-----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, PmxN5fgKZr/VotJbZB77yWHwkq/Fw2V7xuv7g14FeAV2p62axBieqUOBXLPMmi/e iRZOLBr4U3KW8Jk/lKzqow== 0000928385-96-000886.txt : 19960705 0000928385-96-000886.hdr.sgml : 19960705 ACCESSION NUMBER: 0000928385-96-000886 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960618 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960702 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: 96590478 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) June 18, 1996 ------------------------- HOST MARRIOTT CORPORATION (Exact Name of Registrant as Specified in its Charter) Delaware 1-5664 53-0085950 (State or Other Jurisdiction of Incorporation) (Commission File Number) (I.R.S. Employer Identification Number)
10400 Fernwood Road, Bethesda, Maryland 20817 (Address of Principal 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. Other Events On June 18, 1996, Host Marriot Corporation (the "Company") successfully completed its tender offer for a majority of the limited partnership units in Marriott Hotel Properties II Limited Partnership ("MHP II"), an affiliated partnership of the Company in which the Company owns a 1.67% general partner interest. MHP II owns the 1,290-room New Orleans Marriott hotel, the 999-room San Antonio Marriott Rivercenter hotel, the 368-room San Ramon Marriott hotel and a 50% limited partner interest in the 754-room Santa Clara Marriott hotel. The Company purchased 375.5 units for an aggregate consideration of $56,325,000, or $150,000 per unit. As a result of this transaction, a wholly-owned subsidiary of Host Marriott became the majority limited partner in MHP II and the Company will consolidate the MHP II partnership in the third quarter of 1996. A copy of the news release is attached as an exhibit to this current report. Item 7. Financial Statements and Exhibits (a) Financial Statements of MHP II: Page ---- Report of Independent Public Accountants 3 Statements of Operations for the three years in the period ended December 31, 1995 4 Balance Sheets as of December 31, 1995 and 1994 5 Statements of Changes in Partners' Capital for the three years in the period ended December 31, 1995 6 Statements of Cash Flows for the three years in the period ended December 31, 1995 7 Notes to Financial Statements 8 Condensed Statements of Operations for the twelve weeks ended March 22, 1996 and March 24, 1995 16 Condensed Balance Sheets as of March 22, 1996 and December 31, 1995 17 Condensed Statements of Cash Flows for the twelve weeks ended March 22, 1996 and March 24, 1995 18 Notes to Financial Statements 19 (b) Pro Forma financial information of the Company reflecting the acquisition of MHP II as of and for the twelve weeks ended March 22, 1996 and for the year ended December 29, 1995: Page ---- Pro Forma Condensed Consolidated Financial Data 22 Pro Forma Condensed Consolidated Balance Sheet as of March 22, 1996 24 Pro Forma Condensed Consolidated Statements of Operations for the twelve weeks ended March 22, 1996 and for the year ended December 29, 1995 25 Notes to Pro Forma Condensed Consolidated Financial Data 27 (c) Exhibits: (99) News Release dated June 17, 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/ Donald D. Olinger -------------------------------- Donald D. Olinger Vice President and Corporate Controller Date: July 2, 1996 2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE PARTNERS OF MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP We have audited the accompanying balance sheet of Marriott Hotel Properties II Limited Partnership (a Delaware limited partnership) as of December 31, 1995 and 1994, and the related statements of operations, changes in partners' capital and cash flows for each of the three years in the period ended December 31, 1995. The financial statements are the responsibility of the General Partner's management. Our responsibility is to express an opinion on these 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 an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Marriott Hotel Properties II Limited Partnership as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Arthur Andersen LLP Washington, D.C., February 22, 1996 (except for the matter discussed in Note 10, as to which the date is March 28, 1996) 3 MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
1995 1994 1993 ------- ------- ------- REVENUES (Note 3)................................... $64,002 $58,703 $57,003 ------- ------- ------- OPERATING COSTS AND EXPENSES Interest.......................................... 17,803 17,884 17,803 Depreciation and amortization..................... 13,364 12,246 12,737 Incentive management fees......................... 9,412 8,507 8,200 Property taxes.................................... 5,526 5,307 5,324 Base management fees.............................. 4,281 3,989 3,926 Ground rent, insurance and other.................. 690 1,557 1,538 ------- ------- ------- 51,076 49,490 49,528 ------- ------- ------- INCOME BEFORE EQUITY IN INCOME/(LOSSES) OF SANTA CLARA PARTNERSHIP.................................. 12,926 9,213 7,475 EQUITY IN INCOME/(LOSSES) OF SANTA CLARA PARTNER- SHIP............................................... 119 (785) (606) ------- ------- ------- NET INCOME.......................................... $13,045 $ 8,428 $ 6,869 ======= ======= ======= ALLOCATION OF NET INCOME General Partner................................... $ 130 $ 84 $ 69 Limited Partners.................................. 12,915 8,344 6,800 ------- ------- ------- $13,045 $ 8,428 $ 6,869 ======= ======= ======= NET INCOME PER LIMITED PARTNER UNIT (745 Units)..... $17,336 $11,200 $ 9,128 ======= ======= =======
The accompanying notes are an integral part of these financial statements. 4 MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP BALANCE SHEETS DECEMBER 31, 1995 AND 1994 (in thousands)
1995 1994 -------- -------- ASSETS Property and equipment, net (Note 4)...................... $203,990 $211,811 Due from Marriott International, Inc...................... 7,275 6,849 Property improvement fund................................. 11,940 10,587 Deferred financing and organization costs, net of accumulated amortization................................. 114 603 Restricted cash reserve................................... 9,193 2,847 Cash and cash equivalents................................. 21,601 17,764 -------- -------- $254,113 $250,461 ======== ======== LIABILITIES AND PARTNERS' CAPITAL Mortgage debt (Note 7).................................... $222,500 $222,500 Due to Marriott International, Inc........................ 2,615 2,031 Investment in Santa Clara Partnership..................... 8,244 6,994 Accounts payable and accrued expenses..................... 433 372 -------- -------- Total Liabilities..................................... 233,792 231,897 ======== ======== PARTNERS' CAPITAL General Partner Capital contribution, net of offering costs of $22...... 731 731 Capital distributions................................... (626) (513) Cumulative net income................................... 243 113 -------- -------- 348 331 -------- -------- Limited Partners Capital contribution, net of offering costs of $8,426... 64,689 64,689 Capital distributions................................... (68,779) (57,604) Cumulative net income................................... 24,063 11,148 -------- -------- 19,973 18,233 -------- -------- Total Partners' Capital............................... 20,321 18,564 -------- -------- $254,113 $250,461 ======== ========
The accompanying notes are an integral part of these financial statements. 5 MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995 (IN THOUSANDS)
GENERAL LIMITED PARTNER PARTNERS TOTAL ------- -------- -------- Balance, December 31, 1992.......................... $ 408 $ 25,899 $ 26,307 Payments received on investor notes receivable.... -- 31 31 Capital distributions............................. (117) (11,609) (11,726) Net income........................................ 69 6,800 6,869 ----- -------- -------- Balance, December 31, 1993.......................... 360 21,121 21,481 Capital distributions............................. (113) (11,232) (11,345) Net income........................................ 84 8,344 8,428 ----- -------- -------- Balance, December 31, 1994.......................... 331 18,233 18,564 Capital distributions............................. (113) (11,175) (11,288) Net income........................................ 130 12,915 13,045 ----- -------- -------- Balance, December 31, 1995.......................... $ 348 $ 19,973 $ 20,321 ===== ======== ========
The accompanying notes are an integral part of these financial statements. 6 MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995 (IN THOUSANDS)
1995 1994 1993 -------- -------- -------- OPERATING ACTIVITIES Net income..................................... $ 13,045 $ 8,428 $ 6,869 Noncash items: Depreciation and amortization................ 13,364 12,246 12,737 Deferred portion of incentive management fees........................................ 461 363 777 Equity in (income)/losses of Santa Clara Partnership................................. (119) 785 606 Amortization of deferred financing costs as interest.................................... 489 489 489 Loss on retirement of assets................. 10 113 1 Changes in operating accounts: Due from Marriott International, Inc......... (426) 1,742 (1,106) Accounts payable and accrued expenses........ 61 15 (59) Due to Marriott International, Inc........... 123 (3,286) 2,374 -------- -------- -------- Cash provided by operations................ 27,008 20,895 22,688 -------- -------- -------- INVESTING ACTIVITIES Additions to property and equipment............ (5,565) (6,542) (3,427) Change in property improvement funds........... (1,341) 147 (2,807) Distributions from Santa Clara Partnership..... 1,369 1,317 1,210 Additions to restricted cash reserve........... (6,346) (2,847) -- -------- -------- -------- Cash used in investing activities.......... (11,883) (7,925) (5,024) -------- -------- -------- FINANCING ACTIVITIES Capital distributions.......................... (11,288) (11,345) (11,726) Payments received on investor notes receivable.................................... -- -- 31 -------- -------- -------- Cash used in financing activities.......... (11,288) (11,345) (11,695) -------- -------- -------- INCREASE IN CASH AND CASH EQUIVALENTS............ 3,837 1,625 5,969 CASH AND CASH EQUIVALENTS at beginning of period.......................................... 17,764 16,139 10,170 -------- -------- -------- CASH AND CASH EQUIVALENTS at end of period....... $ 21,601 $ 17,764 $ 16,139 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for mortgage interest................ $ 17,267 $ 17,361 $ 17,267 ======== ======== ========
The accompanying notes are an integral part of these financial statements. 7 MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994 NOTE 1. THE PARTNERSHIP Description of the Partnership Marriott Hotel Properties II Limited Partnership (the "Partnership"), a Delaware limited partnership, was formed in 1989 to acquire, own and operate (i) the 1,290-room New Orleans Marriott Hotel and underlying land in New Orleans, Louisiana (the "New Orleans Hotel"); (ii) the 999-room Marriott Rivercenter Hotel in San Antonio, Texas (the "San Antonio Hotel"); (iii) the 368-room Bishop Ranch Marriott Hotel in San Ramon, California (the "San Ramon Hotel"); (collectively, the "Hotels") and (iv) a 50% limited partnership interest in the Santa Clara Marriott Hotel Limited Partnership (the "Santa Clara Partnership"), a Delaware limited partnership, which owns the 754-room Santa Clara Marriott Hotel in Santa Clara, California (the "Santa Clara Hotel"). The remaining 50% interest in the Santa Clara Partnership is owned by Marriott MHP Two Corporation (the "General Partner") with a 1% interest, and HMH Properties, Inc., a wholly-owned indirect subsidiary of Host Marriott as defined below, with a 49% limited partner interest. On October 8, 1993, Marriott Corporation's operations were divided into two separate companies: Host Marriott Corporation and Marriott International, Inc. ("MII"). On December 29, 1995, Host Marriott Corporation's operations were divided into two separate companies: Host Marriott Corporation ("Host Marriott") and Host Marriott Services Corporation. The sole general partner of the Partnership, with a 1% interest, is Marriott MHP Two Corporation, a Delaware corporation and a wholly-owned subsidiary of Host Marriott. The General Partner made a capital contribution of $752,525 for its 1% general partnership interest. On March 20, 1989 (the "Closing Date"), 745 limited partnership interests (the "Units"), representing a 99% interest in the Partnership, were sold in a private placement for a total capitalization of $74,500,000. The offering price per unit was $100,000, payable in three annual installments ending June 1, 1991 (the "Investor Notes"), or as an alternative, $89,247 in cash at closing as full payment of the subscription price. On the Closing Date, the Partnership executed a purchase agreement (the "Purchase Agreement") with Host Marriott, to acquire the Hotels and the 50% limited partnership interest in the Santa Clara Partnership for $319.5 million. Of the total purchase price, $222.5 million was paid from proceeds of a variable rate mortgage loan received from commercial banks and secured by the Hotels, $43.4 million was evidenced by a promissory note payable to Host Marriott (the "Deferred Purchase Note"), $43.5 million was paid from a cash distribution by the Santa Clara Partnership and the remainder from the sale of the Units. The principal outstanding on the Deferred Purchase Note was fully repaid in 1991 with the proceeds of the Investor Notes. The New Orleans and San Antonio Hotels and the limited partnership interest in the Santa Clara Partnership were conveyed to the Partnership on the Closing Date with the San Ramon Hotel being conveyed upon completion of its construction on May 31, 1989. The Hotels and the Santa Clara Hotel are managed by MII (the "Manager") under long-term management agreements. Partnership Allocations and Distributions Pursuant to the terms of the Partnership agreement, Partnership allocations, for Federal income tax purposes, and distributions are generally made as follows: a. Cash available for distribution is distributed for each fiscal year semi-annually as follows: (i) 100% to the limited partners until the limited partners have received with respect to such fiscal year a non- cumulative 10% preferred distribution on their Invested Capital, as defined; (ii) 100% to the General Partner until the General Partner has received an amount equal to 1/99th of the amount distributed to the limited partners; (iii) 1% to the General Partner and 99% to the limited partners until such time as the limited partners have received the 15% Preferred Distribution, as defined, plus $50,000 per Unit, payable only from Capital Receipts, as defined to the extent available after the payment of the 15% Preferred Distribution; and (iv) thereafter, 20% to the General Partner and 80% to the limited partners. 8 MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1994 b. Refinancing and sales proceeds ("Capital Receipts") available for distribution to the partners are distributed as follows: (i) 1% to the General Partner and 99% to the limited partners until the limited partners have received cumulative distributions from Capital Receipts equal to the 15% Preferred Distribution plus $100,000 per Unit; and (ii) 20% to the General Partner and 80% to the limited partners. c. Net profits generally are allocated to the partners in proportion to the distributions of cash available for distribution. d. Net losses generally are allocated 75% to the General Partner and 25% to the limited partners. e. Gains recognized by the Partnership are allocated in the following order of priority: (i) to all partners with negative capital balances in the ratio of such negative balances until such negative balances are eliminated; (ii) to all partners up to the amount necessary to bring the limited partners' capital account balances to an amount equal to the limited partners' 15% Preferred Distribution plus the limited partners' Invested Capital and to bring the General Partner's capital account balance to an amount equal to 1/99th of the capital account balance of the limited partners; and (iii) 20% to the General Partner and 80% to the limited partners. For financial reporting purposes, profits and losses are generally allocated among the partners based on their stated interests in cash available for distribution. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The Partnership records are maintained on the accrual basis of accounting and its fiscal year coincides with the calendar year. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenues and Expenses Revenues represent house profit from the Partnership's Hotels because the Partnership has delegated substantially all of the operating decisions related to the generation of house profit from the Hotels to the Manager. House profit reflects net revenues flowing to the Partnership as property owner and represents gross hotel sales less property-level expenses, excluding depreciation and amortization, base and incentive management fees, real and personal property taxes, ground and equipment rent, insurance and certain other costs, which are disclosed separately in the statement of operations. Working Capital and Supplies Pursuant to the terms of the Partnership's management agreement discussed in Note 9, the Partnership is required to provide the Manager with working capital and supplies to meet the operating needs of the Hotels. The Manager converts cash advanced by the Partnership into other forms of working capital consisting primarily of operating cash, inventories, and trade receivables and payables which are maintained and controlled by the Manager. Upon the termination of the management agreement, the Manager is required to convert working capital and supplies into cash and return it to the Partnership. As a result of these conditions, the individual components of working capital and supplies controlled by the Manager are not reflected in the accompanying balance sheet. 9 MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1994 Property and Equipment Property and equipment is recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives as follows: Land improvements......................................... 40 years Building and improvements................................. 30 to 40 years Leasehold improvements.................................... 40 to 50 years Furniture and equipment................................... 3 to 10 years
All property and equipment is pledged as security against the mortgage debt described in Note 7. The Partnership periodically assesses impairment of its property and equipment based on whether it is probable that undiscounted cash flows from each individual property will be less than such property's net book value. Deferred Financing and Organization Costs Deferred financing and organization costs consist of loan fees and legal and accounting costs incurred in connection with obtaining Partnership financing and the formation of the Partnership. Financing costs are amortized using the straight-line method over the seven year loan term and organization costs are amortized using the straight-line method over five years. At December 31, 1995 and 1994, accumulated amortization of deferred financing and organization costs totalled $3,166,000 and $2,812,000, respectively. Restricted Cash Reserve A restricted cash reserve consisting of funds generated in excess of an annual 17.5% return on partners invested capital, as defined, has been established in an escrow account maintained by the lender. Deposits are made in conjunction with the bi-annual distributions to the limited partners. These funds will be applied to the principal balance of the mortgage loan upon maturity of the loan in 1996 or upon earlier prepayment at the Partnership's option. As of December 31, 1995 and 1994, the balance in the reserve was $9,193,000 and $2,847,000, respectively. Cash and Cash Equivalents The Partnership considers all highly liquid investments with a maturity of three months or less at date of purchase to be cash equivalents. Investment in Santa Clara Partnership The Partnership's earnings from the Santa Clara Partnership are recorded based on the equity method of accounting. Equity in earnings from the Santa Clara Partnership includes 100% of the interest expense related to the debt incurred by the Santa Clara Partnership, the proceeds of which were distributed to the Partnership. The $28.4 million excess of the purchase price of the Santa Clara Partnership interest over the Partnership's proportionate share of the net book value of the assets acquired is being amortized over the related remaining lives of those assets. Amortization is included in Equity in Income/(Losses) of Santa Clara Partnership in the accompanying statement of operations. At December 31, 1995 and 1994, accumulated amortization of the excess purchase price of the Santa Clara investment was $10,095,000 and $9,383,000, respectively. Prior to December 31, 1995, the Partnership is required to make capital contributions to the Santa Clara Partnership if Santa Clara's debt service is greater than its cash available for debt service, as defined. After December 31, 1995, capital contributions are required by the Partnership if Santa Clara's debt service exceeds 50% of its cash available for debt service. No capital contributions have been required as of December 31, 1995. Interest Rate Swap Agreements The Partnership is a party to an interest rate swap agreement to reduce the Partnership's exposure to floating interest rates. The Partnership accounts for the swap agreement as a hedge of an obligation to pay floating rates of interest and accordingly, records interest expense based upon its payment obligation at a fixed interest rate. 10 MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1994 Income Taxes Provision for Federal and state income taxes has not been made in the accompanying financial statements since the Partnership does not pay income taxes but rather allocates its profits and losses to the individual partners. Significant differences exist between the net income for financial reporting purposes and the net income as reported in the Partnership's tax return. These differences are due primarily to the use, for income tax purposes, of accelerated depreciation methods and shorter depreciable lives of the assets and differences in the timing of recognition of incentive management fee expense. As a result of these differences, the excess of the net assets reported in the accompanying financial statements over the tax basis in net Partnership assets is $38,000 and $4,023,000 as of December 31, 1995 and 1994, respectively. The difference in 1995 is significantly less than 1994 due primarily to greater book depreciation compared to tax depreciation in 1995. New Statements of Financial Accounting Standards The Partnership is required to adopt Statements of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" no later than its year ending December 31, 1996. The Partnership does not expect that the adoption of SFAS No. 121 will have a material effect on its financial statements. NOTE 3. REVENUES Partnership revenues consist of the Hotels' operating results for the three years ended December 31 (in thousands):
1995 1994 1993 -------- -------- -------- HOTEL SALES Rooms............................................. $ 93,292 $ 88,436 $ 84,997 Food and beverage................................. 42,198 37,972 39,763 Other............................................. 7,215 6,548 6,089 -------- -------- -------- 142,705 132,956 130,849 -------- -------- -------- HOTEL EXPENSES Departmental direct costs Rooms........................................... 18,416 17,490 16,714 Food and beverage............................... 28,975 26,338 27,178 Other hotel operating expenses.................... 31,312 30,425 29,954 -------- -------- -------- 78,703 74,253 73,846 -------- -------- -------- REVENUES............................................ $ 64,002 $ 58,703 $ 57,003 ======== ======== ========
NOTE 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following as of December 31 (in thousands):
1995 1994 -------- -------- Land and improvements....................................... $ 17,091 $ 17,091 Building and improvements................................... 105,374 105,318 Leasehold improvements...................................... 108,848 107,345 Furniture and equipment..................................... 55,335 51,772 -------- -------- 286,648 281,526 Less accumulated depreciation............................... (82,658) (69,715) -------- -------- $203,990 $211,811 ======== ========
11 MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1994 NOTE 5. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of financial instruments are shown below. The fair values of financial instruments not included in this table are estimated to be equal to their carrying amounts.
AS OF DECEMBER 31, 1995 AS OF DECEMBER 31, 1994 ------------------------ ------------------------ ESTIMATED ESTIMATED CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ----------- ------------ ----------- ------------ (IN THOUSANDS) (IN THOUSANDS) DEBT AND OTHER LIABILITIES Mortgage debt................ $ 222,500 $ 222,500 $ 222,500 $ 222,500 Incentive management fees due to Marriott International, Inc. ....................... $ 2,164 $ 92 $ 1,703 $ 0 OTHER FINANCIAL INSTRUMENTS Loss on interest rate swap ($222,500,000 notional amount)..................... $ 0 $ 581 $ 0 $ 2,600
The 1995 estimated fair value of mortgage debt obligations are based on their carrying value as the debt matures on March 21, 1996, and the General Partner believes refinancing is likely, as discussed in Note 7. Incentive management fees due are valued based on the expected future payments from operating cash flow discounted at risk adjusted rates. The fair value of the interest rate swap agreement is based on the estimated amount the Partnership would pay to terminate the agreement. NOTE 6. SANTA CLARA PARTNERSHIP Summarized financial information for the Santa Clara Partnership is as follows:
DECEMBER 31, DECEMBER 31, 1995 1994 ------------ ------------ BALANCE SHEET Property and equipment................................ $ 28,406 $ 29,133 Due from Marriott International, Inc. ................ 1,976 1,855 Other assets.......................................... 1,614 1,762 Cash and cash equivalents............................. 1,614 1,216 -------- -------- Total Assets........................................ $ 33,610 $ 33,966 ======== ======== Mortgage debt......................................... $ 43,500 $ 43,500 Due to Marriott International, Inc.................... 1,086 468 Accounts payable and accrued expenses................. 117 132 Partners' Deficit..................................... (11,093) (10,134) -------- -------- Total Liabilities and Partners' Deficit............. $ 33,610 $ 33,966 ======== ========
FOR THE YEARS ENDED DECEMBER 31, ----------------------- 1995 1994 1993 ------- ------- ------- STATEMENT OF OPERATIONS REVENUES............................................... $14,516 $12,131 $11,203 ------- ------- ------- OPERATING COSTS AND EXPENSES Depreciation and amortization........................ 2,765 2,359 2,291 Interest............................................. 3,063 2,295 1,809 Incentive management fees............................ 2,175 1,761 1,577 Base management fees................................. 1,079 967 906 Property taxes....................................... 508 501 506 Ground rent, insurance and other..................... 201 270 264 ------- ------- ------- 9,791 8,153 7,353 ------- ------- ------- NET INCOME............................................. $ 4,725 $ 3,978 $ 3,850 ======= ======= =======
12 MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1994 NOTE 7. DEBT Mortgage Debt The Partnership borrowed $222.5 million pursuant to the terms of a variable rate mortgage loan (the "Mortgage Debt") to finance the acquisition of the Hotels. The Mortgage Debt is non-recourse to the Partnership and is secured by a first mortgage on each of the Hotels including furniture, fixtures and equipment, contracts and other intangibles and an assignment of the Partnership's rights under the Management and Purchase Agreements. At the option of the Partnership, the Mortgage Debt provided for interest rate options which are tied to a Eurodollar rate, an adjusted CD rate or the fluctuating corporate base rate. For Eurodollar or CD elections, the Partnership pays the applicable rate plus an increment equal to 0.9 percentage points. In April 1992, the Partnership entered into an interest rate swap agreement for the Mortgage Debt with the primary lender to effectively fix the interest rate on the Mortgage Debt at 7.8% per annum from May 1992 through loan maturity. The Partnership does not anticipate nonperformance by the lender. The Partnership's obligations under the swap agreement are secured by a pledge of collateral by the General Partner. The weighted average interest rate on the Mortgage Debt for the three years in the period ended December 31, 1995 was 7.8%. The Mortgage Debt matures March 21, 1996. Although no agreement has been reached with a lender, the General Partner has had several discussions with lenders and believes that it will be able to refinance the loan at maturity. However, if the Partnership is not successful in refinancing the loan, repayment of the Mortgage Debt could only be made through the sale of the Hotels. In March of 1994, the Partnership established a reserve with the mortgage lender which eliminates any potential conflict under the loan agreement resulting from the October 8, 1993 division of Marriott Corporation's operations into two separate companies. Under an agreement reached among the Partnership, the Manager and the lender, the Partnership will deposit funds generated in excess of an annual 17.5% return on invested capital into an escrow account maintained by the lender in conjunction with the bi-annual distributions to the limited partners. Such funds could be applied to the principal balance of the Mortgage Debt upon maturity of the loan in 1996 or upon an earlier prepayment at the Partnership's option. The balance in the reserve as of December 31, 1995 and December 31, 1994, maintained by the primary lender, is $9,193,000 and $2,847,000, respectively. Debt Guarantees Host Marriott provided an unconditional debt service guarantee to the lenders of up to $22.8 million to cover shortfalls in principal and interest payments due under the Mortgage Debt. In accordance with the terms of the debt service guarantee, Host Marriott was released from this obligation as of December 31, 1992, as a result of the Partnership's debt service coverage, as defined, exceeding 1.20 for a specified time period. There were no amounts advanced to the Partnership under the debt service guarantee. The General Partner has also guaranteed that in the event of a foreclosure of the Hotels, proceeds to the lender will be at least $40 million. NOTE 8. LAND LEASES The San Antonio and San Ramon Hotels are located on sites with ground leases from unrelated third parties. The initial lease terms expire in 2013 and 2014, respectively. The Partnership is obligated to pay annual rent equal to the greater of a minimum rent or a percentage rent and has the option to extend the terms for up to five successive ten-year terms each. Ground rent on the San Antonio Hotel is equal to the greater of $700,000 or 3.5% of annual gross room sales. Ground rent on the San Ramon Hotel is equal to the greater of $350,000 or 3% of annual gross sales for the first five years. San Ramon's minimum rent will be adjusted upward every five 13 MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1994 years, beginning in 1989, to an amount equal to 75% of the average rent paid during the three years immediately preceding the applicable five-year period. Ground rent expense for the San Antonio and San Ramon Hotels totalled $1,879,000, $1,746,000 and $1,762,000, for the years ended December 31, 1995, 1994, and 1993, respectively. Future minimum annual rental commitments for all land leases entered into by the Partnership, as described above, are as follows (in thousands):
FISCAL YEAR LAND LEASES ----------- ----------- 1996........................................................ $ 1,050 1997........................................................ 1,050 1998........................................................ 1,050 1999........................................................ 1,050 2000........................................................ 1,050 Thereafter.................................................... 14,000 ------- Total Minimum Lease Payments.................................. $19,250 =======
NOTE 9. MANAGEMENT AGREEMENTS The Partnership entered into long-term hotel management agreements (the "Management Agreements") with the Manager to manage the Hotels as part of the Marriott International, Inc. full-service hotel system. The Management Agreements for each Hotel have an initial term expiring on December 31, 2008. The Manager has the option to renew the Management Agreements for up to four additional 10-year terms. The Manager also manages the Santa Clara Hotel on behalf of the Santa Clara Partnership. The Manager is paid a base management fee equal to 3% of gross hotel sales. Base management fees paid in 1995, 1994 and 1993 were $4,281,000, $3,989,000 and $3,926,000, respectively. In addition, the Manager is entitled to an incentive management fee equal to 20% of such Hotel's Operating Profit, as defined. The incentive management fee with respect to each Hotel is payable only out of 55% of each Hotel's operating profit after the Partnership's payment or retention for such fiscal year of the following: (i) the Ground Rent, if any, with respect to such Hotel; (ii) the Qualifying Debt Service, as defined, with respect to such Hotel; (iii) such Hotel's Pro-Rata Share of Total Mortgage Debt Service Shortfall, as defined, if any, with respect to all Hotels; (iv) the Partnership's non-cumulative 10% Priority Return on the Adjusted Contributed Capital, as defined, with respect to such Hotel; (v) through December 31, 1991, such Hotel's Pro-Rata Share of Total Equity Priority Shortfall, if any, with respect to all Hotels; and (vi) through December 31, 1992, such Hotel's pro-rata share of required repayments of any outstanding advances and accrued interest thereon under the Debt Service Guarantee. Through 1991, the Manager was not entitled to accrue any unpaid incentive management fees. Beginning in 1992, unpaid incentive management fees are accrued without interest and are paid from cash flow available for incentive management fees following payment of any then current incentive management fees. Incentive management fees earned for the years ended December 31, 1995, 1994, and 1993 were $9,412,000, $8,507,000 and $8,200,000, respectively. Deferred incentive management fees as of December 31, 1995 and 1994 were $2,164,000 and $1,703,000, respectively. Pursuant to the terms of the Management Agreements, the Manager is required to furnish the Hotels with certain services ("Chain Services") which are generally provided on a central or regional basis to all hotels in the Marriott full-service hotel system. Chain services include central training, advertising and promotion, a 14 MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1995 AND 1994 national reservations system, computerized payroll and accounting services, and such additional services as needed which may be more efficiently performed on a centralized basis. Costs and expenses incurred in providing such services are allocated among all domestic full-service hotels managed, owned or leased by the Manager or its subsidiaries. In addition, the Hotels also participate in the Manager's Honored Guest Awards Program ("HGA"). The cost of this program is charged to all hotels in the Marriott full-service hotel system based upon the HGA sales at each hotel. The total amount of Chain Services and HGA costs charged to the Partnership for the years ended December 31, 1995, 1994 and 1993 was $5,151,000, $4,448,000 and $3,497,000, respectively. The Management Agreements provide for the establishment of a property improvement fund for each Hotel to cover the cost of certain non-routine repairs and maintenance to the Hotels which are normally capitalized and the cost of replacements and renewals to the Hotels' property and improvements. Contributions to the property improvement fund are based on a percentage of gross sales. In the case of the San Antonio Hotel, contributions to the property improvement fund were 4% in 1991 through 1998 and 5% thereafter. Contributions to the property improvement fund for the San Ramon Hotel were 4% in 1994 through 1998 and 5% in 1999 and thereafter. Contributions to the property improvement fund for the New Orleans Hotel are 5% each year. Total contributions to the property improvement fund for the years ended December 31, 1995 and 1994 were $6,342,000 and $5,935,000, respectively. Pursuant to the terms of the Management Agreements, the Partnership is required to provide the Manager with working capital and supplies to meet the operating needs of the Hotels. The Manager converts cash advanced by the Partnership into other forms of working capital consisting primarily of operating cash, inventories, and trade receivables and payables which are maintained and controlled by the Manager. Upon termination of any of the Management Agreements, the working capital and supplies of the related Hotel will be returned to the Partnership. The individual components of working capital and supplies controlled by the Manager are not reflected in the Partnership's balance sheet. As of December 31, 1995 and 1994, $6,633,000 has been advanced to the Manager for working capital and supplies which is included in Due from Marriott International, Inc. The supplies advanced to the Manager are recorded at their estimated net realizable value. At December 31, 1995 and 1994, accumulated amortization related to the revaluation of these supplies totalled $844,000. NOTE 10. SUBSEQUENT EVENT On March 21, 1996, the Mortgage Debt matured. An extension between the Partnership and the current lenders was entered into and extends the maturity date for an additional six months until an agreement can be reached with another lender. The General Partner has had several discussions with lenders and believes that it will be able to refinance the loan before the end of the six month extension. Under the terms of the extension, interest accrues at the London interbank offered rate ("LIBOR") plus 187.5 basis points for the first three months and LIBOR plus 225 basis points for the second three months. No principal amortization is required during the extension. In addition, the Partnership applied the $9.2 million accumulated in the primary lender reserve to the principal balance and deposited $19.1 into the reserve. This deposit represents the total General Partner reserve through December 31, 1995 ($16.8 million) and cash flow from the Partnership for the first two periods of 1996 ($2.3 million). Going forward, the Partnership will be required to deposit into the reserve all cash flow from the Partnership's Hotels plus the Partnership's cash flow from the Santa Clara Partnership, net of $500,000 per period, debt service and current incentive management fees paid. The $500,000 will be deposited into a separate expense reserve which will be used by the Partnership to fund administrative and refinancing costs and any owner funded capital expenditures of the Partnership, as well as the Partnership's share of any such costs incurred by the Santa Clara Partnership in the six month extension period. In connection with the contemplated refinancing of the mortgage debt, the General Partner may use funds in the reserve accounts for costs and expenses associated with the refinancing, to pay down principal, to establish escrow accounts (if required), or for distribution to the limited partners. 15 MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per Unit amounts)
Twelve Weeks Ended ----------------------------- March 22, March 24, 1996 1995 ------------- ------------- REVENUES......................................... $ 17,044 $ 17,208 ------------- ------------- OPERATING COSTS AND EXPENSES Interest expense................................ 4,010 4,050 Depreciation and amortization................... 2,890 2,890 Incentive management fees....................... 2,552 2,612 Property taxes.................................. 1,298 1,283 Base management fees............................ 1,080 1,071 Ground rent, insurance and other................ 241 393 ------------- ------------- 12,071 12,299 ------------- ------------- INCOME BEFORE EQUITY IN INCOME OF SANTA CLARA PARTNERSHIP......................... 4,973 4,909 EQUITY IN INCOME OF SANTA CLARA PARTNERSHIP...... 347 173 ------------- ------------- NET INCOME....................................... $ 5,320 $ 5,082 ============= ============= ALLOCATION OF NET INCOME General Partner................................. $ 53 $ 51 Limited Partners................................ 5,267 5,031 ------------- ------------- $ 5,320 $ 5,082 ============= ============= NET INCOME PER LIMITED PARTNER UNIT (745 Units).. $ 7,070 $ 6,753 ============= =============
See Notes to Condensed Financial Statements. 16 MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP CONDENSED BALANCE SHEETS (Unaudited) (in thousands)
March 22, December 31, 1996 1995 ------------- ------------- ASSETS Property and equipment, net..................... $ 203,098 $ 203,990 Due from Marriott International, Inc............ 10,963 7,275 Property improvement fund....................... 11,696 11,940 Deferred financing and organization costs, net.. 1 114 Restricted cash reserve......................... 9,280 9,193 Cash and cash equivalents....................... 25,830 21,601 ------------- ------------- $ 260,868 $ 254,113 ============= =============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES Mortgage debt.................................. $ 222,500 $ 222,500 Due to Marriott International, Inc............. 3,424 2,615 Investment in Santa Clara Partnership.......... 8,870 8,244 Accounts payable and accrued expenses.......... 433 433 ------------- ------------- Total Liabilities............................. 235,227 233,792 ------------- ------------- PARTNERS' CAPITAL General Partner................................ 401 348 Limited Partners............................... 25,240 19,973 ------------- ------------- Total Partners' Capital....................... 25,641 20,321 ------------- ------------- $ 260,868 $ 254,113 ============= =============
See Notes to Condensed Financial Statements. 17 MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Twelve Weeks Ended ----------------------------- March 22, March 24, 1996 1995 ------------- ------------- OPERATING ACTIVITIES Net income................................... $ 5,320 $ 5,082 Noncash items................................ 2,705 2,920 Change in operating accounts................. (2,928) (1,938) ------------- ------------- Cash provided by operations.............. 5,097 6,064 ------------- ------------- INVESTING ACTIVITIES Additions to property and equipment.......... (1,998) (2,762) Distributions from Santa Clara Partnership... 973 -- Change in property improvement funds......... 244 1,024 Additions to restricted cash reserve......... (87) -- ------------- ------------- Cash used in investing activities........ (868) (1,738) ------------- ------------- INCREASE IN CASH AND CASH EQUIVALENTS......... 4,229 4,326 CASH AND CASH EQUIVALENTS at beginning of period....................................... 21,601 17,764 ------------- ------------- CASH AND CASH EQUIVALENTS at end of period.... $ 25,830 $ 22,090 ============= ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for mortgage interest.............. $ 3,937 $ 2,846 ============= =============
See Notes to Condensed Financial Statements. 18 MARRIOTT HOTEL PROPERTIES II LIMITED PARTNERSHIP NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. The accompanying condensed financial statements have been prepared by Marriott Hotel Properties II Limited Partnership (the "Partnership") without audit. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted from the accompanying statements. The Partnership believes the disclosures made are adequate to make the information presented not misleading. However, the condensed financial statements should be read in conjunction with the Partnership's financial statements and notes thereto for the fiscal year ended December 31, 1995 which are included in the Partnership's Form 10 registration statement filed with the Securities and Exchange Commission on April 17, 1996. In the opinion of the Partnership, the accompanying condensed unaudited financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position of the Partnership as of March 22, 1996 and December 31, 1995, the results of operations for the twelve weeks ended March 22, 1996 and March 24, 1995, and cash flows for the twelve weeks ended March 22, 1996 and March 24, 1995. Interim results are not necessarily indicative of fiscal year performance because of seasonal and short-term variations. 2. The Partnership owns the New Orleans, San Antonio Rivercenter and San Ramon Marriott Hotels (the "Hotels"). In addition, the Partnership owns a 50% limited partnership interest in the Santa Clara Marriott Hotel Limited Partnership (the "Santa Clara Partnership") which owns the Santa Clara Marriott Hotel (the "Santa Clara Hotel"). The Partnership's income from the Santa Clara Partnership is reported as Equity in Income of the Santa Clara Partnership. In arriving at equity in income from the Santa Clara Partnership, the Partnership is allocated 100% of the interest expense related to the debt incurred to purchase the Santa Clara Partnership interest. Summarized financial information for the Santa Clara Partnership is presented in Note 5 below. 3. For financial reporting purposes, net profits and net losses of the Partnership are allocated 99% to the Limited Partners and 1% to the General Partner. Significant differences exist between the net profits and net losses for financial reporting purposes and the net profits and net losses reported for Federal income tax purposes. These differences are due primarily to the use, for income tax purposes, of accelerated depreciation methods and shorter depreciable lives of the assets and differences in the timing of recognition of incentive management fee expense. 4. Partnership revenues consist of the Hotels' operating results for the twelve weeks ended (in thousands):
Twelve Weeks Ended ----------------------------- March 22, March 24, 1996 1995 ------------- ------------- HOTEL REVENUES Rooms........................... $ 23,515 $ 23,431 Food and beverage............... 10,394 10,350 Other........................... 2,091 1,931 ------------- ------------- 36,000 35,712 ------------- ------------- HOTEL EXPENSES Departmental direct costs Rooms........................... 4,305 4,345 Food and beverage............... 7,051 6,733 Other hotel operating expenses.. 7,600 7,426 ------------- ------------- 18,956 18,504 ------------- ------------- REVENUES......................... $ 17,044 $ 17,208 ============= =============
19 5. Summarized financial information for the Santa Clara Partnership is as follows:
Twelve Weeks Ended ----------------------------- March 22, March 24, 1996 1995 ------------- ------------- (in thousands) Statement of Operations - ----------------------- REVENUES.................................... $ 4,119 $ 3,385 ------------- ------------- OPERATING COSTS AND EXPENSES Interest expense.......................... 643 731 Depreciation and amortization............. 623 623 Incentive management fees................. 627 509 Base management fees...................... 283 247 Property taxes............................ 116 117 Ground rent, insurance and other.......... 69 61 ------------- ------------- 2,361 2,288 ------------- ------------- NET INCOME $ 1,758 $ 1,097 ============= ============= March 22, December 31, 1996 1995 ------------- ------------- (in thousands) Balance Sheet - ------------- Property and equipment, net................. $ 29,239 $ 28,406 Other assets................................ 3,742 3,590 Cash and cash equivalents................... 235 1,614 ------------- ------------- Total Assets............................. $ 33,216 $ 33,610 ============= ============= Mortgage debt............................... $ 43,500 $ 43,500 Due to Marriott International, Inc.......... 1,221 1,086 Accounts payable and accrued expenses....... 123 117 Partners' deficit........................... (11,628) (11,093) ------------- ------------- Total Liabilities and Partners' Deficit.. $ 33,216 $ 33,610 ============= =============
6. On March 21, 1996, the Mortgage Debt matured. An extension was entered into between the Partnership and the current lenders that extends the maturity date for an additional six months until an agreement can be reached with another lender. The General Partner has had several discussions with lenders and believes that it will be able to refinance the loan before the end of the six month extension. Under the terms of the extension, interest accrues at the London interbank offered rate ("LIBOR") plus 187.5 basis points for the first three months and LIBOR plus 225 basis points for the second three months. No principal amortization is required during the extension. Under the terms of the extension, the Partnership applied the $9.2 million accumulated in the primary lender reserve account to pay down the principal balance of the Mortgage Debt to $213.3 million and deposited $19.1 million into the primary lender reserve account. The deposit represented the balance ($16.8 million) from the reserve account previously established by the General Partner in 1992 and cash flow from the Partnership for the first two periods of 1996 ($2.3 million). Such payments were made subsequent to the close of the first quarter. During the extension period, the 20 Partnership also is required to deposit into the primary lender reserve account all cash flow from the Partnership's Hotels plus all the Partnership's cash flow from the Santa Clara Partnership, net of (i) $500,000 per accounting period, (ii) debt service and (iii) current incentive management fees paid. The $500,000 per accounting period will be deposited into a separate expense reserve account which will be used by the Partnership to fund administrative expenses and refinancing costs, any owner-funded capital expenditures of the Partnership, as well as the Partnership's share of any such costs incurred by the Santa Clara Partnership in the six month extension period. In connection with the contemplated refinancing of the Mortgage Debt, the General Partner may use funds in the reserve accounts for costs and expenses associated with the refinancing, to pay down principal, to establish escrow accounts (if required), or for distribution to the limited partners. 7. In the first quarter of 1996, the Partnership adopted Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of". Adoption of SFAS No. 121 did not have a material effect on its financial statements. 21 HOST MARRIOTT CORPORATION AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA The Unaudited Pro Forma Condensed Consolidated Statements of Operations of the Company reflect the following transactions for the twelve weeks ended March 22, 1996 and the fiscal year ended December 29, 1995, as if such transactions had been completed at the beginning of each period: * 1996 acquisition of a controlling interest in the Marriott Hotel Properties II Limited Partnership ("MHP II") * 1996 acquisition of controlling interests in the San Diego Marriott Hotel and Marina and the Pittsburgh Hyatt Regency * 1996 acquisition of three full-service hotels * 1996 acquisition of an 83% interest in the mortgage loans secured by the Newport Beach Marriott Suites * 1996 sale/leaseback of 16 Courtyard properties * 1996 sale/leaseback of 18 Residence Inns * 1995 acquisition of eight full-service hotel properties (see discussion below) * 1995 sale/leaseback of 37 Courtyard properties * 1995 sale of the Company's remaining four Fairfield Inns * May 1995 Debt Offering * December 1995 Debt Offering The Unaudited Pro Forma Condensed Consolidated Balance Sheet of the Company reflects the third quarter 1996 acquisition of a controlling interest in MHP II, the second quarter 1996 acquisition of two full-service properties and a controlling interest in the Pittsburgh Hyatt Regency, the sale and leaseback of 13 Courtyard properties and 13 Residence Inns, and the issuance of 31.6 million shares of common stock for net proceeds of approximately $399 million, as if such transactions had been completed on March 22, 1996. During the second quarter of 1996, the Company acquired the Dulles Marriott Suites, the Oklahoma City Marriott and a controlling interest in the Pittsburgh Hyatt Regency. Also during the second quarter, the Company completed the sale and leaseback of 13 Courtyard properties and 13 Residence Inns to a real estate investment trust (the "REIT"). (Three of the Courtyard properties and five of the Residence Inns were sold on March 22, 1996.) During the first quarter of 1996, the Company acquired the Toronto Delta Meadowvale hotel, a controlling interest in the San Diego Marriott Hotel and Marina, and an 83% interest in the mortgage loans secured by the Newport Beach Marriott Suites hotel. Also during the first quarter, the Company sold the three Courtyard and five Residence Inn properties limited-service properties discussed above. During 1995, the Company acquired nine full-service hotel properties. 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 late-1995, the historical operations of the hotel during the periods presented are not meaningful. During 1995, 37 of the Courtyard properties were sold to and leased back from the REIT and the Company sold its four remaining Fairfield Inns. HMH Properties, Inc., an indirect wholly-owned subsidiary of the Company, issued $600 million of debt (the "Properties Notes") in May 1995 (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, Inc. Additionally, the Company replaced its $630 million line of credit with Marriott International, Inc. with a new line of credit of $225 million (the "New Line of Credit"). 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 maturity of December 2007. The proceeds were utilized to repay in full the $210 million of outstanding borrowings under, and terminate, 22 Acquisitions' $230 million revolving credit facility (the "Credit Facility"), as well as to finance acquisitions of full-service hotel properties. During 1995, the Company sold the 199-room Springfield Radisson Hotel which was acquired as part of a portfolio of lodging properties by the Company in December 1994. 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. The Pro Forma Condensed Consolidated Financial Data of the Company are unaudited and presented for informational purposes only and may not reflect the Company's future results of operations and financial position or what the results of operations and financial position of the Company would have been had such transactions occurred as of the dates indicated. The Pro Forma Condensed Consolidated Financial Data and Notes thereto should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto and "Management's Discussion and Analysis of Results of Operations and Financial Condition" included on Form 10-K for the fiscal year ended December 29, 1995. 23 HOST MARRIOTT CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET As of March 22, 1996 (in millions)
Pro Forma Historical Adjustments Pro Forma ----------- ------------- --------- ASSETS Property and Equipment................... $3,160 $ 71 (A) $3,247 (230)(B) 246 (C) Notes and Other Receivables.............. 218 -- 218 Due from Hotel Managers.................. 80 -- 80 Investments in Affiliates................ 14 -- 14 Other Assets............................. 230 26 (B) 284 28 (C) Cash and Cash Equivalents................ 168 (70)(A) 694 227 (B) (30)(C) 399 (D) ------ ------ ------ $3,870 $ 667 $4,537 ====== ====== ====== LIABILITIES AND SHAREHOLDERS' EQUITY Debt Debt carrying a parent company guarantee of repayment................. $ 253 $ -- $ 253 Debt not carrying a parent company guarantee of repayment................. 2,171 223 (C) 2,394 ------ ------ ------ 2,424 223 2,647 Accounts Payable and Accrued Expenses.... 75 -- 75 Deferred Income Taxes.................... 501 -- 501 Other Liabilities........................ 203 1 (A) 248 23 (B) 21 (C) ------ ------ ------ Total Liabilities...................... 3,203 268 3,471 ------ ------ ------ Shareholders' Equity Common Stock............................ 163 32 (D) 195 Additional Paid-in Capital.............. 500 367 (D) 867 Retained Earnings....................... 4 -- 4 ------ ------ ------ Total Shareholders' Equity............. 667 -- 1,066 ------ ------ ------ $3,870 $ 667 $4,537 ====== ====== ======
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Data. 24 HOST MARRIOTT CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS For the Year Ended December 29, 1995 (in millions, except per share amounts)
Acquisition Disposition & Other Pro Historical Adjustments Adjustments Forma ----------- ------------- ------------- ------- Revenues Hotels.................... $ 474 $ (1)(F) $ 64 (E) $ 617 30 (G) 11 (H) 39 (I) Other..................... 10 -- 2 (I) 12 ------ ---- ---- ------ 484 (1) 146 629 ------ ---- ---- ------ Operating cost and expenses Hotels.................... 281 (1)(F) 33 (E) 395 10 (J) 17 (G) 26 (K) 6 (H) 23 (I) Other..................... 89 -- -- 89 ------ ---- ---- ------ 370 35 79 484 ------ ---- ---- ------ Operating profit (loss).... 114 (36) 67 145 Minority interest.......... (2) -- (6)(E) (8) Corporate expenses......... (36) -- -- (36) Interest expense........... (178) 4 (L) (18)(E) (227) (3)(G) (18)(I) 3 (M) (17)(N) Interest income............ 27 -- 1 (I) 28 ------ ---- ---- ------ (Loss) income from continuing operations before income taxes and extraordinary items...... (75) (32) 9 (98) Benefit (provision) for income taxes.............. 13 11 (O) (3)(O) 21 ------ ---- ---- ------ (Loss) income from continuing operations before extraordinary items....... $ (62) $(21) $ 6 $ (77) ====== ==== ==== ====== Loss per common share from continuing operations..... $ (.39) $ (.47) ====== ====== Weighted average shares outstanding (D)........... 158.3 158.3 ====== ======
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Data. 25 HOST MARRIOTT CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS For the Twelve Weeks Ended March 22, 1996 (in millions, except per share amounts)
Acquisition Disposition & Other Pro Historical Adjustments Adjustments Forma ----------- ------------- ------------- ------- Revenues Hotels.................... $ 126 $ -- $ 17 (E) $ 145 2 (H) Other..................... 4 -- -- 4 ------ --- ---- ------ 130 -- 19 149 ------ --- ---- ------ Operating cost and expenses Hotels.................... 83 6 (K) 8 (E) 98 1 (H) Other..................... 9 -- -- 9 ------ --- ---- ------ 92 6 9 107 ------ --- ---- ------ Operating profit (loss).... 38 (6) 10 42 Minority interest.......... (1) -- (2)(E) (3) Corporate expenses......... (9) -- -- (9) Interest expense........... (48) -- (4)(E) (52) Interest income............ 6 -- -- 6 ------ --- ---- ------ (Loss) income from continuing operations before income taxes....... (14) (6) 4 (16) Benefit (provision) for income taxes.............. 2 2 (O) (1)(O) 3 ------ --- ---- ------ (Loss) income from continuing operations..... $ (12) $ (4) $ 3 $ (13) ====== ====== ==== ====== Loss per common share from continuing operations..... $ (.07) $ (.08) ====== ====== Weighted average shares outstanding (D)........... 161.4 161.4 ====== ======
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Data. 26 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA A. Represents the adjustment to record the acquisition of two full-service properties during the second quarter of 1996 and a controlling interest in a third full-service property: - Record property and equipment of $71 million - Record the use of cash of $70 million for the acquisition cost - Record the minority interest of $1 million for the partner of the joint venture acquiring one full-service property B. Represents the adjustment to record the sale and leaseback of the 13 Courtyards and 13 Residence Inns as follows: - Reduce property and equipment by the net book value of assets sold of $230 million - Record the net cash proceeds of $227 million - Record the deferred proceeds of $26 million - Record the deferred gain of $23 million C. Represents the adjustment to record the acquisition of a controlling interest in MHP II: - Record property and equipment of $246 million - Record the use of cash of $30 million - Record other assets of $28 million - Record notes payable of $223 million - Record other liabilities of $21 million D. Represents the adjustment to record the issuance of 31.6 million shares of common stock for net proceeds of approximately $399 million. The effect of the offering is not included in the calculation of weighted average shares. E. Represents the adjustment to record the revenue and operating expense, interest expense and minority interest expense for the acquisition of a controlling interest in MHP II. F. Represents the adjustment to eliminate the revenues and the operating costs for the 1995 sale of the four remaining Fairfield Inns. G. Represents the adjustment to reflect the incremental increase in revenue, operating costs and secured debt interest expense for eight of the nine 1995 additions of full-service properties, as if they were added at the beginning of the fiscal year. 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, all hotel operations were suspended and the hotel underwent extensive renovation. Because the hotel did not resume full operations until late-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. H. Represents the adjustment to record the revenue and operating costs for the second quarter 1996 acquisition of the Dulles Marriott Suites, the Oklahoma City Marriott and the acquisition of a controlling interest in the Pittsburgh Hyatt Regency, including depreciation expense reflecting the Company's basis in the assets and the incremental management fees as a result of the new management agreements that will be entered into in conjunction with certain of the transactions. I. Represents the adjustment to record the revenue, operating costs, secured debt interest expense and interest income for the first quarter 1996 acquisition of the Toronto Delta Meadowvale hotel, the acquisition of a controlling interest in the San Diego Marriott Hotel and Marina, and the purchase of an 83% interest in the mortgage loans secured by the Newport Beach Marriott Suites hotel. No adjustment has been reflected in the accompanying 27 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the twelve weeks ended March 22, 1996 due to the immateriality of the operating results of these properties. J. 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. K. Represents the net adjustment to eliminate the depreciation expense and record the incremental lease expense for the 1996 sale/leaseback of the 16 Courtyard properties and 18 Residence Inns. 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 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 eliminate the interest expense and related amortization of deferred financing fees for the Credit Facility, and to record the interest expense and related amortization of deferred financing fees as a result of the issuance of the Acquisitions Notes. An extraordinary loss of approximately $3 million, after taxes, related to the 1995 termination of the Credit Facility is not reflected in the accompanying Unaudited Pro Forma Condensed Consolidated Statements of Operations. O. Represents the income tax impact of pro forma adjustments at statutory rates. 28 EX-99 2 EXHIBIT 99 - PRESS RELEASE EXHIBIT 99 Page 1 of 2 HOST MARRIOTT SUCCESSFULLY COMPLETES TENDER OFFER FOR LIMITED PARTNERSHIP UNITS Bethesda, MD; June 17, 1996 -- Host Marriott Corporation today announced it has successfully completed its tender offer for a majority of the limited partnership units in Marriott Hotel Properties II Limited Partnership ("MHP II"). The Company purchased 375.5 units for an aggregate consideration of $56,325,000, or $150,000 per unit. As a result of this transaction, a wholly- owned subsidiary of Host Marriott became the majority limited partner of MHP II. An affiliate of Host Marriott also serves as the general partner. Additionally, in a vote held in conjunction with the tender offer, the limited partners approved certain amendment to the partnership agreement that were conditions to the tender offer. The 1995 EBITDA for these four hotels was approximately $45 million. The general partner is in the process of refinancing the partnership debt which totals approximately $225 million. MHP II owns the 1,290-room New Orleans Marriott hotel located on Canal Street in the central business district of downtown New Orleans, adjacent to the historic French Quarter and within walking distance to the City's convention center. Designed as part of the Marriott network of convention hotels, it has extensive meeting and convention facilities, totalling 80,000 square feet. This hotel's facilities also include three restaurants, three lounges, a health club, an outdoor pool and a 475-space underground parking garage. The partnership also owns the 999-room San Antonio Marriott Rivercenter hotel located on the San Antonio Riverwalk near the Alamo and one block from San Antonio's convention center. This premier convention hotel has a 40,000 square foot grand ballroom and 36 meeting rooms. San Antonio is one of the country's leading convention destinations; a proposed expansion of its convention center will make it the 12th largest in the country. In addition, the partnership owns two hotels in California, the 368-room San Ramon Marriott hotel and a 50% limited partner interest in the 754-room Santa Clara Marriott hotel. Both of these hotels are located in major commercial areas. The Santa Clara hotel is located approximately one mile from the Santa Clara Convention Center and four miles from the San Jose International Airport. The San Ramon hotel is ideally located within a major office park and is within an hour's drive of San Francisco and the Napa and Sonoma wineries. "We are very pleased with the results of the offer," stated Terence C. Golden, President and CEO of the Company. "This transaction fits Host Marriott's strategy of investing in quality full-service hotels and has allowed some of the limited partners the opportunity to liquidate their investment." During 1996, Host Marriott has purchased, or acquired, controlling interests in 11 hotels with an aggregate investment of approximately $725 million. "We continue to see a number of attractive opportunities to acquire quality full- service hotels," added Golden. EXHIBIT 99 Page 2 of 2 Host Marriott Corporation is a lodging real estate company that currently owns 64 full-service hotel properties operated primarily under the Marriott brand name. The Company also serves as general partner and holds minority interests in various unconsolidated partnerships that own 261 lodging properties, 41 of which are full-service hotels. ### -----END PRIVACY-ENHANCED MESSAGE-----