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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported) January 15, 1997
-------------------------
HOST MARRIOTT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
1-5664 53-0085950
(Commission File Number) (I.R.S. Employer Identification Number)
10400 Fernwood Road, Bethesda, Maryland 20817
(Address of Principal Executive Offices) (Zip Code)
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Registrant's Telephone Number, Including Area Code (301) 380-9000
(Former Name or Former Address, if changed since last report.)
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FORM 8-K
Item 5. Other Events
On January 15, 1997, Host Marriott Corporation (the "Company") successfully
completed its tender offer for limited partnership units in Marriott Hotel
Properties Limited Partnership ("MHP"), an affiliated partnership of the Company
in which the Company previously owned a 1% general partner interest. MHP owns
the 1,503-room Marriott Orlando World Center and a 50.5% limited partner
interest in the 624-room Marriott Harbor Beach Resort in Fort Lauderdale,
Florida. The Company purchased 464.25 units for an aggregate consideration of
$37,140,000 or $80,000 per unit. As a result of this transaction, a wholly-owned
subsidiary of Host Marriott became the majority limited partner in MHP and the
Company consolidated the MHP partnership in the first quarter of 1997. A copy of
the news release is attached as an exhibit to this current report.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of MHP:
Page
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Report of Independent Public Accountants 3
Consolidated Statements of Operations for the three years in the 4
period ended December 31, 1996
Consolidated Balance Sheets as of December 31, 1996 and 1995 5
Statements of Changes in Partners' Capital (Deficit) for the 6
three years in the period ended December 31, 1996
Consolidated Statements of Cash Flows for the three years 7
in the period ended December 31, 1996
Notes to Consolidated Financial Statements 8
Condensed Consolidated Statements of Operations for the 17
twelve weeks ended March 28, 1997 and March 22, 1996
(unaudited)
Condensed Consolidated Balance Sheets as of March 28, 1997 18
and December 31, 1996 (unaudited)
Condensed Consolidated Statements of Cash Flows for the 19
twelve weeks ended March 28, 1997 and March 22, 1996
(unaudited)
Notes to Condensed Consolidated Financial Statements 20
(unaudited)
(b) Pro Forma financial information of the Company reflecting the
acquisition of MHP as of and for the twelve weeks ended March 28,
1997 and for the year ended January 3, 1997 (unaudited):
Page
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Pro Forma Condensed Consolidated Financial Data 22
Pro Forma Condensed Consolidated Statements of Operations
for the twelve weeks ended March 28, 1997 and for the
year ended January 3, 1997 23
Notes to Pro Forma Condensed Consolidated Financial Data 25
(c) Exhibits:
(99.1) News Release dated January 15, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HOST MARRIOTT CORPORATION
By: /s/ Donald D. Olinger
--------------------------------
Donald D. Olinger
Senior Vice President and
Corporate Controller
Date: May 16, 1997
-2-
Report of Independent Public Accountants
TO THE PARTNERS OF MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP:
We have audited the accompanying consolidated balance sheet of Marriott Hotel
Properties Limited Partnership (a Delaware limited partnership) and subsidiaries
as of December 31, 1996 and 1995, and the related consolidated statements of
operations, changes in partners' capital (deficit) and cash flows for each of
the three years in the period ended December 31, 1996. These financial
statements and schedule referred to below are the responsibility of the General
Partner's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits. We did not audit the 1995
and 1994 financial statements of Lauderdale Beach Association, which statements
reflect total assets and total revenues of 25 percent and 29 percent in 1995,
respectively, and 29% of total revenues in 1994, of the consolidated totals.
Those statements were audited by other auditors whose report has been furnished
to us and our opinion, insofar as it relates to the amounts included for that
entity, is based solely on the report of the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Marriott Hotel Properties Limited Partnership and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of Item
14(a)(2) is presented for purpose of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our 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.
March 14, 1997
-3-
Marriott Hotel Properties Limited Partnership and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands, except per Unit amounts)
1996 1995 1994
--------- --------- ---------
REVENUES
Hotel (Note 3)...................................................................... $ 50,523 $ 47,251 $ 41,201
Rental income....................................................................... 21,311 19,747 17,273
Interest and other.................................................................. 919 679 1,285
--------- --------- ---------
72,753 67,677 59,759
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OPERATING COSTS AND EXPENSES
Interest (including interest paid to related parties of $0.7 million, $1.0 million
and $1.0 million in 1996, 1995 and 1994, respectively)............................ 22,007 21,864 22,128
Depreciation and amortization....................................................... 9,693 11,739 12,327
Incentive management fees (paid to related parties)................................. 7,518 7,047 6,073
Base management fees (paid to related parties)...................................... 3,609 3,431 3,104
Property taxes...................................................................... 3,059 3,104 3,230
Ground rent, insurance and other.................................................... 5,770 5,624 5,063
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51,656 52,809 51,925
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INCOME BEFORE MINORITY INTEREST........................................................ 21,097 14,868 7,834
MINORITY INTEREST IN INCOME............................................................ (2,648) (1,718) (523)
--------- --------- ---------
NET INCOME ............................................................................ $ 18,449 $ 13,150 $ 7,311
========= ========= =========
ALLOCATION OF NET INCOME
General Partner..................................................................... $ 184 $ 132 $ 73
Limited Partners.................................................................... 18,265 13,018 7,238
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$ 18,449 $ 13,150 $ 7,311
========= ========= =========
NET INCOME PER LIMITED PARTNER UNIT (1,000 Units).......................................$ 18,265 $ 13,018 $ 7,238
========= ========= =========
The accompanying notes are an integral part of these financial statements.
-4-
Marriott Hotel Properties Limited Partnership and Subsidiaries
Consolidated Balance Sheets
December 31, 1996 and 1995
(in thousands)
1996 1995
----------- -----------
ASSETS
Property and equipment, net ...................................................................$ 222,491 $ 222,458
Minority interest.............................................................................. 10,641 11,185
Due from Marriott International, Inc. and its affiliates....................................... 9,114 7,136
Property improvement funds..................................................................... 3,542 4,363
Deferred financing costs, net.................................................................. 1,787 2,266
Prepaid ground rent ........................................................................... 259 259
Cash and cash equivalents...................................................................... 1,607 3,550
----------- -----------
$ 249,441 $ 251,217
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LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Mortgage debt..................................................................................$ 230,959 $ 239,860
Note payable and amounts due to Marriott International, Inc.................................... 4,106 6,052
Note payable and amounts due to Host Marriott Corporation...................................... 2,405 6,484
Accounts payable and accrued interest.......................................................... 802 1,087
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Total Liabilities........................................................................... 238,272 253,483
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PARTNERS' CAPITAL (DEFICIT)
General Partner
Capital contribution..................................................................... 1,010 1,010
Capital distributions.................................................................... (512) (462)
Cumulative net losses.................................................................... (277) (461)
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221 87
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Limited Partners
Capital contributions, net of offering costs of $10,978.................................. 89,022 89,022
Investor notes receivable................................................................ (47) (47)
Capital distributions.................................................................... (50,618) (45,654)
Cumulative net losses.................................................................... (27,409) (45,674)
----------- -----------
10,948 (2,353)
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Total Partners' Capital (Deficit)........................................................ 11,169 (2,266)
----------- -----------
$ 249,441 $ 251,217
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The accompanying notes are an integral part of these financial statements.
-5-
Marriott Hotel Properties Limited Partnership and Subsidiaries
Statements of Changes in Partners'
Capital (Deficit)
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands)
General Limited
Partner Partners Total
----------- ----------- -----------
Balance, December 31, 1993........................................................$ (97) $ (20,525) $ (20,622)
Net income..................................................................... 73 7,238 7,311
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Balance, December 31, 1994........................................................ (24) (13,287) $ (13,311)
Net income..................................................................... 132 13,018 13,150
Capital distributions.......................................................... (21) (2,084) (2,105)
----------- ----------- -----------
Balance, December 31, 1995........................................................ 87 (2,353) (2,266)
Net income..................................................................... 184 18,265 18,449
Capital distributions.......................................................... (50) (4,964) (5,014)
----------- ----------- -----------
Balance, December 31, 1996........................................................$ 221 $ 10,948 $ 11,169
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
-6-
Marriott Hotel Properties Limited Partnership and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands)
1996 1995 1994
--------- --------- ---------
OPERATING ACTIVITIES
Net income ..........................................................................$ 18,449 $ 13,150 $ 7,311
Noncash items:
Depreciation and amortization...................................................... 9,693 11,739 12,327
Minority interest in income........................................................ 2,648 1,718 523
Amortization of deferred financing costs as interest............................... 519 1,041 1,659
Loss (gain) on disposal of property and equipment.................................. 6 48 (948)
Deferred portion of incentive management fees...................................... -- -- 1,608
Interest roll-up on note payable to Marriott International, Inc.................... -- -- 64
Changes in operating accounts:
Due to/from Marriott International, Inc............................................ (1,964) (360) (931)
Payment of deferred incentive management fees...................................... (1,474) (1,972) --
Accounts payable and accrued interest.............................................. (292) 325 (703)
Due to Host Marriott Corporation................................................... 47 62 (3)
Prepaid ground rent and other receivables.......................................... -- 4 (23)
--------- --------- ---------
Cash provided by operations..................................................... 27,632 25,755 20,884
--------- --------- ---------
INVESTING ACTIVITIES
Additions to property and equipment.................................................. (9,732) (6,123) (6,822)
Changes in property improvement funds................................................ 821 (1,748) (1,579)
Withdrawal from (deposits to) capital reserve escrow................................. -- 949 (949)
Proceeds from sale of land........................................................... -- -- 1,109
--------- --------- ---------
Cash used in investing activities............................................... (8,911) (6,922) (8,241)
--------- --------- ---------
FINANCING ACTIVITIES
Repayments of mortgage debt and capital lease obligations............................ (8,901) (8,970) (9,842)
Capital distributions to partners.................................................... (5,007) (2,105) --
Repayments to Host Marriott Corporation.............................................. (4,126) (2,727) (4,489)
Capital distributions to minority interest........................................... (2,104) (1,485) (495)
(Repayments of) proceeds from note payable to Marriott International, Inc............ (486) (485) 2,800
Financing costs ..................................................................... (40) (2,254) (309)
Proceeds from loan escrow account.................................................... -- -- 340
Capital contributions from minority interest......................................... -- -- 39
--------- --------- ---------
Cash used in financing activities............................................... (20,664) (18,026) (11,956)
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(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........................................$ (1,943) $ 807 $ 687
CASH AND CASH EQUIVALENTS at beginning of year.......................................... 3,550 2,743 2,056
--------- --------- ---------
CASH AND CASH EQUIVALENTS at end of year................................................$ 1,607 $ 3,550 $ 2,743
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest..........................................$ 21,390 $ 20,893 $ 21,122
========= ========= =========
The accompanying notes are an integral part of these financial statements.
-7-
Marriott Hotel Properties Limited Partnership and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
NOTE 1. THE PARTNERSHIP
Description of the Partnership
Marriott Hotel Properties Limited Partnership (the "Partnership"), a Delaware
limited partnership, was formed on August 22, 1984, to acquire, construct, own
and operate the 1,503-room Marriott Orlando World Center Hotel (the "Orlando
Hotel"). The Orlando Hotel is managed as part of the Marriott Hotels, Resorts
and Suites full-service hotel system by Marriott International, Inc. (the
"Manager" and "MII").
Between November 1, 1985 and November 27, 1985 (the "Closing Date"), 1,000
limited partnership interests (the "Units"), representing a 99% interest in the
Partnership, were sold in a private placement. The limited partners paid
$10,000,000 in cash on the Closing Date with the remainder due in five annual
installments through May 15, 1990. The limited partners' obligations to make the
installment payments were evidenced by promissory notes totaling $45,350,000
payable to the Partnership and secured by the Units. The general partner is
Hotel Properties Management, Inc. (the "General Partner"), a wholly-owned
subsidiary of Host Marriott Corporation, with a 1% general partnership interest.
On December 29, 1995, Host Marriott Corporation's operations were divided into
two separate companies: Host Marriott Corporation ("Host Marriott") and Host
Marriott Services Corporation.
On the Closing Date, the Partnership purchased from affiliates of Host Marriott
(i) a 99% limited partnership interest in the Warner Center Marriott Hotel
Limited Partnership (the "Warner Center Partnership"), which owned the 473-room
Warner Center Marriott Hotel (the "Warner Center Hotel") in Los Angeles,
California and (ii) a 49% general partnership interest in, and a loan receivable
of $3,680,000 from, Lauderdale Beach Association (the "Harbor Beach
Partnership"), a general partnership that owns Marriott's 624-room Harbor Beach
Resort (the "Harbor Beach Hotel") in Ft. Lauderdale, Florida. As a result of
certain transactions, the Partnership now owns a 50.5% interest in the Harbor
Beach Partnership. The Harbor Beach Hotel is leased to Marriott Hotel Services,
Inc. (the "Operating Tenant"), a wholly-owned subsidiary of MII. On November 17,
1993, the lender foreclosed on the Warner Center Hotel. The foreclosure was
followed by the dissolution of the Warner Center Partnership.
On January 14, 1997, a wholly-owned subsidiary of Host Marriott completed a
tender offer for 464 limited partnership units in the Partnership (see Note 10).
Partnership Allocations and Distributions
The Partnership generally allocates net profits and losses, cash available for
distribution and tax credits as follows: (i) first, 1% to the General Partner
and 99% to the limited partners until cumulative distributions of sale and
refinancing proceeds ("Capital Receipts") equal to 50% of capital contributions
have been distributed; (ii) next, 15% to the General Partner and 85% to the
limited partners until cumulative distributions of Capital Receipts equal to all
capital contributions have been distributed; and (iii) thereafter, 30% to the
General Partner and 70% to the limited partners.
Capital Receipts not retained by the Partnership will generally be distributed
(i) first, 1% to the General Partner and 99% to the limited partners until the
General Partner and the limited partners (collectively the "Partners") have
received cumulative distributions of Capital Receipts equal to their capital
contributions; and (ii) thereafter, 30% to the General Partner and 70% to the
limited partners.
Gains are generally allocated (i) first, to Partners with negative capital
accounts, (ii) next, in amounts necessary to bring each Partner's capital
account balance equal to their invested capital, defined as the excess of
paid-in capital contributions over cumulative distributions of Capital Receipts,
and (iii) thereafter, 30% to the General Partner and 70% to the limited
partners.
Upon the sale of substantially all of the assets, gains and sales
proceeds will be distributed based on a specific allocation, as stated in the
partnership agreement, in order to provide the limited partners (if proceeds are
sufficient) a 15% cumulative return, as defined, to the extent not previously
received from cash distributions.
-8-
For financial reporting purposes, net losses of the Partnership are allocated 1%
to the General Partner and 99% to the limited partners.
The Harbor Beach Partnership generally allocates profits and losses, cash
distributions, gains and losses, and Capital Receipts in the ratio of ownership
interests.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Partnership's records are maintained on the accrual basis of accounting and
its fiscal year coincides with the calendar year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Working Capital and Supplies
Pursuant to the terms of the management agreement discussed in Note 8, the
Partnership is required to provide the Manager with working capital and supplies
to meet the operating needs of the Orlando Hotel. The Manager converts cash
advanced by the Partnership into other forms of working capital consisting
primarily of operating cash, inventories, and trade receivables and payables
which are maintained and controlled by the Manager. Upon the termination of the
management agreement, the Manager is required to convert working capital and
supplies into cash and return it to the Partnership. As a result of these
conditions, the individual components of working capital and supplies controlled
by the Manager are not reflected in the accompanying consolidated balance sheet.
As of December 31, 1996 and 1995, $4,707,000 has been advanced to the Manager
for working capital and supplies which is included in Due from Marriott
International, Inc. on the accompanying Consolidated Balance Sheet. The supplies
advanced to the Manager are recorded at their estimated net realizable value. As
of December 31, 1996 and 1995, accumulated amortization related to the
revaluation of these supplies totaled $762,000.
Revenues and Expenses
Hotel Revenues represents house profit from the Orlando Hotel since the
Partnership has delegated substantially all of the operating decisions related
to the generation of house profit of the Orlando Hotel to the Manager. House
profit reflects hotel operating results which flow to the Partnership as
property owner and represents gross hotel sales less property-level expenses,
excluding depreciation and amortization, base and incentive management fees,
real and personal property taxes, ground and equipment rent, insurance and
certain other costs, which are disclosed separately in the consolidated
statement of operations (see Note 3).
Principles of Consolidation
The consolidated financial statements for the years ended December 31, 1996,
1995 and 1994 include the accounts of the Partnership and the Harbor Beach
Partnership (collectively the "Partnerships"). The 49.5% general partnership
interest in the Harbor Beach Partnership owned by an unrelated party is reported
as minority interest. All significant intercompany balances and transactions
have been eliminated.
-9-
Property and Equipment
Property and equipment is recorded at cost. Depreciation and amortization are
computed using the straight-line method over the following estimated useful
lives of the assets, less a 10% estimated residual value on the original
building cost and land improvements related to the Orlando Hotel:
Land improvements 40 to 50 years
Building and improvements 40 to 50 years
Leasehold improvements 40 years
Furniture and equipment 3 to 10 years
All property and equipment is pledged as security for the mortgage debt
described in Note 6.
The Partnership and the Harbor Beach Partnership assess the impairment of their
real estate properties based on whether estimated future undiscounted cash flow
from such properties on an individual hotel basis will be less than their net
book value. If a property is impaired, its basis is adjusted to fair market
value.
On June 8, 1994, the Partnership sold approximately two acres of land adjacent
to the Orlando Hotel to Marriott Ownership Resorts, Inc. ("MORI"), an affiliate
of MII. Proceeds from the transaction, net of selling costs, totaled $1.1
million and were used to pay down principal on the Orlando Mortgage Debt (see
Note 6). This transaction resulted in recognition of $951,000 of gain which is
included in Interest and Other Revenues on the Consolidated Statement of
Operations for the year ended December 31, 1994.
Deferred Financing Costs
Deferred financing costs represent the costs incurred in connection with
obtaining the mortgage debt (see Note 6) and are amortized over the term
thereof. The Orlando Mortgage Debt, which is described in Note 6, was refinanced
on October 31, 1995. Deferred financing costs associated with the refinancing of
the Orlando Mortgage Debt totaled $2,316,000. Deferred financing costs
associated with the restructuring of the Harbor Beach Mortgage Debt (see Note 6)
amounted to $350,000. Accumulated amortization of deferred financing costs were
$879,000 and $360,000 at December 31, 1996 and 1995, respectively.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of three
months or less at date of purchase to be cash equivalents.
Income Taxes
Provision for Federal and state income taxes has not been made in the
accompanying financial statements since the Partnership does not pay income
taxes, but rather allocates its profits and losses to the individual partners.
Significant differences exist between the net income for financial reporting
purposes and the net income reported in the Partnership's tax return. These
differences are due primarily to the use, for income tax purposes, of
accelerated depreciation methods, shorter depreciable lives of the assets,
differences in the timing of the recognition of base and incentive management
fee expense and the expensing of certain costs incurred during construction
which have been capitalized in the accompanying financial statements. As a
result of these differences, the excess of the tax basis in net Partnership
liabilities over the net liabilities reported in the accompanying financial
statements amounted to $101,811,000 and $93,026,000 as of December 31, 1996 and
1995, respectively.
-10-
New Statement of Financial Accounting Standards
In the first quarter of 1996, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Adoption of SFAS
No. 121 did not have any effect on the consolidated financial statements.
NOTE 3. HOTEL REVENUES
Hotel Revenues consist of hotel operating results for the Orlando Hotel for the
three years ended December 31, 1996 (in thousands):
1996 1995 1994
----------- ----------- -----------
HOTEL SALES
Rooms.......................................................................$ 59,289 $ 56,881 $ 52,731
Food and beverage........................................................... 47,852 45,708 40,290
Other....................................................................... 13,157 11,762 10,447
----------- ----------- -----------
120,298 114,351 103,468
----------- ----------- -----------
HOTEL EXPENSES
Departmental Direct Costs
Rooms.................................................................... 12,201 11,665 11,337
Food and beverage........................................................ 29,968 28,784 25,828
Other hotel operating expenses.............................................. 27,606 26,651 25,102
----------- ----------- -----------
69,775 67,100 62,267
----------- ----------- -----------
HOTEL REVENUES..................................................................$ 50,523 $ 47,251 $ 41,201
=========== =========== ===========
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31 (in
thousands):
1996 1995
---------- -----------
Land and improvements.......................................................... $ 31,074 $ 30,893
Building and improvements...................................................... 152,361 150,861
Leasehold improvements......................................................... 80,841 80,646
Furniture and equipment........................................................ 69,846 62,811
---------- -----------
334,122 325,211
Less accumulated depreciation.................................................. (111,631) (102,753)
---------- -----------
$ 222,491 $ 222,458
========== ===========
-11-
NOTE 5. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments are shown below. The fair
values of financial instruments not included in this table are estimated to be
equal to their carrying amounts.
As of December 31, 1996 As of December 31, 1995
--------------------------- ------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------- ----------- ------------- -------------
(in thousands)
Mortgage debt..............................................$ 230,959 $ 233,468 $ 239,860 $ 248,287
Note payable due to Host Marriott Corporation..............$ 2,294 $ 2,294 $ 6,420 $ 6,420
Incentive management fees payable to
Marriott International, Inc.............................$ 2,046 $ 2,046 $ 3,520 $ 2,775
Note payable due to Marriott International, Inc............$ 1,893 $ 1,847 $ 2,379 $ 2,379
The estimated fair value of mortgage debt is based on the expected future debt
service payments discounted at estimated market rates. Notes payable due to Host
Marriott Corporation and Marriott International, Inc. and Incentive management
fees payable to Marriott International, Inc. are valued based on the expected
future payments from operating cash flow discounted at risk adjusted rates.
NOTE 6. DEBT
The Partnerships have entered into various long-term loan agreements to provide
non-recourse mortgage financing for the Hotels. Combined mortgage debt
maturities, at December 31, 1996 are (in thousands):
1997....................................$ 8,523
1998.................................... 7,168
1999.................................... 5,826
2000.................................... 209,442
--------------
$ 230,959
==============
Orlando Mortgage
On January 12, 1993 (the "Closing Date"), the General Partner refinanced the
Orlando Hotel mortgage debt (the "Orlando Mortgage Debt"). On the Closing Date,
the Partnership paid $29.3 million to the lender which was applied $12.0 million
to the outstanding principal balance, $13.5 million to interest due through the
Closing Date and $3.8 million to financing costs. The Orlando Mortgage Debt
carried a fixed rate of interest of 6.705% and required semi-annual principal
amortization totaling $22 million through its maturity on June 16, 1995 (the
"Maturity Date"). In 1994, net proceeds of $1.1 million from the sale of land
adjacent to the Orlando Hotel (see Note 2) were used to pay down the principal
balance.
Pursuant to the terms of the refinancing, Host Marriott provided a guarantee of
debt service payments up to $10 million. Payments under the guarantee
constituted advances to the Partnership and were to accrue interest at the
Morgan Guaranty Trust Company prime rate. As of the Maturity Date, no amounts
were outstanding under the guarantee.
On the Maturity Date, the lender granted the Partnership a forbearance on the
loan extending it from June 16, 1995 through October 31, 1995. The Partnership
paid interest monthly in arrears at a floating rate equal to the applicable
Federal Funds rate plus 225 basis points. During the forbearance period, the
weighted average interest rate was 7.94%. On October 31, 1995, the Partnership
successfully completed a modification and extension of the Orlando Mortgage
Debt. The mortgage debt carries a fixed rate of interest of 8.44% and requires
semi-annual amortization of principal. The loan matures on June 16, 2000 with
unamortized principal of $127.0 million due at that time. No debt service
guarantee was provided. As of December 31, 1996 and 1995, the outstanding
principal balance was $145,479,000 and $152,979,000, respectively.
-12-
The Orlando Mortgage Debt is secured by the Orlando Hotel, the land on which the
Orlando Hotel and golf course are located and an assignment of certain operating
agreements.
Harbor Beach Mortgage
The original Harbor Beach loan agreement provided $86.6 million for construction
of the Harbor Beach Hotel. On June 30, 1986, this debt was refinanced with a
major insurance company. The $92 million replacement loan (the "Harbor Beach
Mortgage Debt") bore interest at a fixed rate of 9.375% and required payments of
interest only through July 1988 and monthly payments of principal and interest
in the amount of $765,000 thereafter until maturity on July 1, 1993. Upon
maturity, the lender granted the Harbor Beach Partnership a forbearance of the
loan for a fee of $165,000. Under the forbearance agreement, the Harbor Beach
Partnership continued to pay the lender through March 29, 1994, payments of
principal and interest in accordance with the terms of the Harbor Beach Mortgage
Debt.
On March 29, 1994 (the "Closing Date"), the Harbor Beach Partnership completed
the restructuring of the Harbor Beach Mortgage Debt. The restructured mortgage
debt carries a fixed rate of interest of 9.125% (the "Contract Interest Rate")
and is payable monthly in arrears. Interest only at the Contract Interest Rate
was due and payable for the first twelve payments through and including April 1,
1995. For the period from the Closing Date through April 1, 1995, the difference
between the interest only payment and $772,600 (the "Payment Amount") was
contributed to an escrow account with the lender to fund capital improvements at
the Harbor Beach Hotel. The Payment Amount represents the amount necessary to
amortize the outstanding principal balance, as of the Closing Date, over a
22-year effective amortization period. The loan matures on May 1, 2000. The
restructured mortgage debt is collateralized by all property and assets of the
Harbor Beach Hotel. No debt service guarantee was provided. As of December 31,
1996 and 1995, the outstanding principal balance was $85,480,000 and
$86,881,000, respectively.
Orlando Ballroom Loan
During 1990, Host Marriott agreed to provide interim financing of up to $14
million to fund the construction of a new ballroom and exhibition hall at the
Orlando Hotel. Construction was completed in February 1990. On December 31,
1990, the interim financing was converted to a permanent loan from Host Marriott
with $13.2 million advanced. Interest only, at the Bankers Trust Company prime
rate, was payable from the Partnership's cash flow after debt service. On June
16, 1992, in conjunction with the refinancing of the Orlando Mortgage Debt, the
Orlando ballroom loan was converted from a term loan to a revolving line of
credit with a floating interest rate equal to the Bankers Trust Company prime
rate. The weighted average effective interest rate for the years ended December
31, 1996, 1995 and 1994 was 8.3%, 8.8% and 7.1%, respectively (rate as of
December 31, 1996 and 1995 was 8.3% and 8.5%, respectively). As of December 31,
1996 and 1995, the outstanding principal balance was $2,294,000 and $6,420,000,
respectively.
Harbor Beach Rooms Renovation Loan
On July 21, 1994, the Harbor Beach Partnership entered into a loan agreement
with Marriott International Capital Corporation ("MICC"), a wholly-owned
subsidiary of MII, in conjunction with a rooms and suites refurbishment at the
Harbor Beach Hotel. The loan provided financing of up to $2.8 million, plus
accrued interest through December 31, 1994, to fund costs in excess of funds
available in the Harbor Beach Partnership's property improvement fund. This
unsecured loan carries a fixed rate of interest of 8%. Accrued interest
totalling $64,000 was rolled into the principal balance at December 31, 1994.
Payments of principal and interest based upon a five-year amortization period
commenced in January 1995. Under the terms of the loan, the debt service
payments are included as a deduction in determining the fees paid to the
Operating Tenant, as described in Note 8. As of December 31, 1996 and 1995, the
outstanding principal balance was $1,893,000 and $2,379,000, respectively.
Interest earned by MICC was $171,000 and $211,000 in 1996 and 1995,
respectively. No interest was earned in 1994.
-13-
NOTE 7. LEASES
The Harbor Beach Partnership, through an assignment of a lease on January 15,
1982, acquired all rights to a 99-year lease with a 25-year renewal option for
the land on which the Harbor Beach Hotel is located. On April 28, 1993, the
lessor sold its rights under the lease to an unrelated party. A provision under
the sale of the lease provided for the early refund to the Harbor Beach
Partnership of the remaining $1,250,000 balance of an initial $2,500,000
security deposit paid to the lessor and a $500,000 payment to facilitate the
modification of the lease.
Lease payments are made quarterly in advance in accordance with a lease year
that operates from December 1 through November 30. The annual rental for the
lease year ended November 1994 was $1,430,000 and increased to $1,560,000 on
December 1994 for lease years 1995 through 1999. After lease year 1999, annual
rentals for each succeeding five- year period increase by an amount equal to 10%
of the previous annual rental.
Minimum annual rentals during the term of the ground lease are (in thousands):
Year
----
1997.................................................$ 1,560
1998................................................. 1,560
1999................................................. 1,573
2000................................................. 1,716
2001................................................. 1,716
Thereafter........................................... 312,856
--------------
Total Minimum Lease Payments.........................$ 320,981
==============
NOTE 8. MANAGEMENT AND OPERATING LEASE AGREEMENTS
The Partnership has entered into a long-term management agreement with the
Manager, and the Harbor Beach Partnership has entered into a long-term operating
lease with the Operating Tenant. The Hotels are operated as part of the Marriott
Hotels, Resorts and Suites full-service hotel system. Significant provisions
under the agreements are as follows:
Orlando Hotel. The management agreement provides for an initial term of 25
years, commencing with the opening of the Orlando Hotel (March 24, 1986), and
five 10-year renewals at the Manager's option. The Manager is paid a base
management fee of 3% of gross hotel sales and is also entitled to an incentive
management fee equal to 20% of operating profit, as defined, and an additional
incentive management fee equal to 30% of the following amount: (i) 80% of
operating profit in each fiscal year less (ii) the greater of (a) $25,000,000 or
(b) debt service on the Orlando Mortgage Debt plus $7,000,000. Payment of the
incentive management fee is subordinate to debt service and retention of
specified amounts of operating profit by the Partnership. Unpaid incentive
management fees are deferred without interest and are payable from future
operating cash flow, as defined, but are due upon termination of the management
agreement only if the termination is the result of a default by the Partnership.
Unpaid incentive management fees as of December 31, 1996 and 1995 were
$2,046,000 and $3,520,000, respectively.
Under the management agreement, the Manager is required to furnish the Orlando
Hotel with certain services ("Chain Services") which are generally provided on a
central or regional basis to all hotels in the Marriott full-service hotel
system. Chain Services include central training, advertising and promotion, a
national reservation system, computerized payroll and accounting services, and
such additional services as needed which may be more efficiently performed on a
centralized basis. Costs and expenses incurred in providing such services are
allocated among all domestic full-service hotels managed, owned or leased by MII
or its subsidiaries. In addition, the Hotel participates in MII's Honored Guest
Awards Program ("HGA"). The cost of this program is charged to all hotels in the
Marriott full-service hotel system based upon the HGA sales at each hotel. The
total amount of Chain Services and HGA costs allocated to the Orlando Hotel was
$3,588,000, $3,336,000 and $2,825,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
-14-
Harbor Beach Hotel. The operating lease provides for an initial 36-year term
commencing with the opening of the Harbor Beach Hotel (October 29, 1984), with
options to renew for six successive 10-year periods based on certain defined
conditions. The annual rental paid to the Harbor Beach Partnership includes the
following:
. basic rental: annual rental payable under the land lease and insurance
costs
. percentage rental: determined by multiplying the applicable percentage set
annually by the Harbor Beach Partnership by revenues
. performance rental: first $9,720,000 of operating profit of the Harbor
Beach Hotel, as defined
. additional performance rental: 50% of operating profit of the Harbor Beach
Hotel, as defined, in excess of $9,720,000
. contingent rental: up to 50% of operating profit of the Harbor Beach Hotel,
as defined, in excess of $9,720,000 if the aggregate annual rental is
otherwise insufficient to cover debt service.
Pursuant to the terms of the Harbor Beach rooms renovation loan (see Note 6),
the annual performance rental is adjusted upward by the annual debt service
required under the loan. For the five-year period beginning with 1995 and ending
in 1999, annual performance rental is increased by $696,557 to $10,416,557.
Subsequent to year-end 1999, performance rental will return to $9,720,000.
Percentage rental is intended to cover the cost of utilities, repairs and
maintenance, and the required contribution to the property improvement fund (4%
for 1994 and 5% for 1995 and thereafter) and is therefore adjusted annually in
order to equal the actual applicable costs. Any payments of contingent rental
reduce future payments of additional performance rental (subject to limitations)
in subsequent years. No contingent rental has been accrued as of December 31,
1996 and 1995.
Rental income under the Harbor Beach Partnership operating lease for the three
years ended December 31, 1996 was (in thousands):
1996 1995 1994
--------- --------- ---------
Basic Rental................................................................... $ 1,694 $ 1,616 $ 1,469
Percentage Rental.............................................................. 6,240 5,921 4,978
Performance Rental............................................................. 10,417 10,417 9,720
Additional Performance Rental.................................................. 2,960 1,793 1,106
--------- --------- ---------
$ 21,311 $ 19,747 $ 17,273
========= ========= =========
Cost and accumulated depreciation of the rental property were $100,647,000 and
$37,279,000 at December 31, 1996, and $99,077,000 and $33,990,000, respectively,
at December 31, 1995.
Property Improvement Funds
The management agreement and the operating lease provide for the establishment
of a property improvement fund for each of the Hotels. Contributions to the
property improvement funds are equal to a percentage of gross sales of each
hotel. Pursuant to the terms of the Orlando Mortgage Debt refinancing,
contributions to the fund for the Orlando Hotel were 4% through maturity of the
refinanced mortgage in June 1995. Contributions increased to 5% subsequent to
maturity and will remain at 5% thereafter. Contributions to the fund for the
Orlando Hotel totaled $6,015,000 and $5,120,000 for the years ended December 31,
1996 and 1995, respectively. Contributions to the fund for the Harbor Beach
Hotel were 5% in 1995 and 1996. Contributions to the fund for the Harbor Beach
Hotel totaled $2,729,000 and $2,610,000 for the years ended December 31, 1996
and 1995, respectively.
-15-
NOTE 9. COMPARATIVE LEASED HOTEL OPERATING RESULTS
The Harbor Beach Hotel is a leased property whose income to the Partnership is
included in the consolidated statement of operation as rental income. The
following is a comparative summary of hotel operating results for the Harbor
Beach Hotel for the three years ended December 31, 1996 (in thousands):
1996 1995 1994
--------- --------- ---------
HOTEL SALES
Rooms.........................................................................$ 30,939 $ 28,384 $ 24,835
Food and beverage............................................................. 20,764 19,366 17,037
Other......................................................................... 5,016 4,857 4,659
--------- --------- ---------
56,719 52,607 46,531
--------- --------- ---------
HOTEL EXPENSES
Departmental Direct Costs
Rooms...................................................................... 5,566 5,332 4,768
Food and beverage.......................................................... 12,664 12,140 10,974
Other hotel operating expenses................................................ 22,151 21,219 19,127
--------- --------- ---------
HOTEL REVENUES..................................................................$ 16,338 $ 13,916 $ 11,662
========= ========= =========
NOTE 10. SUBSEQUENT EVENT
On January 14, 1997, MHP Acquisition Corporation (the "Company"), a wholly-owned
subsidiary of Host Marriott, completed its tender offer for limited partnership
units in the Partnership. The Company purchased approximately 464 units for an
aggregate consideration of $37.1 million or $80,000 per unit. Combined with its
prior ownership position, Host Marriott now indirectly owns through affiliates,
48% of the Partnership. Additionally, in a Partnership vote held in conjunction
with the tender offer, the limited partners approved all of the proposed
amendments to the partnership agreement that were conditions to the tender
offer.
-16-
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit amounts)
Twelve Weeks Ended
--------------------------------
March 28, March 22,
1997 1996
-------------- --------------
REVENUES
Hotel..................................................................................$ 18,267 $ 15,439
Rental income.......................................................................... 9,286 8,539
Interest............................................................................... 93 63
-------------- --------------
27,646 24,041
-------------- --------------
OPERATING COSTS AND EXPENSES
Interest............................................................................... 5,050 5,202
Incentive management fee............................................................... 2,877 2,387
Depreciation and amortization.......................................................... 2,281 2,693
Base management fee.................................................................... 1,100 985
Ground rent, property taxes and other.................................................. 2,152 2,030
-------------- --------------
13,460 13,297
-------------- --------------
INCOME BEFORE MINORITY INTEREST.......................................................... 14,186 10,744
MINORITY INTEREST........................................................................ (2,757) (2,285)
-------------- --------------
NET INCOME ..............................................................................$ 11,429 $ 8,459
============== ==============
ALLOCATION OF NET INCOME
General Partner........................................................................$ 114 $ 85
Limited Partners....................................................................... 11,315 8,374
-------------- --------------
$ 11,429 $ 8,459
============== ==============
NET INCOME PER LIMITED PARTNER UNIT (1,000 Units)........................................$ 11,315 $ 8,374
============== ==============
See Notes to Condensed Consolidated Financial Statements.
-17-
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 28, December 31,
1997 1996
-------------- ---------------
(Unaudited)
ASSETS
Property and equipment, net.......................................................$ 221,092 $ 222,491
Due from Marriott International, Inc. and affiliates.............................. 14,806 9,114
Minority interest................................................................. 7,884 10,641
Other assets...................................................................... 7,350 5,588
Cash and cash equivalents......................................................... 9,608 1,607
-------------- --------------
$ 260,740 $ 249,441
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Mortgage debt ....................................................................$ 230,713 $ 230,959
Note payable and amounts due to Marriott
International, Inc. and affiliates........................................... 3,925 4,106
Note payable and amounts due to Host Marriott Corporation......................... 2,295 2,405
Accounts payable and accrued interest............................................. 1,209 802
-------------- --------------
Total Liabilities............................................................ 238,142 238,272
-------------- --------------
PARTNERS' CAPITAL
General Partner................................................................... 335 221
Limited Partners.................................................................. 22,263 10,948
-------------- --------------
Total Partners' Capital...................................................... 22,598 11,169
-------------- --------------
$ 260,740 $ 249,441
============== ==============
See Notes to Condensed Consolidated Financial Statements.
-18-
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Twelve Weeks Ended
--------------------------------
March 28, March 22,
1997 1996
-------------- --------------
OPERATING ACTIVITIES
Net income.............................................................................$ 11,429 $ 8,459
Noncash items.......................................................................... 5,158 5,096
Changes in operating accounts.......................................................... (5,441) (4,739)
-------------- --------------
Cash provided by operations......................................................... 11,146 8,816
-------------- --------------
INVESTING ACTIVITIES
Changes in property improvement funds and capital reserve escrow....................... (1,850) (1,893)
Additions to property and equipment.................................................... (882) (605)
-------------- --------------
Cash used in investing activities................................................... (2,732) (2,498)
-------------- --------------
FINANCING ACTIVITIES
Principal repayments of mortgage debt.................................................. (246) (225)
Repayments to Marriott International, Inc. and affiliates.............................. (167) (118)
Payment of financing costs............................................................. -- (14)
-------------- --------------
Cash used in financing activities................................................... (413) (357)
-------------- --------------
INCREASE IN CASH AND CASH EQUIVALENTS.................................................... 8,001 5,961
CASH AND CASH EQUIVALENTS at beginning of period......................................... 1,607 3,550
-------------- --------------
CASH AND CASH EQUIVALENTS at end of period...............................................$ 9,608 $ 9,511
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest..............................................$ 4,538 $ 4,751
============== ==============
See Notes to Condensed Consolidated Financial Statements.
-19-
MARRIOTT HOTEL PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying condensed consolidated financial statements have been
prepared by Marriott Hotel Properties Limited Partnership (the
"Partnership") without audit. Certain information and footnote disclosures
normally included in financial statements presented in accordance with
generally accepted accounting principles have been condensed or omitted
from the accompanying statements. The Partnership believes the disclosures
made are adequate to make the information presented not misleading.
However, the condensed consolidated financial statements should be read in
conjunction with the Partnership's financial statements and notes thereto
included in the Partnership's Form 10-K for the fiscal year ended December
31, 1996.
In the opinion of the Partnership, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position of the Partnership as of March 28, 1997, and December
31, 1996, and the results of operations and cash flows for the twelve
weeks ended March 28, 1997 and March 22, 1996. Interim results are not
necessarily indicative of fiscal year performance because of seasonal and
short-term variations.
The Partnership owns Marriott's Orlando World Center and a 50.5% interest
in a partnership owning Marriott's Harbor Beach Resort (the "Harbor Beach
Partnership"), whose financial statements are consolidated herein. The
remaining 49.5% general partnership interest in the Harbor Beach
Partnership is reported as minority interest. All significant intercompany
balances and transactions have been eliminated.
For financial reporting purposes, net income of the Partnership are
allocated 99% to the limited partners and 1% to the General Partner.
Significant differences exist between the net income for financial
reporting purposes and the net income reported for Federal income tax
purposes. These differences are due primarily to the use, for income tax
purposes, of accelerated depreciation methods, shorter depreciable lives
of the assets, differences in the timing of the recognition of management
fee expense and the deduction of certain costs incurred during
construction which have been capitalized in the accompanying condensed
consolidated financial statements.
2. Hotel revenues represent house profit from the Orlando Hotel since the
Partnership has delegated substantially all of the operating decisions
related to the generation of house profit of the Orlando Hotel to Marriott
International, Inc. (the "Manager"). House profit reflects hotel operating
results which flow to the Partnership as property owner and represents
gross hotel sales less property-level expenses, excluding depreciation and
amortization, base and incentive management fees, property taxes and
certain other costs, which are disclosed separately in the condensed
consolidated statement of operations.
-20-
Hotel revenues consist of hotel operating results for the Orlando Hotel
for the twelve weeks ended (in thousands):
March 28, March 22,
1997 1996
--------------- ---------------
HOTEL SALES
Rooms..................................................................$ 18,493 $ 16,450
Food and beverage...................................................... 14,584 12,684
Other.................................................................. 3,606 3,713
--------------- ---------------
36,683 32,847
--------------- ---------------
HOTEL EXPENSES
Departmental Direct Costs
Rooms............................................................... 3,072 3,148
Food and beverage................................................... 8,290 7,590
Other hotel operating expenses......................................... 7,054 6,670
--------------- ---------------
18,416 17,408
--------------- ---------------
HOTEL REVENUES.............................................................$ 18,267 $ 15,439
=============== ===============
3. Rental Income under the Harbor Beach Partnership operating lease for the
twelve weeks ended was (in thousands):
March 28, March 22,
1997 1996
---------------- ---------------
Basic Rental..............................................................$ 362 $ 373
Percentage Rental......................................................... 1,964 1,831
Performance Rental........................................................ 6,960 6,335
Additional Performance Rental............................................. - -
---------------- ---------------
$ 9,286 $ 8,539
================ ===============
-21-
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The Unaudited Pro Forma Condensed Consolidated Statements of Operations of the
Company reflect the following transactions for the twelve weeks ended March 28,
1997 and the fiscal year ended January 3, 1997, as if such transactions had been
completed on December 30, 1995:
* 1997 acquisition of a controlling interest in the Marriott Hotel Properties
Limited Partnership ("MHP")
* 1997 acquisition of The Ritz-Carlton Marina del Rey and a controlling
interest in the Oklahoma City Waterford
* 1996 acquisition of six full-service properties, the purchase of
controlling interests in an additional 17 full-service properties and the
purchase of the mortgage note secured by the New York Marriott Financial
Center Hotel
* December 1996 Convertible Preferred Securities Offering (as defined below)
* December 1996 repayment of the $109 million mortgage note secured by the
Philadelphia Marriott Hotel
* March 1997 assumption of $90 million mortgage note secured by the
Philadelphia Marriott Hotel
* March 1997 purchase of the $230 million in outstanding bonds secured by the
San Francisco Marriott Hotel
* 1996 sale/leaseback of 16 Courtyard properties
* 1996 sale/leaseback of 18 Residence Inns
The Unaudited Pro Forma Condensed Consolidated Balance Sheet of the Company has
not been presented as no material acquisitions or other transactions have
occurred subsequent to March 28, 1997.
During 1997, the Company acquired a controlling interest in MHP which owns the
Marriott Orlando World Center Hotel and a controlling interest in the Marriott
Harbor Beach Resort. The Company also acquired The Ritz-Carlton, Marina del Rey
and a controlling interest in the partnership which owns the Oklahoma City
Waterford. The Company also obtained a new $90 million mortgage note secured by
the Philadelphia Marriott Hotel and purchased $230 million of outstanding bonds
secured by the San Francisco Marriott Hotel.
During 1996, the Company acquired six full-service hotel properties and a
controlling interest in 17 additional full-service hotel properties, and
purchased the mortgage note secured by the New York Marriott Financial Center
Hotel. Also during 1996, the Company sold and leased back 16 Courtyard
properties and 18 Residence Inns. The Company completed the issuance of 11
million shares of Company-Obligated, Mandatorily-Redeemable Convertible
Preferred Securities of a Subsidiary Trust for net proceeds of $530 million on
December 2, 1996 (the "December 1996 Convertible Preferred Securities
Offering"). The Company also repaid a mortgage note secured by the Philadelphia
Marriott Hotel in December 1996.
The Pro Forma Condensed Consolidated Financial Data of the Company are unaudited
and presented for informational purposes only and may not reflect the Company's
future results of operations and financial position or what the results of
operations and financial position of the Company would have been had such
transactions occurred as of the dates indicated. The Pro Forma Condensed
Consolidated Financial Data and Notes thereto should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" included on Form 10-K for the fiscal year ended January 3, 1997.
-22-
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Twelve Weeks Ended March 28, 1997
(in millions, except per share amounts)
MHP
Acquisition Other Pro
Historical Adjustments Adjustments Forma
----------- ------------- ------------- -------
Revenues
Hotels.................... $ 248 $ 2 (A) $ 1 (C) $ 251
Other..................... 4 -- -- 4
------ ------ ------ ------
252 2 1 255
------ ------ ------ ------
Operating costs and expenses
Hotels.................... 151 1 (A) 1 (C) 153
Other..................... 10 -- -- 10
------ ------ ------ ------
161 1 1 163
------ ------ ------ ------
Operating profit........... 91 1 -- 92
Minority interest.......... (11) -- -- (11)
Corporate expenses......... (9) -- -- (9)
Interest expense........... (63) (1)(A) (2)(E) (61)
5 (F)
Dividends on Convertible
Preferred Securities
of a subsidiary trust.... (9) -- -- (9)
Interest income............ 12 -- (2) (F) 10
------ ------ ------ ------
Income before income
taxes and extraordinary
item..................... 11 -- 1 12
Provision for
income taxes.............. (5) -- -- (5)
------ ------ ------ ------
Income before extraordinary
item...................... $ 6 $ -- $ 1 $ 7
====== ====== ====== ======
Income per common share
before extraordinary
item....................... $ .03 $ .03
====== ======
Weighted average shares
outstanding............... 202.3 202.3
====== ======
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Data.
-23-
HOST MARRIOTT CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended January 3, 1997
(in millions, except per share amounts)
MHP
Acquisition Other Pro
Historical Adjustments Adjustments Forma
----------- ------------- ------------- -------
Revenues
Hotels.................... $ 717 $ 72 (A) $ 112 (B) $ 928
27 (C)
Other..................... 15 -- (1)(B) 14
------ ------ ------- ------
732 72 138 942
------ ------ ------- ------
Operating costs and expenses
Hotels.................... 461 29 (A) 52 (B) 563
14 (C)
7 (H)
Other..................... 38 -- -- 38
------ ------ ------- ------
499 29 73 601
------ ------ ------- ------
Operating profit........... 233 43 65 341
Minority interest.......... (6) (13)(A) (4)(B) (23)
Corporate expenses......... (43) -- -- (43)
Interest expense........... (237) (22)(A) (22)(B) (259)
7 (D)
(8)(E)
23 (F)
Dividends on convertible
preferred securities of
a subsidiary trust........ (3) -- (34)(G) (37)
Interest income............ 48 1 (A) (12)(B) 26
(11)(F)
------ ------ ------- ------
Income (loss) before
income taxes............. (8) 9 4 5
Benefit (provision) for
income taxes.............. (5) (4)(I) (2)(I) (11)
------ ------ ------- ------
Net income (loss).......... $ (13) $ 5 $ 2 $ (6)
====== ====== ======= ======
Loss per common
share.................... $ (.07) $ (.03)
====== ======
Weighted average shares
outstanding............... 188.7 188.7
====== ======
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Data.
-24-
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL DATA
A. Represents the adjustment to record the revenue, operating expenses,
interest expense, minority interest and interest income for the acquisition
of a controlling interest in MHP, as if the acquisition occurred at the
beginning of the applicable period.
B. Represents the adjustment to record revenue, operating expenses, secured
debt interest expense and to reduce interest income for the 1996
acquisition of six full-service properties, the purchase of controlling
interests in an additional 17 full-service properties and the purchase of
the mortgage note secured by the New York Marriott Financial Center Hotel,
as if they were added on December 30, 1995.
C. Represents the adjustment to record the revenue, operating costs and
secured debt interest expense for the 1997 acquisition of one full-service
property and the purchase of a controlling interest in one full-service
property.
D. Represents the adjustment to reduce interest expense for the fourth quarter
1996 repayment of a mortgage note secured by the Philadelphia Marriott
Hotel.
E. Represents the adjustment to record interest expense for the $90 million
mortgage loan (interest rate of 8.49%) obtained for the Philadelphia
Marriott Hotel in the first quarter of 1997.
F. Represents the adjustment to reduce interest expense and interest income
for the first quarter 1997 purchase of the $230 million of outstanding
bonds secured by a first mortgage on the San Francisco Marriott Hotel.
G. Represents the adjustment to record the quarterly dividend payments for the
December 1996 Convertible Preferred Securities Offering, as if the
offering had taken place on December 30, 1995.
H. Represents the net adjustment to eliminate the depreciation expense of $3
million and record the incremental lease expense of $10 million for the
1996 sale/leaseback of the 16 Courtyard properties and 18 Residence Inns.
I. Represents the income tax impact of pro forma adjustments at statutory
rates.
-25-