EXHIBIT 99.3
1998 Second Quarter Report
Limited Partner Quarterly Update
Presented for your review is the 1998 Second Quarter Report for the Potomac
Hotel Limited Partnership. A discussion of the Partnership's performance and
hotel operations is included in the attached Form 10-Q, Item 2, Management's
Discussion and Analysis of Financial Condition and Results of Operations. The
Partnership's Supplementary Unaudited Information which contains amounts paid to
the General Partner and Marriott International, Inc. and their respective
affiliates is reported on the final page of this report. You are encouraged to
review this report in its entirety. If you have any further questions
regarding your investment, please contact Host Marriott Partnership Investor
Relations at (301) 380-2070.
Host Marriott Corporation's Conversion to a Real Estate Investment Trust
As previously reported, Host Marriott Corporation ("Host Marriott"), the
General Partner of the Partnership, announced on April 17, 1998, that its Board
of Directors authorized Host Marriott to reorganize its business operations to
qualify as a real estate investment trust ("REIT") to become effective as of
January 1, 1999. As part of the REIT conversion, Host Marriott formed a new
operating Partnership (the "Operating Partnership") and limited partners in
certain Host Marriott full-service hotel partnerships and joint ventures,
including the Potomac Hotel Limited Partnership, are expected to be given an
opportunity to receive, on a tax-deferred basis, Operating Partnership
units in the Operating Partnership in exchange for their current limited
partnership interests. The Operating Partnership units would be redeemable by
the limited partner for freely traded Host Marriott shares (or the cash
equivalent thereof) at any time after one year from the closing of the merger.
In connection with the REIT conversion, the Operating Partnership filed a
Registration Statement on Form S-4 (the "Form S-4") with the Securities and
Exchange Commission (the "SEC") on June 2, 1998. Limited partners will be able
to vote on this Partnership's participation in the merger later this year
through a consent solicitation.
In order to assist you with your financial planning, we are providing you
with the preliminary valuation information on your Partnership units as
disclosed in the Form S-4. The estimated exchange value is $5,040 per
Partnership unit (the "Estimated Exchange Value"). The Estimated Exchange Value
is subject to adjustment to reflect various closing and other adjustments and
the final valuation information will be set forth in the final Form S-4 you will
receive later this year through a consent solicitation.
The Estimated Exchange Value is being provided to you at this time for
information purposes only. We have not attempted to provide you with all of the
detail relating to the methodologies, variables, assumptions and estimates used
in determining the Estimated Exchange Value. The final valuation likely will
differ from the Estimated Exchange Value set forth above and such difference may
be material. The consent solicitation that will be mailed to you to solicit your
approval of a merger of the Partnership will contain the final valuation for a
Partnership unit as well as a discussion of the methodologies, variables,
assumptions and estimates used.
The solicitation period is expected to commence in late September 1998, and
the merger, if approved, would close by the end of the year (although there is
no assurance that this will be the case). Please notify the General Partner in
writing of any address changes in order to facilitate the prompt delivery of the
consent solicitation documents to you.
Secondary Market Activity
There has been an increase in the number of third party solicitations for
this Partnership's limited partner units. Although we are not in a position to
advise you as to whether you should accept such offers, limited partners should
be aware that the General Partner will restrict the assignment of partnership
interests in order to ensure that the Partnership will be able to qualify for at
least one of the "safe harbors" which govern the circumstances under which a
limited partnership will cease to be treated as a partnership and will instead
be treated as a corporation for tax purposes. If Partnership sales activity for
1998 brings the Partnership to the safe harbor limit for 1998, the General
Partner will be unable to allow additional unit sales in 1998. You should check
with the General Partner before signing any sale document to determine if your
transfer can be accepted.
In addition to reviewing the information provided in this report, we
encourage you to consult with your financial and tax advisors when deciding if
you should sell your Partnership units. Due to the substantial amount of tax
losses allocated to the limited partners in the earlier years of the
Partnership, there may be significant negative tax effects resulting from the
sale of these units that may impact your decision to sell. Once you have begun
the sale process we will do whatever is in our power to facilitate the transfer
of your units. Please note, the General Partner does not charge a fee in
connection with the transfer of Partnership units. If you wish to effect a
transfer, please contact our transfer agent, Trust Company of America/Gemisys at
1-800-797-6812 for necessary documents.
SUPPLEMENTARY INFORMATION
Potomac Hotel Limited Partnership
Amounts Paid to the General Partner and Marriott International, Inc. and
Affiliates For the Twenty-Four Weeks Ended June 19, 1998 (in thousands)
General Partner and Affiliates
Interest and principal paid on Bank Guaranty loan..................$ 2,212
Interest and principal paid on FF&E loans.......................... 1,696
Interest and principal paid on Raleigh acquisition loan............ 1,465
Interest and principal paid on Tampa acquisition loan.............. 1,425
Administrative expenses reimbursed................................. 132
$ 6,930
Marriott International, Inc. and Affiliates:
Chain Services and Marriott Rewards Program costs reimbursed.......$ 3,716
Base management fees paid.......................................... 1,733
Deferred base management fees paid................................. 1,545
Incentive management fees paid..................................... 715
Interest and principal paid on FF&E loan........................... 41
$ 7,750