8-K

================================================================================



                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                            ------------------------

                                    FORM 8-K

              CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

       Date of report (Date of earliest event reported): February 8, 2002





                            Host Marriott Corporation
               (Exact Name of Registrant as Specified in Charter)





         Maryland                      001-14625                53-0085950
(State or Other Jurisdiction    (Commission File Number)      (IRS Employer
      of Incorporation)                                      Identification No.)


          10400 Fernwood Road
           Bethesda, Maryland                                      20817
(Address of Principal Executive Offices)                         (Zip Code)



       Registrant's telephone number, including area code: (301) 380-9000


================================================================================






Item 5.  Other Events.

         Host Marriott Corporation is filing as an exhibit hereto (which is
incorporated by reference herein) a description of the material U.S. federal
income tax considerations relating to the taxation of Host Marriott as a real
estate investment trust and the ownership and disposition of Host Marriott
equity securities. This description replaces and supersedes prior descriptions
of the federal income tax treatment of Host Marriott and its shareholders to the
extent that they are inconsistent with the description contained in this Current
Report on Form 8-K.

Item 7.  Financial Statements, Pro Forma Financial Information and Exhibits.


          (a)  Financial statements of business acquired.

               Not applicable.

          (b)  Pro forma financial information.

               Not applicable.

          (c)  Exhibits.


Exhibit No.          Description
- -----------          -----------
99.1                 Material Federal Income Tax Considerations




         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
                                           -------------------------------------
Date:  February 8, 2002                    Name:   Donald D. Olinger
                                           Title:  Senior Vice President and
                                                   Corporate Controller




EXHIBIT INDEX

Exhibit No.          Description
- -----------          -----------
99.1                 Material Federal Income Tax Considerations

EX-99.1

EXHIBIT 99.1
- ------------


                           FORWARD-LOOKING STATEMENTS

         This Form 8-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act. Such statements include statements regarding Host Marriott's expectations,
hopes or intentions regarding the future, including Host Marriott's strategy,
competition, financing, indebtedness, revenues, operators, regulations and
compliance with applicable laws. Host Marriott identifies forward-looking
statements in this Form 8-K by using words or phrases such as "anticipate",
"believe", "estimate", "expect", "intend", "may be", "objective", "plan",
"predict", "project", and "will be" and similar words or phrases, or the
negative thereof.

         Forward-looking statements are subject to numerous assumptions, risks
and uncertainties. Factors which may cause Host Marriott's actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by Host Marriott in those
statements include, among others, the following:

         o    national and local economic and business conditions, including the
              effect of the terrorist attacks of September 11, 2001 on travel,
              that will affect, among other things, demand for products and
              services at Host Marriott's hotels, the level of room rates and
              occupancy that can be achieved by such properties and the
              availability and terms of financing and our liquidity;

         o    Host Marriott's ability to restructure or refinance its existing
              bank credit facility in order to maintain operating flexibility
              and liquidity;

         o    Host Marriott's ability to maintain the properties in a
              first-class manner, including meeting capital expenditure
              requirements;

         o    Host Marriott's ability to compete effectively in areas such as
              access, location, quality of accommodations and room rate
              structures;

         o    Host Marriott's degree of leverage which may affect its ability to
              obtain financing in the future;

         o    Host Marriott's degree of compliance with current debt covenants;

         o    Host Marriott's ability to acquire or develop additional
              properties and the risk that potential acquisitions or
              developments may not perform in accordance with expectations;

         o    changes in travel patterns, taxes and government regulations which
              influence or determine wages, prices, construction procedures and
              costs;

         o    government approvals, actions and initiatives, including the need
              for compliance with environmental and safety requirements, and
              changes in laws and regulations or the interpretation thereof;


                                       1



         o    the effects of tax legislative action, including specified
              provisions of the Ticket to Work and Work Incentives Improvement
              Act of 1999 relating to REITs (which provisions are referred to as
              the "REIT Modernization Act");

         o    Host Marriott's ability to satisfy complex rules in order for it
              to qualify as a REIT for federal income tax purposes, the
              Operating Partnership's ability to satisfy the rules in order for
              it to qualify as a partnership for federal income tax purposes,
              and the ability of certain of Host Marriott's subsidiaries to
              qualify as taxable REIT subsidiaries for federal income tax
              purposes, and Host Marriott's ability and the ability of its
              subsidiaries to operate effectively within the limitations imposed
              by these rules; and

         o    other factors discussed under the heading "Risk Factors" in Host
              Marriott's other filings with the Securities and Exchange
              Commission.

All forward-looking statements in this Form 8-K are made as of the date hereof,
and Host Marriott cautions you not to rely on these statements without also
considering the risks and uncertainties associated with these statements and its
business that are addressed in this Form 8-K. Moreover, although Host Marriott
believes the expectations reflected in its forward-looking statements are based
upon reasonable assumptions, Host Marriott can give no assurance that it will
attain these expectations or that any deviations will not be material. Except as
otherwise required by the federal securities laws, Host Marriott disclaims any
obligations or undertaking to disseminate to you any updates or revisions to any
forward-looking statement contained in this Form 8-K.

                                       2






                   MATERIAL FEDERAL INCOME TAX CONSIDERATIONS

Introduction

         The following discussion describes the federal income tax
considerations reasonably anticipated to be material to prospective holders in
connection with the purchase, ownership and disposition of common stock of Host
Marriott Corporation. An applicable prospectus supplement will contain
information about additional federal income tax considerations, if any, relating
to particular offerings of common stock, preferred stock, depositary shares,
warrants, subscription rights, preferred stock purchase rights or other
securities of Host Marriott. The following discussion is intended to address
only those federal income tax considerations that are generally relevant to all
shareholders, is not exhaustive of all possible tax considerations and is not
tax advice. For example, it does not give a detailed description of any state,
local or foreign tax considerations. In addition, the discussion does not
purport to deal with all aspects of taxation that may be relevant to a
shareholder subject to special treatment under the federal income tax laws,
including, without limitation, insurance companies, financial institutions or
broker-dealers, tax-exempt organizations or foreign corporations and persons who
are not citizens or residents of the United States.

         The information in this section is based on the Internal Revenue Code
and regulations in effect on the date hereof, current administrative
interpretations and positions of the Internal Revenue Service and existing court
decisions. No assurance can be given that future legislation, regulations,
administrative interpretations and court decisions will not significantly
change, perhaps retroactively, the law on which the information in this section
is based. Even if there is no change in applicable law, no assurance can be
provided that the statements set forth in this discussion will not be challenged
by the IRS or will be sustained by a court if so challenged.

         Because the specific tax attributes of a prospective purchaser could
have a material impact on the tax consequences associated with the purchase,
ownership and disposition of the securities of Host Marriott, it is essential
that each prospective purchaser consult with his or her own tax advisors with
regard to the application of the federal income tax laws to his or her personal
tax situation, as well as any tax consequences arising under the laws of any
state, local or foreign taxing jurisdiction.

Federal Income Taxation of Host Marriott

         General

         Host Marriott is a self-managed and self-administered real estate
investment trust, or REIT, owning full service hotel properties. Host Marriott
was formed as a Maryland corporation in 1998, under the name HMC Merger
Corporation, as a wholly owned subsidiary of Host Marriott Corporation (a
Delaware corporation which is referred to in this discussion as "Delaware Host
Marriott") in connection with its efforts to reorganize its business operations
to qualify as a REIT for federal income tax purposes. As part of this
reorganization, which is referred to in this discussion as the "REIT
conversion," on December 29, 1998, HMC Merger Corporation merged with Delaware
Host Marriott and changed its name to Host Marriott Corporation. As a result,
Host Marriott has succeeded to the hotel ownership business formerly conducted
by Delaware Host Marriott. Host Marriott conducts its business as an umbrella

                                       3





partnership REIT, through Host Marriott, L.P. (which is referred to in this
discussion as the "Operating Partnership"), of which Host Marriott is the sole
general partner.

         Host Marriott made an election to be taxed as a REIT under the Internal
Revenue Code, effective for the taxable year beginning January 1, 1999. Host
Marriott believes that it is organized and has operated in a manner that
permitted it to qualify as a REIT since 1999, and Host Marriott currently
intends to continue to operate as a REIT for future years. No assurance,
however, can be given that it in fact has qualified or will remain qualified as
a REIT. See "--Failure of Host Marriott to Qualify as a REIT" below.

         The sections of the Internal Revenue Code and the corresponding
regulations that govern the federal income tax treatment of a REIT and its
shareholders are highly technical and complex. The following discussion is
qualified in its entirety by the applicable Internal Revenue Code provisions,
rules and regulations promulgated thereunder, and administrative and judicial
interpretations thereof.

         Host Marriott's qualification and taxation as a REIT depends upon its
ongoing ability to meet the various qualification tests imposed under the
Internal Revenue Code, which are discussed below. No assurance can be given that
the actual results of Host Marriott's operations for any particular taxable year
will satisfy such requirements.

         If Host Marriott qualifies for taxation as a REIT, it generally will
not be subject to federal corporate income taxes on its net income that it
currently distributes to its shareholders. This treatment substantially
eliminates the "double taxation" at the corporate and shareholder levels that
generally results from an investment in a regular corporation. However, Host
Marriott will be subject to federal income tax as follows:

         1. Host Marriott will be taxed at regular corporate rates on any
         undistributed "REIT taxable income" including undistributed net capital
         gains; provided, however, that properly designated undistributed
         capital gains will effectively avoid taxation at the shareholder level.
         A REIT's "REIT taxable income" is the otherwise taxable income of the
         REIT subject to certain adjustments, including a deduction for
         dividends paid.

         2. Under certain circumstances, Host Marriott (or its shareholders) may
         be subject to the "alternative minimum tax" due to its items of tax
         preference and alternative minimum tax adjustments.

         3. If Host Marriott has net income from the sale or other disposition
         of "foreclosure property" which is held primarily for sale to customers
         in the ordinary course of business or other nonqualifying income from
         foreclosure property, it will be subject to tax at the highest
         corporate rate on such income.

         4. Host Marriott's net income from "prohibited transactions" will be
         subject to a 100% tax. In general, "prohibited transactions" are
         certain sales or other dispositions of property held primarily for sale
         to customers in the ordinary course of business other than foreclosure
         property.

         5. If Host Marriott fails to satisfy the 75% gross income test or the
         95% gross income test discussed below, but nonetheless maintains its
         qualification as a REIT because certain other requirements are met, it
         will be subject to a tax equal to (a) the gross income attributable to
         the greater of (i) the amount by which 75% of its gross income exceeds
         the

                                       4





         amount qualifying under the 75% gross income test described below under
         "--Income Tests Applicable to REITs" and (ii) the amount by which 90%
         of its gross income exceeds the amount qualifying under the 95% gross
         income test described below multiplied by (b) a fraction intended to
         reflect its profitability.

         6. If Host Marriott fails to distribute during each calendar year at
         least the sum of (a) 85% of its REIT ordinary income for such year, (b)
         95% of its REIT capital gain net income for such year, and (c) any
         undistributed taxable income from prior periods, Host Marriott will be
         subject to a 4% excise tax on the excess of such required distribution
         over the sum of amounts actually distributed and amounts retained but
         with respect to which federal income tax was paid.

         7. If arrangements between Host Marriott and its taxable REIT
         subsidiaries are not comparable to similar arrangements among unrelated
         parties, Host Marriott will be subject to a 100% penalty tax on amounts
         received from, or on certain amounts deducted by, a taxable REIT
         subsidiary.

         8. Where Host Marriott has acquired or acquires any asset from a
         taxable "C" corporation, whether through the REIT conversion or the
         transfer of property by the "C" corporation to Host Marriott, and Host
         Marriott has elected or elects to avoid the recognition of the asset's
         "built-in gain" and the imposition of tax at the time of the
         acquisition, if Host Marriott recognizes gain on the disposition of
         such asset during the ten-year period beginning on the date on which
         such asset was acquired by Host Marriott, then, to the extent of the
         asset's "built-in gain," such gain will be subject to tax at the
         highest regular corporate rate applicable. Built-in gain is the excess
         of the fair market value of an asset over Host Marriott's adjusted
         basis in the asset, determined when Host Marriott acquired the asset.

         Host Marriott owns an indirect interest in appreciated assets that its
predecessors held before the REIT conversion. Such appreciated assets have a
"carryover" basis and thus have built-in gain with respect to Host Marriott. If
such appreciated property is sold within the ten-year period following the REIT
conversion, or prior to January 1, 2009, Host Marriott generally will be subject
to regular corporate tax on that gain to the extent of the built-in gain in that
property at the time of the REIT conversion. The total amount of gain on which
Host Marriott can be taxed is limited to the excess of the aggregate fair market
value of its assets on January 1, 1999 over the adjusted tax bases of those
assets at that time. This tax could be very material. As a result, the Operating
Partnership and Host Marriott might decide to seek to avoid a taxable
disposition prior to January 1, 2009 of any significant asset owned by Host
Marriott's predecessors at the time of the REIT conversion. This could be true
with respect to a particular disposition even though the disposition might
otherwise be in the best interests of Host Marriott and its shareholders. On the
other hand, neither Host Marriott nor the Operating Partnership is obligated to
avoid such dispositions.

         At the time of the REIT conversion, Host Marriott expected that it or
one of the two taxable corporations in which the Operating Partnership owned 95%
of the economic interest but no voting securities, which are referred to herein
as the "non-controlled subsidiaries" for periods prior to January 1, 2001,
likely would recognize substantial deferred liabilities prior to January 1,
2009. Deferred liabilities include, but are not limited to, tax liabilities
attributable to built-in gain assets and deferred tax liabilities attributable
to taxable income for which neither Host Marriott nor the Operating Partnership
will receive corresponding cash. In addition, the



                                       5






IRS and/or the states in which Host Marriott is subject to tax could assert
substantial additional liabilities for taxes against Host Marriott's
predecessors for taxable years prior to the time Host Marriott qualified as a
REIT. Furthermore, notwithstanding Host Marriott's status as a REIT, Host
Marriott may also have to pay (i) certain state income taxes, because not all
states treat REITs the same as they are treated for federal income tax purposes,
and (ii) certain foreign taxes to the extent that it owns assets or conducts
operations in foreign jurisdictions.

         Under the terms of the REIT conversion and the partnership agreement of
the Operating Partnership, the Operating Partnership is responsible for paying,
or reimbursing Host Marriott for the payment of, certain tax liabilities, as
described in the next paragraph, as well as contingent liabilities and
liabilities attributable to litigation that Host Marriott may incur, whether
such liabilities are incurred by reason of activities prior to the REIT
conversion or activities subsequent thereto.

         Accordingly, the Operating Partnership will pay, or reimburse Host
Marriott for the payment of, all taxes (and any interest and penalties
associated therewith) incurred by Host Marriott, except for taxes imposed on
Host Marriott by reason of its failure to qualify as a REIT or to distribute to
its shareholders an amount equal to its "REIT taxable income," including net
capital gains. The reimbursed taxes would include any taxes on built-in gains,
as described above.

         Requirements for Qualification

         The Internal Revenue Code defines a REIT as a corporation, trust or
association

         (1)  which is managed by one or more directors or trustees;

         (2)  the beneficial ownership of which is evidenced by transferable
         shares or by transferable certificates of beneficial interest;

         (3)  which would be taxable as a domestic corporation, but for
         Sections 856 through 859 of the Internal Revenue Code;

         (4)  which is neither a financial institution nor an insurance
         company subject to certain provisions of the Internal Revenue Code;

         (5)  the beneficial ownership of which is held by 100 or more
         persons;

         (6)  during the last half of each taxable year, not more than 50% in
         value of the outstanding stock of which is owned, actually or
         constructively, by five or fewer individuals (as defined in the
         Internal Revenue Code to include certain entities);

         (7)  which makes an election to be taxable as a REIT for the current
         taxable year, or has made this election for a previous taxable year
         which has not been revoked or terminated, and satisfies all relevant
         filing and other administrative requirements established by the
         Internal Revenue Service that must be met to elect and maintain REIT
         status; and

         (8)  which meets certain other tests, described below, regarding the
         nature of its income and assets.



                                       6




         Conditions (1) to (4) must be met during the entire taxable year and
condition (5) must be met during at least 335 days of a taxable year of twelve
months, or during a proportionate part of a taxable year of less than twelve
months. Conditions (5) and (6) did not apply to Host Marriott's 1999 taxable
year. Compliance with condition (5) is determined by disregarding the ownership
of shares of stock of Host Marriott by any person(s) who:

         (a)  acquired such shares of stock as a gift or bequest or pursuant to
         a legal separation or divorce;

         (b)  is the estate of any person making such transfer to the estate; or

         (c) is a company established exclusively for the benefit of, or wholly
         owned by, either the person making such transfer or a person described
         in (a) or (b).

         For purposes of determining stock ownership under condition (6) above,
a supplemental unemployment compensation benefits plan, a private foundation or
a portion of a trust permanently set aside or used exclusively for charitable
purposes generally is considered an individual. However, a trust that is a
qualified trust under Internal Revenue Code Section 401(a) generally is not
considered an individual, and beneficiaries of a qualified trust are treated as
holding shares of a REIT in proportion to their actuarial interests in the trust
for purposes of condition (6) above.

         In connection with condition (6), Host Marriott is required to send
annual letters to its shareholders requesting information regarding the actual
ownership of its shares of stock. If Host Marriott complies with this
requirement, and it does not know, or exercising reasonable diligence would not
have known, whether it failed to meet condition (6), then it will be treated as
having met condition (6). If Host Marriott fails to send such annual letters, it
will be required to pay either a $25,000 penalty or, if the failure is
intentional, a $50,000 penalty. The IRS may require Host Marriott, under those
circumstances, to take further action to ascertain actual ownership of its
shares of stock, and failure to comply with such an additional requirement would
result in an additional $25,000 (or $50,000) penalty. No penalty would be
assessed in the first instance, however, if the failure to send the letters is
due to reasonable cause and not to willful neglect.

         Host Marriott believes that it meets and currently intends to continue
to meet conditions (1) through (4), (7) and (8). In addition, Host Marriott
believes that it has had and currently intends to continue to have outstanding
common stock with sufficient diversity of ownership to allow it to satisfy
conditions (5) and (6). With respect to condition (6), Host Marriott has
complied and currently intends to continue to comply with the requirement that
it send annual letters to its shareholders requesting information regarding the
actual ownership of its shares of stock. In addition, Host Marriott's charter
contains an ownership limit that is intended to assist Host Marriott in
continuing to satisfy the share ownership requirements described in (5) and (6)
above. The ownership limit, together with compliance with the annual shareholder
letter requirement described above, however, may not ensure that Host Marriott
will, in all cases, be able to satisfy the share ownership requirements
described above. If Host Marriott fails to satisfy such share ownership
requirements, Host Marriott will not qualify as a REIT. See "--Failure of Host
Marriott to Qualify as a REIT" below.


                                       7





         A corporation may not elect to become a REIT unless its taxable year is
the calendar year. Although Host Marriott previously had a 52-53 week year
ending on the Friday closest to January 1, it adopted a calendar year taxable
year in connection with the REIT conversion.


         Distribution of "Earnings and Profits" Attributable to "C" Corporation
         Taxable Years

         A REIT will be taxed as though it did not make a REIT election if it
has at the end of any taxable year any undistributed earnings and profits
("E&P") that are attributable to a "C" corporation taxable year, which includes
all undistributed E&P of Host Marriott's predecessors. Accordingly, Host
Marriott had until December 31, 1999 to distribute such E&P. In connection with
the REIT conversion, Host Marriott declared dividends, consisting of cash, stock
of Host Marriott, and stock of a subsidiary, Crestline Capital Corporation, or
"Crestline," intended to eliminate the substantial majority, if not all, of such
E&P. To the extent, however, that any such E&P remained (the "Acquired
Earnings") and Host Marriott failed to distribute such Acquired Earnings prior
to the end of 1999, Host Marriott would be disqualified as a REIT at least for
1999. If Host Marriott should be so disqualified for 1999, subject to the
satisfaction by Host Marriott of certain "deficiency dividend" procedures
described below in "--Annual Distribution Requirements Applicable to REITs" and
assuming that Host Marriott otherwise satisfies the requirements for
qualification as a REIT, Host Marriott should qualify as a REIT for 2000 and
thereafter. Host Marriott believes that the dividends it paid prior to December
31, 1999 were sufficient to distribute all of the Acquired Earnings as of
December 31, 1999. However, there are uncertainties relating to both the
estimate of the Acquired Earnings and the value of noncash consideration that
Host Marriott distributed in connection with the REIT conversion. Accordingly,
there can be no assurance this requirement was met.

         Qualified REIT Subsidiary

         If a REIT owns a corporate subsidiary that is a "qualified REIT
subsidiary," the separate existence of that subsidiary will be disregarded for
federal income tax purposes and all assets, liabilities and items of income,
deduction and credit of the subsidiary will be treated as assets, liabilities
and tax items of the REIT itself. Generally, a qualified REIT subsidiary is a
corporation all of the capital stock of which is owned by one REIT and that is
not a taxable REIT subsidiary. Host Marriott holds several qualified REIT
subsidiaries that hold indirect interests in the partnerships that own hotels.
These entities are not subject to federal corporate income taxation, although
they may be subject to state and local taxation in certain jurisdictions.

         Ownership of Partnership Interests by a REIT

         A REIT which is a partner in a partnership will be deemed to own its
proportionate share of the assets of the partnership and will be deemed to be
entitled to the income of the partnership attributable to such share. In
addition, the character of the assets and gross income of the partnership
retains the same character in the hands of the REIT for purposes of the gross
income tests and the asset tests applicable to REITs, as described below. Thus,
Host Marriott's proportionate share of the assets and items of income of the
Operating Partnership, including the Operating Partnership's share of such items
of any subsidiaries that are partnerships or LLCs that have not elected to be
treated as corporations for federal income tax purposes, are treated as assets
and items of income of Host Marriott for purposes of applying the requirements
described herein. A summary of the rules governing the federal income taxation
of partnerships and their partners is provided below in "--Tax Aspects of Host
Marriott's Ownership of Interests


                                       8





in the Operating Partnership." As the sole general partner of the Operating
Partnership, Host Marriott has direct control over the Operating Partnership and
indirect control over the subsidiaries in which the Operating Partnership or a
subsidiary has a controlling interest. Host Marriott currently intends to
operate these entities in a manner consistent with the requirements for
qualification of Host Marriott as a REIT.

         Income Tests Applicable to REITs

         In order to maintain qualification as a REIT, Host Marriott must
satisfy the following two gross income requirements:

     o   At least 75% of Host Marriott's gross income, excluding gross income
         from "prohibited transactions," for each taxable year must be derived
         directly or indirectly from investments relating to real property or
         mortgages on real property, including "rents from real property," gains
         on the disposition of real estate, dividends paid by another REIT and
         interest on obligations secured by mortgages on real property or on
         interests in real property, or from some types of temporary
         investments.

     o   At least 95% of Host Marriott's gross income, excluding gross income
         from "prohibited transactions," for each taxable year must be derived
         from any combination of income qualifying under the 75% test,
         dividends, interest, some payments under hedging instruments and gain
         from the sale or disposition of stock or securities, including some
         hedging instruments.

         Rents paid pursuant to Host Marriott's leases, together with gain on
the disposition of assets and dividends and interest received from Host
Marriott's "taxable REIT subsidiaries," currently constitute substantially all
of the gross income of Host Marriott. A taxable REIT subsidiary is an entity
taxable for federal and state income tax purposes as a corporation in which a
REIT directly or indirectly holds stock or other equity interests that has made
a joint election with the REIT to be treated as a taxable REIT subsidiary and
that does not engage in certain prohibited activities, including, without
limitation, operating or managing hotels, except through an "eligible
independent contractor." For a more detailed discussion of taxable REIT
subsidiaries, see "--Qualification of an Entity as a Taxable REIT Subsidiary"
below. Some of Host Marriott's subsidiaries have elected, and Host Marriott
currently intends that these subsidiaries will operate in a manner so as to
qualify, to be treated as taxable REIT subsidiaries for federal income tax
purposes.

         Several conditions must be satisfied in order for rents received by
Host Marriott, including the rents received pursuant to the leases, to qualify
as "rents from real property." First, the amount of rent must not be based in
whole or in part on the income or profits of any person. An amount received or
accrued generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.

         Second, rents received from a tenant will not qualify as "rents from
real property" if Host Marriott, or an actual or constructive owner of 10% or
more of Host Marriott, actually or constructively owns 10% or more of the
tenant. This type of tenant is referred to below as a related party tenant. As a
result of REIT tax law changes under the "REIT Modernization Act", for taxable
years beginning after December 31, 2000, Host Marriott is able to lease its
hotel properties to a taxable REIT subsidiary and the rents received from that
subsidiary will not be


                                       9





disqualified from being "rents from real property" by reason of Host Marriott's
direct or indirect ownership interest in the subsidiary.

         Third, if rent attributable to personal property leased in connection
with a lease of real property is greater than 15% of the total rent received
under the lease, then the portion of rent attributable to such personal property
will not qualify as "rents from real property." Under prior law, this 15% test
was based on relative adjusted tax bases. For taxable years beginning after
December 31, 2000, however, the test is based on relative fair market values.

         Fourth, if Host Marriott operates or manages a property or furnishes or
renders certain "impermissible services" to the tenants at the property, and the
income derived from the services exceeds one percent of the total amount
received by Host Marriott with respect to the property, then no amount received
by Host Marriott with respect to the property will qualify as "rents from real
property." Impermissible services are services other than services (1) "usually
or customarily rendered" in connection with the rental of real property and (2)
not otherwise considered "rendered to the occupant." For these purposes, the
income that Host Marriott is considered to receive from the provision of
"impermissible services" will not be less than 150% of the cost of providing the
service. If the amount so received is one percent or less of the total amount
received by Host Marriott with respect to the property, then only the income
from the impermissible services will not qualify as "rents from real property."

         There are two exceptions to this rule. First, impermissible services
can be provided to tenants through an independent contractor from whom Host
Marriott derives no income. To the extent that impermissible services are
provided by an independent contractor, the cost of the services generally must
be borne by the independent contractor. Second, for Host Marriott's taxable
years beginning after December 31, 2000, impermissible services can be provided
to tenants at a property by a taxable REIT subsidiary.

         The Operating Partnership and each subsidiary that owns hotels entered
into leases with subsidiaries of Crestline that commenced on January 1, 1999 and
pursuant to which the hotels generally are leased for an initial term ranging
generally from seven to ten years. Each lease provides for periodic payments of
a specified base rent plus, to the extent that it exceeds the base rent,
additional rent which is calculated based upon the gross sales of the hotels
subject to the lease, plus certain other amounts.

         As described above, beginning January 1, 2001, Host Marriott is
permitted to lease the hotel properties to a taxable REIT subsidiary so long as
certain conditions are satisfied. The leases with Crestline provided that,
following a change of law such as the enactment of the REIT Modernization Act,
Host Marriott had the right, beginning on January 1, 2001, to purchase, or have
a taxable REIT subsidiary of Host Marriott purchase, the leases for a purchase
price equal to the fair market value of Crestline's interests in the leases.
Effective as of January 1, 2001, a taxable REIT subsidiary of Host Marriott
purchased from Crestline the leasehold interests with regard to all but one of
Host Marriott's full-service hotels leased to Crestline for approximately $207
million, including certain costs attributable to such purchase. In June of 2001,
a taxable REIT subsidiary of Host Marriott acquired the remaining full-service
hotel lease from Crestline and the leases for three full-service hotels leased
to another third party lessee.

         As discussed above, in order for the rent paid pursuant to the leases
to constitute "rents from real property," the leases must be respected as true
leases for federal income tax purposes.


                                       10




Accordingly the leases cannot be treated as service contracts, joint ventures or
some other type of arrangement. The determination of whether the leases are true
leases for federal income tax purposes depends upon an analysis of all the
surrounding facts and circumstances. In making such a determination, courts have
considered a variety of factors, including the following:

         o    the intent of the parties;

         o    the form of the agreement;

         o    the degree of control over the property that is retained by the
              property owner (e.g., whether the lessee has substantial control
              over the operation of the property or whether the lessee was
              required simply to use its best efforts to perform its obligations
              under the agreement); and

         o    the extent to which the property owner retains the risk of loss
              with respect to the property (e.g., whether the lessee bears
              the risk of increases in operating expenses or the risk of damage
              to the property) or the potential for economic gain (e.g.,
              appreciation) with respect to the property.

         In addition, Section 7701(e) of the Internal Revenue Code provides that
a contract that purports to be a service contract or a partnership agreement is
treated instead as a lease of property if the contract is properly treated as
such, taking into account all relevant factors. Since the determination of
whether a service contract should be treated as a lease is inherently factual,
the presence or absence of any single factor may not be dispositive in every
case.

         Host Marriott's leases have been structured with the intent to qualify
as true leases for federal income tax purposes. For example, with respect to
each lease:

o    the Operating Partnership or the applicable subsidiary or other lessor
     entity and the lessee intend for their relationship to be that of a lessor
     and lessee, and such relationship is documented by a lease agreement;

o    the lessee has the right to exclusive possession and use and quiet
     enjoyment of the hotels covered by the lease during the term of the lease;

o    the lessee bears the cost of, and will be responsible for, day-to-day
     maintenance and repair of the hotels other than the cost of certain capital
     expenditures, and will dictate through the hotel managers, who work for the
     lessees during the terms of the leases, how the hotels are operated and
     maintained;

o    the lessee bears all of the costs and expenses of operating the hotels,
     including the cost of any inventory used in their operation, during the
     term of the lease, other than the cost of certain furniture, fixtures and
     equipment, and certain capital expenditures;

o    the lessee benefits from any savings and bears the burdens of any increases
     in the costs of operating the hotels during the term of the lease;

o    in the event of damage or destruction to a hotel, the lessee is at economic
     risk because it will bear the economic burden of the loss in income from
     operation of the hotels subject to the


                                       11




     right, in certain circumstances, to terminate the lease if the lessor does
     not restore the hotel to its prior condition;

o    the lessee has indemnified the Operating Partnership or the applicable
     subsidiary against all liabilities imposed on the Operating Partnership or
     the applicable subsidiary during the term of the lease by reason of (A)
     injury to persons or damage to property occurring at the hotels or (B) the
     lessee's use, management, maintenance or repair of the hotels;

o    the lessee is obligated to pay, at a minimum, substantial base rent for the
     period of use of the hotels under the lease;

o    the lessee stands to incur substantial losses or reap substantial gains
     depending on how successfully it, through the hotel managers, who work for
     the lessees during the terms of the leases, operates the hotels;

o    Host Marriott and the Operating Partnership believe that each lessee
     reasonably expected, at the times the leases were entered into and
     subsequently renewed or extended, to derive a meaningful profit, after
     expenses and taking into account the risks associated with the lease, from
     the operation of the hotels during the term of its leases; and

o    upon termination of each lease, the applicable hotel is expected to have a
     remaining useful life equal to at least 20% of its expected useful life on
     the date of the consummation of the REIT conversion, and a fair market
     value equal to at least 20% of its fair market value on the date of the
     consummation of the REIT conversion.

         If, however, the leases were recharacterized as service contracts or
partnership agreements, rather than true leases, or disregarded altogether for
tax purposes, all or part of the payments that the Operating Partnership
receives from the lessees would not be considered rent or would not otherwise
satisfy the various requirements for qualification as "rents from real
property." In that case, Host Marriott very likely would not be able to satisfy
either the 75% or 95% gross income tests and, as a result, would lose its REIT
status.

         In addition, except for permitted leases to a taxable REIT subsidiary
beginning January 1, 2001, the lessees must not be regarded as related party
tenants. A lessee of Host Marriott (including for years ended prior to January
1, 2001, all of the Crestline lessees and, for years beginning on or after
January 1, 2001, the Crestline lessees owning the hotel leasehold interests not
acquired from Crestline by a taxable REIT subsidiary of Host Marriott) will be
regarded as a related party tenant only if Host Marriott and/or one or more
actual or constructive owners of 10% or more of Host Marriott actually or
constructively own 10% or more of such lessee (including, with regard to a
Crestline lessee, through an ownership interest in Crestline). In order to help
preclude Host Marriott's lessees from being regarded as related party tenants,
the following organizational documents contain the following ownership limits:

o    the articles of incorporation of Crestline expressly prohibit any person or
     persons acting as a group, including Host Marriott and/or any 10% or
     greater shareholder of Host Marriott, from owning more than 9.8% of the
     lesser of the number or value of the shares of capital stock of Crestline;

o    Host Marriott's charter expressly prohibits any person or persons acting as
     a group or entity from owning, actually and/or constructively, more than
     9.8% of the lesser of the number or value of the shares of capital stock of
     Host Marriott (subject to a limited exception for a


                                       12





     holder of shares of capital stock of Host Marriott in excess of the
     ownership limit solely by reason of the merger of Host Marriott's
     predecessor corporation into Host Marriott, which exception applied to the
     extent that the holder thereof did not own, directly or by attribution
     under the Internal Revenue Code, more than 9.9% in value of the outstanding
     shares of capital stock of Host Marriott as a result of the merger) or any
     other class or series of shares of stock of Host Marriott; and


o    the Operating Partnership's partnership agreement expressly prohibits any
     person, or persons acting as a group, or entity, other than Host Marriott
     and an affiliate of The Blackstone Group and a series of related funds
     controlled by Blackstone Real Estate Partners (the "Blackstone Entities"),
     from owning more than 4.9% by value of any class of interests in the
     Operating Partnership.

         Each of these prohibitions contains self-executing enforcement
mechanisms. Assuming that these prohibitions are enforced at all times (subject
to any waivers permitted under the operative documents), the lessees of Host
Marriott that are not taxable REIT subsidiaries should not be regarded as
related party tenants. There can be no assurance, however, that these ownership
restrictions will be enforced in accordance with their terms in all
circumstances or otherwise will ensure that the lessees will not be regarded as
related party tenants.

         As indicated above, "rents from real property" must not be based in
whole or in part on the income or profits of any person. Payments made pursuant
to Host Marriott's leases should qualify as "rents from real property" since
they are based on either fixed dollar amounts or on specified percentages of
gross sales fixed at the time the leases were entered into (with the exception
of one lease that provides for rents based upon net profits). The foregoing
assumes that the leases are not renegotiated during their term in a manner that
has the effect of basing either the percentage rent or base rent on income or
profits. The foregoing also assumes that the leases are not in reality used as a
means of basing rent on income or profits. More generally, the rent payable
under the leases will not qualify as "rents from real property" if, considering
the leases and all the surrounding circumstances, the arrangement does not
conform with normal business practice. Host Marriott currently intends that it
will not renegotiate the percentages used to determine the percentage rent
during the terms of the leases in a manner that has the effect of basing rent on
income or profits. In addition, Host Marriott believes that the rental
provisions and other terms of the leases conform with normal business practice
and, other than with regard to one lease that is not treated as producing
qualified "rents from real property," were not intended to be used as a means of
basing rent on income or profits. Furthermore, Host Marriott currently intends
that, with respect to other properties that it acquires in the future, it will
not charge rent for any property that is based in whole or in part on the income
or profits of any person, except by reason of being based on a fixed percentage
of gross revenues, as described above.

         Host Marriott leases certain items of personal property to the lessees
in connection with its leases. Under the Internal Revenue Code, if a lease
provides for the rental of both real and personal property and the portion of
the rent attributable to personal property is 15% or less of the total rent due
under the lease, then all rent paid pursuant to such lease qualifies as "rent
from real property." If, however, a lease provides for the rental of both real
and personal property, and the portion of the rent attributable to personal
property exceeds 15% of the total rent due under the lease, then no portion of
the rent that is attributable to personal property will qualify as "rent from
real property." Under the law in effect prior to January 1, 2001, the amount of
rent attributable to personal property was that amount which bore the same ratio
to total rent for the taxable year as the average of the adjusted tax bases of
the personal property


                                       13





at the beginning and end of the year bore to the average of the aggregate
adjusted tax bases of both the real and personal property at the beginning and
end of such year. Host Marriott believes that, with respect to each of its
leases that includes a lease of items of personal property, either the amount of
rent attributable to personal property with respect to such lease will not
exceed 15% of the total rent due under the lease (determined under the law in
effect for the applicable period), or, with respect to leases where the rent
attributable to personal constitutes non-qualifying income, such amounts, when
taken together with all other nonqualifying income earned by Host Marriott, will
not jeopardize Host Marriott's status as a REIT. For Host Marriott's taxable
years beginning after December 31, 2000, the personal property test is based on
fair market value as opposed to adjusted tax basis.

         Each lease permits the Operating Partnership to take certain measures,
including requiring the lessee to purchase certain furniture, fixtures and
equipment or to lease such property from a third party, including a
non-controlled subsidiary or a taxable REIT subsidiary, if necessary to ensure
that all of the rent attributable to personal property with respect to such
lease will qualify as "rent from real property." In order to protect Host
Marriott's ability to qualify as a REIT, the Operating Partnership sold
substantial personal property associated with a number of hotels acquired in
connection with the REIT conversion to a non-controlled subsidiary. The
non-controlled subsidiary, which elected, effective January 1, 2001, to be a
taxable REIT subsidiary, separately leases all such personal property directly
to the applicable lessee and receives rental payments that Host Marriott
believes represent the fair rental value of such personal property directly from
the lessees. If, however, such arrangements are not respected for federal income
tax purposes, Host Marriott might not qualify as a REIT.

         If any of the hotels were to be operated directly by the Operating
Partnership or a subsidiary as a result of a default by a lessee under the
applicable lease, such hotel would constitute foreclosure property until the
close of the third tax year following the tax year in which it was acquired, or
for up to an additional three years if an extension is granted by the IRS,
provided that:

         (1) the operating entity conducts operations through an independent
         contractor, which might, but would not necessarily in all
         circumstances, include Marriott International and its subsidiaries,
         within 90 days after the date the hotel is acquired as the result of a
         default by a lessee;

         (2) the operating entity does not undertake any construction on the
         foreclosed property other than completion of improvements that were
         more than 10% complete before default became imminent;

         (3) foreclosure was not regarded as foreseeable at the time the
         applicable lessor entered into such lease; and

         (4) Host Marriott elects on its federal income tax return filed for the
         year in which the foreclosure occurred to treat the hotel as
         "foreclosure property."

         For as long as such hotel constitutes foreclosure property, the income
from the hotel would be subject to tax at the maximum corporate rates, but it
would qualify under the 75% and 95% gross income tests. However, if such hotel
does not constitute foreclosure property at any time in the future, income
earned from the disposition or operation of such hotel will not qualify under
the 75% and 95% gross income tests. For Host Marriott's taxable years beginning
after December 31, 2000, if a lessee defaults under a lease, the Operating
Partnership is permitted to


                                       14







lease the hotel to a taxable REIT subsidiary, subject to the limitations
described above, in which case the hotel would not become foreclosure property.

         "Interest" generally will be nonqualifying income for purposes of the
75% or 95% gross income tests if it depends in whole or in part on the income or
profits of any person. However, interest will not fail so to qualify solely by
reason of being based upon a fixed percentage or percentages of receipts or
sales. Host Marriott has received and expects to continue to receive interest
payments from its taxable REIT subsidiaries (and prior to January 1, 2001, its
non-controlled subsidiaries). These amounts of interest are qualifying income
for purposes of the 95% gross income test but not the 75% gross income test.
Host Marriott does not anticipate that the amounts of interest derived from its
taxable REIT subsidiaries will affect its ability to continue to satisfy the 75%
gross income test.

         Host Marriott also receives dividends from its taxable REIT
subsidiaries, and it could realize capital gains with respect to its investments
in its taxable REIT subsidiaries (either due to distributions received from
those subsidiaries or upon a disposition of part or all of its interest in a
taxable REIT subsidiary). The Operating Partnership's share of any dividends
received from one or more of the taxable REIT subsidiaries or capital gains
recognized with respect thereto should qualify for purposes of the 95% gross
income test but not for purposes of the 75% gross income test. The Operating
Partnership does not anticipate that it will receive sufficient dividends from
the taxable REIT subsidiaries and/or capital gains with respect to the taxable
REIT subsidiaries to cause it to fail the 75% gross income test.

         Host Marriott inevitably will have some gross income from various
sources, including the sources described in the preceding paragraphs, that fails
to constitute qualifying income for purposes of one or both of the 75% or 95%
gross income tests. Taking into account its actual and anticipated sources of
non-qualifying income, however, Host Marriott believes that its aggregate gross
income from all sources has satisfied, and Host Marriott currently intends that
its aggregate gross income will continue to satisfy, the 75% and 95% gross
income tests applicable to REITs for each taxable year commencing on or after
January 1, 1999.

         If Host Marriott were to fail to satisfy one or both of the 75% or 95%
gross income tests for any taxable year, it may nevertheless qualify as a REIT
for such year if it were entitled to relief under certain provisions of the
Internal Revenue Code. These relief provisions generally would be available if
Host Marriott's failure to meet such tests was due to reasonable cause and not
due to willful neglect, Host Marriott were to attach a schedule of the sources
of its income to its federal income tax return, and any incorrect information
set forth on the schedule was not due to fraud with intent to evade tax. It is
not possible, however, to state whether in all circumstances Host Marriott would
be entitled to the benefit of these relief provisions. If these relief
provisions were inapplicable to a particular set of circumstances involving Host
Marriott, Host Marriott would not qualify as a REIT. As discussed above under
"--General," even if these relief provisions were to apply, a tax would be
imposed with respect to the excess net income.

         Any gain realized by Host Marriott on the sale of any property held as
inventory or other property held primarily for sale to customers in the ordinary
course of business, including Host Marriott's share of any such gain realized by
the Operating Partnership, will be treated as income from a "prohibited
transaction" that is subject to a 100% penalty tax. Under existing law, whether
property is held as inventory or primarily for sale to customers in the ordinary
course of a trade or business is a question of fact that depends upon all the
facts and circumstances with respect to the particular transaction. The
Operating Partnership currently


                                       15






intends that both it and its subsidiaries will hold hotels for investment with a
view to long-term appreciation, to engage in the business of acquiring and
owning hotels and to make sales of hotels as are consistent with the Operating
Partnership's investment objectives. There can be no assurance, however, that
the IRS might not contend that one or more of these sales is subject to the 100%
penalty tax.

         Asset Tests Applicable to REITs

         At the close of each quarter of its taxable year, Host Marriott must
satisfy the following four tests relating to the nature of its assets:

o    First, at least 75% of the value of Host Marriott's total assets must be
     represented by real estate assets and certain cash items. Host Marriott's
     real estate assets include, for this purpose, its allocable share of real
     estate assets held by the Operating Partnership and the non-corporate
     subsidiaries of the Operating Partnership, as well as stock or debt
     instruments held for less than one year purchased with the proceeds of a
     stock offering or a long-term (at least five years) debt offering of Host
     Marriott, cash, cash items and government securities. Host Marriott's real
     estate assets do not include stock or debt instruments (other than
     mortgages) issued by its taxable REIT subsidiaries or their subsidiaries.

o    Second, no more than 25% of Host Marriott's total assets may be represented
     by securities other than those in the 75% asset class.

o    Third, of the investments included in the 25% asset class, the value of any
     one issuer's securities owned by Host Marriott may not exceed 5% of the
     value of Host Marriott's total assets and Host Marriott may not own more
     than 10% of either the outstanding voting securities or the value of the
     outstanding securities of any one issuer. For 2001 and later years, these
     limits do not apply to securities of a taxable REIT subsidiary. For years
     prior to 2001, the 10% limit applied only with respect to voting securities
     of any issuer and not to the value of the securities of any issuer.

o    Fourth, for taxable years beginning after December 31, 2000, not more than
     20% of the value of Host Marriott's total assets may be represented by
     securities of taxable REIT subsidiaries.

         For years prior to 2001, the Operating Partnership did not own any of
the voting stock of the non-controlled subsidiaries but it did own 100% of the
nonvoting stock of each of them. Neither Host Marriott, the Operating
Partnership, nor any of the non-corporate subsidiaries of the Operating
Partnership has owned or currently intends to own more than 10% of the voting
securities of any entity that is treated as a corporation for federal income tax
purposes, except for, with regard to periods beginning after December 31, 2000,
corporations or other entities that qualify and elect to be treated as taxable
REIT subsidiaries or other REITs. In addition, Host Marriott believes that the
value of the securities of any one issuer owned by Host Marriott, the Operating
Partnership, or any of the non-corporate subsidiaries of the Operating
Partnership, including Host Marriott's pro rata share of the value of the
securities of the non-controlled subsidiaries, has not exceeded 5% of the total
value of Host Marriott's assets for years prior to January 1, 2001, and Host
Marriott currently intends not to exceed that percentage threshold in subsequent
years unless the issuer is a taxable REIT subsidiary. There can be no assurance,
however, that the IRS might not contend that the value of such securities
exceeds one or more of the value limitations or that nonvoting stock of the
non-controlled subsidiaries should be considered "voting stock" for this
purpose.


                                       16







         After initially meeting the asset tests at the close of any quarter,
Host Marriott will not lose its status as a REIT for failure to satisfy the
asset tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. An example of such an acquisition would be an increase in Host
Marriott's interest in the Operating Partnership as a result of the exercise of
a limited partner's unit redemption right or an additional capital contribution
of proceeds from an offering of capital stock by Host Marriott. Host Marriott
has monitored and currently intends to continue to monitor its compliance with
the asset tests and to take such actions within 30 days after the close of any
quarter, to the extent reasonably practicable, as may be required to cure any
noncompliance. If Host Marriott fails to cure noncompliance with the asset tests
within such time period, Host Marriott would cease to qualify as a REIT.

         Qualification of an Entity as a Taxable REIT Subsidiary

         To qualify as a "taxable REIT subsidiary," an entity must be taxable as
a corporation and must satisfy the following additional requirements:

o    a REIT must own an equity interest, including stock, in the entity, whether
     directly or indirectly;

o    the entity must elect, together with the REIT that owns an equity interest
     in it, to be treated as a taxable REIT subsidiary under the Code; and

o    the entity must not directly or indirectly operate or manage a lodging or
     health care facility or, generally, provide to another person, under a
     franchise, license or otherwise, rights to any brand name under which any
     lodging facility or health care facility is operated.

         Although a taxable REIT subsidiary may not operate or manage a lodging
facility, it may lease or own such a facility so long as the facility is a
"qualified lodging facility" and is operated on behalf of the taxable REIT
subsidiary by an "eligible independent contractor." A "qualified lodging
facility" is, generally, a hotel or motel at which no authorized gambling
activities are conducted, and the customary amenities and facilities operated as
part of, or associated with, the hotel or motel. An "eligible independent
contractor" is an independent contractor that, at the time a management
agreement is entered into with a taxable REIT subsidiary to operate a "qualified
lodging facility," is actively engaged in the trade or business of operating
"qualified lodging facilities" for a person or persons unrelated to either the
taxable REIT subsidiary or any REITs with which the taxable REIT subsidiary is
affiliated. A hotel management company that otherwise would qualify as an
"eligible independent contractor" with regard to a taxable REIT subsidiary of
Host Marriott will not so qualify if the hotel management company and/or one or
more actual or constructive owners of 10% or more of the hotel management
company actually or constructively own more than 35% of Host Marriott, or one or
more actual or constructive owners of more than 35% of the hotel management
company own 35% or more of Host Marriott (determined taking into account only
the stock held by persons owning, directly or indirectly, more than 5% of the
outstanding common stock of Host Marriott and, if the stock of the eligible
independent contractor is publicly-traded, 5% of the publicly-traded stock of
the eligible independent contractor). Host Marriott believes, and currently
intends to take all steps reasonably practicable to ensure, that none of its
taxable REIT subsidiaries or any of their


                                       17






subsidiaries will engage in "operating" or "managing" its hotels and that the
hotel management companies engaged to operate and manage hotels leased to or
owned by its taxable REIT subsidiaries qualify as "eligible independent
contractors" with regard to those taxable REIT subsidiaries.

         Certain restrictions imposed on taxable REIT subsidiaries are intended
to ensure that such entities will be subject to an appropriate level of federal
income taxation. First, a taxable REIT subsidiary may not deduct interest
payments made in any year to an affiliated REIT to the extent that such payments
exceed, generally, 50% of the taxable REIT subsidiary's adjusted taxable income
for that year (although the taxable REIT subsidiary may carry forward to, and
deduct in, a succeeding year the disallowed interest amount if the 50% test is
satisfied). In addition, if a taxable REIT subsidiary pays interest, rent or
another amount to a REIT that exceeds the amount that would be paid to an
unrelated party in an arm's length transaction, the REIT generally will be
subject to an excise tax equal to 100% of such excess. Host Marriott's taxable
REIT subsidiaries will make substantial interest and other payments to Host
Marriott, including payments of rent under the hotel leases. There can be no
assurance that the limitation on interest deductions applicable to taxable REIT
subsidiaries will not apply to the interest payments made to Host Marriott by
its taxable REIT subsidiaries, resulting in an increase in the corporate tax
liability of each such subsidiary. Moreover, there can be no assurance that the
terms establishing the payments made by the taxable REIT subsidiary to Host
Marriott will not result in the imposition of the 100% excise tax to a portion
of any such payment.

         Annual Distribution Requirements Applicable to REITs

         To be taxed as a REIT, Host Marriott is required to distribute
dividends, other than capital gain dividends, to its shareholders in an amount
at least equal to

         (i) the sum of (a) 90% of its "REIT taxable income," computed without
         regard to the dividends paid deduction and Host Marriott's net capital
         gain, and (b) 90% of the net income, after tax, if any, from
         foreclosure property, minus

         (ii) the sum of certain items of noncash income.

         For years prior to 2001, the applicable percentage was 95%, rather than
90%.

         Such distributions generally must be paid in the taxable year to which
they relate. Dividends may be paid in the following taxable year in two
circumstances. First, dividends may be declared in the following taxable year if
declared before Host Marriott timely files its tax return for such year and if
paid on or before the first regular dividend payment date after such
declaration. Second, if Host Marriott declares a dividend in October, November
or December of any year with a record date in one of those months and pays the
dividend on or before January 31 of the following year, Host Marriott will be
treated as having paid the dividend on December 31 of the year in which the
dividend was declared. Host Marriott currently intends to make timely
distributions sufficient to satisfy these annual distribution requirements. In
this regard, the Operating Partnership's partnership agreement authorizes Host
Marriott, as general partner, to take such steps as may be necessary to cause
the Operating Partnership to distribute to its partners an amount sufficient to
permit Host Marriott to meet these distribution requirements.


                                       18






         To the extent that Host Marriott does not distribute all of its net
capital gain or distributes at least 90%, but less than 100%, of its "REIT
taxable income" within the periods described in the prior paragraph, it is
subject to income tax thereon at regular capital gain and ordinary corporate tax
rates. Host Marriott, however, may designate some or all of its retained net
capital gain, so that, although the designated amount will not be treated as
distributed for purposes of this tax, a shareholder would include its
proportionate share of such amount in income, as capital gain, and would be
treated as having paid its proportionate share of the tax paid by Host Marriott
with respect to such amount. The shareholder's basis in its capital stock of
Host Marriott would be increased by the amount the shareholder included in
income and decreased by the amount of the tax the shareholder is treated as
having paid. Host Marriott would make an appropriate adjustment to its earnings
and profits. For a more detailed description of the federal income tax
consequences to a shareholder of such a designation, see "--Taxation of Taxable
U.S. Shareholders Generally" below.

         There is a significant possibility that Host Marriott's "REIT taxable
income" will exceed its cash flow, due in part to certain "non-cash" or
"phantom" income expected to be taken into account in computing Host Marriott's
"REIT taxable income." It is possible, because of these differences in timing
between Host Marriott's recognition of taxable income and its receipt of cash
available for distribution, that Host Marriott, from time to time, may not have
sufficient cash or other liquid assets to meet its distribution requirements. In
such event, in order to meet the distribution requirements, Host Marriott may
find it necessary to arrange for short-term, or possibly long-term, borrowings
to fund required distributions and/or to pay dividends in the form of taxable
stock dividends.

         Host Marriott calculates its "REIT taxable income" based upon the
conclusion that the non-corporate subsidiaries of the Operating Partnership or
the Operating Partnership itself, as applicable, is the owner of the hotels for
federal income tax purposes. As a result, Host Marriott expects that the
depreciation deductions with respect to the hotels will reduce its "REIT taxable
income." This conclusion is consistent with the conclusion above that the leases
of Host Marriott's hotels have been and will continue to be treated as true
leases for federal income tax purposes. If, however, the IRS were to challenge
successfully this position, in addition to failing in all likelihood the 75% and
95% gross income tests described above, Host Marriott also might be deemed
retroactively to have failed to meet the REIT distribution requirements and
would have to rely on the payment of a "deficiency dividend" in order to retain
its REIT status.

         Under certain circumstances, Host Marriott may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to shareholders in a later year, which may be included in Host
Marriott's deduction for dividends paid for the earlier year. Thus, Host
Marriott may be able to avoid being taxed on amounts distributed as deficiency
dividends; however, Host Marriott would be required to pay to the IRS interest
based upon the amount of any deduction taken for deficiency dividends.

         Furthermore, if Host Marriott should fail to distribute during each
calendar year at least the sum of 85% of its REIT ordinary income for such year,
95% of its REIT capital gain income for such year, and any undistributed taxable
income from prior periods, it would be subject to an excise tax. The excise tax
would equal 4% of the excess of such required distribution over the sum of
amounts actually distributed and amounts retained with respect to which the REIT
pays federal income tax.


                                       19






         Failure of Host Marriott to Qualify as a REIT

         If Host Marriott were to fail to qualify for taxation as a REIT in any
taxable year, and if the relief provisions were not to apply, Host Marriott
would 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 Host Marriott were to fail to qualify would not be deductible
by Host Marriott nor would they be required to be made. As a result, Host
Marriott's failure to qualify as a REIT would significantly reduce the cash
available for distribution by Host Marriott to its shareholders and could
materially reduce the value of its capital stock. In addition, if Host Marriott
were to fail to qualify as a REIT, all distributions to shareholders would be
taxable as ordinary income, to the extent of Host Marriott's current and
accumulated E&P, although, subject to certain limitations of the Internal
Revenue Code, corporate distributees may be eligible for the dividends received
deduction with respect to these distributions. Unless entitled to relief under
specific statutory provisions, Host Marriott also would be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all circumstances
Host Marriott would be entitled to such statutory relief.

Tax Aspects of Host Marriott's Ownership of Interests in the Operating
Partnership

         General

         Substantially all of Host Marriott's investments are held through the
Operating Partnership, which holds the hotels either directly or through certain
subsidiaries. In general, partnerships are "pass-through" entities that are not
subject to federal income tax. Rather, partners are allocated their
proportionate shares of the items of income, gain, loss, deduction and credit of
a partnership, and are potentially subject to tax thereon, without regard to
whether the partners receive a distribution from the partnership. Host Marriott
includes in its income its proportionate share of the foregoing partnership
items for purposes of the various REIT income tests and in the computation of
its REIT taxable income. Moreover, for purposes of the REIT asset tests, Host
Marriott includes its proportionate share of assets held through the Operating
Partnership and those of its subsidiaries that are either disregarded as
separate entities or treated as partnerships for tax purposes. See "--Federal
Income Taxation of Host Marriott--Ownership of Partnership Interests by a REIT"
above.

         Entity Classification

         If the Operating Partnership or any non-corporate subsidiary were
treated as an association, the entity would be taxable as a corporation and
therefore would be subject to an entity level tax on its income. In such a
situation, the character of Host Marriott's assets and items of gross income
would change and could preclude Host Marriott from qualifying as a REIT (see
"--Federal Income Taxation of Host Marriott--Asset Tests Applicable to REITs"
and "--Income Tests Applicable to REITs" above).

         The entire discussion of the tax treatment of Host Marriott and the
federal income tax consequences of the ownership of common stock of Host
Marriott is based on the assumption that the Operating Partnership and all of
its subsidiaries (other than Host Marriott's taxable REIT subsidiaries and their
subsidiaries) are classified as partnerships or disregarded as separate entities
for federal income tax purposes. Pursuant to regulations under Section 7701 of
the Internal Revenue Code, a partnership will be treated as a partnership for
federal income tax purposes unless it elects to be treated as a corporation or
would be treated as a corporation because it is a "publicly traded partnership."


                                       20






         Neither the Operating Partnership nor any of its non-corporate
subsidiaries that is not a taxable REIT subsidiary has elected or will elect to
be treated as a corporation. Therefore, subject to the disclosure below, the
Operating Partnership and each such subsidiary will be treated as a partnership
for federal income tax purposes (or, if such an entity has only one partner or
member, disregarded entirely for federal income tax purposes).

         Pursuant to Section 7704 of the Internal Revenue Code, a partnership
that does not elect to be treated as a corporation nevertheless will be treated
as a corporation for federal income tax purposes if it is a "publicly traded
partnership" and it does not derive at least 90% of its income from certain
specified sources of "qualifying income" within the meaning of that section. A
"publicly traded partnership" is any partnership (i) the interests in which are
traded on an established securities market or (ii) the interests in which are
readily tradable on a "secondary market or the substantial equivalent thereof."
Units of limited partner interest in the Operating Partnership, or "OP Units,"
will not be traded on an established securities market. There is a significant
risk, however, that the OP Units could be considered readily tradable on the
substantial equivalent of a secondary market. In that event, the Operating
Partnership could be treated as a "publicly traded partnership," but even then
it would only be taxable as a corporation if less than 90% of its gross income
were to constitute "qualifying income." Treasury Regulations under Section 7704
of the Internal Revenue Code set forth certain "safe harbors" under which
interests will not be treated as "readily tradable on a secondary market (or the
substantial equivalent thereof)" within the meaning of Section 7704 (the "Safe
Harbors").

         For purposes of determining whether the "qualifying income" exception
is satisfied, the income requirements generally applicable to REITs and the
definition of "qualifying income" under Section 7704 of the Internal Revenue
Code are similar in most key respects. There is one significant difference,
however, that was particularly relevant to the Operating Partnership prior to
January 1, 2001. For a REIT, rent from a tenant does not qualify as "rents from
real property" if the REIT and/or one or more actual or constructive owners of
10% or more of the REIT actually or constructively own 10% or more of the tenant
(subject to an exception for rents from a tenant that is a taxable REIT
subsidiary). Under Section 7704 of the Internal Revenue Code, rent from a tenant
is not qualifying income if a partnership and/or one or more actual or
constructive owners of 5% or more of the partnership actually or constructively
own 10% or more of the tenant.

         Prior to January 1, 2001, a substantial majority of the Operating
Partnership's income came from rent payments by subsidiaries of Crestline.
Accordingly, because the Blackstone Entities, Host Marriott and any owner of 10%
or more of Host Marriott would own or would be deemed to own 5% or more of the
Operating Partnership, if the Blackstone Entities, Host Marriott and/or any
owner of 10% or more of Host Marriott were to have owned or be deemed to own
collectively 10% or more of Crestline, none of the rent from the Crestline
lessees during those time periods would have been qualifying income for purposes
of determining whether the Operating Partnership should be taxed as a
corporation. In order to avoid this result, the Crestline articles of
incorporation expressly provided that no person (or persons acting as a group),
including the Blackstone Entities, Host Marriott and any owner of 10% or more of
Host Marriott, may own, actually and/or constructively, more than 9.8% by value
of the equity in Crestline and the Crestline articles of incorporation contain
self-executing mechanisms intended to enforce this prohibition. In addition, the
Operating Partnership's partnership agreement prohibits any person, or persons
acting as a group, or entity, other than an affiliate of the Blackstone Entities
and Host Marriott, from owning, actually and/or constructively, more than


                                       21





4.9% of the value of the Operating Partnership, and the Host Marriott charter
prohibits any person, or persons acting as a group, or entity, including the
Blackstone Entities and the Marriott family and their affiliated entities as a
group, from, subject to certain limited exceptions, owning, actually and/or
constructively, more than 9.8% of the lesser of the number or value of the total
outstanding shares of common stock of Host Marriott. If these prohibitions (or
the terms of any waivers permitted under the operative documents) were not
enforced during the period that Crestline owned the lessees of Host Marriott's
hotels, there is a significant likelihood that the Operating Partnership would
have been treated as a corporation for federal income tax purposes if the
Operating Partnership were considered a publicly traded partnership under the
Internal Revenue Code.

         As described above, as a result of the passage of the REIT
Modernization Act, for taxable years beginning after December 31, 2000, the
Operating Partnership is able to lease its hotel properties to a taxable REIT
subsidiary and the rents received from that subsidiary would not be disqualified
from being "rents from real property" under the REIT rules by reason of the
Operating Partnership's ownership interest in the subsidiary. See "--Federal
Income Taxation of Host Marriott--Income Tests Applicable to REITs" above.

         If the Operating Partnership were taxable as a corporation, most, if
not all, of the tax consequences described herein would be inapplicable. In
particular, Host Marriott would not qualify as a REIT because the value of Host
Marriott's ownership interest in the Operating Partnership would exceed 5% of
Host Marriott's assets and Host Marriott would be considered to hold more than
10% of the voting securities (and 10% of the value of the outstanding
securities) of another corporation (see "--Federal Income Taxation of Host
Marriott--Asset Tests Applicable to REITs" above). In this event, the value of
Host Marriott common stock could be adversely affected (see "--Federal Income
Taxation of Host Marriott--Failure of Host Marriott to Qualify as a REIT"
above).

         Except with regard to the exercise of the right to redeem OP Units and
certain "permitted transfers" (generally among related individuals or entities)
under the partnership agreement of the Operating Partnership, no limited partner
may transfer OP Units without the prior written consent of Host Marriott, as
general partner of the Operating Partnership, which consent may be withheld in
the General Partner's sole discretion. The partnership agreement of the
Operating Partnership provides that Host Marriott shall take such actions, if
any, that are reasonably necessary or appropriate to prevent the Operating
Partnership from being classified as a publicly traded partnership and, except
as provided otherwise in the partnership agreement, to permit the Operating
Partnership to insure that at least one of the Safe Harbors in met. Host
Marriott may exercise its authority, as general partner, under the partnership
agreement to impose limitations on the exercise of the right to redeem OP Units
only to the extent that outside tax counsel provides to Host Marriott an opinion
to the effect that, in the absence of such limitation or restriction, there is a
significant risk that the Operating Partnership will be treated as a publicly
traded partnership and, by reason thereof, taxable as a corporation. These
limitations, if imposed, could adversely affect the interests of holders of OP
Units.

         Allocations of Operating Partnership Income, Gain, Loss and Deduction

         The partnership agreement of the Operating Partnership provides that if
the Operating Partnership operates at a net loss, net losses shall be allocated,
first to Host Marriott and the limited partners (other than the holders of
preferred OP Units) in proportion to their respective percentage ownership
interests in the Operating Partnership, second, to those limited partners


                                       22






other than Host Marriott who hold preferred OP Units, third, to Host Marriott,
as holder of the preferred OP Units issued in connection with the issuance by
Host Marriott of its preferred stock, and, fourth, to Host Marriott, as general
partner, provided that net losses that would have the effect of creating a
deficit balance in a limited partner's capital account as specially adjusted for
such purpose will be reallocated to Host Marriott, as general partner of the
Operating Partnership. The partnership agreement also provides that, if the
Operating Partnership operates at a net profit, net income shall be allocated
first to Host Marriott and to the limited partners to the extent, and in the
reverse order in which, net losses were allocated to the partners with respect
to which such partners have not been previously allocated net income. Subject to
the next sentence, any remaining net income shall be allocated in proportion to
the respective percentage ownership interests of Host Marriott and the limited
partners in the common OP Units of the Operating Partnership. Finally, the
partnership agreement provides that if the Operating Partnership has preferred
OP Units outstanding, income will first be allocated to such preferred OP Units
to the extent necessary to reflect and preserve the economic rights associated
with such preferred OP Units.

         Although a partnership agreement will generally determine the
allocation of income and loss among partners, such allocations will be
disregarded for tax purposes if they do not comply with the provisions of
Section 704(b) of the Internal Revenue Code and the applicable regulations.
Generally, Section 704(b) and the applicable regulations require that
partnership allocations respect the economic arrangement of the partners.

         If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The allocations of taxable income and
loss provided for in the Operating Partnership partnership agreement and the
partnership agreements and operating agreements of the non-corporate
subsidiaries are intended to comply with the requirements of Section 704(b) of
the Internal Revenue Code and the regulations promulgated thereunder.

         Tax Allocations with Respect to the Hotels

         Pursuant to Section 704(c) of the Internal Revenue Code, income, gain,
loss and deduction attributable to appreciated or depreciated property, such as
the hotels, that is contributed to a partnership in exchange for an interest in
the partnership must be allocated in a manner such that the contributing partner
is charged with, or benefits from, respectively, the difference between the
adjusted tax basis and the fair market value of such property at the time of
contribution associated with the property at the time of the contribution. This
difference is known as built-in gain. The Operating Partnership agreement
requires that such allocations be made in a manner consistent with Section
704(c) of the Internal Revenue Code. In general, the partners of the Operating
Partnership, including Host Marriott, who contributed depreciated assets having
built-in gain are allocated depreciation deductions for tax purposes that are
lower than such deductions would be if determined on a pro rata basis. Thus, the
carryover basis of the contributed assets in the hands of the Operating
Partnership may cause Host Marriott to be allocated lower depreciation and other
deductions, and therefore to be effectively allocated more income, which might
adversely affect Host Marriott's ability to comply with the REIT distribution
requirements and/or cause a higher proportion of Host Marriott's distributions
to its shareholders to be taxed as dividends. See "--Federal Income Taxation of
Host Marriott--Annual Distribution Requirements Applicable to REITs" above.


                                       23





         In addition, in the event of the disposition of any of the contributed
assets which have built-in gain, all income attributable to the built-in gain
generally will be allocated to the contributing partners, even though the
proceeds of such sale would be allocated proportionately among all the partners
and likely would be retained by the Operating Partnership, rather than
distributed. Thus, if the Operating Partnership were to sell a hotel with
built-in gain that was contributed to the Operating Partnership by Host
Marriott's predecessors or Host Marriott, Host Marriott generally would be
allocated all of the income attributable to the built-in gain, which could
exceed the economic, or "book," income allocated to it as a result of such sale.
Such an allocation might cause Host Marriott to recognize taxable income in
excess of cash proceeds, which might adversely affect Host Marriott's ability to
comply with the REIT distribution requirements. In addition, Host Marriott will
be subject to a corporate level tax on such gain to the extent the gain is
recognized prior to January 1, 2009. See "--Federal Income Taxation of Host
Marriott--Annual Distribution Requirements Applicable to REITs" and "--Federal
Income Taxation of Host Marriott--General" above. It should be noted in this
regard that as the general partner of the Operating Partnership, Host Marriott
will determine whether or not to sell a hotel contributed to the Operating
Partnership by Host Marriott.

         The Operating Partnership and Host Marriott generally use the
traditional method (with a provision for a curative allocation of gain on sale
to the extent prior allocations of depreciation with respect to a specific hotel
were limited by the "ceiling rule" applicable under the traditional method) to
account for built-in gain with respect to the hotels contributed to the
Operating Partnership in connection with the REIT conversion. This method is
generally a more favorable method for accounting for built-in gain from the
perspective of those partners, including Host Marriott, who received OP Units in
exchange for property with a low basis relative to value at the time of the REIT
conversion and is a less favorable method from the perspective of those partners
who contributed cash or "high basis" assets to the Operating Partnership,
including Host Marriott to the extent it contributes cash to the Operating
Partnership.

         Any property purchased by the Operating Partnership subsequent to the
REIT conversion will initially have a tax basis equal to its fair market value,
and Section 704(c) of the Internal Revenue Code will not apply.

Other Tax Consequences for Host Marriott and Its Shareholders

         Host Marriott and its shareholders are subject to state or local
taxation in various state or local jurisdictions, including those in which the
Operating Partnership or Host Marriott's shareholders transact business or
reside. The state and local tax treatment of Host Marriott and its shareholders
may not conform to the federal income tax consequences discussed above.
Consequently, prospective shareholders of Host Marriott should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in Host Marriott. To the extent that Host Marriott owns assets or conducts
operations in foreign jurisdictions, it also may be subject to certain foreign
taxes.

         A portion of the cash to be used by Host Marriott to fund distributions
comes from dividends from the taxable REIT subsidiaries and, in some cases,
interest on notes held by the Operating Partnership. The taxable REIT
subsidiaries, and certain of their subsidiaries, are subject to federal, state
and local income tax at the full applicable corporate rates (and foreign taxes
to the extent that they own assets or have operations in foreign jurisdictions).
To the extent that any of Host Marriott's taxable REIT subsidiaries or any of
their subsidiaries is


                                       24





required to pay federal, state or local taxes, or any foreign taxes, Host
Marriott will receive less dividend income from the relevant entity and will
have less cash available for distribution to shareholders.

         As described above in "--Federal Income Taxation of Host
Marriott--Qualification of an Entity as a Taxable REIT Subsidiary," each of Host
Marriott's taxable REIT subsidiaries is fully taxable as a corporation and is
subject to certain rules intended to restrict its ability to reduce its tax
liability.

Taxation of Taxable U.S. Shareholders Generally

         The term "U.S. shareholder," when used in this discussion, means a
holder of securities who is, for United States federal income tax purposes:

     o   a citizen or resident of the United States,

     o   a corporation, partnership, or other entity treated as a corporation or
         partnership for United States federal income tax purposes, created or
         organized in or under the laws of the United States or of a state
         hereof or in the District of Columbia, unless, in the case of a
         partnership, Treasury Regulations provide otherwise,

     o   an estate the income of which is subject to United States federal
         income taxation regardless of its source or

     o   a trust whose administration is subject to the primary supervision of a
         United States court and which has one or more United States persons who
         have the authority to control all substantial decisions of the trust.

         Notwithstanding the preceding sentence, to the extent provided in
Treasury Regulations, some trusts in existence on August 20, 1996, and treated
as United States persons prior to this date that elect to continue to be treated
as United States persons, shall also be considered U.S. shareholders. Generally,
in the case of a partnership that holds our common stock, any partner that would
be a U.S. shareholder if it held the stock directly is also a U.S. shareholder.

         Distributions Generally

         Distributions (or deemed distributions) made by Host Marriott out of
its current or accumulated E&P, other than capital gain dividends or retained
capital gains as discussed below, constitute dividends taxable to its taxable
U.S. shareholders as ordinary income. As long as Host Marriott qualifies as a
REIT, such distributions are not eligible for the dividends received deduction
that is generally afforded to U.S. shareholders that are corporations. To the
extent that Host Marriott makes distributions not designated as capital gain
dividends in excess of its current and accumulated E&P, such distributions are
treated first as a tax-free return of capital to each U.S. shareholder, reducing
the adjusted basis which such U.S. shareholder has in its common stock for tax
purposes by the amount of such distribution, but not below zero, with
distributions in excess of such U.S. shareholder's adjusted basis taxable as
capital gains, provided that the common stock has been held as a capital asset.
For purposes of determining whether distributions to holders of Host Marriott's
preferred stock or common stock are made out of Host Marriott's current or
accumulated earnings and profits for federal income tax purposes, earnings and
profits are allocated first to Host Marriott's preferred stock on a pro rata


                                       25





basis and then to Host Marriott's common stock. Host Marriott will notify
shareholders after the close of its taxable year as to the portions of
distributions attributable to that year that constitute ordinary income, return
of capital and capital gain.

         Dividends declared by Host Marriott in October, November or December of
any year and payable to a shareholder of record on a specified date in any such
month are treated as both paid by Host Marriott and received by the shareholder
on December 31 of such year, provided that the dividend is actually paid by Host
Marriott on or before January 31 of the following year.

         For purposes of computing liability for alternative minimum tax,
certain of Host Marriott's alternative minimum tax adjustments will be treated
as alternative minimum tax adjustments of its shareholders in the ratio that
Host Marriott's distributions bear to its taxable income (determined without
regard to the deduction for dividends paid). Amounts treated as alternative
minimum tax adjustments of Host Marriott's shareholders are deemed to be derived
by the shareholders proportionately from each such alternative minimum tax
adjustment of Host Marriott and are taken into account by the shareholders in
computing their alternative minimum taxable income for the taxable year to which
the dividends are attributable.

         Capital Gain Distributions; Retained Net Capital Gains

         Distributions that Host Marriott properly designates as capital gain
dividends are taxable to taxable U.S. shareholders as gain from the sale or
exchange of a capital asset held for more than one year (without regard to the
period for which such taxable U.S. shareholder has held his common stock) to the
extent that they do not exceed Host Marriott's actual net capital gain for the
taxable year. A U.S. shareholder's share of a capital gain dividend is an amount
which bears the same ratio to the total amount of dividends paid to such U.S.
shareholder for the year as the aggregate amount designated as a capital gain
dividend bears to the aggregate amount of all dividends paid on all classes of
shares of stock for the year.

         If we designate any portion of a dividend as a capital gain dividend, a
U.S. shareholder will receive an Internal Revenue Service Form 1099 - DIV
indicating the amount that will be taxable to the stockholder as capital gain. A
portion of capital gain dividends received by noncorporate taxpayers may be
subject to tax at a 25% rate to the extent attributable to certain gains
realized on the sale of real property. In addition, noncorporate taxpayers are
generally taxed at a maximum rate of 20% on net long-term capital gain
(generally, the excess of net long-term capital gain over net short-term capital
loss) attributable to gains realized on the sale of property held for greater
than one year.

         With regard to Host Marriott's taxable corporate U.S. shareholders,
distributions made by Host Marriott that are properly designated by it as
capital gain dividends will be taxable as long-term gain, at a maximum rate of
35%, to the extent that they do not exceed Host Marriott's actual net capital
gain for the taxable year and without regard to the period during which such
corporate U.S. shareholder has held its common stock. Such U.S. shareholders
may, however, be required to treat up to 20% of certain capital gain dividends
as ordinary income.

         Host Marriott may designate, by written notice to its shareholders,
that it is treating all or a portion of its retained net capital gain as having
been distributed to its shareholders for tax purposes, even though no actual
distribution of such retained gain has been made. With respect to any such
retained net capital gains, a U.S. shareholder would include its proportionate
share of such gain in income as long-term capital gain and would be treated as
having paid its


                                       26





proportionate share of the tax actually paid by Host Marriott with respect to
the gain. The U.S. shareholder's basis in its common stock would be increased by
its share of such gain and decreased by its share of such tax. With respect to
such long-term capital gain of a U.S. shareholder that is an individual or an
estate or trust, a special 25% will apply generally to the portion of the
long-term capital gains of an individual or an estate or trust attributable to
deductions for depreciation taken with respect to depreciable real property
("unrecaptured Section 1250 gain"). Shareholders are advised to consult with
their own tax advisors with respect to their capital gain tax liability.

         Host Marriott's Losses; Investment Interest Limitation

         U.S. shareholders may not include in their income tax returns any net
operating losses or capital losses of Host Marriott. Instead, such losses would
be carried over by Host Marriott for potential offset against future income,
subject to certain limitations. Distributions made by Host Marriott and gain
arising from the sale or exchange by a U.S. shareholder of common stock will not
be treated as passive activity income, and, as a result, U.S. shareholders
generally will not be able to apply any "passive losses" against such income or
gain. In addition, taxable dividend distributions from Host Marriott generally
will be treated as investment income for purposes of the "investment interest
limitation." This limitation provides that a non-corporate U.S. shareholder may
deduct as an itemized deduction in any taxable year only the amount of interest
incurred in connection with property held for investment that does not exceed
the excess of the shareholder's investment income over his or her investment
expenses for that year. Capital gain dividends and capital gains from the
disposition of shares of stock, including distributions treated as such, will be
treated as investment income only if the non-corporate U.S. shareholder so
elects, in which case such capital gains will be taxed at ordinary income rates.

         Dispositions of Common Stock

         Upon any sale or other disposition of common stock, a U.S. shareholder
will recognize gain or loss for federal income tax purposes in an amount equal
to the difference between (i) the amount of cash and the fair market value of
any property received on such sale or other disposition and (ii) the holder's
adjusted basis in such common stock for tax purposes. Such gain or loss will be
capital gain or loss if the common stock has been held by the U.S. shareholder
as a capital asset. In the case of a U.S. shareholder who is an individual or an
estate or trust, such gain or loss will be long-term capital gain or loss, if
such shares of stock have been held for more than one year, and any such
long-term capital gain will be subject to the maximum capital gain rate of 20%.
U.S. shareholders that acquire or are deemed to acquire the common stock after
December 31, 2000 and who hold the common stock for more than five years and
certain low income taxpayers may be eligible for a reduction in the long-term
capital gains rate. However, a maximum rate of 25% will apply to capital gain
that is treated as "unrecaptured Section 1250 gain" for individuals, trusts and
estates. The IRS has the authority to prescribe, but has not yet prescribed,
regulations on how the capital gain rates will apply to sales of shares of
REITs; accordingly, shareholders are urged to consult with their own tax
advisors with respect to their capital gain liability. In the case of a U.S.
shareholder that is a corporation, gain or loss from the sale of shares of Host
Marriott common stock will be long-term capital gain or loss if such shares of
stock have been held for more than one year, and any such capital gain shall be
subject to the maximum capital gain rate of 35%. In general, any loss recognized
by a U.S. shareholder upon the sale or other disposition of common stock that
has been held for six months or less, after applying certain holding period
rules, will be treated as a long-term capital loss, to the


                                       27





extent of distributions received by such U.S. shareholder from Host Marriott
that were required to be treated as long-term capital gains.

         Backup Withholding for Host Marriott's Distributions

         Host Marriott reports to its U.S. shareholders and the IRS the amount
of dividends paid during each calendar year and the amount of tax withheld, if
any. Under the backup withholding rules, a U.S. shareholder may be subject to
backup withholding at the rate of 30% (currently scheduled to be reduced to 28%
by 2006) with respect to dividends paid unless such holder either is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or 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 U.S. shareholder that
does not provide Host Marriott with a correct taxpayer identification number may
also be subject to penalties imposed by the IRS. Any amount paid as backup
withholding is creditable against the shareholder's income tax liability. In
addition, Host Marriott may be required to withhold a portion of its capital
gain distributions to any U.S. shareholders who fail to certify their
non-foreign status to Host Marriott. See "--Taxation of Non-U.S. Shareholders"
below.

Taxation of Tax-Exempt Shareholders

         Provided that a tax-exempt shareholder has not held its common stock as
"debt financed property" within the meaning of the Internal Revenue Code and
such shares of common stock are not otherwise used in a trade or business, the
dividend income from Host Marriott will not be unrelated business taxable income
("UBTI") to a tax-exempt shareholder. Similarly, income from the sale of common
stock will not constitute UBTI unless such tax-exempt shareholder has held such
common stock as "debt financed property" within the meaning of the Internal
Revenue Code or has used the common stock in a trade or business.

         However, for a tax-exempt shareholder that is a social club, voluntary
employee benefit association, supplemental unemployment benefit trust or
qualified group legal services plan exempt from federal income taxation under
Internal Revenue Code Sections 501 (c)(7), (c)(9), (c)(17) and (c)(20),
respectively, income from an investment in Host Marriott will constitute UBTI
unless the organization is properly able to deduct amounts set aside or placed
in reserve for certain purposes so as to offset the income generated by its
investment in Host Marriott. Such a prospective shareholder should consult its
own tax advisors concerning these "set aside" and reserve requirements.

         Notwithstanding the above, however, a portion of the dividends paid by
a "pension held REIT" shall be treated as UBTI as to any trust which is
described in Section 401(a) of the Internal Revenue Code, is tax-exempt under
Section 501(a) of the Internal Revenue Code and holds more than 10%, by value,
of the interests in the REIT. Tax-exempt pension funds that are described in
Section 401(a) of the Internal Revenue Code are referred to below as "qualified
trusts." A REIT is a "pension held REIT" if it meets the following two tests:

o    The REIT would not have qualified as a REIT but for the fact that Section
     856(h)(3) of the Internal Revenue Code provides that stock owned by
     qualified trusts shall be treated, for purposes of the "not closely held"
     requirement, as owned by the beneficiaries of the trust rather than by the
     trust itself.


                                       28





o    Either at least one such qualified trust holds more than 25%, by value, of
     the interests in the REIT, or one or more such qualified trusts, each of
     which owns more than 10%, by value, of the interests in the REIT, hold in
     the aggregate more than 50%, by value, of the interests in the REIT.

         The percentage of any REIT dividend treated as UBTI is equal to the
ratio of the UBTI earned by the REIT, treating the REIT as if it were a
qualified trust and therefore subject to tax on UBTI, to the total gross income
of the REIT. A de minimis exception applies where the percentage is less than 5%
for any year. As discussed above, the provisions requiring qualified trusts to
treat a portion of REIT distributions as UBTI will not apply if the REIT is able
to satisfy the "not closely held" requirement without relying upon the
"look-through" exception with respect to qualified trusts. Based on the current
estimated ownership of Host Marriott common stock and as a result of certain
limitations on transfer and ownership of common stock contained in the Host
Marriott's charter, Host Marriott should not be classified as a "pension held
REIT."

Taxation of Non-U.S. Shareholders

         The rules governing federal income taxation of the ownership and
disposition of common stock by non-U.S. shareholders (that is, shareholders who
are not "U.S. shareholders" as defined above) are complex and no attempt is made
herein to provide more than a brief summary of such rules. Accordingly, the
discussion does not address all aspects of federal income tax and does not
address any state, local or foreign tax consequences that may be relevant to a
non-U.S. shareholder in light of its particular circumstances. In addition, this
discussion is based on current law, which is subject to change, and assumes that
Host Marriott qualifies for taxation as a REIT. Prospective non-U.S.
shareholders should consult with their own tax advisers to determine the impact
of federal, state, local and foreign income tax laws with regard to an
investment in common stock, including any reporting requirements.

         Distributions Generally

         Distributions (or deemed distributions) by Host Marriott to a non-U.S.
shareholder that are neither attributable to gain from sales or exchanges by
Host Marriott of United States real property interests nor designated by Host
Marriott as capital gain dividends or retained capital gains will be treated as
dividends of ordinary income to the extent that they are made out of current or
accumulated E&P of Host Marriott. Such distributions ordinarily will be subject
to withholding of United States federal income tax on a gross basis (that is,
without allowance of deductions) at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty, unless the dividends are treated
as effectively connected with the conduct by the non-U.S. shareholder of a
United States trade or business. Under certain treaties, however, lower
withholding rates generally applicable to dividends do not apply to dividends
from a REIT, such as Host Marriott. Certain certification and disclosure
requirements must be satisfied to be exempt from withholding under the
effectively connected income exemption. Dividends that are effectively connected
with such a trade or business will be subject to tax on a net basis (that is,
after allowance of deductions) at graduated rates, in the same manner as U.S.
shareholders are taxed with respect to such dividends, and are generally not
subject to withholding. Any such dividends received by a non-U.S. shareholder
that is a corporation may also be subject to an additional branch profits tax at
a 30% rate or such lower rate as may be specified by an applicable income tax
treaty. Host Marriott expects to withhold United States income tax at the rate
of 30% on any distribution made to a non-U.S. shareholder unless (i) a lower
treaty rate applies and any required form or certification evidencing
eligibility for that lower rate is filed


                                       29






with Host Marriott or (ii) a non-U.S. shareholder files an IRS Form W-8ECI with
Host Marriott claiming that the distribution is effectively connected income.

         Distributions in excess of the current or accumulated E&P of Host
Marriott will not be taxable to a non-U.S. shareholder to the extent that they
do not exceed the adjusted basis of the shareholder's common stock, but rather
will reduce the adjusted basis of such common stock. Such distributions,
however, will be subject to U.S. withholding tax as described below. To the
extent that such distributions exceed the adjusted basis of a non-U.S.
shareholder's common stock, they will give rise to gain from the sale or
exchange of its common stock, the tax treatment of which is described below.

         Host Marriott is required to withhold 10% of any distribution in excess
of its current and accumulated E&P, even if a lower treaty rate applies and the
non-U.S. shareholder is not liable for tax on receipt of that distribution.
Consequently, although Host Marriott currently intends that its transfer agent
will withhold at a rate of 30%, or a lower applicable treaty rate, on the entire
amount of any distribution, to the extent that this is not done, any portion of
a distribution not subject to withholding at a rate of 30%, or lower applicable
treaty rate, would be subject to withholding at a rate of 10%. However, a
non-U.S. shareholder may seek a refund of such amounts from the IRS if it
subsequently determines that such distribution was, in fact, in excess of
current or accumulated E&P of Host Marriott, and the amount withheld exceeded
the non-U.S. shareholder's United States tax liability, if any, with respect to
the distribution.

         Capital Gain Distributions; Retained Net Capital Gains

         Distributions to a non-U.S. shareholder that are designated by Host
Marriott at the time of distribution as capital gain dividends, other than those
arising from the disposition of a United States real property interest,
generally should not be subject to United States federal income taxation,
unless:

         (i) the investment in the common stock is effectively connected with
         the non-U.S. shareholder's United States trade or business, in which
         case the non-U.S. shareholder will be subject to the same treatment as
         U.S. shareholders with respect to such gain, except that a shareholder
         that is a foreign corporation may also be subject to the 30% branch
         profits tax, as discussed above, or

         (ii) 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 and has a "tax home" in the United States, in which case the
         nonresident alien individual will be subject to a 30% tax on the
         individual's capital gains.

         Host Marriott will be required to withhold and to remit to the IRS 35%
of any distribution to non-U.S. shareholders that is designated as a capital
gain dividend or, if greater, 35% of a distribution to non-U.S. shareholders
that could have been designated by Host Marriott as a capital gain dividend. The
amount withheld is creditable against the non-U.S. shareholder's United States
federal income tax liability.

         Pursuant to the Foreign Investment in Real Property Tax Act, which is
referred to as "FIRPTA," distributions to a non-U.S. shareholder that are
attributable to gain from sales or exchanges by Host Marriott of United States
real property interests, whether or not designated as capital gain dividends,
will cause the non-U.S. shareholder to be treated as recognizing such


                                       30







gain as income effectively connected with a United States trade or business.
Non-U.S. shareholders would thus generally be taxed at the same rates applicable
to U.S. shareholders, subject to a special alternative minimum tax in the case
of nonresident alien individuals. Also, such gain may be subject to a 30% branch
profits tax in the hands of a non-U.S. shareholder that is a corporation, as
discussed above. Host Marriott is required to withhold 35% of any such
distribution. That amount is creditable against the non-U.S. shareholder's
federal income tax liability.

         Although the law is not clear on the matter, it appears that amounts
designated by Host Marriott as retained capital gains in respect of the common
stock held by U.S. shareholders (see "--Annual Distribution Requirements
Applicable to REITs" above) generally should be treated with respect to non-U.S.
shareholders in the same manner as actual distributions by Host Marriott of
capital gain dividends. Under that approach, the non-U.S. shareholders would be
able to offset as a credit against their United States federal income tax
liability resulting therefrom their proportionate share of the tax paid by Host
Marriott on such undistributed capital gains and to receive from the IRS a
refund to the extent their proportionate share of such tax paid by Host Marriott
were to exceed their actual United States federal income tax liability.

         Dispositions of Common Stock

         Gain recognized by a non-U.S. shareholder upon the sale or exchange of
common stock generally will not be subject to United States taxation unless such
shares of stock constitute a "United States real property interest" within the
meaning of FIRPTA. The common stock will not constitute a "United States real
property interest" so long as Host Marriott 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 stock is held directly or
indirectly by non-U.S. shareholders. Host Marriott believes, but cannot
guarantee, that it is a "domestically controlled REIT." Moreover, even if Host
Marriott is a "domestically controlled REIT," because the common stock is
publicly traded, no assurance can be given that Host Marriott will continue to
be a "domestically controlled REIT." Notwithstanding the foregoing, gain from
the sale or exchange of common stock not otherwise subject to FIRPTA will be
taxable to a non-U.S. shareholder if either (a) the investment in Host Marriott
common stock is effectively connected with the non-U.S. shareholder's U.S. trade
or business, in which case the non-U.S. shareholder will be subject to the same
treatment as domestic shareholders with respect to any gain or (b) 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 and has a "tax home" in the
United States, in which case the nonresident alien individual will be subject to
a 30% United States withholding tax on the amount of such individual's gain.

         Even if Host Marriott does not qualify as or ceases to be a
"domestically controlled REIT," gain arising from the sale or exchange by a
non-U.S. shareholder of common stock would not be subject to United States
taxation under FIRPTA as a sale of a "United States real property interest" if:

         (i)  the common stock is "regularly traded," as defined by applicable
         regulations, on an established securities market such as the NYSE; and

         (ii) such non-U.S. shareholder owned, actually or constructively, 5% or
         less of the common stock throughout the five-year period ending on the
         date of the sale or exchange.


                                       31





         If gain on the sale or exchange of common stock were subject to
taxation under FIRPTA, the non-U.S. shareholder would be subject to regular
United States income tax with respect to such gain in the same manner as a
taxable U.S. shareholder (subject to any applicable alternative minimum tax and
a special alternative minimum tax in the case of nonresident alien individuals)
and the purchaser of the common stock would be required to withhold and remit to
the IRS 10% of the purchase price.

         Backup Withholding Tax and Information Reporting

         Backup withholding tax generally is a withholding tax imposed at the
rate of 30% (currently scheduled to be reduced to 28% by 2006) on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements. Backup withholding and information
reporting will generally not apply to distributions paid to non-U.S.
shareholders outside the United States that are treated as dividends subject to
the 30% (or lower treaty rate) withholding tax discussed above, capital gain
dividends or distributions attributable to gain from the sale or exchange by
Host Marriott of United States real property interests. As a general matter,
backup withholding and information reporting will not apply to a payment of the
proceeds of a sale of common stock by or through a foreign office of a foreign
broker. Generally, information reporting (but not backup withholding) will
apply, however, to a payment of the proceeds of a sale of common stock by a
foreign office of a broker that:

         (a)  is a United States person;

         (b)  derives 50% or more of its gross income for certain periods from
         the conduct of a trade or business in the United States;

         (c)  is a "controlled foreign corporation," which is, generally, a
         foreign corporation controlled by United States shareholders; or

         (d)  is a foreign partnership, if at any time during its tax year, one
         or more of its partners are United States persons (as defined in
         Treasury regulations) who in the aggregate hold more than 50% of the
         income or capital interest in the partnership or if, at any time during
         its tax year, such foreign partnership is engaged in a United States
         trade or business.

         If, however, the broker has documentary evidence in its records that
the holder is a non-U.S. shareholder and certain other conditions are met or the
shareholder otherwise establishes an exemption, information reporting will not
apply. Payment to or through a United States office of a broker of the proceeds
of a sale of common stock is subject to both backup withholding and information
reporting unless the shareholder certifies under penalty of perjury that the
shareholder is a non-U.S. shareholder, or otherwise establishes an exemption. A
non-U.S. shareholder may obtain a refund of any amounts withheld under the
backup withholding rules by filing the appropriate claim for refund with the
IRS.

         The IRS has issued final regulations regarding the withholding and
information reporting rules discussed above. In general, these regulations do
not alter the substantive withholding and information reporting requirements but
unify certification procedures and forms and clarify and modify reliance
standards. These regulations generally are effective for payments made after
December 31, 2000, subject to certain transition rules. A non-U.S. shareholder
should consult its own advisor regarding the effect of these regulations.


                                       32






Taxation of Holders of Preferred Stock, Depositary Shares, Warrants,
Subscription Rights, Preferred Stock Purchase Rights and Other Host Marriott
Securities

         If Host Marriott offers one or more series of preferred stock,
depositary shares, warrants, subscription rights, preferred stock purchase
rights or other securities, there may be tax considerations for the holders of
such securities not discussed herein. For a discussion of any such additional
considerations, see the prospectus supplement filed by Host Marriott with
respect to such offering.































                                       33