-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QfGy2CRhzfUf+RNxsixHDSHzZOt2giDihN85ErRw8qu+2V8OEnMuR789W8CeN2Rk pUpPIayRzwasToAHcd77KQ== 0000928385-96-000018.txt : 19960118 0000928385-96-000018.hdr.sgml : 19960118 ACCESSION NUMBER: 0000928385-96-000018 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951222 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960117 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOST MARRIOTT CORP/MD CENTRAL INDEX KEY: 0000314733 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 530085950 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05664 FILM NUMBER: 96504303 BUSINESS ADDRESS: STREET 1: 10400 FERNWOOD RD CITY: BETHESDA STATE: MD ZIP: 20817 BUSINESS PHONE: 3013809000 MAIL ADDRESS: STREET 1: 10400 FERNWOOD RD CITY: BETHESDA STATE: MD ZIP: 20817 FORMER COMPANY: FORMER CONFORMED NAME: HOST MARRIOTT CORP DATE OF NAME CHANGE: 19931108 FORMER COMPANY: FORMER CONFORMED NAME: MARRIOTT CORP DATE OF NAME CHANGE: 19920703 8-K 1 FORM 8-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) JANUARY 11, 1996 ------------------------- HOST MARRIOTT CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 1-5664 53-0085950 (STATE OR OTHER JURISDICTION (COMMISSION FILE (I.R.S. EMPLOYER OF INCORPORATION) NUMBER) IDENTIFICATION NUMBER) 10400 FERNWOOD ROAD, BETHESDA, MARYLAND 20817 (ADDRESS OF PRINCIPLE EXECUTIVE OFFICES) (ZIP CODE) ---------------------------- REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (301) 380-9000 (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT.) ================================================================================ FORM 8-K ITEM 2. ACQUISITION OF ASSETS On January 11, 1996, the Registrant announced that it has reached agreements to acquire controlling interests in the San Diego Marriott Hotel and Marina, two hotels in Mexico City and the Pittsburgh Hyatt, and to purchase the Delta Meadowdale Hotel and Conference Centre in Toronto, Canada. A copy of the news release is attached as an exhibit to this current report. Pursuant to Items 2 and 7 of Form 8-K, certain financial statements of the San Diego Marriott Hotel and Marina and certain proforma financial information of Host Marriott Corporation have been included in this Form 8-K. ITEM 5. OTHER EVENTS In conjunction with the press release announcing the items discussed above, the Registrant announced that one 174 acre undeveloped land site would no longer be developed into an office project over an extended time period, but has decided to market the site for near term sale. As a result of this change in strategy, management has determined to record a charge of $39 million, net of taxes of $21 million, in the fourth quarter of 1995 to reduce the asset to its estimated sales value. On January 11, 1996, the Registrant also announced that it has filed a registration statement with the Securities and Exchange Commission for the public offering of approximately 25 million shares of the Registrant's common stock. A copy of the news release announcing the filing is attached as an exhibit to this current report. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Page ---- (a)FINANCIAL STATEMENTS OF THE PACIFIC LANDMARK HOTEL, LTD. AND PACIFIC GATEWAY, LTD.(San Diego Marriott Hotel and Marina) Report of Independent Public Accountants................................. 3 Combined Balance Sheets as of December 31, 1994 and 1993................. 4 Combined Statements of Operations for the Years Ended December 31, 1994 and 1993................................................................ 5 Combined Statements of Partners' Capital (Deficit) for the Years Ended December 31, 1994 and 1993.............................................. 6 Combined Statements of Cash Flows for the Years Ended December 31, 1994 and 1993................................................................ 7 Notes to Combined Financial Statements................................... 8 Combined Statements of Operations for the Thirty-six Weeks Ended September 8, 1995 and September 9, 1994 (unaudited)..................... 15 Combined Balance Sheet as of September 30, 1995 (unaudited).............. Combined Statements of Cash Flows for the Thirty-six Weeks Ended September 8, 1995 and September 8, 1994 (unaudited)..................... 16 Notes to Financial Statements............................................ 17 (b)PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA FOR HOST MARRIOTT CORPORATION............................................................ 18
(c) Exhibits (99a) News Release dated January 11, 1996 (99b) News Release dated January 11, 1996 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. HOST MARRIOTT CORPORATION By: /s/ CHRISTOPHER G. TOWNSEND --------------------------------------------- Christopher G. Townsend Senior Vice President and Corporate Secretary Date: January 17, 1996 2 INDEPENDENT AUDITORS' REPORT The General Partners Pacific Landmark Hotel, Ltd. and Pacific Gateway, Ltd.: We have audited the combined financial statements of Pacific Landmark Hotel, Ltd. and Pacific Gateway, Ltd. (limited partnerships), as listed in the accompanying index to financial statements. These combined financial statements are the responsibility of the Partnerships' management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of Pacific Landmark Hotel, Ltd. and Pacific Gateway, Ltd. as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 1994, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP San Diego, California March 10, 1995, except as to note 6 to the combined financial statements, which is as of January 5, 1996 3 PACIFIC LANDMARK HOTEL, LTD. AND PACIFIC GATEWAY, LTD. (LIMITED PARTNERSHIPS) COMBINED BALANCE SHEETS DECEMBER 31, 1994 AND 1993
1994 1993 ------------- ------------- ASSETS Current assets: Cash and cash equivalents...................... $ 1,136,000 $ 227,000 Cash--restricted (note 2)...................... 6,016,000 3,821,000 Accounts receivable, less allowance for doubtful accounts of $75,000 in 1994 and $67,000 in 1993............................... 2,347,000 2,876,000 Inventories.................................... 550,000 690,000 Prepaid expenses and other..................... 61,000 81,000 ------------- ------------- Total current assets............................. 10,110,000 7,695,000 Property and equipment, net (notes 3 and 4)...... 144,425,000 150,369,000 China, glassware, silver and linen............... 1,437,000 1,342,000 Other assets..................................... 70,000 70,000 ------------- ------------- $ 156,042,000 $ 159,476,000 ============= ============= LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) Current liabilities: Bank overdraft................................. $ -- $ 619,000 Accounts payable............................... 2,178,000 1,937,000 Accrued expenses............................... 1,664,000 1,933,000 Current portion, long-term debt payable to third party (note 4).......................... 2,630,000 2,648,000 Current portion, due to affiliates of general partners (note 5)............................. 3,773,000 1,967,000 Advance deposits............................... 992,000 949,000 ------------- ------------- Total current liabilities........................ 11,237,000 10,053,000 Long-term debt payable to third party, net of current portion (note 4)........................ 204,565,000 207,302,000 Long-term debt payable to a general partner and an affiliate of the general partners (note 4)... 22,000,000 22,000,000 Accrued interest (note 4)........................ 32,323,000 30,609,000 Due to affiliates of general partners, net of current portion (note 5)........................ 22,722,000 18,657,000 ------------- ------------- Total liabilities................................ 292,847,000 288,621,000 Partners' capital (deficit)...................... (136,805,000) (129,145,000) ------------- ------------- Commitments and contingencies (note 7) Total liabilities and partners' capital.......... $ 156,042,000 $ 159,476,000 ============= =============
See accompanying notes to combined financial statements. 4 PACIFIC LANDMARK HOTEL, LTD. AND PACIFIC GATEWAY, LTD. (LIMITED PARTNERSHIPS) COMBINED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993 ----------- ------------ REVENUE............................................. $84,163,000 $ 82,693,000 ----------- ------------ DEPARTMENTAL EXPENSES: Cost of sales..................................... 12,012,000 11,788,000 Payroll and related expenses...................... 24,963,000 24,747,000 Other............................................. 4,387,000 4,780,000 ----------- ------------ Total departmental expenses..................... 41,362,000 41,315,000 ----------- ------------ Income from operating departments................... 42,801,000 41,378,000 ----------- ------------ Undistributed operating expenses: Related party management fees..................... 2,940,000 2,891,000 Related party administration and marketing fees... 1,050,000 1,032,000 Related party reimbursements...................... 3,523,000 3,786,000 Third-party....................................... 8,151,000 8,389,000 ----------- ------------ 15,664,000 16,098,000 ----------- ------------ Income before fixed charges and interest income......................................... 27,137,000 25,280,000 ----------- ------------ FIXED CHARGES: Property taxes.................................... 2,410,000 2,938,000 Leases (note 7a).................................. 4,948,000 4,801,000 Interest (including $4,309,000 and $3,868,000 in 1994 and 1993, respectively, relating to affiliates)...................................... 19,995,000 20,680,000 Insurance......................................... 98,000 112,000 Depreciation and amortization..................... 7,547,000 7,790,000 ----------- ------------ Total fixed charges............................. 34,998,000 36,321,000 ----------- ------------ Loss before interest income......................... (7,861,000) (11,041,000) Interest income..................................... 201,000 104,000 ----------- ------------ Net loss........................................ $(7,660,000) $(10,937,000) =========== ============
See accompanying notes to combined financial statements. 5 PACIFIC LANDMARK HOTEL, LTD. AND PACIFIC GATEWAY, LTD. (LIMITED PARTNERSHIPS) COMBINED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) YEARS ENDED DECEMBER 31, 1994 AND 1993 Balance (deficit), December 31, 1992............................ $(118,208,000) Net loss........................................................ (10,937,000) ------------- Balance (deficit), December 31, 1993............................ (129,145,000) Net loss........................................................ (7,660,000) ------------- Balance (deficit), December 31, 1994............................ $(136,805,000) =============
See accompanying notes to combined financial statements. 6 PACIFIC LANDMARK HOTEL, LTD. AND PACIFIC GATEWAY, LTD. (LIMITED PARTNERSHIPS) COMBINED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993 ----------- ------------ Cash flows from operating activities: Net loss.......................................... $(7,660,000) $(10,937,000) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization................... 7,547,000 7,790,000 Gain on retirement of fixed assets.............. (64,000) (32,000) Changes in assets and liabilities: (Increase) decrease in cash--restricted....... (2,195,000) 3,450,000 Decrease in accounts receivable, net.......... 529,000 496,000 Decrease in inventories....................... 140,000 40,000 Decrease in prepaid expenses and other assets....................................... 20,000 443,000 Increase in china, glassware, silver and linen........................................ (95,000) (159,000) Increase in accounts payable.................. 241,000 19,000 Increase (decrease) in accrued expenses....... (269,000) 407,000 Increase in advance deposits.................. 43,000 288,000 Increase in accrued interest.................. 1,714,000 2,138,000 Increase in due to affiliates................. 5,871,000 4,078,000 ----------- ------------ Net cash provided by operating activities....... 5,822,000 8,021,000 ----------- ------------ Cash flows from investing activities: Capital expenditures.............................. (1,603,000) (4,622,000) Proceeds from sale of property and equipment...... 64,000 133,000 ----------- ------------ Net cash used in investing activities........... (1,539,000) (4,489,000) ----------- ------------ Cash flows from financing activities: Principal payments on long-term debt payable to third party...................................... (2,755,000) (2,954,000) Decrease in bank overdraft........................ (619,000) (457,000) ----------- ------------ Net cash used in financing activities........... (3,374,000) (3,411,000) ----------- ------------ Net increase in cash and cash equivalents........... 909,000 121,000 Cash and cash equivalents at beginning of year...... 227,000 106,000 ----------- ------------ Cash and cash equivalents at end of year............ $ 1,136,000 227,000 =========== ============ Supplemental disclosure of cash flow information: Cash paid for interest............................ $13,719,000 $ 14,250,000 =========== ============
See accompanying notes to combined financial statements. 7 PACIFIC LANDMARK HOTEL, LTD. AND PACIFIC GATEWAY, LTD. (LIMITED PARTNERSHIPS) NOTES TO COMBINED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994 AND 1993 (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Pacific Landmark Hotel, Ltd. (Landmark), a California limited partnership, was formed on October 2, 1981 to develop, construct and own a 681-room hotel (Tower I) and an adjacent Marina. Upon completion of construction, hotel operations for Tower I commenced on March 15, 1984. On May 1, 1985, Landmark completed construction of an $11 million conference center. The conference center is adjacent to Tower I and provides additional meeting and exhibition space for the hotel. Pacific Gateway, Ltd. (Gateway), a California limited partnership, was formed on February 28, 1984 to develop, construct and own a 683-room hotel (Tower II) adjacent to Tower I. On December 15, 1987, construction was completed and the hotel commenced operations (Landmark and Gateway are collectively referred to as the "Partnerships" and Tower I, Tower II and the Marina are collectively referred to as the "Hotel"). The Hotel is located near downtown San Diego, California, on bay front property leased from the San Diego Unified Port District. The Partnerships have entered into an agreement with Marriott International, Inc. (Marriott) to operate and manage the Hotel (Note 5). Host Marriott Corporation, an affiliate of Marriott, owns a 5% general partnership interest in the Partnerships. The developer of the Hotel is the other general partner. The combined financial statements include the Partnerships. The general partners, through their affiliates, hold general and limited partnership interests aggregating effectively 100% of the Partnerships. Significant intercompany accounts and transactions have been eliminated in the combined financial statements. Inventories Food, beverage and operating supplies inventories are stated at the lower of cost or market. Food and beverage inventories are determined using the first- in, first-out method. Operating supplies inventories are determined using the average cost method. Statements of Cash Flows For purposes of the statements of cash flows, the Partnerships consider all highly liquid debt instruments with an original maturity date of three months or less to be cash equivalents. China, Glassware, Silver and Linen China, glassware and silver are stated at the lower of cost or market, determined on the first-in, first-out method. The initial supply of linen has been capitalized; subsequent replacements are expensed. Property and Equipment and Depreciation Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from five to 40 years. Provision for Impairment Losses Provision is made for impairment losses if estimated future operating cash flows (undiscounted and without interest charges) over a long-term holding period, plus estimated disposition proceeds (undiscounted), are less then current book value. There was no such provision for 1994 or 1993. 8 PACIFIC LANDMARK HOTEL, LTD. AND PACIFIC GATEWAY, LTD. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Income Taxes No provision for federal or state income taxes has been made in the accompanying combined financial statements as the partners are individually responsible for reporting income or loss based upon their respective share of the Partnerships' income and expenses as reported for income tax purposes. Partnership Allocations of Net Loss According to the partnership agreements, net losses for Gateway are allocated 99% and 1% to general and limited partnership interests, respectively. Net losses for Landmark are allocated 95% and 5% to general and limited partnership interests, respectively. Net Loss Per Unit The Partnerships do not report net loss per unit as the partners' interests are not represented by units. Fiscal Year The Partnerships' fiscal years end on December 31; however, the combined financial statements include the Hotel's operations through the Friday closest to December 31, in order to conform to the operator's fiscal year. (2) RESTRICTED CASH
1994 1993 ---------- ---------- Cash reserved for payment of debt service (note 4).... $3,536,000 $3,001,000 Cash reserved for replacement of furniture, fixtures and equipment........................................ 2,265,000 775,000 Cash reserved for payment of property taxes........... 215,000 45,000 ---------- ---------- $6,016,000 $3,821,000 ========== ==========
In accordance with the partnership agreements and the terms of notes payable to bank (Note 4), InterHotel Company, Ltd., a limited partner of the Partnerships, has deposited approximately $6,500,000 with the lender to fund debt service requirements. (3) PROPERTY AND EQUIPMENT Property and equipment consists of the following:
1994 1993 ------------ ------------ Building................ $176,890,000 $176,113,000 Furniture, fixtures and equipment.............. 19,638,000 19,029,000 Marina.................. 6,379,000 6,379,000 ------------ ------------ 202,907,000 201,521,000 Less accumulated depreciation and amortization........... (58,482,000) (51,152,000) ------------ ------------ $144,425,000 $150,369,000 ============ ============
Virtually all of the Partnerships' property and equipment is collateral for notes payable (Note 4). 9 PACIFIC LANDMARK HOTEL, LTD. AND PACIFIC GATEWAY, LTD. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (4) LONG-TERM DEBT The following is a summary of long-term debt payable to third party:
1994 1993 ------------ ------------ Notes payable to bank with monthly payments sufficient to fully amortize the unpaid principal balance over 360 months with interest at the lesser of the Eleventh District Average Cost of Funds Index plus 2 1/2% or 11% per annum adjusted monthly. At December 31, 1994, the effective interest rate was approximately equal to 6.9%. The monthly payment amount is adjusted annually. Interest is accrued on the amount by which the accrued interest on the entire unpaid balance of the loan exceeds the interest paid. Upon sale or refinancing, the bank may receive the greater of the accrued deferred interest or a portion of the net proceeds from sale or refinancing. Unpaid principal is due in 1997. The notes are collateralized by first deeds of trust on the Partnerships' property and equipment and an assignment of the joint operating agreement. The Partnerships and the bank are currently in discussions regarding differing interpretations of certain sections of the loan modification agreements regarding the mechanisms and timing of access to restricted cash held as collateral by the bank after October 1992 (Note 2). The Partnerships have paid late charges of $512,000 which they are currently disputing............... $207,195,000 $209,950,000 Less current portion............................ (2,630,000) (2,648,000) ------------ ------------ Long-term portion............................... $204,565,000 $207,302,000 ============ ============
The following is a summary of long-term debt payable to a general partner and an affiliate of the general partners:
1994 1993 ----------- ----------- Note payable to an entity originally established by an affiliate of the developer-general partner. Principal and interest from January 1993 through December 1997 accrue interest at 10% per annum compounded annually. Unpaid principal and accrued interest are due in December 1997. Minimum annual payments ranging from $250,000 to $500,000 were to begin in 1993 and are to be applied first to unpaid interest. No payments have been made. The note is collateralized by second deeds of trust on the Partnerships' property............... $10,000,000 $10,000,000 Notes payable to a general partner (Marriott affiliate), with interest compounded annually at 10% per annum with all principal and interest due in 1997 or upon refinancing, sale or other transfer of interest. The notes are collateralized by third deeds of trust on the Partnerships' property............... 12,000,000 12,000,000 ----------- ----------- $22,000,000 $22,000,000 =========== ===========
Long-term debt maturities, based on the effective interest rate at December 31, 1994, are as follows:
YEAR ENDING DECEMBER 31, ------------------------ 1995.......................................................... $ 2,630,000 1996.......................................................... 2,811,000 1997.......................................................... 223,754,000 ------------ $229,195,000 ============
10 PACIFIC LANDMARK HOTEL, LTD. AND PACIFIC GATEWAY, LTD. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (5) RELATED PARTY TRANSACTIONS In 1987, the Partnerships entered into management contracts with Marriott to manage and operate Towers I and II. The initial terms of the contracts expire in 2017 and automatically renew for three consecutive periods of ten years, and give Marriott first right of refusal on any continued association with the hotel subsequent to 2017. The agreements provide for annual compensation of 3 1/2% of gross revenue and 30% of available cash flow as defined. Management fees paid to Marriott in 1994 and 1993 amounted to $2,940,000 and $2,891,000, respectively. In addition, during the course of normal operations various supplies, services and other operating expenses are purchased from or provided by Marriott and its affiliates. Amounts included in due to affiliates of general partners at December 31, 1994 and 1993 are as follows:
1994 1993 ----------- ----------- Operational receivables and other................. $ (851,000) $(1,390,000) Accrued interest on notes to affiliates........... 22,722,000 18,657,000 Accrued interest on unpaid administration fees to developer-general partner........................ 528,000 284,000 Management, administration and marketing fees..... 4,096,000 3,073,000 ----------- ----------- 26,495,000 20,624,000 Less current portion.............................. (3,773,000) (1,967,000) ----------- ----------- $22,722,000 $18,657,000 =========== ===========
Payments accrued or made to related parties and included in operations for the years ended December 31, 1994 and 1993 are summarized as follows:
1994 1993 ---------- ---------- Management fees and reimbursements for operating costs paid or accrued to Marriott or its affiliates........ $6,463,000 $6,677,000 Administration fees paid or accrued to the developer- general partner or its affiliates.................... 840,000 826,000 Marketing fees paid or accrued to the developer-gen- eral partner or its affiliates....................... 210,000 206,000 Remodeling fees paid to affiliate of the developer- general partner...................................... 26,000 200,000 Interest on notes payable to affiliates............... 4,309,000 3,868,000
Payments, not included in the above schedule, were made in 1994 and 1993 to an affiliate of Marriott in order to purchase food, miscellaneous fixed assets and other inventory. (6) FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosure includes estimated fair value information at December 31, 1994 and 1993, as required by FASB Statement 107. Such information, which pertains to the combined Partnerships' financial instruments, is based on the requirements set forth in that statement and does not purport to represent the aggregate net fair value of the Partnerships. 11 PACIFIC LANDMARK HOTEL, LTD. AND PACIFIC GATEWAY, LTD. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) The following methods and assumptions were used by the Partnerships in estimating such values: . The fair values of the Partnerships' long-term debt payable to third party, long-term debt payable to a general partner and an affiliate of the general partners, accrued interest, and amounts due to affiliates of general partners were determined based on the timing of future cash flows, market interest rates, the relationship of the parties and the nature of the financial instruments. The estimated fair values of the combined Partnerships' long-term debt payable to third party, long-term debt payable to a general partner and an affiliate of the general partners, accrued interest and amounts due to affiliates of general partners at December 31, 1994 and 1993 are as follows:
1994 1993 --------------------------------- ------------------------------------- CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE ------------ ------------ ------------ ------------ $288,013,000 $189,134,000 $283,183,000 $190,149,000
. For all other financial instruments, the carrying values reasonably approximate fair values at December 31, 1994 and 1993. (7) COMMITMENTS AND CONTINGENCIES (a) Ground Lease Commitments Landmark is the lessee in a long-term ground lease on which Tower I and the Marina are located. Gateway has entered into a similar lease agreement for Tower II. Both leases expire in April 2048 and require contingent rents based on a percentage of gross income. Minimum annual rents in each of the next five years and in the aggregate thereafter (through March 2007) are as follows:
YEAR ENDING DECEMBER 31, LANDMARK GATEWAY TOTAL ------------------------ ---------- ---------- ----------- 1995....................................... $ 600,000 $ 400,000 $ 1,000,000 1996....................................... 600,000 400,000 1,000,000 1997....................................... 600,000 400,000 1,000,000 1998....................................... 600,000 400,000 1,000,000 1999....................................... 600,000 400,000 1,000,000 Thereafter................................. 4,800,000 3,200,000 8,000,000 ---------- ---------- ----------- Total.................................... $7,800,000 $5,200,000 $13,000,000 ========== ========== ===========
Minimum annual rent for the period April 2007 through April 2048 is to be at least 75% of the average "percentage rental" paid, as defined, during the last three accounting years of the previous rental period. Rent expense was $4,948,000 and $4,801,000 in 1994 and 1993, respectively, which included contingent rents of $3,948,000 and $3,801,000 in 1994 and 1993, respectively. (b) Litigation In December 1992, the Partnerships filed a complaint against Marriott and other defendants alleging, among other things, breach of contract and breach of covenant of good faith and fair dealing. The defendants have filed a cross- complaint for damages alleging breach of contract, defamation, and other charges. Based in part on the 12 PACIFIC LANDMARK HOTEL, LTD. AND PACIFIC GATEWAY, LTD. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONCLUDED) advice of outside counsel, management does not believe that the cross-complaint will have a material impact on the Partnerships' combined financial condition or results of operations. Accordingly, no provision for any liability has been made in the accompanying combined financial statements. The Partnerships are involved in various other legal proceedings which are routine litigation incident to their business. In the opinion of management of the Partnerships, none of the other pending litigation will have a material adverse effect upon the Partnerships' combined financial position or results of operations. 13 PACIFIC LANDMARK HOTEL, LTD AND PACIFIC GATEWAY, LTD COMBINED BALANCE SHEET (UNAUDITED, IN THOUSANDS)
SEPTEMBER 8, 1995 ------------ ASSETS Cash and cash equivalents..................................... $ 3,360 Cash--restricted.............................................. 9,632 Accounts receivable, less allowance for doubtful accounts..... 4,861 Inventories................................................... 480 Property and equipment, net................................... 140,535 China, glassware, silver and linen............................ 1,152 Other assets.................................................. 75 --------- $ 160,095 ========= LIABILITIES AND PARTNERS' DEFICIT Accounts payable.............................................. $ 5,124 Accrued expenses.............................................. 1,843 Advance deposits.............................................. 977 Long-term debt................................................ 228,427 Accrued interest.............................................. 33,065 Due to affiliates of general partners......................... 30,139 Partners' deficit............................................. (139,480) --------- $ 160,095 =========
The accompanying notes are an integral part of these financial statements. 14 PACIFIC LANDMARK HOTEL, LTD AND PACIFIC GATEWAY, LTD COMBINED STATEMENTS OF OPERATIONS (UNAUDITED, IN THOUSANDS)
THIRTY-SIX WEEKS ENDED ------------------------- SEPTEMBER 8, SEPTEMBER 9, 1995 1994 ------------ ------------ REVENUES.......................................... $25,594 $22,793 ------- ------- OPERATING COSTS AND EXPENSES Interest........................................ 13,830 13,843 Depreciation and amortization................... 5,225 5,225 Ground rent..................................... 3,778 3,486 Property taxes.................................. 2,258 2,272 Base management fee............................. 2,160 2,074 Owner's marketing account and administration fee............................................ 771 741 Equipment rent and other, net................... 246 253 ------- ------- 28,268 27,894 ------- ------- NET LOSS.......................................... $(2,674) $(5,101) ======= =======
The accompanying notes are an integral part of these financial statements. 15 PACIFIC LANDMARK HOTEL, LTD AND PACIFIC GATEWAY, LTD COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)
THIRTY-SIX WEEKS ENDED ------------------------- SEPTEMBER 8, SEPTEMBER 9, 1995 1994 ------------ ------------ OPERATING ACTIVITIES Net loss.............................................. $(2,674) $(5,101) Noncash items......................................... 9,504 10,652 Changes in operating accounts......................... 1,113 670 ------- ------- Cash provided by operating activities............... 7,943 6,221 ------- ------- INVESTING ACTIVITIES Additions to property and equipment................. (1,335) (1,222) Change in restricted cash........................... (3,616) (1,660) ------- ------- Cash used in investing activities................... (4,951) (2,882) ------- ------- FINANCING ACTIVITIES Principal payments on long-term debt................ (768) (2,127) ------- ------- INCREASE IN CASH AND CASH EQUIVALENTS................. 2,224 1,212 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...... 1,136 227 ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............ $ 3,360 $ 1,439 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest.............................. $10,168 $ 9,008 ======= =======
The accompanying notes are an integral part of these financial statements. 16 PACIFIC LANDMARK HOTEL, LTD. AND PACIFIC GATEWAY LTD. (LIMITED PARTNERSHIPS) NOTES TO FINANCIAL STATEMENTS--(UNAUDITED) 1. The accompanying combined financial statements of the Pacific Landmark Hotel, Ltd. and Pacific Gateway, Ltd., limited partnerships, (the "Partnerships") have been prepared without audit. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been omitted. The Partnerships believe the disclosures made are adequate to make the information presented not misleading. However, the financial statements should be read in conjunction with the audited financial statements and notes thereto for the fiscal years ended December 30, 1994 and December 31, 1993 included elsewhere herein. In the opinion of the Partnerships, the accompanying unaudited combined financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position of the Partnerships as of September 8, 1995 and the results of operations and cash flows for the thirty-six weeks ended September 8, 1995 and September 9, 1994. Interim results are not necessarily indicative of fiscal year performance because of the impact of seasonal and short-term variations. 2. Revenues represent House Profit which reflects hotel operating results less property-level expenses excluding depreciation, management fees, real and personal property taxes, ground and equipment rent, insurance and certain other costs which are classified as operating costs and expenses. House profit generated by the Partnerships for the thirty-six weeks ended September 8, 1995 and September 9, 1994 consists of (in thousands):
THIRTY-SIX WEEKS ENDED ------------------------- SEPTEMBER 8, SEPTEMBER 9, 1995 1994 ------------ ------------ Sales Rooms............................................... $37,554 $34,401 Food & Beverage..................................... 17,986 18,692 Other............................................... 6,180 6,169 ------- ------- Total Hotel Sales................................. 61,720 59,262 ------- ------- Department Costs Rooms............................................... 7,507 7,458 Food & Beverage..................................... 13,496 14,049 Other............................................... 2,932 3,032 ------- ------- Total Department Costs............................ 23,935 24,539 ------- ------- Department Profit..................................... 37,785 34,723 Other Deductions...................................... 12,191 11,930 ------- ------- House Profit.......................................... $25,594 $22,793 ======= =======
17 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA The unaudited Pro Forma Condensed Consolidated Statements of Operations of the Company reflect the following transactions for the thirty-six weeks ended September 8, 1995 and the fiscal year ended December 30, 1994, as if such transactions had been completed at the beginning of each period: . 1995 acquisition of eight full-service hotel properties . 1995 sale of one full-service hotel property . 1995 sale/leaseback of 37 Courtyard properties . 1995 sale of the Company's remaining four Fairfield Inns . May 1995 Debt Offering (as defined below) . December 1995 Debt Offering (as defined below) . 1995 Special Dividend of Host Marriott Services Corporation . 1995 writedown of one undeveloped land site . Consummation of the Pending Acquisitions (as defined below) . 1994 addition of 18 full-service hotel properties . 1994 sale of 14 senior living communities . 1994 sale of 26 Fairfield Inns The unaudited Pro Forma Condensed Consolidated Balance Sheet of the Company reflects the acquisition of four full-service properties during the fourth quarter of 1995, the consummation of the Pending Acquisitions, the consummation of the December 1995 Debt Offering, the fourth quarter 1995 writedown of one undeveloped land site, and the consummation of the Special Dividend as if such transactions had been completed on September 8, 1995. During 1995, the Company acquired nine full-service hotel properties, including four hotels during the fourth quarter of 1995, and sold one full- service hotel property in the fourth quarter of 1995. The accompanying Unaudited Pro Forma Condensed Consolidated Statements of Operations do not reflect any pro forma adjustments related to the New York Vista Hotel (renamed the Marriott World Trade Center) due to the suspension of hotel operations and the renovation of the hotel as a result of extensive damage from an explosion on February 26, 1993. Because the hotel did not resume full operations until mid-1995, the historical operations of the hotel during the periods presented are not meaningful. The Company has also entered into agreements to acquire or purchase controlling interests in three full-service hotel properties (the "Pending Acquisitions"). During 1994, the Company added 18 full-service hotels to its lodging portfolio (one of which was subsequently sold in 1995), including two hotels for which a subsidiary of the Company provided 100% nonrecourse financing to an affiliate of the Company for the acquisition of the hotels (which the Company treats as owned for accounting purposes). In May 1995, HMH Properties, Inc. ("HMH Properties"), an indirect wholly owned subsidiary of the Company, issued $600 million of debt (the "Properties Notes") to several initial purchasers (the "May 1995 Debt Offering"). The Properties Notes were issued at par and carry a 9.5% interest rate with a final maturity of May 2005. The net proceeds to the Company were used to defease, and subsequently redeem, bonds which carried a weighted average interest rate of 10.4%, and to pay down a portion of the line of credit with Marriott International. Additionally, the Company replaced its $630 million line of credit with Marriott International with a new $225 million revolving line of credit with Marriott International (the "New Line of Credit"). During 1994, the Company sold all 14 of its senior living communities and 26 of its 30 Fairfield Inns. During 1995, 37 of the Company's Courtyard properties were sold to and leased back from the REIT, and the Company sold its four remaining Fairfield Inns. In December 1995, HMC Acquisition Properties, Inc. ("Acquisitions"), an indirect wholly owned subsidiary of the Company, issued $350 million of 9% senior notes (the "Acquisitions Notes") to several initial purchasers (the "December 1995 Debt Offering"). The Acquisitions Notes were issued at par and have a final 18 maturity of December 2007. The proceeds were utilized to repay in full the $210 million of outstanding borrowings under, and terminate, Acquisitions' $230 million revolving credit facility (the "Revolver"), to acquire one full-service hotel in the fourth quarter of 1995 and to finance future acquisitions of full- service hotel properties, including two of the Pending Acquisitions. The "Historical" column in the accompanying Pro Forma Condensed Consolidated Statements of Operations excludes the results of the Operating Group, which are considered discontinued operations. The Pro Forma Condensed Consolidated Financial Data of the Company are unaudited and presented for informational purposes only and may not reflect the Company's future results of operations and financial position or what the results of operations and financial position of the Company would have been had such transactions occurred as of the dates indicated. The unaudited Pro Forma Condensed Consolidated Financial Data and Notes thereto should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Results of Operations and Financial Condition" previously filed with the Securities and Exchange Commission. 19 HOST MARRIOTT CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (IN MILLIONS)
AS OF SEPTEMBER 8, 1995 --------------------------------- HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- ASSETS Property and Equipment........................ $2,700 $223 (A) $3,127 267 (B) (3)(C) (60)(D) Investments in Affiliates..................... 209 (13)(B) 196 Accounts Receivable........................... 74 -- 74 Notes Receivable.............................. 40 -- 40 Other Assets.................................. 167 6 (B) 179 10 (E) (4)(F) Cash and Cash Equivalents..................... 211 (115)(A) 168 (53)(B) 3 (C) 340 (E) (210)(F) (8)(G) ------ ---- ------ $3,401 $383 $3,784 ====== ==== ====== LIABILITIES AND SHAREHOLDERS' EQUITY Debt Debt carrying a company guarantee of repayment.................................. $1,067 $350 (E) $1,207 (210)(F) Debt not carrying a company guarantee of 858 98 (A) 1,162 repayment.................................. 206 (B) ------ ---- ------ 1,925 444 2,369 Accounts Payable and Accrued Expenses......... 54 -- 54 Net Investment in Discontinued Operations..... 81 (81)(G) -- Deferred Income Taxes......................... 528 (21)(D) 506 (1)(F) Other Liabilities............................. 143 10 (A) 154 1 (B) ------ ---- ------ Total Liabilities......................... 2,731 352 3,083 ------ ---- ------ Shareholders' Equity Convertible Preferred Stock................. 1 -- 1 Common Stock................................ 159 -- 159 Additional Paid-in Capital.................. 495 -- 495 Retained Earnings........................... 15 (39)(D) 46 (3)(F) 73 (G) ------ ---- ------ Total Shareholders' Equity................ 670 31 701 ------ ---- ------ $3,401 $383 $3,784 ====== ==== ======
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Data. 20 HOST MARRIOTT CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FIRST THREE QUARTERS 1995 --------------------------------------------- ACQUISITION DISPOSITION & OTHER HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA ---------- ----------- ----------- --------- Revenues Hotels.......................... $ 315 $ (1)(H) $27 (I) $ 371 30 (J) Other........................... 4 -- 1 (J) 5 ----- ---- --- ----- 319 (1) 58 376 ----- ---- --- ----- Operating costs and expenses Hotels.......................... 182 (1)(H) 15 (I) 224 10 (K) 18 (J) Other........................... 19 -- -- 19 ----- ---- --- ----- 201 9 33 243 ----- ---- --- ----- Operating profit.................. 118 (10) 25 133 Corporate expenses................ (26) -- -- (26) Interest expense.................. (122) 4 (L) (3)(I) (142) (12)(J) 3 (M) (12)(N) Interest income................... 18 -- -- 18 ----- ---- --- ----- Loss from continuing operations before income taxes and extraordinary item............... (12) (6) 1 (17) (Provision) benefit for income taxes............................ (1) 2 (O) -- 1 ----- ---- --- ----- Loss from continuing operations before extraordinary item........ $ (13) $ (4) $ 1 $ (16) ===== ==== === ===== Loss per common share from continuing operations............ $(.08) $(.10) ===== ===== Weighted average shares outstanding...................... 157.9 157.9 ===== =====
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Data. 21 HOST MARRIOTT CORPORATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR 1994 -------------------------------------------- ACQUISITION DISPOSITION & OTHER HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA ---------- ----------- ----------- --------- Revenues Hotels.......................... $ 338 $(2)(H) $41 (I) $ 466 (10)(P) 38 (J) 61 (Q) Other........................... 42 (14)(R) 2 (J) 30 ----- --- --- ----- 380 (26) 142 496 ----- --- --- ----- Operating costs and expenses Hotels.......................... 198 (1)(H) 23 (I) 297 27 (K) 23 (J) (3)(P) 30 (Q) Other........................... 30 (5)(R) -- 25 ----- --- --- ----- 228 18 76 322 ----- --- --- ----- Operating profit.................. 152 (44) 66 174 Corporate expenses................ (32) -- -- (32) Interest expense.................. (165) 34 (L) (5)(I) (179) 1 (R) (15)(J) 5 (M) (31)(N) (3)(Q) Interest income................... 29 -- (5)(Q) 24 ----- --- --- ----- Income (loss) from continuing operations before income taxes and extraordinary item........... (16) (9) 12 (13) (Provision) benefit for income taxes............................ 3 4 (O) (5)(O) 2 ----- --- --- ----- Income (loss) from continuing operations before extraordinary item............................. $ (13) $(5) $ 7 $ (11) ===== === === ===== Income (loss) per common share from continuing operations....... $(.09) $(.07) ===== ===== Weighted average shares outstanding...................... 151.5 1.0 (S) 152.5 ===== === =====
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Data. 22 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA A. Represents the adjustment to record the fourth quarter 1995 acquisition of four full-service properties as follows: --Record property and equipment of $223 million --Record mortgage debt of $98 million (including $10 million provided by Marriott International) --Record advance to the Company of $10 million for one of the properties from Marriott International, as manager --Record the use of cash of $115 million for the remaining acquisition cost B. Represents the adjustment to record the Pending Acquisitions as follows: --Record property and equipment of $267 million --Record the mortgage debt of $206 million for one full-service property --Record the use of cash of $53 million for the acquisition cost --Record the elimination of the prior investment of $13 million in a partnership --Record the property improvement escrow fund of $6 million for one full- service property --Record the minority interest of $1 million for the partner of the joint venture acquiring one full-service property C. Represents the adjustment to record the fourth quarter 1995 sale of a full- service hotel property for net cash proceeds of $3 million. No adjustment has been reflected in the accompanying Unaudited Pro Forma Condensed Consolidated Statements of Operations due to the immateriality of the operating results for this property. D. Represents the adjustment to record the fourth quarter 1995 write down of $39 million, net of taxes of $21 million, for one undeveloped land site. No adjustment has been reflected in the accompanying Pro Forma Condensed Consolidated Statements of Operations due to the unusual and non-recurring nature of this write down. E. Represents the adjustment to record the issuance of the Acquisitions Notes as follows: --Record the issuance of debt of $350 million --Record the net cash proceeds of $340 million --Record the deferred financing fees of $10 million F. Represents the adjustment to record the repayment of the Revolver as follows: --Reduce debt by $210 million with available cash from the issuance of the Acquisitions Notes --Record the write-off of the deferred financing fees related to the Revolver of $4 million before taxes and the related income tax impact of $1 million G. Represents the adjustment to record the Special Dividend by eliminating the net investment in discontinued operations, adjusting shareholders' equity and recording the payment of $8 million of the remaining expenses related to the Special Dividend ($1 million of such expenses were paid prior to September 8, 1995). The entry to record the Special Dividend is subject to adjustment pursuant to finalization under the Distribution Agreement with Host Marriott Services Corporation and certain other agreements. H. Represents the adjustment to eliminate the revenues and the operating costs for the 1995 sale of the four remaining Fairfield Inns. I. Represents the adjustment to reflect the incremental increase in revenue, operating costs and secured debt interest expense for the 1995 addition of eight full-service properties, as if they were added at the beginning of the applicable period. On February 26, 1993, an explosion caused damage to the structure and interior of the New York Vista Hotel, as well as the adjoining World Trade Center complex. As a result of the damage, 23 all hotel operations were suspended and the hotel underwent extensive renovation. Because the hotel did not resume full operations until mid-1995, the historical operations of the hotel during the periods presented are not meaningful and the accompanying Unaudited Pro Forma Condensed Consolidated Statements of Operations do not reflect any adjustments related to the hotel. J. Represents the adjustment to record the revenue, operating costs and secured debt interest expense for the Pending Acquisitions, including the impact of the new management agreements that are expected to be entered into with the manager and depreciation expense reflecting the Company's basis in the assets. K. Represents the net adjustment to eliminate the depreciation expense and record the incremental lease expense for the 1995 sale/leaseback of the 37 Courtyard properties. L. Represents the adjustment to reduce interest expense for the redemption of senior notes of Host Marriott Hospitality, Inc. (the "Hospitality Notes") with the net sales proceeds from the 26 Fairfield Inns, 14 senior living communities and 21 Courtyard properties. M. Represents the adjustment to reduce interest expense to reflect the decrease in interest rates as a result of the issuance of the Properties Notes and the decrease in commitment fees as a result of the New Line of Credit. Extraordinary losses of approximately $17 million, after taxes, related to the 1995 redemption of certain of the Hospitality Notes are not reflected in the accompanying Unaudited Pro Forma Condensed Consolidated Statements of Operations. N. Represents the adjustment to interest expense to eliminate the interest expense and related amortization of deferred financing fees for the Revolver, and to record the interest expense and related amortization of deferred financing fees as a result of the issuance of the Acquisitions Notes. O. Represents the income tax impact of pro forma adjustments at statutory rates. P. Represents the adjustment to eliminate the revenues and the operating costs for the 26 Fairfield Inns sold during 1994. Q. Represents the adjustment to reflect the incremental increase in revenue, operating costs and the secured debt interest expense for the 1994 addition of 18 full-service properties, mainly utilizing proceeds from the January 1994 issuance of common stock by the Company and the Revolver, and the related decrease in interest income. R. Represents the adjustments to eliminate the revenues, operating costs and the secured debt interest expense for the 14 senior living communities sold during 1994. S. Represents the adjustment to increase the weighted average number of common shares outstanding assuming the January 1994 issuance of common stock by the Company occurred as of January 1, 1994. 24 EX-99.A 2 EXHIBIT 99A -- PRESS RELEASE [HOST MARRIOTT LOGO & LETTERHEAD] Exhibit 99a Page 1 of 3 HOST MARRIOTT TO ACQUIRE CONTROLLING INTERESTS IN $400 MILLION OF HOTELS BETHESDA, MD., Jan. 11, 1996 -- Host Marriott Corporation today announced that it has reached agreements to acquire controlling interests in the San Diego Marriott Hotel and Marina, two hotels in Mexico City and the Pittsburgh Hyatt, and to purchase the Delta Meadowvale Hotel and Conference Centre in Toronto, Canada. The 1,355-room San Diego Marriott Hotel and Marina is located on San Diego Bay, adjacent to the Convention Center and Seaport Village in downtown San Diego. The hotel consists of two towers, each comprising approximately 680 rooms, and a conference center. The first tower opened in 1984 and the second tower in 1987. With 56 meeting rooms covering 103,000 square feet, the hotel and conference center is the premiere business meeting hotel in downtown San Diego. Only seven minutes from San Diego International Airport and within walking distance of downtown San Diego's Gaslamp dining district and Horton Plaza shopping mall, the hotel also offers activities at its 446-slip marina. Host Marriott will invest approximately $13 million to increase its current ownership position from five to 51 percent and become the managing general partner of the partnership owning the hotel. Host Marriott said that the $225 million hotel, which is subject to a $206 million non-recourse mortgage, generated approximately $25 million of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) during 1995. Marriott International will continue to manage the hotel. Host Marriott said it also intends to enter into an agreement with Marriott International and Grupo Situr to acquire two hotels in Mexico City -- the 600- room Continental Plaza Exhibit 99a Page 2 of 3 Aeropuerto Hotel, and a five star, 314-room hotel, overlooking Chapultepec Park in the fashionable Polanco district of Mexico City, which is scheduled to open in mid-1996. Both hotels will be managed by Marriott International. The total consideration for both hotels is $133 million, of which Host Marriott will contribute $56 million for a majority interest. Host Marriott and Marriott International will receive a 12 percent first priority return on their investment. Terence C. Golden, president and chief executive officer, said, "We are very excited about the potential for this investment. Mexico City is the number one unserved market in the world for Marriott International and the most frequently requested destination by business travelers in which Marriott does not have a hotel. Both properties should benefit from this unmet demand and the long-term impact from NAFTA." The Continental Plaza Aeropuerto Hotel offers an unmatched location as the only hotel connected to the Mexico City airport terminal. Its high visibility in an irreplaceable location will make it a very profitable Marriott hotel. Host Marriott said that the Aeropuerto hotel generated approximately $8.5 million of EBITDA in 1995. The five-star Polanco Hotel also is well located, close to the downtown business center and walking distance to "high-end" retail and residential areas. The hotel will be branded a JW Marriott, Marriott International's flagship designation. Additionally, Host Marriott has entered into a joint venture agreement with Interstate Hotel Corporation to purchase the 400-room Pittsburgh Hyatt Regency Hotel for $18.5 million. Host Marriott, which will have a 95 percent ownership interest in the joint venture, will invest an additional $6.5 million to renovate and convert the hotel into the Marriott system. Interstate will manage the hotel under a Marriott franchise agreement. Exhibit 99a Page 3 of 3 In another agreement, Host Marriott said it would acquire the 374-room Delta hotel, located in the Meadowvale business park near the Toronto International Airport, for $25 million. The company said that the hotel generated approximately $3.1 million of EBITDA in 1995. Interstate will manage the property for Host Marriott under a Delta Hotels marketing agreement. Mr. Golden stated, "We expect this hotel to provide strong returns to Host Marriott in 1996." "We are seeing numerous additional acquisition opportunities as the industry continues to strengthen and consolidate. We acquired four hotels for $225 million in the fourth quarter of 1995, expect to close on the above five hotels in the first quarter of 1996, and have several additional strong investment opportunities that we are currently pursuing. There are still many hotels in the hands of inadvertent owners, such as banks and insurance companies, and in illiquid partnerships," said Mr. Golden. The company also has instituted a program to aggressively liquidate certain non-income producing assets and to reinvest the proceeds in the acquisition of full service hotels. As a part of this program, it has decided to write-down the 174-acre Germantown land site it owns in Montgomery County, Maryland by $39 million (net of $21 million of taxes) and market it for sale. Marriott Corporation purchased the site in the mid-1980s for a proposed new corporate headquarters. However, due to company downsizing in the late 1980s and early 1990s, plans for a new corporate headquarters were dropped. More recently, Host Marriott planned to develop the site into an office park over an extended time period to recoup its investment. However, given the continuing weakness of the real estate market in Montgomery County the company has made a decision to sell the property. Host Marriott Corporation is a lodging real estate company which currently owns 90 properties operated primarily under Marriott brand names. EX-99.B 3 EXHIBIT 99B -- PRESS RELEASE Exhibit 99b Page 1 of 1 [HOST MARRIOTT LOGO AND LETTERHEAD] HOST MARRIOTT TO OFFER 25 MILLION SHARES OF COMMON STOCK BETHESDA, MD, Jan. 11, 1996 -- Host Marriott Corporation said today that it has filed a registration statement with the Securities and Exchange Commission for the public offering by the company of approximately 25 million shares of its common stock. Based on the closing price of the common stock of 11-5/8 on Wednesday, January 10, the shares would have a combined market value of approximately $291 million. Net proceeds from the offering are expected to be used for the acquisition of hotels or related assets. To the extent that they are not used for that purpose, net proceeds are expected to be used for general corporate purposes. The offering will be managed by Donaldson, Lufkin & Jenrette Securities Corporation and co-managed by Goldman, Sachs & Co., Salomon Brothers Inc., Smith Barney Inc., Montgomery Securities, and BT Securities Corporation. Host Marriott Corporation is a lodging real estate company which currently owns 90 properties primarily operated under Marriott brand names. A registration statement relating to these securities has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This announcement shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. -----END PRIVACY-ENHANCED MESSAGE-----