriott International,
Inc. dated September 25, 1993 (incorporated by reference to
Registration Statement No. 33-51707).
10.14(iv) Host Marriott Lodging Management Agreement--Fairfield Inns by
and between Marriott Corporation and Marriott International,
Inc. dated September 25, 1993 (incorporated by reference to
Registration Statement No. 33-51707).
10.15(i) Consolidation Letter Agreement pertaining to Courtyard Hotels
dated September 25, 1993 between a subsidiary of Marriott
International, Inc. and a subsidiary of the Company
(incorporated by reference to Registration Statement No. 33-
51707).
10.15(ii) Consolidation Letter Agreement pertaining to Residence Inns
dated September 25, 1993 between a subsidiary of Marriott
International, Inc. and a subsidiary of the Company
(incorporated by reference to Registration Statement No. 33-
51707).
10.15(iii) Consolidation Letter Agreement pertaining to Fairfield Inns
dated September 25, 1993 between a subsidiary of Marriott
International, Inc. and a subsidiary of the Company
(incorporated by reference to Registration Statement No. 33-
51707).
</TABLE>

49
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
--------- -----------
<C> <S>
10.16 Marriott Senior Living Services Communities Lease by and between
Marriott Corporation and Marriott International, Inc.
(incorporated by reference to Registration Statement No. 33-
51707).
10.17(i) Line of Credit and Guarantee Reimbursement Agreement by and
among HMH Holdings, Inc. as borrower, Marriott International,
Inc. as lender and Host Marriott Corporation and certain
subsidiaries as guarantors dated as of October 8, 1993
(incorporated by reference to Current Report on Form 8-K dated
October 23, 1993).
10.17(ii) Amendment No. 1 to Line of Credit and Guarantee Reimbursement
Agreement among HMH Holdings, Inc. as Borrower, Marriott
International, Inc. as Lender and Host Marriott Corporation; HMC
Acquisitions, Inc.; Host Marriott GTN Corporation; Host LaJolla,
Inc.; Marriott Properties, Inc. and Willmar Distributors, Inc.
as Guarantors (incorporated by reference to Registration
Statement No. 33-51707).
10.18 Philadelphia Convention Center Hotel Mortgage dated as of
October 8, 1993 by and between Philadelphia Market Street
Marriott Hotel Limited Partnership and Marriott International,
Inc. (incorporated by reference to Registration Statement No.
33-51707).
10.19 LYONs Allocation Agreement dated as of September 30, 1993 by and
between Marriott Corporation and Marriott International, Inc.
(incorporated by reference to Current Report on Form 8-K dated
October 23, 1993).
10.20 Host Consulting Agreement dated as of October 8, 1993 by and
between Marriott Corporation and Marriott International, Inc.
(incorporated by reference to Current Report on Form 8-K dated
October 23, 1993).
10.21 Architecture and Construction Services Agreement dated as of
October 8, 1993 by and between Marriott Corporation and Marriott
International, Inc. (incorporated by reference to Current Report
on Form 8-K dated October 23, 1993).
10.22 Marriott/Host Marriott Employees' Profit Sharing Retirement and
Savings Plan and Trust (incorporated by reference to
Registration Statement No. 33-62444).
10.23 Working Capital Agreement by and between Host Marriott
Corporation and Marriott International, Inc. dated as of
September 25, 1993 (incorporated by reference to Registration
Statement No. 33-51707).
11. Statement Re: Computation of Per Share Earnings
22. Subsidiaries of Host Marriott Corporation
23. Independent Auditors' Consent
</TABLE>

50
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS FORM 10-K TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THIS 31ST DAY OF MARCH, 1994.

Host Marriott Corporation

By /s/ Matthew J. Hart
-----------------------------------
Matthew J. Hart
Executive Vice President
and Chief Financial Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS FORM 10-K
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.

SIGNATURES TITLE
---------- -----

/s/ Stephen F. Bollenbach President, Chief Executive Officer
- ------------------------------------- (Principal Executive Officer) and
Stephen F. Bollenbach Director

/s/ Matthew J. Hart Executive Vice President and Chief
- ------------------------------------- Financial Officer (Principal
Matthew J. Hart Financial Officer)

/s/ Jeffrey P. Mayer Senior Vice President--Finance and
- ------------------------------------- Corporate Controller (Principal
Jeffrey P. Mayer Accounting Officer)

/s/ Richard E. Marriott Chairman of the Board of Directors
- -------------------------------------
Richard E. Marriott

/s/ R. Theodore Ammon Director
- -------------------------------------
R. Theodore Ammon

/s/ J. W. Marriott, Jr. Director
- -------------------------------------
J. W. Marriott, Jr.

/s/ Ann Dore McLaughlin Director
- -------------------------------------
Ann Dore McLaughlin

/s/ Harry L. Vincent, Jr. Director
- -------------------------------------
Harry L. Vincent, Jr.

/s/ Andrew J. Young Director
- -------------------------------------
Andrew J. Young

51
<PAGE>

SCHEDULE III
PAGE 1 OF 5

HOST MARRIOTT CORPORATION

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1993 1993
------------ ----------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.............................. $ 55 $ 162
Accounts receivable, net............................... 63 42
Inventory.............................................. 7 13
Other current assets................................... 84 52
------ ------
209 269
------ ------
Property and equipment, net............................. 1,249 818
Investment in and advances to Marriott International.... -- 763
Investment in and advances to Holdings.................. 783 1,929
Notes receivable and other.............................. 170 264
Investments in affiliates............................... 61 122
------ ------
$2,472 $4,165
====== ======
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable....................................... $ 35 $ 180
Other current liabilities.............................. 455 125
------ ------
490 305
------ ------
Line of Credit borrowings due to Holdings............... 193 --
Long-term debt.......................................... 664 2,227
Other long-term liabilities............................. 135 67
Deferred income taxes................................... 465 553
Convertible subordinated debt........................... 20 228
Shareholders' Equity
Convertible preferred stock............................ 14 200
Common stock........................................... 130 105
Additional paid-in capital............................. 253 34
Retained earnings...................................... 108 555
Treasury stock, at cost................................ -- (109)
------ ------
505 785
------ ------
$2,472 $4,165
====== ======
</TABLE>
- --------
The Notes to Consolidated Financial Statements of Host Marriott Corporation and
Subsidiaries are an integral part of these statements.

See Accompanying Notes to Condensed Financial Information

S-1
<PAGE>

SCHEDULE III
PAGE 2 OF 5

HOST MARRIOTT CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED STATEMENTS OF INCOME

Fiscal years ended December 31, 1993, January 1, 1993 and January 3, 1992

<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Sales...................................................... $ 464 $ 548 $ 594
Operating costs and expenses............................... 420 500 532
----- ----- -----
Operating profit before corporate expenses and interest.. 44 48 62
Corporate expenses......................................... (50) (48) (28)
Interest expense........................................... (164) (214) (227)
Interest income............................................ 12 7 24
----- ----- -----
Loss before income taxes, equity in earnings of subsidiar-
ies and cumulative effect of changes in accounting princi-
ples...................................................... (158) (207) (169)
Equity in earnings of Holdings............................. 71 120 84
Benefit for income taxes................................... 16 38 34
----- ----- -----
Loss before equity in earnings of Marriott International
and cumulative effect of changes in accounting principles. (71) (49) (51)
Equity in earnings of Marriott International, net-of-tax... 123 134 133
----- ----- -----
Income before cumulative effect of changes in accounting
principles................................................ 52 85 82
Cumulative effect of changes in accounting principles...... (2) -- --
----- ----- -----
Net income................................................. $ 50 $ 85 $ 82
===== ===== =====
</TABLE>
- --------
The Notes to Consolidated Financial Statements of Host Marriott Corporation and
Subsidiaries are an integral part of these statements.

See Accompanying Notes to Condensed Financial Information

S-2
<PAGE>

SCHEDULE III
PAGE 3 OF 5

HOST MARRIOTT CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED STATEMENTS OF CASH FLOWS

Fiscal years ended December 31, 1993, January 1, 1993 and January 3, 1992

<TABLE>
<CAPTION>
1993 1992 1991
----- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
CASH FROM OPERATIONS................................ $ 81 $ 67 $ 144
----- -------- --------
Investing Activities
Net proceeds from sale of assets.................. 46 377 43
Capital expenditures.............................. (100) (34) (103)
Other............................................. (32) (77) (44)
----- -------- --------
Cash from (used in) investing activities.......... (86) 266 (104)
----- -------- --------
FINANCING ACTIVITIES
Proceeds of long-term debt........................ 287 519 630
Issuances of stock................................ 12 7 198
Repayments of long-term debt...................... (453) (1,123) (1,256)
Transfers from Marriott International and Hold-
ings, net........................................ 357 380 186
Dividends paid.................................... (33) (41) (27)
Cash distributed to Marriott International........ (272) -- --
----- -------- --------
Cash used in financing activities................. (102) (258) (269)
----- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... $(107) $ 75 $ (229)
===== ======== ========
</TABLE>
- --------
The Notes to Consolidated Financial Statements of Host Marriott Corporation and
Subsidiaries are an integral part of these statements.

See Accompanying Notes to Condensed Financial Information

S-3
<PAGE>

SCHEDULE III
PAGE 4 OF 5

HOST MARRIOTT CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT

NOTES TO CONDENSED FINANCIAL INFORMATION

A) On October 8, 1993, Host Marriott Corporation (the "Parent Company",
formerly Marriott Corporation) completed a distribution of Marriott
International common stock and an exchange offer. See Note 2 to the
Company's consolidated financial statements for more information about the
distribution and exchange offer.

In connection with the exchange offer, the Parent Company effected a
Restructuring (the "Restructuring"). As a result of the Restructuring, the
Parent Company's primary asset is the capital stock of a wholly-owned
subsidiary, HMH Holdings, Inc. ("Holdings"). Holdings' primary asset is the
capital stock of Host Marriott Hospitality, Inc. ("Hospitality"), and
Holdings is the borrower under a $630 million Revolving Line of Credit with
Marriott International.

In the Restructuring, most of the Parent Company's real estate and
operating assets were transferred to subsidiaries of Hospitality. The
remaining assets were retained directly by the Parent Company and certain
of its other subsidiaries (the "Retained Businesses") and are unrestricted.

Hospitality is the issuer of Senior Notes secured by a pledge of the stock
of, and guaranteed by, Holdings, Hospitality and certain of its
subsidiaries. The indenture governing these Notes contain covenants that,
among other things, limit the ability of Hospitality to pay dividends and
make other distributions and restricted payments, incur additional debt,
create additional liens on its subsidiaries' assets, engage in certain
transactions with related parties, enter into agreements which restrict a
subsidiary in paying dividends or making certain other payments and limit
the activities and businesses of Holdings. At December 31, 1993,
substantially all of Hospitality's net assets are restricted.

Accordingly, the accompanying financial statements present the operations
of the Parent Company and Retained Businesses with the investment in, and
operations of, Holdings and Hospitality presented on the equity method of
accounting.

B) The accompanying financial statements present the financial position,
results of operations and cash flows of the Parent Company and Retained
Businesses as if the organizational structure described in Note A was in
place for all periods presented. Marriott Corporation's historical basis in
the assets and liabilities of the Parent Company and Retained Businesses has
been carried over. All material intercompany transactions between the
companies have been eliminated.

C) Investment in and advances to Holdings and long-term debt includes $87
million and $1,344 million of debt at December 31, 1993 and January 1, 1993,
respectively, which has been "pushed down" to Hospitality on its financial
statements. Related interest expense of $94 million, $125 million and $89
million in fiscal 1993, 1992 and 1991, respectively, is included in interest
expense in the accompanying condensed statements of income.

Aggregate debt maturities at December 31, 1993 are (in millions):

<TABLE>
<S> <C>
1994............................................................... $ 380
1995............................................................... 132
1996............................................................... 114
1997............................................................... 35
1998............................................................... 1
Thereafter......................................................... 575
------
$1,237
======
</TABLE>

S-4
<PAGE>

SCHEDULE III
PAGE 5 OF 5

HOST MARRIOTT CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT

NOTES TO CONDENSED FINANCIAL INFORMATION--(CONTINUED)

D) The accompanying statements of income reflect the equity in earnings of
Holdings, including its wholly-owned subsidiary Hospitality after
elimination of interest expense (see Note C) and before income taxes.
Holdings is included in the consolidated income tax returns of Host Marriott
Corporation.

E) Corporate expenses in 1993 and 1992 reflect pre-tax costs of $13 million and
$16 million, respectively, related to the distribution discussed in Note A.

S-5
<PAGE>

SCHEDULE V

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

PROPERTY AND EQUIPMENT
(IN MILLIONS)

<TABLE>
<CAPTION>
ADDITIONS AT COST
BALANCE ---------------------- BALANCE
BEGINNING OTHER RETIREMENTS TRANSFERS AT END OF
CLASSIFICATION OF YEAR ACQUISITIONS ADDITIONS OR SALES AND OTHER YEAR
-------------- --------- ------------ --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
For Fiscal Year Ended
January 3, 1992
Land and Land Improve-
ments................ $ 789 $-- $ 69 $ (44) $ -- $ 814
Buildings and
Leasehold
Improvements......... 2,194 -- 256 (51) 89 2,488
Furniture and Equip-
ment................. 837 -- 83 (52) 33 901
Construction in Proc-
ess.................. 631 -- -- (13) (194) 424
------ ---- ---- ----- ----- ------
Total Property and
Equipment.......... $4,451 $-- $408 $(160)(1) $ (72) $4,627
====== ==== ==== ===== ===== ======
For Fiscal Year Ended
January 1, 1993
Land and Land Improve-
ments................ $ 814 $-- $ 29 $ (69) $ 2 $ 776
Buildings and
Leasehold
Improvements......... 2,488 28 112 (264) 186 2,550
Furniture and Equip-
ment................. 901 12 44 (113) 55 899
Construction in Proc-
ess.................. 424 -- -- (6) (285) 133
------ ---- ---- ----- ----- ------
Total Property and
Equipment.......... $4,627 $ 40 $185 $(452)(2) $ (42) $4,358
====== ==== ==== ===== ===== ======
For Fiscal Year Ended
December 31, 1993
Land and Land Improve-
ments................ $ 776 $-- $ 21 $ (39) $(326) $ 432
Buildings and
Leasehold
Improvements......... 2,550 1 92 (83) 147 2,707
Furniture and Equip-
ment................. 899 -- 70 (50) (334) 585
Construction in Proc-
ess.................. 133 -- 52 (7) (27) 151
------ ---- ---- ----- ----- ------
Total Property and
Equipment.......... $4,358 $ 1 $235 $(179) $(540)(3) $3,875
====== ==== ==== ===== ===== ======
</TABLE>
- --------
(1) Principally the sale of family restaurants and four Courtyard hotels.
(2) Principally the sale of seven full service hotels and thirteen Courtyard
hotels.
(3) Principally the distribution of assets to Marriott International offset by
the impact of consolidating the New York Marriott Marquis Hotel.

S-6
<PAGE>

SCHEDULE VI

HOST MARRIOTT CORPORATION AND SUBSIDIARIES
ACCUMULATED DEPRECIATION AND AMORTIZATION

PROPERTY AND EQUIPMENT
(IN MILLIONS)

<TABLE>
<CAPTION>
BALANCE AT INCREASES BALANCE
BEGINNING CHARGED TO RETIREMENTS TRANSFERS AT END OF
CLASSIFICATION OF YEAR INCOME OR SALES AND OTHER YEAR
-------------- ---------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
For Fiscal Year Ended
January 3, 1992
Buildings and
Leasehold
Improvements......... $281 $ 91 $ (8) $ -- $364
Furniture and Equip-
ment................. 341 120 (42) (3) 416
---- ---- ---- ----- ----
Total Accumulated
Depreciation and
Amortization....... $622 $211 $(50) $ (3) $780
==== ==== ==== ===== ====
For Fiscal Year Ended
January 1, 1993
Buildings and
Leasehold
Improvements......... $364 $ 96 $(32) $ (3) $425
Furniture and Equip-
ment................. 416 121 (64) (1) 472
---- ---- ---- ----- ----
Total Accumulated
Depreciation and
Amortization....... $780 $217 $(96) $ (4) $897
==== ==== ==== ===== ====
For Fiscal Year Ended
December 31, 1993
Buildings and
Leasehold
Improvements......... $425 $ 97 $(10) $ (1) $511
Furniture and Equip-
ment................. 472 110 (43) (201) 338
---- ---- ---- ----- ----
Total Accumulated
Depreciation and
Amortization....... $897 $207 $(53) $(202)(1) $849
==== ==== ==== ===== ====
</TABLE>
- --------
(1) Principally the distribution of assets to Marriott International offset by
the impact of consolidating the New York Marriott Marquis Hotel.

S-7
<PAGE>

SCHEDULE X

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN MILLIONS)

<TABLE>
<CAPTION>
ITEM 1993 1992 1991
---- ---- ---- ----
<S> <C> <C> <C>
Maintenance, repairs and minor replacements..................... $174 $253 $243
Real and personal property taxes, licenses, etc................. 155 193 183
Advertising expenses............................................ 192 256 253
</TABLE>

See Accompanying Notes to Condensed Financial Information

S-8

<PAGE>

EXHIBIT 11
PAGE 1 OF 2

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

COMPUTATION OF EARNINGS PER COMMON SHARE
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FISCAL YEARS
--------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Net Income................................................ $ 50 $ 85 $ 82
Less: Dividends on convertible preferred stock............ 8 17 1
------ ------ ------
Net Income available for common shareholders.............. $ 42 $ 68 $ 81
====== ====== ======
Primary Earnings Per Common Share
Shares--
Weighted average number of common shares outstanding.... 107.4 99.8 94.9
Assuming distribution of common shares reserved under
employee stock purchase plan, based on withholdings to
date, less shares assumed purchased at average market.. .1 .1 1.0
Assuming distribution of common shares granted under
employee stock option plan, less shares assumed
purchased at average market............................ 3.2 1.6 1.7
Assuming distribution of common shares granted under
deferred stock incentive plan, less shares assumed
purchased at average market............................ 2.3 4.2 3.9
------ ------ ------
113.0 105.7 101.5
====== ====== ======
Primary Earnings Per Common Share......................... $ .37 $ .64 $ .80
====== ====== ======
</TABLE>

E-1
<PAGE>

EXHIBIT 11
PAGE 2 OF 2

HOST MARRIOTT CORPORATION AND SUBSIDIARIES

COMPUTATION OF EARNINGS PER COMMON SHARE (CON'T)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FISCAL YEARS
--------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Fully Diluted Earnings Per Common Share
Shares--
Weighted average number of common shares outstanding.... 107.4 99.8 94.9
Assuming distribution of common shares reserved under
employee stock purchase plan, based on withholdings to
date, less shares assumed purchased at higher of
average or ending market............................... .1 .2 1.0
Assuming distribution of common shares granted under
employee stock option plan, less shares assumed
purchased at higher of average or ending market........ 5.3 2.3 1.7
Assuming distribution of common shares granted under
deferred stock incentive plan, less shares assumed
purchased at higher of average or ending market........ 2.3 4.2 3.9
Assuming issuance of common shares upon conversion of
subordinated debt*..................................... .7 -- --
Assuming issuance of common shares upon conversion of
convertible preferred stock*........................... 5.5 -- --
------ ------ ------
121.3 106.5 101.5
====== ====== ======
Fully Diluted Earnings Per Common Share................... $ .35 $ .64 $ .80
====== ====== ======
</TABLE>
- --------
* Convertible subordinated debt and convertible preferred stock, issued in
1991, were antidilutive in 1991 and 1992.

E-2

<PAGE>

EXHIBIT 22
PAGE 1 OF 2

HOST MARRIOTT CORPORATION

SUBSIDIARIES

<TABLE>
<C> <S>
1) Airline Foods, Inc.
2) Beachfront Properties, Inc.
3) Bird-Marriott, Inc.
4) CBM One Corporation
5) CBM Two Corporation
6) Cincinnati Terminal Services, Inc.
7) Cleveland Airport Service, Inc.
8) East Boston Properties, Inc.
9) Farrell's Ice Cream Parlour Restaurants, Inc.
10) First Marigold, Inc.
11) G.L. Insurance Corporation
12) Gladieux Corporation
13) HMC Acquisitions, Inc.
14) HMC GP Holdings, Inc.
15) HMC Leisure Park Corporation
16) HMC Retirement Properties, Inc.
17) HMC Ventures, Inc.
18) HMH Courtyard Properties, Inc.
19) HMH Holdings, Inc.
20) HMH Properties, Inc.
21) HMH Westport Corporation
22) Host Airport Hotels, Inc.
23) Host Gifts, Inc.
24) Host International, Inc.
25) Host International, Inc. of Kansas
26) Host International, Inc. of Maryland
27) Host Investment, Inc.
28) Host La Jolla, Inc.
29) Host Marriott BCH Hotel Corporation
30) Host Marriott GTN Corporation
31) Host Marriott Hospitality, Inc.
32) Host Marriott Travel Plazas, Inc.
33) Host Services of New York, Inc.
34) Host Services, Inc.
35) Hot Shoppes, Inc.
36) Hotel Management of Tucson, Inc.
37) Hotel Properties Management, Inc.
38) Interdistributing Corporation
39) Interstate Hosts, Inc.
40) Las Vegas Terminal Restaurants, Inc.
41) MC Lodging Investment Opportunities, Inc.
42) MOHS Corporation
43) Marriott Airport Terminal Services, Inc.
44) Marriott Argentine Airline Catering, Inc.
45) Marriott Condominium Development Corporation
46) Marriott Desert Springs Corporation
</TABLE>

E-3
<PAGE>

EXHIBIT 22
PAGE 2 OF 2

HOST MARRIOTT CORPORATION

SUBSIDIARIES

<TABLE>
<C> <S>
47) Marriott FIBM One Corporation
48) Marriott Family Restaurants, Inc.
49) Marriott Family Restaurants, Inc. of Illinois
50) Marriott Family Restaurants, Inc. of Vermont
51) Marriott Family Restaurants, Inc. of Wisconsin
52) Marriott Financial Services, Inc.
53) Marriott Hanover Hotel Corporation
54) Marriott Hotels of New York City, Inc.
55) Marriott Hotels of San Diego, Inc.
56) Marriott MDAH One Corporation
57) Marriott MHP Two Corporation
58) Marriott Marquis Corporation
59) Marriott PLP Corporation
60) Marriott Park Ridge Corporation
61) Marriott Properties, Inc.
62) Marriott RIBM Three Corporation
63) Marriott RIBM Two Corporation
64) Marriott Realty Sales, Inc.
65) Marriott SBM One Corporation
66) Marriott SBM Two Corporation
67) Marriott YBG Corporation
68) Marriott's Bickford's Family Fare, Inc.
69) Marriott-Dayton Community Urban Redevelopment Corporation
70) Michigan Host, Inc.
71) Montana Food and Beverage Services, Inc.
72) Philadelphia Airport Hotel Corporation
73) Philadelphia Market Street Hotel Corporation
74) RIBM One Corporation
75) S.D. Hotels, Inc.
76) SFM Finance Corporation
77) Saga Property Leasing Corporation
78) Saga Restaurants, Inc.
79) Second Marigold, Inc.
80) Sparky's Virgin Islands, Inc.
81) Straw Hat Franchising Company, Inc.
82) Sunshine Parkway Restaurants, Inc.
83) The Gift Collection, Inc.
84) Turnpike Restaurants, Inc.
85) Willmar Distributors, Inc.
</TABLE>

E-4

<PAGE>

EXHIBIT 23

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statements: Registration Statement No. 33-54264; Registration
Statement No. 33-52842; Registration Statement No. 33-52840; Registration
Statement No. 33-45444; Registration Statement No. 33-44076; Registration
Statement No. 33-42940; Registration Statement No. 33-41385; Registration
Statement No. 33-35307; Registration Statement No. 33-33634; Registration
Statement No. 33-23466; Registration Statement No. 33-18387; Registration
Statement No. 33-14836; Registration Statement No. 2-73935; Registration
Statement No. 2-59558; Registration Statement No. 2-56121; Registration
Statement No. 2-51552; Registration Statement No. 2-49851; Registration
Statement No. 2-46237; Registration Statement No. 33-66622; and Registration
Statement No. 33-70822.

Arthur Andersen & Co.

Washington, D.C.
March 31, 1994

E-5