<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported) June 18, 1996
-------------------------
HOST MARRIOTT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
Delaware 1-5664 53-0085950
(State or Other Jurisdiction of Incorporation) (Commission File Number) (I.R.S. Employer Identification Number)
</TABLE>
10400 Fernwood Road, Bethesda, Maryland 20817
(Address of Principal Executive Offices) (Zip Code)
----------------------------
Registrant's Telephone Number, Including Area Code (301) 380-9000
(Former Name or Former Address, if changed since last report.)
================================================================================
<PAGE>
FORM 8-K
Item 2. Other Events
On June 18, 1996, Host Marriot Corporation (the "Company") successfully
completed its tender offer for a majority of the limited partnership units in
Marriott Hotel Properties II Limited Partnership ("MHP II"), an affiliated
partnership of the Company in which the Company owns a 1.67% general partner
interest. MHP II owns the 1,290-room New Orleans Marriott hotel, the 999-room
San Antonio Marriott Rivercenter hotel, the 368-room San Ramon Marriott hotel
and a 50% limited partner interest in the 754-room Santa Clara Marriott hotel.
The Company purchased 375.5 units for an aggregate consideration of $56,325,000,
or $150,000 per unit. As a result of this transaction, a wholly-owned subsidiary
of Host Marriott became the majority limited partner in MHP II and the Company
will consolidate the MHP II partnership in the third quarter of 1996. A copy of
the news release is attached as an exhibit to this current report.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of MHP II:
Page
----
Report of Independent Public Accountants 3
Statements of Operations for the three years in the period ended
December 31, 1995 4
Balance Sheets as of December 31, 1995 and 1994 5
Statements of Changes in Partners' Capital for the three years
in the period ended December 31, 1995 6
Statements of Cash Flows for the three years in the period ended
December 31, 1995 7
Notes to Financial Statements 8
Condensed Statements of Operations for the twelve weeks ended
March 22, 1996 and March 24, 1995 16
Condensed Balance Sheets as of March 22, 1996 and
December 31, 1995 17
Condensed Statements of Cash Flows for the twelve weeks ended
March 22, 1996 and March 24, 1995 18
Notes to Financial Statements 19
(b) Pro Forma financial information of the Company reflecting the
acquisition of MHP II as of and for the twelve weeks ended March 22,
1996 and for the year ended December 29, 1995:
Page
----
Pro Forma Condensed Consolidated Financial Data 22
Pro Forma Condensed Consolidated Balance Sheet as of
March 22, 1996 24
Pro Forma Condensed Consolidated Statements of Operations
for the twelve weeks ended March 22, 1996 and for the
year ended December 29, 1995 25
Notes to Pro Forma Condensed Consolidated Financial Data 27
(c) Exhibits:
(99) News Release dated June 17, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HOST MARRIOTT CORPORATION
By: /s/ Donald D. Olinger
--------------------------------
Donald D. Olinger
Vice President and Corporate Controller
Date: July 2, 1996
2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE PARTNERS OF MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP
We have audited the accompanying balance sheet of Marriott Hotel Properties II
Limited Partnership (a Delaware limited partnership) as of December 31, 1995 and
1994, and the related statements of operations, changes in partners' capital and
cash flows for each of the three years in the period ended December 31, 1995.
The financial statements are the responsibility of the General Partner's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Marriott Hotel Properties
II Limited Partnership as of December 31, 1995 and 1994, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Washington, D.C.,
February 22, 1996
(except for the matter discussed in Note 10,
as to which the date is March 28, 1996)
3
<PAGE>
MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
REVENUES (Note 3)................................... $64,002 $58,703 $57,003
------- ------- -------
OPERATING COSTS AND EXPENSES
Interest.......................................... 17,803 17,884 17,803
Depreciation and amortization..................... 13,364 12,246 12,737
Incentive management fees......................... 9,412 8,507 8,200
Property taxes.................................... 5,526 5,307 5,324
Base management fees.............................. 4,281 3,989 3,926
Ground rent, insurance and other.................. 690 1,557 1,538
------- ------- -------
51,076 49,490 49,528
------- ------- -------
INCOME BEFORE EQUITY IN INCOME/(LOSSES) OF SANTA
CLARA PARTNERSHIP.................................. 12,926 9,213 7,475
EQUITY IN INCOME/(LOSSES) OF SANTA CLARA PARTNER-
SHIP............................................... 119 (785) (606)
------- ------- -------
NET INCOME.......................................... $13,045 $ 8,428 $ 6,869
======= ======= =======
ALLOCATION OF NET INCOME
General Partner................................... $ 130 $ 84 $ 69
Limited Partners.................................. 12,915 8,344 6,800
------- ------- -------
$13,045 $ 8,428 $ 6,869
======= ======= =======
NET INCOME PER LIMITED PARTNER UNIT (745 Units)..... $17,336 $11,200 $ 9,128
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(in thousands)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Property and equipment, net (Note 4)...................... $203,990 $211,811
Due from Marriott International, Inc...................... 7,275 6,849
Property improvement fund................................. 11,940 10,587
Deferred financing and organization costs, net of
accumulated amortization................................. 114 603
Restricted cash reserve................................... 9,193 2,847
Cash and cash equivalents................................. 21,601 17,764
-------- --------
$254,113 $250,461
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Mortgage debt (Note 7).................................... $222,500 $222,500
Due to Marriott International, Inc........................ 2,615 2,031
Investment in Santa Clara Partnership..................... 8,244 6,994
Accounts payable and accrued expenses..................... 433 372
-------- --------
Total Liabilities..................................... 233,792 231,897
======== ========
PARTNERS' CAPITAL
General Partner
Capital contribution, net of offering costs of $22...... 731 731
Capital distributions................................... (626) (513)
Cumulative net income................................... 243 113
-------- --------
348 331
-------- --------
Limited Partners
Capital contribution, net of offering costs of $8,426... 64,689 64,689
Capital distributions................................... (68,779) (57,604)
Cumulative net income................................... 24,063 11,148
-------- --------
19,973 18,233
-------- --------
Total Partners' Capital............................... 20,321 18,564
-------- --------
$254,113 $250,461
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
------- -------- --------
<S> <C> <C> <C>
Balance, December 31, 1992.......................... $ 408 $ 25,899 $ 26,307
Payments received on investor notes receivable.... -- 31 31
Capital distributions............................. (117) (11,609) (11,726)
Net income........................................ 69 6,800 6,869
----- -------- --------
Balance, December 31, 1993.......................... 360 21,121 21,481
Capital distributions............................. (113) (11,232) (11,345)
Net income........................................ 84 8,344 8,428
----- -------- --------
Balance, December 31, 1994.......................... 331 18,233 18,564
Capital distributions............................. (113) (11,175) (11,288)
Net income........................................ 130 12,915 13,045
----- -------- --------
Balance, December 31, 1995.......................... $ 348 $ 19,973 $ 20,321
===== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income..................................... $ 13,045 $ 8,428 $ 6,869
Noncash items:
Depreciation and amortization................ 13,364 12,246 12,737
Deferred portion of incentive management
fees........................................ 461 363 777
Equity in (income)/losses of Santa Clara
Partnership................................. (119) 785 606
Amortization of deferred financing costs as
interest.................................... 489 489 489
Loss on retirement of assets................. 10 113 1
Changes in operating accounts:
Due from Marriott International, Inc......... (426) 1,742 (1,106)
Accounts payable and accrued expenses........ 61 15 (59)
Due to Marriott International, Inc........... 123 (3,286) 2,374
-------- -------- --------
Cash provided by operations................ 27,008 20,895 22,688
-------- -------- --------
INVESTING ACTIVITIES
Additions to property and equipment............ (5,565) (6,542) (3,427)
Change in property improvement funds........... (1,341) 147 (2,807)
Distributions from Santa Clara Partnership..... 1,369 1,317 1,210
Additions to restricted cash reserve........... (6,346) (2,847) --
-------- -------- --------
Cash used in investing activities.......... (11,883) (7,925) (5,024)
-------- -------- --------
FINANCING ACTIVITIES
Capital distributions.......................... (11,288) (11,345) (11,726)
Payments received on investor notes
receivable.................................... -- -- 31
-------- -------- --------
Cash used in financing activities.......... (11,288) (11,345) (11,695)
-------- -------- --------
INCREASE IN CASH AND CASH EQUIVALENTS............ 3,837 1,625 5,969
CASH AND CASH EQUIVALENTS at beginning of
period.......................................... 17,764 16,139 10,170
-------- -------- --------
CASH AND CASH EQUIVALENTS at end of period....... $ 21,601 $ 17,764 $ 16,139
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for mortgage interest................ $ 17,267 $ 17,361 $ 17,267
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1. THE PARTNERSHIP
Description of the Partnership
Marriott Hotel Properties II Limited Partnership (the "Partnership"), a
Delaware limited partnership, was formed in 1989 to acquire, own and operate
(i) the 1,290-room New Orleans Marriott Hotel and underlying land in New
Orleans, Louisiana (the "New Orleans Hotel"); (ii) the 999-room Marriott
Rivercenter Hotel in San Antonio, Texas (the "San Antonio Hotel"); (iii) the
368-room Bishop Ranch Marriott Hotel in San Ramon, California (the "San Ramon
Hotel"); (collectively, the "Hotels") and (iv) a 50% limited partnership
interest in the Santa Clara Marriott Hotel Limited Partnership (the "Santa
Clara Partnership"), a Delaware limited partnership, which owns the 754-room
Santa Clara Marriott Hotel in Santa Clara, California (the "Santa Clara
Hotel"). The remaining 50% interest in the Santa Clara Partnership is owned by
Marriott MHP Two Corporation (the "General Partner") with a 1% interest, and
HMH Properties, Inc., a wholly-owned indirect subsidiary of Host Marriott as
defined below, with a 49% limited partner interest.
On October 8, 1993, Marriott Corporation's operations were divided into two
separate companies: Host Marriott Corporation and Marriott International, Inc.
("MII"). On December 29, 1995, Host Marriott Corporation's operations were
divided into two separate companies: Host Marriott Corporation ("Host
Marriott") and Host Marriott Services Corporation. The sole general partner of
the Partnership, with a 1% interest, is Marriott MHP Two Corporation, a
Delaware corporation and a wholly-owned subsidiary of Host Marriott. The
General Partner made a capital contribution of $752,525 for its 1% general
partnership interest. On March 20, 1989 (the "Closing Date"), 745 limited
partnership interests (the "Units"), representing a 99% interest in the
Partnership, were sold in a private placement for a total capitalization of
$74,500,000. The offering price per unit was $100,000, payable in three annual
installments ending June 1, 1991 (the "Investor Notes"), or as an alternative,
$89,247 in cash at closing as full payment of the subscription price. On the
Closing Date, the Partnership executed a purchase agreement (the "Purchase
Agreement") with Host Marriott, to acquire the Hotels and the 50% limited
partnership interest in the Santa Clara Partnership for $319.5 million. Of the
total purchase price, $222.5 million was paid from proceeds of a variable rate
mortgage loan received from commercial banks and secured by the Hotels, $43.4
million was evidenced by a promissory note payable to Host Marriott (the
"Deferred Purchase Note"), $43.5 million was paid from a cash distribution by
the Santa Clara Partnership and the remainder from the sale of the Units. The
principal outstanding on the Deferred Purchase Note was fully repaid in 1991
with the proceeds of the Investor Notes.
The New Orleans and San Antonio Hotels and the limited partnership interest
in the Santa Clara Partnership were conveyed to the Partnership on the Closing
Date with the San Ramon Hotel being conveyed upon completion of its
construction on May 31, 1989. The Hotels and the Santa Clara Hotel are managed
by MII (the "Manager") under long-term management agreements.
Partnership Allocations and Distributions
Pursuant to the terms of the Partnership agreement, Partnership allocations,
for Federal income tax purposes, and distributions are generally made as
follows:
a. Cash available for distribution is distributed for each fiscal year
semi-annually as follows: (i) 100% to the limited partners until the
limited partners have received with respect to such fiscal year a non-
cumulative 10% preferred distribution on their Invested Capital, as
defined; (ii) 100% to the General Partner until the General Partner has
received an amount equal to 1/99th of the amount distributed to the limited
partners; (iii) 1% to the General Partner and 99% to the limited partners
until such time as the limited partners have received the 15% Preferred
Distribution, as defined, plus $50,000 per Unit, payable only from Capital
Receipts, as defined to the extent available after the payment of the 15%
Preferred Distribution; and (iv) thereafter, 20% to the General Partner and
80% to the limited partners.
8
<PAGE>
MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
b. Refinancing and sales proceeds ("Capital Receipts") available for
distribution to the partners are distributed as follows: (i) 1% to the
General Partner and 99% to the limited partners until the limited partners
have received cumulative distributions from Capital Receipts equal to the
15% Preferred Distribution plus $100,000 per Unit; and (ii) 20% to the
General Partner and 80% to the limited partners.
c. Net profits generally are allocated to the partners in proportion to
the distributions of cash available for distribution.
d. Net losses generally are allocated 75% to the General Partner and 25%
to the limited partners.
e. Gains recognized by the Partnership are allocated in the following
order of priority: (i) to all partners with negative capital balances in
the ratio of such negative balances until such negative balances are
eliminated; (ii) to all partners up to the amount necessary to bring the
limited partners' capital account balances to an amount equal to the
limited partners' 15% Preferred Distribution plus the limited partners'
Invested Capital and to bring the General Partner's capital account balance
to an amount equal to 1/99th of the capital account balance of the limited
partners; and (iii) 20% to the General Partner and 80% to the limited
partners.
For financial reporting purposes, profits and losses are generally allocated
among the partners based on their stated interests in cash available for
distribution.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Partnership records are maintained on the accrual basis of accounting
and its fiscal year coincides with the calendar year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenues and Expenses
Revenues represent house profit from the Partnership's Hotels because the
Partnership has delegated substantially all of the operating decisions related
to the generation of house profit from the Hotels to the Manager. House profit
reflects net revenues flowing to the Partnership as property owner and
represents gross hotel sales less property-level expenses, excluding
depreciation and amortization, base and incentive management fees, real and
personal property taxes, ground and equipment rent, insurance and certain
other costs, which are disclosed separately in the statement of operations.
Working Capital and Supplies
Pursuant to the terms of the Partnership's management agreement discussed in
Note 9, the Partnership is required to provide the Manager with working
capital and supplies to meet the operating needs of the Hotels. The Manager
converts cash advanced by the Partnership into other forms of working capital
consisting primarily of operating cash, inventories, and trade receivables and
payables which are maintained and controlled by the Manager. Upon the
termination of the management agreement, the Manager is required to convert
working capital and supplies into cash and return it to the Partnership. As a
result of these conditions, the individual components of working capital and
supplies controlled by the Manager are not reflected in the accompanying
balance sheet.
9
<PAGE>
MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives as follows:
<TABLE>
<S> <C>
Land improvements......................................... 40 years
Building and improvements................................. 30 to 40 years
Leasehold improvements.................................... 40 to 50 years
Furniture and equipment................................... 3 to 10 years
</TABLE>
All property and equipment is pledged as security against the mortgage debt
described in Note 7. The Partnership periodically assesses impairment of its
property and equipment based on whether it is probable that undiscounted cash
flows from each individual property will be less than such property's net book
value.
Deferred Financing and Organization Costs
Deferred financing and organization costs consist of loan fees and legal and
accounting costs incurred in connection with obtaining Partnership financing
and the formation of the Partnership. Financing costs are amortized using the
straight-line method over the seven year loan term and organization costs are
amortized using the straight-line method over five years. At December 31, 1995
and 1994, accumulated amortization of deferred financing and organization
costs totalled $3,166,000 and $2,812,000, respectively.
Restricted Cash Reserve
A restricted cash reserve consisting of funds generated in excess of an
annual 17.5% return on partners invested capital, as defined, has been
established in an escrow account maintained by the lender. Deposits are made
in conjunction with the bi-annual distributions to the limited partners. These
funds will be applied to the principal balance of the mortgage loan upon
maturity of the loan in 1996 or upon earlier prepayment at the Partnership's
option. As of December 31, 1995 and 1994, the balance in the reserve was
$9,193,000 and $2,847,000, respectively.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of
three months or less at date of purchase to be cash equivalents.
Investment in Santa Clara Partnership
The Partnership's earnings from the Santa Clara Partnership are recorded
based on the equity method of accounting. Equity in earnings from the Santa
Clara Partnership includes 100% of the interest expense related to the debt
incurred by the Santa Clara Partnership, the proceeds of which were
distributed to the Partnership. The $28.4 million excess of the purchase price
of the Santa Clara Partnership interest over the Partnership's proportionate
share of the net book value of the assets acquired is being amortized over the
related remaining lives of those assets. Amortization is included in Equity in
Income/(Losses) of Santa Clara Partnership in the accompanying statement of
operations. At December 31, 1995 and 1994, accumulated amortization of the
excess purchase price of the Santa Clara investment was $10,095,000 and
$9,383,000, respectively.
Prior to December 31, 1995, the Partnership is required to make capital
contributions to the Santa Clara Partnership if Santa Clara's debt service is
greater than its cash available for debt service, as defined. After December
31, 1995, capital contributions are required by the Partnership if Santa
Clara's debt service exceeds 50% of its cash available for debt service. No
capital contributions have been required as of December 31, 1995.
Interest Rate Swap Agreements
The Partnership is a party to an interest rate swap agreement to reduce the
Partnership's exposure to floating interest rates. The Partnership accounts
for the swap agreement as a hedge of an obligation to pay floating rates of
interest and accordingly, records interest expense based upon its payment
obligation at a fixed interest rate.
10
<PAGE>
MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
Income Taxes
Provision for Federal and state income taxes has not been made in the
accompanying financial statements since the Partnership does not pay income
taxes but rather allocates its profits and losses to the individual partners.
Significant differences exist between the net income for financial reporting
purposes and the net income as reported in the Partnership's tax return. These
differences are due primarily to the use, for income tax purposes, of
accelerated depreciation methods and shorter depreciable lives of the assets
and differences in the timing of recognition of incentive management fee
expense. As a result of these differences, the excess of the net assets
reported in the accompanying financial statements over the tax basis in net
Partnership assets is $38,000 and $4,023,000 as of December 31, 1995 and 1994,
respectively. The difference in 1995 is significantly less than 1994 due
primarily to greater book depreciation compared to tax depreciation in 1995.
New Statements of Financial Accounting Standards
The Partnership is required to adopt Statements of Financial Accounting
Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" no later than its year ending
December 31, 1996. The Partnership does not expect that the adoption of SFAS
No. 121 will have a material effect on its financial statements.
NOTE 3. REVENUES
Partnership revenues consist of the Hotels' operating results for the three
years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
HOTEL SALES
Rooms............................................. $ 93,292 $ 88,436 $ 84,997
Food and beverage................................. 42,198 37,972 39,763
Other............................................. 7,215 6,548 6,089
-------- -------- --------
142,705 132,956 130,849
-------- -------- --------
HOTEL EXPENSES
Departmental direct costs
Rooms........................................... 18,416 17,490 16,714
Food and beverage............................... 28,975 26,338 27,178
Other hotel operating expenses.................... 31,312 30,425 29,954
-------- -------- --------
78,703 74,253 73,846
-------- -------- --------
REVENUES............................................ $ 64,002 $ 58,703 $ 57,003
======== ======== ========
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Land and improvements....................................... $ 17,091 $ 17,091
Building and improvements................................... 105,374 105,318
Leasehold improvements...................................... 108,848 107,345
Furniture and equipment..................................... 55,335 51,772
-------- --------
286,648 281,526
Less accumulated depreciation............................... (82,658) (69,715)
-------- --------
$203,990 $211,811
======== ========
</TABLE>
11
<PAGE>
MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 5. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments are shown below. The fair
values of financial instruments not included in this table are estimated to be
equal to their carrying amounts.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995 AS OF DECEMBER 31, 1994
------------------------ ------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ------------ ----------- ------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
DEBT AND OTHER LIABILITIES
Mortgage debt................ $ 222,500 $ 222,500 $ 222,500 $ 222,500
Incentive management fees due
to Marriott International,
Inc. ....................... $ 2,164 $ 92 $ 1,703 $ 0
OTHER FINANCIAL INSTRUMENTS
Loss on interest rate swap
($222,500,000 notional
amount)..................... $ 0 $ 581 $ 0 $ 2,600
</TABLE>
The 1995 estimated fair value of mortgage debt obligations are based on
their carrying value as the debt matures on March 21, 1996, and the General
Partner believes refinancing is likely, as discussed in Note 7. Incentive
management fees due are valued based on the expected future payments from
operating cash flow discounted at risk adjusted rates.
The fair value of the interest rate swap agreement is based on the estimated
amount the Partnership would pay to terminate the agreement.
NOTE 6. SANTA CLARA PARTNERSHIP
Summarized financial information for the Santa Clara Partnership is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
BALANCE SHEET
Property and equipment................................ $ 28,406 $ 29,133
Due from Marriott International, Inc. ................ 1,976 1,855
Other assets.......................................... 1,614 1,762
Cash and cash equivalents............................. 1,614 1,216
-------- --------
Total Assets........................................ $ 33,610 $ 33,966
======== ========
Mortgage debt......................................... $ 43,500 $ 43,500
Due to Marriott International, Inc.................... 1,086 468
Accounts payable and accrued expenses................. 117 132
Partners' Deficit..................................... (11,093) (10,134)
-------- --------
Total Liabilities and Partners' Deficit............. $ 33,610 $ 33,966
======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
-----------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
REVENUES............................................... $14,516 $12,131 $11,203
------- ------- -------
OPERATING COSTS AND EXPENSES
Depreciation and amortization........................ 2,765 2,359 2,291
Interest............................................. 3,063 2,295 1,809
Incentive management fees............................ 2,175 1,761 1,577
Base management fees................................. 1,079 967 906
Property taxes....................................... 508 501 506
Ground rent, insurance and other..................... 201 270 264
------- ------- -------
9,791 8,153 7,353
------- ------- -------
NET INCOME............................................. $ 4,725 $ 3,978 $ 3,850
======= ======= =======
</TABLE>
12
<PAGE>
MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE 7. DEBT
Mortgage Debt
The Partnership borrowed $222.5 million pursuant to the terms of a variable
rate mortgage loan (the "Mortgage Debt") to finance the acquisition of the
Hotels. The Mortgage Debt is non-recourse to the Partnership and is secured by
a first mortgage on each of the Hotels including furniture, fixtures and
equipment, contracts and other intangibles and an assignment of the
Partnership's rights under the Management and Purchase Agreements.
At the option of the Partnership, the Mortgage Debt provided for interest
rate options which are tied to a Eurodollar rate, an adjusted CD rate or the
fluctuating corporate base rate. For Eurodollar or CD elections, the
Partnership pays the applicable rate plus an increment equal to 0.9 percentage
points. In April 1992, the Partnership entered into an interest rate swap
agreement for the Mortgage Debt with the primary lender to effectively fix the
interest rate on the Mortgage Debt at 7.8% per annum from May 1992 through
loan maturity. The Partnership does not anticipate nonperformance by the
lender. The Partnership's obligations under the swap agreement are secured by
a pledge of collateral by the General Partner. The weighted average interest
rate on the Mortgage Debt for the three years in the period ended December 31,
1995 was 7.8%. The Mortgage Debt matures March 21, 1996. Although no agreement
has been reached with a lender, the General Partner has had several
discussions with lenders and believes that it will be able to refinance the
loan at maturity. However, if the Partnership is not successful in refinancing
the loan, repayment of the Mortgage Debt could only be made through the sale
of the Hotels.
In March of 1994, the Partnership established a reserve with the mortgage
lender which eliminates any potential conflict under the loan agreement
resulting from the October 8, 1993 division of Marriott Corporation's
operations into two separate companies. Under an agreement reached among the
Partnership, the Manager and the lender, the Partnership will deposit funds
generated in excess of an annual 17.5% return on invested capital into an
escrow account maintained by the lender in conjunction with the bi-annual
distributions to the limited partners. Such funds could be applied to the
principal balance of the Mortgage Debt upon maturity of the loan in 1996 or
upon an earlier prepayment at the Partnership's option. The balance in the
reserve as of December 31, 1995 and December 31, 1994, maintained by the
primary lender, is $9,193,000 and $2,847,000, respectively.
Debt Guarantees
Host Marriott provided an unconditional debt service guarantee to the
lenders of up to $22.8 million to cover shortfalls in principal and interest
payments due under the Mortgage Debt. In accordance with the terms of the debt
service guarantee, Host Marriott was released from this obligation as of
December 31, 1992, as a result of the Partnership's debt service coverage, as
defined, exceeding 1.20 for a specified time period. There were no amounts
advanced to the Partnership under the debt service guarantee. The General
Partner has also guaranteed that in the event of a foreclosure of the Hotels,
proceeds to the lender will be at least $40 million.
NOTE 8. LAND LEASES
The San Antonio and San Ramon Hotels are located on sites with ground leases
from unrelated third parties. The initial lease terms expire in 2013 and 2014,
respectively. The Partnership is obligated to pay annual rent equal to the
greater of a minimum rent or a percentage rent and has the option to extend
the terms for up to five successive ten-year terms each. Ground rent on the
San Antonio Hotel is equal to the greater of $700,000 or 3.5% of annual gross
room sales. Ground rent on the San Ramon Hotel is equal to the greater of
$350,000 or 3% of annual gross sales for the first five years. San Ramon's
minimum rent will be adjusted upward every five
13
<PAGE>
MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
years, beginning in 1989, to an amount equal to 75% of the average rent paid
during the three years immediately preceding the applicable five-year period.
Ground rent expense for the San Antonio and San Ramon Hotels totalled
$1,879,000, $1,746,000 and $1,762,000, for the years ended December 31, 1995,
1994, and 1993, respectively.
Future minimum annual rental commitments for all land leases entered into by
the Partnership, as described above, are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR LAND LEASES
----------- -----------
<S> <C>
1996........................................................ $ 1,050
1997........................................................ 1,050
1998........................................................ 1,050
1999........................................................ 1,050
2000........................................................ 1,050
Thereafter.................................................... 14,000
-------
Total Minimum Lease Payments.................................. $19,250
=======
</TABLE>
NOTE 9. MANAGEMENT AGREEMENTS
The Partnership entered into long-term hotel management agreements (the
"Management Agreements") with the Manager to manage the Hotels as part of the
Marriott International, Inc. full-service hotel system. The Management
Agreements for each Hotel have an initial term expiring on December 31, 2008.
The Manager has the option to renew the Management Agreements for up to four
additional 10-year terms. The Manager also manages the Santa Clara Hotel on
behalf of the Santa Clara Partnership. The Manager is paid a base management
fee equal to 3% of gross hotel sales. Base management fees paid in 1995, 1994
and 1993 were $4,281,000, $3,989,000 and $3,926,000, respectively.
In addition, the Manager is entitled to an incentive management fee equal to
20% of such Hotel's Operating Profit, as defined. The incentive management fee
with respect to each Hotel is payable only out of 55% of each Hotel's
operating profit after the Partnership's payment or retention for such fiscal
year of the following: (i) the Ground Rent, if any, with respect to such
Hotel; (ii) the Qualifying Debt Service, as defined, with respect to
such Hotel; (iii) such Hotel's Pro-Rata Share of Total Mortgage Debt Service
Shortfall, as defined, if any, with respect to all Hotels; (iv) the
Partnership's non-cumulative 10% Priority Return on the Adjusted Contributed
Capital, as defined, with respect to such Hotel; (v) through December 31,
1991, such Hotel's Pro-Rata Share of Total Equity Priority Shortfall, if any,
with respect to all Hotels; and (vi) through December 31, 1992, such Hotel's
pro-rata share of required repayments of any outstanding advances and accrued
interest thereon under the Debt Service Guarantee.
Through 1991, the Manager was not entitled to accrue any unpaid incentive
management fees. Beginning in 1992, unpaid incentive management fees are
accrued without interest and are paid from cash flow available for incentive
management fees following payment of any then current incentive management
fees. Incentive management fees earned for the years ended December 31, 1995,
1994, and 1993 were $9,412,000, $8,507,000 and $8,200,000, respectively.
Deferred incentive management fees as of December 31, 1995 and 1994 were
$2,164,000 and $1,703,000, respectively.
Pursuant to the terms of the Management Agreements, the Manager is required
to furnish the Hotels with certain services ("Chain Services") which are
generally provided on a central or regional basis to all hotels in the
Marriott full-service hotel system. Chain services include central training,
advertising and promotion, a
14
<PAGE>
MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
national reservations system, computerized payroll and accounting services,
and such additional services as needed which may be more efficiently performed
on a centralized basis. Costs and expenses incurred in providing such services
are allocated among all domestic full-service hotels managed, owned or leased
by the Manager or its subsidiaries. In addition, the Hotels also participate
in the Manager's Honored Guest Awards Program ("HGA"). The cost of this
program is charged to all hotels in the Marriott full-service hotel system
based upon the HGA sales at each hotel. The total amount of Chain Services and
HGA costs charged to the Partnership for the years ended December 31, 1995,
1994 and 1993 was $5,151,000, $4,448,000 and $3,497,000, respectively.
The Management Agreements provide for the establishment of a property
improvement fund for each Hotel to cover the cost of certain non-routine
repairs and maintenance to the Hotels which are normally capitalized and the
cost of replacements and renewals to the Hotels' property and improvements.
Contributions to the property improvement fund are based on a percentage of
gross sales. In the case of the San Antonio Hotel, contributions to the
property improvement fund were 4% in 1991 through 1998 and 5% thereafter.
Contributions to the property improvement fund for the San Ramon Hotel were 4%
in 1994 through 1998 and 5% in 1999 and thereafter. Contributions to the
property improvement fund for the New Orleans Hotel are 5% each year. Total
contributions to the property improvement fund for the years ended December
31, 1995 and 1994 were $6,342,000 and $5,935,000, respectively.
Pursuant to the terms of the Management Agreements, the Partnership is
required to provide the Manager with working capital and supplies to meet the
operating needs of the Hotels. The Manager converts cash advanced by the
Partnership into other forms of working capital consisting primarily of
operating cash, inventories, and trade receivables and payables which are
maintained and controlled by the Manager. Upon termination of any of the
Management Agreements, the working capital and supplies of the related Hotel
will be returned to the Partnership. The individual components of working
capital and supplies controlled by the Manager are not reflected in the
Partnership's balance sheet. As of December 31, 1995 and 1994, $6,633,000 has
been advanced to the Manager for working capital and supplies which is
included in Due from Marriott International, Inc. The supplies advanced to the
Manager are recorded at their estimated net realizable value. At December 31,
1995 and 1994, accumulated amortization related to the revaluation of these
supplies totalled $844,000.
NOTE 10. SUBSEQUENT EVENT
On March 21, 1996, the Mortgage Debt matured. An extension between the
Partnership and the current lenders was entered into and extends the maturity
date for an additional six months until an agreement can be reached with
another lender. The General Partner has had several discussions with lenders
and believes that it will be able to refinance the loan before the end of the
six month extension. Under the terms of the extension, interest accrues at the
London interbank offered rate ("LIBOR") plus 187.5 basis points for the first
three months and LIBOR plus 225 basis points for the second three months. No
principal amortization is required during the extension. In addition, the
Partnership applied the $9.2 million accumulated in the primary lender reserve
to the principal balance and deposited $19.1 into the reserve. This deposit
represents the total General Partner reserve through December 31, 1995 ($16.8
million) and cash flow from the Partnership for the first two periods of 1996
($2.3 million). Going forward, the Partnership will be required to deposit
into the reserve all cash flow from the Partnership's Hotels plus the
Partnership's cash flow from the Santa Clara Partnership, net of $500,000 per
period, debt service and current incentive management fees paid. The $500,000
will be deposited into a separate expense reserve which will be used by the
Partnership to fund administrative and refinancing costs and any owner funded
capital expenditures of the Partnership, as well as the Partnership's share of
any such costs incurred by the Santa Clara Partnership in the six month
extension period. In connection with the contemplated refinancing of the
mortgage debt, the General Partner may use funds in the reserve accounts for
costs and expenses associated with the refinancing, to pay down principal, to
establish escrow accounts (if required), or for distribution to the limited
partners.
15
<PAGE>
MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per Unit amounts)
<TABLE>
<CAPTION>
Twelve Weeks Ended
-----------------------------
March 22, March 24,
1996 1995
------------- -------------
<S> <C> <C>
REVENUES......................................... $ 17,044 $ 17,208
------------- -------------
OPERATING COSTS AND EXPENSES
Interest expense................................ 4,010 4,050
Depreciation and amortization................... 2,890 2,890
Incentive management fees....................... 2,552 2,612
Property taxes.................................. 1,298 1,283
Base management fees............................ 1,080 1,071
Ground rent, insurance and other................ 241 393
------------- -------------
12,071 12,299
------------- -------------
INCOME BEFORE EQUITY IN INCOME OF
SANTA CLARA PARTNERSHIP......................... 4,973 4,909
EQUITY IN INCOME OF SANTA CLARA PARTNERSHIP...... 347 173
------------- -------------
NET INCOME....................................... $ 5,320 $ 5,082
============= =============
ALLOCATION OF NET INCOME
General Partner................................. $ 53 $ 51
Limited Partners................................ 5,267 5,031
------------- -------------
$ 5,320 $ 5,082
============= =============
NET INCOME PER LIMITED PARTNER UNIT (745 Units).. $ 7,070 $ 6,753
============= =============
</TABLE>
See Notes to Condensed Financial Statements.
16
<PAGE>
MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
March 22, December 31,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Property and equipment, net..................... $ 203,098 $ 203,990
Due from Marriott International, Inc............ 10,963 7,275
Property improvement fund....................... 11,696 11,940
Deferred financing and organization costs, net.. 1 114
Restricted cash reserve......................... 9,280 9,193
Cash and cash equivalents....................... 25,830 21,601
------------- -------------
$ 260,868 $ 254,113
============= =============
</TABLE>
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
Mortgage debt.................................. $ 222,500 $ 222,500
Due to Marriott International, Inc............. 3,424 2,615
Investment in Santa Clara Partnership.......... 8,870 8,244
Accounts payable and accrued expenses.......... 433 433
------------- -------------
Total Liabilities............................. 235,227 233,792
------------- -------------
PARTNERS' CAPITAL
General Partner................................ 401 348
Limited Partners............................... 25,240 19,973
------------- -------------
Total Partners' Capital....................... 25,641 20,321
------------- -------------
$ 260,868 $ 254,113
============= =============
</TABLE>
See Notes to Condensed Financial Statements.
17
<PAGE>
MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Twelve Weeks Ended
-----------------------------
March 22, March 24,
1996 1995
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................... $ 5,320 $ 5,082
Noncash items................................ 2,705 2,920
Change in operating accounts................. (2,928) (1,938)
------------- -------------
Cash provided by operations.............. 5,097 6,064
------------- -------------
INVESTING ACTIVITIES
Additions to property and equipment.......... (1,998) (2,762)
Distributions from Santa Clara Partnership... 973 --
Change in property improvement funds......... 244 1,024
Additions to restricted cash reserve......... (87) --
------------- -------------
Cash used in investing activities........ (868) (1,738)
------------- -------------
INCREASE IN CASH AND CASH EQUIVALENTS......... 4,229 4,326
CASH AND CASH EQUIVALENTS at beginning of
period....................................... 21,601 17,764
------------- -------------
CASH AND CASH EQUIVALENTS at end of period.... $ 25,830 $ 22,090
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for mortgage interest.............. $ 3,937 $ 2,846
============= =============
</TABLE>
See Notes to Condensed Financial Statements.
18
<PAGE>
MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed financial statements have been prepared by
Marriott Hotel Properties II Limited Partnership (the "Partnership") without
audit. Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted from the accompanying
statements. The Partnership believes the disclosures made are adequate to
make the information presented not misleading. However, the condensed
financial statements should be read in conjunction with the Partnership's
financial statements and notes thereto for the fiscal year ended December 31,
1995 which are included in the Partnership's Form 10 registration statement
filed with the Securities and Exchange Commission on April 17, 1996.
In the opinion of the Partnership, the accompanying condensed unaudited
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position of
the Partnership as of March 22, 1996 and December 31, 1995, the results of
operations for the twelve weeks ended March 22, 1996 and March 24, 1995, and
cash flows for the twelve weeks ended March 22, 1996 and March 24, 1995.
Interim results are not necessarily indicative of fiscal year performance
because of seasonal and short-term variations.
2. The Partnership owns the New Orleans, San Antonio Rivercenter and San Ramon
Marriott Hotels (the "Hotels"). In addition, the Partnership owns a 50%
limited partnership interest in the Santa Clara Marriott Hotel Limited
Partnership (the "Santa Clara Partnership") which owns the Santa Clara
Marriott Hotel (the "Santa Clara Hotel"). The Partnership's income from the
Santa Clara Partnership is reported as Equity in Income of the Santa Clara
Partnership. In arriving at equity in income from the Santa Clara
Partnership, the Partnership is allocated 100% of the interest expense
related to the debt incurred to purchase the Santa Clara Partnership
interest. Summarized financial information for the Santa Clara Partnership is
presented in Note 5 below.
3. For financial reporting purposes, net profits and net losses of the
Partnership are allocated 99% to the Limited Partners and 1% to the General
Partner. Significant differences exist between the net profits and net losses
for financial reporting purposes and the net profits and net losses reported
for Federal income tax purposes. These differences are due primarily to the
use, for income tax purposes, of accelerated depreciation methods and shorter
depreciable lives of the assets and differences in the timing of recognition
of incentive management fee expense.
4. Partnership revenues consist of the Hotels' operating results for the twelve
weeks ended (in thousands):
<TABLE>
<CAPTION>
Twelve Weeks Ended
-----------------------------
March 22, March 24,
1996 1995
------------- -------------
<S> <C> <C>
HOTEL REVENUES
Rooms........................... $ 23,515 $ 23,431
Food and beverage............... 10,394 10,350
Other........................... 2,091 1,931
------------- -------------
36,000 35,712
------------- -------------
HOTEL EXPENSES
Departmental direct costs
Rooms........................... 4,305 4,345
Food and beverage............... 7,051 6,733
Other hotel operating expenses.. 7,600 7,426
------------- -------------
18,956 18,504
------------- -------------
REVENUES......................... $ 17,044 $ 17,208
============= =============
</TABLE>
19
<PAGE>
5. Summarized financial information for the Santa Clara Partnership is as
follows:
<TABLE>
<CAPTION>
Twelve Weeks Ended
-----------------------------
March 22, March 24,
1996 1995
------------- -------------
(in thousands)
<S> <C> <C>
Statement of Operations
- -----------------------
REVENUES.................................... $ 4,119 $ 3,385
------------- -------------
OPERATING COSTS AND EXPENSES
Interest expense.......................... 643 731
Depreciation and amortization............. 623 623
Incentive management fees................. 627 509
Base management fees...................... 283 247
Property taxes............................ 116 117
Ground rent, insurance and other.......... 69 61
------------- -------------
2,361 2,288
------------- -------------
NET INCOME $ 1,758 $ 1,097
============= =============
<CAPTION>
March 22, December 31,
1996 1995
------------- -------------
(in thousands)
Balance Sheet
- -------------
Property and equipment, net................. $ 29,239 $ 28,406
Other assets................................ 3,742 3,590
Cash and cash equivalents................... 235 1,614
------------- -------------
Total Assets............................. $ 33,216 $ 33,610
============= =============
Mortgage debt............................... $ 43,500 $ 43,500
Due to Marriott International, Inc.......... 1,221 1,086
Accounts payable and accrued expenses....... 123 117
Partners' deficit........................... (11,628) (11,093)
------------- -------------
Total Liabilities and Partners' Deficit.. $ 33,216 $ 33,610
============= =============
</TABLE>
6. On March 21, 1996, the Mortgage Debt matured. An extension was entered into
between the Partnership and the current lenders that extends the maturity
date for an additional six months until an agreement can be reached with
another lender. The General Partner has had several discussions with lenders
and believes that it will be able to refinance the loan before the end of the
six month extension. Under the terms of the extension, interest accrues at
the London interbank offered rate ("LIBOR") plus 187.5 basis points for the
first three months and LIBOR plus 225 basis points for the second three
months. No principal amortization is required during the extension. Under
the terms of the extension, the Partnership applied the $9.2 million
accumulated in the primary lender reserve account to pay down the principal
balance of the Mortgage Debt to $213.3 million and deposited $19.1 million
into the primary lender reserve account. The deposit represented the balance
($16.8 million) from the reserve account previously established by the
General Partner in 1992 and cash flow from the Partnership for the first two
periods of 1996 ($2.3 million). Such payments were made subsequent to the
close of the first quarter. During the extension period, the
20
<PAGE>
Partnership also is required to deposit into the primary lender reserve
account all cash flow from the Partnership's Hotels plus all the
Partnership's cash flow from the Santa Clara Partnership, net of (i) $500,000
per accounting period, (ii) debt service and (iii) current incentive
management fees paid. The $500,000 per accounting period will be deposited
into a separate expense reserve account which will be used by the Partnership
to fund administrative expenses and refinancing costs, any owner-funded
capital expenditures of the Partnership, as well as the Partnership's share
of any such costs incurred by the Santa Clara Partnership in the six month
extension period. In connection with the contemplated refinancing of the
Mortgage Debt, the General Partner may use funds in the reserve accounts for
costs and expenses associated with the refinancing, to pay down principal, to
establish escrow accounts (if required), or for distribution to the limited
partners.
7. In the first quarter of 1996, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of". Adoption of SFAS
No. 121 did not have a material effect on its financial statements.
21
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The Unaudited Pro Forma Condensed Consolidated Statements of Operations of the
Company reflect the following transactions for the twelve weeks ended March 22,
1996 and the fiscal year ended December 29, 1995, as if such transactions had
been completed at the beginning of each period:
* 1996 acquisition of a controlling interest in the Marriott Hotel Properties
II Limited Partnership ("MHP II")
* 1996 acquisition of controlling interests in the San Diego Marriott Hotel
and Marina and the Pittsburgh Hyatt Regency
* 1996 acquisition of three full-service hotels
* 1996 acquisition of an 83% interest in the mortgage loans secured by the
Newport Beach Marriott Suites
* 1996 sale/leaseback of 16 Courtyard properties
* 1996 sale/leaseback of 18 Residence Inns
* 1995 acquisition of eight full-service hotel properties (see discussion
below)
* 1995 sale/leaseback of 37 Courtyard properties
* 1995 sale of the Company's remaining four Fairfield Inns
* May 1995 Debt Offering
* December 1995 Debt Offering
The Unaudited Pro Forma Condensed Consolidated Balance Sheet of the Company
reflects the third quarter 1996 acquisition of a controlling interest in MHP II,
the second quarter 1996 acquisition of two full-service properties and a
controlling interest in the Pittsburgh Hyatt Regency, the sale and leaseback of
13 Courtyard properties and 13 Residence Inns, and the issuance of 31.6 million
shares of common stock for net proceeds of approximately $399 million, as if
such transactions had been completed on March 22, 1996.
During the second quarter of 1996, the Company acquired the Dulles Marriott
Suites, the Oklahoma City Marriott and a controlling interest in the Pittsburgh
Hyatt Regency. Also during the second quarter, the Company completed the sale
and leaseback of 13 Courtyard properties and 13 Residence Inns to a real estate
investment trust (the "REIT"). (Three of the Courtyard properties and five of
the Residence Inns were sold on March 22, 1996.)
During the first quarter of 1996, the Company acquired the Toronto Delta
Meadowvale hotel, a controlling interest in the San Diego Marriott Hotel and
Marina, and an 83% interest in the mortgage loans secured by the Newport Beach
Marriott Suites hotel. Also during the first quarter, the Company sold the three
Courtyard and five Residence Inn properties limited-service properties discussed
above.
During 1995, the Company acquired nine full-service hotel properties. The
accompanying Unaudited Pro Forma Condensed Consolidated Statements of Operations
do not reflect any pro forma adjustments related to the New York Vista Hotel
(renamed the Marriott World Trade Center) due to the suspension of hotel
operations and the renovation of the hotel as a result of extensive damage from
an explosion on February 26, 1993. Because the hotel did not resume full
operations until late-1995, the historical operations of the hotel during the
periods presented are not meaningful.
During 1995, 37 of the Courtyard properties were sold to and leased back from
the REIT and the Company sold its four remaining Fairfield Inns.
HMH Properties, Inc., an indirect wholly-owned subsidiary of the Company,
issued $600 million of debt (the "Properties Notes") in May 1995 (the "May 1995
Debt Offering"). The Properties Notes were issued at par and carry a 9.5%
interest rate with a final maturity of May 2005. The net proceeds to the Company
were used to defease, and subsequently redeem, bonds which carried a weighted
average interest rate of 10.4%, and to pay down a portion of the line of credit
with Marriott International, Inc. Additionally, the Company replaced its $630
million line of credit with Marriott International, Inc. with a new line of
credit of $225 million (the "New Line of Credit").
In December 1995, HMC Acquisition Properties, Inc. ("Acquisitions"), an
indirect, wholly-owned subsidiary of the Company, issued $350 million of 9%
senior notes (the "Acquisitions Notes") to several initial purchasers (the
"December 1995 Debt Offering"). The Acquisitions Notes were issued at par and
have a final maturity of December 2007. The proceeds were utilized to repay in
full the $210 million of outstanding borrowings under, and terminate,
22
<PAGE>
Acquisitions' $230 million revolving credit facility (the "Credit Facility"), as
well as to finance acquisitions of full-service hotel properties.
During 1995, the Company sold the 199-room Springfield Radisson Hotel which
was acquired as part of a portfolio of lodging properties by the Company in
December 1994. No adjustment has been reflected in the accompanying Unaudited
Pro Forma Condensed Consolidated Statements of Operations due to the
immateriality of the operating results for this property.
The Pro Forma Condensed Consolidated Financial Data of the Company are
unaudited and presented for informational purposes only and may not reflect the
Company's future results of operations and financial position or what the
results of operations and financial position of the Company would have been had
such transactions occurred as of the dates indicated. The Pro Forma Condensed
Consolidated Financial Data and Notes thereto should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" included on Form 10-K for the fiscal year ended December 29, 1995.
23
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of March 22, 1996
(in millions)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
----------- ------------- ---------
<S> <C> <C> <C>
ASSETS
Property and Equipment................... $3,160 $ 71 (A) $3,247
(230)(B)
246 (C)
Notes and Other Receivables.............. 218 -- 218
Due from Hotel Managers.................. 80 -- 80
Investments in Affiliates................ 14 -- 14
Other Assets............................. 230 26 (B) 284
28 (C)
Cash and Cash Equivalents................ 168 (70)(A) 694
227 (B)
(30)(C)
399 (D)
------ ------ ------
$3,870 $ 667 $4,537
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt
Debt carrying a parent company
guarantee of repayment................. $ 253 $ -- $ 253
Debt not carrying a parent company
guarantee of repayment................. 2,171 223 (C) 2,394
------ ------ ------
2,424 223 2,647
Accounts Payable and Accrued Expenses.... 75 -- 75
Deferred Income Taxes.................... 501 -- 501
Other Liabilities........................ 203 1 (A) 248
23 (B)
21 (C)
------ ------ ------
Total Liabilities...................... 3,203 268 3,471
------ ------ ------
Shareholders' Equity
Common Stock............................ 163 32 (D) 195
Additional Paid-in Capital.............. 500 367 (D) 867
Retained Earnings....................... 4 -- 4
------ ------ ------
Total Shareholders' Equity............. 667 -- 1,066
------ ------ ------
$3,870 $ 667 $4,537
====== ====== ======
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Data.
24
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 29, 1995
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Acquisition
Disposition & Other Pro
Historical Adjustments Adjustments Forma
----------- ------------- ------------- -------
<S> <C> <C> <C> <C>
Revenues
Hotels.................... $ 474 $ (1)(F) $ 64 (E) $ 617
30 (G)
11 (H)
39 (I)
Other..................... 10 -- 2 (I) 12
------ ---- ---- ------
484 (1) 146 629
------ ---- ---- ------
Operating cost and expenses
Hotels.................... 281 (1)(F) 33 (E) 395
10 (J) 17 (G)
26 (K) 6 (H)
23 (I)
Other..................... 89 -- -- 89
------ ---- ---- ------
370 35 79 484
------ ---- ---- ------
Operating profit (loss).... 114 (36) 67 145
Minority interest.......... (2) -- (6)(E) (8)
Corporate expenses......... (36) -- -- (36)
Interest expense........... (178) 4 (L) (18)(E) (227)
(3)(G)
(18)(I)
3 (M)
(17)(N)
Interest income............ 27 -- 1 (I) 28
------ ---- ---- ------
(Loss) income from
continuing operations
before income taxes and
extraordinary items...... (75) (32) 9 (98)
Benefit (provision) for
income taxes.............. 13 11 (O) (3)(O) 21
------ ---- ---- ------
(Loss) income from
continuing operations
before
extraordinary items....... $ (62) $(21) $ 6 $ (77)
====== ==== ==== ======
Loss per common share from
continuing operations..... $ (.39) $ (.47)
====== ======
Weighted average shares
outstanding (D)........... 158.3 158.3
====== ======
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Data.
25
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Twelve Weeks Ended March 22, 1996
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Acquisition
Disposition & Other Pro
Historical Adjustments Adjustments Forma
----------- ------------- ------------- -------
<S> <C> <C> <C> <C>
Revenues
Hotels.................... $ 126 $ -- $ 17 (E) $ 145
2 (H)
Other..................... 4 -- -- 4
------ --- ---- ------
130 -- 19 149
------ --- ---- ------
Operating cost and expenses
Hotels.................... 83 6 (K) 8 (E) 98
1 (H)
Other..................... 9 -- -- 9
------ --- ---- ------
92 6 9 107
------ --- ---- ------
Operating profit (loss).... 38 (6) 10 42
Minority interest.......... (1) -- (2)(E) (3)
Corporate expenses......... (9) -- -- (9)
Interest expense........... (48) -- (4)(E) (52)
Interest income............ 6 -- -- 6
------ --- ---- ------
(Loss) income from
continuing operations
before income taxes....... (14) (6) 4 (16)
Benefit (provision) for
income taxes.............. 2 2 (O) (1)(O) 3
------ --- ---- ------
(Loss) income from
continuing operations..... $ (12) $ (4) $ 3 $ (13)
====== ====== ==== ======
Loss per common share from
continuing operations..... $ (.07) $ (.08)
====== ======
Weighted average shares
outstanding (D)........... 161.4 161.4
====== ======
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Data.
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL DATA
A. Represents the adjustment to record the acquisition of two full-service
properties during the second quarter of 1996 and a controlling interest in a
third full-service property:
- Record property and equipment of $71 million
- Record the use of cash of $70 million for the acquisition cost
- Record the minority interest of $1 million for the partner of the joint
venture acquiring one full-service property
B. Represents the adjustment to record the sale and leaseback of the 13
Courtyards and 13 Residence Inns as follows:
- Reduce property and equipment by the net book value of assets sold of
$230 million
- Record the net cash proceeds of $227 million
- Record the deferred proceeds of $26 million
- Record the deferred gain of $23 million
C. Represents the adjustment to record the acquisition of a controlling
interest in MHP II:
- Record property and equipment of $246 million
- Record the use of cash of $30 million
- Record other assets of $28 million
- Record notes payable of $223 million
- Record other liabilities of $21 million
D. Represents the adjustment to record the issuance of 31.6 million shares of
common stock for net proceeds of approximately $399 million. The effect of
the offering is not included in the calculation of weighted average shares.
E. Represents the adjustment to record the revenue and operating expense,
interest expense and minority interest expense for the acquisition of a
controlling interest in MHP II.
F. Represents the adjustment to eliminate the revenues and the operating
costs for the 1995 sale of the four remaining Fairfield Inns.
G. Represents the adjustment to reflect the incremental increase in revenue,
operating costs and secured debt interest expense for eight of the nine 1995
additions of full-service properties, as if they were added at the beginning
of the fiscal year. On February 26, 1993, an explosion caused damage to the
structure and interior of the New York Vista Hotel, as well as the adjoining
World Trade Center complex. As a result of the damage, all hotel operations
were suspended and the hotel underwent extensive renovation. Because the
hotel did not resume full operations until late-1995, the historical
operations of the hotel during the periods presented are not meaningful and
the accompanying Unaudited Pro Forma Condensed Consolidated Statements of
Operations do not reflect any adjustments related to the hotel.
H. Represents the adjustment to record the revenue and operating costs for the
second quarter 1996 acquisition of the Dulles Marriott Suites, the Oklahoma
City Marriott and the acquisition of a controlling interest in the
Pittsburgh Hyatt Regency, including depreciation expense reflecting the
Company's basis in the assets and the incremental management fees as a
result of the new management agreements that will be entered into in
conjunction with certain of the transactions.
I. Represents the adjustment to record the revenue, operating costs, secured
debt interest expense and interest income for the first quarter 1996
acquisition of the Toronto Delta Meadowvale hotel, the acquisition of a
controlling interest in the San Diego Marriott Hotel and Marina, and the
purchase of an 83% interest in the mortgage loans secured by the Newport
Beach Marriott Suites hotel. No adjustment has been reflected in the
accompanying
27
<PAGE>
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the
twelve weeks ended March 22, 1996 due to the immateriality of the operating
results of these properties.
J. Represents the net adjustment to eliminate the depreciation expense and
record the incremental lease expense for the 1995 sale/leaseback of the 37
Courtyard properties.
K. Represents the net adjustment to eliminate the depreciation expense and
record the incremental lease expense for the 1996 sale/leaseback of the 16
Courtyard properties and 18 Residence Inns.
L. Represents the adjustment to reduce interest expense for the redemption of
senior notes of Host Marriott Hospitality, Inc. (the "Hospitality Notes")
with the net sales proceeds from 21 Courtyard properties.
M. Represents the adjustment to reduce interest expense to reflect the decrease
in interest rates as a result of the issuance of the Properties Notes and
the decrease in commitment fees as a result of the New Line of Credit.
Extraordinary losses of approximately $17 million, after taxes, related to
the 1995 redemption of certain of the Hospitality Notes are not reflected in
the accompanying Unaudited Pro Forma Condensed Consolidated Statements of
Operations.
N. Represents the adjustment to eliminate the interest expense and related
amortization of deferred financing fees for the Credit Facility, and to
record the interest expense and related amortization of deferred financing
fees as a result of the issuance of the Acquisitions Notes. An extraordinary
loss of approximately $3 million, after taxes, related to the 1995
termination of the Credit Facility is not reflected in the accompanying
Unaudited Pro Forma Condensed Consolidated Statements of Operations.
O. Represents the income tax impact of pro forma adjustments at statutory
rates.
28
<PAGE>
EXHIBIT 99
Page 1 of 2
HOST MARRIOTT SUCCESSFULLY COMPLETES TENDER OFFER
FOR LIMITED PARTNERSHIP UNITS
Bethesda, MD; June 17, 1996 -- Host Marriott Corporation today announced it has
successfully completed its tender offer for a majority of the limited
partnership units in Marriott Hotel Properties II Limited Partnership ("MHP
II"). The Company purchased 375.5 units for an aggregate consideration of
$56,325,000, or $150,000 per unit. As a result of this transaction, a wholly-
owned subsidiary of Host Marriott became the majority limited partner of MHP II.
An affiliate of Host Marriott also serves as the general partner. Additionally,
in a vote held in conjunction with the tender offer, the limited partners
approved certain amendment to the partnership agreement that were conditions to
the tender offer.
The 1995 EBITDA for these four hotels was approximately $45 million. The
general partner is in the process of refinancing the partnership debt which
totals approximately $225 million.
MHP II owns the 1,290-room New Orleans Marriott hotel located on Canal Street in
the central business district of downtown New Orleans, adjacent to the historic
French Quarter and within walking distance to the City's convention center.
Designed as part of the Marriott network of convention hotels, it has extensive
meeting and convention facilities, totalling 80,000 square feet. This hotel's
facilities also include three restaurants, three lounges, a health club, an
outdoor pool and a 475-space underground parking garage.
The partnership also owns the 999-room San Antonio Marriott Rivercenter hotel
located on the San Antonio Riverwalk near the Alamo and one block from San
Antonio's convention center. This premier convention hotel has a 40,000 square
foot grand ballroom and 36 meeting rooms. San Antonio is one of the country's
leading convention destinations; a proposed expansion of its convention center
will make it the 12th largest in the country.
In addition, the partnership owns two hotels in California, the 368-room San
Ramon Marriott hotel and a 50% limited partner interest in the 754-room Santa
Clara Marriott hotel. Both of these hotels are located in major commercial
areas. The Santa Clara hotel is located approximately one mile from the Santa
Clara Convention Center and four miles from the San Jose International Airport.
The San Ramon hotel is ideally located within a major office park and is within
an hour's drive of San Francisco and the Napa and Sonoma wineries.
"We are very pleased with the results of the offer," stated Terence C. Golden,
President and CEO of the Company. "This transaction fits Host Marriott's
strategy of investing in quality full-service hotels and has allowed some of the
limited partners the opportunity to liquidate their investment."
During 1996, Host Marriott has purchased, or acquired, controlling interests in
11 hotels with an aggregate investment of approximately $725 million. "We
continue to see a number of attractive opportunities to acquire quality full-
service hotels," added Golden.
<PAGE>
EXHIBIT 99
Page 2 of 2
Host Marriott Corporation is a lodging real estate company that currently owns
64 full-service hotel properties operated primarily under the Marriott brand
name. The Company also serves as general partner and holds minority interests
in various unconsolidated partnerships that own 261 lodging properties, 41 of
which are full-service hotels.
###
