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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported) August 15, 1997
-------------------------
HOST MARRIOTT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
1-5664 53-0085950
(Commission File Number) (I.R.S. Employer Identification Number)
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.)
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<PAGE>
FORM 8-K/A
ITEM 2. ACQUISITIONS OR DISPOSITIONS OF ASSETS
The Registrant hereby amends its Current Report on Form 8-K dated August 15,
1997 by filing financial statements of an acquired business, Manhattan Beach
Hotel Partners, L.P., and certain pro forma financial information for Host
Marriott Corporation.
Certain matters discussed within this Form 8-K/A are forward-looking statements
within the meaning of the Private Litigation Reform Act of 1995 and as such may
involve known and unknown risks, uncertainties, and other factors which may
cause the actual results, performance or achievements of Host Marriott to be
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Although Host Marriott believes the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, it can give no assurance that its expectations will be
attained. These risks are detailed from time-to-time in the company's filings
with the Securities and Exchange Commission.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Manhattan Beach Hotel Partners, L.P.:
Page
----
Report of Independent Accountants 3
Balance Sheets as of December 31, 1996 and 1995 4
Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 5
Statements of Partners' Capital (Deficit) for the
years ended December 31, 1996, 1995 and 1994 6
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 7
Notes to the Financial Statements 8
Balance Sheets as of June 30, 1997 (unaudited) 13
Statements of Operations for the three and six months
ended June 30, 1997 and 1996 (unaudited) 14
Statement of Partners' Capital (Deficit) for the six
months ended June 30, 1997 (unaudited) 15
Statements of Cash Flows for the six months
ended June 30, 1997 and 1996 unaudited) 16
Notes to the Financial Statements (unaudited) 17
(b) Pro Forma financial information of the Registrant reflecting the
acquisition of Manhattan Beach Hotel Partners, L.P. as of and for the
twenty-four weeks ended June 20, 1997 and for the fiscal year ended
January 3, 1997 (unaudited):
Page
----
Pro Forma Condensed Consolidated Financial Data 18
Pro Forma Condensed Consolidated Balance Sheet as of
June 20, 1997 20
Pro Forma Condensed Consolidated Statement of Operations
for the twenty-four weeks ended June 20, 1997 21
Pro Forma Condensed Consolidated Statement of Operation
for the fiscal year ended January 3, 1997 22
Notes to Pro Forma Condensed Consolidated Financial Data 23
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
Senior Vice President and
Corporate Controller
Date: October 23, 1997
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Manhattan Beach Hotel Partners, L.P.:
We have audited the accompanying balance sheets of Manhattan Beach Hotel
Partners, L.P. (formerly Shearson California Radisson Plaza Partners, L.P.), a
Delaware limited partnership, as of December 31, 1996 and 1995, and the related
statements of operations, partners' capital (deficit) and cash flows for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Partnership'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 the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Manhattan Beach Hotel Partners,
L.P. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
March 14, 1997
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<PAGE>
Manhattan Beach Hotel Partners, L.P.
Balance Sheets
<TABLE>
<CAPTION>
At December 31, At December 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Assets
Property held for disposition (note 2) $ 36,800,000 $ --
Real estate, at cost (note 2):
Building -- 47,975,974
Furniture, fixtures and equipment -- 2,623,827
Leasehold improvements -- 3,333,141
------------- -------------
-- 53,932,942
Less accumulated depreciation and amortization -- (11,006,481)
------------- -------------
-- 42,926,461
Cash and cash equivalents 2,100,400 4,414,032
Restricted cash 413,229 187,464
Accounts receivable 1,386,303 992,941
Prepaid and other assets 382,225 374,304
------------- -------------
Total Assets $ 41,082,157 $ 48,895,202
============= =============
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued liabilities $ 1,549,286 $ 1,371,160
Due to affiliates (note 4) 63,495 2,338,650
Distribution payable -- 1,409,091
------------- -------------
Total Liabilities 1,612,781 5,118,901
------------- -------------
Partners' Capital (Deficit):
General Partner (1,634,727) (1,591,658)
Limited Partners (6,975,000 limited partnership units
authorized, issued and outstanding) 41,104,103 45,367,959
------------- -------------
Total Partners' Capital 39,469,376 43,776,301
------------- -------------
Total Liabilities and Partners' Capital $ 41,082,157 $ 48,895,202
============= =============
</TABLE>
See accompanying notes to the financial statements.
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<PAGE>
Manhattan Beach Hotel Properties, L.P.
Statements of Operations
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
Hotel Revenues:
Rooms $ 9,920,606 $ 8,860,793 $ 8,301,912
Food and beverage 4,811,899 4,256,995 4,250,324
Telephone 644,751 599,598 485,629
Other 217,615 118,510 148,947
-------------- ------------- -------------
Total Revenues 15,594,871 13,835,896 13,186,812
-------------- ------------- -------------
Departmental Expenses:
Rooms 2,764,245 2,399,499 2,356,431
Food and beverage 3,889,952 3,458,417 3,494,320
Telephone 348,964 319,083 314,893
Other 47,233 40,762 35,717
-------------- ------------- -------------
Total Expenses 7,050,394 6,217,761 6,201,361
-------------- ------------- -------------
Departmental Income 8,544,477 7,618,135 6,985,451
-------------- ------------- -------------
Unallocated Partnership and Hotel Operating Expenses:
Advertising and sales 614,194 549,649 596,360
General and administrative:
Hotel and other 2,393,998 2,034,318 1,875,222
Partnership 477,745 504,314 455,690
Utilities and maintenance 1,161,191 1,151,196 1,184,477
Ground rent (note 5) 735,756 655,948 623,457
Management fees (note 6) 501,197 424,773 304,261
Property taxes 396,729 393,194 417,494
Operating leases 84,879 115,380 150,645
Depreciation and amortization 1,836,560 1,735,741 1,680,272
Loss on write-down of real estate 4,797,429 -- --
-------------- ------------- -------------
12,999,678 7,564,513 7,287,878
-------------- ------------- -------------
Operating Income (Loss) (4,455,201) 53,622 (302,427)
-------------- ------------- -------------
Other Income:
Interest income 141,461 173,031 54,435
Other income, net 6,815 5,573 2,980
-------------- ------------- -------------
148,276 178,604 57,415
-------------- ------------- -------------
Net Income (Loss) $ (4,306,925) $ 232,226 $ (245,012)
============== ============= =============
Net Income (Loss) Allocated:
To the General Partner $ (43,069) $ 232,226 $ (36,752)
To the Limited Partners (4,263,856) -- (208,260)
-------------- ------------- -------------
$ (4,306,925) $ 232,226 $ (245,012)
============== ============= =============
Net Income (Loss):
Per limited partnership unit
(6,975,000 outstanding) $ (.61) $ -- $ (.03)
============== ============= =============
</TABLE>
See accompanying notes to the financial statements.
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<PAGE>
Manhattan Beach Hotel Partners, L.P.
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
--------------- --------------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1993 $ (1,773,041) $ 46,971,219 $ 45,198,178
Net loss (36,752) (208,260) (245,012)
-------------- -------------- ---------------
Balance at December 31, 1994 (1,809,793) 46,762,959 44,953,166
Net income 232,226 -- 232,226
Distributions (14,091) (1,395,000) (1,409,091)
-------------- -------------- ---------------
Balance at December 31, 1995 (1,591,658) 45,367,959 43,776,301
Net loss (43,069) (4,263,856) (4,306,925)
-------------- -------------- ---------------
Balance at December 31, 1996 $ (1,634,727) $ 41,104,103 $ 39,469,376
============== ============== ===============
</TABLE>
See accompanying notes to the financial statements.
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<PAGE>
Manhattan Beach Hotel Partners, L.P.
Statements of Cash Flows
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ (4,306,925) $ 232,226 $ (245,012)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,836,560 1,735,741 1,680,272
Loss on write-down of real estate 4,797,429 -- --
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Fundings of restricted cash (733,293) (568,309) (547,865)
Accounts receivable (393,362) (86,220) (340,776)
Prepaid and other assets (7,921) 6,771 (39,332)
Accounts payable and accrued liabilities 178,126 46,778 (319,191)
Due to affiliates (2,275,155) 249,867 249,954
-------------- ------------- ------------
Net cash provided by (used for) operating activities (904,541) 1,616,854 438,050
-------------- ------------- ------------
Cash Flows From Investing Activities:
Proceeds from restricted cash 507,528 651,334 277,376
Additions to real estate (507,528) (651,334) (101,658)
-------------- ------------- ------------
Net cash provided by investing activities -- -- 175,718
-------------- ------------- ------------
Cash Flows From Financing Activities:
Distributions (1,409,091) -- --
-------------- ------------- ------------
Net cash used for financing activities (1,409,091) -- --
-------------- ------------- ------------
Net increase (decrease) in cash and cash equivalents (2,313,632) 1,616,854 613,768
Cash and cash equivalents, beginning of period 4,414,032 2,797,178 2,183,410
-------------- ------------- ------------
Cash and cash equivalents, end of period $ 2,100,400 $ 4,414,032 $ 2,797,178
============== ============= =============
</TABLE>
See accompanying notes to the financial statements.
-7-
<PAGE>
Manhattan Beach Hotel Partners, L.P.
Notes to the Financial Statements
December 31, 1996, 1995 and 1994
1. ORGANIZATION
Manhattan Beach Hotel Partners, L.P. (the "Partnership"), formerly Shearson
California Radisson Plaza Partners, L.P. (see below), a Delaware limited
partnership, was organized on September 8, 1987 under the laws of the State of
Delaware for the purpose of acquiring, owning, leasing or operating, and
eventually selling the Radisson Plaza Hotel and Golf Course (the "Property" or
the "Hotel"). The Partnership purchased the Property on December 1, 1987 for
$56,500,000. The Partnership will terminate on December 31, 2037, or earlier, in
accordance with the terms of the Partnership Agreement.
The general partner of the Partnership is Manhattan Beach Commercial Properties
III, Inc., (the "General Partner"), formerly Shearson Lehman Commercial
Properties III, Inc. (see below), a Delaware corporation and a wholly-owned
subsidiary of DA Group Holdings, Inc. (the "Group"), formerly Shearson Lehman
Brothers Group Inc. The original limited partner of the Partnership was Shearson
Lehman Commercial Properties Depositary III, Inc. (the "Assignor Limited
Partner"), a Delaware corporation and a wholly-owned subsidiary of the Group.
On July 31, 1993, Shearson Lehman Brothers Inc. ("Shearson") sold certain of its
domestic retail brokerage and asset management businesses to Smith Barney,
Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to the sale,
Shearson changed its name to Lehman Brothers Inc. ("Lehman"). The transaction
did not affect the ownership of the General Partner. However, the assets
acquired by Smith Barney included the name "Shearson." Consequently, effective
October 21, 1993, the Shearson Lehman Commercial Properties III, Inc. General
Partner changed its name to Manhattan Beach Commercial Properties III, Inc., and
effective December 2, 1993, the Partnership changed its name to Manhattan Beach
Hotel Partners, L.P.
Prior to the admission of public investors as Limited Partners, the
Partnership's losses were allocated 99% to the Assignor Limited Partner and 1%
to the General Partner. Upon admission of public investors, the Assignor Limited
Partner assigned its rights of ownership to the purchasers of Limited
Partnership interests.
During the year ended December 31, 1988, the Partnership, on behalf of the
Assignor Limited Partner, sold 6,975,000 depositary units representing gross
capital contributions of $69,750,000. Net proceeds to the Partnership amounted
to approximately $62,937,000 after deduction of offering costs and selling
commissions. The proceeds of the public offering were utilized to pay off the
promissory note secured by an all-inclusive deed of trust.
On February 13, 1996, based upon, among other things, the advice of legal
counsel, Skadden, Arps, Slate, Meagher & Flom LLP, the General Partner adopted a
resolution that states, among other things, if a Change of Control (as defined
below) occurs, the General Partner may distribute the Partnership's cash
balances not required for its ordinary course day-to-day operations. "Change of
Control" means any purchase or offer to purchase more than 10% of the Units that
is not approved in advance by the General Partner. In determining the amount of
the distribution, the General Partner may take into account all material
factors. In addition, the Partnership will not be obligated to make any
distribution to any partner, and no partner will be entitled to receive any
distribution, until the General Partner has declared the distribution and
established a record date and distribution date for the distribution.
-8-
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES
PROPERTY HELD FOR DISPOSITION. Property held for disposition is carried at the
lower of carrying value or fair market value less costs to sell. Effective
December 31, 1996, real estate assets were reclassified as "Property held for
disposition" and will no longer be depreciated. As further discussed in Note 5,
the Partnership wrote down the net book value of the Hotel by $ 4,797,429 to its
estimated fair market value less costs to sell.
REAL ESTATE INVESTMENTS. At December 31, 1995, real estate investments, which
consisted of the Hotel building, furniture, fixtures and equipment, and
leasehold estate, were recorded at cost less accumulated depreciation. Cost
included the initial purchase price of the property plus closing costs,
acquisition and legal fees and capital improvements. Depreciation of the real
property was computed using the straight-line method based on the estimated
useful life of 40 years. Depreciation of the personal property was computed
using the straight-line method over an estimated useful life of five years.
Improvements were amortized over the remaining life of the ground lease using
the straight-line method.
When building and personal property are sold or otherwise disposed of, when
required, the asset account and related accumulated depreciation account are
relieved, and any gain or loss is included in operations.
ACCOUNTING FOR IMPAIRMENT. In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("FAS 121"), which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. FAS 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Partnership adopted
FAS 121 in the fourth quarter of 1995.
INCOME TAXES. No income tax provision (benefit) has been recorded on the books
of the Partnership, as the respective shares of taxable income (loss) are
reportable by the partners on their individual tax returns.
For income tax purposes, the admission of Public Limited Partners on May 26,
1988 to the Partnership was treated as a deemed sale of the Assignor Limited
Partner's interest in accordance with the provision of Section 708(b)(1)(B) of
the Internal Revenue Code. The carrying values of the assets and related capital
accounts have been increased by the Limited Partners' interest for tax purposes.
There has been no readjustment of the carrying values of the assets for
financial reporting purposes.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents consist of highly liquid
short-term investments with maturities of three months or less from the date of
issuance. The carrying amount approximates fair value because of the short
maturity of these instruments.
RESTRICTED CASH. Restricted cash consists of funds escrowed by the Partnership
for future hotel repairs and improvements.
CONCENTRATION OF CREDIT RISK. Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash in
excess of the financial institutions' insurance limits. The Partnership invests
available cash with high credit quality financial institutions.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect 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.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified in order to
conform to the current year's presentation.
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<PAGE>
3. PARTNERSHIP AGREEMENT
Upon the admission of the Limited Partners, the following provisions of the
Partnership Agreement became effective.
Under the terms of the Partnership Agreement, the Partnership's net cash flow
from operations, as defined, will be distributed 99% to the Limited Partners and
1% to the General Partner until the sum of the amounts distributed equals the
preferred return. The preferred return is a cumulative 12% return per annum of
the Limited Partners' adjusted capital contribution, as defined, accruing on a
cumulative but noncompounding basis. Thereafter, the Partnership's cash flow
from operations will be distributed 85% to the Limited Partners and 15% to the
General Partner.
In general, the Partnership Agreement provides that all income and gain will be
allocated first to those partners with negative capital accounts, as defined,
until no partner has a negative capital account; then 99% to the Limited
Partners and 1% to the General Partner to the extent the Limited Partners'
adjusted capital contributions exceed their capital accounts; then to the
General Partner to the extent it has received a 15% distribution of net cash
flow; then 99% to the Limited Partners and 1% to the General Partner until the
Limited Partners have been allocated an amount equal to the preferred return, as
defined; and then 85% to the Limited Partners and 15% to the General Partner. In
general, losses will be allocated 85% to the Limited Partners and 15% to the
General Partner until the sum of cumulative losses equals the sum of cumulative
distributions, and then 99% to the Limited Partners and 1% to the General
Partner.
Net proceeds from a sale or refinancing of the Partnership's assets will be
distributed 99% to the Limited Partners and 1% to the General Partner until each
Limited Partner has received an amount equal to any unpaid cumulative return and
their unrecovered capital, as defined. Thereafter, such net proceeds will be
distributed 99% to the Limited Partners and 1% to the General Partner until each
Limited Partner's adjusted capital contribution equals zero. Any remaining net
proceeds will be allocated and distributed 95% to the Limited Partners and 5% to
the General Partner.
4. TRANSACTIONS WITH RELATED PARTIES
Under the Partnership Agreement, the General Partner is entitled to receive a
management oversight fee of $250,000 per year to cover costs incurred and time
expended by the General Partner in overseeing the operator of the Property to
ensure that operations and management are being conducted in the best interests
of the Partnership and in accordance with the ground lease and management
contract. For the years ended December 31, 1996, 1995 and 1994, the General
Partner earned oversight management fees in the amount of $250,000 per year. At
December 31, 1996 and 1995, $62,500 and $1,750,000, respectively, were due to
the General Partner for the performance of these services.
During 1989, certain legal and accounting fees were paid by the General Partner
in connection with the restructuring of the lease (see Note 6). The costs have
been deemed to be reimbursable by the Partnership. The total amount owed to the
General Partner at December 31, 1996 and 1995 was $ 0 and $587,804,
respectively.
Under the terms of the Partnership Agreement, the General Partner and its
affiliates are entitled to be reimbursed for out-of-pocket expenses.
Out-of-pocket expenses were $5,705, $7,455 and $7,373 for the years ended
December 31, 1996, 1995 and 1994, respectively. As of December 31, 1996 and
1995, $995 and $846, respectively, remained unpaid.
Upon sale of the Property, the General Partner may receive a brokerage
commission equal to 3% of the sales price less any amounts payable as
commissions to unaffiliated third parties. However, any commission to the
General Partner is subordinate to the Limited Partners' recovering 100% of their
original investment.
CASH AND CASH EQUIVALENTS. Certain cash and cash equivalents were on deposit
with an affiliate of the General Partner during a portion of 1996 and all of
1995. As of December 31, 1996, no cash and cash equivalents were on deposit with
an affiliate of the General Partner or the Partnership.
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<PAGE>
5. REAL ESTATE INVESTMENTS
On December 1, 1987, the Partnership acquired the Property, a seven-story,
384-room, 287,965 square foot commercial hotel and nine-hole executive golf
course located on a 26.3 acre site in the City of Manhattan Beach, Los Angeles
County, California (the "City"). A 166,382 square foot, 600-space parking garage
is also part of the Property. Construction of the Property was substantially
completed in January 1987, and its final certificate of occupancy was issued on
March 17, 1987. The land upon which the Property is situated was leased to the
seller by the City pursuant to a ground lease (the "Ground Lease") entered into
on March 1, 1983 for an initial term of 50 years. The term is renewable for
successive periods of 25 and 24 years.
Minimum ground lease payments for each of the next five years ending
December 31, and thereafter, are as follows:
1997 $ 400,000
1998 400,000
1999 400,000
2000 400,000
2001 400,000
Thereafter (cumulative) 12,466,667
-------------
Total $ 14,466,667
=============
In addition to the minimum ground lease payments, the lease provides for
additional rents based upon percentages, ranging from 2.5% to 6.25%, as applied
to the Hotel's various revenue. Percentage rent is only applicable to the extent
that the total of such percentages exceeds the minimum annual rent. Such excess
lease payments amounted to $335,756, $255,948 and $223,457 in 1996, 1995 and
1994, respectively.
The golf course is operated by a third party in accordance with an operating
agreement entered into on December 12, 1986 which the Partnership assumed upon
its purchase of the Hotel. The agreement has a term of 10 years and provides for
rents payable to the Partnership ranging from 2% to 5% of gross revenues during
the term of the agreement. The operating agreement provided for one five-year
renewal option which the operator exercised in December 1996. Further, the
operator has a right of first refusal to extend the operating lease another five
years.
Effective December 31, 1996, the Partnership reclassified its real estate assets
to "Property held for disposition" and wrote down the net book value of the
Hotel by $4,797,429 to its estimated fair market value less costs to sell. The
determination of the estimated fair market value of the Hotel was based upon the
execution of a letter of intent by the Partnership to sell the Hotel. On March
20, 1997, the Partnership executed a letter of intent to sell the Hotel to a
joint venture of Host Marriott Corporation and Interstate Hotels Corporation
(the "Buyer") for a cash purchase price of $38,250,000. The Buyer has 30 days in
which to complete its due diligence investigation of the Hotel, during which
time the parties will attempt to negotiate and execute a formal purchase and
sale contract (the "Contract"). The closing of the sale would be within 10
business days following the end of the due diligence period. Certain of the
conditions and terms in the letter of intent are not legally binding and are
subject to the execution of the Contract.
-11-
<PAGE>
6. HOTEL MANAGEMENT AGREEMENT
The Partnership entered into a management agreement with Manhattan Beach
Management Company (the "Management Company"), an affiliate of Interstate Hotels
Corporation, to manage and operate the Hotel. The term of the agreement
commenced on January 3, 1991 and continued through January 3, 1997. The
agreement provides for management fees of 1.75% of gross revenues with an
incentive fee calculated based upon a percentage, ranging from 10% to 17.5%, of
operating profits in excess of $1,500,000. The Partnership is responsible for
operating deficits and has committed to advance funds to the Hotel so as to
maintain a cash level of $300,000. In March 1997, the Partnership and the
Management Company extended the management agreement to January 2, 1998 on the
existing terms.
7. RECONCILIATION OF FINANCIAL STATEMENT NET INCOME (LOSS) AND PARTNERS'
CAPITAL TO FEDERAL INCOME TAX BASIS NET INCOME (LOSS) AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- --------------
<S> <C> <C> <C>
Financial statement net income (loss) $ (4,306,925) $ 232,226 $ (245,012)
Tax basis depreciation over financial
statement depreciation (397,277) (760,812) (1,158,551)
Financial statement loss on write-down
of real estate 4,797,429 -- --
Other 166,811 (48,337) (99,769)
------------- -------------- --------------
Federal income tax basis net income (loss) $ 260,038 $ (576,923) $ (1,503,332)
============= ============== ==============
Financial statement partners' capital $ 39,469,376 $ 43,776,301 $ 44,953,166
Current year financial statement net income
(loss) (over) under federal income tax basis
net income (loss) 4,566,963 (809,149) (1,258,320)
Cumulative financial statement net income (loss)
over federal income tax basis net income (loss) 4,527,225 5,336,374 6,594,694
------------- -------------- ---------------
Federal income tax basis partners' capital $ 48,563,564 $ 48,303,526 $ 50,289,540
============= ============== ===============
</TABLE>
Because many types of transactions are susceptible to varying interpretations
under Federal and State income tax laws and regulations, the amounts reported
above may be subject to change at a later date upon final determination by the
taxing authorities.
8. LITIGATION
As a result of the removal of the original tenants as operators of the Property
and the termination of a number of equipment leasing arrangements previously
entered into by the original tenants, a lawsuit related to the replacement of
the telephone system was filed naming the Partnership, among others, as a
defendant. The suit, entitled COMMUNICATION FACILITY MANAGEMENT CORPORATION
("CFMC") VS. MANHATTAN BEACH HOTEL PARTNERS, L.P., ET AL, was filed in June 1990
in Los Angeles Superior Court (the "Court"). On November 7, 1994, the Court
executed a formal dismissal order. CFMC subsequently filed a motion to vacate
the dismissal which was denied by the Court on February 28, 1995. On
February 16, 1996, CFMC filed an application with the Court for an extension to
file an appellant's opening brief. The Court granted the extension and CFMC had
until April 10, 1996 to file an opening brief to appeal the suit. This matter
has been successfully concluded since CFMC permitted the time period for the
filing of the opening brief to expire.
-12-
<PAGE>
Manhattan Beach Hotel Partners, L.P.
Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
At June 30,
1997
--------------
<S> <C>
Assets
Property held for disposition $ 36,800,000
Cash and cash equivalents 3,430,061
Restricted cash 500,270
Accounts receivable 1,240,004
Prepaid and other assets 398,988
-------------
Total Assets $ 42,369,323
=============
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued liabilities $ 1,576,939
Due to affiliates 62,746
-------------
Total Liabilities 1,639,685
-------------
Partners' Capital (Deficit):
General Partner (374,465)
Limited Partners (6,975,000 limited partnership units
authorized, issued and outstanding) 41,104,103
-------------
Total Partners' Capital 40,729,638
-------------
Total Liabilities and Partners' Capital $ 42,369,323
=============
</TABLE>
See accompanying notes to the financial statements.
-13-
<PAGE>
Manhattan Beach Hotel Partners, L.P.
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
------------------------------ -----------------------------
1997 1996 1997 1996
------------------------------ -----------------------------
<S> <C> <C> <C> <C>
Hotel Revenues:
Rooms $ 2,739,809 $ 2,467,494 $ 5,337,426 $ 4,977,046
Food and beverage 1,501,054 1,210,081 2,625,456 2,281,997
Telephone 162,857 167,557 329,744 329,027
Other 88,567 46,886 164,060 86,729
------------ ------------ ------------ ------------
Total Revenues 4,492,287 3,892,018 8,456,686 7,674,799
------------ ------------ ------------ ------------
Departmental Expenses:
Rooms 711,304 683,956 1,419,670 1,351,925
Food and beverage 1,058,029 941,300 1,991,978 1,844,311
Telephone 65,569 86,729 143,967 181,911
Other 20,129 12,136 38,584 22,898
------------ ------------ ------------ ------------
Total Expenses 1,855,031 1,724,121 3,594,199 3,401,045
------------ ------------ ------------ ------------
Departmental Income 2,637,256 2,167,897 4,862,487 4,273,754
------------ ------------ ------------ ------------
Unallocated Partnership and
Hotel Operating Expenses:
Advertising and sales 166,540 145,263 340,413 290,537
General and administrative:
Hotel and other 627,815 581,410 1,253,447 1,195,205
Partnership 125,337 135,123 277,570 260,568
Utilities and maintenance 285,264 281,621 556,334 555,583
Ground rent 209,892 184,474 399,879 365,252
Management fees 169,730 130,468 295,242 248,613
Property taxes 101,058 97,866 202,120 194,529
Operating leases 32,355 23,911 67,011 38,815
Depreciation and amortization -- 459,050 -- 908,623
Loss on property held for disposition 106,981 -- 271,785 --
------------ ------------ ------------ ------------
1,824,972 2,039,186 3,663,801 4,057,725
------------ ------------ ------------ ------------
Operating Income 812,284 128,711 1,198,686 216,029
------------ ------------ ------------ ------------
Other Income:
Interest income 32,744 36,036 58,011 74,886
Other income 2,430 1,190 3,565 1,950
------------ ------------ ------------ ------------
35,174 37,226 61,576 76,836
------------ ------------ ------------ ------------
Net Income $ 847,458 $ 165,937 $ 1,260,262 $ 292,865
============ ============ ============ ============
Net Income Allocated:
To the General Partner $ 847,458 $ 165,937 $ 1,260,262 $ 292,865
To the Limited Partners -- -- -- --
------------ ------------ ------------ ------------
$ 847,458 $ 165,937 $ 1,260,262 $ 292,865
============ ============ ============ ============
Net Income per limited partnership unit
(6,975,000 outstanding) $ -- $ -- $ -- $ --
============ ============ ============ ============
</TABLE>
See accompanying notes to the financial statements.
-14-
<PAGE>
Manhattan Beach Hotel Partners, L.P.
Statement of Partners' Capital (Deficit)
For the six months ended June 30 , 1997
(unaudited)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------------- ------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1996 $ (1,634,727) $ 41,104,103 $ 39,469,376
Net income 1,260,262 -- 1,260,262
------------- ------------- -------------
Balance at June 30, 1997 $ (374,465) $ 41,104,103 $ 40,729,638
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
-15-
<PAGE>
Manhattan Beach Hotel Partners, L.P.
Statements of Cash Flows
For the six months ended June 30, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 1,260,262 $ 292,865
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization -- 908,623
Loss on property held for disposition 271,785 --
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Fundings of restricted cash (358,826) (378,032)
Accounts receivable 146,299 (487,967)
Prepaid and other assets (16,763) (196,049)
Accounts payable and accrued liabilities 27,653 (117,721)
Due to affiliates (749) 84,776
------------ -------------
Net cash provided by operating activities 1,329,661 106,495
------------ -------------
Cash Flows From Investing Activities:
Proceeds from restricted cash 271,785 379,059
Additions to real estate (271,785) (379,059)
------------ -------------
Net cash used for investing activities -- --
------------ -------------
Cash Flows From Financing Activities:
Distributions -- (1,409,091)
------------ ------------
Net cash used for financing activities -- (1,409,091)
------------ ------------
Net increase (decrease) in cash and cash equivalents 1,329,661 (1,302,596)
Cash and cash equivalents, beginning of period 2,100,400 4,414,032
------------ ------------
Cash and cash equivalents, end of period $ 3,430,061 $ 3,111,436
============ ============
</TABLE>
See accompanying notes to the financial statements.
-16-
<PAGE>
Manhattan Beach Hotel Partners, L.P.
Notes to the Financial Statements
(unaudited)
The unaudited interim financial statements should be read in conjunction with
the Partnership's annual 1996 audited financial statements within Form 10-K.
The unaudited interim financial statements include all normal and recurring
adjustments which are, in the opinion of management, necessary to present a fair
statement of financial position as of June 30, 1997 and the results of
operations for the three and six months ended June 30, 1997 and 1996, cash flows
for the six months ended June 30, 1997 and 1996, and the statement of partners'
capital (deficit) for the six months ended June 30, 1997. Results of operations
for the periods are not necessarily indicative of the results to be expected for
the full year.
The following significant events have occurred subsequent top fiscal year 1996,
which require disclosure in this interim report per Regulation S-X, Rule 10-01,
Paragraph (a)(5):
On March 20, 1997, the Partnership executed a letter of intent to sell the
Radisson Plaza Hotel and Golf Course (the "Hotel") to a joint venture of Host
Marriott Corporation and Interstate Hotels Corporation for a cash purchase price
of $38,250,000, subject to closing adjustments (the "Marriott/Interstate Sale").
Interstate Hotels Corporation currently manages the Hotel and has done so with
its wholly-owned subsidiary for more than five years. On July 15, 1997, the
Partnership executed a formal purchase and sale contract with a partnership
comprised of affiliates of Host Marriott Corporation and Interstate Hotels
Corporation to sell the Hotel. It is currently anticipated that the closing of
the Marriott/Interstate Sale will take place in August 1997, following the
satisfaction of certain requirements to closing.
-17-
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The unaudited Pro Forma Condensed Consolidated Statements of Operations of Host
Marriott Corporation (the "Company") reflect the following transactions for the
twenty-four weeks ended June 20, 1997 and the fiscal year ended January 3, 1997,
as if such transactions had been completed on December 30, 1995:
* 1997 purchase of a controlling interest in the Manhattan Beach Hotel
Partners, L.P.
* 1997 acquisition of the outstanding common stock of Forum Group, Inc.
* 1997 acquisition of, or purchase of controlling interests in, seven
full-service hotel properties and the completion of the acquisition of
the New York Marriott Financial Center Hotel
* July 1997 Senior Notes Offering (as defined below)
* March 1997 placement of a $90 million mortgage note secured by the
Philadelphia Marriott Hotel
* March 1997 purchase of the $230 million in outstanding bonds secured by the
San Francisco Marriott Hotel
* 1996 acquisition of, or purchase of controlling interests in, 23
full-service hotel properties and the purchase of the mortgage note secured
by the New York Marriott Financial Center Hotel
* December 1996 Convertible Preferred Securities Offering (as defined below)
* December 1996 repayment of the $109 million mortgage note secured by the
Philadelphia Marriott Hotel
* 1996 sale/leaseback of 16 Courtyard properties
* 1996 sale/leaseback of 18 Residence Inns
The unaudited Pro Forma Condensed Consolidated Balance Sheet of the Company as
of June 20, 1997 reflects the purchase of a controlling interest in the Manhatan
Beach Hotel Partners, L.P., the acquisition of the outstanding common stock of
the Forum Group, Inc. and the July 1997 Senior Notes Offering (as defined
below).
On August 15, 1997, the Company acquired a 75% controlling interest in a
newly-formed limited partnership that acquired the 380-room Manhattan Beach
Radisson Plaza in Manhattan Beach, California for approximately $38 million.
Also, during 1997, the Company acquired a controlling interest in Marriott Hotel
Properties Limited Partnership which owns the Marriott Orlando World Center
Hotel and a controlling interest in the Marriott Harbor Beach Resort. In
addition, the Company acquired The Ritz-Carlton, Marina del Rey and controlling
interests in the partnerships which own the Oklahoma City Waterford, the Hanover
Marriott, the Norfolk Waterside Marriott and the Hartford/Farmington Marriott,
respectively. In addition, the Company completed the acquisition of the New York
Marriott Financial Center Hotel, after acquiring the mortgage note in late 1996.
HMC Senior Communities, Inc., a wholly-owned subsidiary of the Company,
completed the acquisition of the outstanding common stock of Forum Group, Inc.,
(the "Forum Group") from Marriott Senior Living Services, Inc., a subsidiary of
Marriott International, Inc. The Company also obtained a new $90 million
mortgage note secured by the Philadelphia Marriott Hotel and purchased $230
million of outstanding bonds secured by the San Francisco Marriott Hotel. HMH
Properties, Inc., an indirect wholly-owned subsidiary of the Company completed
the issuance of 8 7/8% senior notes for net proceeds of approximately $570
million on July 17, 1997 (the "July 1997 Senior Notes Offering").
During 1996, the Company acquired six full-service hotel properties and a
controlling interest in 17 additional full-service hotel properties, and
purchased the mortgage note secured by the New York Marriott Financial Center
Hotel. Also during 1996, the Company sold and leased back 16 Courtyard
properties and 18 Residence Inns. The Company completed the issuance of 11
million shares of Company-Obligated, Mandatorily-Redeemable Convertible
Preferred Securities of a Subsidiary Trust for net proceeds of $530 million on
December 2, 1996 (the "December 1996 Convertible Preferred Securities
Offering"). The Company also repaid a mortgage note secured by the Philadelphia
Marriott Hotel in December 1996.
-18-
<PAGE>
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 January 3, 1997 and
on Form 10-Q for the quarter ended June 20, 1997.
-19-
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 20, 1997
(in millions)
<TABLE>
<CAPTION>
Manhattan
Beach
Acquisition Other Pro
Historical Adjustments Adjustments Forma
---------- ----------- ----------- -----
ASSETS
------
<S> <C> <C> <C> <C>
Property and Equipment, net....................................... $ 4,292 $ 38 (A) $ 515 (C) $ 4,845
Notes and Other Receivables....................................... 182 -- -- 182
Due from Managers................................................. 105 -- 5 (C) 110
Investments in Affiliates......................................... 11 -- -- 11
Other Assets...................................................... 228 -- 10 (C) 268
30 (D)
Cash and Cash Equivalents......................................... 509 (29)(A) (196)(C) 854
570 (D)
--------- ----------- ----------- ---------
$ 5,327 $ 9 $ 934 $ 6,270
========= =========== =========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Debt
Senior notes issued by the company or its subsidiaries......... $ 985 $ -- $ 600(D) $ 1,585
Mortgage debt.................................................. 1,634 -- 170(C) 1,804
Other ......................................................... 96 -- 100(C) 196
--------- ----------- ----------- ---------
2,715 -- 870 3,585
Accounts Payable and Accrued Expenses............................. 51 -- -- 51
Deferred Income Taxes............................................. 496 -- 21(C) 517
Other Liabilities................................................. 340 9 (A) 43(C) 392
--------- ----------- ----------- ---------
Total Liabilities.............................................. 3,602 9 934 4,545
--------- ----------- ----------- ---------
Company-obligated Mandatorily Redeemable Convertible
Preferred Securities of a Subsidiary Trust..................... 550 -- -- 550
--------- ----------- ----------- ---------
Shareholders' Equity
Common Stock................................................... 203 -- -- 203
Additional Paid-in Capital..................................... 936 -- -- 936
Retained Earnings.............................................. 36 -- -- 36
--------- ----------- ----------- ---------
Total Shareholders' Equity..................................... 1,175 -- -- 1,175
--------- ----------- ----------- ---------
$ 5,327 $ 9 $ 934 $ 6,270
========= =========== =========== =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Data.
-20-
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Twenty-Four Weeks Ended June 20, 1997
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Manhattan
Beach
Acquisition Other Pro
Historical Adjustments Adjustments Forma
----------- ------------- ------------- -------
<S> <C> <C> <C> <C>
Revenues
Hotels....................... $ 512 $ 3 (B) $ 9 (F) $ 524
Senior living communities.... -- -- 33 (E) 33
Other........................ 10 -- -- 10
------ ------ ----- ------
522 3 42 567
------ ------ ----- ------
Operating costs and expenses
Hotels....................... 291 2 (B) 4 (F) 297
Senior living communities.... -- -- 17 (E) 17
Other........................ 16 -- -- 16
------ ------ ------ ------
307 2 21 330
------ ------ ------ ------
Operating profit.............. 215 1 21 237
Minority interest............. (24) -- (1)(F) (25)
Corporate expenses............ (18) -- (1)(E) (19)
Interest expense.............. (122) -- (10)(E) (157)
(2)(F)
(26)(G)
(2)(H)
5 (I)
Dividends on Convertible
Preferred Securities
of a subsidiary trust....... (17) -- -- (17)
Interest income............... 22 (1)(B) (4)(E) 13
(1)(F)
(3)(I)
------ ------ ------ ------
Income (loss) before income
taxes and extraordinary
item........................ 56 -- (24) 32
Benefit (provision) for
income taxes................ (24) -- 9 (N) (15)
------ ------ ------ ------
Income (loss) before
extraordinary item.......... $ 32 $ -- $ (15) $ 17
====== ====== ====== ======
Income per common share
before extraordinary
item......................... $ .16 $ .08
====== ======
Weighted average shares
outstanding.................. 202.6 202.6
====== ======
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Data.
-21-
<PAGE>
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Fiscal Year Ended January 3, 1997
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Manhattan
Beach
Acquisition Other Pro
Historical Adjustments Adjustments Forma
----------- ------------- ------------ -------
<S> <C> <C> <C> <C>
Revenues
Hotels...................... $ 717 $ 4 (B) $ 116 (F) $ 949
112 (J)
Senior living communities.... -- -- 68 (E) 68
Other........................ 15 -- (1)(J) 14
------ ------- ------- -------
732 4 295 1,031
------ ------- ------- -------
Operating costs and expenses
Hotels...................... 461 3 (B) 52 (F) 575
52 (J)
7 (M)
Senior living communities... -- -- 34 (E) 34
Other....................... 38 -- -- 38
------ ------- ------- -------
499 3 145 647
------ ------- ------- -------
Operating profit............. 233 1 150 384
Minority interest............ (6) -- (1)(E) (25)
(14)(F)
(4)(J)
Corporate expenses........... (43) -- (1)(E) (44)
Interest expense............. (237) -- (26)(E) (345)
(26)(F)
(56)(G)
(8)(H)
23 (I)
(22)(J)
7 (L)
Dividends on Convertible
Preferred Securities of
a subsidiary trust.......... (3) -- (34)(K) (37)
Interest income.............. 48 -- 1 (E) 26
(1)(J)
(3)(F)
(11)(I)
(8)(J)
------ ------- ------- -------
Income (loss) before
income taxes............... (8) 1 (34) (41)
Benefit (provision) for
income taxes................ (5) -- 14 (N) 9
------ ------- ----------- -------
Net income (loss)............ $ (13) $ 1 $ (20) $ (32)
====== ======= =========== =======
Loss per common share........ $ (.07) $ (.17)
====== =======
Weighted average shares
outstanding................. 188.7 188.7
====== =======
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Data.
-22-
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL DATA
A. Represents the adjustments to record the 1997 acquisition of the Manhattan
Beach Hotel Partners, L.P. as follows:
- Record property and equipment of $38 million
- Record use of cash of $29 million
- Record minority interest liability of $9 million
B. Represents the adjustment to record the revenue, operating expenses and
reduction of interest income for the acquisition of Manhattan Beach Hotel
Partners, L.P. as if the acquisition occurred at the beginning of the
applicable period.
C. Represents the adjustment to record the 1997 acquisition of the Forum
Group, Inc. as follows:
- Record property and equipment of $515 million
- Record due from managers of $5 million
- Record other assets of $10 million
- Record the use of cash of $196 million
- Record debt of $270 million
- Record deferred taxes of $21 million
- Record other liabilities of $43 million
D. Represents the adjustment to record the July 1997 Senior Notes Offering as
follows:
- Record proceeds of $570 million
- Record deferred financing fees of $30 million
- Record issuance of $600 million in senior notes
E. Represents the adjustment to record the revenue, operating expenses,
interest expense, minority interest and interest income for the acquisition
of the Forum Group, Inc., as if the acquisition occurred at the beginning
of the applicable period.
F. Represents the adjustment to record the revenue, operating expenses,
secured debt interest expense, minority interest and to reduce interest
income for the 1997 acquisition of, or the purchase of controlling
interests in, seven full-service hotel properties as if the acquisitions
occurred at the beginning of the applicable period.
G. Represents the adjustment to record interest expense and amortization of
deferred financing fees for the July 1997 Senior Notes Offering (as defined
above).
H. Represents the adjustment to record interest expense for the $90 million
mortgage loan (interest rate of 8.49%) obtained for the Philadelphia
Marriott Hotel during the first quarter of 1997.
I. Represents the adjustment to reduce interest expense and interest income
for the first quarter 1997 purchase of the $230 million of outstanding
bonds secured by a first mortgage on the San Francisco Marriott Hotel.
J. Represents the adjustment to record revenue, operating expenses, secured
debt interest expense and to reduce interest income for the 1996
acquisition of, or the purchase of controlling interests in, 23
full-service hotel properties and the purchase of the mortgage note secured
by the New York Marriott Financial Center Hotel, as if they were added
on December 30, 1995.
K. Represents the adjustment to record the quarterly dividend payments for the
December 1996 Convertible Preferred Securities Offering, as if the
offering had taken place on December 30, 1995.
L. Represents the adjustment to reduce interest expense for the fourth quarter
1996 repayment of a mortgage note secured by the Philadelphia Marriott
Hotel.
-23-
<PAGE>
M. Represents the net adjustment to eliminate the depreciation expense of $3
million and record the incremental lease expense of $10 million for the
1996 sale/leaseback of the 16 Courtyard properties and 18 Residence Inns.
N. Represents the income tax impact of pro forma adjustments at statutory
rates.
-24-
