EXHIBIT 99.1
1998 Third Quarter Report
LIMITED PARTNER QUARTERLY UPDATE
HOST MARRIOTT CORPORATION'S CONVERSION TO A REAL ESTATE INVESTMENT TRUST
As publicly announced in April 1998, Host Marriott Corporation ("Host
Marriott"), the parent company of the General Partner of the Partnership, has
adopted a plan to restructure its business operations so that it will qualify as
a real estate investment trust ("REIT") for federal income tax purposes. As part
of the REIT conversion, Host Marriott proposes to merge into HMC Merger
Corporation (to be renamed "Host Marriott Corporation"), a Maryland corporation
("Host REIT"), and thereafter continue and expand its full-service hotel
ownership business. Host REIT will operate through Host Marriott, L.P., a
Delaware limited partnership (the "Operating Partnership"), of which Host REIT
will be the sole general partner. This is commonly called an "UPREIT" structure
and it is used to facilitate tax-deferred acquisitions of properties.
In previous correspondence, you were notified that you would be asked to
vote on a proposed transaction involving the Merger of this Partnership with the
Operating Partnership. The Prospectus/Consent Solicitation Statement and the
Partnership's Supplement which contain detailed information relating to this
proposal were mailed to all Limited Partners of record as of September 18, 1998.
This is the date set by the General Partner as the record date for determining
Limited Partners entitled to vote on the Merger and the related amendments to
the partnership agreement. The Prospectus/Consent Solicitation Statement and the
Partnership's Supplement should be reviewed as you make your decision to vote.
You also received, among other things, a list of Questions and Answers and
telephone numbers for assistance. We strongly encourage Limited Partners to
consult with their own financial and tax advisors when making their decision on
how to vote and which option to choose.
It is important that your Partnership Units be voted, regardless of the
number of Partnership Units you hold. The solicitation period ends at 5:00 p.m.,
Eastern time, on December 12, 1998, unless extended. If you have not yet
received the Prospectus/Consent Solicitation Statement or if you or your
advisors have any questions regarding the Merger, please contact the Information
Agent at 1-800-733-8481 extension 445.
PARTNERSHIP PERFORMANCE
As of the third quarter of 1998, the Partnership's cash flow was sufficient
to meet the required quarterly debt service payments due in March, June and
September. Based on current forecasts, cash flow from operations of the
Partnership will be sufficient to pay the next quarterly debt service payment
due in December. The restructured loan requires all excess cash flow to be
applied toward additional principal amortization; therefore, no cash
distributions will be made to the partners in 1998 or during the term of the
restructured debt.
HOTEL OPERATIONS
Third quarter 1998 operations of the Marriott O'Hare Suites Hotel resulted
in a $174,000 or 11% increase in total revenues over third quarter 1997
primarily due to continued improvement in room sales and profit. Third quarter
REVPAR, or revenue per available room, increased 7% to $136 due to an 8%
increase in the average room rate to $158. Average occupancy remained stable at
86%. Average transient and group rates increased 7% and 14%, respectively, over
third quarter last year. The increase in average room rate of approximately $11
for the third quarter of 1998 was primarily due to the Hotel limiting the sale
of discounted rooms, increasing its corporate room rates and creating a
breakfast-included rate which raised the non-corporate premium rate. Due to the
increase in REVPAR, rooms profit for the quarter increased 9% or $187,000 over
last year.
On a year-to-date basis, total revenues increased $580,000, or 13%, due to
improvements in REVPAR and rooms profit. REVPAR increased 9% over the comparable
period in 1997 from $122 to $133. The increase in REVPAR was the result of a 10%
increase in average room rate from $144 to $159, slightly offset by a one
percentage point decrease in average occupancy to 84%. As a result, year-to-date
rooms profit increased $670,000, or 11%, compared to the same period in 1997.
The outlook for the remainder of the year is positive with Hotel revenues
projected to exceed 1997 levels. The Hotel plans to institute seasonal pricing
in the upcoming periods in order to maximize occupancy. The Hotel has completed
all major capital expenditure projects for 1998, including guest bathroom and
lobby renovations and the replacement of the majority of its guest room chairs
with new, more comfortable ergonomic chairs. The Hotel continues to strive for
excellence in all areas and was recently recognized by Marriott International,
Inc. for its continued excellence in guest service.
We invite you to enjoy the superior facilities and personalized atmosphere
offered by the AAA Four Diamond Award winning Chicago Marriott O'Hare Suites
Hotel whenever you travel to the Chicago area. If you have any further questions
regarding your investment, please contact Host Marriott Partnership Investor
Relations at (301) 380-2070.
ESTIMATED 1998 TAX INFORMATION
Based on current projections, taxable income estimated at $2,200 will be
allocated to each limited partner unit for the year ending December 31, 1998.
The 1998 tax information, used for preparing your Federal and state income
tax returns, will be mailed no later than March 15, 1999. To ensure
confidentiality, we regret that we are unable to furnish your tax information
over the telephone. Unless otherwise instructed, we will mail your tax
information to your address as it appears on this report. Therefore, to avoid
delays in delivery of this important information, please notify the Partnership
in writing of any address changes by January 31, 1999.