<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 25, 1995
REGISTRATION NO. 33-92330
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
OF SECURITIES OF CERTAIN
REAL ESTATE COMPANIES
------------------------
HOSPITALITY PROPERTIES TRUST
(Exact name of registrant as specified in its governing instruments)
------------------------
400 CENTRE STREET
NEWTON, MASSACHUSETTS 02158
(617) 964-8389
(Address of principal executive offices)
------------------------
JOHN G. MURRAY
HOSPITALITY PROPERTIES TRUST
400 CENTRE STREET
NEWTON, MASSACHUSETTS 02158
(617) 964-8389
(Name and address of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
Lena G. Goldberg, Esq. Charles S. Whitman, III, Esq.
Sullivan & Worcester Davis Polk & Wardwell
One Post Office Square 450 Lexington Avenue
Boston, Massachusetts 02109 New York, New York 10017
(617) 338-2800 (212) 450-4000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION OR HEADING IN PROSPECTUS
<S> <C> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page.
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front Cover Page and Outside Back
Cover Page of Prospectus.
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges........ Outside Front Cover Page; "Prospectus
Summary;" "Risk Factors;" "The Company."
4. Determination of Offering Price........... Outside Front Cover Page; "Underwriting;"
"Plan of Distribution."
5. Dilution.................................. "Dilution."
6. Selling Security Holders.................. Not applicable.
7. Plan of Distribution...................... Outside Front Cover Page; "Underwriting;"
"Plan of Distribution."
8. Use of Proceeds........................... "Prospectus Summary;" "Use of Proceeds."
9. Selected Financial Data................... "Pro Forma and Selected Financial and
Operating Data."
10. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ "Management's Discussion and Analysis of
Financial Condition and Results of
Operations."
11. General Information as to Registrant...... "Prospectus Summary;" "The Company;"
"Business;" "Management;" "Policies with
Respect to Certain Activities;" "Summary
of the Declaration of Trust;" "Additional
Information."
12. Policy with Respect to Certain
Activities................................ "Prospectus Summary;" "The Company;"
"Business;" "Policies with Respect to
Certain Activities;" "Additional
Information."
13. Investment Policies of Registrant......... "Prospectus Summary;" "Business;"
"Policies with Respect to Certain
Activities;" "Summary of the Declaration
of Trust."
14. Description of Real Estate................ "Prospectus Summary;" "The Initial
Hotels;" "Business;" "The Initial Lessee;"
"The Initial Leases;" "Policies with
Respect to Certain Activities."
15. Operating Data............................ "Prospectus Summary;" "Pro Forma and
Selected Financial and Operating Data;"
"The Initial Hotels;" "Business;" "The
Initial Lessee;" "The Initial Leases;"
"Federal Income Tax Considerations."
16. Tax Treatment of Registrant and its
Security Holders.......................... "Prospectus Summary;" "Federal Income Tax
Considerations;" "Certain United States
Tax Considerations for Non-U.S. Holders of
Shares;" "ERISA Plans, KEOGH Plans and
Individual Retirement Accounts."
17. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters....................... "Risk Factors;" "Distribution Policy;"
"Business;" "Shares Eligible for Future
Sale."
18. Description of Registrant's Securities.... "Distribution Policy;" "Description of the
Shares;" "Summary of the Declaration of
Trust."
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION OR HEADING IN PROSPECTUS
<S> <C> <C>
19. Legal Proceedings......................... "Business."
20. Security Ownership of Certain Beneficial
Owners and Management..................... "Principal Shareholders."
21. Directors and Executive Officers.......... "Management;" "Advisors and the Advisory
Agreement."
22. Executive Compensation.................... "Management;" "Advisors and the Advisory
Agreement."
23. Certain Relationships and Related
Transactions.............................. "Business;" "Management;" "Advisors and
the Advisory Agreement."
24. Selection, Management and Custody of
Registrant's Investments.................. Outside Front Cover Page; "Prospectus Sum-
mary;" "Business;" "The Initial Lessee;"
"The Initial Leases;" "The Manager;" "The
Management Agreements;" "Management;"
"Advisors and the Advisory Agreement."
25. Policies with Respect to Certain
Transactions.............................. "Policies with Respect to Certain
Activities."
26. Limitations of Liability.................. "Management;" "Summary of the Declaration
of Trust."
27. Financial Statements and Information...... "Prospectus Summary;" "Pro Forma and Se-
lected Financial and Operating Data;"
"Financial Statements."
28. Interests of Named Experts and Counsel.... "Experts;" "Legal Matters."
29. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... "Summary of the Declaration of Trust."
</TABLE>
<PAGE> 4
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: (i) one to be
used in connection with the registration of 7,500,000 Common Shares of
Beneficial Interest to be offered to the public (the "Public Prospectus") and
(ii) one to be used in connection with the registration of 3,960,000 Common
Shares of Beneficial Interest to be offered to Health and Retirement Properties
Trust and 250,000 Common Shares of Beneficial Interest to be offered to HRPT
Advisors, Inc. (the "HRPT Prospectus"). The HRPT Prospectus will be identical to
the Public Prospectus except that it will contain a different front cover page
and a different description of the plan of distribution (primarily contained
under the captions "Underwriting" and "Plan of Distribution," respectively). The
form of Public Prospectus is included herein and is followed by those pages to
be used in the HRPT Prospectus which differ from those in the Public Prospectus.
Each of the alternate pages for the HRPT Prospectus included herein is labeled
"Alternate Page for HRPT Prospectus."
<PAGE> 5
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 25, 1995
PROSPECTUS
, 1995
7,500,000 SHARES
HOSPITALITY PROPERTIES TRUST
COMMON SHARES OF BENEFICIAL INTEREST
All of the Common Shares of Beneficial Interest (the "Shares") offered
hereby (this "Offering") are being offered for sale by Hospitality Properties
Trust (the "Company"). The Company is currently a wholly owned subsidiary of
Health and Retirement Properties Trust, a New York Stock Exchange listed REIT
("HRP"). In a separate offering, the Company is offering for sale 3,960,000
Shares to HRP and 250,000 Shares to HRPT Advisors, Inc. ("Advisors"). Both HRP
and Advisors will pay $25.00 per Share. Upon completion of this Offering, the
public shareholders will own 63.8% of the Company.
Upon completion of this Offering, the Company will operate as a REIT and
will own 37 Courtyard by Marriott[R] hotels with 5,286 guest rooms (the "Initial
Hotels"). All of the Initial Hotels will be leased to a subsidiary of Host
Marriott Corporation and managed by a subsidiary of Marriott International, Inc.
Prior to this Offering, there has been no public market for the Shares. It
is currently estimated that the initial public offering price will be between
$24.00 and $26.00 per Share. See "Underwriting" for the factors considered in
determining the initial public offering price. The Company intends to pay
regular quarterly dividends at a rate of $0.55 per Share ($2.20 per Share per
annum), commencing with the quarter ending September 30, 1995.
The Shares have been approved for listing on the New York Stock Exchange
(the "NYSE") under the symbol "HPT", subject to official notice of issuance.
SEE "RISK FACTORS" ON PAGE 13, INCLUDING:
- ADVERSE TAX CONSEQUENCES IF THE COMPANY FAILS TO QUALIFY AS A REIT;
- INABILITY OF THE COMPANY AS A REIT TO OPERATE ITS HOTEL PROPERTIES;
- POTENTIAL CONFLICTS OF INTEREST AND BENEFITS TO HRP AND ADVISORS;
- LIMITED OPERATING HISTORY AND DEPENDENCE ON KEY PERSONNEL;
- INITIAL DEPENDENCE ON SINGLE LESSEE, SINGLE MANAGER AND SINGLE BRAND
NAME;
- CONCENTRATION OF OWNERSHIP BY HRP AND ADVISORS;
- LACK OF PRIOR MARKET FOR THE SHARES AND EFFECT OF INTEREST RATES ON THE
PRICE OF THE SHARES;
- ASSET VALUES MAY NOT REFLECT MARKET VALUES;
- OWNERSHIP LIMITATIONS AND ANTITAKEOVER PROVISIONS; AND
- RISKS OF FUTURE LEVERAGE AND LACK OF ESCROW OF SECURITY DEPOSIT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
- --------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
Total(3)...................................... $ $ $
- --------------------------------------------------------------------------------------------------------
<FN>
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses estimated at $ , which will be paid by
the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 1,125,000 additional Shares at the price to the Public less Underwriting
Discounts and Commissions, solely to cover overallotments, if any. If such
option is exercised in full, the total price to the Public, Underwriting
Discounts and Commissions and Proceeds to the Company will be $ ,
$ and $ , respectively. See "Underwriting."
</TABLE>
The Shares are being offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of the Share certificates will be made in New York, New
York on or about , 1995.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEAN WITTER REYNOLDS INC.
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
<PAGE> 6
[Map of United States showing locations of 37 properties and
photograph of Milford, MA property.]
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUMMARY........................ 1
The Company............................. 1
Risk Factors............................ 2
Growth Strategy......................... 4
The Initial Hotels...................... 6
The Initial Leases and
Management Agreements................ 6
Formation of the Company................ 8
Benefits to HRP and Advisors............ 8
The Offering............................ 9
Distribution Policy..................... 9
Tax Status.............................. 9
Summary Pro Forma and Selected Financial
and Operating Data................... 10
RISK FACTORS.............................. 13
Tax Risks............................... 13
Risks Relating to Operations of the
Company.............................. 14
Risks Relating to Initial Hotels........ 16
Share Ownership Risks................... 18
Effects of Various Factors on Share
Price................................ 19
Asset Values May Not Reflect Market
Values............................... 19
Hotel Industry Risks.................... 19
Real Estate Investment Risks............ 21
THE COMPANY............................... 24
USE OF PROCEEDS........................... 25
DISTRIBUTION POLICY....................... 26
CAPITALIZATION............................ 28
DILUTION.................................. 29
PRO FORMA AND SELECTED FINANCIAL AND
OPERATING DATA.......................... 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.............................. 33
Overview................................ 33
Pro Forma Results of Operations -- The
Company.............................. 33
Pro Forma Results of
Operations -- Host................... 34
Results of Operations -- Initial
Hotels............................... 34
Liquidity and Capital Resources......... 35
Seasonality............................. 37
Inflation............................... 37
THE INITIAL HOTELS........................ 38
BUSINESS.................................. 43
The Hotel Industry...................... 43
Growth Strategy......................... 43
Formation of the Company................ 45
Purchase Agreement...................... 45
Purchase Options........................ 46
Environmental Matters................... 46
Legal Proceedings....................... 47
Insurance............................... 48
Competition............................. 48
Regulatory Matters...................... 48
THE INITIAL LESSEE........................ 49
THE INITIAL LEASES........................ 49
General................................. 49
Rent.................................... 49
Maintenance and Alterations............. 50
FF&E Reserve............................ 50
Assignment.............................. 50
Lease Term.............................. 50
Ground Lease Terms...................... 50
Security Deposit........................ 51
Environmental Matters................... 51
Financial Covenants of Host............. 51
Insurance and Indemnification........... 52
Damage, Destruction or Condemnation..... 52
Other Material Covenants of Host........ 53
Events of Default....................... 53
Remedies................................ 53
THE MANAGER............................... 54
THE MANAGEMENT AGREEMENTS................. 54
General................................. 54
Fees.................................... 55
Term.................................... 55
Early Termination....................... 55
FF&E Reserve............................ 55
Maintenance and Repairs................. 56
Other Material Covenants of Marriott.... 56
Insurance and Indemnification........... 56
Damage, Destruction or Condemnation..... 56
Events of Default....................... 57
Limitation on Secured Borrowings........ 57
MANAGEMENT................................ 58
Trustees and Executive Officers......... 58
Committees of the Board of Trustees..... 59
Compensation of Trustees and Officers... 59
Employees............................... 59
Incentive Share Award Plan.............. 59
Trustees' and Officers'
Indemnification...................... 60
Benefits to HRP and Advisors............ 60
ADVISORS AND THE ADVISORY AGREEMENT....... 60
Advisors................................ 60
The Advisory Agreement.................. 61
Compensation to Advisors................ 62
POLICIES WITH RESPECT TO CERTAIN
ACTIVITIES.............................. 63
Investment Policies..................... 63
Disposition Policies.................... 64
Financing Policies...................... 64
Conflict of Interest Policies........... 64
Policies with Respect to Other
Activities........................... 65
DESCRIPTION OF THE SHARES................. 65
General................................. 65
Common Shares........................... 65
</TABLE>
(ii)
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
<S> <C>
Preferred Shares........................ 66
Transfer Agent.......................... 66
SUMMARY OF THE DECLARATION OF TRUST....... 66
Trustees................................ 66
Liability of Trustees................... 66
Limitation of Liability; Shareholder
Liability............................ 67
Duration and Termination................ 67
Prohibited Investments and Activities... 68
Transactions with Affiliates, Trustees,
Employees, Officers or Agents........ 68
Restrictions on Transfer................ 68
Shareholder Proposals................... 69
Business Combinations................... 70
Control Share Acquisitions.............. 70
Amendment; Meetings..................... 70
Antitakeover Provisions................. 70
PRINCIPAL SHAREHOLDERS.................... 71
SHARES ELIGIBLE FOR FUTURE SALE........... 72
FEDERAL INCOME TAX CONSIDERATIONS......... 73
Taxation of the Company................. 74
Taxation of Shareholders................ 79
Other Tax Considerations................ 80
CERTAIN UNITED STATES TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF SHARES.......... 81
Federal Estate Tax...................... 82
Backup Withholding and Information
Reporting Requirements............... 82
ERISA PLANS, KEOGH PLANS AND INDIVIDUAL
RETIREMENT ACCOUNTS..................... 83
General Fiduciary Obligations........... 83
Prohibited Transactions................. 84
Special Fiduciary and Prohibited
Transactions Considerations.......... 84
UNDERWRITING.............................. 86
EXPERTS................................... 87
LEGAL MATTERS............................. 87
ADDITIONAL INFORMATION.................... 87
GLOSSARY.................................. 89
INDEX TO FINANCIAL STATEMENTS............. F-1
</TABLE>
(iii)
<PAGE> 9
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and the notes thereto, appearing elsewhere
in this Prospectus. Unless otherwise indicated, the information contained in
this Prospectus assumes that (i) the initial public offering price per Share
will be $25.00, (ii) the Underwriters' overallotment option will not be
exercised and (iii) the concurrent offering of 3,960,000 Shares to HRP and
250,000 Shares to Advisors will be consummated. Capitalized terms which are used
in this Prospectus without definition have the meanings specified in the
Glossary to this Prospectus.
An investment in the Shares offered hereby is not an investment in Health
and Retirement Properties Trust, Host Marriott Corporation, Marriott
International, Inc., HMH HPT Courtyard, Inc. ("Host"), or Courtyard Management
Corporation ("Marriott"). An investment in the Shares is not an investment in
the operations of the Initial Hotels.
THE COMPANY
The Company is a REIT formed to acquire, own and lease hotel properties
throughout the United States. The Company currently owns 21 and upon completion
of this Offering will acquire an additional 16 Courtyard by Marriott[R] hotels.
The Initial Hotels have 5,286 guest rooms, are located in 20 states and will be
acquired for $329.0 million ($62,240 per guest room). The Initial Hotels are
among the newest in the Courtyard by Marriott[R] system and have an average age
of five years. In 1994, the Initial Hotels had an average occupancy of 81.1% and
an average daily rate ("ADR") of $66.65.
The Company's strategy for increasing Cash Available for Distribution (as
defined herein) per Share is to provide capital to unaffiliated operators of
hotel properties who wish to divest their properties while remaining in the
hotel business as lessees. Most other public hotel REITs seek to control the
operations of the hotel properties in which they invest by leasing the
properties to affiliated tenants. The Company believes that it will have a
competitive advantage over other public hotel REITs because of this difference
in operating philosophy. To achieve its objectives, the Company expects to
operate as follows: start with a strong capital base of shareholders' equity;
invest in high quality properties operated by unaffiliated hotel operating
companies; use moderate leverage to fund additional investments which increase
Cash Available for Distribution per Share because of positive spreads between
the Company's cost of funds and the rent yields; design leases which provide for
base rents and an opportunity for the Company to participate in a percentage of
gross revenues; as Cash Available for Distribution increases, periodically raise
dividends; when market conditions permit, refinance debt with additional equity
or long term debt; and, over time, pursue diversification so that the Company's
Cash Available for Distribution to shareholders will be received from diverse
properties and operators.
As a REIT, the Company may not actively manage its hotel properties. All of
the Initial Hotels will be leased by the Company to Host, a limited purpose
wholly owned subsidiary of Host Marriott Corporation, and will be managed for
Host by Marriott, a wholly owned subsidiary of Marriott International, Inc. The
Company's leases with Host (the "Initial Leases") are for approximately 12 years
with renewal options for an additional 37 years. All of the Initial Leases are
subject to cross default covenants and renewal options may only be exercised by
Host on an all or none basis. A security deposit equal to one year's base rent
(the "Security Deposit") has been retained by the Company as security for all of
Host's obligations under the Initial Leases. As owner and lessor of the Initial
Hotels, the Company is entitled to base rent and percentage rent under the
Initial Leases. The annual rent payable to the Company under the Initial Leases
totals $32.9 million in base rent plus percentage rent equal to 5% of Total
Hotel Sales (as defined herein, or "Gross Revenues" as defined in the Initial
Leases) at the Initial Hotels in excess of Total Hotel Sales during 1994. In
addition to base rent and percentage rent, the Initial Leases require that 5% of
Total Hotel Sales (initially approximately $1,172 per guest room per year) be
escrowed as a reserve for renovations and refurbishment (the "FF&E Reserve").
The Company believes that the FF&E Reserve, which exceeds industry averages for
similar properties, will be adequate to maintain the competitiveness of the
Initial Hotels. The management agreements entered into between Marriott and Host
Marriott Corporation and its affiliates with respect to the Initial Hotels prior
to the Company's purchase of the Initial Hotels (the "Management Agreements")
have
1
<PAGE> 10
been assigned to the Company. Under the Initial Leases, Host has agreed to
perform all of the Company's obligations under the Management Agreements. The
Management Agreements provide that base and incentive management fees are
effectively subordinated to base rent payable to the Company. For the 52 week
period ended June 16, 1995, Host's pro forma income before income taxes, rent,
subordinated management fees and the FF&E Reserve covered pro forma base rent
under the Initial Leases by 1.55 times; Host's pro forma income before income
taxes, rent and subordinated management fees and after deduction of the FF&E
Reserve covered pro forma base rent by 1.37 times.
The Company is currently a wholly owned subsidiary of HRP, a NYSE listed
REIT which primarily owns and leases retirement communities, nursing homes and
other health care related real estate. HRP was founded in 1986 with investments
of $63.0 million in seven properties, located in four states and operated by two
companies. Today, HRP is one of the largest REITs in the United States with
investments totaling over $1.0 billion in 183 properties, located in 32 states
and operated by 32 separate operating companies. During this period, HRP's
dividend has increased from $1.00 to $1.36 per share. HRP's past performance is
not necessarily indicative of the Company's future performance and an investment
in the Shares offered hereby is not an investment in HRP.
The Company acquired the 21 Initial Hotels in March 1995 while the Company
was a wholly owned subsidiary of HRP. HRP has determined not to change its
strategy of focusing on retirement and nursing facilities. This Offering has
been designed to provide a vehicle whereby both public investors and HRP,
consistent with HRP's principal investment focus, can take advantage of
investment opportunities in the hotel industry.
Host Marriott Corporation is one of the largest owners of lodging
properties in the world and Marriott International, Inc. is one of the largest
lodging management companies in the world. As of December 31, 1994 there were
227 Courtyard by Marriott hotels in the United States, of which 195 (including
the Initial Hotels) are managed by Marriott.
The Company's principal place of business is located at 400 Centre Street,
Newton, Massachusetts and its telephone number is (617) 964-8389.
RISK FACTORS
An investment in the Shares involves various risks, and investors should
carefully consider the matters discussed under "Risk Factors." These risks
include, among others:
- Failure to Qualify as a REIT. If the Company failed to qualify as a
REIT, it would be taxed as a corporation, which would reduce the Cash
Available for Distribution to shareholders.
- Inability to Operate the Hotel Properties. As a REIT, the Company is
restricted in its ability to operate the Initial Hotels and hotel
properties owned or acquired by the Company in the future (such
properties, together with the Initial Hotels, the "Hotel Properties").
The Company will rely on Host and any additional lessees of the Hotel
Properties (collectively, the "Lessees") and Marriott and additional
future managers (collectively, the "Managers") to operate the Hotel
Properties. No assurance can be given that Host or any additional Lessees
or Marriott or any additional Managers will operate the Initial Hotels or
other Hotel Properties in a manner to generate sufficient funds to pay
base rent and maximize percentage rent.
- Conflicts of Interest. Actual or potential conflicts of interest exist
between the Company, its Managing Trustees and Advisors. Advisors is a
Delaware corporation of which Messrs. Barry M. Portnoy and Gerard M.
Martin are each 50% owners. Messrs. Portnoy and Martin are each Managing
Trustees of the Company, Managing Trustees of HRP and Directors of
Advisors. Advisors has been engaged by the Company to perform management
and advisory services, including serving as the Company's investment
advisor, investigating and evaluating investment opportunities and
administering day-to-day operations of the Company. See "Advisors and the
Advisory Agreement -- The Advisory Agreement." These actual or potential
conflicts of interest could result in decisions that do
2
<PAGE> 11
not fully represent the interests of the Company or all of its
shareholders. The terms of the Advisory Agreement (as defined herein)
were not determined by arms' length negotiations. During the term of the
Advisory Agreement, Advisors and Messrs. Portnoy and Martin have agreed
not to provide advisory services to, or serve as Directors or officers
of, any other REIT which is principally engaged in the business of
ownership of hotel properties or to make competitive direct investments
in hotel facilities without, in each case, the consent of Trustees of the
Company who are not officers of the Company or otherwise affiliated with
the Company, HRP or Advisors (the "Independent Trustees").
- Benefits to HRP and Advisors. In connection with this Offering, HRP will
receive $64.3 million in cash in partial repayment of a demand loan made
by HRP to the Company which enabled it to purchase 21 of the Initial
Hotels. Amounts repaid to HRP will not be available to the Company. In
addition, Advisors will enter into the Advisory Agreement which provides
for payment by the Company of advisory fees to Advisors. The fee payable
to Advisors during the initial term of the Advisory Agreement through
December 31, 1995 (assuming no new investments by the Company during that
period) will be approximately $806,000.
- Limited Operating History. The Company has only a limited operating
history and, as of the completion of this Offering, will have had no
experience operating as an independent company.
- Dependence on Key Personnel. The Company is an advised REIT and will be
highly dependent on the efforts of Advisors and the Company's Managing
Trustees and officers, all of whom have extensive experience operating a
REIT but only limited experience investing in hotel properties.
- Initial Dependence on Single Lessee and Single Manager. All of the
Initial Hotels are leased to Host and managed by Marriott. In order to
generate cash sufficient to make distributions to shareholders, the
Company will rely on timely receipt of rent payments from Host. Host will
rely on Marriott to manage the Initial Hotels. The failure or delay by
Host in making rental payments under the Initial Leases could adversely
affect the ability of the Company to make distributions to shareholders.
- Initial Dependence on Single Brand Name. Each of the Initial Hotels is a
Courtyard by Marriott[R] hotel. The Courtyard by Marriott[R] brand name
is owned by affiliates of Marriott. Any degradation or adverse market
developments relating to the Courtyard by Marriott[R] brand name could
adversely affect the results of operations of the Initial Hotels and the
ability of Host to make rent payments.
- Concentration of Ownership. Upon completion of this Offering, HRP and
Advisors will collectively own 36.2% of the Shares which will enable them
to have a significant influence on the Company.
- Lack of Prior Market for Shares. The market price of the Shares may be
adversely affected if no active trading market for the Shares develops or
if interest rates increase.
- Asset Values May Not Reflect Market Values. Although they were
determined by arm's length negotiations between the Company and Host
Marriott Corporation, the purchase prices paid by the Company for the
Initial Hotels may not accurately reflect the value of those assets.
- Ownership Limitations and Antitakeover Provisions. The restriction on
ownership of more than 9.8% of the Shares by any person except HRP,
Advisors and certain other entities, as set forth in the Company's
Declaration of Trust (the "Declaration"), may have the effect of
inhibiting a change of control of the Company.
- Risk of Leverage. The organizational documents of the Company do not
limit the level of debt the Company may incur. The Company could become
highly leveraged, which could adversely affect the ability of the Company
to make distributions to shareholders and increase the risk of default
under its indebtedness. The Company's current policy is not to have debt
for borrowed money in excess of 50% of its total market capitalization.
- Security Deposit. The Security Deposit (one year's base rent) has not
been escrowed by the Company. Accordingly, in the event of a default
under the Initial Leases, these funds will not be available to make
distributions to shareholders.
3
<PAGE> 12
- Change in Policies Without Shareholder Approval. The Board of Trustees
has the ability to change the policies of the Company, including its
investment, financing and distribution policies, without a vote of
shareholders, which could result in policies that do not reflect the
interests of all shareholders.
- Insufficient Cash Available for Distributions. Either significant
unanticipated cash expenditures by the Company or reductions in
anticipated rent payments to the Company could adversely affect the
ability of the Company to make distributions to shareholders.
- Acquisition Risks. In connection with the acquisition of the Initial
Hotels, the Company will be subject to certain risks inherent in
acquiring real property, including uncertainty as to recourse for future
liabilities attributable to actions of, or breaches of representations
and warranties by, Host Marriott Corporation and its affiliates as the
sellers of the Initial Hotels (the "Sellers"). The Sellers are not
required to retain any proceeds from the sale of the Initial Hotels or to
maintain any minimum levels of net worth. The Company may be subject to
similar risks in connection with future acquisitions.
- Insurance. Certain potential losses, including losses resulting from
earthquakes, hurricanes, floods or other acts of God, may not be
insurable or insurable on economically viable terms. Any uninsured loss
suffered by the Company could adversely affect its ability to make
distributions to shareholders. Four of the Initial Hotels are located in
California where earthquake insurance is not currently available at
economically viable rates.
- FF&E Reserve. Periodic payments into the FF&E Reserve will be restricted
cash rent to the Company. Although the Company anticipates that it will
have sufficient depreciation expense to offset this restricted cash
income for the foreseeable future, the existence of restricted cash
income could make it necessary for the Company to make distributions in
excess of Cash Available for Distribution in order to maintain its REIT
status under the Internal Revenue Code of 1986, as amended (the "Code").
- Ground Leases. Rights to use the land underlying five of the Initial
Hotels will be acquired by an assignment of the Sellers' leasehold
interests under long term ground leases. Under the Initial Leases, Host
must pay all rents due and comply with substantially all other
obligations under the ground leases. If Host does not perform these
obligations, the Company must perform such obligations to protect its
investment in these Initial Hotels.
- Hotel Industry Risks. Investments in the hotel industry involve certain
risks, such as renewal of leases, the need for regular replacements and
improvements, competition and the cyclical and seasonal nature of the
industry.
- Real Estate Investment Risks. Investments in real estate involve certain
risks, such as the volatile and cyclical nature of the real estate
market, dependence on national and local economic conditions, the
relative illiquidity of real estate, potential liabilities for unknown or
future environmental liabilities and the need for regular capital
expenditures.
GROWTH STRATEGY
The Company's business objectives are to increase Cash Available for
Distribution per Share and enhance shareholder value. The Company will seek to
(i) acquire additional Hotel Properties that meet the Company's investment
criteria and (ii) participate in growth in revenues at the Hotel Properties
through percentage rents.
ACQUISITION STRATEGY
The Company believes there are opportunities to acquire well located hotels
in the moderately priced segment of the hotel industry that are or potentially
could be affiliated with nationally recognized hotel companies. The Company
intends to focus on acquisitions of relatively new properties or older
properties where extensive renovations have been or are committed to be
undertaken at the time of the Company's
4
<PAGE> 13
investment. The Company intends to require an appropriate reserve or other
mechanism in its Leases to insure that funding is available to maintain the
quality of its Hotel Properties.
The Company has retained Advisors to provide management services and
investment advice to the Company in accordance with the terms of an advisory
agreement (the "Advisory Agreement"). For such services, Advisors will receive
an advisory fee based upon gross assets of the Company and may receive an
incentive fee based upon increases in the Company's Cash Available for
Distribution per Share. The initial term of the Advisory Agreement expires on
December 31, 1995 and renewals or extensions will be subject to the periodic
approval of the Independent Trustees. See "Policies With Respect to Certain
Activities -- Conflict of Interest Policies."
Advisors has significant experience in acquiring real estate and
structuring net lease transactions. Since its inception, HRP has been advised by
Advisors under the supervision of Messrs. Portnoy and Martin and has grown from
$63.0 million in assets at the time of its founding in 1986 to in excess of $1.0
billion currently, including the 21 Initial Hotels acquired in March 1995. The
Company will be advised by Advisors under the supervision of Messrs. Portnoy and
Martin. The Company and Advisors believe that there are significant similarities
between the business of purchasing and net leasing retirement and nursing
facilities and the business of purchasing and net leasing hotel properties.
HRP's past performance, however, is not necessarily indicative of the Company's
future performance.
The Company has purchased from Host Marriott Corporation certain options,
rights of first refusal and rights of first offer covering substantially all
remaining ownership interests of Host Marriott Corporation and its affiliates in
Courtyard by Marriott[R] hotels and Residence Inns by Marriott[R]. The rights of
first offer extended through February 29, 2000 and were purchased for $3.0
million; their terms will be extended to August 31, 2002 at the closing of this
Offering in exchange for an additional $1.5 million. For other material terms of
these rights, see "Business -- Purchase Options." Although the Company has not
determined whether or when to exercise any of these rights, the Company believes
these rights have significant value and will afford it opportunities to invest
in high quality hospitality properties operated by one of the world's most
successful hotel operating teams.
In addition to potential future investments in properties owned by Host
Marriott Corporation, the Company expects to seek investments in other hotel
properties owned and operated by companies other than Host Marriott Corporation
and Marriott International, Inc. Most other public hotel REITs seek to control
the operations of the hotel properties in which they invest by leasing the
properties to affiliated tenants. The Company neither intends to seek control
over its tenants' operations nor to lease or provide financing to affiliates.
Because of this difference in operating philosophy, the Company believes it will
have a competitive advantage over other public hotel REITs in dealing with hotel
operating companies which want to divest their real estate while remaining in
the hotel business as lessees.
INTERNAL GROWTH STRATEGY
Based upon recent increases in occupancy and ADR in the United States
lodging industry, the Company believes that the industry is experiencing
cyclical growth and improved fundamentals due to the more favorable balance
between demand and supply for overnight accommodations. The Company believes
that the Initial Hotels offer opportunities for internal growth through
increases in percentage rent. The Initial Leases require payment of base rent
plus percentage rent equal to 5% of increases in Total Hotel Sales at the
Initial Hotels over Total Hotel Sales in 1994. The Company intends in future
Leases to require both base rent and percentage rent based on gross revenues.
FINANCING POLICIES
The Company currently intends to employ conservative financial policies in
pursuing its growth strategy. In order to capitalize on hotel acquisition
opportunities, the Company has accepted a commitment from DLJ Mortgage Capital,
Inc. ("DLJMC") for a $200.0 million credit line (the "Acquisition Line"). Upon
completion of this Offering, the Company's only outstanding indebtedness for
borrowed money will be approximately $23.4 million. The Company will have no
indebtedness for borrowed money outstanding upon completion of this Offering if
the Underwriters' overallotment option is exercised in full. Although there are
no
5
<PAGE> 14
limitations in the Company's Declaration on the amount of indebtedness it may
incur, the Company currently intends not to have debt for borrowed money in
excess of 50% of its total market capitalization; however, the Trustees may in
their discretion change this policy at any time. See "Risk Factors -- Risks
Relating to Operations of the Company -- Risks of Leverage."
THE INITIAL HOTELS
Courtyard by Marriott[R] hotels are designed to attract both business and
leisure travelers. A typical Courtyard by Marriott[R] hotel has an average of
145 guest rooms. The guest rooms are larger than those in most other moderately
priced hotels and predominately offer king sized beds. Most Courtyard by
Marriott[R] hotels are situated on well landscaped grounds and typically are
built around a courtyard containing a patio, pool and socializing area that may
be glass enclosed depending upon location. Most of the hotels have lounges or
lobbies, meeting rooms, an exercise room, a small laundry room available to
guests and a restaurant or coffee shop. Generally, the guest rooms are similar
in size and furnishings to guest rooms in full service Marriott hotels. In
addition, many of the same amenities as would be available in full service
Marriott hotels are available in Courtyard by Marriott[R] hotels, except that
restaurants may be open only for breakfast buffets or serve limited menus, room
service is generally not available and meeting and function rooms are limited in
size and number. The Company believes that the structural design and operating
systems developed by affiliates of Host and Marriott for these hotels allow
Courtyard by Marriott[R] hotels to be priced competitively with, and provide
better customer value than, most other moderately priced hotels.
The Initial Hotels are among the newest in the Courtyard by Marriott[R]
system with an average age of five years. Thirty-two of the 37 Initial Hotels
were designed and purpose built for affiliates of Host and Marriott. The Initial
Hotels are located in 20 states throughout the United States, generally in
convenient locations close to business facilities, major transportation routes,
airports, public attractions or academic institutions.
<TABLE>
The Company believes the superior design, operating systems and locations
of the Initial Hotels have caused their operating performance to exceed United
States hotel industry averages in recent years. The following table sets forth
for the three years during which all 37 Initial Hotels were open, the occupancy,
ADR and revenue per available room ("REVPAR") of the Initial Hotels as compared
with those averages for all United States hotels, as reported by Smith Travel
Research in Lodging Outlook:
<CAPTION>
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
INITIAL HOTELS:
Occupancy................................... 76.2% 80.1% 81.1%
ADR......................................... $58.41 $62.07 $66.65
REVPAR...................................... $44.53 $49.70 $54.05
AVERAGES FOR U.S. HOTELS:
Occupancy................................... 61.8% 63.1% 65.2%
ADR......................................... $59.30 $61.17 $63.63
REVPAR...................................... $36.65 $38.60 $41.49
</TABLE>
THE INITIAL LEASES AND MANAGEMENT AGREEMENTS
The principal features of the Initial Leases and the Management Agreements
are as follows:
- All of the Initial Leases are subject to cross default provisions.
- The term of the Initial Leases expires in December 2006. Thereafter, Host
has the option to renew for one seven year term and three consecutive ten
year terms. Renewal options may only be exercised on an all or none basis
for all of the Initial Hotels.
- The Initial Leases require the payment of both base and percentage rent.
The base rent for the Initial Hotels is $32.9 million per annum.
Percentage rent payable to the Company is 5% of Total Hotel Sales from
combined operations of the Initial Hotels in excess of Total Hotel Sales
during 1994. Total Hotel
6
<PAGE> 15
Sales for the 37 Initial Hotels were $120.9 million in 1994 compared with
$113.4 million in 1993, a 6.7% increase.
- Both the Initial Leases and the Management Agreements require that the
FF&E Reserve be set aside for replacements and refurbishments of the
Initial Hotels. The FF&E Reserve belongs to the Company, is funded at 5%
of Total Hotel Sales of the Initial Hotels and is in addition to base
rent and percentage rent; it may only be spent by Host or Marriott for
capitalized improvements to, and replacements and refurbishments of, the
Initial Hotels. Based on 1994 Total Hotel Sales of the Initial Hotels,
the annual contribution to the FF&E Reserve would have been $1,172 per
guest room. The Company believes this level of available funding will be
sufficient to maintain the quality, appearance and market competitiveness
of the Initial Hotels.
- A Security Deposit equal to a full year's base rent, $32.9 million, has
been retained by the Company as security for Host's obligations under the
Initial Leases. Provided that Host does not default under the Initial
Leases, the Company will repay the Security Deposit to Host at the
expiration of the term of the Initial Leases, including renewal terms. No
interest will be paid by the Company on the Security Deposit.
- The Initial Leases are net leases requiring Host to pay all operating
expenses, including taxes and insurance. Under the Management Agreements,
substantially all of Host's operating responsibilities have been
delegated to Marriott. The Management Agreements require Marriott to
maintain and repair the Initial Hotels, establish room rates, prices and
charges, arrange for and supervise advertising, obtain permits and
licenses, recruit, supervise and direct employees and cause Courtyard by
Marriott[R] chain services to be provided to the Initial Hotels.
- The Management Agreements may be canceled by Host (with the consent of
the Company) on a hotel by hotel basis if specified performance levels
are not achieved by Marriott. In the event that Host terminates a
Management Agreement, the Company would no longer have access to the
Courtyard by Marriott[R] brand name and Marriott's hotel reservation
network and other marketing programs with respect to the applicable
Initial Hotel, unless Host or a successor Manager obtains a franchise for
such hotel from Marriott. The Management Agreements are not subject to
cross default. The Company believes that the fees payable under the
Management Agreements would be sufficient to attract a successor Manager
if a Management Agreement were terminated.
- The Management Agreements expire in December 2013. Thereafter, they may
be renewed by Marriott for three consecutive ten year terms. All such
renewals may only be exercised on an all or none basis for all of the
Initial Hotels.
- Management fees will be paid to Marriott by Host for operation of the
Initial Hotels and include a base fee equal to 2% of Total Hotel Sales
and an incentive fee calculated based on a percentage of Available Cash
Flow (as defined in the Management Agreements). Under the terms of the
Management Agreements, both base and incentive management fees are
effectively subordinated to base rent due under the Initial Leases
because base management fees (which are payable for each Initial Hotel on
an individual basis) are deferred in any year in which Operating Profit
(as defined in the Management Agreements) is not sufficient to pay base
rent for such Initial Hotel in full and incentive management fees (which
are payable for all Initial Hotels on a combined basis) are payable only
after base rent obligations under the Initial Leases have been paid in
full. Based on the pro forma Total Hotel Sales and Available Cash Flow at
the Initial Hotels for the year ended December 30, 1994, the base fee and
incentive fee payable to Marriott for the operation of the Initial Hotels
under the Management Agreements would have been $2.4 million and $3.4
million, respectively.
7
<PAGE> 16
- As owner and lessor of the Initial Hotels, the Company is entitled to
base rent and percentage rent under the Initial Leases. For the 52 week
period ended June 16, 1995, Host's pro forma income before income taxes,
rent, subordinated management fees and the FF&E Reserve exceeded pro
forma base rent due to the Company by $18.2 million, or coverage of 1.55
times the base rent; Host's pro forma income before income taxes, rent
and subordinated management fees and after deduction of the FF&E Reserve
exceeded pro forma base rent due to the Company by $12.0 million, or
coverage of 1.37 times.
FORMATION OF THE COMPANY
The Company is currently a wholly owned subsidiary of HRP. In March 1995,
the Company acquired 21 of the Initial Hotels for $179.4 million. Substantially
all of the funding for this acquisition, including start up, closing and option
costs, was provided to the Company by HRP as a demand loan (the "HRP Loan"). In
addition to the HRP Loan, HRP purchased 40,000 Shares for $1.0 million ($25.00
per Share). Upon completion of this Offering, the additional 16 Initial Hotels
will be purchased by the Company for $149.6 million, HRP will purchase directly
from the Company an additional 3,960,000 Shares at $25.00 per Share by
cancelling $99.0 million of the HRP Loan and Advisors will purchase directly
from the Company 250,000 Shares at $25.00 per Share. The Company has accepted a
commitment for the Acquisition Line which is expected to close concurrently with
the completion of this Offering. The net proceeds of this Offering, the sale of
Shares to Advisors and amounts drawn under the Acquisition Line will be used to
purchase the additional 16 Initial Hotels and to repay the remaining balance on
the HRP Loan. At the conclusion of these transactions, the ownership structure
of the Company will be as follows:
<TABLE>
- -------------------------------------------------------
<S> <C> <C>
Public Shareholders 7,500,000 Shares (63.8%)
HRP 4,000,000 Shares (34.1%)
Advisors 250,000 Shares (2.1%)
- -------------------------------------------------------
- -------------------------------------------------------
The Company
- -------------------------------------------------------
- -------------------------------------------------------
Ownership of 37 Courtyard by Marriott[R] Hotels
- -------------------------------------------------------
------------- -------------
Leased Managed
to by
Host Marriott
------------- -------------
</TABLE>
BENEFITS TO HRP AND ADVISORS
In connection with the completion of this Offering and the other
transactions to be consummated in connection with the completion of this
Offering, HRP and Advisors will receive the following benefits:
- HRP will receive $64.3 million in cash in partial repayment of the HRP
Loan.
- HRP will purchase 3,960,000 Shares by cancelling $99.0 million of the HRP
Loan (a purchase price of $25.00 per Share).
- Advisors will purchase 250,000 Shares at $25.00 per Share in cash.
- Advisors will enter into the Advisory Agreement with the Company under
which it will earn advisory fees. The fee payable to Advisors during the
initial term of the Advisory Agreement through
8
<PAGE> 17
December 31, 1995 (assuming no new investments by the Company during that
period) will be approximately $806,000. Messrs. Portnoy and Martin are
Managing Trustees of the Company, Managing Trustees of HRP and each is a
Director and a 50% owner of Advisors. See "Advisors and the Advisory
Agreement."
<TABLE>
THE OFFERING
All of the Shares offered hereby are being sold by the Company.
<S> <C>
Shares offered................................. 7,500,000 Shares
Concurrent offering to HRP and Advisors........ 4,210,000 Shares
Shares to be outstanding after this Offering
and the concurrent offering(1)............... 11,750,000 Shares
Use of proceeds................................ Acquisition of the additional 16 Initial
Hotels, repayment of a portion of the HRP
Loan, payment of certain expenses associated
with this Offering and for working capital
and other general purposes, including future
acquisitions.
NYSE symbol.................................... HPT
<FN>
- ------------------------------
(1) Includes 40,000 Shares owned by HRP prior to this Offering.
</TABLE>
DISTRIBUTION POLICY
The Company intends to make regular quarterly distributions beginning with
the quarter ended September 30, 1995 at the initial rate of $0.55 per Share, or
$2.20 per annum. Based upon the range of estimated public offering prices set
forth on the cover of this Prospectus, the initial distribution yield will be
between 8.46% and 9.17% per annum. The first distribution, for the period from
the completion of this Offering through September 30, 1995, is expected to be
$ per Share. The Company does not intend to reduce the initial distribution
rate if the Underwriters' overallotment option is exercised. The initial annual
distribution represents approximately 89.8% of the Company's pro forma Cash
Available for Distribution for the twelve months ended June 30, 1995. See
"Distribution Policy."
TAX STATUS
The Company will elect to be taxed as a REIT under the Code beginning with
its taxable year ending December 31, 1995. If the Company qualifies for taxation
as a REIT, then under current federal income tax law the Company generally will
not be taxed on income it distributes to its shareholders so long as it
distributes at least 95% of its annual net taxable income and satisfies a number
of organizational and operational requirements to which REITs are subject. Even
if the Company qualifies for taxation as a REIT, the Company will be subject to
certain state and local taxes on its income and property. See "Federal Income
Tax Considerations."
9
<PAGE> 18
SUMMARY PRO FORMA AND SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth summary selected financial and operating
data on a pro forma basis for the Company for the six months ended June 30, 1994
and June 30, 1995 and as of and for the 12 months ended June 30, 1995 and for
the year ended December 31, 1994. The pro forma data are unaudited and are
presented as if: (i) this Offering and the concurrent offering; (ii) the
acquisition of the Initial Hotels; (iii) the repayment of the HRP Loan; (iv) the
initial borrowing under the Acquisition Line; (v) the commencement of the
Initial Leases; and (vi) certain other transactions described in the notes to
the pro forma financial statements included elsewhere in this Prospectus have
been consummated as of the date or for the periods presented. The pro forma data
are not necessarily indicative of what the actual financial position or results
of operations would have been as of the dates or for the periods indicated, nor
do they purport to represent the financial position or results of operations for
future periods. The following summary selected financial and operating data
should be read in conjunction with the financial statements and the notes
thereto included elsewhere in this Prospectus. Historical data are not presented
because the Company was recently formed and the information is not material.
HOSPITALITY PROPERTIES TRUST
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED 12 MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1994 JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1995
----------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Base rent..................... $32,900 $32,900 $ 16,450 $ 16,450
Percentage rent............... -- 166 -- 166
FF&E Reserve.................. 6,045 6,211 3,037 3,203
Expenses:
Interest...................... 1,882 1,882 941 941
Depreciation.................. 9,011 9,011 4,506 4,506
General, administrative and
advisory................... 2,549 2,549 1,275 1,275
----------------- --------------- ---------------- ----------------
Net income................. $25,503 $25,835 $ 12,765 $ 13,097
============= ============= ============= =============
Net income per Share(1).... $ 2.17 $ 2.20 $ 1.09 $ 1.11
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1995
----------------
<S> <C>
BALANCE SHEET DATA:
Real estate properties, net............................................. $328,256
Total assets............................................................ 335,915
Total debt.............................................................. 23,400
Shareholders' equity.................................................... 278,350
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED 12 MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1994 JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1995
----------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
OTHER DATA:
Funds From Operations(2)...... $34,514 $34,846 $ 17,271 $ 17,603
Cash Available for
Distribution(3)............ 28,625 28,791 14,312 14,478
Cash provided by operating
activities(4).............. 34,670 35,002 17,349 17,681
Cash used in investing
activities(5).............. 6,045 6,211 3,037 3,203
Cash used in financing
activities --
distributions(6)........... 25,850 25,850 12,925 12,925
</TABLE>
10
<PAGE> 19
- ------------------------------
(1) All per Share calculations are based on 11,750,000 Shares outstanding.
(2) Management and industry analysts consider Funds From Operations (as defined
herein) to be a measure of the financial performance of an equity REIT that
provides a relevant basis for comparison among REITs and Funds From
Operations is presented to assist investors in analyzing the performance of
the Company. The Company's Funds From Operations represents net income
(computed in accordance with GAAP), before real estate depreciation and
amortization (excluding deferred financing costs). Funds From Operations
does not represent cash flows from operating activities (as determined in
accordance with GAAP) and should not be considered an alternative to net
income as an indicator of the Company's financial performance or to cash
flows from operating activities as a measure of liquidity.
(3) Cash Available for Distribution is Funds From Operations plus amortization
of deferred financing costs less the rental income arising from amounts
periodically escrowed in the FF&E Reserve. The Company believes that the
proper measure of its performance should take into account a reduction in
Funds From Operations for the FF&E Reserve (which is recorded as rental
income under GAAP) because the FF&E Reserve is required to be escrowed and
is expected to be used for renovations and refurbishment of the Initial
Hotels.
(4) Represents net income plus depreciation and amortization of deferred
financing costs. Such amounts exclude cash provided by (used in) operating
activities due to changes in working capital resulting from changes in
current assets and current liabilities. The Company does not believe that
these excluded items are material to net cash provided by operating
activities.
(5) Represents contributions to the FF&E Reserve which are expected to equal
improvements and additions to Hotel Properties.
(6) Represents pro forma distributions to be paid based upon the estimated
initial annual distribution of $2.20 per Share and 11,750,000 Shares
outstanding. No scheduled principal payments are required under the
Acquisition Line until its maturity 18 months after the completion of this
Offering.
11
<PAGE> 20
<TABLE>
The following table sets forth summary selected historical financial and
operating data of the 37 Initial Hotels for the fiscal years 1992, 1993 and 1994
which have been derived from audited financial statements included elsewhere in
this Prospectus. The following table also sets forth summary selected financial
and operating data on a pro forma basis for Host for the fiscal year ended
December 30, 1994, the 52 weeks ended June 16, 1995 and the 24 weeks ended June
17, 1994 and June 16, 1995. The pro forma data are unaudited and are presented
as if: (i) this Offering and the concurrent offering; (ii) the acquisition of
the Initial Hotels; (iii) the commencement of the Initial Leases; and (iv)
certain other transactions described in the notes to the pro forma financial
statements included elsewhere in this Prospectus have been consummated as of
January 1, 1994. The pro forma data are not necessarily indicative of what the
actual results of operations would have been for the periods indicated, nor do
they purport to represent the results of operations for future periods. The
following summary selected financial information should be read in conjunction
with the financial statements and notes thereto included elsewhere in this
Prospectus.
<CAPTION>
COMBINED INITIAL HOTELS/HOST
-----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
FISCAL YEARS PRO FORMA
------------------------------ --------------------------------------------
FISCAL YEAR 52 WEEKS 24 WEEKS 24 WEEKS
ENDED ENDED ENDED ENDED
1992 1993 1994 12/30/94 6/16/95 6/17/94 6/16/95
-------- -------- -------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Hotel Sales(1)..................... $103,744 $113,356 $120,897 $120,897 $123,976 $56,068 $59,147
======== ======== ======== ======== ======== ======= =======
Revenues................................. $ 41,969 $ 49,850 $ 58,186 $ 58,186 $ 60,634 $27,339 $30,025
Expenses:
Depreciation........................... 17,422 16,428 14,515 -- -- -- --
Base rent.............................. -- -- -- 32,900 32,900 16,450 16,450
Percentage rent........................ -- -- -- -- 154 -- 154
FF&E contribution expense.............. -- -- -- 6,045 6,199 2,803 2,957
Base management fee.................... -- -- -- 2,418 2,480 1,121 1,183
Incentive management fee............... -- -- 2,825 3,384 4,775 507 1,907
Other, net............................. 9,529 10,405 9,672 8,298 8,125 4,719 4,528
-------- -------- -------- -------- ------- ------- -------
Revenues over expenses excluding income
taxes(2)............................... $ 15,018 $ 23,017 $ 31,174 $ 5,141 $ 6,001 $ 1,739 $ 2,846
======== ======== ======== ======== ======== ======= =======
<FN>
- ------------------------------
(1) Total Hotel Sales are presented above for the purpose of providing
supplemental information regarding the gross sales volume of the Initial
Hotels.
(2) The 1993 revenues over expenses excluding income taxes also excludes
cumulative effect of change in accounting for assets held for sale of $14.5
million. See Notes to Combined Financial Statements of the Initial Hotels.
</TABLE>
12
<PAGE> 21
RISK FACTORS
Prospective investors should carefully consider the following information
in conjunction with the other information contained in this Prospectus before
purchasing Shares in this Offering.
TAX RISKS
REIT QUALIFICATION
The Company intends to operate so as to qualify as a REIT under the Code,
commencing with its taxable year ending December 31, 1995. The Company has not
requested, and does not expect to request, a ruling from the Internal Revenue
Service (the "Service") regarding its status as a REIT. Qualification as a REIT
involves the application of technical and complex provisions of the Code for
which there are only limited judicial or administrative interpretations. The
determination of various factual matters and circumstances not entirely within
the Company's control may affect its ability to qualify as a REIT, including
default by a Lessee under, and a termination of, a Lease. In addition, no
assurance can be given that legislation, regulations, administrative
interpretations or court decisions will not significantly change the rules
applicable to the Company with respect to its qualification as a REIT or the
federal income tax consequences of such qualification.
Prior to the completion of the Offering, the Company will receive an
opinion of Sullivan & Worcester that, based on the assumptions that the Leases,
the Company's Declaration and Bylaws and all other documents to which the
Company is a party will be complied with by all parties thereto, and upon
certain representations of the Company, the Company will qualify as a REIT under
the Code. Investors should be aware, however, that opinions of counsel are not
binding on the Service or a court. The continued qualification of the Company as
a REIT will depend on the Company's continuing ability to meet various
requirements concerning, among other things, the ownership of its outstanding
stock, the nature of its assets, the sources of its income and the amount of its
distributions to shareholders.
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would not be allowed a deduction for distributions to shareholders in
computing its taxable income and would be subject to federal income tax
(including any applicable minimum tax) on its taxable income at regular
corporate rates. Unless entitled to relief under certain Code provisions, the
Company also would be disqualified from treatment as a REIT for the four taxable
years following the year during which qualification was lost. As a result,
distributions to shareholders could be materially adversely affected for each of
the years involved. Although the Company currently intends to operate in a
manner designed to qualify as a REIT, it is possible that future economic,
market, legal, tax or other considerations may cause the Board of Trustees, with
the consent of two thirds of the shareholders, to revoke the REIT election. See
"Federal Income Tax Considerations" and "Summary of the Declaration of Trust."
LOSS OF REIT QUALIFICATION UNDER CERTAIN CIRCUMSTANCES
If Host were to default on its obligations under any Initial Lease for an
Initial Hotel, Marriott was not available to manage the Initial Hotel upon
termination of Host's leasehold interest therein, or the Company was unable to
find a replacement Lessee within 90 days of such termination or was unable to
find an independent contractor to manage such Initial Hotel, the gross income
from hotel operations conducted by the Company from such Initial Hotel would not
qualify as gross income necessary to maintain REIT status. In the event that the
Company did not generate qualifying gross income from other sources sufficient
to enable it to meet the REIT requirements, the Company would fail to qualify as
a REIT.
DISTRIBUTIONS TO SHAREHOLDERS
In order to qualify as a REIT, the Company generally will be required each
year to distribute to its shareholders at least 95% of its net taxable income
(excluding any net capital gains). The Company intends to make distributions to
its shareholders to comply with the 95% distribution requirement. Differences in
timing between taxable income and the receipt of amounts available for
distribution could require the Company to
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borrow funds to meet the 95% distribution requirement. See "Federal Income Tax
Considerations -- Taxation of the Company -- Annual Distribution Requirements."
For example, the Company could recognize non-cash taxable income for REIT
purposes in circumstances where it determined to exercise offset rights against
the Security Deposit in response to delays in payment of rent by Host under the
Initial Leases. For more information relating to such offset rights and the
Security Deposit, see "-- Risks Relating to Initial Hotels -- Security Deposit"
and "The Initial Leases -- Security Deposit." In addition, funds allocated to
the FF&E Reserve under the Initial Leases will be deemed to be taxable income of
the Company for REIT purposes even though the funds will be used to finance
capital expenditures relating to the Initial Hotels and will be escrowed.
RISKS RELATING TO OPERATIONS OF THE COMPANY
INABILITY TO OPERATE THE HOTEL PROPERTIES
Consistent with its status as a REIT, the Company will not be able to
operate the Hotel Properties directly. As a result, the Company will be unable
to make and implement strategic business decisions with respect to the Hotel
Properties, such as decisions with respect to the repositioning of the franchise
or license of a Hotel Property, the redevelopment of a Hotel Property's food and
beverage operations and other similar decisions, even if such decisions were in
the best interests of the Company. Any inability of Marriott or any future
Managers properly to manage the Initial Hotels could have a material adverse
effect on the Company's ability to make distributions to its shareholders.
Moreover, Marriott and its affiliates are not restricted from operating branded
hotels (except other Courtyard by Marriott[R] hotels until September 25, 1999)
in the market areas of the Initial Hotels. In addition, upon termination of a
Lease, the effect of the tax rules may be to limit the period during which the
Company could operate (whether directly or through an independent contractor)
consistent with its REIT status. This restriction might cause the Company to
enter into a Lease with a new Lessee on terms and conditions which are less
favorable to it than if the Company were not subject to this restriction. See
"Federal Income Tax Considerations -- Taxation of the Company -- Foreclosure
Property."
CONFLICTS OF INTEREST
Advisors acts as the investment advisor to the Company and to HRP and also
has other business interests. Advisors will not be able to devote all of its
business time and resources to the Company and conflicts could arise with
respect to the allocation of its business time and resources. Advisors will
perform management and advisory services for the Company including evaluating
investment opportunities and administering the day-to-day operations of the
Company. See "Advisors and the Advisory Agreement -- The Advisory Agreement."
Although HRP has stated that it has no current intention to purchase or finance
any additional hotel properties, a conflict could develop should HRP change its
investment policies and determine to increase its investments in hotel
properties. Messrs. Portnoy and Martin are Managing Trustees of HRP, Managing
Trustees of the Company and each is a Director and 50% shareholder of Advisors.
Mr. Portnoy is a partner in the firm of Sullivan & Worcester, which acts as
counsel to the Company, HRP, Advisors and affiliates of each of the foregoing.
To address the foregoing potential conflicts of interest and competing time
demands, the Declaration provides that a majority of the Company's Trustees will
be Independent Trustees. Advisors intends that Mr. Murray and certain other
employees of Advisors will devote substantially all of their business time to
the Company. In addition, pursuant to the Advisory Agreement, Advisors and
Messrs. Portnoy and Martin have agreed not to provide advisory services to, or
serve as directors or officers of, any other REIT which is principally engaged
in the business of ownership of hotel properties or to make competitive direct
investments in hotel facilities without, in each case, the consent of the
Independent Trustees. The terms of the Advisory Agreement were not determined by
arms' length negotiations. Finally, Advisors and Messrs. Portnoy and Martin will
be required by applicable law to act in accordance with their fiduciary
responsibilities to the Company. See "Policies with Respect to Certain
Activities -- Conflict of Interest Policies."
BENEFITS TO HRP AND ADVISORS
In connection with the completion of this Offering and the other
transactions to be consummated in connection with the completion of this
Offering, HRP and Advisors will receive the following benefits:
- HRP will receive $64.3 million in cash in partial repayment of the HRP
Loan.
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- HRP will purchase 3,960,000 Shares by cancelling $99.0 million of the HRP
Loan (a purchase price of $25.00 per Share).
- Advisors will purchase 250,000 Shares at $25.00 per Share in cash.
- Advisors will enter into the Advisory Agreement with the Company under
which it will earn advisory fees. The fee payable to Advisors during the
initial term of the Advisory Agreement through December 31, 1995
(assuming no new investments by the Company during that period) will be
approximately $806,000. Messrs. Portnoy and Martin are Managing Trustees
of the Company, Managing Trustees of HRP and each is a Director and a 50%
owner of Advisors. See "Advisors and the Advisory Agreement."
LIMITED OPERATING HISTORY
The Company has been recently organized and has a limited operating
history. Although HRP and Advisors have extensive experience operating a REIT,
they have only limited experience in operating a hotel properties REIT and no
experience in the hotel industry. Accordingly, there can be no assurance that
the Company will be able to generate sufficient revenues from operations to make
distributions to shareholders and the Company will be subject to all risks
generally associated with the formation of a new business.
DEPENDENCE ON KEY PERSONNEL
The Company is an advised REIT and the success of the Company is highly
dependent on the efforts and abilities of its Managing Trustees, its officers
and Advisors. The loss of their services could have a material adverse effect on
the Company's business and results of operations, including its ability to
implement its business strategy. Although these individuals and Advisors have
extensive experience operating a REIT, they have no experience in the hotel
industry (other than in connection with the acquisition by HRP of the 21 Initial
Hotels in March 1995). Although Mr. John G. Murray, the Company's Treasurer and
Chief Financial Officer, is expected to devote substantially all of his business
time to the Company, neither Advisors nor the Managing Trustees will devote all
of their business time to the Company.
INITIAL DEPENDENCE ON SINGLE LESSEE AND SINGLE MANAGER
All of the Initial Hotels are leased to Host and managed by Marriott. In
order to generate revenues to enable it to make distributions to shareholders,
the Company will rely on the ability of Host to make rent payments and perform
(or cause Marriott to perform) its other obligations under the Initial Leases.
Any inability of Host to make timely rent payments or of Host or Marriott (as
the Initial Manager of the Initial Hotels) to otherwise perform obligations
arising under the Initial Leases could have a material adverse effect on the
Company's ability to make distributions to shareholders. In addition, each
Initial Lease is cross defaulted with all other Initial Leases. Termination of
an Initial Lease after default will not terminate the Management Agreement with
respect to the applicable Initial Hotel unless there are also defaults under
such Management Agreement. After termination of an Initial Lease, the Company
may re-lease or sell the applicable Initial Hotel, subject to the applicable
Management Agreement (unless also terminated as a result of default thereunder),
and seek recovery of damages from Host. Host is a limited purpose entity which
has been recently formed for the purpose of leasing the Initial Hotels. Although
Host is required to maintain a minimum net worth (defined to exclude deferred
gains) equal to one year's base rent under the Initial Leases, the Security
Deposit will be counted toward satisfaction of this net worth requirement and
there is no requirement that Host maintain any specified amount of liquid
assets. Host is also permitted to pay dividends at any time provided no default
exists or would be created under the Initial Leases. As a result, there can be
no assurance that the Company would be able to obtain recoveries (other than
reductions in the Security Deposit) against Host in the event of a default under
the Initial Leases.
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RISKS OF LEVERAGE
The Company currently intends not to have debt for borrowed money in excess
of 50% of its total market capitalization (i.e., market value of outstanding
equity plus total debt). The organizational documents of the Company, however,
do not contain any limitation on the amount of indebtedness the Company may
incur. Accordingly, the Board of Trustees could alter or eliminate the current
policy on borrowing at any time. If this policy were changed, the Company could
become more highly leveraged, resulting in an increase in debt service that
could adversely affect the Company's ability to make distributions to
shareholders and in an increased risk of default on the Company's obligations.
Upon completion of this Offering, the Company expects to have indebtedness for
borrowed money in the amount of $23.4 million under the Acquisition Line and
$176.6 million available to be drawn under the Acquisition Line for future
investments (there will be no debt for borrowed money outstanding if the
Underwriters' overallotment option is exercised in full).
CHANGE IN POLICIES WITHOUT SHAREHOLDER APPROVAL
The major policies of the Company, including its policies with respect to
acquisitions, investments, financing, growth, operations, dispositions,
capitalization and distributions, will be determined by its Board of Trustees.
The Board of Trustees may amend or revise these and other policies from time to
time without a vote of the shareholders of the Company. Accordingly,
shareholders will have limited ability to effect changes in policies of the
Company (other than its policy of maintaining qualification as a REIT and
certain extraordinary transactions) and changes in the Company's policies may
not fully serve the interests of all shareholders. See "Policies with Respect to
Certain Activities."
INSUFFICIENT CASH AVAILABLE FOR DISTRIBUTIONS
The Company's distributions to shareholders during the 12 months following
the completion of this Offering are expected to be $2.20 per Share, which
represents approximately 89.8% of the Company's pro forma Cash Available for
Distribution for the 12 months ended June 30, 1995. See "Distribution Policy."
If the Company were to incur significant unanticipated cash expenditures or
experience reductions in cash revenues, it might not be able to make expected
distributions or may be required to borrow funds to make distributions
sufficient to fulfill applicable requirements to maintain its REIT status. Any
failure to make, or any reduction in, expected distributions could result in a
decrease in the market price of the Shares.
RISKS RELATING TO INITIAL HOTELS
INITIAL DEPENDENCE ON SINGLE BRAND NAME
Each of the Initial Hotels is marketed as a Courtyard by Marriott[R] hotel.
The Courtyard by Marriott[R] brand name is owned by affiliates of Marriott
International, Inc. and as of December 31, 1994 there were 227 Courtyard by
Marriott[R] hotels (including the Initial Hotels) located throughout the United
States. Although the Company intends to seek diversification of its lodging
properties, any degradation or adverse market developments relating to the
Courtyard by Marriott[R] brand name could adversely affect the results of
operations of the Company's Initial Hotels and the ability of Host to make rent
payments. In the event of a termination of a Management Agreement, the Company
would no longer have access to the Courtyard by Marriott[R] brand name and
Marriott's hotel reservation network and other marketing programs with respect
to the applicable Initial Hotel.
SECURITY DEPOSIT
The $32.9 million Security Deposit retained by the Company as security for
Host's obligations under the Initial Leases will not be escrowed and will be
used by the Company for general purposes. Provided Host does not default under
the Initial Leases, the Security Deposit will be repayable by the Company to
Host upon the expiration of the Initial Leases, including renewal terms. The
Company will record any reductions to the Security Deposit resulting from
failure by Host to make rent payments as non-cash income of the Company for REIT
qualification purposes. Accordingly, funds represented by the Security Deposit
may not be available to the Company when they are required to be repaid to Host
or to satisfy Host's obligations in the event of a
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default under the Initial Leases. Moreover, the Company may be required to
borrow to make required distributions to shareholders with respect to non-cash
rental income to the extent necessary to maintain its REIT status under the
Code.
ACQUISITION RISKS
In connection with the acquisition of the Initial Hotels, the Sellers have
made certain representations, warranties and covenants to the Company with
respect to the Initial Hotels and have agreed to indemnify the Company against
losses resulting from breaches of such representations and warranties for a one
year period. The obligations of the Sellers under the Purchase Agreement are
guaranteed by Host Marriott Corporation. The Purchase-Sale and Option Agreement
among the Sellers and the Company (the "Purchase Agreement"), however, does not
require Host Marriott Corporation or the Sellers to retain any proceeds of the
sale of the Initial Hotels or maintain a specified level of minimum net worth.
As a result, there can be no assurance that the Company would be able to obtain
recoveries against Host Marriott Corporation or the Sellers in the event an
indemnifiable event were to occur.
As is customary in comparable real estate transactions, the Company will
obtain title insurance against losses from certain defects in title relating to
the Initial Hotels. If there were a defect in title to an Initial Hotel,
however, there could be no assurance that the Company would be able to obtain
recoveries under the title insurance policies or that any proceeds so recovered
or replacement properties that may be acquired with any such proceeds would
provide returns at the level of the Initial Hotel they were intended to replace.
INSURANCE
Each of the Initial Leases specifies that comprehensive insurance is to be
maintained, at the expense of Host (except to the extent maintained by Marriott
pursuant to the Management Agreements), including liability and commercial
property insurance of the types and amounts customarily obtained by owners of
comparable hotel properties. The Management Agreements also provide for the
maintenance of certain insurance as an operating expense of the Initial Hotels.
In the event of a substantial insured casualty or loss, however, the insurance
proceeds may not be sufficient to pay the full current market value or current
replacement cost of the insured Hotel Property. In such event, unless Host
elects to fund the amount of the deficiency, in order to prevent termination of
the applicable Initial Lease, the Company will be required to advance funds to
finance the deficiency and base rent will increase at a rate of 10% per annum of
the amount advanced.
The property underlying five of the Initial Hotels will be leased under
long term ground leases, the terms of which obligate the Company to maintain
insurance, to restore the premises following a casualty or taking and to apply
in a specified manner any proceeds received by the Company in connection
therewith. Although each Initial Lease generally provides that Host is to
perform these obligations, the Company may have to restore the premises if a
material casualty occurs prior to the last five years of the ground lease term
and Host has terminated the Initial Lease by reason of such casualty, even if
insufficient proceeds have been received to effect such restoration. See "The
Initial Leases -- Damage, Destruction or Condemnation."
There are certain types of losses, such as earthquakes, hurricanes, floods
and other acts of God, that may not be insurable or insurable on economically
viable terms. For example, four of the Initial Hotels are located in California
where earthquake insurance currently is not available at economically viable
rates. The Company and Host have agreed that if the Initial Hotels located in
California sustain earthquake related losses, Host will repair nonmaterial
losses and Host may elect to repair or abandon any property with a material
loss; if Host repairs and requests financing for such repairs, the Company will
finance all such repairs made by Host to such properties and base rent will
increase at the rate of 10% per annum of the amount financed; if Host elects to
abandon a property with a material loss, it must pay to the Company an amount
equal to the lesser of: (i) the base rent for the applicable Initial Hotel for
the balance of the lease term; (ii) the then outstanding amount of the Security
Deposit; and (iii) $16.5 million.
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FF&E RESERVE
Pursuant to the Initial Leases, periodic payments into the FF&E Reserve
will be deemed to be restricted cash rent to the Company. Although the Company
anticipates that it will have sufficient cash available to make distributions
required under the REIT rules, the existence of non-cash income could make it
necessary for the Company to make distributions in excess of Cash Available for
Distribution in order to maintain its REIT status under the Code. See "-- Tax
Risks -- Distributions to Shareholders."
GROUND LEASES
Rights to use the land underlying five of the Initial Hotels will be leased
under long term ground leases. Under the Initial Leases, Host will be
responsible for paying directly to the ground lessors all rents due under the
ground leases and for complying with substantially all other obligations under
the ground leases. The terms of the ground leases expire between 2039 and 2067,
including renewal terms; however, one ground lease may be terminated by the
ground lessor at any time after January 1, 1999, provided certain conditions are
satisfied including compliance with the Company's right of first refusal and
payment to the Company of the fair market value of the Company's interest under
the ground lease. If a ground lease terminates, the Initial Lease with respect
to the Initial Hotels on such ground leased land will also terminate. Rent
payable under the ground leases is generally calculated as a percentage of hotel
revenues. Four of the five ground leases require minimum annual rent ranging
from approximately $90,000 to $500,000 per year. If Host (or any successor
Lessee) does not perform the Company's obligations under or elects not to renew
the ground leases, the Company must perform such obligations or renew such
ground leases in order to protect its investments in the Initial Hotels. Any
pledge of the Company's interests in a ground lease may also require the consent
of the applicable ground lessor and the lenders thereto. See "The Initial
Leases -- Ground Lease Terms."
SHARE OWNERSHIP RISKS
CONCENTRATION OF OWNERSHIP
Upon completion of this Offering and the concurrent offering to HRP and
Advisors, HRP will own 34.1% and Advisors will own 2.1% of the Company's
outstanding Shares. Accordingly, HRP alone, and HRP and Advisors collectively,
will have significant influence over the Company, including the power to control
the outcome of certain corporate transactions or other matters submitted to the
shareholders for approval, including mergers, consolidations or the sales of all
or substantially all of the Company's assets, and to prevent or cause a change
in control of the Company. Such influence may result in Company decisions which
may not fully serve the best interests of all shareholders. See "Principal
Shareholders."
OWNERSHIP LIMITATION AND ANTITAKEOVER PROVISIONS
The Declaration prohibits ownership of more than 9.8% of the Shares by any
shareholder or affiliated group of shareholders, except HRP, Advisors and
certain other entities (the "Ownership Limitation"). The Ownership Limitation
may (i) have the effect of precluding acquisition of control of the Company by a
third party without the consent of the Board of Trustees even if a change in
control were in the interests of shareholders and (ii) limit the opportunity for
shareholders to receive a premium for their Shares that might otherwise exist if
an investor were attempting to assemble a block of Shares in excess of 9.8% of
the outstanding Shares or otherwise to effect a change in control of the
Company. A transfer of Shares to a person who, as a result of the transfer,
violates the Ownership Limitation may be void under some circumstances. The
Ownership Limitation will help the Company to maintain its REIT qualification
under the Code which prohibits 50% or more ownership of a REIT by five or fewer
individuals or certain entities. See "Summary of the Declaration of
Trust -- Restrictions on Transfer."
The Company's Declaration and Bylaws each also contain provisions that may
make it difficult to acquire control of the Company by means of a tender offer,
an open market purchase, a proxy fight, or otherwise, if such acquisition is not
approved by the Company's Board of Trustees. In addition to the Ownership
Limitation, provisions that may have an antitakeover effect include: (i) a
staggered Board of Trustees with three separate classes; (ii) the availability
of preferred shares of beneficial interest which may be issued by the
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Board of Trustees and the terms of which may be established by the Board of
Trustees; (iii) the inability of the shareholders to act by written consent; and
(iv) advance notice procedures with respect to shareholder nominations of
Trustees and shareholder proposals. See "Summary of the Declaration of
Trust -- Antitakeover Provisions."
EFFECTS OF VARIOUS FACTORS ON SHARE PRICE
LACK OF PRIOR MARKET FOR THE SHARES
Prior to this Offering there has been no public market for the Shares.
Although the Shares have been approved for listing on the NYSE subject to
official notice of issuance, there can be no assurance that an active trading
market for the Shares will develop. In addition, the initial public offering
price may not be indicative of the market price of the Shares after this
Offering. See "Underwriting" for a discussion of factors considered in
establishing the initial public offering price.
INCREASES IN INTEREST RATES
The annual yield from distributions by the Company on the Shares likely
will influence the market price of the Shares. Accordingly, increases in market
interest rates, which may result in higher yields on other financial
instruments, could adversely affect the market price of the Shares. In addition,
increases in market interest rates could adversely affect the Company's ability
to finance additional investments in Hotel Properties at positive spreads
between its cost of funds and rent yields.
SHARES AVAILABLE FOR FUTURE SALE
Sales of a substantial number of Shares or the perception that such sales
could occur could adversely affect the market price of the Shares. Prior to this
Offering, HRP owned 40,000 Shares. Concurrently with this Offering, HRP will
acquire an additional 3,960,000 Shares and Advisors will acquire 250,000 Shares.
For information relating to certain "lock up" agreements relating to these
Shares, see "Shares Eligible for Future Sale." There are no restrictions on the
Company's ability to issue or sell Shares subsequent to completion of this
Offering. In addition pursuant to the Company's Incentive Share Award Plan, up
to 100,000 Shares have been reserved for issuance to Independent Trustees,
officers of the Company and consultants (other than Advisors) following the
completion of this Offering. See "Management -- Incentive Share Award Plan."
ASSET VALUES MAY NOT REFLECT MARKET VALUES
The purchase prices for the Initial Hotels have been determined by arms'
length negotiation between the Company and Host Marriott Corporation. There can
be no assurance, however, that the purchase prices paid by the Company for the
Initial Hotels reflects the fair market value of such assets or that such
amounts could be realized upon any disposition of one or more of the Initial
Hotels.
HOTEL INDUSTRY RISKS
RENEWAL OF INITIAL LEASES AND RELETTING OF HOTEL PROPERTIES
The Company will be subject to the risk that, upon expiration or
termination of Leases for the Hotel Properties, the Leases may not be renewed,
the Hotel Properties may not be relet or the terms of renewal or reletting
(including the cost of required renovations or concessions to Lessees) may be
less favorable than previous lease terms. The Initial Leases have all or none
renewal provisions which may make it more likely that the Initial Leases will be
renewed but if, for any reason, the Initial Leases are not renewed, the adverse
consequences to the Company may be more severe as a result of the all or none
renewal feature. Although Advisors may be able directly to operate the Hotel
Properties for up to two years in certain circumstances, as a result of the
restrictions imposed on the Company under the REIT provisions of the Code, the
Company would likely not be able to operate directly any Hotel Property without
thereby failing to qualify as a REIT for federal income tax purposes. See
"Federal Income Tax Considerations -- Taxation of the Company -- Gross Income
Tests" and "-- Foreclosure Property." In addition, a default by a Lessee under
the terms of its Lease with the Company may result in the termination of such
Lease. If the Company were unable promptly to enter
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into a new Lease for a Hotel Property to replace a defaulted Lease or if the
rental rates upon such renewal or reletting were significantly lower than
expected due to market conditions or other factors, then the Company's ability
to make distributions to shareholders could be adversely affected.
OPERATING RISKS
The Company's results of operations will be affected by factors such as
changes in general economic conditions, the level of demand for guest rooms and
related services at the Hotel Properties, cyclical overbuilding in the hotel
industry, the ability of Lessees to maintain and increase gross revenues at the
Hotel Properties and other factors relating to the operation of the Hotel
Properties. Other operating factors include: (i) competition; (ii) changes in
regional and local population and disposable income composition; (iii) the
recurring need for renovations, refurbishment and improvements of the Hotel
Properties; (iv) restrictive changes in zoning and similar land use laws, or in
health, safety and environmental laws; (v) changes in the characteristics of the
locales in which the Hotel Properties are located by reason of relocation of
nearby attractions, academic institutions or businesses; (vi) the cost and
availability of property and liability insurance; (vii) seasonality; (viii)
changes or cancellations in local tourist, athletic or cultural events; and (ix)
changes in travel patterns which may be affected by increases in transportation
costs or gasoline prices, changes in airline schedules and fares, strikes,
weather patterns or relocation or construction of highways. Inflationary
pressures could increase operating expenses of the Hotel Properties above
expected levels. Additionally, to remain competitive, continuing expenditures
must be made for modernizing, refurbishing and maintaining the Hotel Properties.
If necessary expenditures with respect to the Initial Hotels exceed the amounts
available in the FF&E Reserve and Host or Marriott fails to make such
expenditures or request funding from the Company to make such expenditures,
defaults under the Initial Leases could result and the value of, and operating
revenues from, the Initial Hotels may diminish. Moreover, Leases negotiated
subsequent to completion of this Offering may not contain reserve provisions
comparable to the FF&E Reserve. See "The Initial Leases" and "The Management
Agreements."
COMPETITION
The hotel industry is highly competitive. The success of a Hotel Property
in its market will be dependent, in large part, upon its ability to compete with
respect to access, location, quality of accommodations, room rates and, to a
lesser extent, the quality and scope of other amenities such as food and
beverage facilities. The Initial Hotels will compete with existing hotel
facilities in their geographic markets as well as future hotels that may be
developed in those geographic markets. Competition in the future may be affected
by periodic overbuilding which can adversely affect occupancy, changes in local
market conditions, changes in regional and local populations, changes in
disposable income characteristics and changes in travel patterns and
preferences. The Company expects to compete for hotel acquisition and financing
opportunities with entities which may have substantially greater financial
resources than the Company, including, without limitation, other publicly owned
REITs, banks, insurance companies, pension plans and public and private
partnerships. These entities may be able to accept more risk than the Company
can prudently manage, including risks with respect to the creditworthiness of a
hotel operator. Such competition may reduce the number of suitable hotel
acquisition or financing opportunities offered to the Company and increase the
bargaining power of property owners seeking to sell or finance their properties.
The Management Agreements restrict the right of Marriott and its
affiliates, until September 25, 1999, to own, build, operate, franchise or
manage any other Courtyard by Marriott[R] hotels within a certain limited radius
of the Initial Hotels. Marriott and its affiliates are not restricted from
operating other branded hotels in the market areas of the Initial Hotels and,
subsequent to September 25, 1999, Marriott and its affiliates could also open or
manage additional Courtyard by Marriott[R] hotels in direct competition with the
Initial Hotels. See "Business -- Competition."
SEASONAL NATURE
The hotel industry is seasonal in nature. The seasonality of the industry
may, from time to time, affect the ability of Lessees to make timely rent
payments under the Leases. Any inability of Lessees to make timely
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rent payments could adversely affect the Company's ability to make distributions
to the Company's shareholders.
FRANCHISE AGREEMENT RISKS
Although there are no existing franchise or license agreements which
currently affect the Initial Hotels, additional Hotel Properties acquired by the
Company may be operated by Managers or Lessees under franchise agreements.
Franchise agreements generally contain specific standards for, and restrictions
and limitations on, the operation and maintenance of a hotel property in order
to maintain uniformity in the system created by the franchisor. Such standards
are often subject to change over time, in some cases at the discretion of the
franchisor, and may restrict a franchisee's ability to make improvements or
modifications to a hotel property without the consent of the franchisor. In
addition, compliance with such standards could require a franchisee to incur
significant expenses or capital expenditures.
REAL ESTATE INVESTMENT RISKS
PROPERTY TAX
Pursuant to the Initial Leases, the real property taxes applicable to the
Initial Hotels will be the responsibility of Host. In addition, the Company
expects that future Leases for the Hotel Properties will require the Lessees to
pay all real property taxes. Real property taxes may increase or decrease as
property tax rates change and as the properties are assessed or reassessed by
taxing authorities. The Lessees, however, may be unable to pass through such
increased taxes to their customers and substantial increases in expenses arising
as a result of any such increased taxes could adversely affect the ability of
the relevant Lessees to pay rent and the Company's ability to make distributions
to shareholders.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990, as amended
("ADA"), a hotel with more than five rooms for rent is considered both a "public
accommodation" and a "commercial facility." Under the public accommodations
provisions of the ADA, the Company, as owner of the Hotel Properties, will be
obligated to make reasonable accommodations to patrons who have physical, mental
or other disabilities. This will include the obligation to remove architectural
and communication barriers at the Hotel Properties when doing so is "readily
achievable" to ensure that alterations to the Hotel Properties performed after
January 26, 1992 conform to the specific requirements of the ADA implementing
regulations. The Initial Leases require Host to comply with the ADA. Host will
generally be obligated to remedy any ADA compliance matters from the FF&E
Reserve, its own funds, financing by third parties or financing provided by the
Company (which will increase base rent under the Initial Leases) and the Company
anticipates that future Leases will contain comparable provisions. However, any
required changes involving significant expenditures could adversely affect the
ability of the relevant Lessees to pay rent and the Company's ability to make
distributions to shareholders.
ACQUISITIONS
The Company intends to pursue acquisitions of additional Hotel Properties.
Acquisitions entail risks that investments will fail to perform in accordance
with expectations, as well as general risks associated with any new real estate
investment. In addition, the fact that the Company must distribute 95% of its
net taxable income in order to maintain its qualification as a REIT will limit
its ability to rely upon lease income from the Hotel Properties to finance
acquisitions. As a result, if long term debt or equity financing were not
available on acceptable terms to refinance acquisitions made with short term
debt, further acquisitions may be curtailed or the Company's ability to make
distributions to shareholders may be adversely affected.
ENVIRONMENTAL MATTERS
Under various environmental laws, a current or previous owner or operator
of real property may be liable for the costs of removal or remediation of
hazardous or toxic substances on, under, in or emanating from such
21
<PAGE> 30
property. Such laws often impose liability whether or not the owner or operator
knew of, or was responsible for, the presence of such hazardous or toxic
substances, and liability under such laws has been interpreted to be strict,
meaning that liability is imposed without regard to fault. Liability under such
laws has also been interpreted to be joint and several, meaning that any current
or previous owner or operator or other responsible party might be liable for the
entire amount of the cleanup and remediation costs for a contaminated site. In
addition, the presence of hazardous or toxic substances, or the failure to
remediate such property properly, may adversely affect the market value of the
property, as well as the owner's ability to sell or lease the property or to
borrow using such property as collateral. Persons who arrange for the disposal
or treatment of hazardous or toxic substances may also be liable for the costs
of removal or remediation of such substances at the disposal or treatment
facility, whether or not such facility is or ever was owned or operated by such
person. In addition, certain environmental laws and common law principles govern
the responsibility for the removal, encapsulation or disturbance of asbestos
containing materials ("ACMs") when these ACMs are in poor condition or when a
property with ACMs is undergoing renovation or demolition. Such laws could be
used to impose liability upon owners or operators of real properties for release
of ACMs into the air that cause personal injury or other damage.
Pursuant to the terms of the Purchase Agreement, the Company received a
Phase I environmental assessment report from an independent environmental
consultant for each of the 37 Initial Hotels. The purpose of these reports is to
identify, to the extent reasonably possible and based on reasonably available
information, any existing and potential conditions resulting from hazardous or
toxic substances, including petroleum products and ACMs, at the Initial Hotels.
See "Business -- Environmental Matters."
The Company is aware of contaminated groundwater and soil at the Mahwah,
New Jersey Initial Hotel and contaminated groundwater at the Spartanburg, South
Carolina, Fountain Valley, California and Dallas, Texas Initial Hotels. In each
case, the contamination appears to be associated with activities at adjacent or
nearby gasoline stations. In each case, the owner or operator of the property
which is the source of the contamination is conducting investigatory and
remedial activities under the supervision of governmental authorities, and no
such activities are presently being required of the owners or operators of the
Initial Hotels. The Mahwah, New Jersey and Philadelphia, Pennsylvania Initial
Hotels may have been constructed on sites at which fill materials containing
hazardous substances were used, and the Woburn, Massachusetts Initial Hotel is
constructed on the site of a former automobile junk yard. The Los Angeles
Airport Initial Hotel has been constructed over abandoned oil and gas wells.
These historical activities do not appear to adversely impact the use of these
various properties, and no environmental regulatory actions are pending with
regard to these properties.
The Phoenix, Arizona Initial Hotel is located near to a state Superfund
area and may be adversely affected by the contamination at this site. The Los
Angeles Airport Initial Hotel is located in an area of regional groundwater
contamination and may be adversely affected by the regional contamination.
However, the Company does not believe that activities at either the Phoenix,
Arizona or Los Angeles Airport Initial Hotel Properties are a source of the
contamination in their respective areas. Adjacent to the Milford, Massachusetts
Initial Hotel, there are quarries that have been used historically for dumping.
Although the Company is not aware of any adverse effect on its property from
this historical use of the adjacent site, it is possible that previous and
future, if any, dumping of hazardous materials at the adjacent site may
adversely impact the property at the Milford, Massachusetts Initial Hotel.
The Company does not believe that these instances of on-site contamination
and historical activities at the above-mentioned Initial Hotels will have a
material adverse effect on the Company's business or results of operations.
However, the Company cannot predict whether modifications of existing laws or
regulations or the adoption of new laws or regulations or changes in the
conditions of the above-mentioned or other Initial Hotels may have a material
adverse effect on the Company's business or results of operations in the future.
Except as described above, based upon the Phase I environmental assessments
and the representations of the Sellers in the Purchase Agreement, the Company is
not aware of any environmental condition with respect to the Initial Hotels that
could have a material adverse effect on the Company's business or results of
operations. No assurances can be given, however, that the Phase I environmental
assessments undertaken with
22
<PAGE> 31
respect to the Initial Hotels have revealed all potential environmental
liabilities, that any prior owner or operator of the real property on which the
Initial Hotels are located did not create any material environmental condition
not known to the Company, or that a material environmental condition does not
otherwise exist as to any one or more of the Initial Hotels.
ILLIQUIDITY OF REAL ESTATE
Real estate investments are relatively illiquid. The ability of the Company
to vary its portfolio in response to changes in economic and other conditions
will be limited. There can be no assurance that the Company will be able to
dispose of an investment when it finds disposition advantageous or necessary or
that the sale price of any disposition will recoup or exceed the amount of the
Company's investment.
GENERAL RISKS
The Company's investments will be subject to risks generally incident to
the ownership of real property. The underlying value of the Company's real
estate investments and the Company's income and ability to make distributions to
shareholders will depend on the ability of the Lessees, directly or through the
Managers, to operate the Hotel Properties in a manner adequate to maintain or
increase revenues and to generate sufficient income in excess of operating
expenses to make rent payments due under the Leases. Income from the Hotel
Properties may be adversely affected by various factors, including: adverse
changes in national economic conditions, local market conditions, interest
rates, real estate tax rates and other operating expenses, zoning and land use
laws, other governmental rules and policies, and the availability, cost and
terms of borrowings; competition; the impact of present or future environmental
laws; the ongoing need for capital improvements; civil unrest, acts of war, acts
of God, including earthquakes, hurricanes and other natural disasters (which may
result in uninsured losses); and other factors which are beyond the control of
the Lessees or the Company.
23
<PAGE> 32
THE COMPANY
The Company is a REIT formed to acquire, own and lease hotel properties
throughout the United States. The Company currently owns 21 and upon completion
of this Offering will acquire an additional 16 Courtyard by Marriott[R] hotels.
The Initial Hotels have 5,286 guest rooms, are located in 20 states and will be
acquired for $329.0 million ($62,240 per guest room). The Initial Hotels are
among the newest in the Courtyard by Marriott[R] system and have an average age
of five years. In 1994, the Initial Hotels had an average occupancy of 81.1% and
an ADR of $66.65.
The Company's strategy for increasing Cash Available for Distribution per
Share is to provide capital to unaffiliated operators of hotel properties who
wish to divest their properties while remaining in the hotel business as
lessees. Most other public hotel REITs seek to control the operations of the
hotel properties in which they invest by leasing the properties to affiliated
tenants. The Company believes that it will have a competitive advantage over
other public hotel REITs because of this difference in operating philosophy. To
achieve its objectives, the Company expects to operate as follows: start with a
strong capital base of shareholders' equity; invest in high quality properties
operated by unaffiliated hotel operating companies; use moderate leverage to
fund additional investments which increase Cash Available for Distribution per
Share because of positive spreads between the Company's cost of funds and the
rent yields; design leases which provide for base rents and an opportunity for
the Company to participate in a percentage of gross revenues; as Cash Available
for Distribution increases, periodically raise dividends; when market conditions
permit, refinance debt with additional equity or long term debt; and, over time,
pursue diversification so that the Company's Cash Available for Distribution to
shareholders will be received from diverse properties and operators.
As a REIT, the Company may not actively manage its hotel properties. All of
the Initial Hotels will be leased by the Company to Host, a limited purpose
wholly owned subsidiary of Host Marriott Corporation, and will be managed for
Host by Marriott, a wholly owned subsidiary of Marriott International, Inc. The
Initial Leases are for approximately 12 years with renewal options for an
additional 37 years. All of the Initial Leases are subject to cross default
covenants and renewal options may only be exercised by Host on an all or none
basis. The Security Deposit (one year's base rent) has been retained by the
Company as security for all of Host's obligations under the Initial Leases. As
owner and lessor of the Initial Hotels, the Company is entitled to base rent and
percentage rent under the Initial Leases. The annual rent payable to the Company
under the Initial Leases totals $32.9 million in base rent plus percentage rent
equal to 5% of Total Hotel Sales at the Initial Hotels in excess of Total Hotel
Sales during 1994. In addition to base rent and percentage rent, the Initial
Leases require that 5% of Total Hotel Sales (initially approximately $1,172 per
guest room per year) be escrowed as the FF&E Reserve. The Company believes that
the FF&E Reserve, which exceeds industry averages for similar properties, will
be adequate to maintain the competitiveness of the Initial Hotels. The
Management Agreements entered into between Marriott and Host Marriott
Corporation and its affiliates with respect to the Initial Hotels prior to the
purchase of the Initial Hotels have been assigned to the Company. Under the
Initial Leases, Host has agreed to perform all of the Company's obligations
under the Management Agreements. The Management Agreements provide that base and
incentive management fees are effectively subordinated to base rent payable to
the Company. For the 52 week period ended June 16, 1995, Host's pro forma income
before income taxes, rent, subordinated management fees and the FF&E Reserve
covered pro forma base rent under the Initial Leases by 1.55 times; Host's pro
forma income before income taxes, rent and subordinated management fees and
after deduction of the FF&E Reserve covered pro forma base rent by 1.37 times.
The Company is currently a wholly owned subsidiary of HRP, a NYSE listed
REIT which primarily owns and leases retirement communities, nursing homes and
other health care related real estate. HRP was founded in 1986 with investments
of $63.0 million in seven properties, located in four states and operated by two
companies. Today, HRP is one of the largest REITs in the United States with
investments totaling over $1.0 billion in 183 properties, located in 32 states
and operated by 32 separate operating companies. During this period, HRP's
dividend has increased from $1.00 to $1.36 per share. HRP's past performance is
not necessarily indicative of the Company's future performance.
24
<PAGE> 33
The Company acquired the 21 Initial Hotels in March 1995 while the Company
was a wholly owned subsidiary of HRP. HRP has determined not to change its
strategy of focusing on retirement and nursing facilities. This Offering has
been designed to provide a vehicle whereby both public investors and HRP,
consistent with HRP's principal investment focus, can take advantage of
investment opportunities in the hotel industry.
Host Marriott Corporation is one of the largest owners of lodging
properties in the world and Marriott International, Inc. is one of the largest
lodging management companies in the world. As of December 31, 1994 there were
227 Courtyard by Marriott hotels in the United States, of which 195 (including
the Initial Hotels) are managed by Marriott.
The Company is a Maryland real estate investment trust which is the
successor by merger to a Delaware corporation formed on February 7, 1995. The
Company's principal place of business is located at 400 Centre Street, Newton,
Massachusetts and its telephone number is (617) 964-8389.
An investment in the Shares is not an investment in HRP, Host Marriott
Corporation, Marriott International, Inc., Host or Marriott. An investment in
the Shares is not an investment in the operations of the Initial Hotels.
USE OF PROCEEDS
The net proceeds to the Company from this Offering are expected to be
approximately $172.1 million (or $198.0 million if the Underwriters'
overallotment option is exercised in full). In addition, the Company will
receive $6.3 million in cash proceeds from the concurrent sale of 250,000 Shares
to Advisors. The Company will use the proceeds of this Offering and the
concurrent offering as follows:
<TABLE>
<S> <C>
Purchase of 16 additional Initial Hotels (net of Security Deposit)... $ 134.6 million
Repayment of a portion of the HRP Loan............................... 40.9 million
Payment of option extension fee and closing costs.................... 2.3 million
Working capital...................................................... 0.6 million
----------------
$ 178.4 million
</TABLE>
If the Underwriters' overallotment option to purchase Shares is exercised
in full, the Company will use $23.4 million of the proceeds of the Underwriters'
overallotment option to repay the remaining balance on the HRP Loan and may use
the remaining $2.5 million to fund future acquisitions of Hotel Properties and
for working capital or other general purposes. If the Underwriters'
overallotment option to purchase Shares is not exercised, the Company will repay
the remaining balance on the HRP Loan with borrowings of approximately $23.4
million under the Acquisition Line. The HRP Loan is a demand loan in the
original principal amount of $163.3 million which bears interest at
approximately 7.1%, and was made by HRP to the Company to enable the Company to
acquire 21 of the Initial Hotels. In exchange for the issuance of 3,960,000
Shares to HRP, HRP will cancel $99.0 million of principal of the HRP Loan at the
closing of the concurrent offering. For information about the Acquisition Line,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- The Company."
25
<PAGE> 34
DISTRIBUTION POLICY
The Company intends to make regular quarterly distributions to its
shareholders at the initial rate of $0.55 per Share, or $2.20 per Share per
annum. Based upon the range of estimated public offering prices set forth on the
cover of this Prospectus, the initial distribution yield will be between 8.46%
and 9.17% per annum. The first distribution will be paid with respect to the
period from the completion of this Offering through September 30, 1995 and will
be $ per Share, representing a pro rata adjustment to take account of the
number of days in the period. The Company does not intend to reduce the initial
distribution rate if the Underwriters' overallotment option is exercised.
The Company established its initial distribution rate based upon its
estimates of pro forma Cash Available for Distribution for the 12 months ended
June 30, 1995. The Company estimates that its pro forma Cash Available for
Distribution for the 12 months ended June 30, 1995 is $2.45 per Share, and that
the initial annual distribution represents a payout ratio of approximately 89.8%
of pro forma Cash Available for Distribution.
The Company intends to maintain at least the initial distribution rate
unless and until actual results of operations, economic conditions or other
factors differ materially from the assumptions used in its pro forma estimates.
No assurance can be given that the pro forma estimate of Cash Available for
Distribution will be achieved in the future and actual distributions to
shareholders may differ significantly from anticipated distributions.
Distributions will be set at the discretion of the Board of Trustees and likely
will depend on a number of factors, including the Company's actual Cash
Available for Distribution, the Company's financial condition and capital
requirements, the federal income tax requirement that a REIT distribute annually
at least 95% of its net taxable income and such other factors as the Board of
Trustees deems relevant. Based on pro forma historical results for the 12 month
period ended June 30, 1995, and assuming 11,750,000 Shares outstanding, the pro
forma distribution would have been $25.9 million and the Company would have been
required to distribute $25.0 million during such period to maintain its REIT
status.
26
<PAGE> 35
The following table sets forth the Company's calculations of pro forma
Funds From Operations and pro forma Cash Available for Distribution for the 12
months ended June 30, 1995.
<TABLE>
<CAPTION>
DOLLARS IN
THOUSANDS, EXCEPT
PER SHARE DATA
-----------------
<S> <C>
Base rent............................................................. $32,900
Percentage rent (1/1/95 - 6/30/95 only)............................... 166
FF&E Reserve(1)....................................................... 6,211
-----------------
Total rent....................................................... 39,277
Operating expenses(2)................................................. 13,442
-----------------
Net income............................................................ 25,835
Add back depreciation............................................ 9,011
-----------------
Funds From Operations(3).............................................. 34,846
Add back amortization(4)......................................... 156
-----------------
Cash provided by operating activities(5).............................. 35,002
Cash used in investing activities(6).................................. (6,211)
-----------------
Cash Available for Distribution....................................... $28,791
============
Cash used in financing activities -- initial annual distribution(7)... $25,850
============
Shares outstanding (in thousands)..................................... 11,750
Cash Available for Distribution per Share............................. $ 2.45
Initial annual distribution per Share................................. $ 2.20
Cash Available for Distribution payout ratio(8)....................... 89.8%
</TABLE>
- ------------------------------
(1) The FF&E Reserve is recorded by the Company as rental income. During the
term of the Initial Lease, including renewal terms, if exercised, the FF&E
Reserve will be held in escrow and may be drawn upon by Host or Marriott to
fund renovations and refurbishment to the Initial Hotels.
(2) Operating expenses include depreciation of $9,011, interest expense of
$1,882 (including amortization of deferred financing costs of $156),
advisory fees of $2,149 and general and administrative expenses of $400. See
the Company's pro forma financial statements and notes thereto included at
pages F-2 through F-8 of this Prospectus.
(3) Management and industry analysts consider Funds From Operations to be a
measure of the financial performance of an equity REIT that provides a
relevant basis for comparison among REITs and Funds From Operations is
presented to assist investors in analyzing the performance of the Company.
The Company's Funds From Operations represents net income (computed in
accordance with GAAP), before real estate depreciation and amortization
(excluding deferred financing costs). Funds From Operations does not
represent cash flows from operating activities (as determined in accordance
with GAAP) and should not be considered an alternative to net income as an
indicator of the Company's performance or to cash flows from operating
activities as a measure of liquidity.
(4) Represents amortization of deferred financing costs which is a non-cash
charge.
(5) Represents net income plus depreciation and amortization of deferred
financing costs. Such amount excludes cash provided by (used in) operating
activities due to changes in working capital resulting from changes in
current assets and current liabilities. The Company does not believe that
these excluded items are material to estimated cash provided by operating
activities.
(6) Represents contributions to the FF&E Reserve which are expected to equal the
improvements and additions to the Hotel Properties. The Company believes
that the proper measure of its performance should take into account a
reduction in Funds From Operations for the FF&E Reserve (which is recorded
as rental income under GAAP) because the FF&E Reserve is required to be
escrowed and is expected to be used for renovations of and refurbishment to
the Initial Hotels.
(7) Represents pro forma distributions to be paid based upon the estimated
initial annual distribution of $2.20 per Share and 11,750,000 Shares
outstanding. No scheduled principal payments are required under the
Acquisition Line until its maturity 18 months after the completion of this
Offering.
(8) The Funds From Operations payout ratio for the 12 months ended June 30, 1995
is 74.2%.
27
<PAGE> 36
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1995, and as adjusted to give effect to the completion of this Offering
(assuming no exercise of the Underwriters' overallotment option), the completion
of the concurrent offering of Shares to HRP and Advisors, the initial borrowing
under the Acquisition Line, the repayment of the HRP Loan and the payment of a
dividend to HRP equal to the Company's retained earnings prior to the completion
of this Offering.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1995
------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Debt:
HRP Loan............................................................ $ 163,259 $ --
Acquisition Line(1)................................................. -- 23,400
--------- -----------
Total debt(2)............................................... 163,259 23,400
--------- -----------
Shareholders' equity:
Common Shares par value $.01 per Share; 100,000,000 Shares
authorized; 40,000 Shares issued and outstanding; and 11,750,000
Shares, as adjusted.............................................. -- 118
Additional paid in capital.......................................... 1,000 278,232
Retained earnings................................................... 879 --
--------- -----------
Total shareholders' equity.................................. 1,879 278,350
--------- -----------
Total capitalization.................................................. $ 165,138 $ 301,750
======== =========
</TABLE>
- ------------------------------
(1) If the Underwriters' overallotment option is exercised in full there will be
no borrowings outstanding under the Acquisition Line.
(2) Excludes the Company's obligation to refund the Security Deposit upon
expiration of the Initial Leases. See Note 3 of Notes to Financial
Statements of the Company.
28
<PAGE> 37
DILUTION
The Company expects there will be no substantial difference between the
initial public offering price per Share and the effective cash cost per Share
paid by HRP and Advisors in connection with the initial capitalization of the
Company and the concurrent offering of Shares to HRP and Advisors. Accordingly,
the Company expects there will be no material dilution to new investors
purchasing Shares in this Offering, except for the payment of Underwriters'
discounts and commissions and other expenses of this Offering.
<TABLE>
The following table sets forth, on a pro forma basis as of June 30, 1995,
the number of Shares issued by the Company, the total consideration paid and the
price per Share paid by HRP, Advisors and by purchasers in this Offering (based
on an initial public offering price of $25.00 per Share before deduction of
Underwriters' discounts and commissions and estimated expenses of this Offering
and assuming the Underwriters' overallotment option is not exercised).
<CAPTION>
SHARES ISSUED TOTAL CONSIDERATION
-------------------- --------------------
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
HRP.................................. 4,000,000 34.1% $100,000 34.1% $25.00
Advisors............................. 250,000 2.1 6,250 2.1 25.00
Public............................... 7,500,000 63.8 187,500 63.8 25.00
---------- ----- -------- -----
Total........................... 11,750,000 100.0% $293,750 100.0%
========== ===== ======== =====
</TABLE>
29
<PAGE> 38
PRO FORMA AND SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected financial and operating data on a
pro forma basis for the Company for the six months ended June 30, 1994 and June
30, 1995 and as of and for the 12 months ended June 30, 1995 and for the year
ended December 31, 1994. The pro forma data are unaudited and are presented as
if: (i) this Offering and the concurrent offering; (ii) the acquisition of the
Initial Hotels; (iii) the repayment of the HRP Loan; (iv) the initial borrowing
under the Acquisition Line; (v) the commencement of the Initial Leases; and (vi)
certain other transactions described in the notes to the pro forma financial
statements included elsewhere in this Prospectus have been consummated as of the
date or for the periods presented. The pro forma data are not necessarily
indicative of what the actual financial position or results of operations would
have been as of the dates or for the periods indicated, nor do they purport to
represent the financial position or results of operations for future periods.
The following selected financial and operating data should be read in
conjunction with the financial statements and the notes thereto included
elsewhere in this Prospectus. Historical data are not presented because the
Company was recently formed and the information is not material.
HOSPITALITY PROPERTIES TRUST
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED 12 MONTHS ENDED ENDED ENDED
DECEMBER 31, 1994 JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1995
----------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Base rent............................ $32,900 $32,900 $16,450 $16,450
Percentage rent...................... -- 166 -- 166
FF&E Reserve......................... 6,045 6,211 3,037 3,203
Expenses:
Interest............................. 1,882 1,882 941 941
Depreciation......................... 9,011 9,011 4,506 4,506
General, administrative and
advisory.......................... 2,549 2,549 1,275 1,275
----------------- --------------- ------------- -------------
Net income............................. $25,503 $25,835 $12,765 $13,097
============= ============= ========== ==========
Net income per Share(1)................ $ 2.17 $ 2.20 $ 1.09 $ 1.11
============= ============= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
1995
--------------
<S> <C>
BALANCE SHEET DATA:
Real estate properties, net............................................................... $328,256
Total assets.............................................................................. 335,915
Total debt................................................................................ 23,400
Total other long term obligations......................................................... 32,900
Shareholders' equity...................................................................... 278,350
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED 12 MONTHS ENDED ENDED ENDED
DECEMBER 31, 1994 JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1995
----------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
OTHER DATA:
Funds From Operations(2)............. $34,514 $34,846 $17,271 $17,603
Cash Available for Distribution(3)... 28,625 28,791 14,312 14,478
Cash provided by operating
activities(4)..................... 34,670 35,002 17,349 17,681
Cash used in investing
activities(5)..................... 6,045 6,211 3,037 3,203
Cash used in financing
activities -- distributions(6).... 25,850 25,850 12,925 12,925
</TABLE>
30
<PAGE> 39
- ------------------------------
(1) All per Share calculations are based on 11,750,000 Shares outstanding.
(2) Management and industry analysts consider Funds From Operations to be a
measure of the financial performance of an equity REIT that provides a
relevant basis for comparison among REITs and Funds from Operations is
presented to assist investors in analyzing the performance of the Company.
The Company's Funds From Operations represents net income (computed in
accordance with GAAP), before real estate depreciation and amortization
(excluding deferred financing costs). Funds From Operations does not
represent cash flows from operating activities (as determined in accordance
with GAAP) and should not be considered an alternative to net income as an
indicator of the Company's financial performance or to cash flows from
operating activities as a measure of liquidity.
(3) Cash Available for Distribution is Funds From Operations plus amortization
of deferred financing costs less the rental income arising from amounts
periodically escrowed in the FF&E Reserve. The Company believes that the
proper measure of its performance should take into account a reduction in
Funds From Operations for the FF&E Reserve (which is recorded as rental
income under GAAP) because the FF&E Reserve is required to be escrowed and
is expected to be used for renovations and refurbishment of the Initial
Hotels.
(4) Represents net income plus depreciation and amortization of deferred
financing costs. Such amounts exclude cash provided by (used in) operating
activities due to changes in working capital resulting from changes in
current assets and current liabilities. The Company does not believe that
these excluded items are material to net cash provided by operating
activities.
(5) Represents contributions to the FF&E Reserve which are expected to equal
improvements and additions to Hotel Properties.
(6) Represents pro forma distributions to be paid based upon the estimated
initial annual distribution of $2.20 per Share and 11,750,000 Shares
outstanding. No scheduled principal payments are required under the
Acquisition Line until its maturity 18 months after the completion of this
Offering.
31
<PAGE> 40
<TABLE>
The following table sets forth selected historical financial and operating
data of the Initial Hotels for fiscal years 1992, 1993 and 1994 which have been
derived from the audited financial statements included elsewhere in this
Prospectus. The historical financial and operating data for fiscal years 1990
and 1991 and for the 24 week periods ended June 17, 1994 and June 16, 1995
(described in footnote (3) to the following table) have been derived from the
unaudited financial statements of the Initial Hotels. In the opinion of
management, the financial and operating data derived from the unaudited
financial statements include all adjustments necessary to present fairly the
information set forth therein and are set forth on a basis consistent with prior
periods. The following table also sets forth selected pro forma financial and
operating data for Host for the fiscal year ended December 30, 1994, the 52
weeks ended June 16, 1995 and the 24 weeks ended June 17, 1994 and June 16,
1995. The pro forma data are unaudited and are presented as if: (i) this
Offering and the concurrent offering; (ii) the acquisition of the Initial
Hotels; (iii) the commencement of the Initial Leases; and (iv) certain other
transactions described in the notes to the pro forma financial statements
included elsewhere in this Prospectus have been consummated as of January 1,
1994. The pro forma data are not necessarily indicative of what the actual
results of operation would have been for the periods indicated, nor do they
purport to represent the results of operations for future periods. The following
selected financial information should be read in conjunction with the financial
statements and notes thereto included elsewhere in this Prospectus.
<CAPTION>
COMBINED INITIAL HOTELS/HOST
-------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
PRO FORMA
-------------------------------------------
FISCAL YEARS 52 WEEKS 52 WEEKS 24 WEEKS 24 WEEKS
---------------------------------------------- ENDED ENDED ENDED ENDED
1990 1991 1992 1993 1994 12/30/94 6/16/95 6/17/94 6/16/95
------- ------- -------- -------- -------- --------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Hotel Sales(1)............... $31,740 $77,684 $103,744 $113,356 $120,897 $120,897 $123,976 $56,068 $59,147
======= ======= ======== ======== ======== ======== ======== ======= =======
Revenues........................... $13,589 $34,208 $ 41,969 $ 49,850 $ 58,186 $ 58,186 $ 60,634 $27,339 $30,025
Expenses:
Depreciation..................... 2,711 11,583 17,422 16,428 14,515 -- -- -- --
Base rent........................ -- -- -- -- -- 32,900 32,900 16,450 16,450
Percentage rent.................. -- -- -- -- -- -- 154 -- 154
FF&E contribution expense........ -- -- -- -- -- 6,045 6,199 2,803 2,957
Base management fee.............. -- -- -- -- -- 2,418 2,480 1,121 1,183
Incentive management fee......... -- -- -- -- 2,825 3,384 4,775 507 1,907
Other, net....................... 2,570 6,083 9,529 10,405 9,672 8,298 8,125 4,719 4,528
------- ------- -------- -------- -------- -------- -------- ------- -------
Revenues over expenses excluding
income taxes(2).................. $ 8,308 $16,542 $ 15,018 $ 23,017 $ 31,174 $ 5,141 $ 6,001 $ 1,739 $ 2,846
======= ======= ======== ======== ======== ======== ======== ======= =======
OTHER DATA:
Number of hotels,
end of period.................... 25 36 37 37 37 37 37 37 37
<FN>
- ------------------------------
(1) Total Hotel Sales are presented above for the purpose of providing
supplemental information regarding the gross sales volume of the Initial
Hotels.
(2) The 1993 revenues over expenses excluding income taxes also excludes
cumulative effect of change in accounting for assets held for sale of $14.5
million. See Notes to Combined Financial Statements of the Initial Hotels.
(3) For the 24 weeks ended June 17, 1994 and June 16, 1995, historical Total
Hotel Sales of the Initial Hotels were $56,058 and $42,071, respectively,
revenues were $27,339 and $21,389, respectively, and revenues over expenses
excluding income taxes were $13,984 and $8,921, respectively. The historical
financial data for the 1994 period include information for all 37 Initial
Hotels. The historical financial data for the 1995 period include (i)
information for all 37 Initial Hotels for the 12 weeks ended March 24, 1995
and (ii) information on 16 Initial Hotels for the 12 weeks ended June 16,
1995 (because the real estate associated with the remaining 21 Initial
Hotels was owned by the Company and leased to Host during such period). See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Pro Forma Results of Operations -- Host" for information
regarding the pro forma results of operations of Host for both periods.
</TABLE>
32
<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company will own the Initial Hotels upon completion of this Offering.
The Company will lease all the Initial Hotels to Host for an initial term of 12
years with renewal options for an additional 37 years. The Initial Hotels will
be managed by Marriott. The annual rent payable to the Company under the Initial
Leases totals $32.9 million in base rent plus percentage rent equal to 5% of
Total Hotel Sales at the Initial Hotels in excess of Total Hotel Sales during
1994. In addition, the Initial Leases require that 5% of Total Hotel Sales be
escrowed periodically by Host or Marriott as a reserve for renovations and
refurbishments. The Initial Hotels are all Courtyard by Marriott[R] hotels, have
a total of 5,286 guest rooms, are located in 20 states, have an average age of
five years and, in 1994, had average occupancy and an ADR of 81.1% and $66.65,
respectively. The Initial Hotels will be acquired for $329.0 million.
The Company believes that it has significant opportunities for growth in
the moderately priced segment of the hotel industry. The Company will seek to
acquire additional Hotel Properties that meet the Company's investment criteria
and participate in growth in revenue at its Hotel Properties through percentage
rents. The Company, unlike other public hotel REITs, does not seek to control
the operations of the Hotel Properties in which it invests nor does it intend to
lease or provide financing to affiliates. Because of this difference in
operating philosophy, the Company believes it will have a competitive advantage
over other public hotel REITs in dealing with operating companies which want to
divest their real estate while remaining in the hotel business as lessees.
In addition to external growth opportunities, the Company believes that
recent occupancy and ADR increases in the United States lodging industry are
representative of improving fundamentals and cyclical growth and that the
Initial Hotels offer opportunities for internal growth through increases in
percentage rent. As a result of the quality reputation and brand name
recognition of the Courtyard by Marriott[R] chain, as evidenced by the high
occupancy (81.1%) and above industry average ADR ($66.65) of the Initial Hotels
in 1994, the Company believes that the Initial Hotels are well positioned to
benefit from improvements in the industry.
As described elsewhere in this Prospectus the Company has been recently
formed and therefore has only limited historical financial data available.
Accordingly, management believes that it is more meaningful and relevant to an
understanding of the present and ongoing Company operations to discuss pro forma
data. The following discussion should be read in conjunction with "Pro Forma and
Selected Financial and Operating Data," and the financial statements and the
notes thereto included elsewhere in this Prospectus. Historical results and
percentage relationships set forth in the "Pro Forma and Selected Financial and
Operating Data" and such financial statements should not be considered to be
indicative of the future operations of the Company.
PRO FORMA RESULTS OF OPERATIONS -- THE COMPANY
SIX MONTHS ENDED JUNE 30, 1995 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1994
Pro forma total revenues for the six months ended June 30, 1995 would have
been $19.8 million, an increase of $0.3 million over the pro forma total
revenues for the comparable period in 1994. The increase was primarily due to
percentage rent and increased FF&E Reserve revenue resulting from increased
Total Hotel Sales at the Initial Hotels. Total pro forma expenses for the six
months ended June 30, 1995 and June 30, 1994 would have been $6.7 million and
would have been comprised of interest of $0.9 million, depreciation of $4.5
million and general administrative and advisory fees of $1.3 million. Pro forma
net income for the six months ended June 30, 1995 would have been $13.1 million,
an increase of $0.3 million over pro forma net income for the comparable 1994
period. The increase in net income is attributable to the increased pro forma
total revenues described above.
33
<PAGE> 42
TWELVE MONTHS ENDED JUNE 30, 1995
On a pro forma basis, for the 12 months ended June 30, 1995, the Company
would have recognized base rent of $32.9 million, percentage rent of $166,000
and FF&E Reserve revenue of $6.2 million from the Initial Hotels. Total pro
forma expenses would have been $13.4 million and would have been comprised of
interest of $1.9 million, depreciation of $9.0 million and general,
administrative and advisory fees of $2.5 million. General, administrative and
advisory fees are primarily comprised of costs related to legal and accounting
fees, state and local income taxes, Independent Trustees' fees, investor
relations and advisory fees. The largest component represents fees payable to
Advisors. Advisory fees consist of an advisory fee based upon the gross assets
of the Company and an incentive fee based upon increases in the Company's Cash
Available for Distribution per Share. Net income on a pro forma basis would have
been $25.8 million or $2.20 per Share.
YEAR ENDED DECEMBER 31, 1994
On a pro forma basis, for the year ended December 31, 1994, the Company
would have recognized base rent of $32.9 million and FF&E Reserve revenue of
$6.0 million from the Initial Hotels. Total pro forma expenses would have been
$13.4 million and would have been comprised of interest of $1.9 million,
depreciation of $9.0 million and general, administrative and advisory fees of
$2.5 million. Net income on a pro forma basis would have been $25.5 million or
$2.17 per Share.
PRO FORMA RESULTS OF OPERATIONS -- HOST
TWENTY-FOUR WEEKS ENDED JUNE 16, 1995 COMPARED WITH TWENTY-FOUR WEEKS ENDED
JUNE 17, 1994
On a pro forma basis, Total Hotel Sales for the 24 weeks ended June 16,
1995 was $59.1 million, a $3.1 million or 5.5% increase over the comparable
period in 1994. The increase was principally attributable to a $5.86 increase in
ADR to $72.71 and stable occupancy of 80.5% for the 24 weeks ended June 30,
1995, as compared with the 1994 period.
On a pro forma basis, revenues (Total Hotel Sales less hotel level
expenses) for the 24 weeks ended June 16, 1995 was $30.0 million, a $2.7 million
or 9.9% increase over the comparable period in 1994. The increase was
principally attributable to the improvement in ADR, programs to improve weekend
stays, deemphasis of food and beverage services and other successful cost
containment programs including the refocusing of staff to reduce management
level costs and improved usage of central supplies and services for volume
efficiencies in the 24 weeks ended June 16, 1995.
On a pro forma basis, net income was $1.7 million for the 24 weeks ended
June 16, 1995, a $0.7 million or 64% increase over the comparable 1994 period.
The increase represents the net effect of increased revenues, as noted above,
offset by an increase of $1.6 million in expenses, including a $1.4 million
increase in incentive management fees.
RESULTS OF OPERATIONS -- INITIAL HOTELS
TWENTY-FOUR WEEKS ENDED JUNE 16, 1995 COMPARED WITH TWENTY-FOUR WEEKS ENDED
JUNE 17, 1994
The historical financial statements for the Initial Hotels for the 24 weeks
ended June 17, 1994 include information for all 37 Initial Hotels. The
historical financial statements for the Initial Hotels for the 24 weeks ended
June 16, 1995 include (i) information for all 37 Initial Hotels for the 12 weeks
ended March 24, 1995 and (ii) information for 16 Initial Hotels for the 12 weeks
ended June 16, 1995 (because the real estate associated with the remaining 21
Initial Hotels was owned by the Company and leased to Host during such period).
Accordingly, the Company believes that the appropriate comparison of results of
operations for these periods is between the pro forma results of operations of
all 37 Initial Hotels for the 24 weeks ended June 17, 1994 and June 16, 1995.
Such pro forma results of operations are included in the pro forma financial
statements of Host. See "-- Pro Forma Results of Operations -- Host."
34
<PAGE> 43
FISCAL YEAR 1994 COMPARED WITH FISCAL YEAR 1993
Total Hotel Sales for the fiscal year ended December 30, 1994 was $120.9
million, a $7.5 million or 6.7% increase over the fiscal year ended December 31,
1993. The increase was principally attributable to a $4.58 increase in ADR to
$66.65 and a slight increase in occupancy to 81.1% for the fiscal year ended
December 30, 1994, as compared to the prior fiscal year.
Revenues (Total Hotel Sales less hotel level expenses) for the fiscal year
ended December 30, 1994 was $58.2 million, an $8.3 million or 16.7% increase
over the prior fiscal year. The increase was principally attributable to the
improvement in ADR, increased occupancy attributable to weekend stay promotions
and the first Courtyard by Marriott[R] television advertising campaign,
deemphasis of food and beverage services and other successful cost containment
programs including the refocusing of staff to reduce management level costs and
improved usage of central supplies and services to make use of volume driven
efficiencies in the fiscal year ended December 30, 1994.
Revenues over expenses excluding income taxes (Revenues less depreciation,
amortization, Courtyard by Marriott[R] system fee, property taxes, incentive
management fee and other expenses) before cumulative effect of change in
accounting principle for the fiscal year ended December 30, 1994 was $31.2
million, an $8.2 million or 35.4% increase over the prior fiscal year. The
increase was principally attributable to improvements in ADR, occupancy and
operating margins in the fiscal year ended December 30, 1994. The most
significant factor affecting operating margins was the deemphasis of food and
beverage services.
Following discussions with the Commission, Host Marriott Corporation agreed
in the second quarter of 1993 to change its method of determining the net
realizable value of its assets held for sale. Host Marriott Corporation
previously determined the net realizable value of such assets on an aggregate
basis in the case of Courtyard by Marriott[R] hotels. Beginning in the second
quarter of 1993, under Host Marriott Corporation's new accounting policy, the
net realizable value of all assets held for sale is determined on a property by
property basis. The cumulative pretax effect of this change in accounting policy
on periods prior to the second quarter of 1993 of $14.5 million was accounted
for as a cumulative effect of a change in accounting for assets held for sale.
The reduction in annual depreciation charge resulting from this change is
approximately $0.3 million.
FISCAL YEAR 1993 COMPARED WITH FISCAL YEAR 1992
Total Hotel Sales for the fiscal year ended December 31, 1993 was $113.4
million, a $9.6 million or 9.3% increase over the fiscal year ended January 1,
1993. The increase was principally attributable to a $3.66 increase in ADR to
$62.07, an increase in occupancy from 76.2% to 80.1% and inclusion of a full
year of operations in 1993 of the Boca Raton Initial Hotel which opened in April
1992.
Revenues (Total Hotel Sales less hotel level expenses) for the fiscal year
ended December 31, 1993 was $49.9 million, a $7.9 million or 18.8% increase over
the prior fiscal year. The increase was principally attributable to improvements
in ADR and occupancy in the fiscal year ended January 1, 1993.
Revenues over expenses excluding income taxes (Revenues less depreciation,
amortization, Courtyard by Marriott[R] system fee, property taxes, incentive
management fee and other expenses) for the fiscal year ended January 1, 1993 was
$23.0 million, a $8.0 million or 53.3% increase over the prior fiscal year. The
increase was principally attributable to improvements in ADR and occupancy in
the fiscal year ended January 1, 1993.
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
In order to maintain its status as a REIT, the Company will be required to
make distributions to its shareholders of a least 95% of its net taxable income,
which is expected to consist principally of rent payments under the Initial
Leases. Differences in timing between the recognition of net taxable income and
receipt of cash which would be available for distribution could require the
Company to borrow to meet the 95%
35
<PAGE> 44
distribution requirement, although the Company does not anticipate the need to
borrow as a result of any such differences in timing. Apart from such
distributions, the Company believes that its cash needs should generally be
limited to general, administrative and advisory expenses (including expenses
arising under the Advisory Agreement), acquisition expenses and interest and
principal payments attributable to borrowings.
Pursuant to the terms of the Initial Leases and the Management Agreements,
Host or Marriott is required to fund the FF&E Reserve account in amounts equal
to 5% of Total Hotel Sales from the Initial Hotels at the end of each four week
accounting period. Funds escrowed in the FF&E Reserve account will be used by
Marriott for capitalized improvements, replacements and refurbishments of the
Initial Hotels. The Company believes that the FF&E Reserve will be adequate to
maintain the competitiveness of the Initial Hotels. As of June 30, 1995, the
amount of the FF&E Reserve for the Initial Hotels was approximately $3.9
million. For a description of historical contributions to the FF&E Reserve, see
Note 4 of Notes to Combined Financial Statements of the Initial Hotels.
The Company's primary source of revenues to fund its cash needs will be
base and percentage rent payments under the Initial Leases. Pursuant to the
Initial Leases, base rent payments are due in advance on the first day of each
four week accounting period and percentage rent payments are due quarterly in
arrears. Accordingly, before the Company is required to make any distributions
to its shareholders (the first such payment expected to be paid in the fourth
quarter of 1995 for the quarter ending September 30, 1995), the Company expects
to receive a minimum of three months' base rent payments. Based on the
foregoing, the Company believes that its initial working capital and the
revenues generated from the Initial Leases will provide it with adequate funds
to meet its short term liquidity requirements.
Following the completion of this Offering and application of the proceeds
as described under "Use of Proceeds" and assuming no exercise of the
Underwriters' overallotment option, the Company expects to have approximately
$4.9 million in cash ($3.9 million of which will be held in a restricted escrow
in the FF&E Reserve account) and $23.4 million in indebtedness for borrowed
money under the Acquisition Line.
Under the Management Agreements for each of the Initial Hotels, secured
borrowings in respect of each Initial Hotel are limited pursuant to a formula.
This limit may never be less than 70% of the allocable purchase price of the
applicable Initial Hotel. The Company does not expect this restriction will
materially affect its ability to finance acquisitions or other activities.
The Company has accepted a commitment from DLJMC for the Acquisition Line.
Under the terms of this commitment, DLJMC has agreed to provide up to $200.0
million in borrowings at a spread above one month LIBOR (a total of
approximately 7.38% as of July 24, 1995) on an unsecured basis; provided,
however, that if the loan amount exceeds $100.0 million or is outstanding after
December 31, 1995, the total outstanding obligation shall be secured by
mortgages on the Initial Hotels. There are no required principal repayments
until maturity and amounts drawn and repaid may be subsequently reborrowed. The
Acquisition Line will have a term of up to 18 months and will be subject to
other customary representations, covenants and conditions. In connection with
the Acquisition Line, the Company will be required to enter into an interest
rate protection agreement.
The Company intends actively to pursue acquisition opportunities to achieve
growth in its portfolio of Hotel Properties and expects to utilize undistributed
cash generated from operations and funds available under its Acquisition Line or
other borrowings, if any, to complete such acquisitions. Upon completion of this
Offering, the Company expects to have $23.4 million in outstanding indebtedness
for borrowed money and an equity market capitalization of approximately $293.8
million. As a result, the Company believes it will have access to various types
of financing in addition to or in replacement of the Acquisition Line, including
debt or equity securities offerings with which to finance acquisitions and to
otherwise meet its long term funding requirements.
HOST
Host is a limited purpose entity which has been organized to lease and
operate the Initial Hotels. Upon completion of this Offering, Host is expected
to have a net worth (excluding deferred gains resulting from sale
36
<PAGE> 45
and lease of the Initial Hotels) of approximately $38.6 million which is
expected to consist principally of the Security Deposit.
Host is expected to fund its cash needs, including monthly payments of base
rent and percentage rent (if any), with cash generated from operations at the
Initial Hotels. In 1994, the Initial Hotels generated cash from (used by)
operating, investing and financing activities of $44.6 million, ($3.5) million
and ($41.1) million, respectively. Although the Company believes that Host will
have adequate funds to meet its short term liquidity requirements, decreases in
revenues at the Initial Hotels may adversely affect Host's ability to pay the
rent under the Initial Leases.
SEASONALITY
The Initial Hotels have historically experienced seasonal differences
typical of the hotel industry with higher revenues in the second and third
quarters of calendar years compared with the first and fourth quarters. This
seasonality is not expected to cause fluctuations in the Company's rental income
because the Company believes that the revenues generated by the Initial Hotels
will be sufficient for Host to pay rents on a regular basis notwithstanding
seasonal fluctuations.
INFLATION
The Company believes that inflation should not have a material adverse
effect on the Company. Although increases in the rate of inflation may tend to
increase interest rates which the Company may be required to pay on borrowed
funds, the Company intends to implement a policy of obtaining interest rate caps
in appropriate circumstances to protect it from interest rate increases. In
addition, the Initial Leases provide for the payment of percentage rent to the
Company based on increases in Total Hotel Sales of the Initial Hotels and such
rent should increase with inflation.
37
<PAGE> 46
THE INITIAL HOTELS
Courtyard by Marriott[R] hotels are designed to attract both business and
leisure travelers. A typical Courtyard by Marriott[R] hotel has an average of
145 guest rooms. The guest rooms are larger than those in most other moderately
priced hotels and predominately offer king sized beds. Most Courtyard by
Marriott[R] hotels are situated on well landscaped grounds and typically are
built around a courtyard containing a patio, pool and socializing area that may
be glass enclosed depending upon location. Most of the hotels have lounges or
lobbies, meeting rooms, an exercise room, a small laundry room available to
guests and a restaurant or coffee shop. Generally, the guest rooms are similar
in size and furnishings to guest rooms in full service Marriott hotels. In
addition, many of the same amenities as would be available in full service
Marriott hotels are available in Courtyard by Marriott[R] hotels, except that
restaurants may be open only for breakfast buffets or serve limited menus, room
service is generally not available and meeting and function rooms are limited in
size and number. The Company believes that the structural design and operating
systems developed by affiliates of Host and Marriott for these hotels allow
Courtyard by Marriott[R] hotels to be priced competitively with, and provide
better customer value than, most other moderately priced hotels.
The Initial Hotels are among the newest in the Courtyard by Marriott[R]
system with an average age of five years. Thirty-two of the 37 Initial Hotels
were designed and purpose built for affiliates of Host and Marriott. The Initial
Hotels are located in 20 states throughout the United States, generally in
convenient locations close to business facilities, major transportation routes,
airports, public attractions or academic institutions. The Company believes that
the Initial Hotels are in good operating condition. All but two of the Initial
Hotels were first opened after 1988. The Company believes that the FF&E Reserve,
which exceeds industry averages for similar properties, will be adequate to
maintain the competitiveness of the Initial Hotels.
38
<PAGE> 47
The following charts set forth for the three years during which all 37
Initial Hotels were open, the occupancy, ADR and REVPAR of the Initial Hotels as
compared with those averages for all United States hotels, as reported by Smith
Travel Research in Lodging Outlook:
AVERAGE OCCUPANCY
<TABLE>
<CAPTION>
ALL US HOTELS THE INITIAL HOTELS
------------- ------------------
<S> <C> <C>
1992 61.8% 76.2%
1993 63.1% 80.1%
1994 65.2% 81.1%
</TABLE>
AVERAGE DAILY ROOM RATES
<TABLE>
<CAPTION>
ALL US HOTELS THE INITIAL HOTELS
------------- ------------------
<S> <C> <C>
1992 $59.30 $58.41
1993 $61.17 $62.07
1994 $63.63 $66.65
</TABLE>
REVENUE PER AVAILABLE ROOM
<TABLE>
<CAPTION>
ALL US HOTELS THE INITIAL HOTELS
------------- ------------------
<S> <C> <C>
1992 $36.65 $44.53
1993 $38.60 $49.70
1994 $41.49 $54.05
</TABLE>
39
<PAGE> 48
The table below is derived principally from information published by
Marriott International, Inc. in the Courtyard by Marriott[R] directory and
presents certain information for each of the Initial Hotels.
<TABLE>
<CAPTION>
NUMBER DATE TOURIST ATTRACTIONS/ACADEMIC INSTITUTIONS/ BUSINESSES WITH FACILITIES
PROPERTY LOCATION OF ROOMS OPENED LANDMARKS (DISTANCE IN MILES) WITHIN A FIVE MILE RADIUS
- ----------------------- -------- ------ ------------------------------------------ ---------------------------------------
<S> <C> <C> <C> <C>
ARIZONA
Phoenix............... 155 8/90 Downtown Scottsdale (10), Town & Country MCI Communications, Bank of America,
Mall (adjacent), Phoenix Airport (7), Sun AT&T, American Express, Transamerica,
Devil Stadium (8), Arizona State IBM, US West
University (8), Downtown Phoenix (6)
Scottsdale............ 124 1/89 Downtown Scottsdale (11), West World (5), Mayo Clinic (adjacent)
Fountain Hills (5)
CALIFORNIA
Camarillo............. 130 10/90 Oxnard (5), Ventura Mission (12), State Unisys, Vitesse, Amgen, Siemens Solar,
Beaches (10), Getty Museum (20), Six Flags Technicolor, 3M Company, Teledyne, Blue
Magic Mountain (45), Ronald Reagan Cross
Presidential Library (15)
Huntington Beach/
Fountain Valley..... 150 3/91 Orange County Airport (6), Orange County McDonnell Douglas, Safeco Insurance,
Fairgrounds (4), Pacific Amphitheater (4), Rockwell, Hyundai, ASICS Tiger
Huntington Beach (3)
Los Angeles Airport... 146 3/87 Los Angeles Airport (1), Universal Studios Chevron, AT&T, Xerox, TRW, Mattel, GTE
(18), Disneyland (28), Hollywood (15),
Marina del Rey (5), UCLA (10)
San Jose Airport...... 151 1/91 San Jose Airport ( 1/2), San Jose IBM, FMC Corp., Ford Aerospace,
Convention Center (3 1/2), San Jose State General Electric, Hewlett-Packard,
University (4), Great America (5), Santa Kodak, Digital, Novell, AT&T
Clara University (2), San Jose Arena (3)
DELAWARE
Wilmington............ 152 1/91 Philadelphia Airport (20), Winterthur DuPont, GM, Chrysler, Hewlett-Packard,
Museums & Gardens (9), Longwood Gardens Hercules
(13)
FLORIDA
Boca Raton............ 152 4/92 Palm Beach Airport (22), Ft. Lauderdale IBM, Sony, WR Grace, Unisys, Office
Airport (25), Florida Atlantic University Depot (headquarters)
( 1/2), Lynn University ( 1/2)
GEORGIA
Atlanta Airport
North............... 152 8/90 Fulton County Stadium (6), Hartsfield Ford, Pratt & Whitney, General
Airport (1), Six Flags (13) Electric, Delta Air Lines
(headquarters)
Atlanta-Cumberland
Center.............. 182 3/89 Downtown Atlanta (10), Hartsfield Airport IBM, AT&T, Sprint, UPS, Worldspan
(20), Six Flags (12), Stone Mountain
Park (20)
Atlanta-Jimmy Carter
Blvd................ 122 5/88 Stone Mountain Park (7), Malibu Grand Prix AT&T, UPS, American Express, Lanier,
(3), Delta Peachtree Airport (5), Gwinnett GM, BASF, Whirlpool
Airport (8)
Atlanta-Midtown....... 168 7/91 Olympic Village and Olympic Venues ( 1/2), BellSouth, AT&T
Woodruff Art Center ( 1/2), Georgia World
Congress Center (2), Fox Theatre ( 1/2),
Atlanta Stadium (4), Georgia Dome (2),
Georgia Tech (2)
Macon................. 108 5/91 Macon Airport (15), Warner-Robbins Air Georgia Farm Bureaus, Brown and
Force Base (20), Mercer University (8), Williamson, YKK, Geico, GE Capital
Wesleyan College (4)
</TABLE>
40
<PAGE> 49
<TABLE>
<CAPTION>
NUMBER DATE TOURIST ATTRACTIONS/ACADEMIC INSTITUTIONS/ BUSINESSES WITH FACILITIES
PROPERTY LOCATION OF ROOMS OPENED LANDMARKS (DISTANCE IN MILES) WITHIN A FIVE MILE RADIUS
- ----------------------- -------- ------ ------------------------------------------ ---------------------------------------
<S> <C> <C> <C> <C>
INDIANA
Indianapolis.......... 149 3/90 Downtown Indianapolis (12), Indianapolis Charles Schwab, AT&T, Delta Peerless,
Airport (17), Indianapolis Zoo (15), GTE, Hewlett-Packard, Integrated
Children's Museum (10), Butler University Information Services, MacMillan
(7), Indianapolis Motor Speedway (17), Publishing, NCR
Indiana State Fairgrounds (7)
MARYLAND
Columbia.............. 152 7/91 Dobbin Center ( 1/10), Merriweather Post General Physics, S-3 Technologies
Pavilion (4), Baltimore-Washington (adjacent), Sun Micro Systems, AT&T,
International Airport (12), Baltimore Baxter Health Care
Inner Harbor (15), Oriole Park at Camden
Yards (15), National Aquarium (15)
MASSACHUSETTS
Danvers............... 121 3/90 Fenway Park (18), Logan Airport (18), General Electric, NYNEX, Eaton
Downtown Boston (15), Historic Salem (3)
Foxborough............ 149 6/89 Foxboro Stadium (5), Great Woods Texas Instruments, Forbes, Codex
Performing Arts Center (3), Logan Airport
(35), Downtown Boston (33), Wheaton
College (5), Plymouth Plantation (25)
Lowell................ 121 3/90 Downtown Boston (30), Logan Airport (30), Wang, Sun Microsystems,
Lexington/Concord (15), University of Hewlett-Packard, Raytheon
Massachusetts at Lowell (3)
Milford............... 152 10/90 Logan Airport (43), Downtown Boston (43) EMC, Dennison, Boston Digital
Norwood............... 148 9/90 Logan Airport (20), Downtown Boston (20), Analog Devices, LTX Corporation,
Foxboro Stadium (10), Great Woods Microcom, Polaroid, GM, Ciba Corning,
Performing Arts Center (15) Merck
Stoughton............. 152 10/90 Logan Airport (18), Stonehill College (7), Reebok International (adjacent)
Downtown Boston (16), Fenway Park (17),
Foxboro Stadium (20), Great Woods
Performing Arts Center (20)
Woburn................ 120 3/90 Logan Airport (12), Downtown Boston (12), Hewlett-Packard, Alpha Industries
Cambridge (12)
MICHIGAN
Detroit/Auburn
Hills............... 148 10/89 Pontiac Silverdome ( 1/2), The Palace of Chrysler, ITT Automotive, General
Auburn Hills (3), Oakland University (2) Motors, Volkswagen (headquarters)
MINNESOTA
Minneapolis/
Eden Prairie........ 149 2/89 Minneapolis/St. Paul International Airport Best Buy, General Electric, Super Valu,
(11), Metrodome/Downtown Minneapolis (12), Rosemount, MTS Systems
Met Center (8), Minnesota Zoo (15), Mystic
Lake Casino (15)
MISSOURI
Kansas City Airport... 149 9/90 Kansas City Airport (4), Downtown Kansas Farmland Foods, Worldspan, Midland
City (10), Truman Sports Complex (25),
American Royal/Kemper Arena (10)
South Kansas City..... 149 9/90 Kansas City Airport (42), Downtown Kansas Sprint, Marion Merrell Dow, Yellow
City (20), Truman Sports Complex (10), Freight, John Deere, Allied Signal
Worlds of Fun (15), New Dinner Theatre (7)
NEW JERSEY
Mahwah................ 146 4/91 Meadowlands (20), New York City (33) Sharp Electronics, UPS, Phillips, IBM,
Jaguar, Meldisco
</TABLE>
41
<PAGE> 50
<TABLE>
<CAPTION>
NUMBER DATE TOURIST ATTRACTIONS/ACADEMIC INSTITUTIONS/ BUSINESSES WITH FACILITIES
PROPERTY LOCATION OF ROOMS OPENED LANDMARKS (DISTANCE IN MILES) WITHIN A FIVE MILE RADIUS
- ----------------------- -------- ------ ------------------------------------------ ---------------------------------------
<S> <C> <C> <C> <C>
NORTH CAROLINA
Charlotte - University
Research Park....... 152 8/90 Charlotte Motor Speedway (4), UNCC (1), IBM, Allstate Insurance, Phillip
University Place ( 1/4), Downtown Morris, Southern Bell
Charlotte (7), Airport (10), Blockbuster
Pavilion (4)
Fayetteville.......... 108 1/91 Cape Fear Regional Theatre (5), Museum Fort Bragg
of Art (6), Market House (2), Arts
Counsel (12)
Raleigh/Durham
Airport............. 152 11/90 Research Triangle Park (1), Raleigh/Durham IBM, Northern Telecom, SAS Institute,
Airport (1), Downtown Raleigh (15), NC GTE
State (15), Durham/Duke University (15),
Chapel Hill/University of NC (18)
PENNSYLVANIA
Philadelphia
Airport............. 152 12/91 Downtown Philadelphia (10), Philadelphia Boeing, UPS, Penn Navy Yard
Airport (1), Veterans Stadium (4),
Spectrum (4), Penns Landing (8), Civic
Center (15)
SOUTH CAROLINA
Spartanburg........... 108 6/90 USCS (1), Greenville-Spartanburg Airport Milliken, Michelin
(17), Wofford College (3), Converse
College (3), Spartanburg Auditorium (3)
TENNESSEE
Chattanooga........... 109 4/91 Chattanooga Riverboat (18), Ruby Falls Brach's Candy
(15), Rock City (18), Metropolitan Airport
(4), Tennessee Aquarium (10)
TEXAS
Dallas/Northpark...... 160 7/90 Dallas/Fort Worth Airport (25), Love Field Dr. Pepper, Texas Instruments,
Airport (7), Downtown Dallas (5), SMU (3) Prudential
VIRGINIA
Fairfax............... 149 9/90 Fairfax County Offices (3), Washington, DC AT&T, TRW, Mobil (training center)
(15), Dulles Airport (11), National
Airport (18), George Mason University (4)
WASHINGTON
Bellevue.............. 152 9/90 Bellevue City Center (4), Seattle City Microsoft, Allied Signal, Digital,
Centre (8), University of Washington (6) Eddie Bauer, Safeco
WISCONSIN
Milwaukee/Brookfield... 147 5/91 Milwaukee County Zoo (5), Milwaukee County Digital, Ameritech, Xerox, Prudential
Stadium (12), Bradley Center (12),
Wisconsin State Fair (6), Airport (18)
</TABLE>
42
<PAGE> 51
BUSINESS
THE HOTEL INDUSTRY
According to Smith Travel Research, the United States hotel industry had
approximately 29,649 hotels with approximately 3.2 million guest rooms as of
December 31, 1994. Of these guest rooms, approximately 1.9 million were
affiliated with a "brand" either through a franchise or license agreement or
through ownership or management by a national or regional hotel chain. The
remainder were independent operators not affiliated with hotel chains of more
than five hotel properties. The Company believes that there are many advantages
to owning hotels which are "brand" affiliated, including access to reservation
systems, quality standards, training programs and enhanced customer recognition.
Moreover, the Company believes that the Courtyard by Marriott[R] brand name
represents one of the strongest brand affiliations available in the moderately
priced segment of the hotel industry.
The United States hotel industry generally is comprised of two segments:
full service hotels and limited service hotels. Full service hotels generally
offer restaurant and lounge facilities and meeting spaces, as well as a wide
range of services typically including bell service and room service. Limited
service hotels generally offer accommodations with limited or no services and
amenities. The Initial Hotels compete effectively with both full service and
limited service hotels in their respective markets by providing streamlined
services and amenities exceeding typical limited service offerings at prices
that compare favorably with full service hotels.
The Company believes that the United States hotel industry is experiencing
cyclical growth. Since 1992, the hotel industry has experienced improved
fundamentals as the annual rates of growth in demand for hotel guest rooms have
exceeded the annual rates of growth in supply of hotel guest rooms and annual
ADR have increased each year. According to Smith Travel Research, total United
States room demand (average daily rooms rented for the year) in 1994 increased
4.7% over room demand in 1993 while total United States room supply (average
daily rooms available for the year) in 1994 increased by only 1.4% over 1993.
The average hotel occupancy in the United States increased from 63.1% in 1993 to
65.2% in 1994 while the ADR increased from $61.17 to $63.63, an increase of
4.0%.
As reported by Smith Travel Research in Lodging Outlook, for the five year
period ended December 31, 1994, the United States hotel industry demonstrated
the following operating characteristics:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C>
Average hotel occupancy............... 62.4% 60.8% 61.8% 63.1% 65.2%
ADR................................... $58.16 $58.47 $59.30 $61.17 $63.63
Percentage change in ADR.............. -- 0.5% 1.4% 3.2% 4.0%
REVPAR................................ $36.29 $35.55 $36.65 $38.60 $41.49
Percentage change in REVPAR........... -- (2.0)% 3.1% 5.3% 7.5%
Growth in room supply................. 3.4% 2.5% 1.3% 1.0% 1.4%
Growth in room demand................. 1.9% 0.0% 3.8% 4.0% 4.7%
</TABLE>
The Company believes that improvements in performance in the United States
hotel industry since 1992 are primarily due to an improved economic environment
and a low rate of growth in guest room supply. The Company attributes the low
rate of growth in guest room supply to constraints on the availability of
financing for new hotel development from traditional sources and an excess
supply of hotel guest rooms resulting from high levels of hotel construction
activity in prior years. The Company anticipates that growth in guest room
supply will continue to be limited, except in certain select markets
experiencing rapid economic growth, due to the continued decline in the
availability of institutional funds for hotel construction.
GROWTH STRATEGY
The Company's business objectives are to increase Cash Available for
Distribution per Share and enhance shareholder value. The Company will seek to
(i) acquire additional Hotel Properties that meet the Company's investment
criteria and (ii) participate in growth in revenues at the Hotel Properties
through
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<PAGE> 52
percentage rents. To achieve its objectives, the Company expects to operate as
follows: start with a strong capital base of shareholders' equity; invest in
high quality properties operated by unaffiliated hotel operating companies; use
moderate leverage to fund additional investments which increase the Company's
Cash Available for Distribution per Share because of positive spreads between
the Company's cost of funds and the rent yields; design leases which provide for
base rents and an opportunity for the Company to participate in a percentage of
gross revenues; as Cash Available for Distribution increases, periodically raise
dividends; when market conditions permit, refinance debt with additional equity
or long term debt; and, over time, pursue diversification so that the Company's
Cash Available for Distribution to shareholders will be received from diverse
properties and operators.
ACQUISITION STRATEGY
The Company believes there are opportunities to acquire well located hotels
in the moderately priced segment of the hotel industry that are or potentially
could be affiliated with nationally recognized hotel companies. The Company
intends to focus on acquisitions of relatively new properties or older
properties where extensive renovations have been or are committed to be
undertaken at the time of the Company's investment. The Company intends to
require an appropriate reserve or other mechanism in its Leases to insure that
funding is available to maintain the quality of its Hotel Properties.
Advisors has significant experience in acquiring real estate and
structuring net lease transactions. Since its inception, HRP has been advised by
Advisors under the supervision of Messrs. Portnoy and Martin and has grown from
$63.0 million in assets at the time of its founding in 1986 to in excess of $1.0
billion currently, including the 21 Initial Hotels acquired in March 1995. The
Company will be advised by Advisors under the supervision of Messrs. Portnoy and
Martin. The Company and Advisors believe that there are significant similarities
between the business of purchasing and net leasing retirement and nursing
facilities and the business of purchasing and net leasing hotel properties.
HRP's past performance, however, is not necessarily indicative of the Company's
future performance.
The Company has purchased from Host Marriott Corporation certain options,
rights of first refusal and rights of first offer covering substantially all
remaining ownership interests of Host Marriott Corporation and its affiliates in
Courtyard by Marriott[R] hotels and Residence Inns by Marriott[R]. The rights of
first offer extended through February 29, 2000 and were purchased for $3.0
million; their term will be extended to August 31, 2002 at the closing of this
Offering in exchange for an additional $1.5 million. For other material terms of
these rights see "Business -- Purchase Options." Although the Company has not
determined whether or when to exercise any of these rights, the Company believes
these rights have significant value and will afford it opportunities to invest
in high quality hospitality properties operated by one of the world's most
successful hotel operating teams.
In addition to possible future investments in properties owned by Host
Marriott Corporation, the Company expects to seek investments in other hotel
properties owned and operated by companies other than Host Marriott Corporation
and Marriott International, Inc. Most other public hotel REITs seek to control
the operations of the hotel properties in which they invest by leasing the
properties to affiliated tenants. The Company neither intends to seek control
over its tenants' operations nor to lease or provide financing to affiliates.
Because of this difference in operating philosophy, the Company believes it will
have a competitive advantage over other public hotel REITs in dealing with hotel
operating companies which want to divest their real estate while remaining in
the hotel business as lessees.
INTERNAL GROWTH STRATEGY
Based upon recent increases in occupancy and ADR in the United States
lodging industry, the Company believes that the industry is experiencing
cyclical growth and improved fundamentals due to the more favorable balance
between demand and supply for overnight accommodations. The Company believes
that the Initial Hotels offer opportunities for internal growth through
increases in percentage rent. The Initial Leases require payment of base rent
plus percentage rent equal to 5% of increases in Total Hotel Sales at the
Initial
44
<PAGE> 53
Hotels over Total Hotel Sales in 1994. The Company intends in future Leases to
require both base rent and percentage rent based on gross revenues.
FORMATION OF THE COMPANY
The Company is currently a wholly owned subsidiary of HRP. In March 1995,
the Company acquired 21 of the Initial Hotels for $179.4 million. Substantially
all of the funding for this acquisition, including start up, closing and option
costs, was provided to the Company through the HRP Loan. In addition to the HRP
Loan, HRP purchased 40,000 Shares for $1.0 million ($25.00 per Share). Upon
completion of this Offering, the additional 16 Initial Hotels will be purchased
by the Company for $149.6 million, HRP will purchase directly from the Company
an additional 3,960,000 Shares at $25.00 per Share by cancelling $99.0 million
of the HRP Loan, and Advisors will purchase directly from the Company 250,000
Shares at $25.00 per Share. The Company has accepted a commitment for the
Acquisition Line which is expected to close concurrently with the completion of
this Offering. The net proceeds of this Offering, the sale of Shares to Advisors
and amounts drawn under the Acquisition Line will be used to purchase the
additional 16 Initial Hotels and to repay the remaining balance on the HRP Loan.
Upon completion of this Offering and the concurrent offering to HRP and
Advisors, public shareholders, HRP and Advisors will own 63.8%, 34.1% and 2.1%,
respectively, of the Company's Shares.
PURCHASE AGREEMENT
The Initial Hotels will be purchased from the Sellers pursuant to the
Purchase Agreement. Reference is made to the Purchase Agreement which has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part and the following summary is qualified in its entirety by such reference.
Under the Purchase Agreement, the Sellers are entitled to receive the
purchase price in cash at closing in exchange for title to the Initial Hotels.
The closing with respect to the 21 Initial Hotels currently owned by the Company
occurred on March 24, 1995. It is anticipated that the closing under the
Purchase Agreement for the additional 16 Initial Hotels will occur concurrently
with the completion of this Offering. The purchase of each additional Initial
Hotel is contingent upon the satisfactory completion of the Company's due
diligence investigation.
The Purchase Agreement generally contains representations and warranties
with respect to the Initial Hotels which are typical in commercial real estate
acquisitions, including, among other things, that: (i) the properties and the
use and operation thereof do not violate applicable laws; (ii) the Sellers have
not placed any hazardous substances on the properties; and (iii) the Management
Agreements and, if applicable, the ground leases, are in full force and effect.
In addition, the Sellers have agreed, for the period ending one year after
closing, to indemnify and hold the Company harmless from and against losses that
may arise as a result of the breach of any representations and warranties by the
Sellers.
In connection with the Purchase Agreement, the Company has engaged in a due
diligence investigation with respect to each Initial Hotel, including review of
title documents, zoning restrictions, surveys, Phase I environmental reports,
engineering reports, historical financial statements and copies of governmental
permits, franchise or license agreements, leases and other material contracts
with respect to the Initial Hotels. The Company has received an owner's policy
of title insurance for each of the 21 Initial Hotels it currently owns and the
Company will receive an owner's policy of title insurance for each of the
additional 16 Initial Hotels to be acquired with proceeds of this Offering.
The land underlying three of the 21 Initial Hotels currently owned by the
Company, the Phoenix, Stoughton and Scottsdale Initial Hotels, was acquired by
an assignment of the Sellers' interest under long term ground leases. The land
underlying two of the additional 16 Initial Hotels to be acquired, the Norwood
and the Los Angeles Airport Initial Hotels, will also be acquired by an
assignment of the Sellers' leasehold interest under long term ground leases. In
each case, the remaining term of the ground lease (including renewal options) is
in excess of 40 years, and the ground lessors are unrelated to the Sellers and
the Company. As a condition to closing with respect to such Initial Hotels, the
Company has obtained or will obtain a consent and estoppel agreement from each
ground lessor, pursuant to which such ground lessor will consent to
45
<PAGE> 54
the assignment by the Sellers to the Company of the Seller's interest in the
ground lease and the sublease to Host of such interest and will represent to the
Company that the ground lease is in full force and effect. Under the Initial
Leases, Host will acknowledge that the provisions of the relevant Initial Leases
are subject to the terms of the underlying ground leases.
PURCHASE OPTIONS
The Company currently holds an option pursuant to the Purchase Agreement to
acquire 17 additional Courtyard by Marriott[R] hotels for $202.5 million and to
lease them to Host on terms similar to the Initial Leases. This option expires
on June 30, 1996. The Company has also been granted rights of first refusal
during this option period regarding the 17 option properties. In addition, at
the closing of the purchase of the 21 Initial Hotels, the Company acquired for
$3.0 million a right of first offer, for the period expiring February 29, 2000,
with respect to substantially all of the interests of Host Marriott Corporation
or its subsidiaries in Courtyard by Marriott[R] hotels and certain of Host
Marriott Corporation's or its subsidiaries' interests in Residence Inn by
Marriott[R] properties. At the closing of the purchase of the additional 16
Initial Hotels, the Company will pay the Sellers an additional $1.5 million to
extend the effective period of the foregoing right of first offer until August
31, 2002. The Company has not determined whether or when to exercise the
foregoing option or any of the foregoing rights.
ENVIRONMENTAL MATTERS
Under various environmental laws, a current or previous owner or operator
of real property may be liable for the costs of removal or remediation of
hazardous or toxic substances on, under, in or emanating from such property.
Such laws often impose liability whether or not the owner or operator knew of,
or was responsible for, the presence of such hazardous or toxic substances, and
the liability under such laws has been interpreted to be strict, meaning that
liability is imposed without regard to fault. Liability under such laws has also
been interpreted to be joint and several, meaning that any current or previous
owner or operator or other responsible party might be liable for the entire
amount of the cleanup and remediation costs for a contaminated site. In
addition, the presence of hazardous or toxic substances, or the failure to
remediate such property properly, may adversely affect the market value of the
property, as well as the owner's ability to sell or lease the property or to
borrow using such property as collateral. Persons who arrange for the disposal
or treatment of hazardous or toxic substances may also be liable for the costs
of removal or remediation of such substances at the disposal or treatment
facility, whether or not such facility is or ever was owned or operated by such
person. In addition, certain environmental laws and common law principles govern
the responsibility for the removal, encapsulation or disturbance of ACMs when
these ACMs are in poor condition or when a property with ACMs is undergoing
renovation or demolition. Such laws could also be used to impose liability upon
owners or operators of real properties for release of ACMs into the air that
cause personal injury or other damage.
Pursuant to the terms of the Purchase Agreement, the Company received a
Phase I environmental assessment report for each of the 37 Initial Hotels. The
purpose of these reports is to identify, to the extent reasonably possible and
based on reasonably available information, any existing and potential conditions
resulting from hazardous or toxic substances, including petroleum products and
ACMs, at the Initial Hotels. The scope of the Phase I environmental assessment
for each Initial Hotel generally included: (i) a review of available maps,
aerial photographs and past and present uses of the site; (ii) an inspection of
appropriate public records; and (iii) in certain cases, limited inquiries of
governmental agencies having jurisdiction over certain environmental matters.
Each Phase I environmental assessment also included an on site visual inspection
of the Initial Hotels to assess visual evidence of past or present on site waste
disposal, visible surface contamination, potential sources of soil and
groundwater contamination, above surface and subsurface storage tanks, visible
drums, barrels and other storage containers, current waste streams and
management practices, ACMs and polychlorinated biphenyl transformers. In
addition, as part of the Phase I environmental assessment, abutting properties
and nearby sources of potential contamination were identified through publicly
available information and evaluated for potential impact on the Initial Hotels,
to the extent reasonably possible. In some instances, the Company also caused
additional investigations to be conducted with respect to the Initial Hotels.
46
<PAGE> 55
The Company is aware of contaminated groundwater and soil at the Mahwah,
New Jersey Initial Hotel and contaminated groundwater at the Spartanburg, South
Carolina, Fountain Valley, California and Dallas, Texas Initial Hotels. In each
case, the contamination appears to be associated with activities at adjacent or
nearby gasoline stations. In each case, the owner or operator of the property
which is the source of the contamination is conducting investigatory and
remedial activities under the supervision of governmental authorities, and no
such activities are presently being required of the owners or operators of the
Initial Hotels. The Mahwah, New Jersey and Philadelphia, Pennsylvania Initial
Hotels may have been constructed on sites at which fill materials containing
hazardous substances were used, and the Woburn, Massachusetts Initial Hotel is
constructed on the site of a former automobile junk yard. The Los Angeles
Airport Initial Hotel has been constructed over abandoned oil and gas wells.
These historical activities do not appear to adversely impact the use of these
various properties, and no environmental regulatory actions are pending with
regard to these properties.
The Phoenix, Arizona Initial Hotel is located near to a state Superfund
area and may be adversely affected by the contamination at this site. The Los
Angeles Airport Initial Hotel is located in an area of regional groundwater
contamination and may be adversely affected by the regional contamination.
However, the Company does not believe that activities at either the Phoenix,
Arizona or Los Angeles Airport Initial Hotel properties are a source of the
contamination in their respective areas. Adjacent to the Milford, Massachusetts
Initial Hotel, there are quarries that have been used historically for dumping.
Although the Company is not aware of any adverse effect on its property from
this historical use of the adjacent site, it is possible that previous and
future, if any, dumping of hazardous materials at the adjacent site may
adversely impact the property at the Milford, Massachusetts Initial Hotel.
The Company does not believe that these instances of on-site contamination
and historical activities at the above-mentioned Initial Hotels will have a
material adverse effect on the Company's business or results of operations.
However, the Company cannot predict whether modifications of existing laws or
regulations or the adoption of new laws or regulations or changes in the
conditions at the above-mentioned or other Initial Hotels may have a material
adverse effect on the Company's business or results of operations in the future.
Except as described above, based upon the Phase I environmental assessments
and the representations of the Sellers in the Purchase Agreement, the Company is
not aware of any environmental condition with respect to the Initial Hotels that
could have a material adverse effect on the Company's business or results of
operations. No assurances can be given, however, that the Phase I environmental
assessments undertaken with respect to the Initial Hotels have revealed all
potential environmental liabilities, that any prior owner or operator of the
real property on which the Initial Hotels are located did not create any
material environmental condition not known to the Company, or that a material
environmental condition does not otherwise exist as to any one or more of the
Initial Hotels.
LEGAL PROCEEDINGS
The Company has a limited operating history and is not currently a party to
any legal proceedings. Under the Purchase Agreement, each of the Sellers has
represented to the Company that there are no pending condemnation, eminent
domain or other actions, suits or proceedings involving the Initial Hotels,
except for certain real estate taxation disputes, certain matters covered by
insurance maintained by the Sellers and certain immaterial matters not covered
by such insurance. The Company is not aware of any legal proceeding affecting
the Initial Hotels for which it might become liable.
In the ordinary course of their business Advisors and HRP are occasionally
involved in litigation. Early in 1995, HRP commenced a foreclosure action to
enforce indemnities given in connection with the surrender of certain leaseholds
to, and the purchase of certain properties by, HRP in 1992. In May 1995, the
defendants in the foreclosure action and parties related to HRP's former tenants
and sellers asserted cross claims against HRP, Advisors, Messrs. Portnoy and
Martin and others, including Sullivan & Worcester, counsel to HRP, Advisors and
the Company. The cross claims allege, among other things, fraud, conflicts of
interest, breach of fiduciary duties, legal malpractice and civil conspiracy in
connection with the leasehold surrenders, the sales and the indemnities which
underlie the foreclosure action and that the foreclosure defendants and third
party
47
<PAGE> 56
plaintiffs suffered substantial damages as a result. Although the outcome of
this litigation is currently indeterminable, each of the third party defendants
believes the claims against it are without merit and intends to defend and deny
the allegations in these cross claims and HRP intends to pursue the original
foreclosure action. The Company is not a party to this litigation.
INSURANCE
The Company intends in future Leases to require Lessees to maintain
insurance on Hotel Properties leased from the Company. Under the Initial Leases,
Host is obligated to maintain or cause Marriott to maintain insurance. See "The
Initial Leases -- Insurance and Indemnification" and "The Management
Agreements -- Insurance and Indemnification" for a description of the levels of
insurance required to be maintained by Host and Marriott and "Risk
Factors -- Risks Relating to Initial Hotels -- Insurance" for a discussion of
certain risks for which insurance is not currently available at economically
viable rates.
COMPETITION
The hotel industry is highly competitive. Each of the Initial Hotels is
located in an area that includes other hotel properties. Increases in the number
of competitive hotel properties in a particular area could have a material
adverse effect on occupancy rates and ADR of the Initial Hotels located in such
area. The Management Agreements restrict the right of Marriott and its
affiliates, until September 25, 1999, to own, build, operate, franchise or
manage any other Courtyard by Marriott[R] hotel within a specified limited
radius of the Initial Hotels. Marriott and its affiliates are not restricted
from operating other branded hotels in the market areas of the Initial Hotels,
and after September 25, 1999, Marriott and its affiliates may also compete with
the Initial Hotels by opening, managing or franchising additional Courtyard by
Marriott[R] hotels in direct competition with the Initial Hotels. See "Risk
Factors -- Hotel Industry Risks -- Competition."
The Company expects to compete for hotel acquisition and financing
opportunities with entities which may have substantially greater financial
resources than the Company, including, without limitation, other publicly owned
REITs, banks, insurance companies, pension plans and public and private
partnerships. These entities may be able to accept more risk than the Company
can prudently manage, including risks with respect to the creditworthiness of a
hotel operator. Such competition may reduce the number of suitable hotel
acquisition or financing opportunities offered to the Company and increase the
bargaining power of property owners seeking to sell or finance their properties.
REGULATORY MATTERS
Hotel properties are subject to various laws, ordinances and regulations,
including regulations relating to restaurants and other food and beverage
operations and recreational facilities such as swimming pools, activity centers
and other common areas. The Company believes that each Initial Hotel has the
necessary permits and approvals required to enable Host and Marriott to operate
the Initial Hotels in the manner contemplated by the Initial Leases and the
Management Agreements. The Company intends in future Leases to require the
Lessee to comply with all laws, ordinances and regulations applicable to the
operation of the Hotel Properties.
Under Title III of the ADA, a hotel with more than five rooms for rent is
considered both a "public accommodation" and a "commercial facility." Under the
public accommodations provisions of the ADA, the Company, as owner of the Hotel
Properties, will be obligated to make reasonable accommodations to patrons who
have physical, mental or other disabilities. This will include the obligation to
remove architectural and communication barriers at the Hotel Properties when
doing so is "readily achievable" to ensure that alterations to the Hotel
Properties performed after January 26, 1992 conform to the specific requirements
of the ADA implementing regulations. The Initial Leases require Host to comply
with the ADA. Host will also generally be obligated to remedy any ADA compliance
matters from the FF&E Reserve, its own funds, financing by third parties or
financing provided by the Company (which will increase base rent under the
Initial Leases).
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<PAGE> 57
THE INITIAL LESSEE
Host, the Initial Lessee, is a limited purpose wholly owned subsidiary
formed by Host Marriott Corporation to lease and operate the Initial Hotels. The
Initial Leases require that Host remain a subsidiary of Host Marriott
Corporation throughout the term of the Initial Leases. Host Marriott Corporation
is not liable on the Initial Leases and an investment in the Shares offered
hereby is not an investment in Host Marriott Corporation or in Host.
Host Marriott Corporation is one of the largest owners of lodging
properties in the world and as of December 30, 1994 owned 119 lodging properties
(including the Initial Hotels) generally operated under proprietary brand names
and managed by Marriott International, Inc. Host Marriott Corporation also holds
minority interests in various partnerships that own, in the aggregate, over 260
additional properties operated by Marriott International, Inc. Host Marriott
Corporation's properties span several market segments of the hotel industry,
including full service (primarily Marriott Hotels, Resorts and Suites[R]),
moderately priced (Courtyard by Marriott[R]), extended stay (Residence Inn by
Marriott[R]) and economy (Fairfield Inn by Marriott[R]). Host Marriott
Corporation is also the leading operator of airport and tollroad food and
merchandise concessions. Host Marriott Corporation operates restaurants, gift
shops and related facilities at over 70 airports, on 14 tollroads (including
over 95 travel plazas) and at more than 35 tourist attractions, stadiums and
arenas. Many of Host Marriott Corporation's concessions operate under branded
names, including Pizza Hut[R], Burger King[R], Taco Bell[R], Sbarro's[R],
Dunkin' Donuts[R], Starbucks[R], TCBY (The Country's Best Yogurt)[R], Mrs.
Fields[R] and Cheers[R]. Host Marriott Corporation reported revenues of $1.5
billion and operating profit of $191.0 million in 1994.
THE INITIAL LEASES
The following summary of the Initial Leases is qualified in its entirety by
reference to the form of the Initial Lease which is attached to the Purchase
Agreement filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
GENERAL
In March 1995, the Company acquired 21 of the Initial Hotels and entered
into related Initial Leases. In connection with the consummation of this
Offering, the Company will enter into Initial Leases with respect to the
remaining 16 Initial Hotels. Although there will be a separate Initial Lease for
each Initial Hotel, all of the Initial Leases contain cross default covenants
and renewal options may be exercised only on an all or none basis.
RENT
The Initial Leases provide for the payment by Host of annual base rent
payable in advance on the first day of each four week accounting period, in
equal installments, beginning on the date of the closing with respect to the
applicable Initial Hotel. Percentage rent equal to 5% of Total Hotel Sales (or
"Gross Revenues" as defined in the Initial Leases) at the Initial Hotels in any
year in excess of Total Hotel Sales during the fiscal year 1994 (calculated on
an aggregate basis for all of the Initial Hotels) is payable to the Company
quarterly subject to adjustment annually based upon actual results. The Company
has the right to examine the records of Host and Marriott for the purpose of
verifying the level of Total Hotel Sales disclosed to the Company from time to
time.
Each Initial Lease is a net lease requiring Host to pay all operating
expenses, taxes and other impositions, utilities, insurance premiums and ground
rents, if any, of the applicable Initial Hotel, to comply with all legal
requirements applicable to such Initial Hotel and to perform the obligations of
"owner" under the applicable Management Agreement. It is anticipated that all
capitalized costs and expenses associated with maintenance and repair of
furniture, fixtures and equipment with respect to each Initial Hotel (other than
in the event of casualty or condemnation) will be funded from the FF&E Reserve.
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MAINTENANCE AND ALTERATIONS
Host is required to maintain each Initial Hotel in good order and repair,
and make structural and nonstructural, interior and exterior repairs which are
necessary to keep each Initial Hotel in good condition and repair. Capital
alterations and additions to any Initial Hotel may only be made with the prior
written consent of the Company. Any alterations or improvements made to any
Initial Hotel during the term of the Initial Lease are the property of the
Company. On the last day of the term of the Initial Leases, Host is required to
surrender the Initial Hotels to the Company in substantially the same condition
as existed on the commencement date of the Initial Leases, subject to any
permitted alterations and subject to ordinary wear and tear. Certain
expenditures in connection with the maintenance and repair of any Initial Hotel
may be made from funds available in the FF&E Reserve. See "-- FF&E Reserve."
FF&E RESERVE
The FF&E Reserve, which is equal to 5% of Total Hotel Sales (initially
approximately $1,172 per guest room per year), has been established to cover the
capitalized cost of replacements and refurbishment of the furniture, fixtures
and equipment in the Initial Hotels and the cost of certain routine repairs and
maintenance to the Initial Hotels, such as exterior and interior repainting,
resurfacing building walls, floors, roofs and parking areas and replacing
folding walls. The FF&E Reserve is funded at the end of each four week
accounting period based on Total Hotel Sales for such accounting period.
Expenditures in excess of the FF&E Reserve balance require the Company's
consent, except in extenuating circumstances. Major repairs, alterations,
improvements, renewals or replacements to the structure, roof or exterior facade
or mechanical systems of the Initial Hotels are not expected to be funded from
the FF&E Reserve unless Marriott, Host and the Company otherwise agree. Although
Host has the primary responsibility to maintain and make major and structural
repairs to the Hotel Properties, Host may require the Company to fund the cost
of such repairs, in which event the annual base rent will increase by 10% of the
amount funded. See "-- Maintenance and Alterations."
ASSIGNMENT
The Company has agreed not unreasonably to withhold its consent to an
assignment of the Initial Leases by Host to a third party. Assignment is,
however, subject to a right of the Company to substitute a Lessee selected by
the Company and certain other conditions, including that Host assign its rights
under all of the Initial Leases, that the Manager grants its consent, that any
proposed assignee have sufficient financial resources and liquidity to fulfill
the Lessees' obligations under the Initial Leases and that Host remain jointly
and severally liable with any assignee under the Initial Leases.
LEASE TERM
The Initial Leases have an initial term which expires on December 31, 2006.
The Initial Leases with respect to the 21 Initial Hotels commenced on March 24,
1995. The Initial Leases with respect to the additional 16 Initial Hotels to be
acquired with proceeds of this Offering will commence upon the completion of
this Offering. Provided that the terms of all of the other Initial Leases are
concurrently extended, the term of each Initial Lease may be extended for four
consecutive renewal terms, the first of which is for a period of seven years and
the last three of which are for a period of ten years each. Three of the Initial
Leases may, however, be subject to early termination. See "-- Ground Lease
Terms." Assuming the exercise of all renewal terms and no early termination, the
Initial Leases will expire in 2043. Extension of the term of any Initial Lease
is automatic unless Host gives the Company written notice of Host's election not
to extend the initial or any renewal term at least 16 months prior to the
expiration of the applicable term.
GROUND LEASE TERMS
The land underlying five of the Initial Hotels is subject to ground leases.
The Initial Leases with respect to the ground leased Initial Hotels are subject
to early termination if the applicable ground lease terminates. Assuming the
exercise of all renewal options, one ground lease will expire in 2067, one in
2066, two in 2041
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and one in 2039. The ground leases expiring in 2041 and 2039 will expire
approximately two years and four years, respectively, prior to the date the
applicable Initial Lease would otherwise expire if fully renewed. Moreover, the
landlord under the ground lease which expires in 2039 has the right to terminate
the ground lease at any time after January 1, 1999 provided it agrees not to use
the premises as a commercial lodging facility, complies with a right of first
refusal granted to the Company and pays to the Company an amount equal to the
fair market value of the Company's interest under the ground lease. The
landlords under the ground leases which expire in 2041 have the right to
purchase the Company's leasehold interest in the event that the Company changes
the use of the premises from a hotel use or in the event that Host Marriott
Corporation, its affiliates or another agreed upon suitable operator ceases to
lease or manage the applicable Initial Hotel. Any pledge of the Company's
interests in a ground lease may also require the consent of the applicable
ground lessor and the lenders thereto. The ground leased land underlying three
of the Initial Hotels is encumbered by mortgages securing loans in the original
principal amounts of $12.5 million, $37.7 million and $18.0 million. Subject to
the Company's satisfaction of certain conditions, the foreclosure of such
mortgages will not result in the termination of the applicable ground lease.
SECURITY DEPOSIT
Pursuant to the Initial Leases, the Security Deposit of $32.9 million has
been retained by the Company as security for payment and performance of Host's
obligations under the Initial Leases. The Company is not required to escrow the
Security Deposit and will pay no interest on the Security Deposit. The amount of
the Security Deposit will be reduced by the amount of unpaid or defaulted
obligations of Host under any Initial Lease or all of the Initial Leases.
ENVIRONMENTAL MATTERS
The Initial Leases prohibit the maintenance of any hazardous substance at
the Initial Hotels and require Host to remove and dispose of, at its sole cost
and expense, any hazardous substance it caused or permitted to exist on any
Initial Hotel in compliance with applicable environmental laws and regulations
or to pay the Company any costs incurred in connection with such removal and
disposal. Host has indemnified the Company for any claims, causes of action or
other costs and expenses asserted against the Company as a result of the
presence of hazardous substances at the Initial Hotels or from a violation or
alleged violation of any applicable environmental law or regulation.
FINANCIAL COVENANTS OF HOST
LIMITATIONS ON DISTRIBUTIONS BY HOST
Host has agreed it will not pay any fees to a related party outside the
ordinary course of business or distribute any of its earnings to its affiliates
if, at the time of such proposed action or immediately after giving effect
thereto, any event of default under the Initial Leases exists.
MAINTENANCE OF NET WORTH
Host has agreed that it will maintain, at all times during the term of the
Initial Leases, a "tangible net worth" (as defined in the Initial Leases) equal
to one year's fixed rent, which Host is expected initially to satisfy
principally through the Security Deposit. See "Risk Factors -- Risks Relating to
Initial Hotels -- Security Deposit" and "-- Security Deposit."
LIMITATIONS ON INCURRENCE OF ADDITIONAL DEBT
In general, Host has agreed not to incur any indebtedness other than: (i)
liabilities incurred in the ordinary course of business; (ii) debt to the
Company; (iii) unsecured debt to an affiliate which is expressly subordinate to
Host's obligations under the Initial Leases; (iv) judgments as to which an
appeal is pending, which are fully covered by insurance or which aggregate less
than $250,000; and (v) with certain limitations, equipment purchase money
financing.
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INSURANCE AND INDEMNIFICATION
Pursuant to the Initial Leases, except to the extent maintained by the
Manager pursuant to the Management Agreements, Host will be obligated at its
cost to maintain insurance on the Initial Hotels covering: (i) comprehensive
general liability for damage to property or bodily injury arising out of the
ownership, use, occupancy or maintenance of the Initial Hotels (primary coverage
of $2.0 million per occurrence and an additional $23.0 million of umbrella
coverage); (ii) commercial property "all risk" liability for damage to
improvements, merchandise, trade fixtures, furnishings, equipment and personal
property; (iii) workers' compensation benefits liability; (iv) business
interruption loss (providing coverage of not less than 12 months of rent and
other business income); and (v) other losses customarily insured by businesses
similar to the business conducted at the Initial Hotels. The Company believes
that the coverages specified in the Initial Leases are consistent with industry
practice. The Company is an additional named insured under these policies. See
"Risk Factors -- Risks Relating to Initial Hotels -- Insurance" for a discussion
of certain risks for which insurance is not currently economically viable. See
"The Management Agreements -- Insurance and Indemnification" for a description
of additional insurance maintained by Marriott to provide coverage for these
risks.
Host has also agreed to indemnify and hold harmless the Company from and
against any and all claims arising from Host's use of the Initial Hotels or from
the conduct of Host's business or from any activities, work done or permitted to
be done by Host on any Initial Hotel or elsewhere, or from any claim arising
from Host's default under any Initial Lease, or from any negligence of Host or
its subleases, agents, customers, invitees, contractors, occupants or employees.
DAMAGE, DESTRUCTION OR CONDEMNATION
In the event any Initial Hotel is damaged by fire, explosion or other
casualty as a result of which such Initial Hotel cannot be operated in the good
faith judgment of Host or Marriott on a commercially practicable basis for its
permitted use and it cannot reasonably be expected to be restored to
substantially the same condition as existed immediately before such damage or
destruction, within six months following such damage (or such shorter period of
time as to which business interruption insurance is available), either the
Company or Host may terminate the Initial Lease. If either (i) the damage is not
extensive enough to give rise to an option to terminate the Initial Lease or
(ii) neither the Company nor Host elects to terminate the Initial Lease, Host is
obligated promptly to repair and replace the improvements existing immediately
prior to such fire, explosion or other casualty to the extent of available
insurance proceeds. During any period of reconstruction or repair of any Initial
Hotel, Host will operate its business at such Initial Hotel to the extent
practicable. Rent payable under the Initial Leases by Host is not abated during
the period of such repair and restoration. In the event that there are
inadequate insurance proceeds to pay for the cost of restoration and Host elects
not to fund the deficiency, the Company may, at its option, finance the
shortfall for all such repairs and base rent will increase at the rate of 10%
per annum of the amount financed.
In the event that any Initial Hotel or any substantial portion thereof is
taken or condemned for a public or quasi public use or purpose by a competent
authority or sold by the Company in lieu thereof, the Initial Lease will
terminate upon delivery of possession to the condemning authority or its
assignee, and any Award will be paid to the Company, Host or Marriott as
appropriate. Host will have no claim against the Company by reason of such
taking or termination and will have no claim or right to any portion of the
Award paid to the Company. Host will continue to pay rent and other charges
until the Initial Lease is terminated. In the event only a part of any Initial
Hotel is taken or condemned but such Initial Hotel or the part remaining can
still be used for the same purpose as immediately prior to such taking, the
Initial Lease will not terminate and Host will repair and restore the remaining
improvements, provided the cost of such repair and restoration does not exceed
the amount of the Award. If the cost of such repair exceeds the amount of the
Award and Host is unwilling to pay the amount of such deficiency, Host may
request that the Company fund the amount of the deficiency in which event base
rent increases by 10% per annum of the amount so funded. If neither Host nor the
Company elects to fund the deficiencies, either party may terminate the Initial
Lease. If the Initial Hotel is repaired, there will be no abatement or reduction
in any rent payable by Host.
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The ground leases for five of the Initial Hotels contain provisions
relating to the obligation of the Company to maintain insurance, restore the
premises following a casualty or a taking and apply in a specified manner
proceeds received by the Company in connection with a casualty or a taking, all
of which obligations are to be performed by Host pursuant to the Initial Leases.
In instances where a material casualty has occurred prior to the last five years
of a ground lease, however, the Company may be obligated under such ground lease
to restore the property although Host has terminated the applicable Initial
Lease as a result of a casualty and regardless of whether the proceeds received
are adequate to effect restoration. In addition, in certain limited
circumstances the lenders holding mortgages on the land underlying two of such
ground leased Initial Hotels may have the right to require that insurance
proceeds and condemnation Awards be applied in repayment of the debt secured by
such mortgages.
OTHER MATERIAL COVENANTS OF HOST
Host has also covenanted to the Company with respect to each of the Initial
Hotels as follows: (i) that it will continuously use and occupy the Initial
Hotel as a Courtyard by Marriott[R] hotel unless no longer economically
practicable; (ii) that it will obtain and maintain, at its own cost and expense,
all permits and licenses necessary for the operation of the Initial Hotel; (iii)
that it will not engage in any activity, other than the operation of the Initial
Hotels and other Hotel Properties, if any, owned by the Company and leased to
Host; and (iv) that, subject to the Company's obligation to fund certain
repairs, it will perform all of the obligations of the Company under the
Management Agreements.
EVENTS OF DEFAULT
Events of default under each Initial Lease include the following: (i) the
failure of Host to make payments under the Initial Lease as and when due where
such failure continues for ten days after written notice thereof by the Company;
(ii) the failure of Host to perform certain of the terms, covenants or
conditions of any Initial Lease where such failure continues for a specified
period after written notice thereof by the Company; (iii) the occurrence of
certain events of bankruptcy or insolvency with respect to Host; (iv) the
failure of Host to maintain the insurance coverages required under any Initial
Lease; (v) the revocation or limitation of any material license requiring the
cessation of operations at the applicable Initial Hotel; (vi) the existence of
any event of default under any other Initial Lease or the Purchase Agreement;
(vii) the existence of any event of default by Host with respect to the
Management Agreements; or (viii) the failure of Host to be a direct or indirect
subsidiary of Host Marriott Corporation. The Initial Leases are cross defaulted
and, accordingly, a default under one Initial Lease will constitute a default
under all other Initial Leases. The Company may enforce cross default provisions
with respect to all, some or none of the Initial Leases. Any Initial Lease with
respect to which the Company does not enforce cross default provisions will
remain in full force and effect. An event of default by Host under an Initial
Lease will not constitute a default under any Management Agreements. If the
Company terminates any Initial Lease or all of the Initial Leases as a result of
a default, the Management Agreements would remain in effect. In such
circumstances, the Company would not be able to select a new manager and a
subsequent Lessee would be required to retain Marriott as a manager until the
expiration or permitted termination of the Management Agreements. See "The
Management Agreements -- Events of Default."
REMEDIES
Upon the occurrence of an event of default under any Initial Lease, the
Company will, in addition to all other rights or remedies provided at law or in
equity, at its option, be entitled to do one or more of the following: (i)
terminate such Initial Lease and/or all Initial Leases by delivery of written
notice of termination to Host and accelerate the rent; (ii) terminate Host's
right to possession of the applicable Initial Hotel or as to all Initial Hotels,
without terminating the Initial Lease or all Initial Leases and Host's
obligation to pay rent; (iii) relet all or any part of the applicable Initial
Hotel or all Initial Hotels for such rent and upon such terms as will be
satisfactory to the Company and recover from Host the difference between the
amount of rent which would have been due under the applicable Initial Lease or
all Initial Leases and the rent received under such reletting; (iv) exercise and
enforce any or all rights and remedies available upon default to a secured party
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under the Uniform Commercial Code with respect to personal property of Host at
the Initial Hotels; and (v) after notice to Host (or without notice if immediate
action is necessary to protect person or property), make any payment or perform
any act required to be performed by Host under the Initial Lease. Host will be
obligated to reimburse the Company for all payments made and all costs and
expenses incurred in connection with any exercise of the foregoing remedies and
the Company has the right to apply the Security Deposit to any defaulted amounts
under the Initial Leases. See "-- Security Deposit."
THE MANAGER
Marriott is a wholly owned subsidiary of Marriott International, Inc. and
manages Courtyard by Marriott[R] hotels, including the Initial Hotels. The
Management Agreements restrict the right of Marriott to assign its interest
under the Management Agreements without the consent of the Company (except to
affiliates). Marriott International, Inc. is not liable on, or a guarantor of
performance by Marriott under, the Management Agreements and an investment in
the Shares offered hereby is not an investment in Marriott International, Inc.
or in Marriott.
Marriott International, Inc. is a leading worldwide operator and franchisor
of hotels and has reported that it is the largest provider of food service and
facilities management services in North America. As of December 31, 1994,
Marriott International, Inc.'s hotel business included operation or franchise of
851 hotels with approximately 180,000 guest rooms serving four market segments
of the hotel industry including: Marriott Hotels, Resorts and Suites[R] (full
service), Courtyard by Marriott[R] (moderately priced), Residence Inn by
Marriott[R] (extended stay) and Fairfield Inn by Marriott[R] (economy). Marriott
International, Inc. is also a leading developer and operator of vacation time
sharing properties (Marriott Ownership Resorts[R]) and operates conference
centers (Marriott Conference Centers[R]) throughout the United States. Through
its contract services business, Marriott International, Inc. provides food
service and facilities management to more than 3,000 business, education and
health care clients; develops and operates retirement communities offering
independent living, assisted living and skilled nursing care for seniors; and
supplies food and related products to customers throughout the United States.
Until October 1993, Marriott International, Inc. was a wholly owned
subsidiary of Host Marriott Corporation (then known as Marriott Corporation). In
October 1993, the common stock of Marriott International, Inc. was distributed
to shareholders of Marriott Corporation (whose name was changed to Host Marriott
Corporation) and Marriott International, Inc. became a separate public company.
Marriott International, Inc. reported sales of $8.4 billion and net income of
$200.0 million for the fiscal year ended December 30, 1994.
THE MANAGEMENT AGREEMENTS
The following summary of the Management Agreements is qualified in its
entirety by reference to the form of Management Agreement filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
GENERAL
At the time the Company acquired the Initial Hotels and entered into the
Initial Leases with Host, each of the Initial Hotels was managed by Marriott
pursuant to the Management Agreements between Marriott and Host Marriott
Corporation and its affiliates. The Company has acquired 21 of the Initial
Hotels and will acquire the remaining 16 Initial Hotels subject to the
Management Agreements, and such Management Agreements have been assigned to the
Company. Pursuant to the Initial Leases, Host has agreed to perform all of the
Company's obligations arising under the Management Agreements. Although there is
a separate Management Agreement for each Initial Hotel, the FF&E Reserve on all
the Initial Hotels is calculated and may be used and the incentive management
fee is calculated on a combined basis and renewal options may be exercised only
on an all or none basis.
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FEES
The Management Agreements provide for the payment to Marriott of management
fees consisting of: (i) a base management fee equal to 2% of Total Hotel Sales
(payment of which may be deferred as provided below); and (ii) an incentive
management fee equal to 50% of Available Cash Flow (after allocation of base
rent and other operating expenses under the applicable Initial Lease). Base
management fees will be paid every four weeks and incentive management fees will
be paid quarterly in arrears and will be reconciled annually. If Operating
Profit, after allocation of the base rent and other operating expenses payable
under the Initial Lease for an Initial Hotel, is insufficient to pay the base
management fee, payment of the base management fee with respect to such Initial
Hotel will be deferred until there is sufficient Operating Profit at that
Initial Hotel. Any such payment obligation will be an unsecured obligation of
the Company and the calculation of Operating Profit will be reconciled annually
for payment thereof. The foregoing provisions result in the effective
subordination of base management fees to the prior payment of base rent under
each Initial Lease. In addition, because Available Cash Flow is calculated after
payments of base rent on all the Initial Hotels, no incentive management fee
will have been paid unless base rent has been paid under all of the Initial
Leases.
The Management Agreements also provide for payment to Marriott at the end
of each four week accounting period of a Courtyard by Marriott[R] system fee
equal to 3% of Total Hotel Sales. The Courtyard by Marriott[R] system fee
compensates Marriott for system services which benefit the Courtyard by
Marriott[R] system, such as divisional executive management, financial planning
and market planning and services of Marriott's technical and operational experts
making periodic inspections and consultation visits to the Initial Hotels.
Various costs and expenses of participating in the Courtyard by Marriott[R]
system are charged to each of the Initial Hotels as an operating expense. See
Note 4 to Combined Financial Statements of the Initial Hotels.
TERM
The Management Agreements have an initial term which expires in December
2013. Provided that the terms of all of the other Management Agreements are
simultaneously extended, the term of each Management Agreement may be extended
for three consecutive renewal terms of ten years each. Extension of the term is
automatic unless Marriott gives written notice of its election not to extend the
term within 18 months prior to the expiration of the then applicable term. With
respect to the five Initial Hotels that are subject to long term ground leases,
upon any renewal of the ground lease which is approved by Marriott, the term of
the applicable Management Agreement will be automatically extended until the
later of the expiration of the then current term of the ground lease or the date
on which the Management Agreement would have otherwise expired.
EARLY TERMINATION
Each Management Agreement is subject to early termination by Host (with the
consent of the Company, which consent shall not be unreasonably withheld) in the
event that (i) Operating Profit less the amount of ground lease rental, if any,
with respect to any two consecutive full fiscal years after 1995 is less than a
designated threshold amount (initially approximately equal to base rent) in the
applicable Management Agreement; and (ii) the revenue per guest room for the
Initial Hotel divided by the average revenue per guest room for the hotels in
such Initial Hotel's competitive set during each of such two consecutive fiscal
years after 1995 is less than a designated threshold in the applicable
Management Agreement; provided that the foregoing circumstances do not result
from a force majeure or any major renovation. Marriott has the right to prevent
such termination by making a curative payment in respect of any year.
FF&E RESERVE
As of June 30, 1995, the FF&E Reserve for the Initial Hotels was
approximately $3.9 million. For a description of historical contributions to the
FF&E Reserve, see Note 4 of Notes to Combined Financial Statements of the
Initial Hotels. The amount on deposit in the FF&E Reserve will decrease during
each fiscal
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year by amounts expended for maintenance or repair of the Initial Hotels and
will increase by 5% of Total Hotel Sales through deposits made at the end of
each four week accounting period. In certain circumstances, at the election of
Marriott, the FF&E Reserve may be increased to 6% of Total Hotel Sales if
determined to be necessary. The FF&E Reserve is intended to ensure that adequate
funds are on hand for Marriott to make capital replacements of furniture,
furnishings and equipment at the Initial Hotels. The FF&E Reserve will remain
the property of the Company upon termination or expiration of the Management
Agreements.
MAINTENANCE AND REPAIRS
Marriott is required to maintain each Initial Hotel in good order, repair
and appearance in conformance with law, Courtyard by Marriott[R] system
standards and standards comparable with competitive hotels. The cost of routine
maintenance and repair of most items which can be capitalized may be paid from
the FF&E Reserve and those that are expensed will be paid as an operating
expense.
OTHER MATERIAL COVENANTS OF MARRIOTT
Marriott has also covenanted with respect to each Initial Hotel that it
will: (i) establish room rates and prices, rates and charges for other services;
(ii) arrange for and supervise public relations and advertising; (iii) make
required contributions to the FF&E Reserve and allowable expenditures therefrom;
(iv) obtain and maintain all permits and licenses necessary for operation of the
Initial Hotel; (v) recruit, employ, supervise and direct all employees of the
Initial Hotel; (vi) at all times manage and operate the Initial Hotel; and (vii)
cause Courtyard by Marriott[R] chain services to be furnished to the Initial
Hotel.
INSURANCE AND INDEMNIFICATION
Pursuant to the Management Agreements, Marriott is required to maintain, as
an operating expense of each Initial Hotel, insurance covering: (i)
comprehensive general liability for injury to property or persons or loss of
life arising out of the business of such Initial Hotel (in an amount of $100.0
million per occurrence); (ii) liability for damage to improvements, merchandise,
trade fixtures, furnishings, equipment and personal property; (iii) workers'
compensation benefits liability; (iv) business interruption loss (providing
coverage of not less than 12 months of rent and other business income); and (v)
other business losses customarily insured by businesses conducting similar
activities or required by any applicable legal requirement to be carried or
maintained by Marriott. In addition, Marriott is permitted to self insure the
required coverage in a manner consistent with its self insurance for similar
hotels operated under Marriott brand names.
Marriott has also agreed to indemnify and hold harmless the Company from
and against any and all claims arising from Marriott's bad faith or willful
misconduct in the performance of its obligations under the Management
Agreements.
DAMAGE, DESTRUCTION OR CONDEMNATION
In the event any Initial Hotel is damaged by fire, explosion or other
casualty, the "owner" under the Management Agreement is obligated promptly to
repair and replace the improvements existing immediately preceding such fire,
explosion or other casualty to the extent of available insurance proceeds. In
the event the "owner" fails so to restore on a timely basis, Marriott may, upon
120 days' prior written notice, terminate the Management Agreement. Pursuant to
the Initial Leases, subject to the Company's obligation to fund certain repairs,
Host is responsible for performing all the Company's obligations as "owner"
under the Management Agreements.
In the event any Initial Hotel or any substantial portion thereof is taken
or condemned for a public or quasi-public use or purpose by a competent
authority or sold by the Company in lieu thereof, the Management Agreement will
terminate upon delivery of possession to the condemning authority or its
assignee, and any Award will be paid to the Company, Host or Marriott as
appropriate. In the event only a part of any Initial Hotel is taken or condemned
and the Initial Hotel or the part remaining can still be used for the same
purpose and with substantially the same utility as immediately prior to such
taking, the Management Agreement will not terminate and the "owner" thereunder
is required to repair and restore the remaining improvements,
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provided the cost of such repair and restoration does not exceed the amount of
the Award. See "The Initial Leases -- Damage, Destruction or Condemnation."
EVENTS OF DEFAULT
Events of default under each Management Agreement include the following:
(i) the failure of Marriott to make payments under the Management Agreement as
and when due; (ii) the failure of Marriott after notice to perform certain of
the terms, covenants or conditions of the Management Agreement where such
failure continues for a specified period after written notice thereof; or (iii)
the occurrence of certain events of bankruptcy or insolvency of Marriott. Upon
the occurrence of an event of default under any Management Agreement, in
addition to all other rights or remedies provided by law or equity, such
Management Agreement may be terminated by Host, with the consent of the Company
(which will not be unreasonably withheld). The Management Agreements are not
cross defaulted and, accordingly, a default under one Management Agreement is
not a default under any other Management Agreement. If a Management Agreement
were terminated, the Initial Lease relating to the applicable Initial Hotel
would continue in effect, Host's obligations to pay rent to the Company and
otherwise perform under the Initial Lease would not be affected by termination
of such Management Agreement and Host would be obligated to manage or find a
substitute manager for such Initial Hotel. As a REIT, the Company is restricted
in its ability to manage the Initial Hotels. See "Federal Income Tax
Considerations -- Taxation of the Company -- Foreclosure Property." Use of the
"Courtyard by Marriott[R]" brand name might not be available to Host or to a
substitute manager of an Initial Hotel with respect to which a Management
Agreement has been terminated. Use of the brand name with respect to Initial
Hotels for which Management Agreements remained in effect would not be affected
thereby. An event of default by Marriott under a Management Agreement is not an
event of default under the Initial Leases. See "The Initial Leases -- Events of
Default."
LIMITATION ON SECURED BORROWINGS
Secured borrowings in respect of each Initial Hotel are limited in
accordance with a formula set forth in the applicable Management Agreements.
This limit may never be less than 70% of the allocable purchase price of the
Initial Hotel. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
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MANAGEMENT
TRUSTEES AND EXECUTIVE OFFICERS
The Declaration provides that a majority of the Board of Trustees will be
Independent Trustees. An Independent Trustee is a Trustee who is not an officer
of or otherwise affiliated with the Company, HRP or Advisors. Upon completion of
this Offering, the Company will have five Trustees, including three Independent
Trustees.
The following table sets forth certain information with respect to the
persons who will be Trustees and officers of the Company immediately after
completion of this Offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Barry M. Portnoy............. 49 Managing Trustee (term will expire in 1996)
Gerard M. Martin............. 60 President and Managing Trustee (term will expire in
1997)
John G. Murray............... 34 Treasurer, Secretary and Chief Financial Officer
John L. Harrington........... 59 Independent Trustee (term will expire in 1996)
William J. Sheehan........... 51 Independent Trustee (term will expire in 1997)
Arthur G. Koumantzelis....... 64 Independent Trustee (term will expire in 1998)
</TABLE>
The following is a biographical summary of the experience of the Trustees
and officers of the Company.
Barry M. Portnoy has been a partner in the law firm of Sullivan & Worcester
since 1978. Mr. Portnoy has been a Managing Trustee of HRP since its
organization in 1986. From 1985 until the merger of Greenery Rehabilitation
Group, Inc. ("Greenery") into Horizon Healthcare Corporation ("Horizon") in
February 1994 (the "Horizon/Greenery Merger"), Mr. Portnoy served as a Director
of Greenery. Mr. Portnoy is currently a Director of Horizon and a Director and
50% shareholder of Advisors. Mr. Portnoy has been actively involved in real
estate and real estate finance activities for approximately 20 years.
Gerard M. Martin is a private investor in real estate. Mr. Martin has been
a Managing Trustee of HRP since its organization in 1986. From 1985 until the
Horizon/Greenery Merger, Mr. Martin served as the Chief Executive Officer and
Chairman of the Board of Directors of Greenery. Mr. Martin is currently a
Director of Horizon and a Director and 50% shareholder of Advisors. Mr. Martin
has been active in the real estate industry for more than 30 years. Mr. Martin
is currently acting as an interim President of the Company. The Company is
currently interviewing candidates to serve as President and expects to fill the
position by the end of 1995. When a full time President is appointed, Mr. Martin
intends to resign the position but to remain a Managing Trustee of the Company.
John G. Murray will be Treasurer, Secretary and Chief Financial Officer of
the Company. Mr. Murray has served in various capacities for HRP and Advisors
since 1993, most recently as Executive Vice President and Chief Financial
Officer. Mr. Murray served as Director of Finance, Business Analysis and
Planning at Fidelity Brokerage Services, Inc. from 1992 to 1993 and as Director
of Acquisitions from 1990 through 1991. Prior to 1990, Mr. Murray was a senior
manager at the accounting firm of Arthur Young & Company (now Ernst & Young
LLP). Upon completion of this Offering, Mr. Murray will resign as an officer of
HRP and thereafter will devote substantially all of his business time to the
Company's business. Mr. Murray is a certified public accountant.
John L. Harrington has been the Chief Executive Officer of the Boston Red
Sox Baseball Club for at least five years and is Executive Director and Trustee
of the Yawkey Foundation and a Trustee of the JRY Trust. Mr. Harrington is also
a Director of Shawmut Bank, N.A. Mr. Harrington has been a Trustee of HRP since
1991. Upon completion of this Offering, Mr. Harrington will resign as a Trustee
of HRP.
William J. Sheehan has been the Chief Financial Officer of Ian Schrager
Hotels, Inc. since May 1995. From 1993 through May 1995, Mr. Sheehan was a self
employed consultant on financial and operating matters to companies in the hotel
industry. From 1982 until 1993 he was employed by Omni Hotels, most recently as
Vice Chairman (1992 to 1993) and President and Chief Executive Officer (1988 to
1992). Prior to
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that time, he was a partner at Arthur Andersen & Co. Mr. Sheehan is a certified
hotel administrator, a Fellow of the Educational Institute of the American Hotel
and Motel Association and has been a speaker at various hotel industry
conferences.
Arthur G. Koumantzelis has been Senior Vice President and Chief Financial
Officer of Cumberland Farms, Inc., since July 1990. Cumberland Farms, Inc. is a
private company engaged in the convenience store business in the northeastern
United States and Florida and in the distribution and retail sale of gasoline in
the northeastern United States. Cumberland Farms, Inc. filed a voluntary
petition under Chapter 11 of the United States Bankruptcy Code in May 1992 and
subsequently emerged from bankruptcy proceedings in December 1993. Mr.
Koumantzelis has been a Trustee of HRP since 1992. Upon completion of this
Offering, Mr. Koumantzelis will resign as a Trustee of HRP.
COMMITTEES OF THE BOARD OF TRUSTEES
Promptly following completion of this Offering, the Board of Trustees of
the Company will establish an Audit Committee that will consist of the three
Independent Trustees. The Audit Committee will make recommendations concerning
the engagement of independent public accountants, review with the independent
public accountants the plans and results of the audit engagement, approve
professional services provided by the independent public accountants, consider
the appropriateness of audit and nonaudit fees charged and review the adequacy
of the Company's internal accounting controls.
The entire Board of Trustees will function as an Executive Compensation
Committee to implement the Company's Incentive Share Award Plan. A subcommittee
of the Executive Compensation Committee composed of the initial Independent
Trustees will review the performance of Advisors under the Advisory Agreement.
See "Advisors and the Advisory Agreement -- Compensation to Advisors."
COMPENSATION OF TRUSTEES AND OFFICERS
The Company intends to pay its Independent Trustees an annual fee of
$20,000 plus a fee of $500 for each meeting attended and will reimburse expenses
incurred by its Independent Trustees for attending meetings. Each Independent
Trustee of the Company will automatically receive an annual grant of 300 Shares
(i) after the completion of this Offering and (ii) at the first meeting of the
Board of Trustees following each annual meeting of shareholders commencing in
1996. See "-- Incentive Share Award Plan" and "Advisors and the Advisory
Agreement." In addition, the Independent Trustee serving as Chairman of the
Audit Committee, which position is expected to rotate annually among the
Independent Trustees, will be paid $2,000 per year for such service.
EMPLOYEES
The Company is an advised REIT and has no employees. Services which would
otherwise be provided by employees will be provided by Advisors pursuant to the
Advisory Agreement and by Managing Trustees and officers of the Company.
Although officers of the Company will not receive any cash compensation from the
Company, they may be entitled to incentive share awards under the Company's
Incentive Share Award Plan. See "-- Incentive Share Award Plan."
INCENTIVE SHARE AWARD PLAN
The Company has adopted an Incentive Share Award Plan and has reserved
100,000 Shares for grant thereunder to Independent Trustees and officers of, and
consultants (other than Advisors) to, the Company. The officers of the Company
are employees of Advisors and not of the Company and will therefore receive
their salary compensation from Advisors. The Company has established its
Incentive Share Award Plan in order to provide it with a vehicle with which to
foster a continuing identity of interest among the Company's officers and
Independent Trustees and the Company's shareholders. In addition, the Incentive
Share Award Plan will permit the Company to compensate its officers for the
performance of certain duties which fall outside the scope of services covered
by the Advisory Agreement.
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The Independent Trustees will automatically receive grants of 300 Shares
per year as part of their annual compensation. In granting other incentive share
awards, the Board of Trustees intends to consider a range of factors, including
the complexity and duration of tasks performed by grantees on behalf of the
Company and the amount and terms of Shares previously granted. The vesting
schedule of each incentive share award will be determined at the time of grant.
In the event that an officer who has been granted an incentive share award
resigns during the vesting period of such award, the grantee generally will be
entitled to receive only the number of Shares which will have vested prior to
the date of resignation. No awards will be granted under the Incentive Share
Award Plan prior to completion of this Offering.
TRUSTEES' AND OFFICERS' INDEMNIFICATION
The Declaration provides that Trustees, officers, employees and agents
shall be indemnified by the Company against any losses, judgments, liabilities,
expenses and amounts paid in settlement of any claims asserted against them by
reason of such status, provided that such claims were not the result of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Company shall have the right but shall not be required to obtain insurance
including general liability, securities liability, Trustee and officer liability
and other insurance in such amounts and with such carriers as the Company
reasonably deems appropriate in order to support this indemnity.
BENEFITS TO HRP AND ADVISORS
In connection with completion of this Offering and the other transactions
to be consummated in connection with completion of this Offering, HRP and
Advisors will receive the following benefits:
- HRP will receive $64.3 million in cash in partial repayment of the HRP
Loan.
- HRP will purchase 3,960,000 Shares by cancelling $99.0 million of the HRP
Loan (a purchase price of $25.00 per Share).
- Advisors will purchase 250,000 Shares at $25.00 per Share in cash.
- Advisors will enter into the Advisory Agreement with the Company under
which it will earn advisory fees. The fee payable to Advisors during the
initial term of the Advisory Agreement through December 31, 1995
(assuming no new investments by the Company during that period) will be
approximately $806,000. Messrs. Portnoy and Martin are Managing Trustees
of the Company, Managing Trustees of HRP and each is a Director and 50%
owner of Advisors. See "Advisors and the Advisory Agreement."
ADVISORS AND THE ADVISORY AGREEMENT
ADVISORS
Advisors is a Delaware corporation owned by Barry M. Portnoy and Gerard M.
Martin. Advisors' principal place of business is 400 Centre Street, Newton,
Massachusetts and its telephone number is (617) 332-3990. Advisors will provide
management services and investment advice to the Company. Advisors also acts as
the investment advisor to HRP. The Directors of Advisors are Gerard M. Martin,
Barry M. Portnoy and David J. Hegarty. The officers of Advisors are David J.
Hegarty, President and Secretary, John G. Murray, Executive Vice President and
Ajay Saini, Treasurer. The following is a biographical summary of the experience
of the Directors and officers of Advisors who are not described under the
caption "Management."
David J. Hegarty, age 38, is the President, Chief Operating Officer and
Secretary of HRP and President and Secretary of Advisors. Mr. Hegarty has been
employed by HRP and Advisors in various capacities since 1987 and prior to that
he was an audit manager with Arthur Young & Company (now Ernst & Young LLP). Mr.
Hegarty is a certified public accountant.
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Ajay Saini, age 34, is the Treasurer of HRP and Advisors. Mr. Saini has
been employed by Advisors in various capacities since June 1990 and prior to
that he was a senior accountant at Arthur Young & Company (now Ernst & Young,
LLP). Mr. Saini is a certified public accountant.
THE ADVISORY AGREEMENT
The following summary of the Advisory Agreement is qualified in its
entirety by reference to the copy of such agreement filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
Under the Advisory Agreement, Advisors is obligated to use its best efforts
to present to the Company a continuing and suitable investment program
consistent with the investment policies and objectives of the Company. See
"Policies with Respect to Certain Activities -- Investment Policies." Subject to
its duty of overall management and supervision, the Board of Trustees has
delegated to Advisors the power and duty to, among other things:
(i) serve as the Company's investment advisor, with its obligations to
include providing research and economic and statistical data in connection
with the Company's investments and recommending changes in the Company's
investment policies when appropriate;
(ii) investigate and evaluate investment opportunities and recommend
them to the Trustees;
(iii) manage the Company's short term investments, including the
acquisition and sale of money market instruments in accordance with the
Company's policies;
(iv) administer the day to day operations of the Company;
(v) investigate, select and conduct business and enter into
appropriate leases and other contracts on behalf of the Company in
furtherance of the investment activities of the Company;
(vi) upon request by the Trustees, act as attorney in fact or agent in
acquiring and disposing of investments and funds of the Company and in
handling, prosecuting and settling any claims of the Company;
(vii) upon request by the Trustees, invest and reinvest any money of
the Company;
(viii) obtain for the Company, when appropriate, the services of
property managers or management firms to perform customary property
management services with regard to the real estate properties owned by or
in the possession of the Company, and perform such supervisory or
monitoring services on behalf of the Company with respect to the activities
of such property managers or management firms as would be performed by a
prudent owner;
(ix) obtain for the Company such services as may be required for other
activities relating to the investment portfolio of the Company;
(x) administer such day to day bookkeeping and accounting functions as
are required for the proper management of the assets of the Company,
contract for audits and prepare or cause to be prepared such reports as may
be required by any governmental authority in connection with the ordinary
conduct of the Company's business;
(xi) provide office space, office equipment and the use of accounting
or computing equipment when required, and provide personnel necessary for
the performance of the foregoing services; and
(xii) upon request by the Trustees, make reports thereto of its
performance of the foregoing services to the Company.
In performing its services under the Advisory Agreement, Advisors may utilize
facilities, personnel and support services of various of its affiliates.
Under the Advisory Agreement, Advisors assumes no responsibility other than
to render the services described therein in good faith and is not responsible
for any action of the Board of Trustees in following or declining to follow any
advice or recommendation of Advisors. In addition, the Company has agreed to
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indemnify Advisors, its shareholders, Directors, officers, employees and
affiliates against liabilities relating to certain acts or omissions of Advisors
undertaken in good faith.
The initial term of the Advisory Agreement expires on December 31, 1995 and
renewal or extension of the term thereof will be subject to the periodic
approval of a majority of the Independent Trustees. See "Policies with Respect
to Certain Activities -- Conflict of Interest Policies." Pursuant to the
Advisory Agreement, Advisors and Messrs. Portnoy and Martin have agreed not to
provide advisory services to, or serve as a Director or officer of, any other
REIT which is principally engaged in the business of ownership of hotel
properties or to make competitive direct investments in hotel facilities, in
each case, without the consent of the Company's Independent Trustees.
COMPENSATION TO ADVISORS
It is intended that the Board of Trustees, including a majority of the
Independent Trustees, will determine the amount of compensation which the
Company contracts to pay to Advisors and any renewal, extension or amendment of
the Advisory Agreement, based on such factors as it deems appropriate. Such
factors may include the size of the advisory fee in relation to the size,
composition, quality and profitability of the investment portfolio of the
Company, the success of Advisors in generating opportunities that meet the
Company's investment objectives, the quality and extent of services and advice
furnished by Advisors, the rates charged by other investment advisors performing
comparable services and the costs of similar services incurred by self advised
REITs.
The Advisory Agreement currently provides for (i) an annual advisory fee
equal to 0.70% of the average of the aggregate book value of the assets of the
Company invested, directly or indirectly, in equity interests in and loans
secured by real estate and personal property owned in connection with such real
estate, before reserves for depreciation or bad debts or other similar non-cash
reserves, computed by taking the average of such values at the end of each month
during the period (the "Average Invested Capital") up to $250.0 million and
0.50% of Average Invested Capital exceeding $250.0 million and (ii) an annual
incentive fee calculated on the basis of annual increases in the amount of Cash
Available for Distribution per Share. No incentive fees will be payable for the
initial term of the Advisory Agreement. Assuming that the Advisory Agreement is
renewed on its current terms, starting in 1996 the incentive fee payable to
Advisors will be 15% of annual increases in Cash Available for Distribution per
Share times the weighted average number of Shares outstanding in each year, but
in no event more than $0.02 per Share times the weighted average number of
Shares outstanding in each year. Any incentive fee earned by Advisors will be
paid in Shares.
Assuming that this Offering closes on or about August 15, 1995, the fee
payable to Advisors during the initial term of the Advisory Agreement through
December 31, 1995 (assuming no new investments by the Company during that
period) will be approximately $806,000. The advisory agreement currently in
effect between Advisors and HRP is substantially similar to the Advisory
Agreement between Advisors and the Company. Upon the completion of this
Offering, Advisors' contract with HRP will be amended so that amounts invested
by HRP in the Company will not be counted for purposes of determining the
advisory fees payable by HRP to Advisors.
The Company is not expected to have any employees nor to have
administrative officers separate from Advisors. Services which might otherwise
be provided by employees will be provided to the Company by employees of
Advisors. Similarly, office space will be provided to the Company by Advisors.
Although the Company does not expect to have significant general and
administrative operating expenses, in addition to fees payable to Advisors, the
Company will be required to pay various other expenses relating to its
activities, including the costs and expenses of acquiring, owning and disposing
of the Company's real estate interests (including appraisal, reporting, audit
and legal fees), its costs of borrowing money and its costs of securities
listing, transfer, registration and compliance with reporting requirements.
Also, the fees and expenses of the Company's Independent Trustees will be paid
by the Company.
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POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of the Company's policies with respect to
investments, dispositions, financings, conflicts of interest and certain other
activities. These policies have been determined by the Board of Trustees of the
Company and, although there is no current intention to do so, these policies may
be amended or revised from time to time at the discretion of the Board of
Trustees without a vote of the Company's shareholders, except that the Company
cannot change its policy of seeking to maintain its qualification as a REIT nor
can it enter into certain extraordinary transactions (such as a merger or the
sale of all or substantially all of its assets) without the approval of two
thirds of the shareholders. Upon completion of this Offering, HRP will own 34.1%
of the Shares and any such transaction would likely require the approval of HRP.
See "Risk Factors -- Share Ownership Risks -- Concentration of Ownership."
INVESTMENT POLICIES
ACQUISITIONS
The Company is committed to pursuing growth through the acquisition of
additional Hotel Properties and intends to pursue acquisition opportunities
after completion of this Offering. In implementing its acquisition strategy, the
Company will consider a range of factors relating to each proposed Hotel
Property including: (i) its historical and projected cash flows; (ii) the
competitive market environment and the current or potential market position of
each proposed Hotel Property; (iii) the availability of a qualified Lessee; (iv)
the physical condition of the proposed Hotel Property and its potential for
redevelopment or expansion; (v) the estimated replacement cost and proposed
acquisition price of the proposed Hotel Property; (vi) the price segment in
which the proposed Hotel Property is operated; and (vii) the strength of the
particular national hotel organization, if any, with which the proposed Hotel
Property is or may become affiliated. In determining the competitive position of
a prospective Hotel Property, the Company will examine the proximity of the
proposed Hotel Property to business, retail, academic and tourist attractions
and transportation routes, the number and characteristics of competitive hotels
within the proposed Hotel Property's market and the existence of any barriers to
entry within that market, including zoning restrictions and financing
constraints. While the Company intends to focus on the acquisition of moderately
priced hotel properties, it may in the future consider acquisitions in all
segments of the hotel industry. The Company believes that its capital position
after completion of this Offering will enhance its ability to pursue attractive
acquisition opportunities.
An important part of the Company's acquisition strategy is to identify and
select Lessees and Managers whose management has experience in hotel operations.
Over time, the Company intends to select Hotel Properties which will enhance the
diversity of its portfolio in respect to location, brand name, Lessees and
Managers. However, the Company has no policies which would limit the purchase
price or the percentage of its assets which may be invested in any individual
Hotel Property or invested in Hotel Properties leased to a single Lessee or
managed by a single Manager or operated with a single franchise affiliation.
OTHER INVESTMENTS IN REAL ESTATE
Although the Company will emphasize direct wholly owned investments in its
Hotel Properties, it may, in its discretion, invest in joint ventures, mortgages
and other real estate interests, consistent with its qualification as a REIT.
The Company may invest in real estate joint ventures if it concludes that by
doing so it may benefit from the participation of coventurers or that the
opportunity of the Company to participate in the investment is contingent on the
use of a joint venture structure. The Company may invest in participating,
convertible or other types of mortgages if it concludes that by doing so it may
benefit from the cash flow or any appreciation in the value of the subject
property. Convertible mortgages are similar to equity participations because
they permit the lender to either participate in increasing revenues from the
property or convert some or all of that mortgage into equity ownership
interests. At all times, the Company intends to make its investments in such a
manner as to be consistent with the requirements of the Code to qualify as a
REIT.
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DISPOSITION POLICIES
The Company has no current intention to dispose of any of the Initial
Hotels or other Hotel Properties which it may acquire, although it reserves the
right to do so. The Company currently anticipates that disposition decisions, if
any, will be made by the Company based on (but not limited to) factors such as
the following: (i) potential opportunities to increase revenues and property
values by reinvesting sale proceeds; (ii) the proposed sale price; (iii) the
strategic fit of the Hotel Property with the rest of the Company's portfolio;
(iv) the potential for, or the existence of, any environmental or regulatory
problems; (v) the existence of alternative uses or needs for capital; and (vi)
the maintenance of the Company's qualification as a REIT. For a description of
certain tax consequences arising from disposition of Hotel Properties, see
"Federal Income Tax Considerations -- Taxation of the Company."
FINANCING POLICIES
Upon completion of this Offering, the Company expects to have $23.4 million
in indebtedness for borrowed money and will have $176.6 million available under
the Acquisition Line to fund future acquisitions of Hotel Properties. There will
be no indebtedness outstanding and $200.0 million available under the
Acquisition Line if the Underwriters' overallotment option is exercised in full.
The Company currently intends to employ conservative financial policies in
pursuit of its growth strategies. Although there are no limitations in the
Company's organizational documents on the amount of indebtedness it may incur,
the Company currently intends to pursue its growth strategies while maintaining
a capital structure whereby its debt will not exceed 50% of its total market
capitalization. The Company may from time to time re-evaluate and modify its
current borrowing policies in light of then current economic conditions,
relative costs of debt and equity capital, market values of properties, growth
and acquisition opportunities and other factors and may increase or decrease its
ratio of debt to total market capitalization accordingly. See "Risk
Factors -- Risks Relating to Operations of the Company -- Risks of Leverage."
The Company has accepted a commitment from DLJMC for the $200.0 million
Acquisition Line, which will be entered into in connection with this Offering.
Although there is no assurance that its ongoing negotiations will be
successfully concluded, the Company has commenced negotiations with certain
financial institutions and may receive a commitment for a substitute revolving
loan arrangement before this Offering is concluded and expects that it will have
such substitute loan arrangement available to it before the term of the
Acquisition Line expires. Any such revolving loan arrangement may provide for
the grant of security interests in the Company's Hotel Properties to the lender
and may contain certain other customary terms and conditions.
To the extent that the Board of Trustees of the Company determines to
obtain a replacement for the Acquisition Line or additional capital, the Company
may raise such capital through additional equity offerings, debt financings,
retention of cash flow (subject to satisfying the Company's distribution
requirements under the REIT rules) or a combination of these methods. To the
extent that the Board of Trustees decides to obtain additional debt financings,
the Company may do so through mortgages on its properties. These mortgages may
be recourse, non-recourse or cross collateralized and may contain cross default
provisions. The Company has not established any limit on the number or amount of
mortgages that may be placed on any single property or on its portfolio as a
whole. The Company may also seek to obtain other lines of credit (both secured
or unsecured) or to issue securities senior to the Shares, including preferred
shares of beneficial interest and debt securities (either of which may be
convertible into Shares or be accompanied by warrants to purchase Shares). The
Company may also finance acquisitions through an exchange of properties or
through the issuance of additional Shares or other securities. The proceeds from
any financings by the Company may be used to pay distributions, to provide
working capital, to refinance existing indebtedness or to finance acquisitions
and expansions of existing or new properties.
CONFLICT OF INTEREST POLICIES
The Declaration provides that a majority of the Company's Trustees shall be
comprised of Independent Trustees. In addition, the Company has adopted certain
policies designed to eliminate or minimize potential conflicts of interest, as
described below. However, there can be no assurance that these policies always
will be
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successful in eliminating the influences of such conflicts, and if they are not
successful, decisions could be made that might not fully serve the interests of
all shareholders.
Advisors acts as the investment advisor to the Company and HRP and also has
other business interests. Advisors will not be able to devote all of its
business time and resources to the Company and conflicts could arise with
respect to the allocation of its business time and resources. Although HRP has
stated that it has no current intention to purchase or finance any additional
hotel properties, a conflict could develop should HRP change its investment
policies and determine to increase its investments in hotel properties. Messrs.
Portnoy and Martin are Managing Trustees of HRP, Managing Trustees of the
Company and each is a Director and 50% shareholder of Advisors. Mr. Portnoy is a
partner in the firm of Sullivan & Worcester, which acts as counsel to the
Company, HRP, Advisors and affiliates of each of the foregoing.
The Company has taken certain measures to address the foregoing potential
conflicts of interest and competing time demands. The Declaration provides that
a majority of its Trustees will be Independent Trustees. In addition, certain
employees of Advisors, including Mr. Murray, will devote substantially all of
their business time to the Company. Pursuant to the Advisory Agreement, Advisors
and Messrs. Portnoy and Martin have agreed not to provide advisory services to,
or serve as directors or officers of, any other REIT which is principally
engaged in the business of ownership of hotel properties or to make competitive
direct investments in hotel facilities, in each case, without the consent of the
Independent Trustees. Finally, Advisors and Messrs. Portnoy and Martin will be
required by applicable law to act in accordance with their fiduciary
responsibilities to the Company.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940. The Company does not
currently intend: (i) to invest in the securities of other issuers for the
purpose of exercising control over such issuer; (ii) to underwrite securities of
other issuers; or (iii) to trade actively in loans or other investments.
The Company may make investments other than as previously described,
although it does not currently intend to do so. The Company has authority to
repurchase or otherwise reacquire Shares or any other securities it may issue
and may engage in such activities in the future. The Board of Trustees has no
current intention of causing the Company to repurchase any of the Shares and any
such action would be taken only in conformity with applicable federal and state
laws and the requirements for qualifying as a REIT under the Code and the
Treasury Regulations. Although it may do so in the future, (other than in
respect of the repayment of a portion of the HRP Loan), the Company has not
issued Shares or any other securities in exchange for property, nor has it
reacquired any of its Shares or any other securities. Also, although it has no
current intention to do so, the Company may make loans to third parties,
including to its officers and joint ventures in which it decides to participate.
DESCRIPTION OF THE SHARES
GENERAL
The authorized capital stock of the Company consists of 100,000,000 Shares,
$0.01 par value per share, and 100,000,000 preferred shares of beneficial
interest (the "Preferred Shares"). Upon the completion of this Offering,
11,750,000 Shares will be issued and outstanding and there will be no Preferred
Shares outstanding. Except as otherwise may be determined by the Trustees with
respect to any class or series of Preferred Shares, no shares will have
preference, conversion, exchange, sinking fund, redemption or preemptive rights.
COMMON SHARES
Subject to the provisions described in "Summary of the Declaration of
Trust -- Restrictions on Transfer," each outstanding Share will entitle the
holder thereof to one vote on all matters voted on by shareholders, including
the election of Trustees, and there will be no cumulative voting rights. All
Shares issued will be duly authorized and nonassessable. Distributions will be
made to the holders of Shares if and when declared by the Trustees out of funds
legally available therefor and all Shares will participate equally in
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distributions declared with respect to the Shares. The Company intends to make
quarterly distributions, beginning with a distribution for the period from the
completion of this Offering through September 30, 1995. See "Distribution
Policy." If the Company is liquidated, each outstanding Share will be entitled
to participate pro rata in the assets remaining after payment of, or adequate
provision for, all known debts and liabilities of the Company and the rights of
holders of any Preferred Shares.
PREFERRED SHARES
Preferred Shares, if and when issued, will entitle holders to such rights
and be subject to such restrictions as may be established by the Trustees at the
time of issuance.
TRANSFER AGENT
State Street Bank and Trust Company has been appointed as transfer agent
and registrar for the Shares.
SUMMARY OF THE DECLARATION OF TRUST
The following summary of the material provisions of the Declaration does
not purport to be complete, and is qualified in its entirety by reference to the
Declaration and Bylaws, copies of which have been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
TRUSTEES
Under the Declaration, the number of Trustees may be fixed from time to
time by two thirds of the Trustees or by amendment of the Declaration duly
adopted by holders of two thirds of the outstanding Shares entitled to vote
thereon, with a minimum of three and a maximum of seven Trustees. The
Declaration provides that a majority of the Trustees must be Independent
Trustees. The terms of the Trustees are staggered. See "Management." As the
Trustees' terms expire, replacements are elected by a plurality of the votes
cast. The Declaration provides that only a majority of the Trustees then in
office shall have the authority to fill any vacancies on the Board, including
vacancies created by an increase in the number of Trustees. In addition, the
Declaration provides that a new Trustee elected to fill a vacancy will serve for
the remainder of the full term of his or her class and that no decrease in the
number of Trustees shall shorten the term of an incumbent. Moreover, the
Declaration provides that Trustees may be removed with or without cause only by
the affirmative vote of all the remaining Trustees or by holders of at least two
thirds of the voting power of the Shares entitled to vote at the election of
Trustees, voting as a single class.
The Company's Bylaws establish an advance notice procedure with regard to
the nomination, other than by the Board, of candidates for election as Trustees
(the "Nomination Procedure") which are not included in the Company's proxy
statement. The Nomination Procedure provides that only persons who are nominated
by or at the direction of the Board of Trustees, or by a shareholder of record
on the date of the giving of the notice who has given timely prior written
notice to the Secretary of the Company prior to the meeting at which Trustees
are to be elected, will be eligible for election as Trustees. To be timely,
notice of a shareholder proposal in the case of an annual meeting, other than a
proposal to be included in the Company's proxy, must be received by the Company
not less than 90 days nor more than 120 days prior to the anniversary date of
the immediately preceding annual meeting. Nothing in the Nomination Procedure
will preclude discussion by any shareholder of any nomination properly made or
brought before an annual or special meeting in accordance with the above
mentioned procedures.
LIABILITY OF TRUSTEES
The Declaration provides that, to the fullest extent permitted by Maryland
law, no Trustee, officer, employee or agent will be personally liable to the
Company or its shareholders for any act or omission. The Company has been
advised that under current Maryland law, such persons will remain liable for
their own willful misfeasance, bad faith, gross negligence or reckless disregard
of duty. The Trustees are fiduciaries of the Company and must at all times
exercise care and loyalty in handling Company affairs. The general legal
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principle for evaluating Trustee conduct is the business judgment rule. This
rule is a mechanism developed by courts which presumes that Trustees are acting
properly if they act on an informed basis, in good faith, in a manner they
reasonably believe to be in the best interests of shareholders and without fraud
or self dealing. This is a rapidly developing and changing area of the law and
potential shareholders who have questions concerning the duties of the Trustees
should consult with their own counsel.
The Declaration also limits the liability of Trustees and officers of the
Company to the Company or its shareholders for money damages to the fullest
extent permitted by Maryland law.
The Declaration obligates the Company to indemnify (i) its Trustees and
officers to the full extent permitted by Maryland law, including in respect of
the advancement of expenses and (ii) other employees and agents to such extent
as shall be authorized by the Trustees and permitted by Maryland law. Maryland
law permits a real estate investment trust to indemnify its present and former
trustees and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service in
those or other capacities, unless it is established that (i) the act or omission
of the trustee or officer was material to the matter giving rise to the
proceeding and (x) was committed in bad faith or (y) was the result of active
and deliberate dishonesty, (ii) the trustee or officer actually received an
improper personal benefit in money, property or services or (iii) in the case of
any criminal proceeding, the trustee or officer had reasonable cause to believe
that the act or omission was unlawful. The Company shall have the right but
shall not be required to obtain insurance including general liability,
securities liability, Trustee and officer liability and other insurance in such
amounts and with such carriers as the Company reasonably deems appropriate in
order to support the indemnity set forth above.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Trustees, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
LIMITATION OF LIABILITY; SHAREHOLDER LIABILITY
Maryland law permits a REIT to provide, and the Declaration provides, that
no Trustee, officer, shareholder, employee or agent of the Company shall be held
to any personal liability, jointly or severally, for any obligation of or claim
against the Company, and that, as far as practicable, each written agreement of
the Company is to contain a provision to that effect. Despite these facts,
counsel has advised the Company that in some jurisdictions the possibility
exists that shareholders of a non-corporate entity such as the Company may be
held liable for acts or obligations of the Company. Counsel has advised the
Company that the State of Texas may not give effect to the limitation of
shareholder liability afforded by Maryland law, but that Texas law would likely
recognize contractual limitations of liability such as those discussed above.
The Company intends to conduct its business in a manner designed to minimize
potential shareholder liability by, among other things, inserting appropriate
provisions in written agreements of the Company. No assurance can be given,
however, that shareholders can avoid liability in all instances in all
jurisdictions.
The Declaration provides that, upon payment by a shareholder of any such
liability, the shareholder will be entitled to indemnification by the Company.
There can be no assurance that, at the time any such liability arises, there
will be assets of the Company sufficient to satisfy the Company's
indemnification obligation. The Trustees intend to conduct the operations of the
Company, with the advice of counsel, in such a way as to minimize or avoid, to
the extent practicable, any liability of the shareholders of the Company for
actions of the Company. The Trustees do not intend to provide insurance covering
such risks to the shareholders.
DURATION AND TERMINATION
The Declaration provides that the duration of the Company shall be
perpetual. However, the Declaration also permits the holders of two thirds of
the then outstanding Shares entitled to vote thereon to terminate and dissolve
the Company at any time.
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PROHIBITED INVESTMENTS AND ACTIVITIES
The Declaration prohibits the Company from undertaking any activity that
would disqualify the Company as a REIT under the provisions of the Code as long
as a REIT is accorded substantially the same treatment or benefits under the
United States tax laws from time to time in effect as under Sections 856-860 of
the Code as in effect at the date of adoption of the Declaration; or using or
applying land for farming, agriculture, horticulture or similar purposes in
violation of Section 8-302(b) of the Corporations and Associations Article of
the Annotated Code of Maryland.
TRANSACTIONS WITH AFFILIATES, TRUSTEES, EMPLOYEES, OFFICERS OR AGENTS
Except as otherwise provided by the Declaration and in the absence of
fraud, any contract or other transaction between the Company and any other
Persons, as defined in the Declaration, in which the Company is interested,
shall be valid, and no Trustee or officer, employee or agent of the Company
shall have any liability as a result of entering into any such contract, act or
transaction, even though (a) one or more of the Trustees or officers, employees
or agents of the Company are directly or indirectly interested in or connected
with or are trustees, partners, directors, employees, officers or agents of such
other Person, or (b) one or more of the Trustees or officers, employees or
agents of the Company individually or jointly with others, is a party or are
parties to, or are directly or indirectly interested in or connected with, such
contract, act or transaction; provided that in each such case (i) such interest
or connection is disclosed or known to the Trustees and thereafter the Trustees
authorize or ratify such contract, act or other transaction by affirmative vote
of a majority of the Trustees who are not so interested or (ii) such interest or
connection is disclosed or known to the shareholders, and thereafter such
contract, act or transaction is approved by shareholders holding a majority of
the Shares then outstanding and entitled to vote thereon. The Trustees are not
restricted by the Declaration from forming a corporation, partnership, trust or
other business association owned by any Trustee, officer, employee or agent or
by their nominees for the purpose of holding title to property of the Company or
managing property of the Company, provided that the Trustees make a
determination that the creation of such entity for such purpose is in the best
interests of the Company.
RESTRICTIONS ON TRANSFER
The Declaration contains certain restrictions on the number of Shares that
individual shareholders may own. These restrictions are intended to assist the
Company in complying with REIT ownership restrictions of the Code and otherwise
to promote orderly corporate governance. For the Company to qualify as a REIT
under the Code, no more than 50% in value of its capital stock (after taking
into account options to acquire Shares) may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities
and constructive ownership among specified family members) during the last half
of a taxable year (other than the first taxable year) or during a proportionate
part of a shorter taxable year. The Shares must also be beneficially owned
(other than during the first taxable year) by 100 or more persons during at
least 335 days of a taxable year or during a proportionate part of a shorter
taxable year. Because the Company expects to qualify as a REIT, the Declaration
contains restrictions on the acquisition of Shares intended to ensure compliance
with these requirements. See "Federal Income Tax Considerations -- Taxation of
the Company -- Share Ownership Tests."
Subject to certain exceptions specified in the Declaration, no holder may
own, directly or indirectly, more than 9.8% of the number or value of the issued
and outstanding Shares of the Company other than HRP, Advisors and their
affiliates, including persons who are deemed to have beneficial ownership of the
Shares directly owned by HRP and Advisors pursuant to the attribution provisions
of the Code, and other shareholders exempted by majority vote of the Trustees
(the "Exempted Persons"). As a condition of the exemption of any person, such
person must give written notice to the Company no later than the 15th day prior
to any proposed transfer which, if consummated, would result in such person
owning Shares in excess of the Ownership Limitation, provided, however, that the
Trustees may waive the prior notice requirement upon determination that such
waiver is in the best interests of the Company. In deciding whether to grant an
exemption or waive the prior notice requirement, the Board of Trustees may
consider, among other factors, the general reputation and moral character of the
person requesting an exemption, whether ownership of Shares
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would be direct or through ownership attributed to such person, whether such
person's ownership of Shares would adversely affect the Company's ability to
acquire additional Hotel Properties or engage in other transactions and whether
granting an exemption for the person requesting an exemption would adversely
affect any existing contractual arrangement of the Company. In addition, the
Board of Trustees may require such opinions of counsel, affidavits, undertakings
or agreements as it may deem necessary or advisable in order to determine or
ensure the Company's status as a REIT or otherwise.
The Declaration contains provisions designed to ensure that a transferee
attempting to acquire Shares in violation of the Ownership Limitation will not
acquire rights or economic interests in the Shares purportedly transferred. The
Declaration defines a transfer as any sale, transfer, gift, assignment, devise
or other disposition of Shares, whether voluntary or involuntary, whether of
record or beneficial ownership and whether constructively, by operation of law
or otherwise. Under the Declaration, any transfer of Shares that is in violation
of the Ownership Limitation, that causes the Company to be treated as "closely
held" under Section 856(h) of the Code or that causes the Shares to be held by
fewer than 100 persons, and that is not otherwise permitted under the
Declaration will result in the designation of excess shares ("Excess Shares")
which shares will be transferred by operation of law to a person that is
unaffiliated with the Company and unaffiliated with the intended transferee as
trustee of a trust for the exclusive benefit of one or more organizations
described in sections 170(b)(1)(a) and 170(c) of the Code ("Charitable
Beneficiary") designated by the Company. The trustee of the trust will be deemed
to own these Excess Shares for the benefit of the Charitable Beneficiary on the
day prior to the date of the violative transfer. Any dividends or distributions
paid prior to the Company discovering that such Excess Shares were held in trust
must be repaid by the intended transferee to the Company and any dividend
declared but unpaid will be rescinded as void ab initio with respect to the
intended transferee. Any dividends so disgorged or rescinded will then be paid
over to the trustee and held in trust for the Charitable Beneficiary. Any vote
taken by an intended transferee prior to the discovery by the Company that the
Shares were held in trust will be rescinded as void ab initio. The owner of the
Shares will be deemed to have given an irrevocable proxy to the trustee to vote
the Shares for the benefit of the Charitable Beneficiary. At the direction of
the Company, the trustee of the trust shall transfer the Shares held in the
trust to a person whose ownership of the Shares will not violate the Ownership
Limitation. If such a transfer is made, the interest of the Charitable
Beneficiary would terminate and proceeds of the sale would be payable to the
intended transferee and to the Charitable Beneficiary. The intended transferee
would receive the lesser of (i) the price paid by the intended transferee for
the Shares or, if the intended transferee did not give value for the Shares, the
market price of the Shares on the day of the event causing the Shares to be held
in trust and (ii) the price per Share received by the trustee from the sale or
other disposition of the Shares held in trust. Any proceeds in excess of the
amount payable to the intended transferee will be payable to the Charitable
Beneficiary. The Declaration also provides that all Shares held in trust for the
benefit of the Charitable Beneficiary will be offered for sale to the Company or
its designee for a 90 day period, at the lesser of the price paid for the Shares
by the intended transferee and the market price of the Shares on the date that
the Company accepts the offer. This period will commence on the date the Company
receives notice of the event causing the Shares to be held in trust. All
certificates representing Shares will bear a legend referring to the
restrictions described above. All persons who own, directly or by virtue of the
attribution provisions of the Code, 5% or more (or such other percentage between
1/2 of 1% and 5%, as provided in the rules and regulations promulgated under
the Code) of the number or value of the outstanding Shares must give written
notice thereof to the Company by January 31 of each year. In addition, each
shareholder shall upon demand be required to disclose to the Company in writing
such information with respect to the ownership of Shares as the Board of
Trustees deems reasonably necessary to comply with the provisions of the Code
applicable to a REIT, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
These restrictions will not preclude settlement of transactions through the
NYSE.
SHAREHOLDER PROPOSALS
The Company's Bylaws establish an advance notice procedure with regard to
shareholder proposals to be brought before an annual meeting of shareholders
(the "Business Procedure"). The Business Procedure
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provides that shareholder proposals, other than proposals timely submitted for
inclusion in the Company's proxy statement, must be submitted in writing in a
timely manner in order to be considered at any annual meeting. To be timely,
such notice must be received by the Company not less than 90 days nor more than
120 days prior to the anniversary date of the immediately preceding annual
meeting. Nothing in the Business Procedure will preclude discussion by any
shareholder of any proposal properly made or brought before an annual meeting in
accordance with the above mentioned procedure.
BUSINESS COMBINATIONS
Under the Maryland General Corporation Law (the "MGCL"), certain "business
combinations" (including a merger, consolidation, share exchange, or, in certain
circumstances, an asset transfer or issuance or reclassification of equity
securities) between a Maryland real estate investment trust and any person who
beneficially owns 10% or more of the voting power of the Company's shares are
prohibited or restricted unless exempted. The Declaration provides that the
Company has elected not to be governed by the business combination provisions of
the MGCL.
CONTROL SHARE ACQUISITIONS
The MGCL imposes limitations on the voting rights of Shares above certain
percentage thresholds acquired in a "control share acquisition" relating to a
Maryland real estate investment trust. The Declaration provides that the Company
has elected not to be governed by the control share acquisition provisions of
the MGCL.
AMENDMENT; MEETINGS
The Declaration may be amended by the vote of the holders of a majority of
the outstanding Shares entitled to vote thereon, except that the holders of two
thirds of the outstanding Shares entitled to vote thereon must approve any
amendments to those provisions of the Declaration that set forth the procedures
for the Company's investment policies, policies with respect to certain
distributions to shareholders, the number, term and qualifications of the
Trustees, as well as certain provisions regarding the duration of the Trust, the
amendment process, restrictions on transfer of Shares and the ability of the
Trustees to designate and issue a series of Preferred Shares. The approval of
two thirds of the Trustees is also required for any such amendment. In addition,
two thirds of the Trustees, may, without the approval or consent of the
shareholders, adopt any amendment that they in good faith determine to be
necessary to permit the Company to qualify as a REIT under the Code.
The Declaration permits the Trustees, without the approval of the
shareholders, to alter the Company's investment policies if the Trustees
determine in the future that such a change is in the best interests of the
Company and its shareholders. The Company's investment policies and the methods
of implementing its investment policies may, therefore, vary as new investment
opportunities and financing techniques are developed.
Under the Declaration, annual meetings of shareholders are required to be
held within six months after the end of each fiscal year. Special meetings of
the shareholders may only be called by a majority of the Trustees and the
shareholders may not act by written consent.
ANTITAKEOVER PROVISIONS
The Company's Declaration and Bylaws contains several provisions that will
make it difficult to acquire control of the Company by means of a tender offer,
open market purchases, a proxy fight or otherwise, if the acquisition is not
approved by the Board of Trustees, or to change the composition of the Board of
Trustees in a relatively short period of time. The provisions are designed to
reduce the vulnerability of the Company to an unsolicited proposal for a
takeover or an unsolicited proposal for the restructuring or sale of the Company
and to encourage persons seeking to acquire control of the Company to consult
first with the Board of Trustees to negotiate the terms of any proposed business
combination or offer. These provisions may have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain control
of the
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Company, even though such an attempt might be beneficial to the Company and its
shareholders. These provisions are described above and include: the Ownership
Limitation; the classified Board of Trustees; the Nomination Procedure and the
Business Procedure; the ability of the Board of Trustees to designate and issue
series of Preferred Shares and designate the dividend, voting and other rights
of each series; provisions concerning special meetings and shareholder actions
by written consent; and provisions concerning amendment of the Declaration. The
Company has, however, elected not to be governed by the provisions of Maryland
law concerning control share acquisitions and business combinations.
<TABLE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Shares (which constitutes the only class of voting shares of
the Company) by (i) each person known by the Company to own beneficially more
than 5% of the outstanding Shares, (ii) each of the Company's Trustees and (iii)
all Trustees and executive officers of the Company as a group. Unless otherwise
indicated, each person or entity named below has sole voting and investment
power with respect to all Shares shown to the beneficially owned by such person
or entity, subject to the matters set forth in the footnotes to the table below.
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
--------------------- ------------------------
NUMBER NUMBER
NAME AND ADDRESS(1) OF SHARES PERCENT OF SHARES PERCENT(2)
<S> <C> <C> <C> <C>
Health and Retirement Properties Trust............ 40,000 100% 4,000,000 34.1%
HRPT Advisors, Inc................................ -- -- 4,250,000 36.2
Barry M. Portnoy(3)............................. -- -- 4,250,000 36.2
Gerard M. Martin(3)............................. -- -- 4,250,000 36.2
John L. Harrington.............................. -- -- (4) *
William J. Sheehan.............................. -- -- (4) *
Arthur G. Koumantzelis.......................... -- -- (4) *
All Trustees and executive officers as a group
(seven persons)(3)........................... -- -- 4,250,000 36.2%
<FN>
- ------------------------------
* Less than 1%.
(1) The address of HRP is 400 Centre Street, Newton, MA 02158. The address of
each other named person or entity is c/o Hospitality Properties Trust, 400
Centre Street, Newton, MA 02158.
(2) Assumes no exercise of the Underwriters' overallotment option.
(3) Neither Mr. Portnoy nor Mr. Martin owns Shares directly. HRP, of which
Messrs. Portnoy and Martin are Managing Trustees, will own 4,000,000 Shares
and Advisors, which is wholly owned by Messrs. Portnoy and Martin, will own
250,000 Shares. Messrs. Portnoy and Martin may be deemed to have beneficial
ownership of these Shares.
(4) Each of the Independent Trustees is expected to receive 300 Shares per annum
as part of their annual compensation. See "Management -- Incentive Share
Award Plan."
</TABLE>
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this Offering, the Company will have 11,750,000
Shares issued and outstanding (12,875,000 Shares if the Underwriters'
overallotment option is exercised in full). The Shares issued or sold by the
Company in this Offering will be freely tradeable except with respect to the
Ownership Limitation set forth in the Company's Declaration. The 4,210,000
Shares to be issued or sold by the Company in the concurrent offering to HRP and
Advisors will not be freely tradeable as a result of restrictions on sales of
Shares by affiliates of the Company arising under the Securities Act and
restrictions contained in the "lock-up" agreements described below. HRP and
Advisors do not have registration rights with respect to those Shares. In
addition, HRP holds 40,000 Shares acquired upon formation of the Company in a
transaction exempt from the registration requirements of the Securities Act
which may not be resold without registration or exemption therefrom. HRP does
not have registration rights with respect to these Shares and they are subject
to the "lock-up" agreement described below.
HRP and Advisors may, in limited circumstances, be able to sell their
Shares without registration in accordance with the exemptions provided by Rule
144. In general, under Rule 144 as currently in effect, a person (or persons
whose Shares are aggregated in accordance with Rule 144) who has beneficially
owned his or her Shares for at least two years, including any such persons who
may be deemed an "affiliate" of the Company (as defined below), would be
entitled to sell within any three month period a number of Shares that does not
exceed the greater of 1% of the then outstanding number of Shares or the average
weekly trading volume of the Shares during the four calendar weeks preceding
each such sale. After Shares have been held for three years, a person who is not
deemed an affiliate of the Company will generally be entitled to sell such
Shares under Rule 144 without regard to the volume limitations described above,
although sales of such Shares by affiliates will continue to be subject to the
volume limitations. As defined in Rule 144, an "affiliate" of an issuer is
generally a person that directly, or indirectly, through the use of one or more
intermediaries, controls, or is controlled by, or is under common control with,
such issuer. Upon completion of this Offering, HRP and Advisors will be
affiliates of the Company for purposes of Rule 144.
Each of HRP and Advisors has agreed not to, and has agreed to cause its
officers, Trustees and Directors, as applicable, not to, directly or indirectly,
offer, sell, contract to sell, grant any option to purchase or otherwise dispose
of any Shares or any securities convertible into or exercisable or exchangeable
for such Shares or, in any manner, transfer all or a portion of the economic
consequences associated with the ownership of Shares, without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), for a
period of two years from the date of this Prospectus. The Company has not agreed
to restrictions on the issuance or disposition of Shares.
Prior to the date of this Prospectus, there has been no public market for
the Shares. Trading of Shares is expected to commence, following the completion
of this Offering, on the NYSE. No prediction can be made as to the effect, if
any, that future sales of Shares or the availability of Shares for future sale,
will have on the market price prevailing from time to time. Sales of substantial
amounts of Shares, or the perception that such sales could occur, could
adversely affect the prevailing market price of the Shares.
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FEDERAL INCOME TAX CONSIDERATIONS
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE
INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
The Company intends to operate in a manner that permits it to satisfy the
requirements for taxation as a REIT under the applicable provisions of the Code.
No assurance can be given, however, that such requirements will be met. The
following is a summary of the federal income tax considerations for the Company
and its shareholders with respect to the treatment of the Company as a REIT.
Since these provisions are highly technical and complex, each prospective
purchaser of the Company's Shares is urged to consult his own tax advisor with
respect to the federal, state, local, foreign and other tax consequences of the
purchase, ownership and disposition of the Shares.
Based upon certain representations described below, in the opinion of
Sullivan & Worcester, counsel to the Company ("Company Counsel"), the Company
has been organized in conformity with the requirements for qualification as a
REIT beginning with its taxable year ending December 31, 1995, and its proposed
method of operation described in this Prospectus and as represented by the
Company will enable it to satisfy the requirements for such qualification. This
opinion is conditioned upon the assumption that the Initial Leases, the
Company's Declaration and Bylaws and all other legal documents to which the
Company is a party will be complied with by all parties thereto and upon certain
representations made by the Company as to certain factual matters relating to
the Company's organization and intended or expected manner of operation. In
addition, this opinion is based on the law existing and in effect on the date
hereof. The Company's qualification and taxation as a REIT will depend upon the
Company's ability to meet on a continuing basis, through actual operating
results, asset composition, distribution levels and diversity of stock
ownership, the various qualification tests imposed under the Code discussed
below. While the Company has represented that it will operate in a manner so as
to satisfy on a continuing basis the various REIT qualification tests, Company
Counsel will not review compliance with these tests on a continuing basis and no
assurance can be given that the Company will satisfy such tests on a continuing
basis.
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are met, entities, such as the Company, that invest primarily in real
estate and that otherwise would be treated for federal income tax purposes as
corporations, are generally not taxed at the corporate level on their "REIT
taxable income" that is currently distributed to shareholders. This treatment
substantially eliminates the "double taxation" that generally results from the
use of corporations.
If the Company fails to qualify as a REIT in any year, however, it will be
subject to federal income taxation as if it were a domestic corporation, and its
shareholders will be taxed in the same manner as shareholders of ordinary
corporations. In such an event, the Company could be subject to potentially
significant tax liabilities, and therefore the amount of cash available for
distribution to its shareholders would be reduced or eliminated.
The Board of Trustees of the Company currently expects that the Company
will operate in a manner that permits it to elect, and that it will elect, REIT
status for the taxable year ending December 31, 1995, and in each taxable year
thereafter. There can be no assurance, however, that this expectation will be
fulfilled, since qualification as a REIT depends on the Company continuing to
satisfy numerous asset, income and distribution tests described below, which in
turn will be dependent in part on the Company's operating results.
The following summary is based on existing law, is not exhaustive of all
possible tax considerations and does not give a detailed discussion of any
state, local, or foreign tax considerations, nor does it discuss all of the
aspects of federal income taxation that may be relevant to a prospective
shareholder in light of his or her particular circumstances or to certain types
of shareholders (including insurance companies, tax-exempt
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entities, financial institutions, broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States) subject to
special treatment under the federal income tax laws.
TAXATION OF THE COMPANY
GENERAL
In any year in which the Company qualifies as a REIT, in general it will
not be subject to federal income tax on that portion of its REIT taxable income
or capital gain which is distributed to shareholders. The Company may, however,
be subject to tax at normal corporate rates upon any taxable income or capital
gain not distributed.
Notwithstanding its qualification as a REIT, the Company may also be
subject to taxation in certain other circumstances. If the Company should fail
to satisfy either the 75% or the 95% gross income test (as discussed below), and
nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on the greater of the
amount by which the Company fails either the 75% or the 95% gross income test,
multiplied by a fraction intended to reflect the Company's profitability. The
Company will also be subject to a tax of 100% on net income from any "prohibited
transaction" as described below, and if the Company has (i) net income from the
sale or other disposition of "foreclosure property" which is held for sale to
customers in the ordinary course of business or (ii) other nonqualifying income
from foreclosure property, it will be subject to tax on such income from
foreclosure property at the highest corporate rate. In addition, if the Company
should fail to distribute during each calendar year at least the sum of (i) 85%
of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net
income for such year, and (iii) any undistributed taxable income from prior
years, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. The Company may
also be subject to tax in certain circumstances if it disposes within ten years
of their acquisition of assets acquired in a tax-free reorganization (although
no such transaction is currently contemplated). The Company may also be subject
to the corporate alternative minimum tax. The Company will use the calendar year
both for federal income tax purposes, as is required of a newly organized REIT,
and for financial reporting purposes.
In order to qualify as a REIT, the Company must meet, among others, the
following requirements:
SHARE OWNERSHIP TESTS
The Company's Shares must be held by a minimum of 100 persons for at least
335 days in each taxable year (or a proportional number of days in any short
taxable year). In addition, at all times during the second half of each taxable
year, no more than 50% in value of the outstanding Shares of the Company may be
owned, directly or indirectly and by applying certain constructive ownership
rules, by five or fewer individuals, which for this purpose includes certain
tax-exempt entities. However, for purposes of this test, any Shares held by a
qualified domestic pension or other retirement trust will be treated as held
directly by its beneficiaries in proportion to their actuarial interest in such
trust rather than by such trust. These share ownership requirements need not be
met until the second taxable year of the Company for which a REIT election is
made.
In order to ensure compliance with the foregoing share ownership tests, the
Company has placed certain restrictions on the transfer of its Shares to prevent
additional concentration of Share ownership. Moreover, to evidence compliance
with these requirements, under Treasury regulations the Company must maintain
records which disclose the actual ownership of its outstanding Shares. In
fulfilling its obligations to maintain records, the Company must and will demand
written statements each year from the record holders of designated percentages
of its capital stock disclosing the actual owners of such Shares (as prescribed
by the Treasury Regulations). A list of those persons failing or refusing to
comply with such demand must be maintained as a part of the Company's records. A
shareholder failing or refusing to comply with the Company's written demand must
submit with his tax return a similar statement disclosing the actual ownership
of Shares of the Company and certain other information. In addition, the
Company's Declaration provides restrictions regarding the transfer of its Shares
that are intended to assist the Company in continuing
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to satisfy the share ownership requirements. See "Summary of the Declaration of
Trust -- Restrictions on Transfer."
ASSET TESTS
At the close of each quarter of the Company's taxable year, the Company
must satisfy two tests relating to the nature of its assets (determined in
accordance with generally accepted accounting principles). First, at least 75%
of the value of the Company's total assets must be represented by interests in
real property, interests in mortgages on real property, shares in other REITs,
cash, cash items, government securities and qualified temporary investments.
Second, although the remaining 25% of the Company's assets generally may be
invested without restriction, securities in this class may not exceed (i) in the
case of securities of any one non-government issuer, 5% of the value of the
Company's total assets or (ii) 10% of the outstanding voting securities of any
one such issuer.
Where a failure to satisfy the 25% asset test results from an acquisition
of securities or other property during a quarter, the failure can be cured by
disposition of sufficient non-qualifying assets within 30 days after the close
of such quarter. The Company intends to maintain adequate records of the value
of its assets to maintain compliance with the 25% asset test, and to take such
action as may be required to cure any failure to satisfy the test within 30 days
after the close of any quarter.
GROSS INCOME TESTS
The Company must satisfy three source of income tests in each taxable year.
The three tests are as follows:
The 75% Test. At least 75% of the Company's gross income for the taxable
year must be "qualifying income." Qualifying income generally includes (i) rents
from real property (as defined below); (ii) interest on obligations secured by
mortgages on, or interests in, real property; (iii) gains from the sale or other
disposition of interests in real property and real estate mortgages, other than
gain from property held primarily for sale to customers in the ordinary course
of the Company's trade or business ("dealer property"); (iv) dividends or other
distributions on shares in other REITs, as well as gain from the sale of such
shares; (v) abatements and refunds of real property taxes; (vi) income from the
operation, and gain from the sale, of property acquired at or in lieu of a
foreclosure of the mortgage secured by such property ("foreclosure property");
(vii) commitment fees received for agreeing to make loans secured by mortgages
on real property or to purchase or lease real property; and (viii) qualified
temporary investment income. When the Company receives new capital in exchange
for its Shares (other than dividend reinvestment amounts) or in a public
offering of five-year or longer debt instruments, income attributable to the
temporary investment of such new capital in Shares or a debt instrument, if
received or accrued within one year of the Company's receipt of the new capital,
is qualifying temporary investment income.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements only if several conditions are met.
Rents received from a tenant will not qualify as rents from real property if the
Company, or an owner of 10% or more of the Company, directly or constructively
owns 10% or more of such tenant. Thus, in order for gross income from an Initial
Hotel to qualify as rents from real property, the Company must not own, directly
or constructively (applying constructive ownership rules under the Code), 10% or
more of Host (the "10% ownership test"). Such constructive ownership rules
generally provide that, if 10% or more in value of the Shares of the Company is
owned, directly or indirectly, by or for any person, the Company is considered
as owning the Shares owned, directly or indirectly, by or for such Person. With
respect to the 10% ownership test, the Company initially will not own and does
not intend to acquire, directly or constructively, stock of Host. There can be
no assurance, however, that the Company will be able to monitor and enforce such
restrictions, nor will shareholders necessarily be aware of shareholdings
attributed to them under the attribution rules. The Company has represented
(which representation Company Counsel has relied upon in rendering its opinion
herein on REIT qualification) that it will satisfy the 10% ownership test.
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If rent attributable to personal property leased in connection with a lease
of real property is greater than 15% of the total rent for the taxable year
under or in connection with the lease, then the portion of rent attributable to
such personal property will not qualify as rents from real property.
Accordingly, the rents attributable to the Company's personal property leased
under or in connection with a lease of the real property comprising an Initial
Hotel must not be greater than 15% of the rents received under the applicable
Initial Lease. The rent attributable to the Company's personal property for an
Initial Hotel is the amount that bears the same ratio to total rent for the
taxable year as (i) the average of the adjusted bases of the Company's personal
property of the Initial Hotel at the beginning and at the end of the taxable
year bears to (ii) the average of the aggregate adjusted bases of both the
Company's real and personal property of the Initial Hotel at the beginning and
at the end of such taxable year (the "Adjusted Basis Ratio"). The Company has
represented (which representation Company Counsel has relied upon in rendering
its opinion herein on REIT qualification) that the allocation of purchase price
with respect to each Initial Hotel is accurate and that not more than 15% of the
rent for each taxable year with respect to each of the Initial Hotels or any
other Hotel Property will be attributable to the Company's personal property
under the foregoing rules. In addition, the Company intends not to acquire
additional personal property for the Initial Hotels if such acquisition would
cause the Adjusted Basis Ratio for such Initial Hotels to exceed 15%. While the
Company believes that the allocation for tax purposes of the purchase price for
the Initial Hotels to the personal property is accurate, there can be no
assurance that the Service will not assert that a different allocation is
appropriate and that more than 15% of the rents received under an Initial Lease
is attributable to personal property under the foregoing rules, or that a court
would not uphold such assertion. If such a challenge were successfully asserted,
the Company could fail the 15% Adjusted Basis Ratio as to one or more of its
leases, which in turn could cause it to fail to satisfy the 75% or 95% gross
income test and to fail to qualify as a REIT.
An amount received or accrued, directly or indirectly with respect to any
real or personal property, will not qualify as "rents from real property" for
purposes of the 75% or the 95% gross income test if the determination of such
amount depends in whole or in part on the income or profits derived by any
person from such property (except that an amount so derived or accrued generally
will not be excluded from "rents from real property" solely by reason of being
based on a fixed percentage or percentages of receipts or sales).
In addition, the Company must not manage the property or furnish or render
services to the tenants of such property, except through an independent
contractor from whom the company derives no income. There is an exception to
this rule permitting a REIT to perform certain customary tenant services of the
sort which a tax-exempt organization could perform without being considered in
receipt of "unrelated business taxable income."
The 95% Test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of the Company's gross income for the taxable
year must be derived from the above described qualifying income, dividends,
interest, or gains from the sale or other disposition of stock, securities and
real property that is not dealer property. Dividends and interest on any
obligations not collateralized by an interest in real property are included for
purposes of the 95% gross income test, but not for purposes of the 75% gross
income test.
For purposes of determining whether the Company complies with the 75% and
the 95% gross income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property (excluding
foreclosure property); however, it does not include a sale of property if such
property is held by the Company for at least four years and certain other
requirements (relating to the number of properties sold in a year, their tax
bases, and the cost of improvements made thereto) are satisfied. See
"-- Taxation of the Company -- General" above. Gain realized by the Company on
the sale of any dealer property generally will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. Under existing
law, whether property is dealer property is a question of fact that depends on
all the facts and circumstances with respect to the particular transaction. The
Company intends to hold the Initial Hotels for investment with a view to
long-term appreciation, to engage in the business of acquiring, owning and
developing the Initial Hotels and other Hotel Properties, and to make such
occasional sales of Hotel Properties as are consistent with the Company's
investment objectives. Based upon the Company's investment
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objectives, the Company believes that overall, the Initial Hotels should not be
considered dealer property and that the amount of income from prohibited
transactions, if any, will not be material.
The Company believes that, for purposes of both the 75% and the 95% gross
income tests, its investment in the Initial Hotels will generally give rise to
qualifying income in the form of rents, and that gains on sales of the Initial
Hotels generally will also constitute qualifying income. The Company also
believes that, for purposes of the 95% gross income test, if the portion of rent
attributable in any case to furniture, furnishings, equipment and operating
equipment were to be recharacterized as payments from a deemed financing of such
items, any gross income attributable to such payments would be qualifying gross
income in the form of interest and such interest income would not cause the
Company to be unable to satisfy the 75% gross income test.
Even if the Company fails to satisfy one or both of the 75% or the 95%
gross income tests for any taxable year, it may still qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code. These
relief provisions will generally be available if: (i) the Company's failure to
comply was due to reasonable cause and not to willful neglect; (ii) the Company
reports the nature and amount of each item of its income included in the tests
on a schedule attached to its tax return; and (iii) any incorrect information on
such schedule is not due to fraud with intent to evade tax. If these relief
provisions apply, however, the Company will nonetheless be subject to a 100% tax
on the greater of the amount by which it fails either the 75% or the 95% gross
income test, multiplied by a fraction intended to reflect the Company's
profitability.
The 30% Test. The Company must derive less than 30% of its gross income
for each taxable year from the sale or other disposition of (i) real property
held for less than four years (other than foreclosure property and involuntary
conversions); (ii) Shares or securities (including certain interest rate swap or
cap agreements) held for less than one year; and (iii) property in a prohibited
transaction. The Company does not anticipate that it will have difficulty in
complying with this test. However, if extraordinary circumstances were to occur
that gave rise to dispositions of Initial Hotels within four years after the
completion of this Offering, the Company may be unable to satisfy the 30% test.
The Company temporarily invests working capital in short term investments,
including shares in other REITs. Although the Company will use its best efforts
to ensure that its income generated by these investments will be of a type which
satisfies the 75% and 95% gross income tests, there can be no assurance in this
regard (see discussion above of the "new capital" rule under the 75% test).
Moreover, the Company may realize short-term capital gain upon sale or exchange
of such investments, and such short-term capital gain would be subject to the
limitations imposed by the 30% gross income test.
FORECLOSURE PROPERTY
The Company will be subject to tax at the maximum corporate rate (currently
35%) on income from any "foreclosure property," other than income that would be
qualified income under the 75% gross income test, less expenses directly
connected with the production of such income. However, gross income from any
such foreclosure property will qualify under the 75% and the 95% gross income
tests.
Foreclosure property is defined as any real property (including interests
in real property) and any personal property incident to such real property,
acquired by a REIT as the result of a REIT having bid in such property at
foreclosure, or having otherwise reduced such property to ownership or
possession by agreement or process of law, after there was a default (or default
was imminent) on a lease of such property or on an indebtedness which such
property secured and for which the REIT makes a proper election to treat such
property as foreclosure property. However, a REIT will not be considered to have
foreclosed on a property where it takes control of the property as a mortgagee
in possession and cannot receive any profit or sustain any loss except as a
creditor of the mortgagor. Under the Code, property generally ceases to be
foreclosure property with respect to a REIT on the date which is two years after
the date such REIT acquired such property (or longer if an extension is granted
by the Secretary of the Treasury). However, the foregoing grace period is
terminated and foreclosure property ceases to be foreclosure property on the
first day (i) on which a lease is entered into with respect to such property
which, by its terms, will give rise to income which does not qualify under the
75% gross income test or any amount is received or accrued, directly or
indirectly, pursuant to a lease entered into on or after such day which will
give rise to income which does not qualify under the 75%
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gross income test, (ii) on which any construction takes place on such property
(other than completion of a building, or completion of any other improvement,
where more than 10% of the construction of such building or other improvement
was completed before default became imminent), or (iii) which is more than 90
days after the day on which such property was acquired by the REIT and the
property is used in a trade or business which is conducted by the REIT (other
than through an independent contractor from whom the REIT itself does not derive
or receive any income).
As a result of the rules with respect to foreclosure property, if Host
defaults on its obligations under an Initial Lease for an Initial Hotel and
Marriott is not available to manage the Initial Hotel after the Company
terminates Host's leasehold interest therein, and the Company is unable to find
a replacement Lessee for such Initial Hotel within 90 days of such foreclosure
and unable to find an independent contractor to manage it, gross income from
hotel operations conducted by the Company from such property would cease to
qualify for the 75% and the 95% gross income tests. (Advisors should qualify as
an independent contractor which could operate foreclosure property for up to two
years.) In such event, the Company might be unable to satisfy the 75% or the 95%
gross income test, resulting in its failure to qualify as a REIT.
ANNUAL DISTRIBUTION REQUIREMENTS
In order to qualify as a REIT the Company is required to distribute
dividends (other than capital gain dividends) to its shareholders with respect
to each year in an amount at least equal to (A) the sum of (i) 95% of the
Company's REIT taxable income (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (ii) 95% of the net income
(after tax), if any, from foreclosure property, minus (B) the sum of certain
items of noncash income (from certain imputed rental income and income from
transactions inadvertently failing to qualify as like-kind exchanges). Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. To the extent that the Company does not distribute all
of its net capital gain or distributes at least 95%, but less than 100%, of its
REIT taxable income, as adjusted, it will be subject to tax on the undistributed
amount at regular capital gains or ordinary corporate tax rates, as the case may
be. The Company will also be required to distribute currently as a dividend an
amount equal to the earnings and profits of any corporation it may acquire in a
tax-free reorganization (although no such transaction is currently
contemplated).
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements described in the first and last sentences of
the preceding paragraph. It is possible that the Company may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement, due to
timing differences between the actual receipt of income and actual payment of
expenses on the one hand, and the inclusion of such income and deduction of such
expenses in computing the Company's REIT taxable income on the other hand. To
avoid any problem with the 95% distribution requirement, the Company will
closely monitor the relationship between its REIT taxable income and cash flow
and intends, if necessary, to borrow funds in order to satisfy the distribution
requirement. However, there can be no assurance that such borrowing would be
available at such time.
If the Company fails to meet the 95% distribution requirement as a result
of an adjustment to the Company's tax return by the Service, the Company may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which the
Company fails to qualify as a REIT will not be deductible by the Company, nor
generally will they be required to be made under the Code. In such event, to the
extent of current and accumulated earnings and profits, all distributions to
shareholders will be taxable as ordinary income, and, subject to certain
limitations in the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific
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statutory provisions, the Company also will be disqualified from reelecting
taxation as a REIT for the four taxable years following the year during which
qualification was lost.
OTHER ISSUES
In the case of certain sale leaseback arrangements, the Service could
assert that the Company realized prepaid rental income in the year of purchase
to the extent that the value of a leased property exceeds the purchase price
paid by the Company for that property. In litigated cases involving sale
leasebacks which have considered this issue, courts have concluded that buyers
have realized prepaid rent where both parties acknowledged that the purported
purchase price for the property was substantially less than fair market value
and the purported rents were substantially less than the fair market rentals.
Because of the lack of clear precedent, complete assurance cannot be given that
the Service could not successfully assert the existence of prepaid rental
income.
DEPRECIATION OF PROPERTIES
For tax purposes, the Company's real property generally is depreciated on a
straight line basis over 40 years and personal property owned by the Company
generally is depreciated over nine years.
TAXATION OF SHAREHOLDERS
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic shareholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends
received deduction for corporations. Distributions that are designated as
capital gain dividends will be taxed as long-term capital gains (to the extent
they do not exceed the Company's actual net capital gain for the taxable year)
without regard to the period for which the shareholder has held its Shares.
However, corporate shareholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. To the extent that the Company makes
distributions in excess of current and accumulated earnings and profits, these
distributions are treated first as a tax-free return of capital to the
shareholder, reducing the tax basis of a shareholder's Shares by the amount of
such excess distribution (but not below zero), with distributions in excess of
the shareholder's tax basis being taxed as capital gains (if the Shares are held
as a capital asset). In addition, any dividend declared by the Company in
October, November or December of any year and payable to a shareholder of record
on a specific date in any such month shall be treated as both paid by the
Company and received by the shareholder on December 31 of such year, provided
that the dividend is actually paid by the Company during January of the
following calendar year. Shareholders may not include in their individual income
tax returns any net operating losses or capital losses of the Company. Federal
income tax rules may also require that certain minimum tax adjustments and
preferences be apportioned to Company shareholders.
In general, any loss upon a sale or exchange of Shares by a shareholder who
has held such Shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss, to the extent of
distributions from the Company required to be treated by such shareholder as
long-term capital gains.
Investors (other than certain corporations) who borrow funds to finance
their acquisition of Shares in the Company could be limited in the amount of
deductions allowed for the interest paid on the indebtedness incurred in such an
arrangement. Under Section 163(d) of the Code, interest paid or accrued on
indebtedness incurred or continued to purchase or carry property held for
investment is generally deductible only to the extent of the taxpayer's net
investment income. An investor's net investment income will include the dividend
and capital gain dividend distributions he receives from the Company; however,
distributions treated as a nontaxable return of the shareholder's basis will not
enter into the computation of net investment income.
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Under Section 469 of the Code, taxpayers (other than certain corporations)
generally will not be entitled to deduct losses from so-called passive
activities except to the extent of their income from passive activities. For
purposes of these rules, distributions received by a shareholder from the
Company will not be treated as income from a passive activity and thus will not
be available to offset a shareholder's passive activity losses.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
The Service has ruled that amounts distributed by a REIT to a tax-exempt
employees' pension trust do not constitute unrelated business taxable income
("UBTI"). Subject to the discussion below regarding a "pension-held REIT," based
upon such ruling and the statutory framework of the Code, distributions by the
Company to a shareholder that is a tax-exempt entity would not constitute UBTI,
provided that the tax-exempt entity has not financed the acquisition of its
shares with "acquisition indebtedness" within the meaning of the Code, that the
Shares are not otherwise used in an unrelated trade or business of the
tax-exempt entity, and that the Company, consistent with its present intent,
does not hold a residual interest in a REMIC.
If any pension or other retirement trust that qualifies under Section
401(a) of the Code ("qualified pension trust") holds more than 10% by value of
the interests in a "pension-held REIT" at any time during a taxable year, a
portion of the dividends paid to the qualified pension trust by such REIT may
constitute UBTI. For these purposes, a "pension-held REIT" is defined as a REIT
if (i) such REIT would not have qualified as a REIT but for the provisions of
the Code which look through such a qualified pension trust in determining
ownership of shares of the REIT and (ii) at least one qualified pension trust
holds more than 25% by value of the interests of such REIT or one or more
qualified pension trusts (each owning more than a 10% interest by value in the
REIT) hold in the aggregate more than 50% by value of the interests in such
REIT.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company will report to its domestic shareholders and to the Service the
amount of dividends paid for each calendar year, and the amount of tax withheld,
if any, with respect thereto. Under the back-up withholding rules, a shareholder
may be subject to backup withholding at the rate of 31% with respect to
dividends paid unless such shareholder (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(ii) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A shareholder that does not
provide the Company with its correct taxpayer identification number may also be
subject to penalties imposed by the Service. Any amount paid as backup
withholding is available as a credit against the shareholder's income tax
liability. In addition, the Company may be required to withhold a portion of
capital gain distributions made to any shareholders who fail to certify their
non-foreign status to the company. See "Certain United States Tax Considerations
for Non-U.S. Holders of Shares."
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained provided that the required information is furnished to the Service.
OTHER TAX CONSIDERATIONS
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX CONSEQUENCES
Prospective shareholders should recognize that the present federal income
tax treatment of investment in the Company may be modified by legislative,
judicial or administrative action at any time and that any such action may
affect investments and commitments previously made. The rules dealing with
federal income taxation are constantly under review by persons involved in the
legislative process and by the Service and the Treasury Department, resulting in
revisions of regulations and revised interpretations of established concepts as
well as statutory changes. No assurance can be given as to the form or content
(including with respect to effective dates) of any tax legislation which may be
enacted. Revisions in federal tax laws and interpretations thereof could
adversely affect the tax consequences of investment in the Company.
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STATE AND LOCAL TAXES
The Company and its shareholders may be subject to state or local taxation,
and the Company may be subject to state or local tax withholding requirements,
in various jurisdictions, including those in which it or they transact business
or reside. The state and local tax treatment of the Company and its shareholders
may not conform to the federal income tax consequences discussed above.
Consequently, prospective shareholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in the Shares.
CERTAIN UNITED STATES TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF SHARES
The following is a discussion of certain anticipated U.S. federal income
and U.S. federal estate tax consequences of the ownership and disposition of
Shares applicable to non-U.S. shareholders of such Shares. The discussion is
based on current law and is for general information only. The discussion does
not address either aspects of U.S. federal taxation other than income and estate
taxation or all aspects of U.S. federal income and estate taxation. The
discussion does not consider any specific facts or circumstances that may apply
to a particular non-U.S. shareholder.
In general, a non-U.S. shareholder will be subject to regular United States
income tax with respect to its investment in the Company if such investment is
"effectively connected" with the non-U.S. shareholder's conduct of a trade or
business in the United States, or if the non-U.S. shareholder is a nonresident
alien individual who is present in the United States for 183 days or more during
the taxable year. A corporate non-U.S. shareholder that receives income that is
(or is treated as) effectively connected with a U.S. trade or business may also
be subject to the branch profits tax under Section 884 of the Code, which is
payable in addition to regular United States corporate income tax. The following
discussion will apply to non-U.S. shareholders whose investment in the Company
is not so effectively connected and who are not individuals present in the U.S.
for 183 days or more during the taxable year.
A distribution by the Company that is not deemed to be attributable to gain
from the sale or exchange by the Company of a United States real property
interest and that is not designated by the Company as a capital gain dividend
will be treated as an ordinary income dividend to the extent that it is made out
of current or accumulated earnings and profits. A distribution by the Company
that is designated as a capital gain dividend will generally not be subject to
withholding except to the extent that such dividend is attributable to the sale
or exchange by the Company of United States real property interests, as
described below. Generally, an ordinary income dividend will be subject to a
United States withholding tax equal to 30% of the gross amount of the dividend
unless such withholding is reduced by an applicable tax treaty. A distribution
of cash in excess of the Company's earnings and profits will be treated first as
a nontaxable return of capital that will reduce a non-U.S. shareholder's basis
in its Shares (but not below zero) and then as gain from the disposition of such
Shares, the tax treatment of which is described under the rules discussed below
with respect to disposition of Shares. A distribution in excess of the Company's
earnings and profits may be subject to 30% dividend withholding if at the time
of the distribution it cannot be determined whether the distribution will be in
an amount in excess of the Company's current and accumulated earnings and
profits. If its subsequently determined that such distribution is, in fact, in
excess of current and accumulated earnings and profits, the non-U.S. shareholder
may seek a refund from the Service. The Company expects to withhold United
States income tax at the rate of 30% on the gross amount of any such
distributions made to a non-U.S. shareholder unless (i) a lower tax treaty
applies and the required form evidencing eligibility for that reduced rate is
filed with the Company or (ii) the non-U.S. shareholder files IRS Form 4224 with
the Company claiming that the distribution is "effectively connected" income.
For any year in which the Company qualifies as a REIT, distributions by the
Company that are attributable to gain from the sale or exchange of a United
States real property interest will be taxed to a non-U.S. shareholder in
accordance with the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, such distributions are taxed to a non-U.S. shareholder
as if such distributions were gains "effectively connected" with a United States
trade or business. Accordingly, a non-U.S. shareholder will be
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taxed at the normal capital gain rates applicable to a U.S. shareholder (subject
to any applicable alternative minimum tax and a special alternative minimum tax
in the case of non-resident alien individuals). Distributions subject to FIRPTA
may also be subject to a 30% branch profits tax in the hands of a foreign
corporate shareholder that is not entitled to treaty exemption. The Company will
be required to withhold from distributions to non-U.S. shareholders, and remit
to the Service, 35% of the amount of any distribution that could be designated
as capital gain dividends to the extent that such dividends are attributable to
the sale or exchange by the Company of United States real property interests.
Tax treaties may reduce the Company's withholding obligations. If the
amount of tax withheld by the Company with respect to a distribution to a
non-U.S. shareholder exceeds the shareholder's United States liability with
respect to such distribution, the non-U.S. shareholder may file for a refund of
such excess from the Service. It should be noted that the 35% withholding tax
rate on capital gain dividends corresponds to the maximum income tax rate
applicable to corporations but is higher than the 28% maximum rate on capital
gains of individuals.
If the Shares fail to constitute a "United States real property interest"
within the meaning of FIRPTA, a sale of the Shares by a non-U.S. shareholder
generally will not be subject to United States taxation unless (i) investment in
the Shares is effectively connected with the non-U.S. shareholder's United
States trade or business, in which case, as discussed above, the non-U.S.
shareholder would be subject to the same treatment as U.S. shareholders on such
gain or (ii) the non-U.S. shareholder is a nonresident alien individual who was
present in the United States for 183 days or more during the taxable year, in
which case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains.
The Shares will not constitute a United States real property interest if
the Company is a "domestically controlled REIT." A domestically controlled REIT
is a REIT in which at all times during a specified testing period less than 50%
in value of its shares is held directly or indirectly by non-U.S. shareholders.
It is currently anticipated that the Company will be a domestically controlled
REIT, and therefore that the sale of Shares will not be subject to taxation
under FIRPTA. However, because the Shares will be publicly traded, no assurance
can be given that the Company will continue to be a domestically controlled
REIT. If the Company did not constitute a domestically controlled REIT, whether
a non-U.S. shareholder's sale of Shares would be subject to tax under FIRPTA as
a sale of a United States real property interest would depend on whether the
Shares were "regularly traded" (as defined by applicable Treasury regulations)
on an established securities market (e.g., the New York Stock Exchange, on which
the Shares will be listed) and on the size of the selling shareholder's interest
in the Company. If the gain on the sale of the Shares were subject to taxation
under FIRPTA, the non-U.S. shareholder would be subject to the same treatment as
a U.S. shareholder with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals). In any event, a purchaser of Shares from a non-U.S.
shareholder will not be required under FIRPTA to withhold on the purchase price
if the purchased Shares are "regularly traded" on an established securities
market or if the Company is a domestically controlled REIT. Otherwise, under
FIRPTA, the purchaser of Shares may be required to withhold 10% of the purchase
price and to remit such amount to the Service.
FEDERAL ESTATE TAX
Shares owned or treated as owned by an individual who is not a citizen or
resident (as defined for United States federal estate tax purposes) of the
United States at the time of death will be includible in the individual's gross
estate for United States federal estate tax purposes unless an applicable estate
tax treaty provides otherwise.
BACKUP WITHHOLDING AND INFORMATION REPORTING REQUIREMENTS
The Company must report annually to the Service and to each non-U.S.
shareholder the amount of dividends paid to and the tax withheld with respect to
such holder. These information reporting requirements apply regardless of
whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the
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tax authorities in the country in which the non-U.S. shareholder resides. United
States backup withholding tax (which generally is a withholding tax imposed at
the rate of 31% on certain payments to persons that fail to furnish the
information required under the United States information reporting requirements)
will generally not apply to dividends paid on Shares to a non-U.S. shareholder
at an address outside the United States.
The payment of the proceeds from the disposition of Shares to or through
the United States office of a broker will be subject to information reporting
and backup withholding at a rate of 31% unless the owner, under penalties of
perjury, certifies, among other things, its status as a non-U.S. shareholder, or
otherwise establishes an exemption. The payment of the proceeds from the
disposition of Shares to or through a non-U.S. office of a broker generally will
not be subject to backup withholding and information reporting. In the case of
proceeds from a disposition of Shares paid to or through a non-U.S. office of a
U.S. broker or paid to or through a non-U.S. office of a non-U.S. broker that is
(i) a "controlled foreign corporation" for United States federal income tax
purposes or (ii) a person 50% or more of whose gross income from all sources for
a certain three-year period was effectively connected with a United States trade
or business, (a) backup withholding will not apply unless the broker has actual
knowledge that the owner is not a non-U.S. shareholder, and (b) information
reporting will not apply if the broker has documentary evidence in its files
that the owner is a non-U.S. shareholder (unless the broker has actual knowledge
to the contrary).
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. shareholder will be refunded (or credited against the non-U.S.
shareholder's United States federal income tax liability, if any), provided that
the required information is furnished to the Service.
OTHER TAX CONSEQUENCES
The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside.
There may be other federal, state, local or foreign income, or estate and
gift, tax considerations applicable to the circumstances of a particular
investor. Shareholders should consult their own tax advisors with respect to
such matters.
ERISA PLANS, KEOGH PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS
GENERAL FIDUCIARY OBLIGATIONS
Fiduciaries of a pension, profit-sharing or other employee benefit plan
subject to Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plan") must consider whether their investment in the
Company's Shares satisfies the diversification requirements of ERISA, whether
the investment is prudent in light of possible limitations on the marketability
of the Shares, whether such fiduciaries have authority to acquire such Shares
under the appropriate governing instrument and Title I of ERISA, and whether
such investment is otherwise consistent with their fiduciary responsibilities.
Any ERISA Plan fiduciary should also consider ERISA's prohibition on improper
delegation of control over or responsibility for "plan assets." Trustees and
other fiduciaries of an ERISA plan may incur personal liability for any loss
suffered by the plan on account of a violation of their fiduciary
responsibilities. In addition, such fiduciaries may be subject to a civil
penalty of up to 20% of any amount recovered by the plan on account of such a
violation (the "Fiduciary Penalty"). Also, fiduciaries of any Individual
Retirement Account ("IRA"), Keogh Plan or other qualified retirement plan not
subject to Title I of ERISA because it does not cover common law employees
("Non-ERISA Plan") should consider that such an IRA or non-ERISA Plan may only
make investments that are authorized by the appropriate governing instrument.
Fiduciary shareholders should consult their own legal advisers if they have any
concern as to whether the investment is inconsistent with any of the foregoing
criteria.
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PROHIBITED TRANSACTIONS
Fiduciaries of ERISA Plans and persons making the investment decision for
an IRA or other Non-ERISA Plan should also consider the application of the
prohibited transaction provisions of ERISA and the Code in making their
investment decision. Sales and certain other transactions between an ERISA Plan,
IRA, or other Non-ERISA Plan and certain persons related to it are prohibited
transactions. The particular facts concerning the sponsorship, operations and
other investments of an ERISA Plan, IRA, or other Non-ERISA Plan may cause a
wide range of other persons to be treated as disqualified persons or parties in
interest with respect to it. A prohibited transaction, in addition to imposing
potential personal liability upon fiduciaries of ERISA Plans, may also result in
the imposition of an excise tax under the Code or a penalty under ERISA upon the
disqualified person or party in interest with respect to the ERISA or Non-ERISA
Plan or IRA. If the disqualified person who engages in the transaction is the
individual on behalf of whom an IRA is maintained (or his beneficiary), the IRA
may lose its tax-exempt status and its assets may be deemed to have been
distributed to such individual in a taxable distribution (and no excise tax will
be imposed) on account of the prohibited transaction. Fiduciary shareholders
should consult their own legal advisers if they have any concern as to whether
the investment is a prohibited transaction.
SPECIAL FIDUCIARY AND PROHIBITED TRANSACTIONS CONSIDERATIONS
The Department of Labor ("DOL"), which has certain administrative
responsibility over ERISA Plans as well as over IRAs and other Non-ERISA Plans,
has issued a regulation defining "plan assets." The regulation generally
provides that when an ERISA or Non-ERISA Plan or IRA acquires a security that is
an equity interest in an entity and that security is neither a "publicly offered
security" nor a security issued by an investment company registered under the
Investment Company Act of 1940, the ERISA or Non-ERISA Plan's or IRA's assets
include both the equity interest and an undivided interest in each of the
underlying assets of the entity, unless it is established either that the entity
is an operating company or that equity participation in the entity by benefit
plan investors is not significant.
The regulation defines a publicly offered security as a security that is
"widely held," "freely transferable" and either part of a class of securities
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or sold pursuant to an effective registration statement under the
Securities Act (provided the securities are registered under the Exchange Act
within 120 days after the end of the fiscal year of the issuer during which the
offering occurred). The Company's Shares will be registered under the Exchange
Act.
The regulation provides that a security is "widely held" only if it is part
of a class of securities that is owned by 100 or more investors independent of
the issuer and of one another. However, a security will not fail to be "widely
held" because the number of independent investors falls below 100 subsequent to
the initial public offering as a result of events beyond the issuer's control.
The regulation provides that whether a security is "freely transferable" is
a factual question to be determined on the basis of all relevant facts and
circumstances. The regulation further provides that, where a security is part of
an offering in which the minimum investment is $10,000 or less, certain
restrictions ordinarily will not, alone or in combination, affect a finding that
such securities are freely transferable. The restrictions on transfer enumerated
in the regulation as not affecting that finding include: any restriction on or
prohibition against any transfer or assignment which would result in a
termination or reclassification of the Company for federal or state tax
purposes, or would otherwise violate any state or federal law or court order;
any requirement that advance notice of a transfer or assignment be given to the
Company and any requirement that either the transferor or transferee, or both,
execute documentation setting forth representations as to compliance with any
restrictions on transfer which are among those enumerated in the regulation as
not affecting free transferability, including those described in the preceding
clause of this sentence; any administrative procedure which establishes an
effective date, or an event prior to which a transfer or assignment will not be
effective; and any limitation or restriction on transfer or assignment which is
not imposed by the issuer or a person acting on behalf of the issuer. The
Company believes that the restrictions imposed under the Company's Declaration
and Bylaws on the transfer of Shares do not result in the failure of the Shares
to be "freely transferable." Furthermore, the Company believes that at present
there exist no other
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facts or circumstances limiting the transferability of the Shares which are not
included among those enumerated as not affecting their free transferability
under the regulation, and the Company does not expect or intend to impose in the
future (or to permit any person to impose on its behalf) any limitations or
restrictions on transfer which would not be among the enumerated permissible
limitations or restrictions. However, the final regulation only establishes a
presumption in favor of a finding of free transferability, and no guarantee can
be given that the DOL or the Treasury Department will not reach a contrary
conclusion.
Assuming that the Shares will be "widely held" and that no other facts and
circumstances exist which restrict transferability of the Shares, the Company
has received an opinion from Company Counsel that the Shares should not fail to
be "freely transferable" for purposes of the regulation due to the restrictions
on transfer of the Shares under the Company's Declaration and Bylaws and that
under the regulation the Shares are publicly offered securities and the assets
of the Company will not be deemed to be "plan assets" of any ERISA Plan, IRA or
other Non-ERISA Plan that invests in the Shares.
If the assets of the Company are deemed to be plan assets under ERISA: (i)
the prudence standards and other provisions of Part 4 of Title I of ERISA would
be applicable to investments made by the Company; (ii) the person or persons
having investment discretion over the assets of ERISA Plans which invest in the
Company would be liable under the aforementioned Part 4 of Title I of ERISA for
investments made by the Company which do not conform to such ERISA standards
unless Advisors registers as an investment adviser under the Investment Advisers
Act of 1940 and certain other conditions are satisfied; and (iii) certain
transactions that the Company might enter into in the ordinary course of its
business and operation might constitute "prohibited transactions" under ERISA
and the Code.
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<TABLE>
UNDERWRITING
Subject to certain conditions contained in the Underwriting Agreement, the
Underwriters named below (the "Underwriters") for whom Donaldson, Lufkin &
Jenrette Securities Corporation, Dean Witter Reynolds Inc., Prudential
Securities Incorporated and Smith Barney Inc. are acting as representatives (the
"Representatives"), have severally agreed to purchase from the Company 7,500,000
Shares. The number of Shares that each Underwriter has agreed to purchase is set
forth opposite its name below:
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.......................
Dean Witter Reynolds Inc. ................................................
Prudential Securities Incorporated........................................
Smith Barney Inc. ........................................................
---------
Total........................................................... 7,500,000
=========
</TABLE>
The Underwriting Agreement provides that the several Underwriters will be
obligated to purchase all of the Shares offered hereby (other than the Shares
covered by the overallotment option described below) if any are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the Shares to the public initially at the price to the public
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $ per Share; that the Underwriters
may allow, and such dealers may reallow, a discount of not in excess of $
per Share on sales to other dealers; and that the price to the public,
concessions and discounts to dealers may be changed by DLJ after the initial
public offering.
The Underwriters have been granted an option, exercisable for 30 days from
the date of this Prospectus, to purchase up to 1,125,000 additional Shares from
the Company at the initial public offering price less underwriting discounts and
commissions. The Underwriters may exercise such right of purchase only for the
purpose of covering overallotments, if any, incurred in connection with the sale
of Shares offered hereby. To the extent that such Underwriters exercise such
option, each of the Underwriters will become obligated, subject to certain
conditions, to purchase the same proportion of such additional Shares as the
number of other Shares to be purchased by the Underwriter bears to the total
number of Shares being sold in this Offering on the same terms as those on which
all Shares are being sold in this Offering.
In the Underwriting Agreement, the Company and the Underwriters have agreed
to indemnify each other against certain liabilities under the Securities Act.
Each of HRP and Advisors has agreed not to, and has agreed to cause its
officers, Trustees and Directors, as applicable, not to, directly or indirectly,
offer, sell, contract to sell, grant any option to purchase or otherwise dispose
of any Shares or any securities convertible into or exercisable or exchangeable
for Shares or, in any manner, transfer all or a portion of the economic
consequences associated with ownership of the Shares, without the prior written
consent of DLJ, for a period of two years from the date of this Prospectus. See
"Shares Eligible for Future Sale."
Prior to this Offering, there has been no public market for the Shares. The
initial public offering price was determined through negotiations between the
Company and the Representatives. Among the factors considered in such
negotiations, in addition to prevailing market conditions, were the dividend
yields and cash flow multiplies of publicly traded REITs that the Company and
the Representatives believe to be comparable to the Company, the expected
results of operations of the Company (which are based, in part, on the results
or operations of the Initial Hotels in recent periods), estimates of the
business potential and earnings prospects of
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the Company, the present state of the Company's development and the current
state of the hospitality industry and real estate markets in the geographical
areas in which the Company's Initial Hotels are located and the economy as a
whole. The initial public offering price set forth on the cover page of the
Prospectus should not, however, be considered an indication of the actual value
of the Shares. Such price is subject to change as a result of market conditions
and other factors.
The Company will pay to the Representatives an advisory fee equal to
$ from the gross proceeds of this Offering received from the sale of the
Shares offered hereby for financial advisory services rendered in connection
with the Company's formation and initial public offering as a REIT. A portion of
the advisory fee to be paid to DLJ is in consideration of its advisory services
in structuring the Acquisition Line to facilitate this Offering.
The Shares have been approved for listing on the NYSE under the symbol
"HPT". The Underwriters intend to sell the Shares so as to meet the distribution
requirements of such listing.
The consummation of this Offering is contingent on the consummation of the
concurrent registered offerings by the Company of 3,960,000 Shares to HRP and
the 250,000 Shares to Advisors.
EXPERTS
The historical financial statements and schedules of the Company, Host and
the Initial Hotels included in this prospectus to the extent and for the periods
indicated in their reports have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports dated July 20, 1995, July 13,
1995 and June 21, 1995 with respect thereto, and are included herein on pages
F-10 through F-16, F-24 through F-31, F-33 through F-42 and F-44 through F-45,
in reliance upon the authority of said firm as experts in giving said reports.
LEGAL MATTERS
Sullivan & Worcester will pass upon the validity of the issuance of the
Shares offered pursuant to this Prospectus and on certain tax matters as
described under "Federal Income Tax Considerations." Certain legal matters
relating to this Offering will be passed upon for the Underwriters by Davis Polk
& Wardwell. Barry M. Portnoy, a partner in the firm of Sullivan & Worcester, is
a Managing Trustee of the Company, a Managing Trustee of HRP and a Director and
50% shareholder of Advisors. Sullivan & Worcester and Davis Polk & Wardwell will
rely on the opinion of Piper & Marbury with respect to all matters involving
Maryland law.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part) on
Form S-11 under the Securities Act with respect to the securities offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. Statements contained in this
Prospectus as to the content of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules hereto. For further information regarding the Company and
the Shares offered hereby, reference is hereby made to the Registration
Statement and such exhibits and schedules.
The Registration Statement and the exhibits and schedules forming a part
thereof filed by the Company with the Commission can be inspected and copies
obtained from the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
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The Company intends to furnish its shareholders with annual reports
containing audited financial statements certified by independent certified
public accountants and quarterly reports containing unaudited financial
information for the first three quarters of each fiscal year.
THE DECLARATION OF TRUST ESTABLISHING THE COMPANY, DATED MAY 12, 1995, A
COPY OF WHICH, TOGETHER WITH ANY AMENDMENTS THERETO, IS DULY FILED IN THE OFFICE
OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES
THAT THE NAME "HOSPITALITY PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE
DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND
THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE COMPANY SHALL BE
HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR
CLAIM AGAINST, THE COMPANY. ALL PERSONS DEALING WITH THE COMPANY, IN ANY WAY,
SHALL LOOK ONLY TO THE ASSETS OF THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE
PERFORMANCE OF ANY OBLIGATION.
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GLOSSARY
Unless the context otherwise requires, the following capitalized terms
shall have the meanings set forth below for the purposes of this Prospectus:
"ACMs" means asbestos containing materials.
"Acquisition Line" means the $200.0 million credit line commitment provided
by DLJMC to the Company.
"ADA" means the Americans with Disabilities Act of 1990, as amended.
"Adjusted Basis Ratio" means the ratio of (i) the average of the adjusted
bases of the Company's personal property of the Initial Hotel at the
beginning and at the end of the taxable year to (ii) the average of the
aggregate adjusted bases of both the Company's real and personal property
of the Initial Hotel at the beginning and at the end of such taxable year.
"ADR" means average daily guest room rate.
"Advisors" means HRPT Advisors, Inc., a Delaware corporation.
"Advisory Agreement" means the advisory agreement by and between Advisors
and the Company.
"Audit Committee" means the audit committee of the Company consisting of
the Independent Trustees of the Company.
"Available Cash Flow" means an amount, with respect to each fiscal year
during the term of the Management Agreements, equal to the excess, if any,
of Operating Profit over the sum of: (i) the applicable Owner's Priority in
such fiscal year; plus (ii) the base management fee; plus (iii) any unpaid
base management fees deferred in accordance with the Management Agreements.
"Average Invested Capital" means, for purposes of the Advisory Agreement,
the average of the aggregate book value of the assets of the Company
invested, directly or indirectly, in equity interests in and loans secured
by real estate and personal property owned in connection with such real
estate, before reserves for depreciation or bad debts or other similar
noncash reserves, computed by taking the average of such values at the end
of each month during the period.
"Award" means any award, compensation or damage paid in connection with the
taking or condemnation of an Initial Hotel or any substantial portion
thereof by a public authority for a public or quasi public use.
"Board of Trustees" means the Board of Trustees of the Company.
"Business Procedure" means the advance notice procedure with regard to
shareholder proposals specified in the Company's Bylaws.
"Bylaws" means the Bylaws of the Company.
"Cash Available for Distribution" means Funds From Operations plus
amortization of deferred financing costs less the rental income arising
from amounts periodically escrowed in the FF&E Reserve.
"Charitable Beneficiary" means a qualified trustee of a trust for the
exclusive benefit of one or more organizations described in Section
170(b)(1)(a) and 170(c) of the Code.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Company" means Hospitality Properties Trust, a Maryland real estate
investment trust.
"Company Counsel" means Sullivan & Worcester, counsel to the Company.
"Declaration" means the Declaration of Trust of the Company.
"Department of Labor" means the United States Department of Labor.
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"DLJMC" means DLJ Mortgage Capital, Inc., an affiliate of DLJ.
"DLJ" means Donaldson, Lufkin & Jenrette Securities Corporation.
"DOL" means United States Department of Labor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plan" means a pension, profit sharing or other employee benefit plan
subject to Title I of ERISA.
"Excess Shares" means Shares that are in violation of the Ownership
Limitation or which cause the Company to be treated as "closely held" under
Section 856(h) of the Code, and that are not otherwise permitted by the
Board of Trustees.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exempted Persons" means HRP, Advisors, affiliates, including persons who
are deemed to have beneficial ownership of the Shares directly owned by HRP
and Advisors pursuant to the attribution provisions of the Code, and other
shareholders exempted by majority vote of the Trustees.
"FF&E Reserve" means those funds to be escrowed annually pursuant to the
Initial Leases as a reserve for renovations and refurbishments.
"Fiduciary Penalty" means a civil penalty of up to 20% of any amount
recovered by an ERISA Plan on account of a violation by Trustees and other
fiduciaries of their fiduciary responsibilities.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980.
"Funds From Operations" means net income (computed in accordance with
GAAP), before real estate depreciation and amortization (excluding deferred
financing costs). Funds From Operations does not represent cash flows from
operating activities (as determined in accordance with GAAP) and should not
be considered an alternative to net income as an indicator of the Company's
financial performance or to cash flows from operating activities as a
measure of liquidity.
"GAAP" means generally accepted accounting principles.
"Host" means HMH HPT Courtyard, Inc., a limited purpose wholly owned
subsidiary of Host Marriott Corporation.
"Hotel Properties" means the Initial Hotels and any other hotel properties
that the Company may acquire after completion of this Offering.
"HRP" means Health and Retirement Properties Trust, a NYSE listed REIT.
"HRP Loan" means the demand loan of the Company payable to HRP in the
aggregate principal amount of $163.3 million as of June 30, 1995.
"Incentive Share Award Plan" means the Company's incentive share award plan
pursuant to which 100,000 Shares have been reserved for issuance to
Independent Trustees and officers of, and consultants to, the Company.
"Independent Trustees" means Trustees of the Company who are not officers
of the Company or otherwise affiliated with the Company, HRP or Advisors.
"Initial Hotels" means the 37 hotel properties with 5,286 guest rooms which
shall comprise the Company's entire portfolio of properties upon completion
of this Offering.
"Initial Leases" means the leases by the Company to Host of all of the
Initial Hotels.
"Initial Lessee" means Host.
"Interested Shareholder" means a person who beneficially owns 10% or more
of the voting power of the Company's Shares.
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"IRA" means Individual Retirement Account.
"Leases" means the Initial Leases and any other leases of Hotel Properties.
"Lessees" means the Initial Lessee and any future lessees of the Hotel
Properties.
"Management Agreements" means the management agreements between the Company
and Marriott.
"Managers" means Marriott and possible future managers.
"Managing Trustees" means Barry M. Portnoy and Gerard M. Martin.
"Marriott" means Courtyard Management Corporation, a wholly owned
subsidiary of Marriott International, Inc.
"MGCL" means the Maryland General Corporation Law.
"Nomination Procedure" means the advance notice procedure with regard to
the nomination, other than by the Board of Trustees, of Trustees specified
in the Company's Bylaws.
"Non-ERISA Plan" means an IRA, Keogh Plan or other qualified retirement
plan not subject to Title I of ERISA because it does not cover common law
employees.
"NYSE" means the New York Stock Exchange, Inc.
"Offering" means the initial public offering of 7,500,000 Shares of the
Company.
"Operating Profit" means, for purposes of any of the Management Agreements
in any fiscal year, the excess of gross revenues of the applicable Initial
Hotels less certain operating costs of Marriott as more particularly
described in the Management Agreements, a form of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
"Ownership Limitation" means the restriction on ownership of more than 9.8%
of the Shares by any shareholder or affiliated group of shareholders,
except HRP, Advisors and certain other entities.
"Owner's Priority" means 10% of a specified amount for each Initial Hotel
plus any additional capital.
"Preferred Shares" means preferred shares of beneficial interest of the
Company.
"Purchase Agreement" means the Purchase-Sale and Option Agreement, dated as
of February 3, 1995, as amended, among the Company and each of the Sellers
pursuant to which the Company has acquired the Initial Hotels.
"Registration Statement" means the Registration Statement on Form S-11
under the Securities Act of which this Prospectus is a part.
"REIT" means a real estate investment trust.
"REMIC" means a real estate mortgage investment conduit, as defined in the
Code.
"Representatives" means Donaldson, Lufkin & Jenrette Securities
Corporation, Dean Witter Reynolds Inc., Prudential Securities Incorporated
and Smith Barney Inc.
"REVPAR" means room revenues per available hotel guest room.
"Rule 144" means the rule promulgated under the Securities Act that permits
holders of restricted securities as well as affiliates of an issuer of the
securities, pursuant to certain conditions and subject to certain
restrictions, to sell their securities publicly without registration under
the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Deposit" means an amount equal to a full year's base rent, or
$32.9 million which has been retained by the Company as security for Host's
obligations under the Initial Leases.
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<PAGE> 100
"Sellers" means the owners of the Initial Hotels who have contracted to
sell the Initial Hotels to the Company.
"Service" means the U.S. Internal Revenue Service.
"Shares" means the common shares of beneficial interest of the Company.
"Total Hotel Sales" means all revenues and receipts of every kind derived
from guests or customers related to the operation of the Initial Hotels and
has the same meaning as "Gross Revenues" under the Initial Leases.
"Treasury Regulations" means the income tax regulations that have been
promulgated under the Code.
"UBTI" means unrelated business taxable income.
"Underwriters" means the Underwriters named in this Prospectus.
"Underwriting Agreement" means the underwriting agreement between the
Company and the Representatives relating to the purchase of the Shares
offered hereby.
92
<PAGE> 101
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Hospitality Properties Trust Financial Statements:
Introduction to Pro Forma Financial Statements...................................... F-2
Unaudited Pro Forma Balance Sheet as of June 30, 1995............................... F-3
Unaudited Pro Forma Statements of Income for the year ended December 31, 1994, the
twelve months ended June 30, 1995 and the six months ended June 30, 1994 and June
30, 1995......................................................................... F-4
Notes to Pro Forma Financial Statements............................................. F-6
Report of Independent Public Accountants............................................ F-9
Balance Sheet as of June 30, 1995................................................... F-10
Statement of Income for the period from February 7, 1995 (inception) to June 30,
1995............................................................................. F-11
Statement of Shareholder's Equity................................................... F-12
Statement of Cash Flows for the period from February 7, 1995 (inception) to
June 30, 1995.................................................................... F-13
Notes to Financial Statements....................................................... F-14
HMH HPT Courtyard, Inc. (Host) Financial Statements:
Introduction to Pro Forma Financial Statements...................................... F-17
Unaudited Pro Forma Balance Sheet as of June 16, 1995............................... F-18
Unaudited Pro Forma Statements of Income for the fiscal year ended December 30,
1994, the 52 weeks ended June 16, 1995 and the 24 weeks ended June 17, 1994 and
June 16, 1995.................................................................... F-19
Notes to Pro Forma Financial Statements............................................. F-21
Report of Independent Public Accountants............................................ F-23
Balance Sheet as of June 16, 1995................................................... F-24
Statement of Income for the twelve weeks ended June 16, 1995........................ F-25
Statement of Shareholder's Equity for the twelve weeks ended June 16, 1995.......... F-26
Statement of Cash Flows for the twelve weeks ended June 16, 1995.................... F-27
Notes to Financial Statements....................................................... F-28
Initial Hotels Combined Financial Statements:
Report of Independent Public Accountants............................................ F-32
Combined Statements of Revenues and Expenses Excluding Income Taxes for the fiscal
years ended January 1, 1993, December 31, 1993 and December 30, 1994 and the
twenty-four weeks ended June 17, 1994 (Unaudited) and June 16, 1995
(Unaudited)...................................................................... F-33
Combined Statements of Assets, Liabilities and Net Investment and Advances as of
December 31, 1993 and December 30, 1994 and as of June 16, 1995 (Unaudited)...... F-34
Combined Statements of Cash Flows for the fiscal years ended January 1, 1993,
December 31, 1993 and December 30, 1994 and for the twenty-four weeks ended June
17, 1994 (Unaudited) and June 16, 1995 (Unaudited)............................... F-35
Notes to Combined Financial Statements.............................................. F-36
Report of Independent Public Accountants............................................ F-43
Schedule III -- Real Estate and Accumulated Depreciation............................ F-44
</TABLE>
F-1
<PAGE> 102
HOSPITALITY PROPERTIES TRUST
PRO FORMA BALANCE SHEET AS OF JUNE 30, 1995 AND PRO FORMA
STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1994,
THE TWELVE MONTHS ENDED JUNE 30, 1995 AND THE SIX MONTHS ENDED JUNE 30, 1994 AND
1995
The following unaudited pro forma balance sheet gives effect to: (i) the
completion of the Offering and the concurrent offering to HRP and Advisors; (ii)
the acquisition of certain of the Initial Hotels to be acquired by the Company
after the completion of the Offering; (iii) repayment of amounts due to HRP;
(iv) the borrowings under the Acquisition Line; (v) the commencement of the
Initial Leases; and (vi) certain other transactions described in the notes
hereto as though such transactions occurred on June 30, 1995.
The following unaudited pro forma statements of income give effect to: (i)
the completion of the Offering and the concurrent offering to HRP and Advisors;
(ii) the acquisition of certain of the Initial Hotels to be acquired by the
Company after the completion of the Offering; (iii) repayment of amounts due to
HRP; (iv) the borrowings under the Acquisition Line; (v) the commencement of the
Initial Leases; and (vi) certain other transactions described in the notes
hereto as though such transactions occurred at January 1, 1994.
The pro forma information is based in part upon the historical statement of
income and historical balance sheet of the Company and the Initial Hotels. Such
information should be read in conjunction with all of the financial statements
and notes thereto included in this Prospectus. In the opinion of management, all
adjustments necessary to reflect the effects of the transactions discussed above
have been reflected in the pro forma data.
The following unaudited pro forma data is not necessarily indicative of
what the actual financial position or results of operations for the Company
would have been as of the date or for the period indicated, nor does it purport
to represent the financial position or results of operations for the Company for
future periods.
F-2
<PAGE> 103
<TABLE>
HOSPITALITY PROPERTIES TRUST
PRO FORMA BALANCE SHEET
<CAPTION>
AS OF JUNE 30, 1995
---------------------------------------------
PRO FORMA PRO
HISTORICAL(A) ADJUSTMENTS FORMA
------------- --------- --------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Real estate properties, net........................ $177,235 $151,021 (B) $328,256
Rent receivable.................................... 40 -- 40
Other assets....................................... 3,954 (1,454) (C) 2,500
Deferred financing fees............................ -- 234 (D) 234
FF&E Reserve (restricted cash)..................... 2,539 1,329 (E) 3,868
Cash............................................... -- 1,017 (F) 1,017
-------- --------
$183,768 $335,915
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Acquisition Line................................... $ -- $ 23,400 (G) $ 23,400
HRP Loan........................................... 163,259 (163,259) (H) --
Security Deposit................................... 17,940 14,960 (I) 32,900
Rent received in advance........................... 690 575 (J) 1,265
Shareholder's equity:
Common Shares of Beneficial Interest,
$0.01 par value............................. -- 118 (K) 118
Additional paid in capital.................... 1,000 277,232 (L) 278,232
Retained earnings............................. 879 (879) (M) --
-------- --------
Total shareholder's equity............... 1,879 278,350
-------- --------
$183,768 $335,915
======== ========
</TABLE>
See notes to pro forma financial statements.
F-3
<PAGE> 104
HOSPITALITY PROPERTIES TRUST
PRO FORMA STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------ ----------
<S> <C> <C> <C>
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
Revenues:
Base rent................................... $ -- $ 32,900 $ 32,900
FF&E Reserve................................ -- 6,045 6,045
------- ------- -------
Total revenues......................... -- 38,945(N) 38,945
------- ------- -------
Expenses:
Interest.................................... -- 1,882(O) 1,882
Depreciation................................ -- 9,011(P) 9,011
Advisory fees............................... -- 2,149(Q) 2,149
General and administrative.................. 400(R) 400
------- ------- -------
Total expenses......................... -- 13,442 13,442
------- ------- -------
Net income....................................... $ -- $ 25,503 $ 25,503
======= ======= =======
Net income per Share............................. $ 2.17
=======
Weighted average Shares outstanding.............. 11,750
=======
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JUNE 30, 1995
--------------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues:
Base rent................................... $4,834 $28,066 $32,900
Percentage rent............................. 40 126 166
FF&E Reserve................................ 893 5,318 6,211
------ ------- -------
Total rental income.................... 5,767 33,510 39,277
Interest income............................. 23 (23) --
------ ------- -------
Total revenues......................... 5,790 33,487(N) 39,277
------ ------- -------
Expenses:
Interest.................................... 3,196 (1,314)(O) 1,882
Depreciation................................ 1,473 7,538(P) 9,011
Advisory fees............................... 242 1,907(Q) 2,149
General and administrative.................. -- 400(R) 400
------ ------- -------
Total expenses......................... 4,911 8,531 13,442
------ ------- -------
Net income....................................... $ 879 $24,956 $25,835
====== ======= =======
Net income per Share............................. $ 2.20
=======
Weighted average Shares outstanding.............. 11,750
=======
</TABLE>
See notes to pro forma financial statements.
F-4
<PAGE> 105
HOSPITALITY PROPERTIES TRUST
PRO FORMA STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1994
--------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues:
Base rent.................................... $ -- $16,450 $16,450
Percentage rent.............................. -- -- --
FF&E Reserve................................. -- 3,037 3,037
------ ------- -------
Total rental income..................... -- 19,487 19,487
Interest income.............................. -- -- --
------ ------- -------
Total revenues.......................... -- 19,487(N) 19,487
------ ------- -------
Expenses:
Interest..................................... -- 941(O) 941
Depreciation................................. -- 4,506(P) 4,506
Advisory fees................................ -- 1,075(Q) 1,075
General and administrative................... -- 200[R] 200
------ ------- -------
Total expenses.......................... -- 6,722 6,722
------ ------- -------
Net income........................................ $ -- $12,765 $12,765
====== ======= =======
Net income per Share.............................. $ 1.09
=======
Weighted average Shares outstanding............... 11,750
=======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1995
--------------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues:
Base rent.................................... $4,834 $11,616 $16,450
Percentage rent.............................. 40 126 166
FF&E Reserve................................. 893 2,310 3,203
------ ------- -------
Total rental income..................... 5,767 14,052 19,819
Interest income.............................. 23 (23) --
------ ------- -------
Total revenues.......................... 5,790 14,029(N) 19,819
------ ------- -------
Expenses:
Interest..................................... 3,196 (2,255)(O) 941
Depreciation................................. 1,473 3,033(P) 4,506
Advisory fees................................ 242 833(Q) 1,075
General and administrative................... -- 200[R] 200
------ ------- -------
Total expenses.......................... 4,911 1,811 6,722
------ ------- -------
Net income........................................ $ 879 $12,218 $13,097
====== ======= =======
Net income per Share.............................. $ 1.11
=======
Weighted average Shares outstanding............... 11,750
=======
</TABLE>
See notes to pro forma financial statements.
F-5
<PAGE> 106
HOSPITALITY PROPERTIES TRUST
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(A) Represents the historical balance sheet of the Company as of June 30,
1995.
(B) Represents the proposed purchase of 16 Initial Hotels:
<TABLE>
<S> <C>
Cash purchase price.................................. $133,311
Purchase price withheld as Security Deposit.......... 14,960
Closing costs........................................ 750
Option cost capitalized to real estate............... 2,000
--------
Total........................................... $151,021
========
</TABLE>
(C) Represents the following proposed transactions:
<TABLE>
<S> <C>
Capitalization of previously paid cost of option to
real estate........................................ $ (2,000)
Payment of option extension fee...................... 1,500
Costs related to Offering incurred prior to June 30,
1995............................................... (954)
--------
Total................................................ $ (1,454)
========
</TABLE>
(D) Represents financing fees of 1% of pro forma borrowings by the Company
on the Acquisition Line. See (G).
(E) Represents FF&E Reserve of $1,329 to be acquired in connection with the
proposed purchase of 16 Initial Hotels.
(F) Net change represents the following proposed transactions:
<TABLE>
<S> <C>
Proceeds from the sale of 7,500,000 Shares in the
Offering........................................... $187,500
Proceeds from the sale of 250,000 Shares to
Advisors........................................... 6,250
Expenses of the Offering (net of amounts paid prior
to June 30, 1995 of $954).......................... (14,446)
Payment to purchase 16 Initial Hotels................ (133,311)
Payment of closing costs............................. (750)
Payment to purchase FF&E Reserve. See (E)............ (1,329)
Payment of option extension fee...................... (1,500)
Prepaid rent received at closing..................... 575
Repayment of HRP Loan................................ (64,259)
Cash dividend to HRP................................. (879)
Borrowings under the Acquisition Line................ 23,400
Payment of financing fees............................ (234)
--------
Net increase in cash............................ $ 1,017
========
</TABLE>
(G) Represents proposed borrowings by the Company on its Acquisition Line.
The Acquisition Line will have a term of up to 18 months with no required
principal payments until maturity.
(H) Represents the repayment of the HRP Loan from the following proposed
transactions:
<TABLE>
<S> <C>
Issuance of 3,960,000 Shares to HRP, at $25.00 per
share.............................................. $ 99,000
Repayment with proceeds from the Offering and
Acquisition Line................................... 64,259
--------
$163,259
========
</TABLE>
(I) Represents Security Deposit for Initial Leases for 16 Initial Hotels.
(J) Represents prepaid base rent for Initial Leases for 16 Initial Hotels.
F-6
<PAGE> 107
HOSPITALITY PROPERTIES TRUST
NOTES TO PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(K) Represents the par value ($0.01) of Shares expected to be issued in the
following transactions:
<TABLE>
<S> <C>
Sale of 7,500,000 Shares in the Offering................. $ 75
Sale of 250,000 Shares to Advisors....................... 3
Issuance of 3,960,000 Shares to HRP...................... 40
----
$118
====
</TABLE>
(L) Represents the following proposed transactions:
<TABLE>
<S> <C>
Proceeds from the Offering........................... $187,500
Proceeds from the sale of 250,000 Shares to
Advisors........................................... 6,250
Issuance of 3,960,000 Shares to HRP in partial
repayment of HRP Loan.............................. 99,000
Expenses of the Offering............................. (15,400)
Par value of Shares issued........................... (118)
--------
$277,232
========
(M) Represents cash dividend to HRP from retained earnings....... $(879)
=====
</TABLE>
(N) Represents the effect of the Initial Leases on revenues. Revenues under
the terms of the Initial Leases are derived from annual base rent of $32,900,
deposits into the FF&E Reserve equal to 5% of Total Hotel Sales and percentage
rent equal to 5% of the excess of Total Hotel Sales over 1994 Total Hotel Sales:
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
1994 1995 1994 1995
------------ ------------- ---------- ----------
<S> <C> <C> <C> <C>
Base rent............................. $ 32,900 $32,900 $ 16,450 $ 16,450
Percentage rent....................... -- 166 -- 166
FF&E Reserve.......................... 6,045 6,211 3,037 3,203
Amounts included in historical
operating results from February 7,
1995 (inception) to June 30, 1995... -- (5,790) -- (5,790)
------- ------- ------- -------
$ 38,945 $33,487 $ 19,487 $ 14,029
======= ======= ======= =======
</TABLE>
(O) Represents the effect of borrowing $23,400 on the Company's Acquisition
Line at LIBOR plus 150 basis points (approximately 7.375% at July 24, 1995) and
the amortization of the deferred financing fees.
<TABLE>
<CAPTION>
TWELVE MONTHS SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
1994 1995 1994 1995
------------ ------------- ---------- ----------
<S> <C> <C> <C> <C>
Interest expense...................... $ 1,726 $ 1,726 $ 863 $ 863
Amortization of deferred financing
fees................................ 156 156 78 78
Amounts included in historical
operating results from February 7,
1995 (inception) to June 30, 1995... -- (3,196) -- (3,196)
------- ------- -------
$ 1,882 $(1,314) $ 941 $ (2,255)
======= ======= =======
</TABLE>
The pro forma impact on interest expense of a 1/8 percent change in LIBOR
is approximately $29 for the year ended December 31, 1994 and the 12 months
ended June 30, 1995 and approximately $15 for the six months ended June 30,
1995.
F-7
<PAGE> 108
HOSPITALITY PROPERTIES TRUST
NOTES TO PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
(P) Represents the effect of the purchase of the Initial Hotels on
depreciation expense. Depreciation expense is calculated on a straight line
basis over the estimated lives of buildings, improvements and equipment of up to
40 years.
<CAPTION>
TWELVE MONTHS SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
1994 1995 1994 1995
------------ ------------- ---------- ----------
<S> <C> <C> <C> <C>
Depreciation................... $9,011 $ 9,011 $4,506 $4,506
Amounts included in historical
operating results from
February 7, 1995 (inception)
to June 30, 1995............. -- (1,473) -- (1,473)
------ ------- ------ ------
$9,011 $ 7,538 $4,506 $3,033
====== ======= ====== ======
</TABLE>
<TABLE>
(Q) Under the terms of the Advisory Agreement, Advisors is paid its fee for
providing investment, management and administrative services to the Company. The
advisory fee is calculated as 0.7% of the first $250,000 of invested assets plus
0.5% of invested assets in excess of $250,000.
<CAPTION>
TWELVE MONTHS SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
1994 1995 1995 1995
------------ ------------- ---------- ----------
<S> <C> <C> <C> <C>
Advisory fees.................. $2,149 $2,149 $1,075 $1,075
Amounts included in historical
operating results from
February 7, 1995 (inception)
to June 30, 1995............. -- (242) -- (242)
------ ------ ------ ------
$2,149 $1,907 $1,075 $ 833
====== ====== ====== ======
</TABLE>
<TABLE>
(R) Represents estimated expenses of the Company related to state and local
taxes, legal, accounting and investor relations as detailed below.
<CAPTION>
TWELVE MONTHS SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30, JUNE 30,
1994 1995 1994 1995
------------ ------------- ---------- ----------
<S> <C> <C> <C> <C>
State and local taxes.......... $140 $140 $ 70 $ 70
Independent Trustees Fees...... 100 100 50 50
Legal fees..................... 60 60 30 30
Accounting fees................ 60 60 30 30
Investor relations............. 40 40 20 20
---- ---- ---- ----
$400 $400 $200 $200
==== ==== ==== ====
</TABLE>
These amounts have been estimated by the Company, based on its analysis of
pro forma taxable income or other taxable bases, as appropriate in the states in
which the Company does business, in the case of state and local taxes, and based
on management's experience and/or discussions with service providers, in the
case of other items.
F-8
<PAGE> 109
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees of Hospitality Properties Trust:
We have audited the accompanying balance sheet of Hospitality Properties
Trust as of June 30, 1995, and the related statements of income, shareholder's
equity and cash flows for the period from February 7, 1995 (inception) to June
30, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hospitality Properties Trust
as of June 30, 1995, and the results of its operations and its cash flows for
the period from February 7, 1995 (inception) to June 30, 1995 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
July 20, 1995
F-9
<PAGE> 110
<TABLE>
HOSPITALITY PROPERTIES TRUST
BALANCE SHEET
<CAPTION>
AS OF
JUNE 30, 1995
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Real estate properties, at cost
Land..................................................................... $ 26,704
Buildings and improvements............................................... 152,004
--------
Total............................................................... 178,708
Less accumulated depreciation............................................ (1,473)
--------
Real estate properties, net......................................... 177,235
Rent receivable............................................................... 40
FF&E Reserve (restricted cash)................................................ 2,539
Other assets.................................................................. 3,954
--------
Total assets........................................................ $183,768
========
LIABILITIES AND SHAREHOLDER'S EQUITY
HRP Loan...................................................................... $163,259
Security Deposit.............................................................. 17,940
Rent received in advance...................................................... 690
--------
Total liabilities................................................... 181,889
--------
Commitments and contingencies
Shareholder's equity:
Preferred Shares of Beneficial Interest, 100,000,000 shares authorized,
none issued............................................................. --
Common Shares of Beneficial Interest, $0.01 par value; 100,000,000 Shares
authorized, 40,000 Shares issued and outstanding........................ --
Additional paid in capital.................................................... 1,000
Retained earnings............................................................. 879
--------
Total shareholder's equity.......................................... 1,879
--------
$183,768
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE> 111
<TABLE>
HOSPITALITY PROPERTIES TRUST
STATEMENT OF INCOME
<CAPTION>
FEBRUARY 7, 1995
(INCEPTION) TO
JUNE 30, 1995
-----------------
(IN THOUSANDS)
<S> <C>
Revenues:
Base and percentage rental income....................................... $4,874
FF&E Reserve income..................................................... 893
Interest income......................................................... 23
------
Total revenues..................................................... 5,790
------
Expenses:
Interest payable to HRP................................................. 3,196
Depreciation............................................................ 1,473
Advisory fees........................................................... 242
------
Total expenses..................................................... 4,911
------
Net income................................................................... $ 879
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 112
HOSPITALITY PROPERTIES TRUST
STATEMENT OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
FEBRUARY 7, 1995 (INCEPTION)
TO JUNE 30, 1995
-------------------------------------
ADDITIONAL
NUMBER OF PAID IN RETAINED
SHARES CAPITAL EARNINGS
--------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Initial capitalization as of February 7, 1995 (inception).... 40,000 $1,000 $ --
Net income................................................... -- -- 879
------ ------ ---
Balance, June 30, 1995....................................... 40,000 $1,000 $879
====== ====== ===
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 113
<TABLE>
HOSPITALITY PROPERTIES TRUST
STATEMENT OF CASH FLOWS
<CAPTION>
FEBRUARY 7,
1995
(INCEPTION) TO
JUNE 30, 1995
--------------
(IN THOUSANDS)
<S> <C>
Cash flows from operating activities:
Net income............................................................. $ 879
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation...................................................... 1,473
Change in assets and liabilities:
Increase in rent receivable....................................... (40)
Increase in rent received in advance.............................. 690
---------
Cash provided by operating activities............................. 3,002
---------
Cash flows from investing activities:
Real estate acquisitions............................................... (160,768)
Payment of purchase option............................................. (3,000)
Increase in FF&E Reserve (restricted cash)............................. (2,539)
---------
Cash used for investing activities................................ (166,307)
---------
Cash flows from financing activities:
Issuance of Shares..................................................... 1,000
Payment of offering costs.............................................. (954)
Proceeds of HRP Loan................................................... 163,259
---------
Cash provided by financing activities............................. 163,305
---------
Change in cash.............................................................. --
Cash and cash equivalents at beginning of period............................ --
---------
Cash and cash equivalents at end of period.................................. $ --
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 114
HOSPITALITY PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1. ORGANIZATION
Hospitality Properties Trust (the "Company") was originally incorporated in
the state of Delaware on February 7, 1995. Subsequently, the Company became a
Maryland real estate investment trust and effected a 400-for-1 split of its
common shares of beneficial interest (the "Shares").The Company is a 100% owned
subsidiary of Health and Retirement Properties Trust ("HRP"), which invests in
income producing real estate, primarily hotel and lodging related properties.
Subsequent to the balance sheet date, the Company intends to undertake an
offering of Shares (the "Offering") and certain other transactions that are
expected to result in (i) the Company becoming a publicly traded real estate
investment trust; (ii) the Company's acquisition of 16 additional hotel
properties (together with the 21 properties acquired on March 24, 1995, the
"Initial Hotels"); (iii) repayment of all amounts due to HRP; (iv) borrowings
under a credit facility from an unrelated party; and (v) certain other effects
described below.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Real Estate Properties
Real estate properties are recorded at cost. Depreciation is provided for
on a straight line basis over the estimated useful lives of the properties
ranging up to 40 years.
Restricted Cash
Restricted cash is comprised of funds maintained by the hotel manager on
behalf of the Company to be used for the replacement and refurbishment of the
hotel properties (the "FF&E Reserve," see Note 3).
Revenue Recognition
Rental income from operating leases is recognized on a straight line basis
over the life of the lease agreements. Percentage rent and contributions to the
FF&E Reserve are recognized as rental income as earned.
Income Taxes
The Company intends to qualify as a real estate investment trust under the
Internal Revenue Code of 1986, as amended. Accordingly, the Company expects not
to be subject to federal income taxes on amounts distributed to shareholders
provided it distributes at least 95% of its real estate investment trust taxable
income and meets certain other requirements for qualifying as a real estate
investment trust. The Company is subject to certain state and local taxes on its
income and property.
NOTE 3. REAL ESTATE PROPERTIES
On March 24, 1995, the Company acquired 21 of the Initial Hotels and
related FF&E Reserves for an aggregate purchase price of approximately $179,400
from affiliates of Host Marriott Corporation (the "Sellers") of which $17,940
was retained by the Company as a security deposit. The properties are leased to
a subsidiary ("Host") of Host Marriott Corporation and are managed by a
subsidiary ("Marriott") of Marriott International, Inc. This acquisition was
substantially funded by advances from HRP (the "HRP Loan").
The Company's real estate properties are leased pursuant to long term
operating lease arrangements (the "Leases"). The initial term of the Leases
expires December 31, 2006. Thereafter, the Leases automatically renew for one
seven year term and three consecutive ten year terms, unless Host properly
notifies the Company in accordance with the Leases.
F-14
<PAGE> 115
HOSPITALITY PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
Future minimum lease payments ("Base Rent") to be received by the Company
during the initial 12 year term of the Leases as of June 30, 1995 are as
follows:
<S> <C>
July 1, 1995 through December 31, 1995............... $ 8,970
1996................................................. 17,940
1997................................................. 17,940
1998................................................. 17,940
1999................................................. 17,940
2000................................................. 17,940
Thereafter........................................... 107,640
--------
$206,310
========
</TABLE>
In addition to Base Rent, the Company is entitled to additional rent
("Percentage Rent") based on a percentage of increases in Total Hotel Sales.
Total Hotel Sales represents all revenues and receipts of every kind derived
from guests or other customers related to Marriott's operation of any of the
Initial Hotels and Total Hotel Sales has the same meaning as "Gross Revenues"
under the Initial Leases. Host is also required to pay substantially all
operating costs of the properties. Either Marriott or Host is required to
deposit 5% of Total Hotel Sales into the Company's FF&E Reserve. The FF&E
Reserve may be used by Marriott and Host to maintain the properties in good
working order and repair. If the FF&E Reserve is not available to fund such
expenditures, Host may require the Company to fund such expenditures, in which
case Base Rent will be increased by 10% of the amount so funded.
Under the management agreements with Marriott, secured borrowings by the
Company are limited according to a formula to amounts not less than 70% of the
allocable purchase price of the applicable Initial Hotels.
The Company has an agreement with the Sellers to acquire an additional 16
Initial Hotels for approximately $149,600 and lease them to Host on terms
similar to the Leases. This transaction is expected to be funded with proceeds
from the Company's proposed Offering. The Company has also purchased for $3,000
options to purchase and/or rights of first refusal and rights of first
negotiation to acquire certain additional properties from Host Marriott
Corporation or its affiliates. The cost of this option is included in Other
assets in the accompanying balance sheet. The option agreement expires on
February 29, 2000 and may be extended to August 31, 2002 for an additional
$1,500.
NOTE 4. HRP LOAN
Substantially all of the funding for the acquisition of 21 Initial Hotels
plus closing costs and the cost of the option was provided to the Company by
HRP.
The Company and other subsidiaries of HRP are full and unconditional
guarantors of HRP's obligations for payments of interest and principal (at
maturity or upon acceleration by the lenders) under HRP's revolving credit
facility. The facility matures on March 15, 1998, prior to which there are no
scheduled principal payments. Accordingly, the accompanying financial statements
reflect the pushed down effect of HRP's obligations relative to the amount of
the Company's obligations to HRP. It is expected that upon the completion of the
proposed Offering, the Company will be released from such guarantee obligations
and the HRP Loan will be repaid in full. Interest accrues on the HRP Loan at a
floating rate equal to LIBOR plus 1.25% which, as of June 30, 1995 was
approximately 7.13%, and are due upon demand.
NOTE 5. TRANSACTIONS WITH AFFILIATES
HRP has an agreement with HRPT Advisors, Inc. ("Advisors") whereby Advisors
provides investment, management and administrative services to HRP and the
Company. Advisors is owned by Gerard M. Martin
F-15
<PAGE> 116
HOSPITALITY PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
and Barry M. Portnoy. Messrs. Martin and Portnoy are Managing Trustees of HRP.
Mr. Portnoy is also a partner in the law firm which provides legal services to
the Company.
Advisors is compensated at an annual rate equal to 0.7% of HRP's (including
the Company's) average real estate investments up to the first $250,000 of such
investments and 0.5% thereafter. Because the Company is a subsidiary of HRP,
management has allocated $242 of advisory fee expense to the Company, equal to
0.5% of the Company's average real estate investments, for the period from
February 7, 1995 (inception) to June 30, 1995.
Concurrent with the Offering, the Company expects to be party to a separate
agreement with Advisors on substantially the same terms except that for purposes
of calculating compensation to Advisors, average real estate investments will
include investments of the Company on a stand alone basis.
Under the provisions of the Company's Incentive Share Award Plan, 100,000
Common Shares have been reserved for issuance to officers of the Company,
consultants to the Company and Independent Trustees of the Company.
F-16
<PAGE> 117
HMH HPT COURTYARD, INC. (HOST)
PRO FORMA BALANCE SHEET AS OF JUNE 16, 1995 AND
PRO FORMA STATEMENTS OF INCOME
FOR THE FISCAL YEAR ENDED DECEMBER 30, 1994, THE 52 WEEKS ENDED
JUNE 16, 1995 AND THE 24 WEEKS ENDED JUNE 17, 1994 AND JUNE 16, 1995
The following unaudited pro forma balance sheet gives effect the transfer
of certain assets to Host related to the acquisition of certain of the Initial
Hotels by the Company as though such transactions occurred on June 16, 1995.
The following unaudited pro forma statements of income give effect at
January 1, 1994 to: (i) the acquisition of 37 Initial Hotels by the Company; and
(ii) the commencement of the Initial Leases.
The pro forma information is based in part upon the historical statements
of revenues and expenses excluding income taxes of the Initial Hotels and the
historical balance sheet of Host. Such information should be read in conjunction
with all of the financial statements and notes thereto included in this
Prospectus. In the opinion of management, all adjustments necessary to reflect
the effects of the transactions discussed above have been reflected in the pro
forma data.
The following unaudited pro forma data is not necessarily indicative of
what the actual financial position or results of operations for Host would have
been as of the date or for the period indicated, nor does it purport to
represent the financial position or results of operations of Host for future
periods.
F-17
<PAGE> 118
<TABLE>
HMH HPT COURTYARD, INC. (HOST)
PRO FORMA BALANCE SHEET
<CAPTION>
AS OF JUNE 16, 1995
-------------------------------------------------
PRO FORMA
HISTORICAL(A) ADJUSTMENTS PRO FORMA
------------- ----------- ---------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Advances to Marriott............................... $ 2,381 $ 1,277(B) $ 3,658
Prepaid rent....................................... 1,380 1,151(B) 2,531
Security Deposit................................... 17,940 14,960(B)(C) 32,900
------- -------
$21,701 $39,089
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Accrued expenses................................... $ 236 $ 182(B) $ 418
Deferred gain...................................... -- 15,800(B) 15,800
Stockholder's equity:
Common stock.................................. -- -- --
Additional paid in capital.................... 21,451 1,406(B) 22,857
Retained earnings............................. 14 -- 14
------- -------
$21,701 $39,089
======= =======
</TABLE>
See notes to pro forma financial statements.
F-18
<PAGE> 119
<TABLE>
HMH HPT COURTYARD, INC. (HOST)
PRO FORMA STATEMENTS OF INCOME
<CAPTION>
FISCAL YEAR ENDED DECEMBER 30, 1994
-----------------------------------------------------
INITIAL PRO FORMA
HISTORICAL(D) HOTELS(E) ADJUSTMENTS PRO FORMA
------------- --------- ----------- ---------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C> <C>
Total Hotel Sales(F)............................. $ -- $120,897 $ -- $120,897
====== ======== ======== ========
Revenue(G)....................................... $ -- $ 58,186 $ -- $ 58,186
------- -------- -------- --------
Expenses:
Base rent(H)................................ -- -- 32,900 32,900
Amortization of deferred gain(I)............ -- -- (1,374) (1,374)
Percentage rent(J).......................... -- -- -- --
FF&E contribution expense(K)................ -- -- 6,045 6,045
Base management fee(L)...................... -- -- 2,418 2,418
Incentive management fee(M)................. -- 2,825 559 3,384
Depreciation and amortization(N)............ -- 14,515 (14,515) --
Other expenses(O)........................... -- 9,672 -- 9,672
------- -------- -------- --------
Total expenses......................... -- 27,012 26,033 53,045
------- -------- -------- --------
Income before taxes.............................. -- 31,174 (26,033) 5,141
Provision for income taxes(P).................... -- -- 2,108 2,108
------- -------- -------- --------
Net income............................. $ -- $ 31,174 $(28,141) $ 3,033
====== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
52 WEEKS ENDED JUNE 16, 1995
-----------------------------------------------------
INITIAL PRO FORMA
HISTORICAL(D) HOTELS(E) ADJUSTMENTS PRO FORMA
------------- --------- ----------- ---------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C> <C>
Total Hotel Sales(F)............................. $17,076 $106,900 $ -- $123,976
======= ======== ======== ========
Revenue(G)....................................... $ 8,636 $ 51,998 $ -- $ 60,634
------- -------- -------- --------
Expenses:
Base rent(H)................................ 4,140 -- 28,760 32,900
Amortization of deferred gain(I)............ -- -- (1,374) (1,374)
Percentage rent(J).......................... 36 -- 118 154
FF&E contribution expense(K)................ 854 -- 5,345 6,199
Base management fee(L)...................... 342 -- 2,138 2,480
Incentive management fee(M)................. 1,063 3,342 370 4,775
Depreciation and amortization(N)............ -- 17,260 (17,260) --
Other expenses(O)........................... 1,800 7,699 -- 9,499
-------- -------- -------- --------
Total expenses......................... 8,235 28,301 18,097 54,633
-------- -------- -------- --------
Income before taxes.............................. 401 23,697 (18,097) 6,001
Provision for income taxes(P).................... 164 -- 2,296 2,460
-------- -------- -------- --------
Net income............................. $ 237 $ 23,697 $(20,393) $ 3,541
======== ======== ======== ========
</TABLE>
See notes to pro forma financial statements.
F-19
<PAGE> 120
<TABLE>
HMH HPT COURTYARD, INC. (HOST)
PRO FORMA STATEMENTS OF INCOME
<CAPTION>
24 WEEKS ENDED JUNE 17, 1994
----------------------------------------------------------
INITIAL PRO FORMA
HISTORICAL(D) HOTELS(E) ADJUSTMENTS PRO FORMA
-------------- --------- ----------- ---------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C> <C>
Total Hotel Sales(F)........................ $ -- $56,068 $ -- $56,068
======== ======= ========= =======
Revenues(G)................................. $ -- $27,339 $ -- $27,339
-------- ------- --------- -------
Expenses:
Base rent(H)........................... -- 16,450 16,450
Amortization of deferred gain(I)....... -- (634) (634)
Percentage rent(J)..................... -- -- -- --
FF&E contribution expense(K)........... -- -- 2,803 2,803
Base management fee(L)................. -- -- 1,121 1,121
Incentive management fee(M)............ -- 881 (374) 507
Depreciation and amortization(N)....... -- 7,121 (7,121) --
Other expenses(O)...................... -- 5,353 -- 5,353
-------- ------- --------- -------
Total expenses.................... -- 13,355 12,245 25,600
-------- ------- --------- -------
Income before taxes......................... -- 13,984 (12,245) 1,739
Provision for income taxes(P)............... -- -- 713 713
-------- ------- --------- -------
Net income........................ $ -- $13,984 $(12,958) $ 1,026
======== ======= ========= =======
</TABLE>
<TABLE>
<CAPTION>
24 WEEKS ENDED JUNE 16, 1995
----------------------------------------------------------
INITIAL PRO FORMA
HISTORICAL(D) HOTELS(E) ADJUSTMENTS PRO FORMA
-------------- --------- ----------- ---------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C> <C>
Total Hotel Sales(F)........................ $17,076 $42,071 $ -- $59,147
====== ====== ====== ======
Revenues(G)................................. $ 8,636 $21,389 $ -- $30,025
------ ------ ------ ------
Expenses:
Base rent(H)........................... 4,140 -- 12,310 16,450
Amortization of deferred gain(I)....... -- -- (634) (634)
Percentage rent(J)..................... 36 -- 118 154
FF&E contribution expense(K)........... 854 -- 2,103 2,957
Base management fee(L)................. 342 -- 841 1,183
Incentive management fee(M)............ 1,063 943 (99) 1,907
Depreciation and amortization(N)....... -- 8,163 (8,163) --
Other expenses(O)...................... 1,800 3,362 -- 5,162
------ ------ ------ ------
Total expenses.................... 8,235 12,468 6,476 27,179
------ ------ ------ ------
Income before taxes......................... 401 8,921 (6,476) 2,846
Provision for income taxes(P)............... 164 -- 1,003 1,167
------- ------- ------- -------
Net income........................ $ 237 $ 8,921 $(7,479) $ 1,679
======= ======= ======= =======
</TABLE>
See notes to pro forma financial statements.
F-20
<PAGE> 121
HMH HPT COURTYARD, INC. (HOST)
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED, IN THOUSANDS)
(A) Represents the historical balance sheet of Host as of June 16, 1995.
(B) Reflects the effects of the operating assets that are expected to be
contributed to Host by its affiliates as a result of the consummation of the
sale of 16 Initial Hotels to the Company and the related commencement of the
Initial Leases between Host and the Company and the deferred gain arising from
the sale/leaseback transaction between Host and the Company. The deferred gain
represents the excess of the sales price of the hotels over the net book value
of the hotels and related transaction costs. The deferred gain will be amortized
over the initial term (approximately 12 years) of the Initial Leases.
(C) Represents Security Deposit required under Initial Leases for 16 of the
Initial Hotels.
(D) Reflects the historical operating results of Host.
(E) Reflects the combined historical operating results of the Initial
Hotels for periods prior to the commencement date of the Initial Leases.
(F) Total Hotel Sales represents all revenues and receipts of every kind
derived from guests or other customers related to Marriott's operation of the
Initial Hotels and is presented for the purpose of providing supplemental
information regarding the gross sales volume of the Initial Hotels. See notes to
historical financial statements of the Initial Hotels.
(G) Revenues represents house profit from the Initial Hotels. House profit
represents Total Hotel Sales less property level expenses excluding depreciation
and amortization, Courtyard by Marriott[R] system fee, property taxes,
management fees, ground rent and insurance.
(H) Represents the base rent to be paid by Host to the Company under the
Initial Leases. The Initial Leases require Host to pay an aggregate minimum
annual base rent of $32,900, a pro rata portion of which is due and payable in
advance on the first day of thirteen predetermined accounting periods per year.
(I) Amortization of deferred gains represents adjustments to rent expense
to record the effects of the sale/leaseback transaction between Host and the
Company. Amortization is straight-line over the initial term of the Initial
Leases (twelve years).
(J) Represents percentage rent to be paid by Host to the Company under the
Initial Leases. Percentage rent under the Initial Leases is equal to 5% of the
excess of Total Hotel Sales over 1994 Total Hotel Sales.
<TABLE>
<CAPTION>
FISCAL YEAR 52 WEEKS 24 WEEKS 24 WEEKS
ENDED ENDED ENDED ENDED
DECEMBER 30, JUNE 16, JUNE 17, JUNE 16,
1994 1995 1994 1995
------------ -------- --------- --------
<S> <C> <C> <C> <C>
Total Hotel Sales............... $120,897 $123,976 $56,068 $59,147
1994 Total Hotel Sales.......... 120,897 120,897 56,068 56,068
-------- -------- ------- -------
Excess.......................... $ -- $ 3,079 $ -- $ 3,079
======== ======== ======= =======
Percentage rent................. $ -- $ 154 $ -- $ 154
======== ======== ======= =======
</TABLE>
(K) Represents 5% of Total Hotel Sales which the Initial Leases require
Host to deposit into a Company cash account (the FF&E Reserve) to be available
for the cost of replacements and renovations at the Initial Hotels.
(L) Under the terms of the Management Agreements, Marriott is to be paid
base fees of 2% of Total Hotel Sales. On a historical basis, such base fees had
been waived pursuant to the terms of an agreement between Host Marriott and
Marriott International, Inc. Under this agreement, base fees were waived in
return
F-21
<PAGE> 122
HMH HPT COURTYARD, INC. (HOST)
NOTES TO PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED, IN THOUSANDS)
for an agreement to pay certain other fees upon the sale of or certain
refinancings of such facilities (see Note 4 of the notes to the combined
financial statements of the Initial Hotels).
(M) Under the terms of the Management Agreements, Marriott is to be paid
50% of available cash flow, as defined, as an incentive management fee.
Available cash flow is defined as Revenues, less base management fees, Courtyard
by Marriott[R] system fee, real and personal property taxes, insurance, ground
rent and a priority amount equal to $32.9 million. The adjustment represents the
increase in incentive management fees that results from the calculation of such
fees on a stand-alone basis for the Initial Hotels versus the allocation method
described in Note 4 to the Combined Financial Statements of the Initial Hotels.
(N) Host has no ownership interest in the real estate related to the
Initial Hotels and, as such, there is no depreciation expense on a pro forma
basis.
(O) Represents Courtyard by Marriott[R] system fee, ground rent and other
expenses for which Host will remain obligated under the Initial Leases.
(P) Adjustment to reflect the impact of federal and state income taxes
related to the pro forma results of operations of Host, at statutory rates. The
historical amounts exclude an income tax provision, as described in Note 1 to
the combined financial statements of the Initial Hotels.
F-22
<PAGE> 123
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of HMH HPT Courtyard, Inc.:
We have audited the accompanying balance sheet of HMH HPT Courtyard, Inc.
(a Delaware Corporation) ("Host") as of June 16, 1995, and the related
statements of income, shareholder's equity and cash flows for the twelve weeks
then ended. These financial statements are the responsibility of the Host's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 audit provides 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 Host as of June 16, 1995 and
the results of its operations and its cash flows for the twelve weeks then ended
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
July 13, 1995
F-23
<PAGE> 124
<TABLE>
HMH HPT COURTYARD, INC.
BALANCE SHEET
<CAPTION>
AS OF
JUNE 16, 1995
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Advances to Manager........................................................... $ 2,381
Prepaid rent.................................................................. 1,380
Other assets.................................................................. 17,940
-------
Total assets........................................................ $21,701
=======
LIABILITIES AND SHAREHOLDER'S EQUITY
Accrued expenses.............................................................. $ 236
Commitments and contingencies
Shareholder's equity:
Common Stock, no par value, 100 shares authorized, issued and
outstanding............................................................. --
Additional paid in capital............................................... 21,451
Retained earnings........................................................ 14
-------
Total liabilities and shareholder's equity.......................... $21,701
=======
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-24
<PAGE> 125
HMH HPT COURTYARD, INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
TWELVE WEEKS
ENDED JUNE
16, 1995
-------------
<S> <C>
Total Hotel Sales.............................................................. $17,076
=======
Revenues....................................................................... $ 8,636
-------
Expenses:
Base rent................................................................. 4,140
Percentage rent........................................................... 36
FF&E contribution expense................................................. 854
Base management fee....................................................... 342
Incentive management fee.................................................. 1,063
Other expenses............................................................ 1,800
-------
Total expenses....................................................... 8,235
-------
Income before taxes............................................................ 401
Provision for income taxes..................................................... 164
-------
Net income........................................................... $ 237
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 126
<TABLE>
HMH HPT COURTYARD, INC.
STATEMENT OF SHAREHOLDER'S EQUITY
<CAPTION>
TWELVE WEEKS ENDED JUNE 16, 1995
----------------------------------
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------ ---------- --------
<S> <C> <C> <C>
Initial capitalization........................................ $ -- $21,451 $ --
Cash transferred to Parent.................................... -- -- (223)
Net income.................................................... -- -- 237
------ ------- -----
Balance, June 16, 1995........................................ $ -- $21,451 $ 14
====== ======= =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 127
<TABLE>
HMH HPT COURTYARD, INC.
STATEMENT OF CASH FLOWS
<CAPTION>
TWELVE WEEKS
ENDED
JUNE 16, 1995
--------------
(IN THOUSANDS)
<S> <C>
Cash flows from operating activities:
Net income................................................................... $ 237
Changes in operating accounts:
Accrued expenses.......................................................... (14)
-----
Cash provided by operations............................................. 223
Cash flows from financing activities:
Cash transferred to Parent................................................... (223)
-----
Increase (decrease) in cash and cash equivalents............................... --
Cash and cash equivalents at beginning of year................................. --
-----
Cash and cash equivalents at end of period..................................... $ --
=====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 128
HMH HPT COURTYARD, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
HMH HPT Courtyard, Inc. ("Host") was incorporated in Delaware on February
2, 1995 as a wholly owned indirect subsidiary of Host Marriott Corporation. On
February 2, 1995, Host issued 100 shares of no par common stock to its parent
and sole shareholder ("Parent"), a wholly owned indirect subsidiary of Host
Marriott Corporation. Host had no operations prior to March 24, 1995 (the
"Commencement Date") as a result, the accompanying statements of income, cash
flows and shareholder's equity present activity of Host from the Commencement
Date through June 16, 1995.
On the Commencement Date, affiliates of Host Marriott Corporation (the
"Sellers") sold 21 Courtyard by Marriott[R] hotel properties (the "Hotels") to
Hospitality Properties Trust ("HPT") a wholly owned subsidiary of Health and
Retirement Properties Trust. The Sellers contributed to the Company its assets
and liabilities related to the operations of such properties, including working
capital advances to the hotel manager, prepaid rent under leasing arrangements
(the "Leases") and rights to other assets as described in Note 3. Such assets
have been accounted for at the Parent's carryover basis.
Fiscal Year
Host operates on a fiscal year which ends on the Friday closest to December
31. The fiscal year is divided into thirteen accounting periods of four weeks
each and Host's first quarter ended on March 24, 1995.
Hotel Sales and Revenues
Total Hotel Sales are presented in the accompanying statement of income for
the purpose of providing supplemental information regarding the gross sales
volume of the Hotels. Total Hotel Sales represents all revenues and receipts of
every kind derived from guests or other customers related to Marriott's
operation of the Hotels.
<TABLE>
Revenues in the accompanying statement of income represent house profit
from the Hotels. House profit represents Total Hotel Sales less property level
expenses excluding depreciation and amortization, system fees, real and personal
property taxes, ground rent, insurance and management fees. The system fees and
management fees presented on the accompanying income statement and the expenses
detailed below represent all the costs incurred directly, allocated or charged
by the Manager (as defined below) to the properties. The detail of total hotel
sales and a reconciliation to revenue follows:
<CAPTION>
TWELVE WEEKS ENDED
JUNE 16, 1995
------------------
(IN THOUSANDS)
<S> <C>
Hotel sales:
Rooms......................................... $15,060
Food and beverage............................. 1,343
Other......................................... 673
-------
Total Hotel Sales........................ 17,076
-------
Expenses:
Departmental direct costs
Rooms (A)..................................... 3,249
Food and beverage (B)......................... 1,065
Other operating departments (C)............... 203
General and administrative (D)................ 1,702
Utilities (E)................................. 577
Repairs, maintenance and accidents (F)........ 691
Marketing and sales (G)....................... 296
Chain services (H)............................ 657
-------
Total expenses........................... 8,440
-------
Revenues........................................... $ 8,636
=======
</TABLE>
F-28
<PAGE> 129
HMH HPT COURTYARD, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- ---------------
<TABLE>
<S> <C>
(A) Includes expenses for linen, cleaning supplies, laundry, guest supplies, reservations
costs, travel agents commissions, walked guest expenses and wages, benefits and
bonuses for employees for the rooms department.
(B) Includes costs of food and beverages sold, china, glass, silver, paper, and cleaning
supplies and wages, benefits and bonuses for employees of the food and beverage
department.
(C) Includes expenses related to operating the telephone department.
(D) Includes management and hourly wages, benefits and bonus, credit and collection
expenses, employee relations, guest relations, bad debt expenses, office supplies and
miscellaneous other expenses.
(E) Includes electricity, gas and water at the properties.
(F) Includes cost of repairs and maintenance and the cost of accidents at the properties.
(G) Includes management and hourly wages, benefits and bonuses, promotional expense and
local advertising.
(H) Includes charges from the Manager for Chain Services as allowable under the
Management Agreement.
</TABLE>
NOTE 2. COMMITMENTS AND CONTINGENCIES
The Leases
On the Commencement Date, Host entered into the Leases for 21 Courtyard by
Marriott[R] properties. An additional 16 Courtyard by Marriott[R] hotel
properties are expected to be sold by Sellers to HPT under the terms of an
option agreement entered into by Sellers and HPT and leased to Host under long
term lease arrangements.
The initial term of the Leases expires at the end of fiscal 2006.
Thereafter, the Leases automatically renew for one seven year term and three
consecutive ten year terms, unless Host properly notifies HPT in accordance with
the Leases.
The Leases require Host to pay rents equal to aggregate minimum annual rent
of $17,940,000 ("Base Rent"), and percentage rent equal to 5% of the excess of
Total Hotel Sales as defined over 1994 Total Hotel Sales ("Percentage Rent"). A
pro rata portion of Base Rent is due and payable in advance on the first day of
thirteen predetermined accounting periods. Percentage Rent is due and payable
quarterly in arrears.
The Leases also require Host to make payments when due on behalf of HPT for
real estate taxes and other taxes, assessments and similar charges arising from
or related to the Hotels and their operation, utilities, premiums on required
insurance coverage, rents due under ground and equipment leases and all amounts
due under the terms of the Management Agreements described below. Host is also
required to provide the hotel manager with working capital to meet the operating
needs of the Hotels. The Sellers had previously made such advances related to
the Hotels in the amount of $2,381,000 and transferred their interest in such
amounts to Host on the Commencement Date.
The Leases require Host to escrow, or cause the hotel manager to escrow, an
amount equal to 5% of Total Hotel Sales into an HPT owned reserve (the "FF&E
Reserve"), which amount shall be available for the cost of required replacements
and renovation. Any requirements for funds in excess of amounts in the FF&E
Reserve shall be provided by HPT ("HPT Fundings") at the request of Host. In the
event of HPT Fundings, Base Rent shall be adjusted upward by an amount equal to
10% of HPT Fundings.
F-29
<PAGE> 130
HMH HPT COURTYARD, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Leases require Host to maintain a minimum net worth, as defined, equal
to one year's base rent. For purposes of this covenant, deferred gain is
excluded from the calculation of net worth.
Management Agreements
As part of the sale of the Hotels, the Sellers' rights and obligations
under management agreements (the "Management Agreements") with a subsidiary
("Marriott" or the "Manager") of Marriott International, Inc. with an initial
term expiring in 2013, were transferred to HPT, and the Manager has the option
to extend the agreement on all of the Initial Hotels for up to three 10 year
terms.
The Management Agreements provide that Marriott be paid a system fee equal
to 3% of Total Hotel Sales, a base management fee of 2% of Total Hotel Sales
("Base Management Fee") and an incentive management fee equal to 50% of
available cash flow, not to exceed 20% of operating profit, as defined
("Incentive Management Fee"). Total Hotel Sales represents all revenues and
receipts of every kind derived from guests or other customers related to
Marriott's operation of the Hotels. In addition, Marriott is reimbursed for each
Hotel's pro rata share of the actual costs and expenses incurred in providing
certain services on a central or regional basis to all Courtyard by Marriott[R]
hotels operated by Marriott.
Base Rent is to be paid prior to payment of Base Management Fees and
Incentive Management Fees. To the extent Base Management Fees are so deferred,
they must be paid in future periods. If available cash flow is insufficient to
pay Incentive Management Fees, no Incentive Management Fees are earned by
Marriott.
NOTE 3. OTHER ASSETS
Pursuant to the terms of the agreement for the sale of the Hotels, HPT held
$17,940,000 as a security deposit for the obligations of Host under the Leases
(the "Security Deposit"). The Security Deposit is due upon termination of the
Leases, including renewal terms.
NOTE 4. INCOME TAXES
Host and Host Marriott Corporation are members of a consolidated group for
federal income tax purposes and have agreed that Host will not be responsible
for any tax liability associated with the Security Deposit and, accordingly, no
such deferred tax liability has been reflected in the accompanying balance
sheet.
<TABLE>
The components of Host's effective income tax rate follow:
<S> <C>
Statutory Federal tax rate...................................... 35%
State income tax, net of Federal tax benefit.................... 6
--
41%
==
</TABLE>
There is no difference between the basis of assets and liabilities for income
tax and financial reporting purposes other than for the Security Deposit.
F-30
<PAGE> 131
HMH HPT COURTYARD, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
NOTE 5. OPERATING LEASE COMMITMENTS
Future minimum annual rental commitments for the Leases on the Hotels and
other noncancelable leases entered into by Host, or by Marriott on behalf of
Host, including the ground leases described below, are as follows (in
thousands):
<CAPTION>
OTHER
LEASES OPERATING
FISCAL YEAR (SEE NOTE 2) LEASES
----------- ------------ ---------
<S> <C> <C>
1995.............................................. $ 9,660 $ 313
1996.............................................. 17,940 581
1997.............................................. 17,940 569
1998.............................................. 17,940 545
1999.............................................. 17,940 545
Thereafter........................................ 125,580 13,518
-------- -------
Total minimum lease payments........................... $207,000 $16,071
======== =======
</TABLE>
The land under three of the Hotels is leased from third parties. The ground
leases have remaining terms (including all renewal options) expiring between the
years 2039 and 2041. The ground leases provide for rent based on specific
percentages of certain sales categories subject to minimum amounts. The minimum
rentals are adjusted at various anniversary dates throughout the lease terms, as
defined in the agreements.
F-31
<PAGE> 132
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of the Initial Hotels (as defined in Note 1):
We have audited the accompanying combined statements of assets, liabilities
and net investment and advances of the Initial Hotels, as defined in Note 1, as
of December 30, 1994 and December 31, 1993, and the related combined statements
of revenues and expenses excluding income taxes, and cash flows for each of the
three fiscal years in the period ended December 30, 1994. These financial
statements are the responsibility of Host Marriott Corporation'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.
The accompanying financial statements have been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the registration statement on Form S-11 of
Hospitality Properties Trust) as described in Note 1 and are not intended to be
a complete presentation of the Initial Hotels' assets, liabilities and net
investment and advances, revenues and expenses or cash flows.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets, liabilities and net investment and
advances of the Initial Hotels as of December 30, 1994 and December 31, 1993,
and their revenues and expenses excluding income taxes, and their cash flows for
each of the three fiscal years in the period ended December 30, 1994, in
conformity with generally accepted accounting principles.
As explained in Note 3 to the combined financial statements, in 1993 the
Initial Hotels changed their method of accounting for assets held for sale.
ARTHUR ANDERSEN LLP
Washington, D.C.
June 21, 1995
F-32
<PAGE> 133
INITIAL HOTELS
<TABLE>
COMBINED STATEMENTS OF REVENUES AND EXPENSES EXCLUDING INCOME TAXES
FOR THE FISCAL YEARS ENDED JANUARY 1, 1993, DECEMBER 31, 1993, DECEMBER 30,
1994, AND THE TWENTY-FOUR WEEKS ENDED JUNE 17, 1994 AND JUNE 16, 1995
<CAPTION>
TWENTY-FOUR WEEKS
ENDED
FISCAL YEARS ENDED --------------------
-------------------------------- JUNE 17, JUNE 16,
1992 1993 1994 1994 1995
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total Hotel Sales (Note 1)................ $103,744 $113,356 $120,897 $56,068 $42,071
======== ======== ======== ======= =======
Revenues (Note 1)......................... $ 41,969 $ 49,850 $ 58,186 $27,339 $21,389
Expenses:
Depreciation and amortization........ 17,422 16,428 14,515 7,121 8,163
Courtyard system fee................. 3,115 3,401 3,627 2,195 1,262
Property taxes....................... 4,370 4,701 3,864 2,089 1,350
Incentive management fee............. -- -- 2,825 881 943
Other................................ 2,044 2,303 2,181 1,069 750
-------- -------- -------- ------- -------
Total expenses.................. 26,951 26,833 27,012 13,355 12,468
-------- -------- -------- ------- -------
Revenues over expenses excluding income
taxes before cumulative effect of change
in accounting principle................. 15,018 23,017 31,174 13,984 8,921
Cumulative effect of change in accounting
for assets held for sale................ -- 14,500 -- -- --
-------- -------- -------- ------- -------
Revenues over expenses excluding income
taxes................................... $ 15,018 $ 8,517 $ 31,174 $13,984 $ 8,921
======== ======== ======== ======= =======
Unaudited pro forma data:
Pro forma income tax expense......... $ 6,043 $ 3,407 $ 12,781 $ 5,733 $ 3,658
-------- -------- -------- ------- -------
Pro forma net income after tax....... $ 8,975 $ 5,110 $ 18,393 $ 8,251 $ 5,263
======== ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-33
<PAGE> 134
INITIAL HOTELS
COMBINED STATEMENTS OF ASSETS, LIABILITIES
AND NET INVESTMENT AND ADVANCES
<TABLE>
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, DECEMBER 30, JUNE 16,
1993 1994 1995
------------ ------------ -----------
<S> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
ASSETS
Property and equipment, net........................... $326,253 $316,736 $ 132,189
Property improvement fund............................. 697 -- --
Due from Marriott..................................... 229 898 866
Advances to Marriott.................................. 3,658 3,658 1,277
Pre-opening costs..................................... 831 45 --
-------- -------- --------
$331,668 $321,337 $ 134,332
======== ======== ========
LIABILITIES AND NET INVESTMENT AND ADVANCES
Accrued expenses...................................... $ 1,023 $ 642 $ 182
Net investment and advances........................... 330,645 320,695 134,150
-------- -------- --------
$331,668 $321,337 $ 134,332
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-34
<PAGE> 135
INITIAL HOTELS
<TABLE>
COMBINED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JANUARY 1, 1993, DECEMBER 31, 1993, DECEMBER 30,
1994, AND THE TWENTY-FOUR WEEKS ENDED JUNE 17, 1994 AND JUNE 16, 1995
<CAPTION>
TWENTY-FOUR
FISCAL YEARS ENDED WEEKS ENDED
---------------------------------- ---------------------
JUNE 17, JUNE 16,
1992 1993 1994 1994 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
Cash flows from operating
activities:
Revenues over expenses,
excluding income taxes....... $ 15,018 $ 8,517 $ 31,174 $ 13,984 $ 8,921
Noncash items:
Depreciation and
amortization............ 17,422 16,428 14,515 7,121 8,163
Cumulative effect of
change in accounting for
assets held for sale.... -- 14,500 -- -- --
Changes in operating accounts:
Due from Marriott.... -- (229) (669) 173 (32)
Advances to
Marriott........... -- (3,658) -- -- (2,381)
Accrued expenses..... 236 753 (381) (598) (460)
-------- -------- -------- -------- --------
Cash provided by
operations.............. 32,676 36,311 44,639 20,680 14,211
Cash flows from investing
activities:
Additions to property and
equipment.................... (10,038) (1,461) (4,212) (3,316) (4,103)
Change in property improvement
fund......................... -- (697) 697 (922) --
-------- -------- -------- -------- --------
Cash used in investing
activities.............. (10,038) (2,158) (3,515) (4,238) (4,103)
-------- -------- -------- -------- --------
Cash flows from financing
activities:
Changes in net investment and
advances..................... (22,638) (34,153) (41,124) (16,442) (10,108)
-------- -------- -------- -------- --------
Increase (decrease) in cash and cash
equivalents....................... -- -- -- -- --
Cash and cash equivalents at
beginning of year................. -- -- -- -- --
-------- -------- -------- -------- --------
Cash and cash equivalents at end of
period............................ $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-35
<PAGE> 136
INITIAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. PROPOSED INITIAL PUBLIC OFFERING AND BASIS OF PRESENTATION
Organization
Hospitality Properties Trust (the "Company") is a Maryland real estate
investment trust which has been recently established to acquire, own and lease
hotel properties. The Company intends to operate as a real estate investment
trust under the Internal Revenue Code and is currently a wholly owned subsidiary
of Health and Retirement Properties Trust ("HRP"). The Company plans to issue
shares in an initial public offering (the "Offering").
<TABLE>
Basis of Presentation
Host Marriott Corporation ("Host Marriott") or a subsidiary thereof
designed, constructed or acquired certain Courtyard by Marriott[R] Hotels,
including the 37 properties listed below (collectively, the "Initial Hotels"
and, individually, the "Hotel" or "Hotels").
<CAPTION>
GROUP A HOTELS GROUP B HOTELS
<S> <C>
Phoenix, AZ Camarillo, CA
Scottsdale, AZ Huntington Beach/Fountain Valley, CA
Atlanta Airport North, GA Los Angeles Airport, CA
Atlanta-Cumberland Center, GA San Jose Airport, CA
Atlanta-Jimmy Carter Blvd., GA Wilmington, DE
Atlanta-Midtown, GA Boca Raton, FL
Indianapolis, IN Macon, GA
Danvers, MA Columbia, MD
Foxborough, MA Norwood, MA
Milford, MA Woburn, MA
Lowell, MA Kansas City Airport, MO
Stoughton, MA Fayetteville, NC
Detroit/Auburn Hills, MI Charlotte-University Research Park, NC
Minneapolis/Eden Prairie, MN Chattanooga, TN
South Kansas City, MO Dallas/Northpark, TX
Mahwah, NJ Milwaukee/Brookfield, WI
Raleigh/Durham Airport, NC
Philadelphia Airport, PA
Spartanburg, SC
Fairfax, VA
Bellevue, WA
</TABLE>
All of the Initial Hotels are included in the accompanying financial
statements for all periods presented except: (i) information for 21 Initial
Hotels (Group A) is excluded for the period between March 25, 1995 and June 16,
1995; and (ii) information for the Boca Raton, FL Hotel, which opened in April
1992, is included only from its date of opening.
The Group A Hotels were acquired by the Company on March 24, 1995 for
approximately $179.4 million from affiliates of Host Marriott. As a result, as
of March 24, 1995, the ownership of the Group A Hotel assets are reflected in
the financial statements of the Company and the results of operations of the
Group A Hotels are reflected in the financial statements of a subsidiary
("Host") of Host Marriott. The accompanying financial statements include the
results of operations, financial position and cash flows of the Group A Hotels
through March 24, 1995. Substantially all of the funding for this acquisition
was provided to the Company by HRP as a demand loan. The Group B Hotels are
expected to be acquired by the Company from a subsidiary of Host Marriott for
approximately $149.6 million with a portion of the proceeds of the proposed
Offering. The accompanying financial statements include the results of
operations, financial position and cash flows of the Group B Hotels for periods
prior to the intended sale of Group B Hotels to the Company. All of the Initial
F-36
<PAGE> 137
INITIAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Hotels have been or are expected to be leased by the Company to Host, and
managed by a subsidiary ("Marriott" or the "Manager") of Marriott International,
Inc. The management agreements described in Note 4 between Host Marriott and
Marriott related to the Hotels have been or will be assigned to the Company, and
certain terms of such agreements will be amended.
The Initial Hotels include the buildings, improvements and equipment for
each of the Hotels, the land on which 32 of the Hotels are located and the
leasehold interest in the land under five of the Hotels. Assets and liabilities
of the Initial Hotels have been stated at Host Marriott's historical cost basis.
The accompanying combined financial statements have been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11 of
Hospitality Properties Trust. The Initial Hotels, for the periods presented,
were a lesser component of Host Marriott, and historically operated as an
integral part of Host Marriott. Host Marriott has not historically allocated or
charged individual units for interest on net advances and no such expenses are
reflected in the accompanying financial statements. The accompanying financial
statements also include no provision or assets or liabilities related to federal
or state income taxes because the Initial Hotels did not pay income taxes and
Host Marriott does not allocate or charge these expenses to its individual
units. Accordingly, the accompanying financial statements are not intended to be
a complete presentation of the Initial Hotel's assets, liabilities and net
investment and advances, revenues and expenses or cash flows.
There are no allocations of interest, taxes, overhead, general and
administrative or other corporate costs made by Host Marriott to the Initial
Hotels. Changes in net investment and advances represent the revenues over
expenses excluding income taxes, of the Initial Hotels adjusted for cash
transferred between Host Marriott and the Initial Hotels.
<TABLE>
An analysis of the activity in this balance for the three fiscal years
ended December 30, 1994 is as follows:
<CAPTION>
(IN THOUSANDS)
<S> <C>
Balance January 3, 1992................................................ $363,901
Revenues over expenses excluding income taxes.......................... 15,018
Net cash transferred to Host Marriott.................................. (22,638)
--------
Balance January 1, 1993................................................ 356,281
Revenues over expenses excluding income taxes.......................... 8,517
Net cash transferred to Host Marriott.................................. (34,153)
--------
Balance December 31, 1993.............................................. 330,645
Revenues over expenses excluding income taxes.......................... 31,174
Net cash transferred to Host Marriott.................................. (41,124)
--------
Balance December 30, 1994.............................................. $320,695
========
</TABLE>
The average net investment and advances for fiscal years 1992, 1993 and
1994 was approximately $360 million, $351 million and $327 million,
respectively.
Hotel Sales and Revenues
Total Hotel Sales are presented in the accompanying statement of revenues
and expenses excluding income taxes for the purpose of providing supplemental
information regarding the gross sales volume of the Initial Hotels. Total Hotel
Sales represents all revenues and receipts of every kind derived from guests or
other customers related to Marriott's operation of the Initial Hotels.
Revenues in the accompanying statement of revenues and expenses excluding
income taxes represent house profit from the Initial Hotels. House profit
represents Total Hotel Sales less property level expenses
F-37
<PAGE> 138
INITIAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
excluding depreciation and amortization, system fees, real and personal property
taxes, ground rent, insurance and management fees. The system fees and
management fees presented on the accompanying income statement and the expenses
detailed below represent all the costs incurred directly, allocated or charged
by the Manager (as defined below) to the Initial Hotels. The detail of Total
Hotel Sales and a reconciliation to revenue follows:
<CAPTION>
TWENTY-FOUR WEEKS ENDED
FISCAL YEARS ENDED
---------------------------------- -----------------------
JUNE 17, JUNE 16,
1992 1993 1994 1994 1995
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Hotel sales:
Rooms.......................... $ 85,905 $ 95,899 $104,293 $48,007 $36,769
Food and beverage.............. 13,593 12,990 11,702 5,784 3,659
Other.......................... 4,246 4,467 4,902 2,277 1,643
-------- -------- ------- ------- -------
Total Hotel Sales......... 103,744 113,356 120,897 56,068 42,071
Expenses:
Departmental direct costs
Rooms(A)....................... 20,020 21,961 23,074 10,490 8,000
Food and beverage(B)........... 10,859 10,054 9,136 4,449 2,904
Other operating
departments(C)............... 1,389 1,481 1,529 738 475
General and
administrative(D)............ 10,401 12,205 12,095 5,107 3,425
Utilities(E)................... 4,824 5,226 5,042 2,433 1,833
Repairs, maintenance and
accidents(F)................. 6,720 5,381 4,882 2,245 1,748
Marketing and sales(G)......... 2,686 2,437 2,292 1,041 677
Chain services(H).............. 4,876 4,761 4,661 2,226 1,620
-------- -------- -------- ------- -------
Total expenses............ 61,775 63,506 62,711 28,729 20,682
-------- -------- -------- ------- -------
Revenues............................ $ 41,969 $ 49,850 $ 58,186 $27,339 $21,389
======== ======== ======== ======= =======
<FN>
- ---------------
(A) Includes expenses for linen, cleaning supplies, laundry, guest supplies,
reservations costs, travel agents commissions, walked guest expenses and
wages, benefits and bonuses for employees of the rooms department.
(B) Includes costs of food and beverages sold, china, glass, silver, paper,
and cleaning supplies and wages, benefits and bonuses for employees of
the food and beverage department.
(C) Includes expenses related to operating the telephone department.
(D) Includes management and hourly wages, benefits and bonus, credit and
collection expenses, employee relations, guest relations, bad debt
expenses, office supplies and miscellaneous other expenses.
(E) Includes electricity, gas and water at the properties.
(F) Includes cost of repairs and maintenance and the cost of accidents at
the properties.
(G) Includes management and hourly wages, benefits and bonuses, promotional
expense and local advertising.
(H) Includes charges from the Manager for Chain Services as allowable under
the Management Agreement.
</TABLE>
F-38
<PAGE> 139
INITIAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Distribution
On October 8, 1993 (the "Distribution Date"), Marriott Corporation's
operations were divided into two separate companies: Host Marriott and Marriott
International, Inc. On the Distribution Date, Marriott and a subsidiary of Host
Marriott entered into a management agreement (See Note 4), under which Marriott
operates the Hotels. Prior to the Distribution Date, all Hotel operating
activities were performed by Marriott Corporation.
Fiscal Year
The Initial Hotels' fiscal year ends on the Friday nearest to December 31.
The fiscal year is divided into 13 accounting periods of four weeks each.
Property and Equipment
Property and equipment is recorded at cost, including interest and real
estate taxes incurred during development and construction. Replacements and
improvements are capitalized.
Depreciation is computed using the straight line method over the estimated
useful lives of the assets, generally 40 years for buildings and improvements
and three to 10 years for furniture and equipment.
In cases where management is holding for sale particular lodging
properties, Host Marriott assesses impairment based on whether the net
realizable value (estimated sales price less costs of disposal) of each
individual property to be sold is less than the net book value. A lodging
property is considered to be held for sale when Host Marriott has made the
decision to dispose of the property. Otherwise, Host Marriott assesses
impairment of its real estate properties based on whether it is probable that
undiscounted future cash flows from each individual property will be less than
its net book value.
Pre-Opening Costs
Costs of an operating nature incurred prior to opening of the Hotels are
deferred and amortized over three years. Amortization expense was $3,626,000,
$2,747,000 and $786,000 for 1992, 1993 and 1994, respectively.
Cash and Cash Equivalents
The Initial Hotels consider all highly liquid investments with a maturity
of three months or less at date of purchase to be cash equivalents. Cash and
cash equivalents generated by the Hotels is transferred to Host Marriott.
Operating expenses, capital expenditures and other cash requirements of the
Initial Hotels are paid by Host Marriott and charged directly to the Initial
Hotels.
Interim Financial Statements
The accompanying interim period financial statements are unaudited but, in
the opinion of management, reflect all adjustments (consisting principally of
normal recurring adjustments) necessary for a fair presentation of the results
for the interim periods presented. During the twenty-four weeks ended June 16,
1995 the Company adjusted the carrying value of certain hotel assets by $3
million to reflect the net realizable value of these assets. Such adjustment has
been classified in depreciation expense in the accompanying statement of
revenues over expenses excluding income taxes. The results for the interim
periods are not necessarily indicative of the results to be obtained for the
full fiscal year due to the seasonal nature of the Initial Hotels' business.
F-39
<PAGE> 140
INITIAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
New Statement of Financial Accounting Standards
The Initial Hotels are required to adopt 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" no later than their fiscal year
ending December 28, 1996. Management anticipates that adoption of SFAS No. 121
will not have a material effect on the Initial Hotels' financial statements.
Unaudited Pro Forma Data
The accompanying statement of revenues and expenses excluding income taxes
and Note 6 present unaudited pro forma income taxes for each period presented
based upon the effective Federal and state tax rates of 40%, 40% and 41% for
fiscal years 1992, 1993, 1994 respectively.
<TABLE>
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<CAPTION>
DECEMBER 31, DECEMBER 30,
1993 1994
------------ ------------
<S> <C> <C>
Land and land improvements.......................... $ 70,935 $ 71,014
Buildings and leasehold improvements................ 250,321 251,149
Furniture and equipment............................. 47,912 49,706
Construction in progress............................ 129 666
------------ ------------
369,297 372,535
Less accumulated depreciation....................... 43,044 55,799
-------- --------
Property and equipment, net......................... $326,253 $316,736
======== ========
</TABLE>
Most hotels developed by Host Marriott since the early 1980s were reported
as assets held for sale prior to 1992. In early 1992, Host Marriott decided it
was no longer appropriate to view sales of lodging properties, subject to
operating agreements, as a primary means of long term financing. Accordingly,
Host Marriott discontinued classification of these properties as assets held for
sale.
Following discussions with the Staff of the Securities and Exchange
Commission, Host Marriott agreed in the second quarter of 1993 to change its
method of determining net realizable value of assets held for sale. Host
Marriott previously determined net realizable value of such assets on an
aggregate basis, in the case of Courtyard by Marriott[R] hotels. Beginning in
the second fiscal quarter of 1993 and thereafter, under Host Marriott's new
accounting policy, net realizable value of all assets held for sale is
determined on a property by property basis. The cumulative pretax effect of this
change on periods prior to the second quarter of 1993 of $14.5 million is
reflected as a cumulative effect of a change in accounting for assets held for
sale in the accompanying combined statement of revenues and expenses, excluding
income taxes, for the fiscal year ended December 31, 1993. The reduction in the
annual depreciation charge as a result of this change was approximately
$295,000.
NOTE 4. MANAGEMENT AGREEMENTS
Subsequent to the Distribution Date, Marriott operates the Initial Hotels
pursuant to long term management agreements with initial terms expiring in 2013.
The management agreements provide for a Courtyard by Marriott[R] system fee
equal to 3% of Total Hotel Sales. In addition, Marriott is reimbursed for each
Hotel's pro rata share of the actual costs and expenses incurred in providing
certain services ("Chain Services") on a central or regional basis to all hotels
operated by Marriott. Chain Services are included in other property level
operating expenses, a reduction in deriving revenues (See Note 1 -- Hotel Sales
and Revenues). These arrangements regarding the Courtyard by Marriott[R] system
fee and Chain Services existed prior to the Distribution Date and as such, for
the three fiscal years ended December 30, 1994, the Initial
F-40
<PAGE> 141
INITIAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Hotels paid a Courtyard by Marriott(R) system fee of $3,115,000, $3,401,000 and
$3,627,000 and reimbursed Marriott for $4,876,000, $4,761,000 and $4,661,000 of
Chain Services.
In addition, Marriott is entitled to an incentive management fee equal to
50% of available cash flow, not to exceed 20% of operating profit, as defined,
calculated on a combined basis for all Courtyard by Marriott(R) hotels owned by
Host Marriott. Available cash flow is defined as revenues less base management
fees, Courtyard by Marriott(R) system fee, property taxes, other expenses and a
stated annual priority amount. Incentive management fees were not earned by
Marriott except in fiscal 1994 due to the fact that there was no available cash
flow, as defined. The total incentive management fees paid by Host Marriott in
fiscal 1994 has been allocated to the Initial Hotels in the accompanying
financial statements based on Total Hotel Sales. For the fiscal year ended
December 30, 1994, incentive management fees of $2,825,000 were earned by
Marriott, allocated to the Initial Hotels, and paid in January 1995. No
incentive management fees were earned or paid for the period from the
Distribution Date through December 31, 1993.
The hotels are subject to the terms of a consolidation agreement
("Consolidation Agreement") pursuant to which (i) certain fees payable under the
management agreements are determined on a consolidated basis with certain fees
payable under the management agreements for all lodging facilities of the same
type and (ii) certain base fees payable under the management agreements with
respect to a particular lodging facility are waived in return for payment upon
the sale of or certain refinancings of such facilities. After the sale of any of
the Initial Hotels, the Consolidation Agreement will no longer be applicable to
such hotels.
Host Marriott is required to provide Marriott with working capital to meet
the operating needs of the Hotels. Marriott as the manager converts cash
advanced by Host Marriott into other forms of working capital consisting
primarily of operating cash, inventories, and trade receivables and payables
which are maintained and controlled by MII. The individual components of working
capital controlled by Marriott are not reflected in the accompanying combined
statement of assets, liabilities and net investment and advances (see Note 1).
As of December 30, 1994, $3,658,000 has been advanced to Marriott for working
capital.
The management agreements provided for the establishment of a property
improvement fund (the "FF&E Reserve") for the Hotels. Contributions to the FF&E
Reserve are 5% of Total Hotel Sales, beginning on the Distribution Date.
Contributions to the FF&E Reserve from the Distribution Date through December
31, 1993 were $1,873,000 and for the fiscal year ended December 30, 1994 were
$6,249,000. For the twenty-four weeks ended June 16, 1995, contributions were
approximately $2,724,000 (unaudited).
During 1994, the management agreements were amended and $2,540,000,
representing the entire then remaining balance of the FF&E Reserve, was returned
to Host Marriott. It was also agreed that future contributions (until the time
of sale of any of the Initial Hotels) would be retained by Host Marriott and
advanced to the Initial Hotels at such time as improvements are made to the
properties. Such amounts have been included in the change in net investment and
advances in the accompanying combined statement of cash flows. As of June 16,
1995, the FF&E Reserve balance was approximately $1,329,000 (unaudited).
F-41
<PAGE> 142
INITIAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
NOTE 5. LEASES
Future minimum annual rental commitments for all noncancelable leases
entered into by Host Marriott, or by Marriott on behalf of Host Marriott,
including the ground leases described below, are as follows (in thousands):
<CAPTION>
OPERATING
FISCAL YEAR LEASES
---------
<S> <C>
1995............................................. $ 1,226
1996............................................. 1,226
1997............................................. 1,199
1998............................................. 972
1999............................................. 972
Thereafter....................................... 23,622
-------
Total minimum lease payments.......................... $29,217
=======
</TABLE>
The Initial Hotels lease the land under three of the Group A Hotels and two
of the Group B Hotels under ground lease agreements with third parties. The
ground leases have remaining terms (including all renewal options) expiring
between the years 2039 and 2067. The ground leases provide for rent based on
specific percentages of certain sales categories subject to minimum amounts. The
percentage are adjusted at various anniversary dates throughout the lease terms,
as defined in the agreements.
<TABLE>
NOTE 6. PRO FORMA RESULTS OF OPERATIONS
As discussed in Note 1, all the 21 Group A Hotel assets were acquired by
the Company on March 24, 1995. The condensed results of operations of the 16
Group B Hotels only are set forth below:
<CAPTION>
YEAR ENDED
DECEMBER 30, TWENTY-FOUR WEEKS TWENTY-FOUR WEEKS
1994 ENDED JUNE 17, 1994 ENDED JUNE 16, 1995
------------ ------------------- -------------------
<S> <C> <C> <C>
Total hotel sales............................... $50,508 $23,743 $25,451
======= ======= =======
Revenues........................................ $25,966 $11,933 $12,665
Depreciation expense............................ (7,475) (3,187) (5,163)
Other expenses.................................. (6,321) (2,476) (2,606)
------- ------- -------
Revenues over expenses excluding income taxes... 12,170 6,270 4,896
Pro forma income tax expense (Note 2)........... (4,990) (2,571) (2,007)
------- ------- -------
Pro forma net income after tax.................. $ 7,180 $ 3,699 $ 2,889
======= ======= =======
</TABLE>
F-42
<PAGE> 143
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of the Initial Hotels:
We have audited in accordance with generally accepted auditing standards
the financial statements of the Initial Hotels (as defined in Note 1 of those
financial statements) included in this prospectus and have issued our report
thereon dated June 21, 1995. Our audit was made for the purpose of forming an
opinion on those statements taken as a whole. The schedule on pages F-44 and
F-45 is the responsibility of Host Marriott Corporation's management and is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
June 21, 1995
F-43
<PAGE> 144
SCHEDULE III
Page 1 of 2
INITIAL HOTELS
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 30, 1994
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
GROSS AMOUNT AT
INITIAL COSTS DECEMBER 30, 1994
-------------------- SUBSEQUENT --------------------
BUILDINGS & COSTS BUILDINGS &
DESCRIPTION DEBT LAND IMPROVEMENTS CAPITALIZED LAND IMPROVEMENTS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Courtyard......................... -- $71 $246 $6 $71 $251 $322
<CAPTION>
DATE OF ACQUISITION
ACCUMULATED OR COMPLETION OF DEPRECIATION
DESCRIPTION DEPRECIATION CONSTRUCTION LIFE
<S> <C> <C> <C>
Courtyard......................... $ (27) 1987-1992 40
</TABLE>
The accompanying notes are an integral part of this schedule.
F-44
<PAGE> 145
SCHEDULE III
Page 2 of 2
INITIAL HOTELS
REAL ESTATE AND ACCUMULATED DEPRECIATION -- NOTES TO SCHEDULE
DECEMBER 30, 1994
(IN THOUSANDS)
NOTES:
(A) The change in total cost of properties for the year ended December 30, 1994
is as follows:
<TABLE>
<S> <C>
Balance at December 31, 1993........................................ $321,256
Additions: Capital expenditures..................................... 1,573
--------
Balance at December 30, 1994........................................ $322,829
========
</TABLE>
(B) The change in accumulated depreciation and amortization for the year ended
December 30, 1994 is as follows:
<TABLE>
<S> <C>
Balance at December 31, 1993........................................ $ 20,536
Depreciation and amortization.................................. 6,528
--------
Balance at December 30, 1994........................................ $ 27,064
========
</TABLE>
F-45
<PAGE> 146
[Six photographs of five different properties and one Marriott Courtyard sign.]
<PAGE> 147
===============================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.............................. 1
Risk Factors.................................... 13
The Company..................................... 24
Use of Proceeds................................. 25
Distribution Policy............................. 26
Capitalization.................................. 28
Dilution........................................ 29
Pro Forma and Selected Financial and Operating
Data.......................................... 30
Management's Discussion and Analysis of
Financial
Condition and Results of Operations............. 33
The Initial Hotels.............................. 38
Business........................................ 43
The Initial Lessee.............................. 49
The Initial Leases.............................. 49
The Manager..................................... 54
The Management Agreements....................... 54
Management...................................... 58
Advisors and the Advisory Agreement............. 60
Policies with Respect to Certain Activities..... 63
Description of the Shares....................... 65
Summary of the Declaration of Trust............. 66
Principal Shareholders.......................... 71
Shares Eligible for Future Sale................. 72
Federal Income Tax Considerations............... 73
Certain United States Tax Considerations for
Non-U.S. Holders of Shares.................... 81
ERISA Plans, KEOGH Plans and Individual
Retirement Accounts........................... 83
Underwriting.................................... 86
Experts......................................... 87
Legal Matters................................... 87
Additional Information.......................... 87
Glossary........................................ 89
Index to Financial Statements................... F-1
------------------
UNTIL , 1995 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
</TABLE>
7,500,000 SHARES
HOSPITALITY PROPERTIES TRUST
COMMON SHARES OF
BENEFICIAL INTEREST
--------------------
PROSPECTUS
--------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEAN WITTER REYNOLDS INC.
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
, 1995
===============================================================================
<PAGE> 148
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
[ALTERNATE PAGE FOR HRPT PROSPECTUS]
SUBJECT TO COMPLETION, DATED JULY 25, 1995
PROSPECTUS
, 1995
4,210,000 SHARES
HOSPITALITY PROPERTIES TRUST
COMMON SHARES OF BENEFICIAL INTEREST
All of the Common Shares of Beneficial Interest (the "Shares") offered
hereby (this "Offering") are being offered for sale by Hospitality Properties
Trust (the "Company"). The Company is currently a wholly owned subsidiary of
Health and Retirement Properties Trust, a New York Stock Exchange listed REIT
("HRP"). In a concurrent offering, the Company is offering for sale 7,500,000
Shares to the public. Upon completion of this Offering, HRP and HRPT Advisors,
Inc. ("Advisors") collectively will own 36.2% of the Company.
Upon completion of this Offering, the Company will operate as a REIT and
will own 37 Courtyard by Marriott(R) hotels with 5,286 guest rooms (the "Initial
Hotels"). All of the Initial Hotels will be leased to a subsidiary of Host
Marriott Corporation and managed by a subsidiary of Marriott International, Inc.
Prior to this Offering, there has been no public market for the Shares. The
offering price to HRP and Advisors will be $25.00 per Share. The Company intends
to pay regular quarterly dividends at a rate of $0.55 per Share ($2.20 per Share
per annum) commencing with the quarter ending September 30, 1995.
The Shares have been approved for listing on the New York Stock Exchange
("NYSE") under the symbol "HPT", subject to official notice of issuance.
SEE "RISK FACTORS" ON PAGE 13, INCLUDING:
- ADVERSE TAX CONSEQUENCES IF THE COMPANY FAILS TO QUALIFY AS A REIT;
- INABILITY OF THE COMPANY AS A REIT TO OPERATE ITS HOTEL PROPERTIES;
- POTENTIAL CONFLICTS OF INTEREST AND BENEFITS TO HRP AND ADVISORS;
- LIMITED OPERATING HISTORY AND DEPENDENCE ON KEY PERSONNEL;
- INITIAL DEPENDENCE ON SINGLE LESSEE, SINGLE MANAGER AND SINGLE BRAND
NAME;
- CONCENTRATION OF OWNERSHIP BY HRP AND ADVISORS;
- LACK OF PRIOR MARKET FOR THE SHARES AND EFFECT OF INTEREST RATES ON
THE PRICE OF THE SHARES;
- ASSET VALUES MAY NOT REFLECT MARKET VALUES;
- OWNERSHIP LIMITATIONS AND ANTITAKEOVER PROVISIONS; AND
- RISKS OF FUTURE LEVERAGE AND LACK OF ESCROW OF SECURITY DEPOSIT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON
OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
<PAGE> 149
[ALTERNATIVE PAGE FOR HRPT PROSPECTUS]
PLAN OF DISTRIBUTION
The purchase price for the Shares offered hereby will be $25.00 per Share.
The Company will not pay any person any commission or fee in connection with the
offer or sale of these Shares to HRP and Advisors. The cash proceeds of this
Offering to the Company will be $6.25 million and HRP will purchase its Shares
by cancelling a portion of the HRP Loan. The Company will use the proceeds
hereof together with proceeds of the concurrent offering to the public to
purchase the additional 16 Initial Hotels and to repay a portion of the HRP
Loan. See "Use of Proceeds."
The initial purchase price was determined through negotiations among the
Company, HRP and Advisors.
The consummation of this Offering is contingent on the consummation of the
concurrent registered offering by the Company of 7,500,000 Shares to the public.
<PAGE> 150
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses incurred by the Registrant in
connection with the offering of the Shares being registered. All the amounts
shown are estimates except the Securities and Exchange Commission registration
fee, the National Association of Securities Dealers, Inc. fee and the New York
Stock Exchange listing fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
<S> <C>
SEC Registration Fee................................................ $118,776
NASD Fee............................................................ 30,500
New York Stock Exchange Listing Fee................................. 109,975
Transfer Agent's and Registrar's Fees............................... *
Printing and Engraving Fees......................................... 125,000
Legal Fees and Expenses (other than Blue Sky)....................... 750,000
Accounting Fees and Expenses........................................ 333,000
Blue Sky Fees and Expenses (including fees of counsel).............. *
Miscellaneous Expenses.............................................. *
--------
Total..................................................... $ *
========
</TABLE>
- ---------------
* To be provided by Amendment.
ITEM 31. SALES TO SPECIAL PARTIES.
See Item 32.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
On February 7, 1995, the Company was initially capitalized through the
issuance of 100 Shares to HRP for an aggregate cash contribution of $1.0
million. The Company was initially organized as a Delaware corporation and
subsequently merged on May 12, 1995 with a Maryland real estate investment trust
and effected a 400-for-1 stock split for each outstanding Share. HRP is
currently the sole shareholder of the Company. The 40,000 Shares currently
outstanding were purchased for investment for the purpose of organizing the
Company. The Registrants believe that the issuance and sale of such securities
was exempt from registration pursuant to Section 4(2) of the Securities Act of
1933, as amended.
ITEM 33. INDEMNIFICATION OF TRUSTEES AND OFFICERS.
The Trustees and officers of the Company are and will be indemnified
against certain liabilities in accordance with Sections 8-301(15) and 2-418 of
the Corporations and Associations Articles of the Annotated Code of Maryland and
the Company's Declaration of Trust (the "Company Declaration"). Certain
provisions of the Company Declaration permit the Company to indemnify its
Trustees and officers and persons serving in other capacities for or on its
behalf against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made a party by reason of such person serving as a Trustee, officer or in
certain other capacities unless it is established that (i) the act or omission
of the Trustee or officer was material to the matter giving rise to the
proceeding and (x) was committed in bad faith or (y) was the result of active
and deliberate dishonesty, (ii) the Trustee or officer actually received an
improper personal benefit in money, property or services or (iii) in the case of
any criminal proceeding, the Trustee or officer had reasonable cause to believe
that the act or omission was unlawful.
The form of Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement will provide for the reciprocal indemnification by the
Underwriters of the Registrant, and its Trustees, officers and controlling
II-1
<PAGE> 151
persons, and by the Registrant of the Underwriters, and their respective
directors, officers and controlling persons, against certain liabilities under
the Securities Act.
ITEM 34. TREATMENT OF PROCEEDS FROM SHARES BEING REGISTERED.
The consideration to be received by the Company for the Shares registered
will be credited to the appropriate capital stock account.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
Reference is made to Page F-1 of the Prospectus filed as part of this
Registration Statement.
(b) Financial Statement Schedule III (included at Page F-44 and F-45 of the
Prospectus filed as part of this Registration Statement).
All Schedules other than those indicated above have been omitted as the
required information is either not applicable or presented in the financial
statements or related notes thereto.
(c) Exhibits
A list of exhibits included as part of this Registration Statement is set
forth in the Index to Exhibits which immediately precedes such exhibits.
ITEM 36. UNDERTAKINGS.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to Trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a Trustee, officer
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such Trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification is against public policy as expressed in the Securities Act
of 1933, as amended, and will be governed by the final adjudication of such
issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, as amended, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4),
or 497(h) under the Securities Act of 1933, as amended, shall be deemed to be
part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, as amended, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 152
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boston, Commonwealth of Massachusetts on July
25, 1995.
HOSPITALITY PROPERTIES TRUST
/S/ GERARD M. MARTIN
By: ................................
GERARD M. MARTIN, PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following person in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME POSITION DATE
<C> <S> <C>
/S/ GERARD M. MARTIN President and Managing Trustee July 25, 1995
........................................ (Principal Executive Officer)
GERARD M. MARTIN
/S/ JOHN G. MURRAY Treasurer & Chief Financial July 25, 1995
........................................ Officer (Principal Accounting
JOHN G. MURRAY and Financial Officer)
/S/ BARRY M. PORTNOY Managing Trustee July 25, 1995
........................................
BARRY M. PORTNOY
</TABLE>
II-3
<PAGE> 153
POWER OF ATTORNEY
The undersigned Officers and Trustees of Hospitality Properties Trust
hereby serverally constitute Gerard M. Martin, John G. Murray and Barry M.
Portnoy, and each of them acting singly, to sign for us and in our names in the
capacities indicated below, the Registration Statement on Form S-11 (Reg. No.
33-92330), and any and all amendments to said Registration Statement, hereby
ratifying and confirming our signatures as they may be signed by our said
attorneys to the Registration Statement on Form S-11 and any and all amendments
to the Registration Statement.
Witness our hands and seals on the date set forth below:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<C> <S> <C>
/S/ GERARD M. MARTIN President (Principal Executive July 25, 1995
........................................ Officer) and Managing Trustee
GERARD M. MARTIN
/S/ JOHN G. MURRAY Treasurer & Chief Financial July 25, 1995
........................................ Officer (Principal Accounting
JOHN G. MURRAY and Financial Officer)
/S/ BARRY M. PORTNOY Managing Trustee July 25, 1995
........................................
BARRY M. PORTNOY
</TABLE>
II-4
<PAGE> 154
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DOCUMENT DESCRIPTION PAGE NO.
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement......................................
3.1** -- Declaration of Trust of the Registrant..............................
3.2** -- Bylaws of the Registrant............................................
4.1* -- Form of Share Certificate...........................................
5.1* -- Opinion of Sullivan & Worcester.....................................
5.2* -- Opinion of Piper & Marbury..........................................
8.1* -- Opinion of Sullivan & Worcester as to certain tax matters...........
10.1** -- Purchase-Sale and Option Agreement dated as of February 3, 1995 by
and among HMH Courtyard Properties, Inc., HMH Properties, Inc. and
Hospitality Properties, Inc., as amended............................
10.2** -- Form of Courtyard Management Agreement between HMH Courtyard
Properties, Inc., d/b/a HMH Properties, Inc. and Courtyard
Management Corporation..............................................
10.3** -- Form of First Amendment to Courtyard Management Agreement between
Courtyard Management Corporation and Hospitality Properties, Inc.
and Consolidation Letter Agreement by and between Courtyard
Management Corporation and Hospitality Properties, Inc..............
10.4** -- Form of Lease Agreement between Hospitality Properties, Inc. and HMH
HPT Courtyard, Inc..................................................
10.5 -- Form of Assignment and Assumption of Leases, Contracts and
Agreements in favor of Hospitality Properties, Inc..................
10.6* -- Advisory Agreement..................................................
10.7 -- Form of Acquisition Line Commitment Letter..........................
10.8* -- Hospitality Properties Trust 1995 Incentive Share Award Plan........
23.1 -- Consent of Arthur Andersen LLP......................................
23.2** -- Consents of Proposed Trustees, Arthur Koumantzelis and John
Harrington..........................................................
23.3 -- Consent of Proposed Trustee, William J. Sheehan.....................
23.4* -- Consent of Sullivan & Worcester (to be included in Exhibit 5.1 to
this Registration Statement)........................................
23.5* -- Consent of Piper & Marbury (to be included in Exhibit 5.2 to this
Registration Statement).............................................
24.1 -- Power of Attorney (on page II - 4)..................................
</TABLE>
- ---------------
* To be filed by Amendment.
** Previously filed.
<PAGE> 1
7,500,000 Shares
Hospitality Properties Trust
Common Shares of Beneficial Interest
UNDERWRITING AGREEMENT
__________, 1995
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEAN WITTER REYNOLDS INC.
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
As representatives of the
several underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
140 Broadway
New York, New York 10005
Dear Sirs:
Hospitality Properties Trust, a Maryland real estate investment trust
(the "Company"), proposes to issue and sell 7,500,000 common shares of
beneficial interest, par value $0.01 per share (the "Firm Shares"), to the
several underwriters named in Schedule I hereto (the "Underwriters"). The
Company also proposes to issue and sell to the several Underwriters not more
than 1,125,000 additional common shares of beneficial interest, par value $0.01
per share (the "Additional Shares"), if requested by the Underwriters as
provided in Section 2 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares". The common shares of
beneficial interest, par value $0.01 per share, of the
<PAGE> 2
Company to be outstanding after giving effect to the sales contemplated hereby
are hereinafter referred to as the "Common Shares".
It is understood that pursuant to a Purchase-Sale and Option Agreement
dated February 3, 1995 among the Company and certain affiliates of Host Marriott
Corporation, as amended (the "Purchase Agreement"), the Company (i) acquired 21
hotel properties on March 25, 1995 (the "Original Initial Hotels") and (ii)
proposes to acquire an additional 16 hotel properties contemporaneously with the
offering and sale of the Firm Shares to the Underwriters (the "Additional
Initial Hotels", and collectively with the Original Initial Hotels, the "Initial
Hotels"). It is further understood that in connection with the acquisition of
the Original Initial Hotels and the Additional Initial Hotels, respectively, the
Company has entered into or will enter into, as the case may be, a series of
transactions (the "Formation Transactions") generally described in the
Prospectus referred to below under the captions "Prospectus Summary -- Formation
of the Company", "Use of Proceeds", "Business -- Formation of the Company", "The
Initial Lessee", "The Initial Leases", "The Manager", "The Management
Agreements", "Advisors and The Advisory Agreement", pursuant to which the
Company shall (i) acquire the 37 Initial Hotels, (ii) lease the 37 Initial
Hotels to a limited purpose wholly owned subsidiary of Host Marriott Corporation
pursuant to separate operating leases (the "Initial Leases"), (iii) obtain and
assign rights arising under separate management agreements with a wholly owned
subsidiary of Marriott International, Inc., (the "Management Agreements") in
respect of the 37 Initial Hotels, (iv) enter into an advisory agreement with
HRPT Advisors, Inc. with respect to the Company's operations (the "Advisory
Agreement"), (v) repay borrowings (the "HRP Loan") from Health and Retirement
Properties Trust ("HRP") made to fund the acquisition of the Original Initial
Hotels, (vi) issue and sell 3,960,000 Common Shares to HRP and 250,000 Common
Shares to HRPT Advisors, Inc., at a price of $25.00 per share (the "Concurrent
Registered Offering"), and (vii) enter into an acquisition line of credit in an
aggregate amount of up to $200.0 million (together with a related interest rate
agreement to be entered into in connection therewith, the "Acquisition Line") to
fund a portion of the cost of acquiring the Additional Initial Hotels, to repay
a
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portion of the HRP Loan and to fund future acquisitions of hotel properties by
the Company.
The principal documents required to be executed and delivered by the
Company and HRP in order to consummate the Formation Transactions (including,
without limitation, this Agreement, the Purchase Agreement, the Initial Leases,
the Management Agreements, the Advisory Agreement and the Acquisition Line) are
hereinafter collectively referred to as the "Transaction Documents" and singly
as a "Transaction Document". Each Transaction Document constituting an
agreement is hereinafter referred to as a "Transaction Agreement". Capitalized
terms used herein and not otherwise defined herein have the meanings given to
them in the Prospectus referred to below under the caption "Glossary".
1. Registration Statement and Prospectus. The Company has prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively called the
"Act"), a registration statement on Form S-11 (File No. 33-92330) including a
prospectus relating to the Shares, which may be amended. The registration
statement as amended at the time when it becomes effective, including
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to
as the "Registration Statement"; and the prospectus in the form first used to
confirm sales of Shares is hereinafter referred to as the "Prospectus".
2. Agreements to Sell and Purchase. On the basis of the
representations and warranties contained in this Agreement, and subject to its
terms and conditions, the Company agrees to issue and sell, and each Underwriter
agrees, severally and not jointly, to purchase from the Company at a price per
share of $______ (the "Purchase Price") the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell the Additional Shares and the Underwriters shall have the right to
purchase, severally and not jointly, up to 1,125,000
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<PAGE> 4
Additional Shares from the Company at the Purchase Price. Additional Shares may
be purchased solely for the purpose of covering over-allotments made in
connection with the offering of the Firm Shares. The Underwriters may exercise
their right to purchase Additional Shares in whole or in part from time to time
by giving written notice thereof to the Company within 30 days after the date of
this Agreement. You shall give any such notice on behalf of the Underwriters
and such notice shall specify the aggregate number of Additional Shares to be
purchased pursuant to such exercise and the date for payment and delivery
thereof. The date specified in any such notice shall be a business day (i) no
earlier than the Closing Date (as hereinafter defined), (ii) no later than ten
business days after such notice has been given and (iii) no earlier than two
business days after such notice has been given. If any Additional Shares are to
be purchased, each Underwriter, severally and not jointly, agrees to purchase
from the Company the number of Additional Shares (subject to such adjustments to
eliminate fractional shares as you may determine) which bears the same
proportion to the total number of Additional Shares to be purchased from the
Company as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I bears to the total number of Firm Shares.
3. Terms of Public Offering. The Company is advised by you that the
Underwriters propose (i) to make a public offering of their respective portions
of the Shares as soon after the effective date of the Registration Statement as
in your judgment is advisable and (ii) initially to offer the Shares upon the
terms set forth in the Prospectus.
4. Delivery and Payment. Delivery to the Underwriters of and
payment for the Firm Shares shall be made at 10:00 A.M., New York City time, on
the fourth business day (the "Closing Date") following the date of the initial
public offering, at such place as you shall designate. The Closing Date and the
location of delivery of and the form of payment for the Firm Shares may be
varied by agreement between you and the Company. Simultaneously with payment
for the Firm Shares in New York, a closing of the other transactions
constituting the Formation Transactions (other than transactions specifically
relating to the acquisition of the Original Initial Hotels which were completed
on March 25, 1995) will occur at the offices of
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<PAGE> 5
Sullivan & Worcester in Boston, Massachusetts. In addition, on the Closing
Date, the Company will pay a structuring fee to each Representative as follows:
(i) $_____ to Donaldson, Lufkin & Jenrette Securities Corporation, (ii) $_____
to Dean Witter Reynolds Inc., (iii) $_____ to Prudential Securities Incorporated
and (iv) $_____ to Smith Barney Inc. In addition, in connection with the
establishment of the Acquisition Line and the offering contemplated hereby, the
Company will pay an additional combined advisory and facility fee to Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJSC") as follows: (i) $_________ on
the Closing Date and (ii) $________ on the 35th day following the Closing Date;
provided that such additional fee in the case of clause (ii) shall not be
payable if (a) no borrowing or borrowings shall have been made under the
Acquisition Line prior to such date and (b) the Company has prior to such date
notified DLJSC in writing of its election to cancel and terminate the
Acquisition Line.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at such place as you shall
designate at 10:00 A.M., New York City time, on the date specified in the
applicable exercise notice given by you pursuant to Section 2 (an "Option
Closing Date"). Any such Option Closing Date and the location of delivery of
and the form of payment for such Additional Shares may be varied by agreement
between you and the Company.
Certificates for the Shares shall be registered in such names and
issued in such denominations as you shall request in writing not later than two
full business days prior to the Closing Date or an Option Closing Date, as the
case may be. Such certificates shall be made available to you for inspection
not later than 9:30 A.M., New York City time, on the business day next preceding
the Closing Date or the applicable Option Closing Date, as the case may be.
Certificates in definitive form evidencing the Shares shall be delivered to you
on the Closing Date or the applicable Option Closing Date, as the case may be,
with any transfer taxes thereon duly paid by the Company, for the respective
accounts of the several Underwriters, against payment of the Purchase Price
therefor by certified or official bank checks payable in New York Clearing House
funds to the order of the Company.
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<PAGE> 6
5. Agreements of the Company. The Company agrees with you:
(a) To use its best efforts to cause the Registration Statement to
become effective at the earliest possible time.
(b) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) when the Registration Statement has become effective
and when any post-effective amendment to it becomes effective, (ii) of any
request by the Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction, or
the initiation of any proceeding for such purposes, and (iv) of the
happening of any event during the period referred to in paragraph (e) below
which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires the making of any
additions to or changes in the Registration Statement or the Prospectus in
order to make the statements therein not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to
obtain the withdrawal or lifting of such order at the earliest possible
time.
(c) To furnish to you, without charge, five signed copies of the
Registration Statement as first filed with the Commission and of each
amendment to it, including all exhibits, and to furnish to you and each
Underwriter designated by you such number of conformed copies of the
Registration Statement as so filed and of each amendment to it, without
exhibits, as you may reasonably request.
(d) Not to file any amendment or supplement to the Registration
Statement, whether before or after the time when it becomes effective, or
to make any amendment or supplement to the Prospectus of which you shall
not previously have been advised or to which you
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<PAGE> 7
shall reasonably object; and to prepare and file with the Commission,
promptly upon your reasonable request, any amendment to the Registration
Statement or supplement to the Prospectus which may be necessary or
advisable in connection with the distribution of the Shares by you, and to
use its best efforts to cause the same to become promptly effective.
(e) Promptly after the Registration Statement becomes effective, and
from time to time thereafter for such period as in the opinion of Davis
Polk & Wardwell a prospectus is required by law to be delivered in
connection with sales by an Underwriter or a dealer, to furnish to each
Underwriter and dealer as many copies of the Prospectus (and of any
amendment or supplement to the Prospectus) as such Underwriter or dealer
may reasonably request.
(f) If, during the period specified in paragraph (e), any event shall
occur as a result of which, in the opinion of Davis Polk & Wardwell, it
becomes necessary to amend or supplement the Prospectus in order to make
the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if it is
necessary to amend or supplement the Prospectus to comply with any law,
forthwith to prepare and file with the Commission an appropriate amendment
or supplement to the Prospectus so that the statements in the Prospectus,
as so amended or supplemented, will not in the light of the circumstances
when it is so delivered, be misleading, or so that the Prospectus will
comply with law, and to furnish to each Underwriter and to such dealers as
you shall specify, such number of copies thereof as such Underwriter or
dealers may reasonably request.
(g) Prior to any public offering of the Shares, (i) to effect the
registration or qualification of the Shares for offer and sale by the
several Underwriters and by dealers under the state securities, Blue Sky or
real estate syndication laws of such jurisdictions as you may request, (ii)
to continue such qualification in effect so long as required for
distribution of the Shares, (iii) to file such consents to service of
process or other documents as may be necessary in order
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<PAGE> 8
to effect such registration or qualification and (iv) to cooperate with you
and Davis Polk & Wardwell in connection with the review of the offering of
the Shares contemplated hereby and the Concurrent Registered Offering by
the National Association of Securities Dealers, Inc. ("NASD").
(h) To make generally available to its shareholders as soon as
reasonably practicable an earnings statement covering a period of at least
twelve months after the effective date of the Registration Statement which
shall satisfy the provisions of Section 11(a) of the Act, and to advise you
in writing when such statement has been so made available.
(i) During the period of five years after the date of this Agreement,
(i) to mail as soon as reasonably practicable after the end of each fiscal
year to the record holders of its Common Shares a financial report of the
Company and its subsidiaries, if any, on a consolidated basis (and a
similar financial report of all unconsolidated subsidiaries, if any), all
such financial reports to include a consolidated balance sheet, a
consolidated statement of operations, a consolidated statement of cash
flows and a consolidated statement of shareholders' equity as of the end of
and for such fiscal year, together with comparable information as of the
end of and for the preceding year, certified by independent certified
public accountants, and (ii) to make generally available as soon as
practicable after the end of each quarterly period (except for the last
quarterly period of each fiscal year) to such holders, a consolidated
balance sheet, a consolidated statement of operations and a consolidated
statement of cash flows (and similar financial reports of all
unconsolidated subsidiaries, if any) as of the end of and for such period,
and for the period from the beginning of such year to the close of such
quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(j) During the period referred to in paragraph (i), to furnish to you
as soon as available a copy of each report or other publicly available
information of the Company mailed to the holders of Common Shares or
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<PAGE> 9
filed with the Commission and such other publicly available information
concerning the Company and its subsidiaries, if any, as you may reasonably
request.
(k) To pay all costs, expenses, fees and taxes incident to (i) the
preparation, printing, filing and distribution under the Act of the
Registration Statement (including financial statements and exhibits), each
preliminary prospectus and all amendments and supplements to any of them
prior to or during the period specified in paragraph (e), (ii) the printing
and delivery of the Prospectus and all amendments or supplements to it
during the period specified in paragraph (e), (iii) the printing and
delivery of this Agreement, the Preliminary and Final Blue Sky Memoranda
and all other agreements, memoranda, correspondence and other documents
printed and delivered in connection with the offering of the Shares
(including in each case any disbursements of counsel to the Company or
counsel for the Underwriters relating to such printing and delivery), (iv)
the registration or qualification of the Shares for offer and sale under
the securities, Blue Sky or real estate syndication laws of the several
states (including in each case the fees and disbursements of counsel for
the Company or counsel for the Underwriters relating to such registration
or qualification and memoranda relating thereto), (v) filings and clearance
with the NASD in connection with the offering of the Shares contemplated
hereby and the Concurrent Registered Offering, (vi) the listing of the
Shares on the New York Stock Exchange ("NYSE") and (vii) furnishing such
copies of the Registration Statement, the Prospectus and all amendments and
supplements thereto as may be requested for use in connection with the
offering or sale of the Shares by the Underwriters or by dealers to whom
Shares may be sold.
(l) To use its best efforts to have its Common Shares listed on the
NYSE and maintain such listing for a period of five years after the Closing
Date hereunder.
(m) To use its best efforts to qualify and to elect to qualify,
effective as of the Closing Date and thereafter to continue to meet the
requirements to
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<PAGE> 10
qualify as a real estate investment trust ("REIT") under the Internal
Revenue Code of 1986, as amended (the "Code").
(n) To file with the Commission such reports on Form SR as may be
required pursuant to Rule 463 of the Act.
(o) To use the net proceeds received by it from the sale of the
Shares, the sale of Common Shares in the Concurrent Registered Offering and
borrowings, if any, under the Acquisition Line in the manner specified in
the Prospectus under "Use of Proceeds."
(p) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company
prior to the Closing Date or any Option Closing Date, as the case may be,
and to satisfy all conditions precedent to the delivery of the Shares.
6. Representations and Warranties. Each of the Company and HRP
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) Each part of the Registration Statement, when such part
became effective, did not contain and each such part, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii)
the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Act and (iii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
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<PAGE> 11
made, not misleading, except that the representations and warranties set
forth in this paragraph (b) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to
any Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act; and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) The Company has been duly organized and is validly existing as a
real estate investment trust in good standing under the laws of the State
of Maryland and has the power and authority to acquire and own the Initial
Hotels and to lease such Initial Hotels to others and to conduct its
business, all as described in the Prospectus, and is duly qualified and in
good standing as a foreign trust authorized to do business in each
jurisdiction in which the Initial Hotels are located and such qualification
and authorization is required.
(e) The Company has no subsidiaries.
(f) All the outstanding Common Shares of the Company have been duly
authorized and validly issued and are fully paid, non-assessable and not
subject to any preemptive or similar rights; and the Shares have been duly
authorized and, when issued and delivered to the Underwriters against
payment therefor as provided by this Agreement, will be validly issued,
fully paid and non-assessable, and the issuance of such Shares will not be
subject to any preemptive or similar rights. The Company has no
outstanding Preferred Shares of Beneficial Interest. There are no
outstanding subscriptions, rights, warrants, options, calls, convertible
securities, commitments of sale or
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liens related to or entitling any person to purchase or otherwise to
acquire any Common Shares of, or other ownership interest in, the
Company except as otherwise disclosed in the Registration Statement.
(g) The authorized capital of the Company, including the Common
Shares, conforms as to legal matters to the description thereof contained
in the Prospectus.
(h) The Company is not in violation of its Declaration of Trust or
Bylaws or in default in the performance of any obligation, agreement or
condition contained in any bond, debenture, note or any other evidence of
indebtedness or in any other agreement, indenture or instrument material to
the conduct of the business of the Company to which it is a party or by
which it or its property is bound.
(i) This Agreement has been duly authorized, executed and delivered
by the Company and HRP and constitutes a valid and binding agreement of the
Company and HRP enforceable against each of them in accordance with its
terms, except as the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium
and other laws affecting the enforceability of creditor's rights and
general principles of equity.
(j) Each Transaction Document (other than this Agreement) will be
duly authorized, executed and delivered by the Company or HRP, as the case
may be, on or prior to the Closing Date and each Transaction Agreement will
constitute a valid and binding agreement of the Company or HRP, as the case
may be, enforceable against it in accordance with its terms, except as the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium and other laws affecting
the enforceability of creditor's rights and general principles of equity.
(k) The execution by the Company of each Transaction Document to
which it is a party and the delivery by the Company of, and the performance
by the Company of its obligations under, each Transaction
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Document to which it is a party and the consummation of the transactions
contemplated hereby and thereby will not contravene any provision of
applicable law or (i) the Declaration of Trust or Bylaws of the Company,
(ii) any agreement or other instrument binding upon the Company that is
material to the Company or (iii) any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company,
except such as would not have a material adverse effect on the Company.
(l) No consent, approval, authorization or order of, or qualification
with, any governmental body or agency and no consent, approval or
authorization of any person other than the Company is required for the
execution, delivery or performance by the Company of its obligations under
each Transaction Document to which it is a party or the consummation of the
transactions contemplated hereby and thereby, except such as may be
required and will be obtained on or prior to the Closing Date and such as
may be required by the securities or Blue Sky laws or real estate
syndication laws of the various states in connection with the offer and
sale of the Shares and, in the case of the performance thereof, except as
are contemplated by the express terms of such Transaction Document to occur
after the Closing Date and except (x) such as are otherwise described in
the Prospectus and (y) such that the failure to obtain would not have a
material adverse effect on the Company.
(m) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, affairs or business
prospects of the Company from that set forth in the Prospectus.
(n) There are no legal or governmental proceedings pending or, to the
knowledge of the Company after due inquiry, threatened to which the Company
is a party or to which any of the Initial Hotels is subject that are
required to be described in the Registration
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Statement or the Prospectus and are not so described or any statutes,
regulations, contracts or other documents that are required to be described
in the Registration Statement or the Prospectus or to be filed as exhibits
to the Registration Statement that are not described or filed as required.
(o) The Company has and, as of the Closing Date after giving effect
to the Formation Transactions will have, all necessary consents,
authorizations, approvals, orders, certificates and permits of and from,
and has made or, as of the Closing Date after giving effect to the
Formation Transactions, will have made, all declarations and filings with
all federal, state, local and other governmental authorities, all
self-regulatory organizations and all courts and other tribunals having
jurisdiction over the Company or its properties, necessary to own, lease,
license and use its properties and assets, and the properties and assets
proposed to be acquired by it in the Formation Transactions, and to conduct
its business in the manner described in the Prospectus, except to the
extent that the failure to obtain or file would not have a material adverse
effect on the Company.
(p) Host, as lessee of the Original Initial Hotels, is not in default
under the Initial Leases relating thereto and there has not occurred any
event which, but for the passage of time or the giving of notice or both,
would constitute an event of default under such Initial Leases. To the
best knowledge of the Company, Marriott, as manager of the Original Initial
Hotels, is not in default under the Management Agreements relating thereto
and there has not occurred any event which, but for the passage of time or
the giving of notice or both, would constitute an event of default under
such Management Agreements. To the best knowledge of the Company, Host and
Marriott have and, as of the Closing Date after giving effect to the
Formation Transactions will have, all permits, licenses, approvals,
certificates, franchises and authorizations of governmental or regulatory
authorities as may be necessary to lease, operate or manage the Initial
Hotels in the manner described in or contemplated by the Prospectus.
(q) The Company has received and reviewed certain environmental
reports on each Initial Hotel's property, has obtained certain
representations and warranties
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<PAGE> 15
relating to environmental matters from the Sellers of the Initial Hotels
set forth in the Purchase Agreement and has conducted physical inspections
of each Initial Hotel's property. Except as described in the Prospectus,
(i) the Company, and, to its knowledge, each Initial Hotels' property, is,
and as of the Closing Date after giving effect to the Formation
Transactions will be, in compliance with all applicable federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment, hazardous toxic substances and wastes, pollutants
and contaminants ("Environmental Laws"), (ii) the Company, or, to its
knowledge, Host or Marriott, has received, or as of the Closing Date after
giving effect to the Formation Transactions will receive, all permits,
licenses or other approvals required under applicable Environmental Laws to
conduct the respective hotel businesses presently conducted at each such
property and (iii) the Company or, to its knowledge, Host or Marriott, is,
or as of the Closing Date after giving effect to the Formation Transactions
will be, in compliance with all terms and conditions of any such permit,
license or approval, except, in respect of clauses (i), (ii) and (iii), as
otherwise disclosed in the Prospectus or as would not, singly or in the
aggregate, have a material adverse effect on the Company or any individual
Initial Hotel's property.
(r) To the best knowledge of the Company, except as described in the
Prospectus, there are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, remediation or closure of properties or compliance
with Environmental Laws and any potential liabilities to third parties)
that, as of the date hereof, would, or as of the Closing Date after giving
effect to the Formation Transactions, will, singly or in the aggregate,
have a material adverse effect on the Company or any individual Initial
Hotel's property.
(s) The Company has received and reviewed engineering reports on each
Initial Hotel's property, has obtained certain representations and
warranties relating to engineering matters from the Sellers of the Initial
Hotels set forth in the Purchase Agreement and
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has conducted physical inspections of each Initial Hotel's property. (1)
Each Initial Hotel is not in violation of any applicable building code,
zoning ordinance or other law or regulation, except where such violation of
any applicable building code, zoning ordinance or other law or regulation
would not, singly or in the aggregate, have a material adverse effect on
such Initial Hotel; (2) the Company has not received notice of any proposed
material special assessment or any proposed change in any property tax,
zoning or land use laws or availability of water affecting any Initial
Hotel that would have, singly or in the aggregate, a material adverse
effect on such Initial Hotel; (3) there does not exist any material
violation of any declaration of covenants, conditions and restrictions with
respect to any Initial Hotel that would have, singly or in the aggregate, a
material adverse effect on such Initial Hotel, or any state of facts or
circumstances or condition or event which could, with the giving of notice
or passage of time, or both, constitute such a violation; (4) the
improvements comprising any portion of each Initial Hotel (the
"Improvements") are free of any and all material physical, mechanical,
structural, design and construction defects that would have, singly or in
the aggregate, a material adverse effect on such Initial Hotel and the
mechanical, electrical and utility systems servicing the Improvements
(including, without limitation, all water, electric, sewer, plumbing,
heating, ventilation, gas and air conditioning) are in good condition and
proper working order and are free of defects that would have, singly or in
the aggregate, a material adverse effect on such Initial Hotel; and (5) the
Company has taken reasonable steps to determine, and has determined (based
on a review of accounting records prepared by the sellers of the Initial
Hotels), that each of the Additional Initial Hotels is not a "Defective
Property" for purposes of Section 2.5 of the Purchase Agreement.
(t) Subsequent to the respective dates as of which financial
information is given in the Registration Statement and the Prospectus, (1)
the Company has not incurred any material liability or obligation, direct
or contingent, nor entered into any material transaction not in the
ordinary course of
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business; (2) the Company has not purchased any of its outstanding Common
Shares, nor has it declared, paid or otherwise made any dividend or
distribution of any kind on its Common Shares (except for a dividend to HRP
to be effected immediately prior to the Closing Date in the amount of its
net income from inception to the Closing Date); and (3) there has not been
any material change in the capital, short-term debt or long-term debt of
the Company, except, in respect of clauses (1), (2) or (3) above, as
described in or contemplated by the Prospectus.
(u) (1) As of the Closing Date and after giving effect to the
Formation Transactions, the Company will have good and marketable title in
fee simple to all real property (or good and marketable leasehold interests
with respect to the real property to be ground leased by the Company as
described in the Prospectus) and good and marketable title to all personal
property owned by it, in each case free and clear of all liens,
encumbrances and defects, except (x) the Initial Leases, (y) such as would
not have a material adverse effect on the Company or any Initial Hotel or
(z) in the case of personal property located at certain Initial Hotels,
such as are subject to equipment lease financing arrangements which have
been entered into in the ordinary course of business and have an aggregate
outstanding balance not in excess of $1 million; and (2) any real property
to be held under ground lease by the Company after giving effect to the
Formation Transactions will be held by it, as of the Closing Date, under
valid, subsisting and enforceable ground leases with such exceptions as
would not have a material adverse effect on the Company or any Initial
Hotel.
(v) The Company is, and after giving effect to the Formation
Transactions, the Company and the Initial Hotels will be, insured in the
manner described in the Prospectus by insurers of recognized financial
responsibility (including in the case of Marriott, an affiliate of
Marriott) against such losses and risks and in such amounts as are
customary in the businesses in which the Company is engaged and proposes to
engage and the Company has no reason to believe that it will not be able to
renew such insurance coverage as and
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when such coverage expires or to obtain similar coverage as may be
necessary to continue its business at economically viable rates, except as
described in or contemplated by the Prospectus.
(w) The Company has complied with all provisions of Section 517.075
Florida Statutes (Chapter 92-198; Laws of Florida).
(x) The assets of the Company do not constitute, and as of the
Closing Date and after giving effect to the Formation Transactions, will
not constitute, "plan assets" under the Employee Retirement Income Security
Act of 1974, as amended.
(y) As of the Closing Date and after giving effect to the Formation
Transactions, the Company will be organized and intends to operate in a
manner so as to qualify as a REIT under Sections 856 through 860 of the
Code, and the Company will elect to be taxed as a REIT under the Code
effective for the fiscal year ending December 31, 1995.
(z) Except as provided by this Agreement, there are no contracts,
agreements or understandings between the Company and any person that would
give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finders fee or other like payment with respect to the
consummation of the transactions contemplated by this Agreement.
(aa) The financial statements of the Company and the combined
financial statements and schedules of the Initial Hotels included in the
Registration Statement and the Prospectus fairly present the financial
position of the Company and the Initial Hotels, respectively, and their
results of operations and changes in financial condition, respectively, as
of the dates and periods therein specified. Such financial statements and
schedules have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
(except as otherwise noted therein). The selected financial data set forth
under the caption "Selected Financial and Operating Data" in the Prospectus
fairly present, on the basis stated in the
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Prospectus, the information included therein. The unaudited pro forma
financial statements included in the Registration Statement comply in all
material respects with the applicable accounting requirements of Rule 11-02
of Regulation S-X of the Commission and the pro forma adjustments have been
properly applied to the historical amounts in the compilation of that data.
(bb) On or prior to the Closing Date, all of the Formation
Transactions described or contemplated under the caption "Business --
Formation of the Company" in the Prospectus shall have occurred or shall
occur contemporaneously with the closing contemplated hereby.
(cc) As of the Closing Date, the Company will have obtained an ALTA
Extended Coverage Owner's Policy of Title Insurance (or an irrevocable
commitment to issue such a policy) on all of the Initial Hotels and such
title insurance is or will be in full force and effect.
(dd) On the Closing Date after giving effect to the Formation
Transactions, the Company will have no indebtedness for money borrowed
except (i) equipment financing arrangements in respect of personal property
located at certain Initial Hotels which have been entered into in the
ordinary course of business and have an aggregate outstanding balance not
in excess of $1 million and (ii) the borrowings to be made under the
Acquisition Line to fund a portion of the costs of acquisition of the
Additional Initial Hotels or to repay a portion of the HRP Loan as
described in or contemplated by the Prospectus.
(ee) The Shares have been approved for listing on the NYSE, subject
to official notice of issuance.
(ff) Except as otherwise contemplated by this Agreement, the Company
has not directly or indirectly, (i) taken any action designed to cause or
to result in, or that has constituted or which might reasonably be expected
to constitute, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares or
(ii) since the filing of the Registration Statement (A) sold, bid for,
purchased, or paid anyone any compensation for soliciting purchases of, the
Shares or
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(B) paid or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of the Company.
(gg) Arthur Andersen LLP are independent public accountants with
respect to the Company as required by the Act.
(hh) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(ii) No holder of any security of the Company has any right to
require registration of Common Shares or any other security of the Company.
(jj) Except as disclosed in the Prospectus, there are no business
relationships or related party transactions required to be disclosed
therein by Item 404 of Regulation S-K of the Commission.
7. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), from and against any and
all losses, claims, damages, liabilities and judgments caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriters furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use therein; provided that the foregoing
indemnity with respect to any preliminary prospectus shall not inure to the
benefit of any Underwriter (or to the benefit of any person controlling such
Underwriter) from whom the person asserting any such losses,
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<PAGE> 21
claims, damages, liabilities or judgments purchased the Shares if such untrue
statement or omission or alleged untrue statement or omission made in such
preliminary prospectus is eliminated or remedied in the Prospectus and a copy of
the Prospectus shall not have been furnished to such person at or prior to the
written confirmation of the sale of such Shares to such person.
(b) In case any action shall be brought against any Underwriter or
any person controlling such Underwriter, based upon any preliminary prospectus,
the Registration Statement or the Prospectus or any amendment or supplement
thereto and with respect to which indemnity may be sought against the Company,
such Underwriter shall promptly notify the Company in writing and the Company
shall assume the defense thereof, including the employment of counsel reasonably
satisfactory to such indemnified party and payment of all fees and expenses. Any
Underwriter or any such controlling person shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Underwriter or such controlling person unless (i) the employment of such counsel
shall have been specifically authorized in writing by the Company, (ii) the
Company shall have failed to assume the defense and employ counsel or (iii) the
named parties to any such action (including any impleaded parties) include both
such Underwriter or such controlling person and the Company and such Underwriter
or such controlling person shall have been advised by such counsel that there
may be one or more legal defenses available to it which are different from or
additional to those available to the Company (in which case the Company shall
not have the right to assume the defense of such action on behalf of such
Underwriter or such controlling person, it being understood, however, that the
Company shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all such Underwriters and controlling persons, which firm shall be
designated in writing by Donaldson, Lufkin & Jenrette Securities Corporation and
that all such fees and expenses shall be reimbursed as they are incurred). The
Company shall not be liable for any settlement of any such action effected
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<PAGE> 22
without its written consent but if settled with the written consent of the
Company, the Company agrees to indemnify and hold harmless any Underwriter and
any such controlling person from and against any loss or liability by reason of
such settlement. Notwithstanding the immediately preceding sentence, if in any
case where the fees and expenses of counsel are at the expense of the
indemnifying party and an indemnified party shall have requested the
indemnifying party to reimburse the indemnified party for such fees and expenses
of counsel as incurred, such indemnifying party agrees that it shall be liable
for any settlement of any action effected without its written consent if (i)
such settlement is entered into more than ten business days after the receipt by
such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall have failed to reimburse the indemnified party in accordance with
such request for reimbursement prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company and its trustees or officers who sign the
Registration Statement (or any person named in the Registration Statement as
having agreed to become a trustee of the Company) and any person controlling the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, to the same extent as the foregoing indemnity from the Company to
each Underwriter but only with reference to information relating to such
Underwriter furnished in writing by or on behalf of such Underwriter through you
expressly for use in the Registration Statement, the Prospectus or any
preliminary prospectus. In case any action shall be brought against the
Company, its trustees (or a named proposed trustee) or officers or persons
controlling the Company based on the Registration Statement, the Prospectus or
any preliminary prospectus and in respect of which indemnity may be sought
against any Underwriter, the Underwriter shall have the rights and duties given
to the Company (except that if the
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<PAGE> 23
Company shall have assumed the defense thereof, such Underwriter shall not be
required to do so, but may employ separate counsel therein and participate in
the defense thereof but the fees and expenses of such counsel shall be at the
expense of such Underwriter), and the Company, its trustees (or a named proposed
trustee) or officers and persons controlling the Company shall have the rights
and duties given to the Underwriter, by Section 7(b) hereof.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Underwriters in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative benefits received by the
Company and the Underwriters shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Company, and the total underwriting discounts and commissions received by the
Underwriters, bear to the total price to the public of the Shares, in each case
as set forth in the table on the cover page of the Prospectus. The relative
fault of the Company and the Underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the Company or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation
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<PAGE> 24
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 7(d) are several in proportion to the respective number of Shares
purchased by each of the Underwriters hereunder and not joint.
8. Conditions of Underwriters' Obligations. The several obligations
of the Underwriters to purchase the Firm Shares under this Agreement are subject
to the satisfaction of each of the following conditions:
(a) All the representations and warranties set forth in Section 6 of
this Agreement shall be true and correct on the Closing Date with the same
force and effect as if made on and as of the Closing Date.
(b) The Registration Statement shall have become effective not later
than 5:00 P.M., New York City time, on the date of this Agreement or at
such later date and time as you may approve in writing, and at the Closing
Date no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall
have been commenced or shall be pending before or contemplated by the
Commission.
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(c)(i) Since the date of the latest balance sheet included in the
Registration Statement and the Prospectus, there shall not have been any
material adverse change, or any development involving a prospective
material adverse change, in the condition, financial or otherwise, or in
the earnings, affairs or business prospects, whether or not arising in the
ordinary course of business, of the Company; (ii) since the date of the
latest balance sheet included in the Registration Statement and the
Prospectus, there shall not have been any change, or any development
involving a prospective material adverse change, in the capital or in the
long-term debt of the Company from that set forth in the Registration
Statement and Prospectus (other than in connection with the Formation
Transactions as described in and contemplated by the Registration Statement
and the Prospectus); (iii) since the date of the latest balance sheet
included in the Registration Statement and the Prospectus, none of the
Initial Hotels shall have sustained any material loss or casualty due to
fire, flood, earthquake, hurricane, tornado, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree; and (iv) on the Closing Date you
shall have received a certificate dated the Closing Date, signed by the
President and Chief Financial Officer of the Company, confirming the
matters set forth in paragraphs (a), (b) and (c) of this Section 8.
(d) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing
Date, of Sullivan & Worcester, counsel for the Company, to the effect that:
(i) the Company has been duly organized and is validly existing
as a real estate investment trust in good standing under the laws of
the State of Maryland and has the power and authority to acquire and
own the Initial Hotels and to lease such Initial Hotels to others and
to conduct its business, all as described in the Prospectus;
(ii) to the best of such counsel's knowledge, the Company has no
subsidiaries;
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(iii) all the outstanding Common Shares have been duly
authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive or similar
rights;
(iv) the Shares have been duly authorized, and, when
issued and delivered to the Underwriters against payment
therefor as provided by this Agreement, will have been validly
issued and will be fully paid and non-assessable, and the
issuance of such Shares is not subject to any preemptive or
similar rights;
(v) the Company has no outstanding Preferred Shares of
Beneficial Interest;
(vi) to the best of such counsel's knowledge, there are no
outstanding subscriptions, rights, warrants, options, calls,
convertible securities, commitments of sale or liens related
to or entitling any person to purchase or otherwise to acquire
any Common Shares of, or other ownership interest in, the
Company except as otherwise disclosed in the Registration
Statement;
(vii) the authorized capital of the Company, including the
Common Shares, conforms as to legal matters to the description
thereof contained in the Prospectus;
(viii) the statements under the captions "Business --
Purchase Agreement", " -- Purchase Options", " -- Regulatory
Matters", "The Initial Leases", "The Management Agreements",
"Advisors and the Advisory Agreement", "Management",
"Description of the Shares" and "Summary of the Declaration of
Trust" in the Prospectus and Items 32 and 33 of Part II of the
Registration Statement, insofar as such statements constitute
a summary of legal matters, documents or proceedings referred
to therein, fairly present the information called for with
respect to such legal matters, documents and proceedings;
(ix) the statements under the captions "Federal Income
Tax Considerations", "Certain
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United States Tax Considerations for Non-U.S. Holders of
Shares" and "ERISA Plans, Keogh Plans and Individual
Retirement Accounts" in the Prospectus, insofar as such
statements constitute a summary of legal matters or documents
referred to therein, fairly present the information called for
with respect to such legal matters, documents and proceedings;
(x) the Registration Statement has become effective under
the Act and, to the best of such counsel's knowledge, no stop
order suspending its effectiveness has been issued and no
proceedings for that purpose are, to the knowledge of such
counsel, pending before or contemplated by the Commission;
(xi) the Company is not in violation of its Declaration of
Trust or Bylaws and, to the best of such counsel's knowledge,
after due inquiry, the Company is not in default in the
performance of any obligation, agreement or condition
contained in any bond, debenture, note or any other evidence
of indebtedness or in any other agreement, indenture or
instrument material to the conduct of the business of the
Company to which it is a party or by which it or its property
is bound;
(xii) this Agreement has been duly authorized, executed and
delivered by the Company and HRP and is a valid and binding
agreement of the Company and HRP enforceable against each of
them in accordance with its terms, except as enforceability of
any indemnification provisions contained therein may be
limited under federal or state securities laws;
(xii) each Transaction Document (other than this Agreement)
executed by the Company or HRP, as the case may be, has been
duly authorized, executed and delivered by it;
(xiv) no consent, approval, authorization or order of, or
qualification with, any United States federal, Massachusetts or
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Maryland governmental body or agency (other than any
Massachusetts or Maryland body or agency dealing with
securities laws, as to which such counsel need not express an
opinion) is required for the execution, delivery or performance
by the Company of its obligations under each Transaction
Document to which it is a party or the consummation of the
transactions contemplated thereby;
(xv) to the best of such counsel's knowledge, there are
no legal or governmental proceedings pending or threatened to
which the Company is a party or to which any of the Initial
Hotels is subject that are required to be described in the
Registration Statement or the Prospectus and are not so
described, nor any statutes, regulations, contracts or other
documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described
or filed as required;
(xvi) to the best of such counsel's knowledge, the Company,
as owner of the Initial Hotels, Host, as lessee of the Initial
Hotels, and Marriott, as manager of the Initial Hotels, have
all permits, licenses, approvals, certificates, franchises and
authorizations of governmental or regulatory authorities as
may be necessary to own, lease, operate or manage the Initial
Hotels in the manner described in or contemplated by the
Prospectus;
(xvii) such counsel confirms as of the Closing Date its
opinions filed as Exhibits 5.1 and 8.1 to the Registration
Statement;
(xviii) (1) the Registration Statement and the
Prospectus and any supplement or amendment thereto (except for
financial statements and schedules as to which no opinion need
be expressed) comply as to form in all material respects with
the Act, and (2) such counsel believes that (except for
financial statements and schedules, as aforesaid) the
Registration Statement and the prospectus included therein at
the time the Registration Statement became effective did not
contain any untrue statement of a material fact or omit to
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state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and
that the Prospectus, as amended or supplemented, if applicable
(except for financial statements and schedules, as aforesaid)
does not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading;
In giving such opinion with respect to the matters covered by
clause (xviii), such counsel may state that their opinion and belief
are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or
supplements thereto and review and discussion of the contents thereof,
but are without independent check or verification except as specified.
In rendering their opinion, such counsel may rely on an
opinion dated the Closing Date of Piper & Marbury as to matters
governed by the laws of the State of Maryland.
The opinions of Sullivan & Worcester and Piper & Marbury
described in paragraph (d) above shall be rendered to you at the
request of the Company and shall so state therein.
(e) You shall have received on the Closing Date an opinion,
dated the Closing Date, of Davis Polk & Wardwell, counsel for the
Underwriters, as to the matters referred to in clauses (iv), (viii)
(but only with respect to the statements under the caption
"Underwriting"), (xii) (but only as to due authorization, execution
and delivery) and clause (xviii) of the foregoing paragraph (d).
In giving such opinion with respect to the matters covered by
clause (xviii), such counsel may state that their opinion and belief
are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or
supplements thereto and review and discussion of the
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contents thereof, but are without independent check or verification
except as specified.
In rendering their opinion, such counsel may rely on an
opinion dated the Closing Date of Piper & Marbury as to matters
governed by the laws of the State of Maryland.
(f) You shall have received a letter on and as of the Closing
Date, in form and substance satisfactory to you, from Arthur Andersen
LLP, independent public accountants, with respect to the financial
statements and certain financial information contained in the
Registration Statement and the Prospectus and substantially in the
form and substance of the letter delivered to you by Arthur Andersen
LLP on the date of this Agreement.
(g) The Company shall have delivered to you on the date
hereof agreements executed by (i) HRP and (ii) HRPT Advisors Inc.,
pursuant to which each such person shall have agreed not to offer,
sell, contract to sell, grant any option to purchase, or otherwise
dispose of any Common Shares or any securities convertible into or
exercisable or exchangeable for Common Shares or in any other manner
transfer all or a portion of the economic consequences associated with
the ownership of any Common Shares, for a period of two (2) years
after the date of the Prospectus without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation, and such
agreements shall be in full force and effect on the Closing Date. In
such agreements, each such person shall also agree to take all action
necessary to cause its trustees, directors or officers to comply with
the terms of such agreements as if such persons were parties thereto.
(h) You and your counsel shall have received copies of
current commitments for title insurance with respect to each
Additional Initial Hotel containing the irrevocable commitment of the
issuing title insurance company to issue an owner (or leasehold owner)
policy of title insurance to the Company with respect to each such
Initial Hotel, in an amount not less than the purchase price to be
paid by the Company for the real property comprising such Initial
Hotel, insuring that
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the Company is vested with good and marketable title in fee simple to
each such Initial Hotel (or with respect to ground leased Initial
Hotels described in the Prospectus, good and marketable leasehold
interests) free and clear of all liens, encumbrances and defects,
except (x) the Initial Leases or (y) such as would not have a material
effect on the Company.
(i) All of the Transaction Documents shall have been executed
and, if applicable, delivered contemporaneously with or prior to the
sale of the Firm Shares.
(j) The Formation Transactions shall be consummated prior to
(in the case of Common Shares to be issued and sold in the Concurrent
Registered Offering) or contemporaneously with the issuance and sale of
the Firm Shares hereunder.
(k) The Company shall not have failed at or prior to the
Closing Date to perform or comply with any of the agreements herein
contained and required to be performed or complied with by the Company
at or prior to the Closing Date.
The several obligations of the Underwriters to purchase any Additional Shares
hereunder are subject to the delivery to you on the applicable Option Closing
Date of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of such Additional
Shares and other matters related to the issuance of such Additional Shares.
9. Effective Date of Agreement and Termination. This
Agreement shall become effective upon the later of (i) execution of this
Agreement and (ii) when notification of the effectiveness of the Registration
Statement has been released by the Commission.
This Agreement may be terminated at any time prior to the
Closing Date by you by written notice to the Company if any of the following
has occurred: (i) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, any adverse change or
development involving a prospective adverse change in the condition, financial
or otherwise, of the Company or
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the earnings, affairs, or business prospects of the Company, whether or not
arising in the ordinary course of business, which would, in your judgment, make
it impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus, (ii) any outbreak or escalation of hostilities
or other national or international calamity or crisis or change in economic
conditions or in the financial markets of the United States or elsewhere that,
in your judgment, is material and adverse and would, in your judgment, make it
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus, (iii) the suspension or material limitation of trading in
securities on the NYSE, the American Stock Exchange or the NASDAQ National
Market System or limitation on prices for securities on any such exchange or
National Market System, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business or
operations of the Company, (v) the declaration of a banking moratorium by
either federal or New York State authorities or (vi) the taking of any action
by any federal, state or local government or agency in respect of its monetary
or fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase the Firm Shares or Additional Shares, as the case may be, which it or
they have agreed to purchase hereunder on such date and the aggregate number of
Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused
to purchase is not more than one-tenth of the total number of Shares to be
purchased on such date by all Underwriters, each non-defaulting Underwriter
shall be obligated severally, in the proportion which the number of Firm Shares
set forth opposite its name in Schedule I bears to the total number of Firm
Shares which all the non-defaulting Underwriters, as the case may be, have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or
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Underwriters, as the case may be, agreed but failed or refused to purchase on
such date; provided that in no event shall the number of Firm Shares or
Additional Shares, as the case may be, which any Underwriter has agreed to
purchase pursuant to Section 2 hereof be increased pursuant to this Section 9
by an amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter.
If on the Closing Date or on an Option Closing Date, as the case may be, any
Underwriter or Underwriters shall fail or refuse to purchase Firm Shares, or
Additional Shares, as the case may be, and the aggregate number of Firm Shares
or Additional Shares, as the case may be, with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares to be purchased
on such date by all Underwriters and arrangements satisfactory to you and the
Company for purchase of such Shares are not made within 48 hours after such
default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter and the Company. In any such case which does not
result in termination of this Agreement, either you or the Company shall have
the right to postpone the Closing Date or the applicable Option Closing Date,
as the case may be, but in no event for longer than seven days, in order that
the required changes, if any, in the Registration Statement and the Prospectus
or any other documents or arrangements may be effected. Any action taken under
this paragraph shall not relieve any defaulting Underwriter from liability in
respect of any default of any such Underwriter under this Agreement.
10. Miscellaneous. Notices given pursuant to any provision
of this Agreement shall be addressed as follows: (a) if to the Company, to
Hospitality Properties Trust, 400 Centre Street, Newton, MA 02158, Attention:
President, (b) if to HRP, to Health and Retirement Properties Trust, 400 Centre
Street, Newton, MA 02158, Attention: President, and (c) if to any Underwriter
or to you, to you c/o Donaldson, Lufkin & Jenrette Securities Corporation, 140
Broadway, New York, New York 10005, Attention: Syndicate Department, or in any
case to such other address as the person to be notified may have requested in
writing.
The parties hereto agree, for purposes of Section 6(b),
Section 7 and any other provision of this Agreement, that the only information
relating to any Underwriter
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furnished to the Company in writing by such Underwriter expressly for use in
the Registration Statement, any preliminary prospectus, the Prospectus or any
amendment or supplement thereto is the information furnished by the
Representatives included in the Prospectus, (i) in the legend relating to
stabilization on the inside front cover page, (ii) listing the names of each
Underwriter under the caption "Underwriting" and (iii) in the third paragraph
under the caption "Underwriting" in the Prospectus.
The respective indemnities, contribution agreements,
representations, warranties and other statements of HRP, the Company, its
officers and trustees and of the several Underwriters set forth in or made
pursuant to this Agreement shall remain operative and in full force and effect,
and will survive delivery of and payment for the Shares, regardless of (i) any
investigation, or statement as to the results thereof, made by or on behalf of
any Underwriter or by or on behalf of HRP, the Company, or its officers or
trustees, (ii) acceptance of the Shares and payment for them hereunder and
(iii) termination of this Agreement.
If this Agreement shall be terminated by the Underwriters
because of any failure or refusal on the part of the Company to comply with the
terms or to fulfill any of the conditions of this Agreement, the Company and
HRP agree to reimburse the several Underwriters for all out-of-pocket expenses
(including the fees and disbursements of counsel) reasonably incurred by them.
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Company, HRP, the
Underwriters, any controlling persons referred to herein and their respective
successors and assigns, all as and to the extent provided in this Agreement,
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance
with the laws of the State of New York.
34
<PAGE> 35
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
35
<PAGE> 36
Please confirm that the foregoing correctly sets forth the
agreement among the Company, HRP and the several Underwriters.
Very truly yours,
HOSPITALITY PROPERTIES TRUST
By
-----------------------------
Name:
Title:
HEALTH AND RETIREMENT PROPERTIES TRUST
By
-----------------------------
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEAN WITTER REYNOLDS INC.
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By
---------------------------
Name:
Title:
36
<PAGE> 37
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriters to be Purchased
- ------------ ---------------------
<S> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation
Dean Witter Reynolds Inc.
Prudential Securities Incorporated
Smith Barney Inc.
---------------------
Total 7,500,000
=====================
</TABLE>
<PAGE> 1
Exhibit 10.5
The Company filed the form of Assignment and Assumption of Leases,
Contracts and Agreements ("Assignment") as Exhibit 10.5 to its Registration
Statement on Form S-11 (File No. 33-92330)(the "Registration Statement"), filed
with the Commission on May 16, 1995. The Company entered into, or will enter
into, an Assignment in connection with its acquisition of each of the 37 Initial
Hotels (as defined in the Registration Statement). Filed herewith are the
Exhibits to each Assignment, together with all of the information that is
contained in, and specific to, each particular Assignment. Exhibits A to the
Assignment are the legal descriptions of the Hotel Properties and Exhibits B are
the contracts being assumed and assigned with respect to each Hotel Property.
The Assignor under each executed Assignment is HMH Courtyard Properties, Inc.
and the Assignee is Hospitality Properties, Inc.
1
<PAGE> 2
Scottsdale, Arizona
Exhibit A
The Premises
[See attached copy.]
2
<PAGE> 3
That portion of the plat of Mayo Medical Resources Property as shown on the Map
of Dedication of Scottsdale Mayo Clinic - Phase 1, according to Book 298 of
Maps, page 43, and amended by Affidavit of Correction recorded in Recording No.
87-227902, located in the Southeast quarter of Section 24, Township 3 North,
Range 5 East of the Gila and Salt River Base and Meridian, Maricopa County,
Arizona, described as follows:
Commencing at the Southeast corner of said Section 24;
thence North 89 degrees 59 minutes 56 seconds West 1,163.82 feet along the South
line of said Section 24 to the Southerly prolongation of the East line of Tract
"B" of said plat;
thence North 00 degrees 00 minutes 04 seconds East 165.00 feet long said East
line and its prolongation to the Point of Beginning;
thence continuing North 00 degrees 00 minutes 04 seconds East 270.00 feet along
said East line to a tangent curve concave Southwesterly;
thence Northwesterly along said curve having a radius of 421.00 feet, through a
central angle of 4 degrees 25 minutes 37 seconds, an arc distance of 32.53 feet
to a point of reverse curvature;
thence Northeasterly along a curve, concave Southeasterly, having a radius of
32.58 feet, through a central angle of 83 degrees 20 minutes 18 seconds, an arc
distance of 47.39 feet to a point of reverse curvature;
thence Northeasterly, along a curve, concave Northwesterly, having a radius of
270.00 feet, through a central angle of 29 degrees 00 minutes 00 seconds an arc
distance of 136.66 feet to a point of reverse curvature;
thence Northeasterly, East and Southeasterly along a curve, concave
Southeasterly, having a radius of 270.00 feet through a central angle of 45
degrees 00 minutes 00 seconds an arc length of 212.06 feet;
thence South 85 degrees 05 minutes 15 seconds East 115.00 feet to a tangent
curve concave Northerly;
thence Southeasterly, Easterly and Northeasterly along said curve having a
radius of 210.00 feet, through a central angle of 44 degrees 04 minutes 20
seconds, an arc distance of 161.53 feet;
thence South 39 degrees 09 minutes 35 seconds East 150.00 feet radial to said
curve;
3
<PAGE> 4
thence South 00 degrees 58 minutes 00 seconds West 216.21 feet to the most
Westerly, Northwesterly line of the drainage and flood control easement shown on
said Affidavit of Correction;
thence South 37 degrees 00 minutes 04 seconds West 202.71 feet along said
Northwesterly line to the North line of the South 165.00 feet of said Southeast
quarter;
thence North 89 degrees 59 minutes 56 seconds West 578.15 feet along said North
line to the Point of Beginning.
4
<PAGE> 5
Exhibit B
The Contracts
[See attached copy.]
5
<PAGE> 6
SCOTTSDALE, ARIZONA
- - Cleaning and Inspection Agreement with Southwest Vent Cleaning, Inc.
effective 05/03/91;
- - Elevator Maintenance Agreement with United States Elevator Corp.
effective 01/01/90;
- - Landscaping Services Agreement with Desert Valley Landscape effective
08/01/91;
- - Direct Broadcast Service Agreement with Seeburg Music Satellite
Network, Inc. effective 06/13/88;
- - Extended Service Plan with Alamo Leasing (Van); and
- - All other contracts, if any, affecting the property.
6
<PAGE> 7
Stoughton, Massachusetts
Exhibit A
The Premises
[See attached copy.]
7
<PAGE> 8
Parcel I
Lot G1 as shown on "Plan of Land Lots G1 and G2, North Stoughton Industrial Park
Technology center Drive in Stoughton, Mass., dated December 24, 1991, Prepared
for Heafitz & Co., Inc. Prepared by: R.H. Cole Associates" and recorded with
Norfolk County Registry of Deeds as Plan No. 365 of 1994 in Plan Book 422.
8
<PAGE> 9
PARCEL II [APPURTENANCE(S)]
Together with the benefits (and subject to the burdens) of the following:
* Grant of Easement among Lewis Heafitz, Trustee of North Stoughton
Industrial Park Development Trust, Waban, Inc. and Marriott Corporation
dated May 31, 1991 recorded in Book 8947, Page 170, as affected by
Consent and Subordination of Marriott Corporation dated May 1, 1991
recorded in Book 8947, Page 182, as affected by Eighth Amendment to
Land Lease dated June 6, 1994 recorded in Book 10547, Page 414.
The foregoing appurtenance(s) is/are subject to the terms, conditions,
provisions and limitations therein.
9
<PAGE> 10
Together with an easement for the purposes of constructing, installing,
maintaining, and repairing sanitary sewer and storm drainage pipes and related
equipment within the following described area:
Commencing at a point on the easterly side of Technology Center Drive
(70 feet wide) N 36 37 minutes 55 seconds W a distance of two hundred ninety
three and ninety-seven hundredths feet (293.97 feet) from the southerly most
corner of LOT 1: thence
S 36-37 minutes-55 seconds E A distance of thirty four and sixty two
hundredths feet (34.62 feet) to a point on a
curve twenty feet from and parallel to the
easterly sideline of Technology Center Drive and
on the southwesterly line of LOT 1: thence
SOUTHWESTERLY And curving to the right along the arc of a curve
having a radius of six hundred and ninety five
and zero hundredths feet (695.00 feet) and a
length of arc of four hundred four and
twenty-three hundredths feet (404.23 feet) to a
point of tangency; thence
S 33-09 minutes-00 seconds W A distance of forty eight and twenty five
hundredths feet (48.25 feet) to a point; thence
S 14-06 minutes-00 seconds E A distance of ninety one and twenty five
hundredths feet (91.25 feet) to a point; thence
S 75-54 minutes-00 seconds W A distance of twenty and zero hundredths feet
(20.00 feet) to a point; thence
N 14-06 minutes-00 seconds W A distance of one hundred and zero hundredths
feet (100.00 feet) to a point on the easterly
sideline of Technology Center Drive; thence
N 33-09 minutes-00 seconds E A distance of fifty seven and zero hundredths
feet (57.00 feet) along the easterly sideline of
Technology Center Drive to a point of curvature;
thence
NORTHEASTERLY And curving to the left along the curve of an arc
along the easterly sideline of Technology Center
Drive, having a radius of six hundred seventy
five and zero hundredths feet (675.00 feet) and a
length of arc of four hundred twenty and
forty-five hundredths feet (420.45 feet) to the
point of beginning.
Together with an easement for the purposes of constructing, installing,
maintaining, and repairing a sign to advertise the business to be operated on
the Leased Premises and an electrical line to provide electrical service to such
sign as well as to provide access to such sign within the following described
area:
Beginning on the west Right-of-Way line of Technology Center Drive, said point
lying S 00 degrees 52 minutes 00 seconds W, a distance of five
10
<PAGE> 11
hundred ninety-two and seventy-eight hundredths (592.78) feet, along said west
Right-of-Way from the point of tangency of curve C4, shown on a Plan entitled
"Redivision Plan of 'Lot B' Stoughton Technology center, Stoughton, Mass." dated
February 2, 1987 (revised November 1, 1988) by Gale Engineering Co., Inc.,
recorded as Plan No. 1263 of 1988, in Plan Book 374, at the N.C.R.D., said point
of tangency being a concrete bound and drill hole. Thence,
S 00 degrees 52 minutes 00 degrees W A distance of ten and sixteen hundredths
(10.16) feet, thence
S 80 degrees 47 minutes 49 seconds W A distance of two hundred sixty-one and
twenty-six hundredths (261.26) feet,
thence
S 40 degrees 47 minutes 49 seconds W A distance of sixty-six and twenty-two
hundredths (66.22) feet, thence
S 80 degrees 47 minutes 49 seconds W A distance of ninety-four and seventy-two
hundredths (94.72) feet, thence
N 09 degrees 12 minutes 11 seconds W A distance of one hundred forty-eight and
fifty-two hundredths (148.52) feet along
right-of-way of Route 24, thence
N 80 degrees 47 minutes 49 seconds E A distance of thirty-five and zero
hundredths (35.00) feet, thence
S 09 degrees 12 minutes 11 seconds E A distance of twenty and zero hundredths
(20.00) feet, thence
S 80 degrees 47 minutes 49 seconds W A distance of twenty-five and zero
hundredths (25.00) feet, thence
S 09 degrees 12 minutes 11 seconds E A distance of one hundred eighteen and
fifty-two hundredths (118.52) feet, thence
N 80 degrees 47 minutes 49 seconds E A distance of eighty-one and seven
hundredths (81.07) feet, thence
N 40 degrees 47 minutes 49 seconds E A distance of sixty-six and twenty-two
hundredths (66.22) feet, thence
N 80 degrees 47 minutes 49 seconds E A distance of two hundred sixty-six and
sixty-eight hundredths (266.68) feet to
the point of beginning.
11
<PAGE> 12
TEMPORARY GRADING EASEMENT No. 1
There is a temporary grading easement appurtenant to the described LOT 1 labeled
TEMPORARY GRADING EASEMENT NO. 1 and is described as follows:
Starting at the point of intersection of the westerly property line of LOT 1
with the easterly side of Technology Center Drive (70 feet wide) S 36 degrees 37
minutes 55 seconds E a distance of eighty and zero hundredths feet (80.00 feet)
to the point of beginning; thence
S 36 degrees 37 minutes 55 seconds E A distance of two hundred and
thirteen and ninety-seven hundredths
feet (213.97 feet); thence
S 53 degrees 22 minutes 05 seconds W A distance of forty and zero
hundredths feet (40.00 feet); thence
N 36 degrees 37 minutes 55 seconds W A distance of two hundred and
thirteen and ninety-seven hundredths
feet (213.97 feet); thence
N 53 degrees 22 minutes 05 seconds E A distance of forty and zero
hundredths feet (40.00 feet) to the
point of beginning.
The above described easement contains an area of eight thousand five hundred
fifty-eight and eight tenths square feet (8,558.8 SF.).
12
<PAGE> 13
TEMPORARY GRADING EASEMENT No. 2
There is a temporary grading easement appurtenant to the described LOT 1 labeled
TEMPORARY GRADING EASEMENT NO. 2 and is described as follows:
Starting at the point of intersection of the southerly property line of LOT 1
with the Stoughton/Randolph Town Line S 53 seconds 22 minutes 5 seconds W a
distance of eighty eight and fifty hundredths feet (88.50 feet) to the point of
beginning; thence
S 36 seconds 37 minutes 55 seconds E A distance of forty and zero
hundredths feet (40.00 feet); thence
S 53 seconds 22 minutes 05 seconds W A distance of one hundred and seventy
and zero hundredths feet (170.00
feet); thence
S 36 seconds 37 minutes 55 seconds W A distance of forty and zero
hundredths feet (40.00 feet); thence
N 53 degrees 53 seconds 22 minutes A distance of one hundred and seventy
05 seconds E and zero hundredths feet (170.00
feet) to the point of beginning.
The above described easement contains an area of six thousand eight hundred
square feet (6,800 S.F.).
13
<PAGE> 14
Exhibit B
The Contracts
[See attached copy.]
14
<PAGE> 15
STOUGHTON, MASSACHUSETTS
- - Marriott Standard Service Agreement with H.J.Rota, Jr. (Snow removal)
effective 11/01/94;
- - Contract with D. Foley Landscape, Inc. effective 1994;
- - Lease Agreement with Konica (Copier) effective 09/29/94;
- - Contract with AT&T Management Services for Public Pay Telephones; and
- - All other contracts, if any, affecting the property.
15
<PAGE> 16
Lowell, MA
Exhibit A
The Premises
[See attached copy.]
16
<PAGE> 17
PARCEL I
A certain parcel of land in Lowell, Middlesex County, Massachusetts,
shown as Lot 1 on a plan entitled "Plan of Land in Lowell, MA", dated December
19, 1984, for BERMAN, FRENCH & ASSOC., prepared by ROBERT M. GILL & ASSOCIATES
INC., recorded at Middlesex North District Registry of Deeds in Plan Book 149,
Plan 95 and also shown as Lot 1 on a plan entitled "As Built Plan of Land in
Lowell, Massachusetts", dated December 15, 1989 and revised January 11, 1990,
January 19, 1990, March 21, 1990, for Appleton-Lowell Associates, prepared by
ROBERT M. GILL & ASSOCIATES, INC. and recorded herewith* (hereinafter the
"Plan"), more particularly described, according to the Plan, as follows:
Beginning at the southeast corner of the premises at land of N.S.
Leasing Tr II and Industrial Avenue East, bounded and described as follows:
thence S 86 degrees 08 minutes 00 seconds W, 215.52 feet, by Industrial
Avenue East;
thence in a curved line westerly and northerly at a radius of 575.00
feet, a length of 42.94 feet, by Industrial Avenue East;
thence N 89 degrees 35 minutes 18 seconds W, 1.54 feet, by Industrial
Avenue East;
thence N 0 degrees 24 minutes 42 seconds E, 14.95 feet, by River
Meadow Brook Relocation;
thence N 89 degrees 35 minutes 18 seconds W, 10.00 feet, by River
Meadow Brook Relocation;
thence N 0 degrees 24 minutes 42 seconds E, 95.10 feet, by said River
Meadow Brook Relocation;
thence northerly and westerly in a curved line at a radius of 430.00
feet, a length of 340.84 feet, by said River Meadow Brook Relocation;
thence N 45 degrees 00 minutes 16 seconds W, 311.08', by said Brook
Relocation;
thence northerly and easterly in a curved line at a radius of 370.00
feet, a length of 217.40 feet, still by said Brook Relocation;
thence N 88 degrees 30 minutes 20 seconds E, 364.93 feet, by land of
Coca-Cola Bottling Co.;
thence S 03 degrees 52 minutes 00 seconds E, 194.49 feet by land of
Thomas J. Donegan Trust;
17
<PAGE> 18
thence N 86 degrees 08 minutes 00 seconds E, 392.00 feet, still by land
of Donegan Trust;
thence S 22 degrees 23 minutes 50 seconds E, 221.48 feet, by Industrial
Avenue East;
thence S 86 degrees 08 minutes 00 seconds W, 237.51 feet, by land of
N.S. Leasing Tr II; and
thence S 12 degrees 58 minutes 05 seconds E, 442.72 feet, still by land
of N.S. Leasing Tr II, to the point of beginning.
Said Lot 1 contains 301,414 square feet more or less, according to said Plan,
being and intended to be the same premises as described in Deed of Berkshire
Builders, Inc. to Grantor dated March 14, 1989 recorded in said Registry of
Deeds at Book 3393, Page 302, and formerly shown as Lot A and Lot C2 in Plan
Book 129, Plan 12 and Plan Book 133, Plan 134 respectively.
For reference to title see deed of Berkshire Builders, Inc. to Grantor
dated March 14, 1986 and recorded in said Registry of Deeds at Book 3393, Page
301.
*Said plan dated December 15, 1989, last revised March 21, 1990, recorded with
Middlesex North District Registry of Deeds on March 30, 1990 as Instrument No.
13114 in Book 5188, Page 300, Plan Book 171, Plan 111.
18
<PAGE> 19
Exhibit B
The Contracts
[See attached copy.]
19
<PAGE> 20
LOWELL, MASSACHUSETTS
- - Contract with AMRIC Power Sweeping (Snow removal) effective 1994;
- - Placement Agreement with American Map Company effective 04/09/94;
- - Contract with Vining Disposal Services (Cardboard removal) effective
06/08/93;
- - Contract with Vining Disposal Services (Trash removal) effective 06/08/93;
- - Music Services Agreement with Muzak Music effective May 1990;
- - Rental Agreement with New England Spring Co., Inc. (H/C with refrigerator)
effective 09/07/90;
- - Contract with Copilabs Incorporated (Copier) effective 06/28/94;
- - Contract with Millar Custom Engineered Maintenance (elevators) effective
10/26/92;
- - Fire Alarm Services Contract with Simplex Time Recorder Co. effective
01/01/93;
- - Contract with Fujitsu Business Communications Systems effective 06/01/94;
and
- - All other contracts, if any, affecting the property.
20
<PAGE> 21
Milford, Massachusetts
Exhibit A
The Premises
[See attached copy.]
21
<PAGE> 22
That certain parcel of land in Milford, Worcester County, Massachusetts
located on Cedar Street and Fortune Boulevard, containing 228,460 +/- s.f. or
5.24 +/- Acres and shown as Lot 20 on a plan of land entitled:
PLAN OF LAND
Scale 1" = 200', Date: March 21, 1989
Lot 20, Fortune Boulevard
Milford, MA
Prepared for: Marriott Corp.
Marriott Drive
Washington, D.C.
Visniewsky Engineering Associates, Inc.
Civil Engineers & Land Surveyors
One Courthouse Lane
Building 8
Chelmsford, MA 01824
(508) 937-0700
Recorded in the Worcester Registry of Deeds at Plan Book 617, Plan 45.
The above parcel is conveyed with the right and easement to utilize those
portions of Fortune Boulevard not owned in fee by the Town of Milford for
access, egress, and underground utility purposes in common with Howard A. Fafard
and those lawfully entitled thereto. This right and easement shall terminate
upon the acceptance by the Town of Milford of those portions of Fortune
Boulevard not currently owned by the Town of Milford.
The above parcel is subject to a 10' wide easement for future highway
purposes as shown on the above-referenced plan, and all other Easements,
Restrictions, and Rights of Way of record as the same are now in force and
applicable.
The land herein conveyed does not constitute all, or substantially all, of
the Grantor's assets in the Commonwealth of Massachusetts.
For title of Grantor see Deed of Howard A. Fafard dated March 31, 1989,
recorded herewith.
Intending to convey the same premises described as follows:
22
<PAGE> 23
PARCEL I
A certain tract or parcel of land with the buildings thereon on the northerly
side of Fortune Boulevard and the easterly side of Cedar Street in the Town of
Milford, County of Worcester, State of Massachusetts, which parcel is shown as
Lot 20 on a survey entitled "Plan of Land - Lot 20, Fortune Boulevard, Milford,
MA" drawn by Visniewski Engineering Associates, Inc., dated February 9, 1989 and
recorded with the Worcester District Registry of Deeds, Plan Book 617, Plan 45,
and which parcel is further bounded and described as follows:
BEGINNING at a point on the easterly side of Cedar Street, it being the
northwesterly corner of the parcel described herein;
THENCE N. 87 degrees 07 minutes 32 seconds E., 670 feet by Parcel A on said plan
to a point;
THENCE S. 03 degrees 00 minutes 36 seconds E., 356.75 feet by Parcel A on said
plan to a point;
THENCE by a curve to the right with a radius of 20.00 feet, a distance of 37.95
feet by Parcel A on said plan to a point on the northerly side of Fortune
Boulevard;
THENCE on a curve to the left with a radius of 972.94 feet, a distance of 116.06
feet by Fortune Boulevard to a point;
THENCE N. 81 degrees 07 minutes 36 seconds W. a distance of 51.65 feet by
Fortune Boulevard to a point;
THENCE on a curve to the left with a radius of 724.84 feet, a distance of
331.46 feet by Fortune Boulevard to a point;
THENCE S. 72 degrees 40 minutes 21 seconds W. a distance of 79.36 feet by
Fortune Boulevard to a point;
THENCE on a curve to the right with a radius of 65.00 feet, a distance of 84.90
feet by the intersection of Fortune Boulevard and Cedar Street to a point;
THENCE N. 05 degrees 35 minutes 08 seconds W. by the easterly line of Cedar
Street a distance of 82.45 feet to a point;
THENCE N. 02 degrees 52 minutes 28 seconds W. by the easterly line of Cedar
Street a distance of 249.29 feet to the point of beginning.
23
<PAGE> 24
PARCEL II [APPURTENANCE(S)]
Together with the benefits (and subject to the burdens) of the following:
Those easements set forth in Paragraphs 1, 3, 4, 5, 6, 9, 11, 12 and 13
of that certain DECLARATION OF EASEMENTS by and between HOWARD A.
FAFARD and NEW ORLEANS MARRIOTT HOTEL VENTURE LIMITED PARTNERSHIP
recorded on 4/3/89 in Book 12013 Page 6, as modified as to Paragraph 3
pursuant to that certain REVISION OF SIGN EASEMENT by and between the
same parties recorded on 1/31/91 in Book 13223 Page 152.
The foregoing appurtenance(s) is/are subject to the terms, conditions,
provisions and limitations therein.
24
<PAGE> 25
Exhibit B
The Contracts
[See attached copy.]
25
<PAGE> 26
MILFORD, MASSACHUSETTS
- - Contract with Waste Management of Massachusetts, Inc. effective 04/30/93;
- - Service Agreement with Environmental Biotech, Inc. (Greaseinterceptor)
effective 06/03/93;
- - Contract with Alisar Construction, Inc. (Snow removal) effective 1994;
- - Fax Machine Maintenance Agreement with Pitney-Bowes effective 12/31/90;
- - Maintenance Agreement with Konica Business Machines (Copier) effective
03/20/94
- - Maintenance Service Agreement with Bay State Elevator Company, Inc.
effective 11/01/90;
- - Contract with Simplex Time Recorder effective 07/16/93;
- - Agreement with D. Foley Landscape, Inc. effective 1994;
- - Marriott Standard Service Agreement with Kitchen Klean, Inc. effective
10/01/90;
- - Contract with Ecolab effective 02/28/94;
- - Marriott Standard Service Agreement with Waste Systems, Inc. effective
05/01/93; and
- - All other contracts, if any, affecting the property.
26
<PAGE> 27
Fairfax County, Virginia
Exhibit A
The Premises
[See attached copy.]
27
<PAGE> 28
PARCEL I All of that certain lot or parcel of land situated, lying and being
in FAIRFAX County, Virginia, and being more particularly described as
follows:
Lot 18, Phase One, DULLES BUSINESS PARK, as the same appears duly
dedicated, platted and recorded in Deed Book 6087 at Page 1793, among
the land records of Fairfax County, Virginia.
AND BEING the same property conveyed to HMH Courtyard Properties,
Inc., a Delaware corporation by deed from Marriott Corporation, a
Delaware corporation, dated August 27, 1993 and recorded December 7,
1993 in Deed Book 8892 at Page 1815 among the land records of FAIRFAX
County, Virginia.
28
<PAGE> 29
PARCEL II [APPURTENANCE(S)]
Together with the benefits (and subject to the burdens) of the following:
1. Sign and Parking Cross Easement Agreement between Fidelio
Properties and Marriott Corporation dated 4/12/88, recorded
4/13/88 as Instrument No. 88-046138 (Book 6998 Page 43).
2. Declaration of Restrictive Covenants between Fidelio
Properties and Marriott Corporation dated 4/12/88, recorded
4/13/88 as Instrument No. 88-046139 (Book 6998 Page 64).
The foregoing appurtenance(s) is/are subject to the terms, conditions,
provisions and limitations therein.
29
<PAGE> 30
EXHIBIT B
The Contracts
[See attached copy.]
30
<PAGE> 31
DULLES/FAIRFAX, VIRGINIA
- - Water Lease Agreement with Cloister Spring effective 03/01/94;
- - Service Agreement with BFI Waste Systems effective 09/01/94;
- - Grounds Maintenance Program Contract with Delmar Systems, Inc. effective
01/91/95;
- - Contract with Joseph J. Magnolia, Inc. (Grease Interceptor) effective
08/20/90;
- - Marriott Standard Service Agreement with PM Hood and Duct effective
09/10/90;
- - Complete Maintenance Agreement for Hydraulic Elevators with Montgomery
Elevator Maintenance effective 09/23/92;
- - Agreement for Public Telephone Service with Bell Atlantic Company effective
11/01/93;
- - Interior Landscaping-Takeover Maintenance Agreement with Creative Plantings,
Inc. effective 10/27/93;
- - Swimming Pool Management Agreement with Winkler Pool Management, Inc.
effective 03/01/95;
- - Snow Plowing Service Contract with Lloyd Hepner effective 1995;
- - Contract Agreement with Alamo Leasing Company (Van) effective 09/14/90; and
- - All other contracts, if any, affecting the property.
31
<PAGE> 32
Cobb County, City of Atlanta, Georgia
Exhibit A
The Premises
[See attached copy.]
32
<PAGE> 33
Atlanta Midtown
ALL that tract or parcel of land ling and being in Land Lot 107 of the 17th
Land District of Fulton County, Georgia and being more particularly described
as follows:
COMMENCING at the point formed by the intersection of the northern
Right-of-Way of 10th Street, a 50" R/W, and the western Right-of-Way of
Techwood Drive, a 60' R/W.
THENCE running northerly along the western Right-of-Way of Techwood
Drive for 1251.53' to an iron pin found and the POINT OF BEGINNING;
THENCE departing said Right-of-Way and running, N 88 degrees 50 minutes
00 seconds W for 378.54' to an iron pin found;
THENCE running N 01 degrees 31 minutes 40 seconds E for 410.89' to an
iron pin found;
THENCE running S 89 degrees 42 minutes 55 seconds E for 376.00' to an
iron pin found on the western Right-of-Way of Techwood Drive;
THENCE running along the western Right-of-Way of Techwood Drive, S 01
degrees 10 minutes 00 seconds W for 416.67' to an iron pin found and the POINT
of BEGINNING.
Said tract containing 156,092 square feet or 3.5834 acres.
The foregoing premises are described and depicted as per Survey made by Mallett
& Associates (by Michael F. Lawler) dated 2/17/95, last revised -- (Job NO.
95108).
33
<PAGE> 34
Exhibit B
The Contracts
[See attached copy.]
34
<PAGE> 35
ATLANTA MIDTOWN, GEORGIA
- - Grounds Maintenance Contract with Post Landscape Services effective
01/01/94;
- - Contract with United Waste Service, Inc. effective 09/01/92;
- - Marriott Standard Service Agreement with Owsley & Sons Inc. effective
10/25/91;
- - Contract with Safety Fire Controls, Inc. effective 07/17/92;
- - Contract with Southeastern Protection Services effective 11/11/91;
- - Marriott Standard Service Agreement with Rentokil Tropical Plants effective
09/01/91;
- - Maintenance Agreement with Montgomery Elevator effective 08/01/92; and
- - All other contracts, if any, affecting the property.
35
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Foxboro, Massachusetts
Exhibit A
The Premises
[See attached copy.]
36
<PAGE> 37
PARCEL I
MARRIOTT COURTYARD - LOT 2
BEGINNING AT A POINT ON THE SOUTHEASTERLY SIDELINE OF COMMERCIAL
STREET (OLD ROUTE 140) AND BEING THE SOUTHERLY MOST CORNER OF THE HEREIN
DESCRIBED LOT 2:
THENCE BOUNDED
SOUTHWESTERLY BY COMMERCIAL STREET IN TWO (2) COURSES, 205.00 FEET AND
276.67 FEET: THENCE
NORTHWESTERLY BY LAND OF CC&F FOXBOROUGH TRUST, 443.01 FEET: THENCE
NORTHEASTERLY BY CONSTITUTION WAY IN THREE (3) COURSES, 46.17 FEET. A
COUNTERCLOCKWISE CURVE OF A RADIUS OF 270.00 FEET, L = 188.82
FEET AND A CLOCKWISE CURVE OF A RADIUS OF 40.00 FEET, L =
56.85 FEET: THENCE
EASTERLY BY FOXBOROUGH BOULEVARD BY A COUNTERCLOCKWISE CURVE OF A
RADIUS OF 430.00 FEET, L = 266.75 FEET: THENCE
SOUTHEASTERLY BY LAND OF CC&F FOXBOROUGH TRUST, 313.77 FEET TO THE POINT OF
BEGINNING. SAID LOT 2 CONTAINS 4.61 ACRES.
THE ABOVE DESCRIBED LOT 2 IS SHOWN ON A PLAN ENTITLED: "PLAN OF LAND IN
FOXBOROUGH, MASS." DATED AUGUST 27, 1987 BY BAY COLONY SURVEYING, INC.,
RECORDED ON SEPTEMBER 11, 1987 AS PLAN NO. 1103 OF 1987 IN PLAN BOOK 358.
THE ABOVE DESCRIBED PREMISES HAS THE BENEFIT OF THE FOLLOWING APPURTENANT
RIGHTS:
RIGHT OF WAY AS SET FORTH IN DEED FROM CC&F FOXBOROUGH TRUST TO
MARRIOTT CORPORATION DATED SEPTEMBER 10, 1987, RECORDED ON SEPTEMBER
11, 1987 AS INSTRUMENT NO. 110395, TO USE AND MAINTAIN IN COMMON WITH
OTHERS FOXBOROUGH BOULEVARD AND CONSTITUTION WAY FOR ALL PURPOSES FOR
WHICH STREETS AND WAYS MAY FROM TIME TO TIME BE USED IN TOWN OF
FOXBOROUGH.
37
<PAGE> 38
PARCEL II [APPURTENANCE(s)]
Together with the benefits (and subject to the burdens) of the following:
Restriction Agreement between CC&F Foxborough Trust and Marriott
Corporation dated 9/10/87, recorded on 9/11/87 in Book 7733 Page 220
(Instr. No. 110396).
The foregoing appurtenance(s) is/are subject to the terms, conditions,
provisions and limitations therein.
38
<PAGE> 39
Exhibit B
The Contracts
[See attached copy.]
39
<PAGE> 40
FOXBORO, MASSACHUSETTS
- - Marriott Standard Service Agreement with Waste Management of Massachusetts
effective 05/01/93;
- - Contract with Precision Pavement Maintenance Co. effective 1994;
- - Contract with Rentokil Inc. Tropical Plant Services;
- - Contract with D. Foley Landscape, Inc. effective 09/21/94; and
- - All other contracts, if any, affecting the property.
40
<PAGE> 41
Bellevue, Washington
Exhibit A
The Premises
[See attached copy.]
41
<PAGE> 42
Seattle/Bellevue
LOT 2, CITY OF BELLEVUE SHORT PLAT NUMBER 79-74R, RECORDED UNDER RECORDING
NUMBER 8107239001 IN KING COUNTY, WASHINGTON;
TOGETHER WITH THAT PORTION OF LOT 3, CITY OF BELLEVUE SHORT PLAT NUMBER 83-28,
RECORDED UNDER RECORDING NUMBER 8311099001, IN KING COUNTY, WASHINGTON,
DESCRIBED AS FOLLOWS:
BEGINNING AT THE MOST SOUTHERLY CORNER OF SAID LOT 3;
THENCE NORTH 44 degrees 24 minutes 12 seconds WEST ALONG THE SOUTHWESTERLY LINE
OF LOT 3 A DISTANCE OF 74.08 FEET;
THENCE NORTH 45 degrees 35 minutes 48 seconds EAST PARALLEL WITH THE WESTERLY
RIGHT OF WAY LINE OF N.E. 29TH PLACE, 170 FEET TO A LINE PARALLEL WITH AND 30.00
FEET DISTANT OF THE NORTHEASTERLY LINE OF LOT 3;
THENCE NORTH 44 degrees 24 minutes 12 seconds WEST ALONG SAID PARALLEL LINE
159.87 FEET;
THENCE NORTH 45 degrees 34 minutes 48 seconds EAST 56.74 FEET TO A LINE PARALLEL
WITH AND 24.68 FEET DISTANT OF THE NORTHEASTERLY LINE OF LOT 3;
THENCE NORTH 44 degrees 25 minutes 12 seconds WEST PARALLEL WITH SAID
NORTHEASTERLY LINE OF LOT 3 A DISTANCE OF 627.76 FEET TO THE WEST LINE OF LOT 3;
THENCE NORTH 01 degrees 25 minutes 31 seconds EAST ALONG SAID WEST LINE 48.34
FEET TO THE MOST NORTHERLY CORNER OF LOT 3;
THENCE ALONG THE NORTHEASTERLY LINE OF LOT 3 SOUTH 44 degrees 25 minutes 12
seconds EAST 318.85 FEET TO AN ANGLE POINT IN SAID NORTHEASTERLY LOT LINE;
THENCE CONTINUING ALONG SAID LOT LINE SOUTH 45 degrees 34 minutes 48 seconds
WEST 10.00 FEET TO AN ANGLE POINT IN SAID LOT LINE;
THENCE CONTINUING ALONG SAID LOT LINE SOUTH 44 degrees 25 minutes 12 seconds
EAST 371.05 FEET TO AN ANGLE POINT IN SAID LOT LINE;
THENCE CONTINUING ALONG SAID LOT LINE SOUTH 45 degrees 22 minutes 01 seconds
WEST 51.43 FEET TO AN ANGLE POINT IN SAID LOT LINE;
THENCE CONTINUING ALONG SAID LOT LINE SOUTH 44 degrees 24 minutes 12 seconds
EAST 205.30 FEET TO THE MOST EASTERLY CORNER OF SAID LOT 3;
THENCE CONTINUING ALONG THE WESTERLY RIGHT OF WAY LINE OF N.E. 29TH PLACE SOUTH
45 degrees 35 minutes 48 seconds WEST 200.00 FEET TO THE POINT OF BEGINNING;
TOGETHER WITH A NON-EXCLUSIVE PERPETUAL EASEMENT FOR INGRESS, EGRESS AND
UTILITIES OVER THAT PORTION OF LOT 4 OF CITY OF BELLEVUE SHORT PLAT NUMBER
79-74R RECORDED UNDER RECORDING NUMBER 8107239001, AND AS AMENDED BY CITY OF
BELLEVUE SHORT PLAT NUMBER 83-28, RECORDED UNDER RECORDING NUMBER 8311099001,
DESCRIBED AS FOLLOWS:
BEGINNING AT THE MOST EASTERLY CORNER OF SAID LOT 4;
THENCE NORTH 44 degrees 24 minutes 12 seconds WEST 134.50 FEET TO AN ANGLE POINT
IN THE NORTHEASTERLY LINE THEREOF;
THENCE NORTH 45 degrees 22 minutes 01 seconds EAST 68.59 FEET ALONG SAID
NORTHEASTERLY LINE OF SAID LOT 4 TO THE TRUE POINT OF BEGINNING;
THENCE SOUTH 45 degrees 22 minutes 01 seconds WEST 40.00 FEET TO A POINT WHICH
BEARS NORTH 45 degrees 22 minutes 01 seconds EAST 28.58 FEET FROM AN ANGLE POINT
IN SAID NORTHEASTERLY LINE;
THENCE NORTH 44 degrees 24 minutes 12 seconds WEST 70.00 FEET;
THENCE NORTH 45 degrees 22 minutes 01 seconds EAST 40.00 FEET;
42
<PAGE> 43
THENCE SOUTH 44 degrees 24 minutes 12 seconds EAST 70.00 FEET TO THE TRUE POINT
OF BEGINNING OF SAID EASEMENT TRACT;
(ALSO KNOWN AS LOT A, CITY OF BELLEVUE BOUNDARY LINE ADJUSTMENT NO. BLA-88-6528,
RECORDED UNDER RECORDING NUMBER 8908159001);
TOGETHER WITH ALL NON-EXCLUSIVE EASEMENTS FOR LANDSCAPING, UTILITIES, INGRESS,
EGRESS, AND PASSAGE OF PEDESTRIANS, AND INGRESS, EGRESS, PASSAGE AND PARKING OF
MOTOR VEHICLES, AS ESTABLISHED BY INSTRUMENT RECORDED UNDER RECORDING NUMBER
8112150351; AND
TOGETHER WITH ANY EXCLUSIVE EASEMENT FOR INGRESS, EGRESS, PASSAGE AND PARKING OF
MOTOR VEHICLES APPURTENANT TO THE ABOVE DESCRIBED PROPERTY AS ESTABLISHED BY
INSTRUMENT RECORDED UNDER RECORDING NUMBER 8112150351.
43
<PAGE> 44
Exhibit B
The Contracts
[See attached copy.]
44
<PAGE> 45
SEATTLE BELLEVUE, WASHINGTON
- - Vending Equipment Agreement with Alpac Corporation Vending effective
03/15/94;
- - Agreement with Eastgate Cleaners effective 03/29/90;
- - Agreement with Fibercare Incorporated effective 12/13/94;
- - Agreement with P&G Plant Company effective 10/01/91;
- - Landscaping Services Agreement with Highridge Maintenance effective
02/15/94;
- - Contract with Pitney Bowes effective 01/01/93;
- - Food and Beverage Vending Agreement with Marriott Vending Services
effective 08/20/90;
- - Contract with Motorola Communications and Electronics Inc. effective
01/14/92;
- - Ecolab Pest Elimination Program effective 12/01/91; and
- - All other contracts, if any, affecting the premises.
45
<PAGE> 46
Kansas City, Missouri
Exhibit A
The Premises
[See attached copy.]
46
<PAGE> 47
LOT 1, HOLMES VIEW, A SUBDIVISION OF LAND IN THE SOUTH 1/2 OF SECTION 32,
TOWNSHIP 48 NORTH, RANGE 33 WEST, OF THE 5TH P.M., KANSAS CITY, JACKSON COUNTY,
MISSOURI, ACCORDING TO THE RECORDED PLAT THEREOF, EXCEPT THAT PORTION OF THE
PREMISES WITHIN THE RIGHT-OF-WAY OF 105TH STREET, AND ALSO EXCEPT THAT PORTION
OF THE PREMISES WITHIN THE RIGHT-OF-WAY OF I-435.
A TRACT OF LAND BEING ALL OF LOT 1 OF "HOLMES VIEW", A SUBDIVISION, AND PART OF
LOTS 23, 24, 25, 26, 27, 28 AND 29 OF BLOCK 1 OF "SOUTH CITY VIEW", A
SUBDIVISION, AND PART OF VACATED 104th STREET, ALL LOCATED IN THE NORTHWEST
QUARTER OF THE SOUTHEAST QUARTER OF SECTION 32, TOWNSHIP 48 NORTH, RANGE 33
WEST, BEING IN KANSAS CITY, JACKSON COUNTY, MISSOURI, BOUNDED AND DESCRIBED AS
FOLLOWS:
BEGINNING AT THE SOUTHEAST CORNER OF SAID LOT 1; THENCE N 88 degrees 58 minutes
53 seconds W ALONG THE SOUTH LINE OF SAID LOT 1 A DISTANCE OF 227.59 FEET TO THE
P.C. OF A CURVE TO THE RIGHT HAVING A RADIUS OF 170.00 FEET; THENCE ALONG SAID
CURVE CONTINUING ALONG SAID LOT LINE AN ARC DISTANCE OF 264.46 FEET (CHORD N 42
degrees 24 minutes 58 seconds W 238.58 FEET) TO THE P.T. OF SAID CURVE; THENCE N
02 degrees 08 minutes 57 seconds E ALONG THE WEST LINE OF SAID LOT 1 A DISTANCE
OF 271.43 FEET TO THE P.C. OF A CURVE TO THE LEFT HAVING A RADIUS OF 260.00
FEET; THENCE ALONG SAID CURVE CONTINUING ALONG SAID LOT LINE AND AN EXTENSION
THEREOF, AN ARC DISTANCE OF 153.48 FEET (CHORD N 14 degrees 45 minutes 43
seconds W 151.26 FEET) TO A POINT ON THE WEST LINE OF SAID LOT 23, SAID POINT
ALSO BEING ON THE WEST LINE OF THE NORTHWEST QUARTER OF THE SOUTHEAST QUARTER OF
SAID SECTION 32 AND THE RIGHT-OF-WAY LINE OF INTERSTATE 435; THENCE N 02 degrees
08 minutes 57 seconds E ALONG SAID RIGHT-OF-WAY LINE AND SAID WEST LOT LINE A
DISTANCE OF 54.10 FEET; THENCE S 78 degrees 55 minutes 51 seconds E CONTINUING
ALONG SAID RIGHT-OF-WAY LINE A DISTANCE OF 320.39 FEET; THENCE S 65 degrees 17
minutes 09 seconds E CONTINUING ALONG SAID RIGHT-OF-WAY LINE A DISTANCE OF
222.11 FEET; THENCE S 55 degrees 11 minutes 43 seconds E CONTINUING ALONG SAID
RIGHT-OF-WAY LINE A DISTANCE OF 21.29 FEET TO A POINT THAT IS 10.00 FEET NORTH
OF THE CENTERLINE OF VACATED 104th STREET, SAID POINT ALSO BEING ON THE NORTH
LINE OF LOT 2 OF SAID "HOLMES VIEW"; THENCE N 86 degrees 58 minutes 56 seconds W
ALONG THE NORTH LINE OF SAID LOT 2 AND A LINE THAT IS 10.00 NORTH OF AND
PARALLEL WITH SAID CENTERLINE A DISTANCE OF 100.41 FEET TO NORTHEAST CORNER OF
SAID LOT 1; THENCE S 02 degrees 10 minutes 06 seconds W ALONG THE EAST LINE OF
SAID LOT 1 A DISTANCE OF 498.81 FEET TO THE POINT OF BEGINNING. SAID TRACT
CONTAINS 236,870 SQUARE FEET (5.44 ACRES), MORE OR LESS, AND IS SUBJECT TO ALL
EASEMENTS AND ENCUMBRANCES OF RECORD. BEARINGS ARE REFERENCED TO THE KANSAS
CITY, MISSOURI INDEPENDENT GRID SYSTEM.
47
<PAGE> 48
Exhibit B
The Contracts
[See attached copy.]
48
<PAGE> 49
KANSAS CITY SOUTH, MISSOURI
- - Snow and Ice Treatment Agreement with The Brothers Company, Inc. effective
09/16/94;
- - Complete Maintenance Agreement for Hydraulic Elevators with Montgomery
Elevator Maintenance;
- - Contract with ADT Security Systems effective 06/05/90;
- - Agreement with AEI Music Network Inc. effective 04/25/90;
- - Marriott Standard Service Agreement with Tropical Plant Rentals, Inc.
effective 10/22/90;
- - Vending Agreement with Palace Vending Co., Inc. effective 09/17/90;
- - Valet Service Agreement with Plaza Ford effective 09/27/90; and
- - All other contracts, if any, affecting the property.
49
<PAGE> 50
Spartanburg, South Carolina
Exhibit A
The Premises
[See attached copy.]
50
<PAGE> 51
Located in the County of Spartanburg, State of South Carolina, and
being situated on the southeasterly side of a frontage road near the
intersection of U.S. Highway No. 56 (Asheville Highway) and Interstate I-85, and
further bounded and described as follows:
BEGINNING at an Iron pipe on the northeast side of a private road
(40-foot right-of-way), which beginning point is North 15 degrees 04 minutes 59
seconds East 43.69 feet (43.86 feet record distance) from an Iron pin at the
common corner of lots now or previously owned by Travelers Petroleum, Inc.
("Texaco") and Waffle House, Inc.;
Thence and with the right-of-way of the private road North 51 degrees
11 minutes 20 seconds West 267.81 feet (267.35 feet record distance) to an
existing P.K. nail in the asphalt;
Thence North 43 degrees 04 minutes 18 seconds West 36.30 feet (36.28
feet record distance) to an existing iron pipe;
Thence North 22 degrees 12 minutes 23 seconds West 34.70 feet (34.73
feet record distance) to an existing iron pipe;
Thence North 27 degrees 27 minutes 56 seconds West 24.77 feet (24.76
feet record distance) to an existing iron pipe;
Thence North 43 degrees 00 minutes 19 seconds West 28.72 feet (28.72
feet record distance) to an existing P.K. nail in the asphalt;
Thence North 47 degrees 44 minutes 03 seconds West 37.89 feet (37.87
feet record distance) to an existing nail in the asphalt at the intersection of
the eastern right-of-way margin of the said 40-foot private road and the
southeastern right-of-way margin of Frontage Private Road (Mobile Drive, a 40
foot right-of-way);
Thence and with the southeastern margin of said Frontage Private Road
(Mobile Drive) North 48 degrees 08 minutes 52 seconds East 275.52 feet (275.45
feet record distance) to an existing iron pipe in the southeastern right-of-way
margin of said Frontage Private Road (Mobile Drive) said existing iron pipe
being also located South 51 degrees 11 minutes 13 seconds East 63.90 feet from
an existing railroad spike in the centerline of the asphalt of Frontage Road,
said iron pipe also being the northwestern boundary corner of a tract of land
now or formerly owned by North Town Associates, L.P., as it intersects with the
southeastern right of way margin of Frontage Private Road (Mobile Drive) as
recorded in Plat Book 106, Page 61, and Deed Book 54-Z, at Page 548;
Thence and with the southwestern boundary line of the tract of land now
or formerly owned by North Town Associates, L.P., South 51 degrees 09 minutes 32
seconds East 377.83 feet (377.80 feet record distance) to an existing iron pipe;
51
<PAGE> 52
Thence South 38 degrees 43 minutes 09 seconds West 309.95 feet (310.00
feet record distance) to the point and place of BEGINNING, containing 2.774
acres by D.M.D., (120,841.113 square feet) and being all of that tract of land
as shown on a plat entitled "Topographic Survey for Greer Properties, Inc." and
recorded in Plat Book 106, at page 60, in the RMC Office for Spartanburg County,
South Carolina.
TOGETHER WITH all rights pursuant to that certain Access Easement
Agreement between North Town Associates, L.P., and Greer Properties, Inc.,
recorded in Deed Book 54-Z, Page 495, on January 4, 1989 in said RMC Office.
TOGETHER WITH all rights pursuant to that certain Slope Easement and
Agreement between North Town Associates, L.P., and Greer Properties, Inc.,
recorded in Deed Book 54-Z, Page 487, on January 4, 1989, in said RMC Office.
TOGETHER WITH all rights pursuant to that certain Storm Water Drainage
Easement between North Town Associates, L.P., and Greer Properties, Inc.,
recorded in Deed Book 54-Z, Page 505, on January 4, 1989, in said RMC Office.
TOGETHER with all rights pursuant to that certain Water Line Agreement
between North Town Associates, L.P., Travelers Petroleum, Inc., NCNB South
Carolina, and Greer Properties, Inc., recorded in Deed Book 54-Z, Page 515, on
January 4, 1989, in said RMC Office.
NOTE: The above legal description describes the same property described in
Exhibit "A" in Schedule A of Title Commitment No. 3- 00109/1309.086/SMC of the
Chicago Title Insurance Company bearing an effective date of January 6, 1995.
52
<PAGE> 53
EXHIBIT 2
All rights of Grantee pursuant to that certain Access Easement Agreement
between North Town Associates, L.P., as Grantor, and Greer Properties, Inc., as
Grantee, recorded in Deed Book 54-Z, Page 495, on January 4, 1989 in said RMC
Office, which easement area is described as follows:
All that certain lot, piece or parcel of land in the County of Spartanburg,
State of South Carolina, near the Hearon Traffic Circle at the North Town
Shopping Center containing 1.998 acres, more or less, and being shown and
designated as "Private Road" and "Proposed Frontage Private Road" on a plat of
survey for North Town Associates, L.P. prepared by Archie S. Deaton &
Associates, Land Surveyors, dated December 16, 1988, and more particulary
described on said plat by metes and bounds as follows:
Beginning at a point on the edge of the right of way at the intersection of said
Private Road and White Avenue and running thence S. 59 degrees -24 minutes W.
42.8 feet to a point; thence N. 51 degrees -11 minutes W. 240 feet to a point;
thence S. 83 degrees -49 minutes W. 35.40 feet to a point; thence S. 38 degrees
- -49 minutes W. 190 feet to a point; thence S. 06 degrees -11 minutes E. 35.40
feet; thence with the right of way of U.S. Highway 56 N. 81 degrees -11 minutes
W. 110 feet to a point; thence N. 83 degrees -49 minutes E. 35.40 feet to a
point; thence N. 38 degrees -49 minutes E. 190 feet to a point; thence N. 06
degrees -11 minutes W. 35.40 feet to a point; thence N. 51 degrees -11 minutes
W. 255.20 feet to a point; thence E. 83 degrees -49 minutes W. 35.40 feet to a
point; thence S. 18 degrees -49 minutes W. 190 feet to a point; thence S. 06
degrees -11 minutes E. 18 degrees -49 minutes W. 190 feet to a point; thence N.
06 degrees -11 minutes W. 35.40 feet to a point; thence with the right of way of
U.S. Highway 56 N. 51 -11 minutes W. 110 feet to a point; thence N. 83 degrees
- -45 minutes E. 35.40 feet to a point; thence N. 38 degrees -49 minutes E. 110
feet to a point; thence N. 06 degrees -11 minutes W. 35.40 feet to a point;
thence N. 51 degrees -11 minutes -20 seconds W. 443.05 feet to a point; thence
N. 42 degrees -19 minutes - 57 seconds W. 51.20 feet to a point; thence N. 23
degrees -48 minutes -28 seconds W. 55.43 feet to a point; thence N. 43 degrees
- -49 minutes -18 seconds W. 21.79 feet to a point; thence N. 47 degrees -44
minutes -31 seconds W. 40.93 feet to a point; thence N. 47 degrees -44 minutes
- -31 seconds W. 40.18 feet to a point on the existing road right of way for the
Frontage Road at Interstate 85; thence N. 48 degrees -09 minutes -44 seconds E.
40.19 feet to a point; thence S. 47 degrees -44 minutes -32 seconds E. 40.22
feet to a point; thence S. 47 degrees -44 minutes -31 seconds E. 37.87 feet;
thence S. 43 degrees -02 minutes -57 seconds E. 28.72 feet; thence S. 27 degrees
- -28 minutes -33 seconds E. 24.76 feet; thence S. 22 degrees -13 minutes -26
seconds E. 34.73 feet; thence S. 43 degrees -07 minutes -07 seconds E. 36.28
feet; thence S. 51 degrees -11 minutes -20 seconds E. 443.35 feet to a point at
an intersection for a Proposed Frontage Road; thence S. 51 degrees -11 minutes
E. 729.92 feet to a point, being the point of beginning.
53
<PAGE> 54
ALSO, said easement includes all that certain lot, piece or parcel of land in
the County of Spartanburg, State of South Carolina, near the Hearon Traffic
Circle at the North Town Shopping Center containing 0.252 acres, more or less,
and being shown and designated as "Proposed Frontage Private Road" on a plat of
survey for North Town Associates, L.P. prepared by Archie S. Deston &
Associates, Land Surveyors, dated December 16, 1988, and more particulary
described on said plat by metes and bounds as follows:
Beginning at a point on the southeastern side of the existing Frontage Road
paralleling Interstate 85 and running thence N. 48 degrees - 09 minutes 44
seconds E. 273 feet to a point; thence S. 51 degrees -11 minutes -20 seconds E.
40.54 feet to a point; thence S. 48 degrees -09 minutes -44 seconds W. 275.45
feet to a point; thence N. 47 degrees -44 minutes -31 seconds W. 40.22 feet to a
point, being the point of beginning.
54
<PAGE> 55
EXHIBIT 3
All rights of Grantee pursuant to that certain Slope Easement and Agreement
between North Town Associates, L.P., as Grantor, and Greer Properties, Inc., as
Grantee, recorded in Deed Book 54-Z, Page 487, on January 4, 1989 in said RMC
Office, which easement area is described as follows:
All that certain piece or parcel of land located in the County of Spartanburg,
State of South Carolina, lying and being situate on the southeasterly side of a
Frontage Road near the intersection of U.S. Highway No. 86 (Asheville Highway)
and Interstate I-85, and being shown as the "10' Slope Easement" on a
Topographic Survey for Greer Properties, Inc., prepared by Archie S. Deaton &
Associates, Land Surveyors, dated November 7, 1988; said property being more
particularly described according to said plot as follows:
Beginning at an iron pin on the northwest corner of the subject property and
running thence North 48 degrees -09 minutes -44 seconds East, 10.13 feet to a
point; thence South 51 degrees -11 minutes -20 seconds East, 386.15 feet to a
point; thence South 38 degrees -48 minutes -40 seconds West, 320.00 feet to a
point; thence North 51 degrees -11 minutes -20 seconds West, 10.00 feet to an
iron pin; thence North 38 degrees -48 minutes -40 seconds East, 310.00 feet to
an iron pin; thence North 51 degrees -11 minutes -20 seconds West, 377.80 feet
to an iron pin, the POINT OF BEGINNING.
55
<PAGE> 56
EXHIBIT 4
All rights of Grantee pursuant to that certain Storm Water Drainage
Easement between North Town Associates, L.P. and Greer Properties, Inc. recorded
in Deed Book 54-Z, Page 505, in said RMC Office on January 4, 1989, which
easement area is described as follows:
Said easement is shown on a plat for North Town Associates, L.P.
showing storm drainage easement plan prepared by Archie S. Deaton & Associates,
Land Surveyors, dated December 20, 1988, to which plat reference is made in aid
of description and which easement area is fifteen (15) feet in width, extending
7.5 feet on either side of a center line described on said survey by metes and
bounds as follows:
Beginning at a point designated ("INFLOW") [to find the beginning point
start at a point at the northeastern side of Malibu Drive at its intersection
with White Avenue and proceed S. 35 degrees -22 minutes -00 seconds E. 4.40 feet
to a point; thence N. 5 degrees -02 minutes -40 seconds E. 511.07 feet to a
point; thence N. 73 degrees -21 minutes -52 seconds W. 90.41 feet to a point;
thence S. 48 degrees -22 minutes -11 seconds W. 65.23 feet to a point; thence S.
00 degrees -37 minutes -29 seconds W. 56.85 feet to a point; thence S. 7 degrees
- -32 minutes -21 seconds E. 78.99 feet to a point being the point of beginning
entitled "INFLOW"); and from the beginning point thence N. 70 degrees -19
minutes -39 seconds W. 197.13 feet to a point marked C. B.; thence N. 65 degrees
- -51 minutes -43 seconds W. 379.57 feet to a point marked C.B.; thence N. 63
degrees -02 minutes -33 seconds W. 46.89 feet to a point marked C.B.; thence S.
28 degrees -23 minutes -04 seconds W. 192.49 feet to a point marked C.B.; thence
N. 81 degrees -10 minutes -16 seconds W. 99.90 feet to a point marked C.B.;
thence N. 51 degrees -05 minutes -42 seconds W. 155.83 feet to a point marked
C.B.; thence N. 51 degrees -18 minutes -15 seconds W. 224.75 feet to a point
marked C.B.; said right of way and easement also includes that area extending
7.5 feet beyond the final point.
ALSO, said easement includes the proposed easement area 15 feet in
width extending 7.5 feet on either side of a centerline which centerline begins
at a point which is located S. 38 degrees -48 minutes -40 seconds W. 11.56 feet
from the southeast corner of grantee's property, containing 2.788 acres, more or
less, shown on the aforedescribed plat and from said beginning point running
thence S. 82 degrees -34 minutes -00 seconds E. 104.11 feet to a point marked
P.C.B.; thence S. 9 degrees -33 minutes -39 seconds W. 58.77 feet to a point
marked P.C.B.; thence E. 62 degrees -11 minutes -51 seconds E. 49.63 feet to a
point marked P.C.B.; thence S. 20 degrees -37 minutes -20 seconds W. 64.16 feet
to a point marked C.B., at the intersection with the storn drain easement hereto
described.
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<PAGE> 57
ALSO, said easement includes the non-exclusive perpetual right to discharge
into and impound storm water within and upon that certain property of grantor
designated as "Easement Area for Detention Pond" as shown on the aforedescribed
plot and more particularly described by metes and bounds thereon as follows:
Beginning at a point on the northwestern side of Malibu Drive at its
intersection with White Avenue and running thence with the northern right of way
of White Avenue S. 88 degrees -39 minutes -56 seconds W. 22.85 feet to a point;
thence with said right of way S. 78 degrees -48 minutes -14 seconds W. 81.12
feet to a point; thence N. 44 degrees -14 minutes -18 seconds W. 43.30 feet to a
point; thence N. 38 degrees -22 minutes -17 seconds E. 92.05 feet to a point;
thence N. 22 degrees -40 minutes - 42 seconds E. 76.93 feet to a point; thence
N. 7 degrees -27 minutes -34 seconds E. 93.27 feet to a point; thence N. 8
degrees 11 minutes -28 seconds W. 77.43 feet to a point marked "(INFLOW)";
thence N. 7 degrees -32 minutes -21 seconds W. 78.99 feet to a point; thence N.
0 degrees -37 minutes -29 seconds E. 56.83 feet to a point; thence N. 48 degrees
- -22 minutes -11 seconds E. 65.23 feet to a point; thence S. 73 degrees -21
minutes -52 seconds E. 66.21 feet to a point on the western side of the right of
way of Malibu Drive and thence with the western side of the right of way of
Malibu Drive S. 3 degrees -02 minutes -40 seconds W. 508.79 feet to a point at
the intersection with White Avenue, being the point of beginnig.
57
<PAGE> 58
Exhibit 6
All rights of Grantee pursuant to that certain Water Line Agreement between
North Town Associates, L.P., Travelers Petroleum, Inc. and NCNB South Carolina,
as Grantors, and Greer Properties, Inc., as Grantee, recorded in Deed Book 54-Z,
Page 515, on January 4, 1989, which easement area is described as follows:
Said easement is shown on a plat for North Town Associates, L.P. showing water
line easement plat, prepared by Archie S. Deaton & Associates, Land Surveyors,
dated December 20, 1988, to which plat reference is made in aid or description
and which easement area is 20 feet in width, extending 10 feet on either side of
a center line which begins at a point, said point being a water valve located
near the intersection of a private road owned by grantor and White Avenue and
running thence N. 44 degrees -30 minutes W, 96.25 feet to a point marked water
valve; thence N. 31 degrees -31 minutes -24 seconds W. 675.31 feet to a point
marked water valve; thence N 38 degrees -34 minutes -28 seconds E. 27.88 feet to
an existing hydrant; thence N. 51 degrees -11 minutes W. 188.7 feet to a point
at the southeast corner of grantee's property which is being conveyed from
grantor to grantee herein contemporaneously herewith.
ALSO, said easement area is 20 feet in width, extending 10 feet on either side
of a centerline which begins at a point on the aforedescribed plat at the
southwestern corner of grantee's property and running thence N. 47 degrees -44
minutes -21 seconds W. 43.6 feet to a point at or near an existing water valve;
thence the easement area is 10 feet in width extending 10 feet on the southern
side of a centerline which runs S 47 degrees -19 minutes W, 116.69 feet to a
point; the area on the opposite side of the centerline being a public frontage
road; thence the easement area is 20 feet in width, extending 10 feet on either
side of a centerline (said width being a maximum width to vary with the boundary
line of grantor's property) running S. 26 degrees -24 minutes E. 31.76 feet to a
water valve; thence S. 58 degrees -35 minutes W. 6.38 feet to a point.
58
<PAGE> 59
Exhibit B
The Contracts
[See attached copy.]
59
<PAGE> 60
SPARTANBURG, SOUTH CAROLINA
- - Vending Agreement with Atlas Food Systems and Services, Inc. effective
05/15/90;
- - Facsimile Rental Agreement with Pitney Bowes effective 04/01/90;
- - Contract with Fowler Bros. Cleaners effective 04/01/90;
- - Commercial Service Agreement with TruGreen-Chemlawn effective 11/02/94;
- - Lawn Maintenance Contract with Allen's Landscaping & Lawn Service effective
11/23/94;
- - Agreement with Southern Travel Information Service effective 09/17/92;
- - Marriott Standard Service Agreement with Waste Management of South Carolina
effective 1990; and
- - All other contracts, if any, affecting the property.
60
<PAGE> 61
Eden Prairie, Minnesota
Exhibit A
The Premises
[See attached copy.]
61
<PAGE> 62
EXHIBIT A
EDEN PRAIRIE, MN
Lot 2, Block 1 Viking Drive West according to the plat thereof on file or of
record in the office of the County Recorder entitled "Viking Drive West"
recorded on August 5, 1988 as Hennepin County Recorder Document Number 5439232
(the "Plat"). Hennepin County, Minnesota.
Abstract.
Together with the benefits (and subject to the burdens) of the following:
1. Grant of Slope Easement and Agreement dated 12/30/87, and filed
of recorded on 1/21/88, as Document No. 5370300, as amended by
Document No. 5656226.
2. Easement for utility purposes described in Utility Easement
Agreement dated 12/30/87, and filed of record on 1/15/88, as
Document No. 5368641.
The foregoing appurtenance(s) is/are subject to the terms, conditions,
provisions and limitations therein.
62
<PAGE> 63
Exhibit B
The Contracts
[See attached copy.]
63
<PAGE> 64
MINNEAPOLIS/EDEN PRAIRIE, MINNESOTA
- - Agreement with McCaren Designs, Inc. (Interior Plants) effective 02/15/94;
- - Contract with Theisen Vending Company (video games) effective 02/15/91;
- - Popcorn Vending Agreement with Rogina Systems, Inc. effective 09/01/89;
- - Postage Meter Rental Agreement with Pitney Bowes effective 01/20/92;
- - Public Telephone Station Agreement with AT&T;
- - Lobby and In-Room Distribution Agreement with Where Magazines effective
05/24/95;
- - Special Contract of Carriage with UPS effective 10/13/93;
- - Host Site Agreement with International Network Communications, Inc.
effective 02/15/95;
- - Landscape Maintenance Contract with Johnson Lawn Landscape effective
04/01/94;
- - Snow Removal Contract with Don Wayne Excavating, Inc. effective 09/28/94;
- - Service Agreement with BFI Waste Systems effective 05/31/93;
- - Contract with Montgomery Elevator Company effective 11/01/90;
- - National Service Network Maintenance Agreement with Carrier Corporation
effective 04/29/91;
- - Marriott Standard Service Agreement with Ecolab Pest Elimination effective
10/31/89;
- - National Service Contract with Motorola Communications and Electronics,
Inc. effective 05/01/90; and
- - All other contracts, if any, affecting the property.
64
<PAGE> 65
Fulton, County, City of Hapeville, Georgia
Exhibit A
The Premises
[See attached copy.]
65
<PAGE> 66
ALL THAT TRACT or parcel of land lying and being in Land Lot 127 of the 14th
District of Fulton County, Georgia, being more particularly described on
Exhibit "A" attached hereto and by this reference incorporated herein.
TOGETHER WITH those easement rights arising under that certain Easement
Agreement by and between Greer Properties, Inc. and Residence Inn by Marriott,
Inc., dated as of November 22, 1988, filed for record November 23, 1988 at 9:17
a.m., recorded in Deed Book 12070 , Page 105, Records of Fulton County,
Georgia; as re-recorded January 25, 1989 at 9:22 a.m., recorded in Deed Book
12226, Page 262, aforesaid Records; as amended by that certain First Amendment
to Easement Agreement by and between Greer Properties, Inc. and Residence Inn
by Marriott, Inc., dated as of November 13, 1991, filed for record November 27,
1991 at 8:30 a.m., recorded in Deed Book 14768, Page 17, aforesaid Records; as
re-recorded December 18, 1991 at 12:43 p.m., recorded in Deed Book 14818, Page
52, aforesaid Records.
66
<PAGE> 67
All that tract or parcel of land lying and being in Land Lot 127 of the 14th
District of Fulton County, Georgia, and being more particularly described as
follows;
TO LOCATE THE TRUE POINT OF BEGINNING, commence at a nail set in concrete on
the westerly right-of-way line of International Boulevard (a 50 foot
right-of-way), 734.77 feet northerly, as measured along the westerly
right-of-way line of International Boulevard, from the corner formed by the
intersection of the westerly right-of-way line of International Boulevard and
the northerly right-of-way line of Virginia Avenue (a variable right-of-way);
thence northeasterly, along the northwesterly right- of-way line of
International Boulevard, an arc distance of 85.0 feet to a nail set in asphalt
and THE TRUE POINT OF BEGINNING, said arc being subtended by a chord bearing
and distance of North 12 degrees 58 minutes 36 seconds east, 84.86 feet; thence
northeasterly, along the northwesterly right-of-way line of International
Boulevard, an arc distance of 88.74 feet to a nail set, which arc is subtended
by a chord bearing and distance of North 24 degrees 26 minutes 18 seconds east,
88.59 feet; thence North 36 degrees 53 minutes 33 seconds west, 561.50 feet to
an iron axle located on the southeasterly right-of-way line of Interstate
Highway No. 85; thence southwesterly, along the southeasterly right-of-way line
of Interstate Highway No. 85, an arc distance of 72.0 feet to a concrete
right-of-way monument, which, arc is subtended by a chord bearing and distance
of South 60 degrees 59 minutes 17 seconds west, 72.0 feet; thence South 59
degrees 38 minutes 37 seconds west, along the southeasterly right-of-way line
of Interstate Highway No. 85, 163.10 feet to a concrete right-of-way monument;
thence southwesterly, along the southeasterly right-of-way line of Interstate
Highway No. 85, an arc distance of 131.92 feet to a nail set, which arc is
subtended by a chord bearing and distance of South 51 degrees 45 minutes 41
seconds West, 131.87 feet; thence South 36 degrees 53 minutes 33 seconds east,
369.68 feet to a nail set; thence North 88 degrees 22 minutes 43 seconds east,
157.06 feet to a nail set; thence North 53 degrees 06 minutes 27 seconds east,
163.08 feet to a nail set in asphalt; thence South 36 degrees 53 minutes 33
seconds east, 41.20 feet to a nail set in asphalt; thence southeasterly, along
an arc of a curve to the right, an arc distance of 90.0 feet to a nail set in
concrete, which arc is subtended by a chord bearing and distance of South 11
degrees 06 minutes 35 seconds east, 86.99 feet; thence South 71 degrees 24
minutes 57 seconds east, 60.0 feet to a nail set in asphalt and THE TRUE POINT
OF BEGINNING; said tract containing 172,822 square feet or 3.9674 acres of land
and being shown and delineated as Parcel One on that certain plat of survey
prepared for The Great-West Life Assurance Company by Travis Pruitt &
Associates, P.C., which plat is recorded in Plat Book 160, page 45, Records of
Fulton County, Georgia.
67
<PAGE> 68
Exhibit B
The Contracts
[See attached copy.]
68
<PAGE> 69
ATLANTA AIRPORT NORTH, GEORGIA
- - Vending Service Agreement with Peachtree Vending Company effective
11/17/90;
- - Marriott Standard Service Agreement with United Waste Service, Inc.
effective 09/01/92;
- - Agreement with Southeastern Protection Services effective 09/10/90;
- - Contract for Advertising Display Space with Transportation Media, Inc.
effective 06/01/93;
- - Commercial Service Agreement with TruGreen-Chemlawn effective 02/16/94;
- - Horticultural Services Agreement effective 12/01/92;
- - AudioVisual Service Agreement with Projexions Video Supply effective
10/01/91;
- - Facsimile Rental Agreement with Pitney Bowes effective 06/29/90;
- - Marriott Standard Service Agreement with Unique Creations, Inc. (Landscape)
effective 11/01/94;
- - Sign Lease with Corey Outdoor Advertising, Inc. effective 09/15/89;
- - Contract with World Cinema, Inc. effective 12/19/90;
- - Contract with Ecolab Inc. effective 12/03/90;
- - Contract with OnCommand Video effective 07/07/94;
- - Payphone Management Agreement with AT&T effective 05/10/93;
- - Contract with Advertising on Hold effective 11/94; and
- - All other contracts, if any, affecting the property.
69
<PAGE> 70
Mahwah, New Jersey
Exhibit A
The Premises
[See attached copy.]
70
<PAGE> 71
Tax Lot 2, Block 129
MAHWAH, NJ
All the real property located in the Township of Mahwah, County Bergen, State
of New Jersey, more particularly described as follows:
Beginning at a point on the westerly right of way line of New Jersey State
Highway Route 17, as laid out on a certain map entitled, "NEW JERSEY STATE
HIGHWAY DEPARTMENT - GENERAL PROPERTY PARCEL MAP - ROUTE 17 SECTION 9 WIDENING
- - NEW YORK STATE LINE TO FRANKLIN TURNPIKE, DECEMBER 1953" being distant 69.0
feet at right angels to a concrete monument (PT 49-09.06) as shown on the
aforesaid map and running along said westerly right of way 381.0 feet to the
true point of beginning and running thence,
1) along said right of way line, South 54 deg. 50 min. 30 sec. East,
666.00 feet; thence,
2) along the northerly lot line of property now or formerly of Highway
Displays Inc., South 39 deg. 45 min. 00 sec. West, 72.72 feet; thence,
3) continuing along said lot line, South 46 deg. 08 min. 21 sec. East,
181.20 feet to a point on the northwesterly line of lands now or
formerly of the State of New Jersey and which point presently lies
within the channel of the Ramapo River; thence,
4) continuing along said lands, South 62 deg. 35 min. 00 sec. West,
293.00 feet to a point on the present northerly bank of the Ramapo
River; thence,
5) still along said lands, South 31 deg. 09 min. 00 sec. East, 101.00
feet to a point presently within said channel; thence,
6) continuing along said lands, South 48 deg. 43 min. 20 sec. West,
177.00 feet to a point on the easterly right of way line of South
Houverkopf Road (50 feet wide), which point presently lies within said
channel; thence,
7) along said easterly right of way line, North 37 deg. 09 min. 10 sec.
West, 882.00 feet; thence,
8) along lands now or formerly of Reinhauer Brothers Oil Company, North
50 deg. 44 min. 48 sec. East, 316.26 feet to the point and place of
beginning, containing 8.183 acres.
Being shown as Lot 2, Block 129 on Tax Map sheet 8 of the Tax Maps of the
Township of Mahwah. Also being the same tract of land conveyed to HMH
Properties, Inc., d/b/a HMH Properties Inc., of Delaware from Marriott
Corporation by deed dated September 1, 1993 and recorded August 11, 1994 in
Deed Book 7721, page 324 in the Bergen County Clerk's Office, Bergen County,
New Jersey.
71
<PAGE> 72
The foregoing premises are as shown and depicted on a Survey made by The RBA
Group (by Thomas R. Badenoch, LLS) dated 2/15/95 (Job No. J7605.02)
72
<PAGE> 73
Exhibit B
The Contracts
[See attached copy.]
73
<PAGE> 74
MAHWAH, NEW JERSEY
- - Interior Planting Program Contract with Foliage Plant Systems, Inc.
effective 05/01/91;
- - Master Maintenance Agreement with Dover Elevators effective 06/01/92;
- - Marriott Standard Service Agreement with Grasskeeper Landscaping, Inc.
effective 04/15/93; and
- - All other contracts, if any, affecting the property.
74
<PAGE> 75
Phoenix, Arizona
Exhibit A
The Premises
[See attached copy.]
75
<PAGE> 76
That portion of the Northwest quarter of the Northeast quarter of Section 22,
Township 2 North, Range 3 East of the Gila and Salt River Base and Meridian,
Maricopa County, Arizona, more particularly described as follows:
COMMENCING at the North quarter corner of said Section 22;
thence South 88 degrees 33 minutes 25 seconds East along the North line of said
Section 22, a distance of 883.67 feet;
thence South 02 degrees 04 minutes 32 seconds West, a distance of 567.15 feet
to the Point of Beginning;
thence South 02 degrees 04 minutes 32 seconds West, a distance of 346.00 feet;
thence North 87 degrees 55 minutes 28 seconds West, a distance of 128.00 feet;
thence South 02 degrees 04 minutes 32 seconds West, a distance of 12.08 feet;
thence North 87 degrees 55 minutes 28 seconds West, a distance of 165.00 feet;
thence North 02 degrees 04 minutes 32 seconds East, a distance of 51.08 feet;
thence North 32 degrees 30 minutes 25 seconds East, a distance of 112.71 feet;
thence South 57 degrees 29 minutes 35 seconds East, a distance of 10.00 feet;
thence North 32 degrees 30 minutes 25 seconds East, a distance of 125.94 feet;
thence North 57 degrees 29 minutes 35 seconds West, a distance of 37.86 feet;
thence North 32 degrees 30 minutes 25 seconds East, a distance of 93.46 feet;
thence South 57 degrees 29 minutes 35 seconds East, a distance of 15.00 feet;
thence North 32 degrees 30 minutes 25 seconds East, a distance of 81.00 feet;
thence South 57 degrees 29 minutes 35 seconds East, a distance of 110.00 feet
to the POINT OF BEGINNING;
Together with an easement for ingress and egress, parking, pedestrian traffic,
service and delivery vehicles, maintenance
76
<PAGE> 77
and repair of common area, and temporary construction activity, as set forth in
Declaration of Covenants, Conditions and Restrictions running with the land and
Grant of Reciprocal Easement recorded in Docket 13725, page 119, and Addendum
recorded in Docket 14032, page 147; Second Addendum recorded in Docket 14335,
page 301; Third Addendum recorded in Docket 15850, page 698 and re-recorded in
Docket 15870, page 481; Fourth Addendum recorded in Docket 15966, page 1466 and
recorded in Recording No. 83-440426; Fifth Addendum recorded in Recording No.
84-497596 and recorded in Recording No. 85-562877; and Sixth Addendum recorded
in Recording No. 89-243873, records of Maricopa County, Arizona; and
77
<PAGE> 78
Together with easements for signs, utilities and parking, as set forth in that
certain Memorandum of Sub-Lease dated as of May 1, 1989 and recorded in
Recording No. 89-243875, records of Maricopa County, Arizona.
78
<PAGE> 79
Exhibit B
The Contracts
[See attached copy.]
79
<PAGE> 80
PHOENIX CAMELBACK, ARIZONA
- - Landscaping Services Agreement with Desert Valley Landscape effective
03/01/93;
- - Service Agreement with Waste Management of Phoenix effective 11/17/94;
- - Postage Meter Rental Agreement with Pitney Bowes effective 07/13/90;
- - Agreement with Arizona Elevator, Inc. effective 09/24/90;
- - Commercial Sales Agreement with ADT Security Systems, Southwest, Inc.
effective March 1990; and
- - All other contracts, if any, affecting the property.
80
<PAGE> 81
Gwinnett County, City of Norcross, Georgia
Exhibit A
The Premises
[See attached copy.]
81
<PAGE> 82
ALL that tract or parcel of land lying and being in Land Lot 195 of
the 6th Land District of Gwinnett County, Georgia and being the eastern portion
of Lot 1, Block "E" of Norcross 85 Center subdivision, recorded in Plat Book 2,
page 92, of Gwinnett County Records, and also being depicted on the Final Plat
of Norcross/85 Center subdivision, recorded in Plat Book 19, page 37, of
Gwinnett County Records, and being more particularly described as follows:
COMMENCING at the common corner of Land Lots 193, 194, 217, and 218;
THENCE running northeasterly along the common line of Land Lots 194
and 217 and the common line of Land Lots 195 and 216 for 3,630.67' to an iron
pin set and the POINT OF BEGINNING;
THENCE continuing along the common line of Land Lots 195 and 216, N
59 degrees 17 minutes 25 seconds E for 453.59' to an iron pin found;
Thence departing said Land Lot Line and running S 17 degrees 10 minutes
30 seconds E for 325.57' to an iron pin found on the northwestern Right-of-Way
of McDonough Drive, a 80' R/W;
THENCE running along said Right-of-Way in a southwesterly direction,
following the curvature to the left an arc distance of 106.73 to a point, said
arc having a radius of 755.08' and subtending a chord bearing S 63 degrees
01 minute 00 seconds W for 106.14';
THENCE continuing along said Right-of-Way, S58 degrees 59 minutes 00
seconds W for 270.08' to a 'PK' nail found at the joint between the concrete
driveway apron and the asphalt pavement;
THENCE departing said Right-of-Way, N30 degrees 58 minutes 00 seconds
W for 311.10' to an iron pin set and the POINT OF BEGINNING.
SAID tract containing 129,124 square feet or 2.9643 acres.
The foregoing premises are described and depicted as per Survey made by Mallett
& Associates (by Michael F. Lawler) dated 2/15/95, last revised - (Job NO.
95107).
TOGETHER WITH a non-exclusive easement for ingress and egress over that parcel
of land identified as "Reserved Easement Two" on Exhibit "A" as described in
that certain Warranty Deed from Norcross-85 Park, Inc., a Georgia corporation
to Watkins Center Joint Venture, a Georgia joint venture of which Norcross-85
Park, Inc., a Georgia corporation and Hutton/GSH Commercial Properties 1, a
Virginia Limited partnership are the joint venturers, dated May 26, 1982, filed
for record May 26, 1982 at 4:00 p.m., recorded in Deed Book 2395, Page 79,
Records of Gwinnett County, Georgia.
82
<PAGE> 83
Exhibit B
The Contracts
[See attached copy.]
83
<PAGE> 84
ATLANTA/NORCROSS (JIMMY CARTER), GEORGIA
- - Laundry and Dry Cleaning Service Agreement with Puritan Cleaners effective
01/04/93;
- - Landscape Property Management Agreement with Eddie's Landscaping effective
10/01/93; and
- - All other contracts, if any, affecting the property.
84
<PAGE> 85
Auburn Hills, Michigan
Exhibit A
The Premises
[See attached copy.]
85
<PAGE> 86
PARCEL I
Land in the City of Auburn Hills, Oakland County, Michigan, described as:
Unit 2, UCP CONDOMINIUM, according to the Master Deed recorded in liber 10368,
pages 826 through 852, both inclusive, and First Amendment to Master Deed
recorded in liber 10513, pages 748 through 752, inclusive, Oakland County
Records, and designated as Oakland County Condominium Subdivision Plan No. 542,
together with rights in general common elements and limited common elements, as
set forth in the above described Master Deed and as described in Act 229 of the
Public Acts of 1963, as amended, which has been repealed and replaced by Act 59
of the Public Acts of 1978, as amended.
Parcel Identification NO. 14-23-176-010
86
<PAGE> 87
PARCEL II [APPURTENANCES(S)]
Together with the benefits (and subject to the burdens) of the following:
Easement for installation, maintenance, repair &/or
replacement of a sign and any utility lines associated with
the use of the sign over that portion of the General Common
Elements which lie within 50' of the east right-of-way line of
Opdyke Road and north of the Main Service Road, according to
the Easement Agreement dated 4/11/88 between UCP Associates
Limited Partnership and Marriott Corporation as recorded in
Liber 10376, on Page 790, Oakland County Records.
The foregoing appurtenance(s) is/are subject to the terms, conditions,
provisions and limitations therein.
87
<PAGE> 88
Exhibit B
The Contracts
[See attached copy.]
88
<PAGE> 89
AUBURN HILLS, MICHIGAN
- - Service Agreement with BFI Waste Systems effective 01/01/94;
- - Purchase & Service/Rental Agreement with Green Plant Design effective
01/31/95;
- - Contract with Bacik's Home Improvement (Snow removal) effective
11/01/94;
- - Full Service Maintenance Agreement with Konica (Copier) effective
05/01/94;
- - Vending Agreement with Vend-A-Matic, Inc. effective 08/17/90;
- - Landscape Maintenance Agreement with Neill Enterprises, Inc. effective
03/01/95;
- - Valet Service Agreement with King Cleaners, Inc. effective 10/07/89;
and
- - All other contracts, if any, affecting the property.
89
<PAGE> 90
Cary, North Carolina
Exhibit A
The Premises
[See attached copy.]
90
<PAGE> 91
BEGINNING at a concrete monument situate on the Southwest Right-of-Way of U.S.
Highway I-40 (Interstate Forty) at a corner being designated as having North
Carolina Grid Coordinates [(NAD 27) of N. 767.785.09 - E. 2.054.606.27] and
being a corner of Tract Number (1) of the Aerial Center Executive Park as
recorded in Book 1988, page 739 of the Wake County Registry, of which these
lands are a part, thence runs with the Southern Right-of-Way of I-40 South
78-46-03 East - 378.77 feet to a new iron stake, thence leaves I-40 and runs a
new line South 11-13-57 West - 400.53 feet to a new iron stake situate on the
Northern Right-of-Way (60') of Hospitality Court, thence runs with the
Right-of-Way of Hospitality Court as follows: North 82-57-03 West - 205.86
feet to a new iron stake being at the point of beginning of a curve to the
right having an arc distance of 221.84 feet, a radius distance of 310.00 feet
and a chord bearing and distance of North 62-27-03 West - 217.13 feet to a new
iron stake, thence runs North 41-57--01 West - 117.22 feet to the point of
beginning of a curve to the left having an arc distance of 44.39 feet, a radius
distance of 255.93 feet and a chord bearing and distance of North 46-55-07 West
- - 44.33 feet to a new iron stake, thence leaves Hospitality Court and runs a
radial line North 17-52-49 East - 105.84 feet to a new iron stake at the point
of beginning of a curve to the right having an arc distance of 134.58 feet, a
radius distance of 153.16 feet and a chord bearing and distance of North
71-31-52 East - 130.29 feet to a new iron stake, thence runs a non-tangent line
North 35-26-04 East - 100.01 feet to THE POINT OF BEGINNING and containing
4.361 acres, more or less, and being a portion of the Pizzagalli Investment
Company tract as recorded in the office of Register of Deeds for Wake County in
Deed Book 3669, Page 724 and being the same tract of land as deeded to Great
Properties, Inc. as recorded in Deed Book 4406, Page 227.
BEING Lot 7 of Aerial Center Executive park as shown on a plan entitled "Plot
of Subdivision, Aerial Center Executive Park", dated November 21, 1988 and
revised December 12, 1988 and recorded in Book of Maps 1988, page 1739 of the
Wake County Public Registry.
TOGETHER WITH all those benefits conveyed in that certain document entitled
Declaration of Restrictive Covenant Concerning Portions of Aerial Center
Executive Parks by Pizzagalli Investment Company for the benefit of Greer
Properties, Inc., dated December 19, 1988 and recorded on December 19, 1988 in
Book 4406, Page 0232, Wake County Registry, North Carolina.
TOGETHER WITH all those benefits and privileged conveyed in that certain
Declaration of Covenants, Conditions and Restrictions for Aerial Center
Executive Park by Pizzagalli Investment Company dated, July 25, 1988 and
recorded on July 28, 1988 in Book 4314, Page 0660, Wake County Registry, North
Carolina and as Restated by Restated Declaration of Covenants, Conditions and
Restrictions for Aerial Center Executive Park by Pizzagalli Investment Company
and consented to by B&G Realty, Inc., dated December 16, 1988 and
91
<PAGE> 92
recorded December 19, 1988 in Book 4406, Page 0219, Wake County Registry, North
Carolina.
TOGETHER WITH the Appurtenant Rights granted by Pizzagalli Investment Company
to Greer Properties, Inc. in that certain Special Warranty Deed, dated December
16, 1988 and recorded in Book 4406, Page 227 of the Wake County Registry, North
Carolina.
92
<PAGE> 93
Exhibit B
The Contracts
[See attached copy.]
93
<PAGE> 94
RALEIGH AIRPORT, NORTH CAROLINA
- - Dry Cleaning & Laundry Agreement with Eurofinish Drycleaners effective
09/27/94;
- - Interior Maintenance Agreement with Jones' Plant Consultants effective
02/20/91;
- - Supply and Maintenance Agreement with Omni Business Machines effective
12/04/91;
- - Preventive Maintenance Agreement with Schindler Elevator Corporation
effective 07/01/93;
- - Marriott Standard Service Agreement with Southern Tree and Landscape
effective 12/01/92;
- - Contract Agreement with Alamo Leasing effective 11/05/93; and
- - All other contracts, if any, affecting the property.
94
<PAGE> 95
Carmel, Indiana
Exhibit A
The Premises
[See attached copy.]
95
<PAGE> 96
EXHIBIT A
PARCEL I
PART OF THE NORTHWEST QUARTER OF SECTION 11, TOWNSHIP 17 NORTH, RANGE 3 EAST IN
HAMILTON COUNTY,INDIANA, BEING DESCRIBED AS FOLLOWS:
COMMENCING AT THE SOUTHEAST CORNER OF THE SAID NORTHWEST QUARTER SECTION;
THENCE SOUTH 89 DEGREES 06 MINUTES 10 SECONDS WEST (ASSUMED BEARING) ALONG THE
SOUTH LINE OF THE SAID QUARTER SECTION A DISTANCE OF 758.49 FEET TO THE WEST
RIGHT OF WAY LINE OF U.S. HIGHWAY #31 PER PLANS FOR I.S.H.C. PROJECT NO.
ST-F222 (9) DATED 1968; THENCE NORTH 00 DEGREES 08 MINUTES 35 SECONDS EAST
ALONG SAID WEST RIGHT OF WAY LINE A DISTANCE OF 122.13 FEET TO A CURVE HAVING A
RADIUS OF 171787.34 FEET, THE RADIUS POINT OF WHICH BEARS NORTH 89 DEGREES 51
MINUTES 25 SECONDS WEST; THENCE NORTHERLY ALONG THE WEST RIGHT OF WAY LINE AND
ALONG THE ARC OF SAID CURVE A DISTANCE OF 207.88 FEET TO A POINT WHICH BEARS
SOUTH 89 DEGREES 55 MINUTES 35 SECONDS EAST FROM SAID RADIUS POINT; THENCE
SOUTH 89 DEGREES 06 MINUTES 10 SECONDS WEST PARALLEL WITH THE SOUTH LINE OF
SAID NORTHWEST QUARTER A DISTANCE OF 64.88 FEET TO THE POINT OF BEGINNING;
THENCE CONTINUING SOUTH 89 DEGREES 06 MINUTES 10 SECONDS WEST PARALLEL WITH THE
SAID SOUTH LINE A DISTANCE OF 607.86 FEET; THENCE NORTH 00 DEGREES 08 MINUTES
07 SECONDS EAST A DISTANCE OF 346.05 FEET TO THE CENTERLINE OF WEST 103RD
STREET; THENCE NORTH 89 DEGREES 06 MINUTES 10 SECONDS EAST ALONG SAID
CENTERLINE AND PARALLEL WITH THE SOUTH LINE OF SAID NORTHWEST QUARTER A
DISTANCE OF 621.59 FEET; THENCE SOUTH 00 DEGREES 53 MINUTES 50 SECONDS EAST A
DISTANCE OF 30.00 FEET TO THE WEST RIGHT OF WAY LINE OF U.S. #31; THENCE SOUTH
89 DEGREES 06 MINUTES 10 SECONDS WEST ALONG THE SOUTH LINE OF WEST 103RD STREET
A DISTANCE OF 12.68 FEET TO THE NORTHWEST CORNER OF THE TRACT OF LAND DESCRIBED
IN DEED TO THE STATE OF INDIANA (INST. NO. 92-49104 IN THE OFFICE OF THE
HAMILTON COUNTY RECORDER); SAID CORNER BEING A POINT ON A CURVE HAVING A RADIUS
OF 23,063.34 FEET, THE RADIUS POINT OF WHICH BEARS NORTH 89 DEGREES 43 MINUTES
02 SECONDS WEST; THENCE ALONG THE WEST LINE OF SAID STATE OF INDIANA TRACT, THE
FOLLOWING TWO (2) COURSES; SOUTHERLY ALONG THE ARC OF SAID CURVE A DISTANCE OF
273.86 FEET TO A POINT WHICH BEARS SOUTH 89 DEGREES 02 MINUTES 13 SECONDS EAST
FROM SAID RADIUS POINT; THENCE SOUTH 00 DEGREES 52 MINUTES 08 SECONDS EAST A
DISTANCE OF 42.23 FEET TO THE POINT OF BEGINNING, CONTAINING 4.842 ACRES, MORE
OR LESS.
PARCEL II
NON-EXCLUSIVE EASEMENT FOR SANITARY SEWER AND DRAINAGE FOR THE BENEFIT OF
PARCEL I AS SET OUT IN "GRANT OF SANITARY SEWER EASEMENT AND DESIGNATION OF
DRAINAGE EASEMENT LOCATION" RECORDED SEPTEMBER 5, 1989 AS INSTRUMENT NUMBER
8919313, AS AMENDED BY
96
<PAGE> 97
INSTRUMENT NUMBER 9329440, AS PARTIALLY RELEASED BY INSTRUMENT NUMBER 9329441.
PARCEL III
NON-EXCLUSIVE EASEMENT FOR LAKE, DRAINAGE, SANITARY SEWER, STORM SEWER,
INDIANAPOLIS WATER COMPANY AND ROADWAY FOR THE BENEFIT OF PARCEL I AS SET OUT
IN "ROADWAY AND UTILITY EASEMENT AGREEMENT" RECORDED JANUARY 24, 1990 AS
INSTRUMENT NUMBER 9001940.
97
<PAGE> 98
Exhibit B
The Contracts
[See attached copy.]
98
<PAGE> 99
INDIANAPOLIS/CARMEL, INDIANA
- - Commercial Sales Agreement with ADT Security Systems effective
01/01/91;
- - Irrigation System Maintenance Agreement with The Brickman Group, Ltd.
effective 01/16/95;
- - Copier Maintenance Agreement with Konica Business Machines effective
11/20/94;
- - Snow Removal Agreement with Kent Gossard effective 1995; and
- - All other contracts, if any, affecting the property.
99
<PAGE> 100
Philadelphia, Pennsylvania
Exhibit A
The Premises
[See attached copy.]
100
<PAGE> 101
PARCEL I
ALL THAT CERTAIN parcel or tract of land situate in the City of Philadelphia
County of Philadelphia and Commonwealth of Pennsylvania as shown on a plan
entitled "Parcelization Plan, The Korman Company, Drawing No. 7" prepared by
Pennoni Associates Inc., dated June 14, 1988, revised to September 28, 1988
being more particularly bounded and described as follows:
BEGINNING at a point in the easterly right-of-way line of Bartram Avenue, 112
feet wide, said point being North 36 degrees 40 minutes 18 seconds East, a
distance of 532.50 feet from the intersection of said line of Bartram Avenue
with the northerly right-of-way line of Interstate 95 Exit Ramp "H";
THENCE (1) along the easterly right-of-way of Bartram Avenue, North 36 degrees
40 minutes 18 seconds East, a distance of 479.50 feet to a point common to New
City Street;
THENCE (2) along said line of New City Street, South 53 degrees 19 minutes 42
second East, a distance of 405.00 feet to a point;
THENCE (3) along Parcel No. 1, South 36 degrees 40 minutes 18 seconds West, a
distance of 479.50 feet to a line common to Parcel No. 2;
THENCE (4) along said line common to Parcel No. 2, North 53 degrees 19 minutes
42 seconds West, a distance of 405.00 feet to a place and point of beginning.
ALL dimensions based on District Survey Datum.
PROPERTY ADDRESS: 8900 Bartram Avenue
BRT TAX NUMBER: 88-1-142512
REGISTRY NUMBER: 43 S 7=35, Sub of 31
WARD: 40th
BEING the same premises which Eastwick Joint Venture VIII, a Pennsylvania
General Partnership by Deed dated 7/2/1990 and recorded 12/5/1991 in the County
of Philadelphia in Deed Book FHS 1996 Page 517 conveyed unto Marriott
Corporation, a Delaware corporation, in fee.
101
<PAGE> 102
PARCEL II [APPURTENANCE(S)]
Together with the benefits (and subject to the burdens) of the following:
Declaration and Grant of Reciprocal Easements among Eastwick Joint Venture VI,
Eastwick Joint Venture VII and Eastwick Joint Venture VIII dated 1/30/89 and
recorded 2/9/89 in Deed Book FHS 1286 Page 283 and First Amendment thereto
dated 9/5/90 and recorded 9/12/90 in Deed Book FHS 1701 Page 437.
The foregoing appurtenance(s) is/are subject to the terms, conditions,
provisions and limitations therein.
102
<PAGE> 103
Exhibit B
The Contracts
[See attached copy.]
103
<PAGE> 104
PHILADELPHIA AIRPORT, PENNSYLVANIA
- - Maintenance Contract with Konica Business Machines effective
09/01/93;
- - Contract with Benge Landscaping effective 02/01/95;
- - Contract with Frankford Cleaners effective 06/01/93;
- - Contract with Otis Elevator Maintenance effective 06/22/92;
- - Service Agreement with BFI Waste Systems effective 03/30/92;
- - Agreement with Parker Interior Plantscape, Inc. effective
01/14/94;
- - Contract Agreement with Alamo Leasing effective 12/15/94; and
- - All other contracts, if any, affecting the property.
104
<PAGE> 105
Danvers, Massachusetts
Exhibit A
The Premises
[See attached copy.]
105
<PAGE> 106
Parcel 1
All that certain parcel of land with the buildings thereon situated on
Independence Way and Constitution Lane in the Town of Danvers, Essex County,
Commonwealth of Massachusetts, all more particularly described in Exhibit "A"
attached hereto and made a part hereof.
Beginning at the point in the northerly side of Independence Way in
Danvers, Massachusetts at the easterly corner of the intersection of
Independence Way and Constitution Lane; thence running by a curve to the right
with a radius of forty-five (45.00) feet a distance of eighty-three and 22/100
(83.22) feet along the easterly side line of Constitution Lane to a point;
thence turning and running due north a distance of ninety-seven and 92/100
(97.92) feet along the easterly side of Constitution Lane to a point; thence
turning and running by a curve to the right with a radius of three hundred
twenty (320.00) feet a distance of thirty-nine and 46/100 (39.46) feet along
the easterly side line of Constitution Lane to a pont, thence turning and
running north 07 degrees 03' 53" east along the easterly side of line of
Constitution Lane a distance of one hundred seventy-six and 45/100 (176.45)
feet to a point; thence turning and running south 86 degrees 43' 32" east by
land now or formerly of Danvers Associates, Inc. one hundred thirteen (113.00)
fee to a point; thence turning and running north 74 degrees 42' 58" east by
land now or formerly of Danvers Associates, Inc. a distance of two hundred
ninety-one and 43/100 (291.43) feet to a point; thence turning and running
north 84 degrees 11' 28" east by land now or formerly of Danvers Associates,
Inc. a distance of eighty-eight (88.00) feet to a point; thence turning and
running south 00 degrees 30' 46" west by land now or formerly of Wasserman and
Karp a distance of three hundred seven and 58/100 (307.58) feet to a point in
the northerly side line of Independence Way; thence turning and running south
74 degrees 02' 44" west along the northern side line of Independence Way a
distance of four hundred sixty three and 41/100 (463.41) feet to the point of
beginning.
106
<PAGE> 107
Parcel II (Appurtenances)
Together with all of the grantor's rights and obligations under that
certain Declaration of Restrictions and Operating Agreement recorded with Essex
South District Registry of Deeds in Book 5568, Page 631 and filed with Essex
South Registry of the Land Court as Document No. 129093, as shown on a plan
recorded with said Deeds in Plan Book 112, Plan 94, as amended by Amendment of
Declaration recorded with said Deeds in Book 5640, Page 760 and filed with said
Registry of District as Document No. 132049, as further amended by Second
Amendment of Declaration of Restrictions and Operating Agreement recorded with
said Deeds in Book 5763, Page 191 and filed with said Registry District as
Document No. 137458, as further amended by Third Amendment of Declaration of
Restrictions and Operating Agreement recorded with said Deeds in Book 5866,
Page 270 and filed with said Registry District as Document No. 141735, and by
Amendment 3-A of Declaration of Restrictions and Operating Agreement recorded
with said Deeds in Book 8161, Page 384 and filed with said Registry District
as Document No. 209556, as further affected by Fourth Amendment of Declaration
of Restrictions and Operating Agreement recorded with said Deeds in Book 9856,
Page 439 and filed with said Registry District as Document 242135.
107
<PAGE> 108
Exhibit B
The Contracts
[See attached copy.]
108
<PAGE> 109
DANVERS, MASSACHUSETTS
- Copy Advantage Plan with Copilabs, Incorporated;
- Contract with Vining Disposal Service, Inc. effective 01/01/95;
- Contract with McCarthy Landscape and Construction effective 12/94;
- Lease Agreement with Konica Business Machines (Fax machine)
effective 05/25/93;
- Postage Meter Rental Agreement with Pitney Bowes effective
03/01/95;
- Contract with Millar Elevator Service Co. effective 02/07/94; and
- All other contracts, if any, affecting the property.
109
<PAGE> 110
Cobb County, City of Atlanta, Georgia
Exhibit A
The Premises
[See attached copy.]
110
<PAGE> 111
ATLANTA CUMBERLAND
PARCEL I
ALL that tract or parcel of land lying and being in Land Lot 949 of the
17th Land District, 2nd Section of Cobb County, Georgia, and being more
particularly described as follows:
COMMENCING at a "PK" nail found in the asphalt at the point formed by
the intersection of the western Right-of-Way of Stillhouse Road, a 50' R/W, and
the southern Right-of-Way of Cumberland Circle, Right-of-Way varies;
THENCE running westerly along the southern Right-of-Way of Cumberland
Circle following the curvature to the left an arc distance of 52.91' to a drill
hole found in the sidewalk, said arc having a radius of 584.93' and subtending
a chord baring N 76 degrees 35' 47" W for 52.89', and the POINT OF BEGINNING;
THENCE departing said Right-of-Way and running S 06 degrees 24' 46" E
for 71.61' to a drill hole in concrete found;
THENCE running S 70 degrees 57' 23" W for 374.58' to an iron pin set
in a planter;
THENCE running N 19 degrees 02' 37" W for 203.37' to an iron pin set
on the southern Right-of-Way of Cumberland Circle;
THENCE running along said Right-of-Way, N 86 degrees 00' 24" E for
64.63' to a "X" mark set in concrete;
THENCE continuing along said Right-of-Way, S 85 degrees 43' 58" E for
43.66' to an iron pin set;
THENCE continuing along said Right-of-Way, N 86 degrees 42' 48" E for
153.56' to an iron pin set;
THENCE continuing along said Right-of-Way following the curvature to
the right an arc distance of 151.81' to a drill hole found and the POINT OF
BEGINNING, said arc having a radius of 584.93', and subtending a chord bearing
S 86 degrees 37' 22" E for 151.38'.
Said tract containing 55,013 square feet or 1.2629 acres.
The foregoing premises are described and depicted as per Survey made by
Mallett & Associates (by Michael F. Lawler) dated 2/16/95, last revised -- (Job
No. 95106).
111
<PAGE> 112
ATLANTA CUMBERLAND
PARCEL II [APPURTENANCE(S)]
Together with the benefits (and subject to the burdens) of the following:
(i) Easement for Access and Parking, dated 2/14/86, by and between
Landmark Forty-Five, Ltd. and Stillhouse Associates, recorded
in Deed Book 3825, Page 10.
(ii) Construction Easement, dated 2/14/86, by and between Landmark
Forty-Five, Ltd. and Stillhouse Associates, recorded in Deed
Book 3825, Page 45.
(iii) Sign Easement, dated 2/14/86, by and between Landmark
Forty-Five, Ltd. and Stillhouse Associates, recorded in Deed
Book 3825, Page 35.
(iv) Storm Sewer Easement, dated March 3, 1988, by and between
Stillhouse Associates, Ltd., a Georgia limited partnership and
Landmark Forty-Five, Ltd., recorded in Deed Book 4835, Page
345, Cobb County, Georgia records.
The foregoing appurtenance(s) is/are subject to the terms, conditions,
provisions and limitations therein.
112
<PAGE> 113
Exhibit B
The Contracts
[See attached copy.]
113
<PAGE> 114
ATLANTA CUMBERLAND MALL, GEORGIA
- - Air Conditioning Maintenance Agreement with York effective 04/01/91;
- - Maintenance Agreement with Otis Elevator Company effective 05/02/89;
- - Contract with Peachtree Tropicals, Inc. effective 12/08/92;
- - Telecommunications Services Term Agreement with U.S. Sprint effective
02/08/91; and
- - All other contracts, if any, affecting the property.
114
<PAGE> 115
In addition to the foregoing 21 executed Assignments, the Company will
execute 16 additional Assignments, substantially similar to the form of
Assignment presented herewith. As of the date hereof, the Company intends to
execute Assignments with respect to the following Initial Hotels:
115
<PAGE> 116
Chattanooga, Tennessee
Exhibit A
The Premises
[See attached copy.]
116
<PAGE> 117
LEGAL DESCRIPTION
Land located in the City of Chattanooga, Hamilton County, Tennessee, being Lot
45, Hamilton Place Commercial Complex, as depicted on plat recorded in Plat
Book 46, Page 21, in the Register's Office of Hamilton County, Tennessee, and
being more fully described as follows:
BEGINNING at a point in the southeastern line of Bams Drive where the same is
intersected by the southwestern line of Lot 8, Final Plat of Lot 8 and Lot 12,
Hamilton Place Commercial Complex, as shown by plat of record in Plat Book 46,
Page 2, in the Register's Office of the aforesaid County, run thence south 65
degrees, 34 minutes east along the southwestern line of said Lot 8, 341.18 feet
to a point in the northwestern line of Lot 12 of the aforesaid subdivision;
thence south 24 degrees, 26 minutes west along said line and an extension
thereof a total distance of 342.86 feet to a point; thence north 65 degrees, 34
minutes west along a new severance line, 334.57 feet to its intersection with
the eastern or southeastern line of Bams Drive; thence north 12 degrees, 33
minutes east, along said line of Bams Drive, 132.70 feet to a point; thence
northeastwardly along said line of Bams Drive in a curve to the right having a
radius of 356.97 feet, an arc distance of 217.35 feet (said curve being
subtended by a chord bearing north 30 degrees, 00 minutes east 214.01 feet) to
the point of BEGINNING.
TOGETHER WITH a Restrictive Covenant dated June 8, 1990 for the benefit of the
above-described property recorded in Book 3738, Page 146 in said Register's
Office as restated in Restated Restrictive Covenant dated February 19, 1991
recorded in Book 3819, Page 618 in said Register's Office, Easement Agreement
dated June 8, 1990, between Lebcon I, Ltd, and Greer Properties, Inc. recorded
in Book 3739, Page 740, in the Register' Office of Hamilton County, Tn.
("ROHCT") and Fifteen (15) foot utility easement, Electric Power Board
easement, sanitary sewer easements, storm sewer easement recorded in Plat Book
46, Page 21 in the ROHCT.
117
<PAGE> 118
Exhibit B
The Contracts
[See attached copy.]
118
<PAGE> 119
CHATTANOOGA, TENNESSEE
_ Contract with Home & Lawn Care Services, Inc. effective 02/01/95;
_ Pitney Bowes Facsimile Rental Agreement effective 02/28/91;
_ Laundry and Dry Cleaning Service Agreement with Hamilton Cleaners
effective 10/17/94;
_ Marriott Standard Service Agreement with Sedgefield Interior
Landscapes, Inc. effective 01/14/91;
_ Service Agreement with BFI Waste Systems effective 05/10/91; and
_ All other contracts, if any, affecting the property.
119
<PAGE> 120
Bibb County, City of Macon, Georgia
Exhibit A
The Premises
[See attached copy.]
120
<PAGE> 121
LEGAL DESCRIPTION
All that tract or parcel of land lying and being in Land Lot 343 of the
13th Land District of Bibb County, Georgia and being more particularly
described as follows:
COMMENCING at a concrete Right-of-Way monument at the point formed by
the intersection of the southwestern Right-of-Way of Sheraton Drive, a 120'
R/W, and the northeastern Right-of-Way of Interstate Highway No. 75, limited
access, a 259' R/W;
THENCE running along the northeastern Right-of-Way of Interstate
Highway No. 75, N 51 degrees 05' 14" for 812.29' to an iron pin found and the
POINT OF BEGINNING;
THENCE continuing along said Right-of-Way, N 51 degrees 05' 14" W for
394.00' to an iron pin set;
THENCE departing said Right-of-Way and running N 38 degrees 54' 46"E
for 337.79' to an iron pin set on the southwestern Right-of-Way of Sheraton
Drive;
THENCE running along said Right-of-Way, S 51 degrees 03' 38" E for
65.88' to a point;
THENCE continuing along said Right-of-Way, following the curvature to
the right an arc distance of 355.25' to an iron pin found, said arc having a
central angle of 12 degrees 53' 03" with a radius of 1,579.79', and subtending
a chord bearing S 44 degrees 35' 15"E for 354.50';
THENCE departing said Right-of-Way and running S 43 degrees 32' 33"W
for 298.60' to an iron pin found on the northwestern Right-of-Way of Interstate
Highway No. 75 and the POINT OF BEGINNING.
Said tract containing 132,924 square feet of 3.0515 acres.
DETENTION POND EASEMENT
("Tract B")
ALL that tract or parcel of land lying and being in Land Lot 343 of the
13th Land District of Bibb County, Georgia and being more particularly
described as follows:
COMMENCING at a concrete Right-of-Way monument at the point formed by
the intersection of the southwestern Right-of-Way of Sheraton Drive, a 120'
R/W, and the northeastern Right-of-Way of Interstate Highway No. 75, limited
access, a 259' R/W;
THENCE running along the northeastern Right-of-Way of Interstate
Highway No. 75, N 51 degrees 05' 14" W for 1,206.29' to an iron pin set;
THENCE departing said Right-of-Way and running along the northwestern
property line of the site, N 38 degrees 54' 46" E for 157.79' to a point and
the POINT OF BEGINNING;
121
<PAGE> 122
THENCE departing said property line and running, N 51 degrees 05' 14"
W for 80.00' to a point;
THENCE running N 38 degrees 54' 46" E for 140.04' to a point on the
Right-of-Way of Sheraton Drive, a 200' R/W at this point;
THENCE running along said Right-of-Way, S 51 degrees 03' 38" E for
9.98' to a concrete Right-of-Way monument found;
THENCE continuing along said Right-of-Way, N 38 degrees 56' 23" E for
40.00 to a point;
THENCE continuing along said Right-of-Way, a 120' R/W at this point,
and running S 51 degrees 03' 38" E for 70.00' to an iron pin set at the
northwest corner of the site;
THENCE departing said Right-of-Way and running along the northwestern
property line of the site, S 38 degrees 54' 46" W for 180.00' to a point and
the POINT OF BEGINNING.
SAID tract containing 14,002 square feet or 0.3214 acres.
SLOPE EASEMENT
("Tract C")
ALL that tract or parcel of land lying and being in Land Lot 343 of the
13th Land District of Bibb County, Georgia and being more particularly
described as follows:
COMMENCING at a concrete Right-of-Way monument at the point formed by
the intersection of the southwestern Right-of-Way of Sheraton Drive, a 120'
R/W, and the northeastern Right-of-Way of Interstate Highway No. 75, limited
access, a 259' R/W;
THENCE running along the northeastern Right-of-Way of Interstate
Highway No. 75, N 51 degrees 05' 14" W for 1,206.29' to an iron pin set and
the POINT OF BEGINNING;
THENCE continuing along said Right-of-Way, N 51 degrees 05' 14" W for
25.00' to a point;
THENCE departing said Right-of-Way and running N 38 degrees 54' 46"EE
for 157.79' to a point;
THENCE running S 51 degrees 05' 14" E for 25.00' to a point on the
northwestern property line of the site;
THENCE running S 38 degrees 54' 46" W for 157.79' to an iron pin set
on the northeastern Right-of-Way of Interstate Highway No. 75 site and the
POINT OF BEGINNING.
SAID tract containing 3,945 square feet or 0.0906 acres.
INGRESS-EGRESS EASEMENT
("Tract D")
122
<PAGE> 123
ALL that tract or parcel of land lying and being in Land Lot 343 of the
13th Land District of Bibb County, Georgia and being more particularly
described as follows:
COMMENCING at a concrete Right-of-Way monument at the point formed by
the intersection of the southwestern Right-of-Way of Sheraton Drive, a 120'
R/W, and the northeastern Right-of-Way of Interstate Highway No. 75, limited
access, a 259' R/W;
THENCE running along the northeastern Right-of-Way of Interstate
Highway No. 75, N 51 degrees 05' 14" W for 812.29' to an iron pin found and
the POINT OF BEGINNING;
THENCE departing said Right-of-Way and running along the southeastern
property line of the site, N 43 degrees 32' 33" E for 103.60' to a point and
the POINT OF BEGINNING;
THENCE continuing along the southeastern property line of the site, N
43 degrees 32' 33" E for 195.00' to an iron pin found on the southwestern
Right-of-Way of Sheraton Drive;
THENCE running southeasterly along said Right-of-Way following the
curvature to the right an arc distance of 35.44' to a point, said arc having a
central angle of 01 degrees 17' 17" and a radius of 1,579.79', and subtending
a chord bearing S 37 degrees 30' 10"EE for 35.44';
THENCE departing said Right-of-Way and running S 43 degrees 32' 36"W
for 189.49' to a point;
THENCE running N 46 degrees 27' 24" W for 35.00' to a point on the
southeastern property line of the site and the POINT OF BEGINNING.
SAID tract containing 6,731 square feet or 0.1545 acres.
SLOPE EASEMENT
("Tract E")
ALL that tract or parcel of land lying and being in Land Lot 343 of the
13th Land District of Bibb County, Georgia and being more particularly
described as follows:
COMMENCING at a concrete Right-of-Way monument at the point formed by
the intersection of the southwestern Right-of-Way of Sheraton Drive, a 120'
R/W, and the northeastern Right-of-Way of Interstate Highway No. 75, limited
access, a 259' R/W;
THENCE running along the northeastern Right-of-Way of Interstate
Highway No. 75, N 51 degrees 05' 14" W for 805.29' to a point and the POINT OF
BEGINNING;
THENCE continuing along said Right-of-Way, N 51 degrees 05' 14" W for
7.00' to an iron pin found;
THENCE departing said Right-of-Way and running along the southeastern
property line of the site, N 43 degrees 32' 33" E for 103.60' to a point;
123
<PAGE> 124
THENCE departing said property line and running, S 46 degrees 27'
24" E for 35.00' to a point: N 43 degrees 32' 36" E for 189.49' to a point on
the southwestern Right-of-Way of Sheraton Drive, a 120' R/W;
THENCE running southeasterly along said Right-of-Way following the
curvature to the right an arc distance of 42.19' to a point, said arc having a
central angle of 01 degrees 31' 48" and a radius of 1,579.79', and subtending
a chord bearing S 36 degrees 05' 43"E for 42.18';
THENCE departing said Right-of-Way and running S 47 degrees 12' 01"W
for 149.24' to a point;
THENCE running S 67 degrees 20' 55" W for 148.65' to a point on the
northeastern Right-of-Way of Interstate Highway No. 75 and the POINT OF
BEGINNING.
SAID tract containing 9,510 square feet or 0.2183 acres.
124
<PAGE> 125
Exhibit B
The Contracts
[See attached copy.]
125
<PAGE> 126
MACON, GEORGIA
_ Contract with Greenworld Services, Inc. (Grounds Maintenance) effective
06/15/95;
_ Pitney Bowes Facsimile Rental Agreement effective 03/01/95;
_ Valet Service Agreement with Sunshine Laundry and Drycleaning effective
01/01/95;
_ Service Agreement with BFI Waste Systems effective 03/01/95;
_ Contract with Automatic Sprinkler Corporation of America effective
04/03/92;
_ Vending Agreement with Macon Vending effective 04/25/91;
_ Contract with Montgomery Elevator Company effective 05/01/94;
_ Contract with Purified Air Service (HVAC filter and frame installation)
effective 01/18/95; and
_ All other contracts, if any, affecting the property.
126
<PAGE> 127
Camarillo, California
Exhibit A
The Premises
[See attached copy.]
127
<PAGE> 128
LEGAL DESCRIPTION
PARCEL 1:
Lot 11 of Tract No. 4272, in the City of Camarillo, County of Ventura, State of
California, as per map recorded in Book 117 Page 83 of Miscellaneous Records,
in the office of the County Recorder of said County.
EXCEPT therefrom a portion of said land, all oil, mineral, gas and other
hydrocarbon substances below a depth of five hundred (500) feet below the
surface of said land, but without the right of entry to such surface or
subsurface within said five hundred (500) feet, as per deeds recorded November
12, 1970 in Book 3747 Page 563 and November 28, 1972 in Book 4041 page 573 both
of Official Records.
ALSO EXCEPT from a portion of said land, all oil, oil rights, minerals, mineral
rights, natural gas, natural gas rights, and other hydrocarbons by whatsoever
name known that may be within or under the parcel of land hereinabove
described, together with the perpetual right of drilling, mining, exploring and
operating therefor and removing the same from said land or any other land,
including the right to whipstock or directionally drill and mine from lands
other than those hereinabove described, oil or gas wells, tunnels and shafts
into, through or across the subsurface of the land hereinabove described, and
to bottom such whipstocked or directionally drill wells, tunnels and shafts
under and beneath or beyond the exterior limits thereof, and to redrill,
retunnel, equip, maintain, repair, deepen and operate any such wells or mines,
without, however, the right to drill, mine, explore and operate through the
surface or the upper 100 feet of the subsurface of the land hereinabove
described, or otherwise in such manner as to endanger the safety of any highway
that may be constructed on said lands, as excepted in deed recorded August 13,
1958 in Book 1644 Page 234 of Official Records.
PARCEL 2:
A reciprocal, non-exclusive easement for vehicular and pedestrian ingress and
egress to and from said land, over, upon and across the parking areas and
spaces, driveways and access ways, sidewalks and walkways, exits and entrances,
as described in Section 6.02(B) of the Declaration of Covenants, Conditions,
Restrictions and Grant of Easements for Pardee Plaza, recorded October 20, 1989
as Instrument No. 89-168792 of Official Records, and the amendment to
Declaration of Covenants, Conditions, Restrictions and Grant of Easements for
Pardee Plaza, recorded November 21, 1989 as Instrument No. 89-185298 of
Official Records.
128
<PAGE> 129
PARCEL 3:
A reciprocal, non-exclusive easement for the installation, maintenance,
operation, repair and removal of sewers, storm drains, water lines, water
sprinkler system lines, telephone or electrical conduits or systems, gas mains,
meters, transformers and other public utilities and service easements, as
described in Section 6.02(C) of the Declaration of Covenants, Conditions,
Restrictions and Grant of Easements for Pardee Plaza, recorded October 20, 1989
as Instrument No. 89-168792 of Official Records, and the amendment to
Declaration of Covenants, Conditions, Restrictions and Grant of Easements for
Pardee Plaza, recorded November 21, 1989 as Instrument No. 89-185298 of
Official Records.
PARCEL 4:
An easement over a portion of Lot 9 of said Tract No. 4272, for the
installation and maintenance of a sign, as described in an instrument, entitled
"Sign Easement Agreement", recorded NovemberE21, 1989 as Instrument No.
89-185301 of Official Records.
129
<PAGE> 130
Exhibit B
The Contracts
[See attached copy.]
130
<PAGE> 131
CAMARILLO, CALIFORNIA
_ Plant Maintenance and Leasing Agreement with Original Plant People
effective 11/15/90;
_ Laundry and Dry Cleaning Service Agreement with Woodside Cleaners
effective 09/24/90;
_ Konica Business Machines U.S.A., Inc. (Lease) effective 12/10/93;
_ Full Service Maintenance Agreement with Konica Service effective
12/10/93;
_ Contract with Acqua Coolers effective 04/17/95; and
_ All other contracts, if any, affecting the property.
131
<PAGE> 132
San Jose, California
Exhibit A
The Premises
[See attached copy.]
132
<PAGE> 133
LEGAL DESCRIPTION
The land referred to is situated in the City of San Jose, County of Santa
Clara, State of California, and is described as follows:
Parcel 2, as shown on Parcel Map filed July 21, 1989 in Book 603 of Maps, at
Page(s) 13 and 14, Santa Clara County Records.
133
<PAGE> 134
Exhibit B
The Contracts
[See attached copy.]
134
<PAGE> 135
SAN JOSE AIRPORT, CALIFORNIA
- - Service Contract with Dover Elevator Company effective
12/19/91;
- - Landscape Maintenance Contract with Cleary Bros. Landscape
Management effective 01/01/94;
- - Interior Maintenance Contract with National Landscapes
effective 03/22/94;
- - Service Agreement with Waste Management of Santa Clara
County effective 01/01/95;
- - Maintenance Agreement with Motorola C&E, Inc. effective
01/01/91;
- - Service Agreement with Ecolab Pest Eliminantion; and
- - All other contracts, if any, affecting the property.
135
<PAGE> 136
Columbia, Maryland
Exhibit A
The Premises
[See attached copy.]
136
<PAGE> 137
LEGAL DESCRIPTION
Columbia
BEING a piece or parcel of land; the same being part of the land
conveyed from AT&T Technologies, Inc., a body corporate of the State of New
York to Columbia Corporate Park Associates, a Maryland general partnership, by
Deed dated September 29, 1987 and recorded in Liber 1736, folio 82; also being
Parcel 'A-15' as shown on the Plat of Subdivision entitled "Columbia Corporate
Park - Parcels 'A-14', 'A-15', 'A-16' and 'A-17', a Resubdivision of Parcels
'A-5' and 'A-6'" and recorded at Plat 8996; both among the Land Records of
Howard County, Maryland.
BEGINNING FOR THE SAME at the common corner of Parcels 'A-15' and
'A-16', said point being on the North 47 degrees 32 minutes 54 seconds East
585.24 feet line of said Plat, being located North 47 degrees 32 minutes 54
seconds East 585.24 feet line of said Plat, being located North 47 degrees 32
minutes 54 seconds East 168.55 feet from the beginning thereof; thence running
with the outline of said Parcel 'A-15', the following eight (8) courses:
1) North 47 degrees 32 minutes 54 seconds East 416.69
feet to a point on the southwesterly right of way
line of Little Patuxent Parkway (Md. Route 175);
thence running with the said right of way line, the
following two (2) courses
2) South 42 degrees 27 minutes 06 seconds East 80.00
feet to a point; thence
3) South 36 degrees 55 minutes 21 seconds East 387.00
feet to a point; thence
4) South 44 degrees 04 minutes 30 seconds West 350.02
feet to a point; thence
5) South 39 degrees 51 minutes 07 seconds West 504.18
feet to a point on the northerly right of way line of
Stanford Boulevard, being located 62.83 feet along
the arc of a curve deflecting to the left, having a
radius of 60.00 feet (Chord: North 07 degrees 25
minutes 57 seconds West 60.00 feet) from the common
front corner of Parcels 'A-14' and 'A-4'; thence
running with said right of way line, the following
course:
6) 66.99 feet along the arc of a curve deflecting to the
left, having a radius of 60.00 feet (Chord: North 69
137
<PAGE> 138
degrees 25 minutes 10 seconds West 63.56 feet) to a
point; thence
7) North 39 degrees 51 minutes 07 seconds East 529.59
feet to a point; thence
8) North 45 degrees 55 minutes 30 seconds West 427.17
feet to the point of beginning.
CONTAINING 214,444 square feet or 4.9230 acres of land.
BEING KNOWN AND DESIGNATED as Lot No. 15 as shown on the Plat entitled
"Columbia Corporate Park - Parcels 'A-14', 'A-15', 'A-16' and 'A-17', a
Resubdivision of Parcels 'A-5' and 'A-6'", which Plat is recorded among the
Land Records of Howard County as Plat No. 8996.
Together with the Grading Easements recorded in Book 2098, Page 580.
138
<PAGE> 139
Exhibit B
The Contracts
[See attached copy.]
139
<PAGE> 140
COLUMBIA, MARYLAND
_ Contract with Aloha Pool Management, Inc. effective 05/01/95;
_ Marriott Standard Service Agreement with McDonogh Farms, Inc.
effective 01/01/93;
_ Plant Maintenance and Guarantee Contract with Jan Ferguson Inc.
effective 07/10/91;
_ Service Agreement with WMI Medical Services (Waste Management)
effective 01/04/95;
_ Contract with PM Hood & Duct effective 07/16/91;
_ Preventive Maintenance Agreement with Schindler Elevator effective
11/26/91;
_ Service Agreement with Maryland Environmental Systems, Inc.
effective 03/30/93;
_ Contract with Ace Fire Extinguisher Ser. Inc. effective 11/01/93; and
_ All other contracts, if any, affecting the property.
140
<PAGE> 141
Newark, Delaware
Exhibit A
The Premises
[See attached copy.]
141
<PAGE> 142
LEGAL DESCRIPTION
Wilmington
All that certain place, parcel or tract of land located on the southerly side
of Geoffrey Drive, situated in White Clay Creek Hundred, New Castle County, DE,
and more particularly described as follows:
Beginning for the same at a point said point being located the following 3
courses and distances from the southerly end of a 26.34 junction chord joining
the southerly side of Churchmans Road (R.O.W. varies), with the easterly side
of Geoffrey Drive, (50' wide),
Thence, along the easterly and southerly side of Geoffrey Drive,
1. South 12 34' 32" East, 82.81' to a point;
2. By a curve to the right having a radius of 170' an arc length of 267.04' to
a point;
3. North 77 25'28" West, 70.73' to the point of beginning; Thence, from said
point of beginning and with lands now or formerly New Orleans Marriott
Hotel Venture, L.P. (Fairfield Hotel) the following 13 courses and
distances:
1. South 12 34' 32" West, 196.76' to a point;
2. South 77 25' 28" East, 49.18' to a point;
3. South 12 34' 32" West, 52.00' to a point;
4. South 77 25' 28 East, 10.00' to a point;
5. South 12 34' 32" West, 25.32' to a point;
6. South 77 25' 28" East, 25.25' to a point;
7. South 12 34' 32" West, 60.80' to a point;
8. South 40 53' 13" West, 83.35' to a point;
9. South 49 06' 47" East, 31.77' to a point;
10. By a curve to the right having a radius of 32.00', an arc length of 13.04'
to a point;
11. By a curve to the right left having a radius of 50.00', an arc length of
20.38' to a point;
12. South 49 06' 47" East, 21.98' to a point; and
13. South 86 28' 49" East, 65.50' to a point with northwesterly side of the
Delaware Turnpike [I-95];
Thence with same the following 4 courses and distances:
1. South 64 20' 12" West, 254.89' to a point;
2. South 68 01' 55" West, 153.42' to a point;
3. North 05 09' 16" West, 77.63' to a point; and,
4. By a curve to the left having a radius of 319.18', an arc length of 262.02'
to a corner of lands now or formerly Toys 'R' Us;
Thence, thereby, North 15 20' 35" East, 300.41' to a point the westerly side of
Geoffrey Drive.
Thence, crossing Geoffrey Drive, South 74 39' 25" East, 50.00' to a corner for
area reserved for stormwater control;
142
<PAGE> 143
Thence, thereby the following 2 courses and distances;
1. South 75 08' 14" East, 257.11' to a point; and,
2. North 12 34' 32" East, 148.00' to a point on the southerly side of
Geoffrey Drive;
Thence, thereby, South 77 25' 28" East, 26.06' to the point and place of
beginning, containing there in 4.1167 ac. of land more.
Together with all of New Orleans Marriott Hotel Venture Limited Partnership's
right, title and interest under that certain Grant of Easement, dated August
15, 1989, and recorded in Deed Book 914, page 316.
Also together with all of New Orleans Marriott Hotel Venture Limited
Partnership's right, title and interest under that certain Declaration of
Reciprocal Easements, dated July 1, 1990, and recorded in Deed Book 1067, page
259.
Also together with all of New Orleans Marriott Hotel Venture Limited
Partnership's right, title and interest under that certain Reciprocal Easement
and Operating Agreement, dated June 14, 1984, and recorded in Deed Record M,
Volume 127, page 182.
Also together with all of New Orleans Marriott Hotel Venture Limited
Partnership's right, title and interest under that certain Declaration dated
January 4, 1984 recorded in Deed Record F, Volume 125, page 214, Supplement to
Declaration dated March 1, 1992 recorded in Deed Book 1393, page 117.
143
<PAGE> 144
Exhibit B
The Contracts
[See attached copy.]
144
<PAGE> 145
WILMINGTON, DELAWARE
_ Horticultural Service Agreement, with Smith Fox Associates, Inc.
(Interior Landscape) effective 02/15/94;
_ Contract with Benge Landscaping effective 1995;
_ Cleaning Service Agreement with Air Vent Systems, Inc.
effective 02/16/94;
_ DMC-Custom Maintenance Agreement with Security Elevator Company
effective 12/01/91; and
_ All other contracts, if any, affecting the property.
Kansas City, Missouri
Exhibit A
The Premises
[See attached copy.]
145
<PAGE> 146
LEGAL DESCRIPTION
Kansas City
A tract of land located in the North one-half of the Southwest Quarter
of Section 36, Township 52 North, Range 34 West, being in Kansas City, Platte
County, Missouri, said tract being bounded and described as follows:
Commencing at the Southwest corner of said Southwest Quarter; thence North 0
degrees 29' 52" East (all bearings herein are referenced to the City of Kansas
City, Missouri Independent Grid System) along the West line of said Southwest
Quarter, a distance of 1326.80 feet (platted) 1326.59 feet (measured) to the
Southwest corner of said North half and also the North line of "PLATTE
INDUSTRIAL PARK DISTRICT 1", a subdivision of land patted and recorded in
Kansas City, Platte County, Missouri; thence North 89 degrees 46 27" East,
along said North line, a distance of 1285.40 feet, to the True Point of
Beginning; thence North 00 degrees 13' 33" West, a distance of 345.65 feet to a
point on the Southerly right of way line of "Tiffany Springs Parkway"; thence
Easterly along said right of way line, on a curve to the left having an initial
tangent bearing of North 80 degrees 44' 42" East and a radius of 1,130 feet, an
arc distance of 350.00 feet to its intersection with the Westerly right of way
line of "Interstate Highway I-29"; thence South 25 degrees 04' 46" East, along
said Westerly right of way line, a distance of 23.33 feet; thence South 78
degrees 06' 50" East, along said right of way line, a distance of 132.42 feet;
thence South 00 degrees 13' 33" East, a distance of 403.86 feet, to a point on
said North line of "Platte Industrial Park District 1"; thence South 89 degrees
46' 27" West, along said North line, a distance of 471.00 feet to the True
Point of Beginning.
Said Tract also known as Lot 1, EXECUTIVE HILLS NORTH 6TH PLAT, a subdivision
of land in Kansas City, Platte County, Missouri, according to the recorded plat
thereof.
Together with the easement rights created in the following easements granted to
the Marriott Corporation by Executive Hills North, Inc.:
Access, Water and Gas Easement, as set forth in the instrument recorded as
Document No. 4891, in Book 718, at Page 27; the Sanitary Sewer Easement
recorded as Document No. 4892, in Book 718, at page 28; the Slope and Grading
Easement recorded as Document No. 4893, in Book 718, a Page 29 and the Storm
Drainage Easement as set forth in the instrument recorded as Document No. 4896,
in Book 718, at Page 32.
146
<PAGE> 147
Exhibit B
The Contracts
[See attached copy.]
147
<PAGE> 148
KANSAS CITY AIRPORT, MISSOURI
_ Full Service Vending Agreement with Pepsi-Cola General Bottlers, Inc.
effective 1993;
_ Purchase Agreement with Hermes Landscaping effective 03/13/95;
_ Agreement with Strategic Telecom Inc.;
_ Agreement with Hotel & Motel Association of Greater Kansas City, Inc.
effective 01/01/95;
_ Valet Service Agreement with Plaza Ford (Valet Cleaning Service)
effective 08/27/90;
_ Marriott Standard Service Agreement with Deffenbaugh Industries, Inc.
(Waste disposal) effective 08/15/90;
_ Vending Agreement with IAM-ARD, Inc. (Popcorn Vending Machine)
effective 09/22/90;
_ Contract Agreement with Alamo Leasing Company
effective 05/01/94;
_ Agreement with AEI Music Network, Inc. effective 07/01/90;
_ Business Sign Contract with Missouri Highway and Transportation
Commission effective April 1992; and
_ All other contracts, if any, affecting the property.
148
<PAGE> 149
Charlotte, North Carolina
Exhibit A
The Premises
[See attached copy.]
149
<PAGE> 150
LEGAL DESCRIPTION
Charlotte
Located in Mallard Creek Township, Mecklenburg County, North Carolina
and more specifically described as follows:
BEGINNING at a new iron stake located at the point of intersection of
the southerlymost margin of the right-of-way of W. T. Harris
Boulevard (200' right-of-way) and the westerlymost margin of the
right-of-way of University Executive Park Drive (60' right-of-way),
and running thence with the westerlymost margin of the right-of-way of
University Executive Park Drive two (2) courses and distances as
follows: (1) South 23-54-18 West 437.59 feet to a point; and (2)
South 23-40-34 West 62.57 feet to a new iron stake; thence North
58-47-30 West 417.50 feet to a new iron stake; thence North 31-12-30
East 552.07 feet to a new iron stake in the southerlymost margin of
the right-of-way of W. T. Harris Boulevard; thence with that margin
South 49-47-39 East 358.08 feet to a new iron stake at the point or
place of BEGINNING, containing 4.6172 acres as shown on survey
prepared by Craig S. McNeill and dated 5/25/95.
Together with terms and provisions of the Development Agreement
recorded in Book 5855, Page 844.
Together with Easements recorded in Book 5926, Page 719.
150
<PAGE> 151
Exhibit B
The Contracts
[See attached copy.]
151
<PAGE> 152
CHARLOTTE NORTH CAROLINA
_ Service Agreement with Piedmont Elevator Company effective 10/01/91;
_ Service Agreement with BFI Waste Systems effective 06/01/94;
_ Landscape Maintenance Contract with LLC Corporation effective
02/01/95; and
_ All other contracts, if any, affecting the property.
152
<PAGE> 153
Woburn, Massachusetts
Exhibit A
The Premises
[see attached copy]
153
<PAGE> 154
Woburn
All that certain parcel of land including Registered Land with the buildings
thereon situated on Mishawum Road, Ryan Road and Industrial Parkway in the City
of Woburn, Middlesex County, Commonwealth of Massachusetts, all more
particularly described in Exhibit A attached hereto and made a part hereof.
EXHIBIT A
LOT DESCRIPTION
BEGINNING AT THE NORTHERLY CORNER AT A BRASS PIN SET IN LEAD AT THE
INTERSECTION OF RYAN ROAD AND INDUSTRIAL PARKWAY, THENCE:
S 62-50-41 E 297.25' BY SAID INDUSTRIAL PARKWAY TO POINT,
THENCE;
S 44-00-47 E 39.84' BY LAND OF THE COMMONWEALTH OF
MASSACHUSETTS DEPARTMENT OF PUBLIC WORKS TO A POINT,
THENCE;
S 12-12-55 E 71.00' BY SAID LAND TO A POINT, THENCE;
S 12-04-55 E 85.95' BY SAID LAND TO A POINT, THENCE;
S 11-52-25 E 36.05' BY SAID LAND TO A POINT ON THE NORTHERLY
SIDE OF MISHAWUM ROAD, THENCE;
S 68-11-35 W 308.49' BY SAID MISHAWUM ROAD TO A POINT, THENCE;
N 29-38-42 E 27.49' BY LAND OF ANTHONY SAIA TO A POINT, THENCE;
N 54-44-28 W 308.27' TO A POINT ON THE SOUTHERLY SIDE OF RYAN
ROAD, THENCE;
N 35-50-07 E 327.85' BY SAID RYAN ROAD TO THE POINT OF
BEGINNING.
CONTAINING 142,593 SQUARE FEET / OR 3.27 ACRES+/-
Included therein are the following parcels of Registered Land:
154
<PAGE> 155
that certain parcel of land situate in
Woburn in the County of Middlesex and said Commonwealth
bounded and described as follows:
Southerly by Mishawum Road, two hundred seven and
64/100 feet;
Northwesterly by land now or formerly of Charlotte
E. Ames by two lines
measuring together, three hundred five and
62/100 feet; and Easterly by lot 6 as shown
on plan hereinafter mentioned, one hundred
eighty and 57/100 feet.
Said parcel is shown as lot 5 on said plan.
All of said boundaries except the lines of any public
ways are determined by the Court to be located as shown on a
subdivision plan as approved by the Court, filed in the Land
Registration Office, a copy of which is filed in the Registry
of Deeds for the South Registry District of Middlesex County
in Registration Book 697, Page 103, with Certificate 113453.
that certain parcel of land situate in
Woburn in the County of Middlesex and said Commonwealth, bounded and described
as follows:
Southerly by Mishawum Road, forty and 58/100 feet;
Westerly by lot 5 as shown on plan hereinafter
mentioned, one hundred eighty and 57/100 feet;
Northwesterly by land now or formerly of Charlotte E.
Ames, forty-four and 40/100 feet; and
Easterly by land now or formerly of Henry W. Berry,
one hundred and ninety-three feet.
Said parcel is shown as lot 6 on said plan, (Plan No. 1443(I)).
All of said boundaries, except the lines of any public ways are
determined by the Court to be located as shown on a subdivision plan, as
approved by the Court, filed in the Land Registration Office, a copy of which
is filed in the Registry of Deeds for the South Registry District of Middlesex
County in Registration Book 697, Page 103, with Certificate 133453.
155
<PAGE> 156
Exhibit B
The Contracts
[see attached copy.]
156
<PAGE> 157
WOBURN, MASSACHUSETTS
_ Hotel Room Service Agreement with Pizza Hut of America, Inc.
effective 04/08/94;
_ Service Agreement with The Weather Source, Inc.
effective 06/24/94;
_ Service Contract with Inn-House Doctor, Inc. effective 02/27/92;
_ Lease Agreement with Konica Business Machines
effective 09/07/93;
_ Service Agreement with Millar Elevator Service Co.
effective 02/07/94;
_ Subcontract Agreement with P&R Landscaping effective 01/15/95;
_ Contract with G&G Landscaping, Inc. (Snow plowing)
effective 11/14/94;
_ Service Agreement with TruGreen-Chemlawn effective April 1995;
_ Service Agreement with BFI Waste Management effective 10/29/91;
_ Music Services Agreement with Muzak Limited Partnership
effective 06/01/90; and
_ All other contracts, if any, affecting the property.
157
<PAGE> 158
Boca Raton, Florida
Exhibit A
The Premises
[see attached copy.]
158
<PAGE> 159
Boca Raton
PARCEL I:
CENTER PARK PLAT NO. 1, according to the Plat thereof on file in the Office of
the Clerk of the Circuit Court in and for Palm Beach County, Florida, recorded
in Plat Book 64, page 95, said lands situate lying and being in Palm Beach
County, Florida,
Together with the Non-Exclusive Relocatable Easements for the purpose of
vehicular and pedestrian ingress and egress, as set forth in the Amended
Reciprocal Access Easement dated December 11, 1989 and recorded December 14,
1989 in Official Records Book 6291, page 1372, of the Public Records of Palm
Beach County, Florida, over and across the following described parcel:
Being a strip of land for ingress and egress purposes, lying in Center Park
Plat No. 1, as recorded in Plat Book 64, pages 95 and 96, of Section 14,
Township 47 South, Range 42 East, Palm Beach County, Florida, being more
particularly described as follows:
Commencing at the Northeast corner of the Southeast Quarter (SE1/4) of said
Section 14; thence South 89 degrees 42 minutes 24 seconds West along the North
line of said Southeast Quarter (SE1/4), a distance of 49.06 feet; thence South
00 degrees 17 minutes 36 seconds East, a distance of 120.00 feet; thence South
00 degrees 18 minutes 54 seconds East, a distance of 777.75 feet; thence South
00 degrees 08 minutes 45 seconds East, a distance of 154.58 feet to the Point
of Beginning, the last mentioned three courses being along the West right of
way line of State Road 809 (Military Trail), as recorded in Road Plat Book 4,
pages 139 through 142, of the Public Records of said Palm Beach County; thence
South 00 degrees 08 minutes 45 seconds East, along said West right of way line,
a distance of 45.00 feet; thence South 89 degrees 42 minutes 24 seconds West, a
distance of 29.50 feet; thence South 00 degrees 08 minutes 45 seconds East,
along a line parallel to said West right of way line and 29.50 feet West, a
distance of 295.55 feet; thence South 86 degrees 19 minutes 55 seconds West
along a line parallel to the North right of way line of I-95 Limited Access and
29.50 feet North, a distance of 489.95 feet; thence South 78 degrees 22 minutes
11 seconds West, a distance of 209.54 feet to the beginning of a curve concave
to the North; thence Westerly along the arc of said curve, having a radius of
392.50 feet and central angle of 13 degrees 04 minutes 45 seconds, a distance
of 89.60 feet to the beginning of a compound curve, concave to the Northeast;
thence Northwesterly along the arc of said compound curve having a radius of
175.19 feet and a central angle of 19 degrees 54 minutes 25 seconds, a distance
of 60.87 feet; thence North 68 degrees 38 minutes 43 seconds West, along the
tangent of said compound curve, a
159
<PAGE> 160
distance of 106.81 feet; thence North 26 degrees 17 minutes 47 seconds East,
along the East line of Executive Center Circle Northwest, as shown in Plat of
Cork N' Cleaver Restaurant, recorded in Plat Book 35, page 100, of said Public
Records, a distance of 24.09 feet; thence South 68 degree 38 minutes 43 seconds
East, a distance of 104.73 feet to the beginning of a curve, concave to the
Northeast; thence Southeasterly along the arc of said curve, having a radius of
151.19 feet and a central angle of 19 degrees 54 minutes 25 seconds, a distance
of 52.53 feet to the beginning of a compound curve concave to the North; thence
East, along the arc of said compound curve having a radius of 368.50 feet and a
central angle of 13 degrees 04 minutes 45 seconds, a distance of 84.12 feet;
thence North 78 degrees 22 minutes 11 seconds East along the tangent of said
compound curve, a distance of 211.21 feet; thence North 86 degrees 19 minutes
55 seconds East, a distance of 168.98 feet; thence North 00 degrees 08 minutes
45 seconds West, a distance of 287.29 feet to a point on a curve, the tangent
bears North 86 degrees 21 minutes 25 seconds West at this point; thence
Northeasterly along the arc of a curve concave to the North, being the South
right of way line of Northwest 20th Avenue, as shown on Plat of Arvida
Executive Center Plat No. 2, recorded in Plat Book 39, page 88, of said Pubic
Records, having a radius of 50.00 feet and a central angle of 28 degrees 14
minutes 25 seconds, a distance of 24.64 feet to a point, the targent bears
North 65 degrees 24 minutes 10 seconds East, at this point; thence South 00
degrees 08 minutes 45 seconds East, a distance of 290.18 feet; thence North 86
degrees 19 minutes 55 seconds East, a distance of 276.02 feet; thence North 00
degrees 08 minutes 45 seconds West, a distance of 317.42 feet; thence North 89
degrees 42 minutes 24 seconds East, along a line parallel to the North line of
Parcel B, as shown on said Plat No. 2 and 1.58 feet South, a distance of 53.50
feet to the Point of Beginning.
Together with the Eastment dated June 21, 1990 recorded June 26, 1990 in
Official Records Book 6498, Page 1363, Palm Beach County, Fla.
160
<PAGE> 161
Exhibit B
The Contracts
[see attached copy]
161
<PAGE> 162
BOCA RATON, FLORIDA
_ Agreement with Southern Bell Yellow Pages effective 07/22/92;
_ Vending Agreement with Federal Vending Service
effective 02/28/92;
_ Standard Service Agreement with Landscape Maintenance effective
09/22/92;
_ Maintenance Agreement with Gove's Greenery (indoor plants) effective
12/20/93;
_ Maintenance Agreement with Miami Elevator Company
effective 02/19/93;
_ Agreement with Florida Transport Company of Miami
effective 08/06/93;
_ Marriott Standard Service Agreement with Waste Management of Palm
Beach effective 04/15/92;
_ Public Telephone Service Agreement with Southern Bell effective
04/14/92; and
_ All other contracts, if any, affecting the property.
162
<PAGE> 163
Brookfield, Wisconsin
Exhibit A
The Premises
[see attached copy.]
163
<PAGE> 164
Milwaukee/Brookfield
Lot One (1) of Certified Survey Map No. 4821, recorded October 9, 1985 in
Volume 39 of Certified Survey Maps on Pages 85-88 incl., as Document No.
1315894, being a part of the Northwest One-quarter (1/4) and the Southwest
One-quarter (1/4) of the Southwest One-quarter (1/4) of Section Twenty-seven
(27), Township Seven (7) North, Range Twenty (20) East, City of Brookfield,
Waukesha County, Wisconsin.
Excepting therefrom that part conveyed in Warranty Deed, dated December 9, 1985
and recorded December 12, 1985, in Reel 721, Image 922, as Document No.
1325099.
164
<PAGE> 165
Exhibit B
The Contracts
[see attached copy.]
165
<PAGE> 166
MILWAUKEE/BROOKFIELD, WISCONSIN
_ Agreement with Mike's Lawn Service effective 04/01/95;
_ Preventive Maintenance Agreement with Schindler Elevator Corporation
effective 05/01/92;
_ Public Telephone Service Agreement with Wisconsin Bell, Inc. effective
03/18/91;
_ Maintenance Agreement with IBM Corporation as amended on 2/2/93;
_ Service Agreement with Deluca and Hartman Construction, Inc. (snow
plow) effective 03/22/95;
_ Service Agreement with United Waste Systems effective 05/15/91;
_ Contract with Giddings Hawkins Maintenance Service, Inc.
effective 03/23/95;
_ Contract with Grease Trap Service effective 07/23/91;
_ Service Agreement with Ecolab, Inc. Pest Elimination Services
effective 04/03/95;
_ Service Agreement with Rentokil, Inc. Tropical Plant Services
effective 04/01/95;
_ Agreement with AEW Music Network, Inc. effective 04/01/95;
_ Rental Contract with Pitney Bowes, Inc. (facsimile rental) effective
12/01/94;
_ Equipment Contract with Pepsi Cola General Bottlers, Inc.; and
_ All other contracts, if any, affecting the property.
166
<PAGE> 167
Dallas County, Texas
Exhibit A
The Premises
[see attached copy.]
167
<PAGE> 168
BEING a tract of land situated in the City of Dallas, Dallas
County, Texas, said tract being Lot 2B, Block c/7293,
Howard Johnson Addition per plat recorded in Volume
89167, Page 541 of the Deed Records of Dallas County,
Texas, said tract being more particularly described by
metes and bounds as follows:
BEGINNING at a "+" in concrete being the Northeast corner of
said Lot 2B also being the Southeast corner of Lot 2A,
Block C/7293, of said Addition, said "+" in concrete
being the beginning of a curve to the left of said Lot
2B along the Westerly R.O.W. line of N. Central
Expressway (U.S. Highway 75) whose chord bears South 05
degrees 18 minutes 21 seconds West, a distance of
235.93 feet and having a radius of 5879.64 feet;
THENCE along said curve to the left, through a central angle
of 02 degrees 17 minutes 57 seconds, an arc length of
235.95 feet to an "+" in concrete;
THENCE North 89 degrees 55 minutes 02 seconds West, leaving
said Westerly R.O.W. line and along a South line of
said Lot 2B, a distance of 145.69 feet to a 5/8 inch
capped steel rod;
THENCE South 00 degrees 04 minutes 56 seconds West, along an
East line of said Lot 2B, a distance of 129.79 feet to
a PK Nail;
THENCE North 89 degrees 30 minutes 10 seconds West, along the
South line of said Lot 2B, a distance of 164.90 feet
to a PK nail with flasher;
THENCE North 00 degrees 29 minutes 14 seconds East, along a
West line of said Lot 2B, a distance of 155.08 feet to
an "+" in concrete;
THENCE North 89 degrees 30 minutes 08 seconds West, along a
south line of said Lot 2B, a distance of 232.00 feet to
an "+" in concrete at the centerline of Regal Oaks
Drive (a private access easement per Volume 397, Page
920 of said Deed Records);
THENCE North 00 degrees 29 minutes 28 seconds East, along the
centerline of said Regal Oaks Drive and along the
West line of said Lot 2B, a distance of 86.75 feet to
an "+" in concrete;
168
<PAGE> 169
THENCE South 89 degrees 30 minutes 08 seconds East, along a
common line of said Lot 2B and Lot 2A, a distance of
204.99 feet to an "+" in concrete;
THENCE North 00 degrees 29 minutes 14 seconds East,
continuing along said common line, a distance of 87.57
feet to an "+" in concrete;
THENCE North 70 degrees 57 minutes 34 seconds East,
continuing along said common line, a distance of
109.12 feet to an "+" in concrete;
THENCE South 89 degrees 30 minutes 46 seconds East,
continuing along said common line, a distance of
253.64 feet to the POINT OF BEGINNING and embracing
118,127.97 Square Feet or 2.712 Acres of Land.
Together with joint and mutual easement recorded in Vol. 397, Page 920.
169
<PAGE> 170
Exhibit B
The Contracts
[see attached copy.]
170
<PAGE> 171
DALLAS/NORTHPARK, TEXAS
_ Marriott Standard Service Agreement with Plant Care
effective 08/08/94;
_ Landscape Maintenance Agreement with Texas Tree & Turf Co. effective
01/22/94;
_ Preventive Maintenance Agreement with Elevator Service Professionals,
Inc. effective 06/07/91;
_ Agreement with Konica Business Machines U.S.A., Inc.
effective 09/11/92;
_ Location Agreement with Spectrum Corporation/Medi-Kwik Convenience
Center; and
_ All other contracts, if any, affecting the property.
171
<PAGE> 172
Fayettville, North Carolina
Exhibit A
The Premises
[see attached copy.]
172
<PAGE> 173
Fayetteville
Situated in the State of North Carolina, County of Cumberland,
Township of Cross Creek, in the City of Fayetteville, and being further bounded
and described as follows:
TRACT 1:
Commencing at North Carolina Grid Monument "YADKIN", North
Carolina grid coordinates N=483,826.99, E=2,012.899.35, thence S 08 degrees 50'
09" E 3,737.40 feet (and having a grid distance of 3,736.90 feet using a
combined factor of 0.999875) to the TRUE POINT OF BEGINNING of this described
tract, and being an existing Iron pipe located in the eastern right of way of
the ALL AMERCIAN EXPRESSWAY (R/W varies);
Thence runs North 57 degrees 38' 39" East 370.00 feet to an
existing Iron pipe, said Iron pipe located in the western right of way of
Sycamore Dair Road (86' R/W);
Thence along said road South 32 degrees 21' 22" East 341.04
feet to a set Iron pipe;
Thence leaving said road and runs South 57 degrees 38' 39"
West 374.00 feet to a set Iron pipe;
Thence runs North 88 degrees 20' 13" W - 69.24 feet to an
existing Iron pipe on the aforementioned ALL AMERICAN EXPRESSWAY right-of-way;
Thence runs along said right-of-way North 01 degrees 39' 47"
East 42.44 feet to an existing Iron pipe, said Iron pipe also being the
beginning of a curve to the left concave the the southwest and having a radius
of 219.98 feet;
Thence runs along said curve to the left north and
northwesterly and through a central angle of 34% 01' 02" (formerly a record
central angel of 34 degrees 01' 09"), an arc length of 130.60 feet (formerly a
record length of 130.61 feet), a chord bearing and distance of North 15
degrees 20' 50 degrees West 128.69 feet (formerly a record bearing and
distance of North 15 degrees 20' 49" West 128.70 feet) to an existing
Department of Transportation right-of-way monument;
Thence runs North 32 21' 22" West 144.06 feet to the TRUE POINT
OF BEGINNING and containing 3.0000 acres (130,680.5 square feet) and being
tract number two (2) of that certain Subdivision as recorded in Plat Book 71,
Page 29, of the Cumberland County Registry.
173
<PAGE> 174
TRACT 2:
Commencing; for reference; at Station 40 + 00 on the northern right ot way of
Morganton Road (R/W varies) said station shown on State Highway Project Number
8.2326302, said station also being referred to in that certain deed as recorded
in the Office of the Register of Deeds for Cumberland County in Deed Book 3426,
Page 669; thence runs along the northern right of way of said road N 75 degrees
31' 57" W - 25.25 feet, thence leaves Morganton Road and runs as follows; N 59
degrees 28' 03" E - 35.35 feet, N 14degrees 28' 03" East - 38.64 feet; N 08
degrees 56' 39" W - 381.44 feet and N 32 degrees 21 22" W - 398.78 feet to an
Iron stake and being the TRUE POINT OF BEGINNING of this described easement
and being the northern corner of a 3.000 acre tract of land to be conveyed to
Airline Foods, Inc., thence runs along the northern line of said tract S 57
degrees 38' 39" W - 370.00 feet to an existing Iron stake located in the
eastern R/W of the All American Expressway, thence runs along said right of
way N 32 degrees 21' 22" W - 15.00 feet; thence leaves the All American
Expressway and runs N 57 degrees 38' 39" E - 370 feet S 32degrees 21' 22" E
- - 15.00 feet to THE TRUE POINT OF BEGINNING and containing 5,550.0 square feet
and being a portion of the J.P. Riddle Et-Al Property as recorded In the Office
of Register of Deeds for Cumberland County In Deed Book 3054, Page 218.
174
<PAGE> 175
TRACT 3:
Commencing; for reference at Station 40 + 00 on the northern right of way of
Morganton Road (R/W varies), said station shown on State Highway Project Number
8.2326302, said station also being referred to in that certain deed as recorded
in the Office of the Register of Deeds for Cumberland County in Deed Book 3426,
Page 669; thence runs along the northern right of way of said road N 75 degrees
31' 57" W- 25.25 feet, thence leaves said road and runs as follows; N 59
degrees 28' 03" E - 35.35 feet, N 14 degrees 28' 03" East - 38.64 feet; N 08
degrees 56' 39" W - 381.44 feet and N 32 degrees 21 22" W - 398.78 feet to an
iron stake and being the TRUE POINT OF BEGINNING of this described easement
and also being the northern corner of a 3.000 acre tract of land to be
conveyed to Airline Foods, Inc., thence runs as follows: N 57 degrees 38' 39"
E - 10.00 feet, S 32 degrees 21' 22" E - 344.18 feet and N 68 degrees 03' 32"
E - 526.91 feet to and with the southern line of the Biltwell, Inc. tract
(DB. 3127 PG.521) to the western edge of the City of Fayetteville's
existing 20 foot utility easement (DB. 2222 PG.213), thence runs with said
easement S 12 degrees 36' 23" E - 20.27 feet, thence leaves said easement and
runs as follows; S 68 degrees 03' 32" W - 540.29 feet, N 32 degrees 21' 22"
W - 19.80 feet to a point in the southern line of the aforementioned 3.000
acre tract, thence runs with said tract N 57 degrees 38' 39" E - 10.00 feet
and N 32 degrees 21' 22" W - 341.04 feet to the TRUE POINT OF BEGINNING and
containing 14,313.0 square feet and being a portion of J.P. Riddle Et-Al
Tract No. 2 as recorded in the Office of the Register of Deeds for Cumberland
County in Deed Book 3054, Page 218.
TRACT 4:
Commencing; for reference at Station 40 + 00 on the northern right of way of
Morganton Road (R/W varies), said station shown on State Highway Project Number
8.2326302, said station also being referred to in that certain deed as recorded
in the Office of the Register of Deeds for Cumberland County in Deed Book 3426,
Page 669; thence runs along the northern right of way of said road N 75
degrees 31' 57" W - 25.25 feet to the TRUE POINT OF BEGINNING of this
described (86' R/W) road, thence leaves Morganton road and runs along the
western right of way of said road - N 59 degrees 28' 03" E, 35.36 feet and N
14 degrees 28' 03" E, 38.64 feet to the point of begining of a curve concave
to the southwest, thence along said curve in a northerly and northwesterly
direction having a radius of 480.00 feet through a central angle of 46 degrees
49' 25" (a chord bearing and distance of N 08 degrees 56' 39" W - 381.44 feet)
for an arc distance of 392.27 feet, thence runs N 32 degrees 21' 22" W, 398.78
feet and N 57 degrees 38' 39" E - 86.00 feet to a point on the eastern right
of way of said road easement, thence runs along the eastern right of way S 32
degrees 21' 22" E- 398.78 feet to the point of begining of a curve concave to
the west, thence along said curve in a southeasterly and southerly direction
having a radius of 566.00
175
<PAGE> 176
feet through a central angle of 46 degrees 49' 25" (a chord bearing and
distance of S 08 degrees 56' 39" E, 449.78 feet) for an arc distance of 462.55
feet, thence runs S 14 degrees 28' 03" W, 38.64 and S 30 degrees 31' 57" E,
35.35 feet the northern right of way of the aforesaid Morganton Road, thence
along said right of way N 75 degrees 31' 57" W, 136.00 feet to the TRUE POINT
OF BEGINNING and containing 77,150.00 square feet (1.77 acres) and being the
same road as dedicated to the City of Fayetteville in Plat Book 71, Page 29.
Together with the non-exclusive contract right of grantor to abutters rights
of access to Morganton Road as provided in instrument recorded in Book 3426,
Page 669, Cumberland County Registry.
TRACT 5:
Commencing; for reference at Station 40 + 00 on the northern right of way of
Morganton Road (R/W varies), said station shown on North Carolina Highway
Department Map Number 8.2326302, said station also being referred to in that
certain deed as recorded in the Office of the Register of Deeds for Cumberland
County in Deed Book 3426, Page 669; thence runs along the northern right of way
of said road N 75 degrees 31' 57" W - 25.25 feet to the TRUE POINT OF
BEGINNING of this described easement, thence continues along the northern
right-of-way of said road N 75 degrees 31' 57" W - 14.14 feet - thence leaves
Morganton Road and runs N 59 degrees 28' 03" E - 41.21 feet and N 14 degrees
28' 03" E - 34.50 feet to the beginning of a curve concave to the west, thence
along said curve in a northerly and northwesterly direction having a radious
of 470.00 feet through a central angle of 46 degrees 49' 25" (a chord bearing
and distance of N 08 degrees 56' 39" W - 373.49 feet) an arc distance of
384.09 feet, thence runs N 32 degrees 21' 22" - 57.74 feet to a point in the
southerly line of a 3.000 acre tract of land to be conveyed to Airline Foods,
Inc., thence runs with said line N 57 degrees 38' 39" E - 10.00 feet to a
point on the western right-of-way of a proposed road (86' R/W Sycamore Dairy
Road), the southeast corner of said Airline Foods, Inc. 3.000 acre tract,
thence runs along said road easement S 32 degrees 21' 22" E - 57.74 feet to a
point, the beginning of a curve concave to the west, thence runs along said
curve southeasterly and southerly having a radius of 480.00 feet though a
central angle of 46 degrees 49' 25" (a chord bearing and distance of S 08
degrees 56' 39" E, 381.44 feet) and arc distance of 392.27 feet, thence
continuing with said proposed road S 14 degrees 28' 03" W - 38.64 feet and S
59 degrees 28' 03" - 35.35 feet to the TRUE POINT OF BEGINNING containing
5,208.0 square feet and being a portion of tract number one (1) of that
certain Subdivision as recorded in plat book 71, page 29 of the Cumberland
County Registry.
TRACT 6:
176
<PAGE> 177
Commencing; for reference at Station 40 + 00 on the northern right of way of
Morganton Road (150' R/W), said station shown on North Carolina Highway
Department Map Number 8.2326302, said station also being referred to in that
certain deed as recorded in the Office of the Register of Deeds for Cumberland
County in Deed Book 3426, Page 669; thence runs along the northern right of way
of said road N 75 degrees 31' 57" W - 100.00 feet and N 71 degrees 26' 33" W -
39.96 feet to the TRUE POINT OF BEGINNING of this described easement, thence
continues along the northern right-of-way of said road N 71 degrees 26' 33" W
- - 20.08 feet, thence leaves said road right-of-way and runs N 13 degrees 18'
45" E- 320.67 feet and N 19 degrees 35' 35" E - 69.37 to the begining of a
curve concave to the west, thence along said curve in a northerly and
northwesterly direction having a radius of 460.00 feet through a central angle
of 00 degrees 55' 10" (a chord bearing and distance of N 31 degrees 53' 46" W
- - 7.38 feet) an arc distance of 7.38 feet, thence runs N 32 degrees 21' 22"
W - 57.74 feet to a point in the southern line of 3.000 acre tract of land
to be conveyed to Airline Foods, Inc., thence runs with said line N 57 degrees
38, 39" E - 20.00 feet, thence leaves said tract and runs S 32 degrees 21' 22"
E - 57.74 feet to the beginning of a curve concave to the west, thence along
said curve in a southerly and southeasterly direction having a radius of
480.00 feet through a central angle of 02 degrees 03' 32" (a chord bearing and
distance of S 31 degrees 19' 35" E - 17.25 feet) an arc distance of 17.25 feet,
thence runs S 19 degrees 35' 35" W - 77.20 feet and S 13 degrees 18' 45" W -
321.95 to THE TRUE POINT OF BEGINNING and containing 9,289.0 square feet and
being a portion of tract number one (1) of that certain Subdivision as
recorded in plat book 71, page 29, of the Cumberland County Registry.
TRACT 7:
Commencing; for reference; at station 40 + 00 on the northern right of way of
Morganton Road (R/W varies), said station being shown on North Carolina Highway
Department Map Number 8.2326302, said station also being referred to in that
certain deed as recorded in the Office of the Register of Deeds for Cumberland
County in Deed Book 3426, Page 669; thence runs along the northern right of way
of said road N 75 degrees 31' 57" W - 39.39 feet to the TRUE POINT OF
BEGINNING of this described easement, thence continues along the northern
right of way of said road N 75 degrees 31' 57" W - 42.43 feet, thence leaves
Morganton Road and runs N 59 degrees 28' 03" E - 58.79 feet and N 14 degrees
28' 03" E - 22.07 feet to the beginning of a curve concave to the west, thence
along said curve in a northerly and northwesterly direction having a radious
of 440.00 feet through a central angle of 46 degrees 49' 25" (a chord bearing
and distance of N 08 degrees 56' 39" W - 349.66 feet) an arc distance of
359.58 feet, thence runs N 32 degrees 21' 22" W - 57.74 feet to a point in the
southern line of a 3.000 acre tract of land to be conveyed to Airline Foods,
Inc., thence runs with said line N 57 degrees 38' 39" E - 30.00 feet, thence
leaves said line and runs S
177
<PAGE> 178
32 degrees 21' 22" E - 57.74 feet to a point the beginning of a curve concave
the west, thence runs along said curve southeasterly and southerly having a
radious of 470.00 feet through a central angle of 46 degrees 49' 25" (a chord
bearing and distance of S 08 degrees 56' 39" E, 373.50 feet) an arc distance
of 384.10 feet, thence runs S 14 degrees 28' 03" W - 34.50 feet and S 59
degrees 28' 03" W - 41.21 feet to the TRUE POINT OF BEGINNING containing
15,235.0 square feet and being a portion of tract number one (1) of that
certain Subdivision as recorded in plat book 71, page 29 of the Cumberland
County Registry.
TRACT 8:
Commencing; for reference; at station number 40 + 00 on the northern right of
way of Morganton Road (R/W varies), said station being shown on the North
Carolina Department of Highway Map Number 8.2326302, said station also being
referred to in that certain deed as recorded in the Office of the Register of
Deeds for Cumberland County in Deed Book 3426, Page 669, thence runs along the
northern right of way of said road N 75 degrees 31' 57" W - 25.25 feet to the
TRUE POINT OF BEGINNING of this described easement; thence continues along the
northern right of way of said road N 75 degrees 31' 57" W - 25.00 feet, thence
leaves said road right of way and runs N 14 degrees 28' 03" E - 50.00 feet,
thence runs S 75 degrees 31' 57" E - 50.00 feet to a point in the western
right of way of a proposed road easement (86.0' R/W Sycamore Dairy Road),
thence runs along said road easement S 14 degrees 28' 03" W - 25.00 feet and S
59 degrees 28' 03" W - 35.35 feet to the TRUE POINT BEGINNING and containing
________________ square feet and being a portion of the J.P. Riddle Et-Al
Tract No. 2 as recorded in the Office of the Register of Deeds for Cumberland
County in Deed Book 3054, Page 218.
TRACT 9:
Commencing; for reference; at Station 40 + 00 on the northern right of way of
Morganton Road (R/W varies), said station shown on State Highway Project Number
8,2326302, said station also being referred to in that certain deed as recorded
in the Office of Register of Deeds for Cumberland County in Deed Book 3426,
Page 669; thence runs along the northern right of way of said road N 75
degrees 31' 57" W - 25.25 feet, thence leaves Morganton Road and runs as
follows: N 59 degrees 28' 03" E - 35.35 feet, N 14 degrees 28' 03" W - 38.64;
N 08 degrees 56' 39" W - 381.44 and N 32 21' 22" W - 42.74 feet to the TRUE
POINT OF BEGINNING of this described easement, thence runs S 57 degrees 38'
39" W - 378.59 feet and 88 degrees 20' 13" W - 73.83 feet to a point on the
eastern right of way of All American Expressway, thence runs along said right
of way N 01 degrees 39' 47" E - 15.00 feet to an existing iron stake, said
stake being the southern corner of a 3.000 acre tract of land to be conveyed
from J.P. Riddle Et-Al to Marriott Corporation, thence runs with said
178
<PAGE> 179
tract S 88 degrees 20' 13" E - 69.24 feet to an iron stake; thence continues
with said tract N 57 degrees 38' 39" E 374.00 feet to an existing Iron stake
and being on the western right of way of a proposed road easement (86' R/W
Sycamore Dairy Road), thence runs along said easement S 32 degrees 21' 22"
E - 15.00 feet to the TRUE POINT OF BEGINNING and containing 6,717.0 square
feet and being a portion of the J.P. Riddle Et-Al Property, Tract No. 2 as
recorded in the Office of the Register of Deeds for Cumberland County in Deed
Book 3054, Page 218.
TRACT 10:
Commencing; for reference; at Station 40 + 00 on the northern right of way of
Morganton Road (R/W varies), said station shown on State Highway Project Number
8.2326302, said station also being referred to in that certain deed as recorded
in the Office of Register of Deeds for Cumberland County in Deed Book 3426,
Page 669; thence runs along the northern right of way of said road N 75
degrees 31' 57" W - 25.25 feet; thence leaving said road as follows: N 59
degrees 28' 03" E 35.35 feet; N 14 degrees 28' 03" E - 38.64 feet; N 08 56'
39" W - 381.44 feet and N 32 degrees 21' 22" W - 398.74 feet to the TRUE POINT
OF BEGINNING of this described easement and being the northern corner of a
3.000 acre tract of land to be conveyed from J.P. Riddle Et-Al to Marriott
Corporation and also being the western right of way of a proposed road
easement (86' R/W Sycamore Dairy Road), thence runs with the northern line of
said tract S 57 degrees 38' 39" W - 10.00 feet to a point in said line,
thence runs a new line S 32 degrees 21' 22" E - 341.04 feet to a point in a
southern line of said tract, thence with said line N 57 degrees 38' 39" E,
10.00 feet to an existing iron stake, the northeast corner of the
aforementioned 3.000 acre tract and also being on the western right of way of
the proposed Sycamore Dairy Road, thence runs with the Marriott tract and
along the right of way of Sycamore Dairy Road, N 32 degrees 21' 22" W - 341.04
feet to the TRUE POINT OF BEGINNING and containing 3,410.0 square feet and
being a portion of J.P. Riddle Et-Al Tract No. 2 as recorded in the Office of
Register of Deeds for Cumberland County in Deed Book 3054, Page 218.
179
<PAGE> 180
Exhibit B
The Contracts
[see attached copy.]
180
<PAGE> 181
FAYETTEVILLE, NORTH CAROLINA
_ Agreement with Telephone Answering Service of Fayetteville, Inc.
effective 04/24/94;
_ Agreement with Gray & Creech, Inc. (Canon Copier);
_ Contract with Sandhills Commercial Lawn Service
effective 01/01/95;
_ Service Agreement with ARS Waste Management, Ltd.
effective 09/27/94;
_ Laundry and Dry Cleaning Service Agreement with Pope's Cleaners
effective 10/01/95;
_ Vending Agreement with SMS Toms Snacks, Inc. effective 01/20/91;
_ Contract with Pepsi Cola Bottling effective 01/14/91;
_ Security Services Agreement with Global Security International
effective 02/13/95;
_ Commercial Sales Agreement with ADT Security Systems
effective 10/05/90;
_ Contract with CBP Resources, Inc. (Grease Trap);
_ Contract with Pitney Bowes effective 08/29/93;
_ Full Service Agreement with Coca-Cola Bottling Company
effective 11/27/90;
_ Telephone Maintenancing Contract with Bell Atlantic Telephoneeffective
04/01/91;
_ Agreement with On Command Video effective 01/01/95;
_ Service Agreement with Ecolab Pest Elimination Service; and
_ All other contracts, if any, affecting the property.
181
<PAGE> 182
Fountain Valley, California
Exhibit A
The Premises
[see attached copy.]
182
<PAGE> 183
Fountain Valley
The land referred to is situated in the County of Orange, State of California,
and is described as follows:
Parcels 1 and 2 of PM No. 89-154 as shown on a map filed in book 254 pages 13
through 16 inclusive, of Parcel Maps in the office of the County Recorder of
said County.
EXCEPTING therefrom an undivided one-half of all oil, gas and minerals and all
oil, gas and mineral rights upon and under said land, as reserved in the deed
from Security First National Bank of Los Angeles, recorded March 13, 1937 in
book 880 page 342 of Official Records.
Note: All right of surface entry to a depth of 500 feet has been relinquished
by deed recorded February 28, 1974 in book 11084 page 759, Official Records.
ALSO EXCEPTING therefrom an undivided one-fourth of the oil and gas rights, as
conveyed to Sacha Peggy Martin by Agreement recorded December 12, 1950 in book
2114 page 258, Official Records.
Note: All rights of surface entry to a depth of 500 feet has been relinquished
by deed recorded February 28, 1974 in book 11084 page 757, Official Records.
183
<PAGE> 184
Exhibit B
The Contracts
[see attached copy.]
184
<PAGE> 185
FOUNTAIN VALLEY, CALIFORNIA
_ Lease Contract with Konica Business Machines USA, Inc.;
_ Maintenance Contract with Konica Business Machines USA, Inc.
effective08/01/94;
_ Food and Beverage Vending Agreement with Hanes S.Y. Vending effective
02/28/91;
_ Laundry and Dry Cleaning Service Agreement with Golden West Laundry
Service effective 02/28/91;
_ Inspection Agreement with Automatic Sprinkler Corporation of America
effective 06/03/91;
_ Agreement with Ecolab Pest Elimination effective 12/01/91;
_ Executive Account Agreement with Montgomery Elevator Company effective
11/01/89;
_ Maintenance Agreement with Motorola Communications and Electronics,
Inc. effective 01/01/91;
_ Television Entertainment Systems Agreement with Lodging Services, Inc.
effective12/19/90;
_ Service Agreement with Rainbow Disposal Co., Inc.;
_ National Agreement with Carrier Corporation effective 04/29/91;
_ Maintenance Program with Plant Control Landscape Maintenance,
Inc. effective 04/01/95; and
_ All other contracts, if any, affecting the property.
185
<PAGE> 186
El Segundo, California
Exhibit A
The Premises
[see attached copy.]
186
<PAGE> 187
Los Angeles
PARCEL 1:
Parcel 1 of Parcel Map No. 16979, in the City of El Segundo, in the County of
Los Angeles, State of California, as per map filed in Book 181 Pages 68 and 69
of Parcel Maps, in the office of the County Recorder of said County.
EXCEPT all oil, gas and other hydrocarbons; non-hydrocarbon gases or gaseous
substances, all other minerals of whatsoever nature, without regard to
similarity to the above-mentioned substances; and all substances that may be
produced therewith from said real property; all without the right to use the
surface of said land nor the first 500 feet below the surface thereof or to
conduct any operations thereon or therein, as excepted and reserved by Chevron
U.S.A. Inc., a California corporation, in deed recorded March 30, 1984 as
Instrument No. 84-389700, Official Records.
ALSO EXCEPT all geothermal resources, embracing; indigenous steam,hot water and
hot brines; steam and other gases, hot water and hot brine resulting from
water, gas or other fluids, artificially introduced into subsurface formations;
heat or other associated energy found beneath the surface of the earth; and
byproducts of any of the foregoing such as minerals (exclusive of oil or
hydrocarbon gas that can be separately produced) which are found in solution or
association with or derived from any of the foregoing; all without the right to
use the surface of said land nor the first 500 feet below the surface thereof
or to conduct any operations thereon or therein, as excepted and reserved by
Chevron U.S.A. Inc., a California corporation in deed recorded March 30, 1984
as Instrument No. 84-389700, Official Records.
PARCEL 2:
An easement for parking overhang over the Westerly 2.00 feet of Parcel 2 of
Parcel Map No. 16979, in the City of El Segundo, in the County of Los Angeles,
State of California, as per map filed in Book 181 Pages 68 and 69 of Parcel
Maps, in the office of the County Recorder of said County.
PARCEL 3:
An easement for parking overhang over the Northerly 2.00 feet of Parcel 3 of
the aforesaid Parcel Map No. 16979, excepting therefrom the Easterly 483.40
feet of same.
PARCEL 4:
187
<PAGE> 188
An easement for landscape over the Westerly 5.00 feet of Parcel 2 of Parcel Map
No. 16979, in the City of El Segundo, in the County of Los Angeles, State of
California, as per map filed in Book 181 Pages 68 and 69 of Parcel Maps, in the
office of the County Recorder of said County.
PARCEL 5:
As easement for landscape over the Northerly 5.00 feet of Parcel 3 of the
aforesaid Parcel Map No. 16979, excepting therefrom the Easterly 480.40 feet of
same.
188
<PAGE> 189
Exhibit B
The Contracts
[see attached copy.]
189
<PAGE> 190
LOS ANGELES AIRPORT, CALIFORNIA
_ Interior Plant Maintenace Agreement with California Interior Plants,
Inc. effective 04/01/92;
_ Service Agreement with BFI of California, Inc.
effective 06/01/89;
_ Laundry and Dry Cleaning Service Agreement with Debonair Cleaners
effective 03/01/93;
_ Contract with Radiant Services (Linen laundry)
effective 3/19/94;
_ Landscape Maintenance Agreement with Murray's Landscape, Inc.effective
02/01/93;
_ Contract with Pitney Bowes Postage by Phone effective 02/18/95; and
_ All other contracts, if any, affecting the property.
190
<PAGE> 191
Norwood, Massachusetts
Exhibit A
The Premises
[see attached copy.]
191
<PAGE> 192
Norwood
All that certain parcel of Registered land with the buildings thereon situated
on 300 River Ridge Road in the Town of Norwood, Norfolk County, Commonwealth of
Massachusetts, all more particularly described as Lot 20 on the plan entitled
"Subdivision Plan of Land in Norwood, Mass.", dated April 20, 1989, revised
June 7, 1989, prepared by Norwood Engineering Co., Inc., filed with the Norfolk
County Registry District of the Land Court as Plan No. 25524I in Registration
Book 703, Page 68, and noted on Certificate of Title No. 140468, all more
particularly described in Exhibit A attached hereto and made a part hereof.
Together with the benefit of rights and easements as set forth in Master
Easement Agreement by and between Alexander H. McNeil, Trustee of the First
Stone Ridge Nominee Trust III, and Marriott Corporation, dated as of August 23,
1989, filed with Norfolk Registry District of the Land Court as Document No.
570534, in accordance with the terms thereof.
Together with the benefit of rights and easements as set forth in Deed of
Easement and Right of Way by and between Paula S. LaRosa, Trustee of Mayfair
Realty Trust, and First Stone Ridge Limited Partnership, dated June 17, 1987,
filed with said Registry District of the Land Court as Document No. 524565, in
accordance with the terms thereof.
Together with the benefit of rights and easements as set forth in Grant of
Easement from Delia Montanez, Trustee of Boardwalk Realty Trust, to Stone Ridge
Limited Partnership, acknowledged June 26, 1985, filed with said Registry
District of the Land Court as Document No. 469276, in accordance with the terms
thereof.
Exhibit A
That certain tract of real property, together with the buildings thereon,
located in the Town of Norwood, County of Norfolk, Commonwealth of
Massachusetts, consisting of approximately 5.24 acres as described more
particularly as Lot 20 on the plan entitled "Subdivision Plan of Land in
Norwood, Mass." dated April 20, 1989, revised June 7, 1989, prepared by Norwood
Engineering Co., Inc. filed with Norfolk County Registry District of the Land
Court with Certificate No. 140468 as Plan No. 25524I.
192
<PAGE> 193
Exhibit B
The Contracts
[see attached copy.]
193
<PAGE> 194
NORWOOD, MASSACHUSETTS
_ Agreement with D. Foley Landscape, Inc. effective 01/01/94;
_ Contract with Dover Elevator Company effective 08/01/94;
_ Agreement with Foxboro Transport, Inc. effective 1994;
_ Maintenance Agreement with Konica Business Machines
effective 07/22/94;
_ Marriott Standard Service Agreement with Kitchen Klean, Inc.
effective 10/01/90;
_ Marriott Standard Service Agreement with Edward Bryan Sons, Ltd.
(solid waste disposal) effective 04/12/94; and
_ All other contracts, if any, affecting the property.
194
<PAGE> 1
EXHIBIT 10.7
DLJ MORTGAGE CAPITAL, INC.
140 BROADWAY, 43RD FLOOR
NEW YORK, NEW YORK 10005-1285
June 9, 1995
Hospitality Properties Trust
400 Centre Street
Newton, MA 02158
Attention: Mr. Barry M. Portnoy
Ladies and Gentlemen:
This letter confirms the agreement of Hospitality Properties
Trust, a Maryland real estate investment trust (the "Company" or the
"Borrower") that DLJ Mortgage Capital, Inc. or its affiliates or designee
(collectively, "DLJMC") shall make available to the Company, for an eighteen
(18) month period, an acquisition financing facility in principal amount of up
to $200,000,000 (the "Facility"), upon and subject to the terms set forth in
the Summary of Preliminary Terms attached as Addendum A hereto and made a part
hereof, and further subject to the execution and delivery by the Borrower and
DLJMC of a Credit Facility Agreement (the "Credit Agreement") and other
documentation acceptable to DLJMC and the Company.
The Facility is designed to assist the Borrower in the
acquisition of hotel properties meeting certain criteria to be set forth in the
Credit Agreement and otherwise acceptable to DLJMC (each, a "Hotel Property").
The Credit Agreement shall contain provisions reflecting the principal terms
and conditions of the Facility set forth in Addendum A. The terms and
conditions of the Facility contemplated by this commitment are not limited to
those set forth herein. Those matters that are not covered or made clear
herein are subject to mutual agreement of the parties (it being understood that
such terms and conditions will not be inconsistent with the terms set forth
herein). In addition this commitment is subject in all respects to the closing
of the Initial Public Offering of the common stock of the Borrower (the "IPO");
in the event that the IPO does not close on or before September 30, 1995 either
party may terminate this letter agreement upon written notice to the other
party at the addresses set forth on the first page of this letter agreement,
and upon receipt of such notice (the "Termination Date") this letter agreement
shall automatically terminate,
<PAGE> 2
subject to survival of those provisions hereof expressly stated to survive such
termination.
The Company acknowledges and agrees that the Credit Agreement
shall provide that DLJMC's obligation to advance any amounts under the Facility
shall be wholly subject to DLJMC's approval of due diligence items including,
among other things, (a) the underwriting results in connection with the
relevant Hotel Property including review of property leases and audited
financial statements, (b) market studies of the Hotel Properties, (c)
engineering and environmental reports, (d) title and survey matters, (e)
insurance coverage, (f) legal opinions, (g) the borrower's corporate or
partnership documentation and (h) compliance of the Hotel Property with
applicable laws, including, without limitation, zoning ordinances. To the
extent possible, DLJMC agrees to rely upon the diligence conducted in
conjunction with the IPO for those Hotel Properties previously acquired or to
be acquired in connection with, and with the proceeds of, the IPO.
The Company, without regard to whether the Credit Agreement is
ultimately executed, or the closing of the IPO occurs, agrees to indemnify and
hold harmless DLJMC and each of its affiliates and their respective directors,
officers, employees, agents, advisors, attorneys and consultants (each an
"Indemnified Party"), from and against any and all losses, claims, damages,
liabilities, costs and expenses, including all reasonable fees and
disbursements of counsel, which may be incurred by or asserted or awarded
against any such Indemnified Party in connection with or arising out of, or by
reason of the preparation of the defense of, any investigation, litigation or
proceeding, whether or not any such Indemnified Party is party thereto, related
to or in connection with this letter agreement or any of the transactions
contemplated hereby, including the Facility, whether or not any such
transaction is consummated, except to the extent such claim, damage, loss,
liability or expense is found in a final judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross negligence or
willful misconduct. The provisions of this paragraph shall survive the
termination of this letter agreement.
The Company agrees to pay to DLJMC the following fees in
connection with this letter agreement and the Facility:
a. upon signing this letter agreement, the Company shall
reimburse to DLJMC or pay directly all reasonable
costs and expenses incurred up to such date in
connection with the preparation and negotiation of
this letter agreement, the Credit Agreement and any
loan documents contemplated thereby, subject to a
maximum amount of $35,000;
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<PAGE> 3
b. within three (3) business days of the Termination
Date, the Company shall reimburse to DLJMC or pay
directly all reasonable costs and expenses incurred
up to such date in connection with the preparation
and negotiation of the Credit Agreement and any loan
documents contemplated thereby, subject to a maximum
amount of $35,000 less any fees paid by the Company
pursuant to paragraph a. above;
c. after the signing of the Credit Agreement, on the
closing of the IPO (the "Closing Date"), the Company
shall reimburse to DLJMC or pay directly all
reasonable costs and expenses incurred up to such
date in connection with the preparation and
negotiation of the Credit Agreement and any loan
documents contemplated thereby, subject to a maximum
amount of $35,000 less any fees paid by the Company
pursuant to paragraph a. above; and
d. upon the first Collateralization Date (hereinafter
defined) to occur, the Company shall (i) pay to DLJMC
a fee of $1.0 million, and (ii) reimburse to DLJMC or
pay directly all reasonable legal costs and expenses
incurred up to such date in connection with the
preparation and negotiation of the Credit Agreement
and any loan documents contemplated thereby, subject
to a maximum amount of $100,000.
The provisions of the above paragraph shall survive the termination of this
letter agreement.
The provisions of this letter agreement represent the entire
understanding of the parties hereto with respect to the Facility and the Credit
Agreement and all prior understandings, agreements and representations are of
no further force or effect. The provisions of this letter agreement may not be
waived or modified unless such waiver or modification is in writing and signed
by the Company and DLJMC. A waiver of any of the provisions of this letter
agreement in any one instance shall not be deemed a waiver thereof in any other
instance.
This letter agreement shall be governed by, and enforced in
accordance with, the laws of the State of New York.
DLJMC shall have the right, at its option and expense, to
engage in reasonable publicity and public relations pertaining to the Facility.
This letter agreement shall be binding upon and inure to the
benefit of the Company, DLJMC and their respective
-3-
<PAGE> 4
successors and assigns permitted hereunder, but may not be assigned by either
party without the prior written consent of the other.
Please acknowledge your acceptance of and agreement to the
foregoing by signing and returning to the undersigned both counterparts of this
letter, on or before five (5) days from the date hereof. In the event that
DLJMC does not receive same by such date, this letter agreement, at the sole
option of DLJMC, shall be of no further force or effect.
[remainder of this page intentionally left blank]
-4-
<PAGE> 5
Upon receipt by DLJMC of a fully executed counterpart of this
letter agreement, this letter agreement shall supersede that certain letter
agreement dated May 23, 1995 and accepted and agreed to by the Company on May
25, 1995 and said letter agreement shall forthwith terminate and be of no
further force or effect.
Very truly yours,
DLJ MORTGAGE CAPITAL, INC.
By:________________________
James W. Moitar
Managing Director
Accepted and agreed to
This 18th day of June, 1995:
HOSPITALITY PROPERTIES TRUST
By:_________________________
Barry M. Portnoy
Managing Trustee
-5-
<PAGE> 6
ADDENDUM A
SUMMARY OF PRELIMINARY TERMS
Lender: DLJ Mortgage Capital, Inc.
Borrower: Hospitality Properties Trust.
Loan and
Collateralization: An eighteen (18) month floating rate loan. The Loan
will initially be unsecured but shall be subject to
immediate collateralization by cross collateralized,
cross defaulted first mortgages and concomitant
documentation (a) on the date on which the
outstanding Loan Amount exceeds $100 million (the
"First Collateralization Date") (in which case the
amount in excess of $100 million shall be
collateralized), and (b) if any portion of the Loan
is outstanding as of December 31, 1995, on January 1,
1996 (the "Second Collateralization Date") (in which
case all previously unsecured amounts shall be
collateralized; from such date forward the Loan
shall be fully secured) (each such date in (a) and
(b) above, a "Collateralization Date").
Upon a Collateralization Date, DLJMC may immediately
record Mortgages on properties to be selected by
DLJMC in its sole and absolute discretion, subject
to the limitations set forth in the management
agreement.
Loan Amount: An aggregate of up to $200.0 million.
Purpose: All proceeds of the Loan will be used to reimburse
the Borrower for acquisition costs of Hotel
Properties previously acquired and to finance
acquisitions by the Borrower of new Hotel Properties
approved by DLJMC.
Closing Date: TBD, simultaneous with the IPO.
Interest Rate: 1 Month LIBOR plus 150 bps. per annum.
Amortization: None - Interest only, paid monthly in arrears.
-6-
<PAGE> 7
Final Maturity: The Loan will have a stated final maturity of 18
months following the Closing Date. The Loan will be
open for draws for a period of 1 year from the
Closing Date. To the extent that the Borrower makes
prepayments of the Loan, the prepaid amounts of the
Facility will be available to the Borrower for
additional draws, during the period of twelve months
following the Closing Date, with a final maturity of
eighteen months following the Closing Date.
Fees: Commitment = $1.0 million payable on the
first Collateralization Date
to occur.
Drawdown = 1.0% of amount drawn,
payable at the time of the
draw.
Due Diligence: The Company/Borrower will provide DLJMC with access
to such due diligence information as DLJMC will
reasonably request, including but not limited to,
property leases, certified financial statements, and
engineering and environmental studies.
FF&E Reserves: On any Collateralization Date a security interest in
the joint Borrower/Host Marriott reserve account for
the replacement of furniture, fixtures and equipment,
shall be granted by the Borrower to DLJMC.
Borrower Control: In the event there has been a change in control in
the Borrower, or merger, consolidation or
reorganization of the Borrower, the Loan will be
redeemable at the option of DLJMC. The term
"control" shall mean (a) the ownership by Barry M.
Portnoy and Gerard M. Martin, beneficially and of
record, in the aggregate, of at least the same
percentages of the issued and outstanding stock of
HRPT Advisors, Inc. as they own on the Closing Date
and the power to direct or cause the direction of
the management and policies of HRPT Advisors, Inc.
or (b) the ownership by HRPT Advisors, Inc.,
beneficially and of record, of at least 250,000
shares of the issued and outstanding stock of the
Company and the power to direct
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<PAGE> 8
or cause the direction of the management and
policies of the Company.
Negative Pledge: Borrower will agree not to pledge any of its assets
to third parties during the entire term of the Loan
and will record such negative pledges on the Closing
Date.
Mortgage
Assumability: None.
Second Mortgages: None.
Insurance: All customary insurance coverage (but excluding
earthquake insurance).
Representations
and Warranties: The loan documents will contain representations and
warranties customarily found in loan agreements for
similar financings and others deemed by DLJMC
appropriate to the specific transaction.
Covenants: The loan documents will contain negative,
affirmative and financial covenants customarily
found in the loan documents for similar financings
and others deemed by DLJMC appropriate to the
specific transaction, including, but not limited to,
the following:
- Ratio of total cash flow to total interest
expense not to be less than 2:1.
- Borrower to purchase an interest rate
protection agreement capping LIBOR at 8.5%
or less.
- Ratio of total secured debt to gross assets
not to be greater than 50%.
- Ratio of total indebtedness to
undepreciated total assets not to exceed 50%.
- Appropriate tangible net worth requirements.
- Lender will receive an assignment of all
related leases and management contracts on
any Collateralization Date.
- Appropriate financial reporting covenants
acceptable to DLJMC.
Documentation: All loan documents will be in form and contain other
terms and provisions customarily found in loan
documents for
-8-
<PAGE> 9
similar financings and others deemed by DLJMC
appropriate to the specific transaction. Without
limiting the generality of the foregoing, there
shall be included as an event of default under the
loan documents, failure by Borrower to pay when due
any fees payable to any affiliate of DLJMC under any
underwriting agreement executed in connection with
the IPO.
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<PAGE> 10
Agreement between Donaldson, Lufkin
& Jenrette Securities Corporation ("DLJ") and
Hospitality Properties Trust (the "Company")
(the "Agreement")
This Agreement confirms the agreement between DLJ and the
Company that the underwriting agreement to be entered into between the Company
and, inter alia, DLJ (the "Underwriting Agreement") in connection with the
initial public offering of the common stock of the Company (the "IPO") will
require the payment by the Company of IPO structuring advisory fees in the
total amount of $1,800,000 payable (i) as to $800,000, to the Representatives
(as defined in the Underwriting Agreement) on the closing of the IPO (the
"Closing Date"), (ii) as to $500,000, to DLJ on the Closing Date, and (iii) as
to $500,000, to DLJ on the thirty-fifth (35th) day after the Closing Dates
provided that the $500,000 referred to in this subparagraph (iii) shall not be
payable if (a) no amounts have been previously advanced to the Company under
the Facility (as defined in that certain letter agreement dated June 9, 1995
between DLJ Mortgage Capital, Inc. ("DLJMC") and the Company (the "Letter
Agreement"), and (b) the Company has prior to such date notified DLJMC in
writing of its election to cancel the Facility and to terminate the Credit
Agreement (as defined in the Letter Agreement).
Dated as of June 9, 1995.
HOSPITALITY PROPERTIES TRUST DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:/s/Barry M. Portnoy By:/s/James W. Moitar
------------------------- -------------------------
Barry M. Portnoy James W. Moitar
Managing Trustee Managing Director
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in this registration
statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Washington, D.C.
July 21, 1995
<PAGE> 1
EXHIBIT 23.3
CONSENT
I, William J. Sheehan, do hereby consent to serve, if elected, as
Trustee of Hospitality Properties Trust (the "Trust") and to being named as a
Trustee of the Trust in the Trust's Registration Statement on Form S-11.
/s/ William J. Sheehan
Date: July 24, 1995 William J. Sheehan
