-----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, O+vf758SaUZO/Rqoqxm8DwKgbZy/W26SQ70JA2tuNc0G8yDZ5Jo+zWzkQa0hi0l4 38aWS3zTOFhZ+RgHm2qdmQ== 0000928385-98-000764.txt : 19980420 0000928385-98-000764.hdr.sgml : 19980420 ACCESSION NUMBER: 0000928385-98-000764 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980417 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980417 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOST MARRIOTT CORP/MD CENTRAL INDEX KEY: 0000314733 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 530085950 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-05664 FILM NUMBER: 98595935 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 the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): April 17, 1998 Host Marriott Corporation ----------------------------------------------- (Exact name of registrant as specified in its charter)
Delaware 1-5664 53-0085950 - -------------------------------------- ---------------- ------------------ (State or other jurisdiction of (Commission File (I.R.S. Employer incorporation or organization) Number) Identification No.)
10400 Fernwood Road, Bethesda, Maryland 20817 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 380-9000 ================================================================================ ITEM 5. OTHER EVENTS. On April 17, 1998, Host Marriott Corporation (the "Company") announced that its Board of Directors has authorized the Company to reorganize its business operations to qualify as a real estate investment trust (the "REIT Conversion"), effective as of January 1, 1999, as more particularly described in the Summary of the Proposed REIT Conversion, Spin-off of Senior Living Business and Blackstone Hotel Portfolio Transaction (the "Summary") which is attached hereto as Exhibit 99.2 and incorporated herein by reference. Contemporaneously with the REIT Conversion, the Company intends to spin-off its senior living communities business through a stock dividend to its shareholders, as more particularly described in the Summary. The Company also announced that it has agreed to acquire interests in thirteen luxury hotels and certain other assets owned by affiliates of The Blackstone Group and Blackstone Real Estate Partners, for an aggregate consideration of up to approximately $1.775 billion, including the assumption of debt, as more particularly described in the Summary. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (c) Exhibits 99.1 Press Release, dated April 17, 1998, entitled "Host Marriott Corporation to Add World-Class Luxury Hotel Portfolio for $1.775 Billion; Reorganization as Real Estate Investment Trust, Spin-Off of Senior Living Business Planned." 99.2 Summary of Proposed REIT Conversion, Spin-off of Senior Living Business and Blackstone Hotel Portfolio Transaction. - 2 - 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 Date: April 17, 1998 By: /s/ Christopher G. Townsend ----------------------------------------- Name: Christopher G. Townsend Title: Senior Vice President, General Counsel and Corporate Secretary - 3 - EX-99.1 2 EXHIBIT 99.1 EXHIBIT 99.1 FOR IMMEDIATE RELEASE Host Marriott Corporation Terence C. Golden, President & CEO (301) 380-7774 Christopher J. Nassetta, Executive Vice President and COO (301) 380-6138 Robert E. Parsons, Jr. Executive Vice President & CFO (301) 380-7209
Investors: Media: The Blackstone Group: Jim Francis, Assistant Treasurer Owen Blicksilver Stephen A. Schwarzman, President & CEO (301) 380-1974 (212) 303-7603 (212) 836-9823 Geoffrey Wendt, Mgr. Investor Relations Doug Donsky Thomas J. Saylak, Senior Managing Director (301) 380-5694 (212) 303-7608 (212) 836-9895
HOST MARRIOTT CORPORATION TO ADD WORLD-CLASS LUXURY HOTEL PORTFOLIO FOR $1.775 BILLION; THE BLACKSTONE GROUP TO CONTRIBUTE INTERESTS IN 13 U.S. HOTELS IN EXCHANGE FOR A SIGNIFICANT EQUITY STAKE IN HOST MARRIOTT; REORGANIZATION AS REAL ESTATE INVESTMENT TRUST, SPIN OFF OF SENIOR LIVING BUSINESS PLANNED - -- Addition of Blackstone Hotel Portfolio Launches Multi-Branding Strategy - -- Strategic Initiatives Expected to Add $0.26 Per Share to 1999 FFO BETHESDA, MD, April 17, 1998 Host Marriott Corporation (NYSE: HMT) announced today that it has reached a definitive agreement with various affiliates of The Blackstone Group and Blackstone Real Estate Partners (collectively "Blackstone") to acquire interests in 13 world-class luxury hotels in the U.S. and certain other assets in a transaction valued at approximately $1.775 billion, including the assumption of debt. Following the transaction, Blackstone will have the largest ownership interest in Host Marriott on a fully diluted basis. This strategic combination will solidify Host Marriott's reputation as the nation's leading owner of luxury hotels and launches a new multi-branding strategy for the Company. In addition, Host Marriott announced that its Board of Directors has authorized the Company to reorganize its business operations to qualify as a real estate investment trust (REIT), effective as of January 1, 1999, and to spin off its senior living communities business (the "Senior Living Communities Company") through a taxable stock dividend to its shareholders. "Today is an historic moment in our Company's history," said Terence C. Golden, President and Chief Executive Officer of Host Marriott. "As a result of these strategic initiatives, the Company has dramatically increased its growth potential, further solidified its position as the leading owner of luxury hotels, significantly strengthened its financial position, and increased its overall competitiveness by lowering its cost of capital. Host Marriott continues to foster its reputation as the nation's preeminent `blue chip' hotel ownership company." THE BLACKSTONE HOTEL PORTFOLIO Host Marriott expects to pay approximately $835 million in cash and assumed debt and to issue approximately 47 million Operating Partnership units of the new operating partnership (the "Operating Partnership") to be formed as part of the REIT conversion at $20 per Operating Partnership unit (subject to adjustments to reflect any partial interests). Each Operating Partnership unit will be exchangeable for one share of Host Marriott common stock (or its cash equivalent). Upon completion of the acquisition, Blackstone will own approximately 19% of the primary shares outstanding of Host Marriott common stock on a fully converted basis. John Schreiber, co-chairman of the Blackstone Real Estate Partners' Investment Committee, will join the Board of Directors of Host Marriott in the next 60 days. The Blackstone portfolio is one of the premier collections of hotel real estate properties. It includes two Ritz-Carltons, three Four Seasons, one Grand Hyatt, three Hyatt Regencies and four Swissotel properties. The Blackstone transaction is expected to close simultaneously with the reorganization of Host Marriott as a REIT. At that time, Blackstone's hotels and other assets will be contributed into the Operating Partnership. The hotels will continue to be managed under existing management contracts. "The Blackstone portfolio is one of the highest quality collections of properties in the world. These hotels are located in major urban and convention/resort markets with significant barriers to new competition. Given the quality of this portfolio and the lack of new competition, we anticipate significant upside in the performance of these properties," said Christopher J. Nassetta, Executive Vice President and Chief Operating Officer of Host Marriott. "This transaction more than triples our acquisition target for 1998, and greatly accelerates the implementation of our multi-brand strategy." Stephen A. Schwarzman, President & CEO of The Blackstone Group, commented, "We are big believers in the prospects for Host's multi-brand full-service hotel strategy and see this transaction as a way of broadening and diversifying our asset base with an experienced, savvy management team." Located in eight states, the Blackstone hotels in which Host Marriott will acquire a controlling interest include: The Ritz-Carlton, Amelia Island (449 rooms); The Ritz-Carlton, Boston (275 rooms); Hyatt Regency Burlingame at San Francisco Airport (793 rooms); Hyatt Regency Cambridge, Boston (469 rooms); Hyatt Regency Reston, Virginia (514 rooms); Grand Hyatt Atlanta (439 rooms); Four Seasons Philadelphia (365 rooms); Four Seasons Atlanta (246 rooms); The Drake (Swissotel) New York (494 rooms); Swissotel Chicago (630 rooms); Swissotel Boston (498 rooms); and Swissotel Atlanta (348 rooms). Additionally, the transaction includes: the first mortgage loan on the Four Seasons Beverly Hills (285 Rooms) as well as a letter of intent to purchase the equity interest in the property; two office buildings in Atlanta -- The offices at The Grand (97,879 sq. ft.) and the offices at the Swissotel (67,110 sq. ft.); and a 25% interest in the Swissotel U.S. Management Company. The purchase is expected to be accretive to funds from operations (FFO) and to generate earnings before interest expense, taxes, depreciation, amortization and other non-cash items (EBITDA) of approximately $183 million in 1999, the first full year the assets will be owned by Host Marriott. Host Marriott's acquisition of the Blackstone portfolio is subject to certain conditions, including Host Marriott's conversion to a REIT by March 31, 1999. Merrill Lynch acted as advisor on the transaction for the Company. Bear Stearns & Company, Inc. advised Blackstone on the transaction. REIT REORGANIZATION After the REIT reorganization, which is subject to stockholder and final Board of Directors approval, Host Marriott Corporation intends to operate as an "UPREIT," with all of its assets and operations conducted through the newly formed Operating Partnership of which Host Marriott will be the general partner. Marriott International's role in managing Marriott hotels owned by Host Marriott will be unchanged. "The proposed REIT reorganization will maximize shareholder value, both over the short- and long-term," said Mr. Golden. "After an extensive analysis of alternatives, we concluded that the REIT structure would provide superior results through changing economic conditions and all phases of the hotel cycle." In connection with the reorganization, Host Marriott anticipates repurchasing or exchanging its approximately $1.55 billion of outstanding debt securities, adjusting the conversion ratio of its Quarterly Income Preferred Securities ("QUIPS") to reflect the distribution of the Senior Living Communities Company stock and cash to Host Marriott stockholders, and issuing additional debt and equity securities. "This step will further improve our financial flexibility and allow us to continue to strengthen our balance sheet," added Robert E. Parsons, Jr., Executive Vice President and Chief Financial Officer of Host Marriott. "We will be able to compete more effectively with other public lodging real estate companies, which already are organized as REITs, and to improve investor understanding of Host Marriott, thus making performance comparisons with our peers more meaningful. With our initial dividend yield expected to be approximately 4%, we believe our shareholder base will expand to include investors attracted by yield and asset quality." - 2 - OPERATING PARTNERSHIP Following the reorganization, Host Marriott will own Operating Partnership units in the Operating Partnership equal to the number of outstanding shares of Host Marriott common stock at the time of the conversion. The UPREIT structure will not affect the ownership by stockholders of their existing Host Marriott shares. As part of the reorganization, limited partners in Host Marriott full- service hotel partnerships and joint ventures are expected to be given an opportunity to receive, on a tax-deferred basis, Operating Partnership units in the new Operating Partnership in exchange for their current partnership interests. As a REIT, Host Marriott will continue its strategy of aggressively acquiring and owning high quality lodging real estate with prospects for significant long-term capital appreciation. The Company has added 68 hotels with an aggregate investment value of $3.5 billion from the beginning of 1994 through the end of 1997. Management intends to continue growing the Company's portfolio through acquisitions of Marriott hotels and of multi-branded full service lodging properties, expansion of existing hotels and selected new development where market conditions offer favorable economics. "We believe this conversion will help us significantly in reaching our growth targets," said Mr. Nassetta. "We will continue to acquire hotels in the Marriott and Ritz-Carlton pipeline, properties where we can add value by conversion to the Marriott brand, and select non-Marriott hotels, such as those in the Blackstone portfolio, that meet our quality and performance standards." SENIOR LIVING SPIN-OFF Host Marriott will distribute shares in the Senior Living Communities Company to Host Marriott stockholders at the time of the REIT reorganization. Host Marriott also expects to make a cash distribution at that time. The projected aggregate value of these distributions, which are expected to be treated as taxable dividends to shareholders, is currently estimated between $400 and $550 million. An additional taxable distribution may be required in 1999. The Senior Living Communities Company is expected to own Host Marriott's approximately $700 million portfolio of senior living properties. This portfolio currently consists of 31 retirement communities, totaling 7,218 units in 12 states. The communities will continue to be managed by Marriott International. In addition, the Senior Living Communities Company will lease substantially all of the hotels owned by the REIT and its affiliates. The Senior Living Communities Company will operate independently of Host Marriott, will be publicly listed, and will pursue its own growth opportunities. In order to facilitate the transition, there may initially be some Board of Directors overlap, which will be eliminated over time. In order to comply with REIT rules, each company will limit ownership of its stock by single investors and related parties and groups to less than 10%. "Senior living is a high growth industry supported by favorable demographic trends," said Mr. Golden. "The new company will be in an excellent position to build on Host Marriott's current leadership position in the upper tier segment of the senior living market. Initially 67% of Senior Living Communities Company EBITDA will be generated by its senior living properties." "The Senior Living Communities Company will grow through the acquisition of new and existing communities, as well as new development," Mr. Golden continued. "In addition, it will benefit from Marriott International's targeted expansion of senior living properties, which is expected to nearly triple its number of properties over the next five years, providing a valuable pipeline of upper tier properties that fit the acquisition profile. The company will also pursue expansion into other attractive real estate areas." FINANCIAL OUTLOOK Mr. Parsons said: "In reorganizing as a REIT, acquiring the Blackstone portfolio and spinning off our senior living communities business, we currently anticipate FFO per share in 1999, for the two companies combined, to be $0.26 above current consensus estimates of $2.15 per share." The Company expects no layoffs as a result of the reorganization, and both companies will maintain headquarters in Bethesda, Md. BT Wolfensohn, Merrill Lynch and PaineWebber are serving as advisors on the REIT reorganization and spin-off of the Senior Living Communities Company. - 3 - COMPANY BACKGROUNDS/ FORWARD LOOKING STATEMENTS Host Marriott is a lodging real estate company which owns 100 upscale and luxury full service hotels operated primarily under the Marriott and Ritz- Carlton brand names. Additionally, the company owns 31 senior living communities all of which are managed by Marriott International. The company also serves as general partner and holds minority interests in various unconsolidated partnerships which own 240 lodging properties, 20 of which are full service hotels. For further information on Host Marriott Corporation, please visit our website at http://www.hostmarriott.com. For further information on the proposed REIT conversion, Blackstone portfolio transaction and Senior Living Communities spinoff, see Host Marriott's current report on Form 8-K filed with the Securities and Exchange Commission. The Blackstone Group is a private New York-based investment bank founded in 1985 by its current Chairman, Peter G. Peterson, and its current CEO and President, Stephen A. Schwarzman. Blackstone's real estate activities are led by Senior Managing Directors Thomas J. Saylak and John Z. Kukral, as well as John G. Schreiber, who together with Mr. Schwarzman, co-chairs the Blackstone Real Estate Partners' Investment Committee. Real Estate is one of five areas of business focus at Blackstone. The others are Private Equity Investing in corporate situations (where Blackstone Capital Partners III, with nearly $4 billion in equity capital, was the largest such fund raised in 1997); Mergers & Acquisitions Advisory; Restructuring & Reorganization Advisory; and Liquid Alternative Asset Management. Certain matters discussed in this press release include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements related to the proposed REIT conversion, the terms, structure and timing thereof, and the expected effects of the proposed REIT conversion and the Blackstone portfolio acquisition on FFO, EBITDA, and business and operating strategies in the future. All forward- looking statements involve known and unknown risks, uncertainties and other factors, many of which are not in control of Host Marriott, that may cause actual transactions, results, performance or achievements to be materially different from any future transactions, results, performance or achievements expressed or implied by the forward-looking statements. The transactions described herein are subject to certain consents of shareholders, lenders, debt holders and partners of Host Marriott and its affiliates and of other third parties and various other conditions and contingencies, and future results, performance and achievements will be affected by general economic, business and financing conditions, competition and governmental actions. These and other factors are described in more detail in Host Marriott's current report on Form 8-K relating to the proposed REIT conversion and in its other filings with the Securities and Exchange Commission. While Host Marriott believes that the expectations reflected in these forward-looking statements are based on reasonable assumptions, it can give no assurance that its performance or other expectations will be attained, that the transactions described herein will be consummated or that the terms of the transactions or the timing or effects thereof will not differ materially from those described herein. ### - 4 - EX-99.2 3 EXHIBIT 99.2 EXHIBIT 99.2 HOST MARRIOTT CORPORATION SUMMARY OF PROPOSED REIT CONVERSION, SPIN-OFF OF SENIOR LIVING BUSINESS AND BLACKSTONE HOTEL PORTFOLIO TRANSACTION Overview Host Marriott Corporation ("HMC") has adopted a plan to reorganize its business operations so that it will qualify as a real estate investment trust (a "REIT") focused primarily on the ownership and acquisition of upscale and luxury full-service hotels. As part of the reorganization of HMC's business operations to permit HMC to qualify as a REIT (the "REIT Conversion"), HMC and its consolidated subsidiaries will contribute their full-service hotel properties and certain other businesses and assets to Host Marriott, L.P. (the "Operating Partnership"), a newly formed Delaware limited partnership, in exchange for units of limited partnership interest in the Operating Partnership ("OP Units") and the assumption of certain liabilities. The sole general partner of the Operating Partnership will be Host Marriott Trust, which will be the entity resulting from the conversion of HMC from a Delaware corporation to a Maryland REIT ("Host REIT"). Contemporaneously with the REIT Conversion, HMC intends to spin off its senior living communities business through a taxable distribution to its shareholders of shares of Senior Living Communities, Inc. ("SLC"). Shares of Host REIT and SLC will thereafter be separately traded public securities, and the companies will operate independently. SLC is expected to own and continue to expand HMC's $700 million portfolio of senior living properties. This portfolio currently consists of 31 retirement communities, totaling 7,218 units in 12 states. Contributing the senior living properties to SLC will serve the dual purposes of focusing Host REIT on the ownership and acquisition of upscale and luxury full-service hotels while at the same time providing SLC with substantial business and growth opportunities. Because REITs are not permitted under current federal income tax law to derive revenues directly from the operation of hotels, SLC or its subsidiaries also will lease substantially all of the hotels owned by Host REIT and will operate the hotels under the existing management agreements with third-party managers and pay rent to the Operating Partnership, as more fully described herein. In addition, HMC and the Operating Partnership have entered into an agreement with various affiliates of The Blackstone Group and Blackstone Real Estate Partners (collectively, "Blackstone") to acquire interests in 13 luxury and deluxe hotels, totaling 5,805 rooms, as well as two office buildings connected to two of the hotels and a 25% interest in the Swissotel Management Company, in a transaction having an aggregate value of up to approximately $1.775 billion, including the assumption of debt (the "Blackstone Transaction"). Following the REIT Conversion and the Blackstone Transaction, HMC expects that the Operating Partnership and its subsidiaries will own outright, or own controlling interests in, approximately 125 full-service hotels operating primarily under the Marriott and Ritz-Carlton brand names, including the two Ritz-Carlton, three Four Seasons, one Grand Hyatt, three Hyatt Regency and four Swissotel properties included in the Blackstone portfolio. At the time of its merger into Host REIT, HMC will distribute the common stock of SLC to its shareholders together with a substantial cash distribution. The expected aggregate value of these distributions is currently expected to be approximately $400 to $550 million. HMC is making these distributions to its shareholders, which will be treated as taxable dividends, to eliminate its estimated accumulated earnings and profits, as required to be eligible for REIT status. An additional taxable distribution may be required in 1999. The amount of both the initial distribution and any such additional distribution is subject to a number of contingencies and uncertainties at this time. The amount of these distributions will be based upon HMC's estimates, at such time, of its accumulated earnings and profits for tax purposes, which could be affected by a number of factors (including, for example, actual operating results prior to REIT conversion, extraordinary capital transactions, including those in connection with the REIT conversion, and any adjustment resulting from routine ongoing audits of HMC.) In the REIT Conversion, each outstanding share of HMC common stock will be converted into one common share of beneficial interest (a "Common Share") of Host REIT. Following the closing of the REIT Conversion, the Common Shares will continue to be listed on the New York Stock Exchange. HMC, like most REITs, would have a prohibition on any person, entity or group acquiring more than 9.8% of the outstanding HMC stock. SLC also would have a prohibition on any person, entity or group acquiring more than 9.8% of the SLC outstanding stock. The Operating Partnership would have a prohibition on any person, entity or group other than Host REIT acquiring more than 4.9% of the outstanding OP Units. In connection with the REIT Conversion, HMC expects to offer partners in public and private partnerships that own full service hotels in which HMC or its subsidiaries are general partners the opportunity to receive OP Units in exchange for their interests in these hotel partnerships. Blackstone also will receive OP Units in the Blackstone Transaction. Beginning one year after the REIT Conversion, partners receiving OP Units other than Host REIT will have the right to redeem their OP Units and receive, at the election of Host REIT, either Common Shares on a one-for-one basis (subject to adjustment) or cash in an amount equal to the market value of such shares. OP Units issued to Blackstone will be redeemable on the same basis at various times and amounts commencing July 1, 1999. HMC estimates that the REIT Conversion (including, among other things, consummation of the consolidation of substantially all public and private partnerships and refinancing of public bonds), the Blackstone Transaction and the spin-off of SLC will result in combined funds from operations (FFO) of HMC and SLC for the full-year 1999 of approximately $2.41 per share, of which $0.06 per share is attributable to the Blackstone Transaction. Host REIT expects to qualify as a real estate investment trust under federal income tax law beginning January 1, 1999. However, consummation of the REIT Conversion is subject to significant contingencies that are outside the control of HMC, including final board approval, consent of stockholders, partners, bondholders, lenders, and ground lessors of HMC, its affiliates and other third parties. Accordingly, there can be no assurance that the REIT Conversion will be completed or that it will be effective as of January 1, 1999. Consummation of the Blackstone Transaction is also subject to certain conditions, including consummation of the REIT Conversion by March 31, 1999. MAJOR STEPS IN REIT CONVERSION AND THE SLC SPIN-OFF The following are the major steps in the REIT Conversion and the spin-off of SLC: . Formation of UPREIT by HMC -------------------------- HMC will contribute its full-service hotel assets and certain other assets (excluding its senior living assets) to the Operating Partnership in exchange for (i) a number of OP Units equal to the number of outstanding shares of common stock of HMC and (ii) the assumption by the Operating Partnership of certain liabilities of HMC and its subsidiaries. Following the REIT Conversion, the assets and operations of Host REIT will be held by or conducted through the Operating Partnership, of which Host REIT (or a wholly owned subsidiary thereof) will be the general partner. The initial limited partners would be former partners of public and private hotel partnerships that are "rolled up" into the Operating Partnership as well as Blackstone. This structure is commonly referred to as an umbrella partnership real estate investment trust ("UPREIT"). As is customary, HMC, as general partner, will have absolute control of the Operating Partnership. As described below, HMC will solicit consents from partners in various public partnerships controlled by HMC that own full service hotels for mergers of those partnerships with subsidiaries of the Operating Partnership. HMC also will negotiate with partners in various private partnerships in which HMC is a general partner that own full service hotels to obtain consent to mergers of those partnerships with the Operating Partnership or, alternatively, a restructuring of those partnerships on a standalone basis into a structure permitting a lease of their hotels to SLC or a subsidiary thereof. In the event HMC is unsuccessful in any of these negotiations, HMC likely would contribute its interest to one or more taxable Special Subsidiaries as described below. . Merger of HMC into Host REIT ---------------------------- HMC, a Delaware corporation, will be reorganized as a Maryland REIT through a merger into Host REIT upon obtaining stockholder approval of the merger. Pursuant to the merger agreement, HMC stockholders will receive, for each share of HMC common stock, one Host REIT Common Share, a fraction of a share of common stock of SLC and an amount of cash to be determined (the aggregate value of such distributions currently estimated to total approximately $400 to $550 million). The amount of cash will equal the estimated amount of accumulated earnings and profits of HMC as of the closing date less the equity value of the common stock of SLC, as determined by the Board of Directors of HMC. . Spin-off of SLC Stock to HMC Stockholders ----------------------------------------- As part of its merger into Host REIT, HMC will distribute the stock of SLC (or another corporation owning SLC) to its existing stockholders in a taxable distribution. Thereafter, shares of the two companies will trade separately. The companies will pursue independent growth strategies. The stockholders of Host REIT and SLC initially will be identical, but because both companies will be publicly traded, the commonality of stockholders is expected to decline over time. Initially there also may be a partial overlap among the boards of HMC and SLC, but this overlap is expected to be eliminated over time. . Lease of Hotels to Subsidiaries of SLC -------------------------------------- SLC will be capitalized with various HMC assets, including all of HMC's senior living properties. SLC or its subsidiaries will lease lodging properties from the Operating Partnership and related parties. The lessees will become parties to the management agreements with the existing hotel managers. SLC or its subsidiaries will operate these lodging properties under the existing management agreements with the existing hotel managers and pay rent to the Operating Partnership. Each lease would provide for payment of a fixed annual base rent and percentage rent that is based upon a percentage of total sales by each hotel. . Formation of Special Subsidiaries for Unqualified Assets -------------------------------------------------------- The Operating Partnership will organize one or more taxable corporations (the "Special Subsidiaries") that will own various assets that the Operating Partnership and its other subsidiaries cannot own without conflicting with HMC's REIT status. These assets could include interests in partnerships that HMC is unable to convert to a lease structure, the stock in the tenants of the contemplated "limited service/extended stay" REIT that may be organized in connection with the Limited Service UPREIT Transaction (as described below) and FF&E at some of the hotels leased to SLC that HMC cannot own directly under the REIT rules. The Operating Partnership would own nonvoting common stock representing 95% of the equity in the Special Subsidiaries, and it is currently expected that an affiliate(s) of HMC would own voting common stock representing 5% of such equity. . Limited Service Partnerships Transaction ---------------------------------------- There are several alternatives being pursued for the six partnerships that own limited service or extended stay hotels in which subsidiaries of HMC are general partners. One alternative is to provide the six partnerships the opportunity to consolidate in a newly created limited service UPREIT that would be separate from Host REIT. In this proposed transaction (the "Limited Service UPREIT Transaction"), HMC's subsidiaries would obtain limited partner interests in the operating partnership for the limited service UPREIT in exchange for their respective interests in the six hotel partnerships and HMC subsidiaries would serve as lessees of the hotels. In connection with the REIT Conversion, HMC would contribute the partnership interests it receives in the limited service UPREIT and the stock of the lessees to the Operating Partnership, and the Operating Partnership would contribute the stock of the lessees to a Special Subsidiary. Other alternatives also are being considered for these partnerships. Although no proposals have yet developed, the general partners continue to pursue the possibility of a potential sale of the underlying assets or a merger of the partnerships with an existing publicly traded company. . Roll Up of Hotel Partnerships ----------------------------- As part of the REIT Conversion, the Operating Partnership expects to propose the consolidation of 8 limited partnerships that own full- service hotels in which HMC or subsidiaries of HMC are general partners (the "Public Partnerships") with the hotels owned by 5 private partnerships in which subsidiaries of HMC are general partners (together with the Public Partnerships, the "Hotel Partnerships") and the hotels contributed by HMC to the Operating Partnership. Limited partners (other than those affiliated with HMC) in those Hotel Partnerships that participate in the consolidation will exchange their partnership interests in such Hotel Partnerships for OP Units. Each of these transactions will require the consent of the limited partners in order to participate in the consolidation. Assuming all of the Hotel Partnerships participate in this consolidation on terms currently expected by HMC, outside partners would receive OP Units with an aggregate value of approximately $400 million, while deferring recognition of at least a substantial portion of any built-in taxable gain on their interests in the Hotel Partnerships. . Refinancing of HMH Properties Bonds and Other Debt -------------------------------------------------- Prior to consummation of the REIT Conversion, HMH Properties, Inc. ("HMH Properties"), a wholly owned subsidiary of HMC, expects to refinance its $1.55 billion of outstanding public bonds through an offer to purchase the public bonds for cash and a concurrent solicitation of consents to amend the terms of the debt securities to permit the REIT Conversion. The funds for the refinancing are expected to be obtained through the issuance of new debt securities by the Operating Partnership and through additional funds of HMC to the extent necessary. The Operating Partnership will assume the liability with respect to any untendered bonds of HMH Properties, in connection with the REIT Conversion. The terms of the refinancing have not been finalized and will be based upon market conditions at the time of the refinancing. HMC plans to modify its existing revolving credit facility and likely will keep most other project specific financing in place following the REIT Conversion. HMC will seek the consent of mortgage lenders to the REIT Conversion, including the leases to SLC of hotels that are financed by mortgage loans. The Operating Partnership will assume the obligations of HMC under approximately $34.8 million of senior unsecured public bonds issued by HMC and $83.8 million of tax exempt bonds. . Adjustment to Terms of QUIPS ---------------------------- In the REIT Conversion, it is anticipated that the Operating Partnership will assume primary liability for repayment of the convertible debentures of HMC underlying the $550 million of Quarterly Income Preferred Securities ("QUIPS") of a subsidiary trust of HMC. Host REIT also will remain liable on the debentures and the debentures will be convertible into Common Shares of Host REIT. It is anticipated that the conversion ratio of the QUIPS will be adjusted as a result of the distribution of SLC stock and cash to HMC stockholders in the merger of HMC into Host REIT. BLACKSTONE PORTFOLIO ACQUISITION On April 16, 1998, HMC, the Operating Partnership and Blackstone entered into a Contribution Agreement (the "Contribution Agreement") which provides for the transfer of interests in thirteen hotels and other assets in exchange for cash, OP Units in the Operating Partnership, common stock in SLC and the assumption or repayment of certain outstanding third-party loans. The hotels are: The Ritz-Carlton, Amelia Island; Hyatt Regency Cambridge, Boston; Hyatt Regency Reston, Virginia; Grand Hyatt Atlanta; Four Seasons Beverly Hills; Four Seasons Philadelphia; Four Seasons Atlanta; The Drake (Swissotel) New York; Swissotel Chicago; Swissotel Boston; Swissotel Atlanta; Hyatt Regency Burlingame, San Francisco; and The Ritz-Carlton, Boston. Also included are two office buildings in Atlanta, The Offices at The Grand and The Offices at the Swissotel, and a 25% interest in the Swissotel Management Company. The interests to be acquired in The Ritz-Carlton, Boston will be a first mortgage loan secured by the property and a general partner interest in the owner of the hotel. The parties currently expect that the interests to be acquired in the Four Seasons Beverly Hills will be a first mortgage loan pursuant to the Contribution Agreement and the equity interest in the owner of the hotel pursuant to a nonbinding letter of intent. The aggregate value of the consideration for these assets is expected to be approximately $1.775 billion, subject to adjustment. The consideration is expected to consist of (i) a combination of cash and the assumption or repayment of debt in an aggregate amount of approximately $835 million, and (ii) OP Units with an estimated aggregate value of approximately $940 million (approximately 47 million OP Units at a fixed price of $20.00 per OP Unit). In addition, for each OP Unit received, Blackstone would receive an amount of cash and SLC common stock equal to the amount that a holder of one share of HMC common stock will receive in the SLC spin-off distribution by HMC or, at Blackstone's option, additional OP Units of equivalent value. Within 60 days of the execution of the Contribution Agreement, HMC will cause the size of its board of directors to be increased by one or more directors, and John G. Schreiber, Co-Chairman of the Blackstone Real Estate Partners' Investment Committee (or another person selected by Blackstone and reasonably acceptable to the board of directors of HMC), will be appointed to serve as a director of HMC. HMC and Host REIT will include the Blackstone board designee on the slate for election by shareholders for so long as Blackstone and its affiliates own at least five percent of the outstanding OP Units. In addition, at all times and for so long as the board of directors of SLC has more than two members who are also members of the board of directors of HMC (or Host REIT if the REIT Conversion is consummated), Blackstone will be entitled to designate an individual to serve on SLC's board of directors. The OP Units issued in the Blackstone Transaction will be redeemable for Host REIT Common Shares on a one-for-one basis or, at the election of Host REIT, the cash equivalent thereof, as follows: 50% of the OP Units will be redeemable beginning July 1, 1999, an additional 25% will be redeemable beginning October 1, 1999, and the balance will be redeemable beginning January 1, 2000. HMC and Host REIT will grant certain registration rights with respect to any Common Shares received upon the exercise of the redemption right. In the event that the REIT Conversion is not consummated, Blackstone will have the right to elect to receive in lieu of OP Units, units in a newly-formed partnership owned by HMC and Blackstone on terms generally comparable to the above terms, except that the units in the newly-formed partnership will be redeemable for HMC common shares. In either event, upon completion of the Blackstone Transaction, Blackstone is expected to own approximately 19% of the pro forma HMC common stock outstanding on a fully diluted basis. Consummation of the Blackstone Transaction pursuant to the Contribution Agreement is subject to HMC's consummation of the REIT Conversion, to closing prior to March 31, 1999, to obtaining certain consents of third parties and to various other conditions and contingencies. Consummation of the acquisition of the equity interest in the Four Seasons Beverly Hills is subject to execution of a definitive contribution agreement and satisfaction of conditions set forth therein. REIT OWNERSHIP STRUCTURE Upon consummation of the REIT Conversion (and assuming all of the related transactions occur in the manner described herein), the structure of, and ownership of interests in, Host REIT and the Operating Partnership and the leasing arrangements will be substantially as shown in the following diagram. [OWNERSHIP STRUCTURE DIAGRAM APPEARS HERE ] FORWARD-LOOKING STATEMENTS; SIGNIFICANT CONTINGENCIES Certain matters discussed in this summary include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as "believes," "expects," "may," "will," "should," or "anticipates" or the negative thereof or other variations thereof or comparable terminology. All statements other than historical facts or descriptions of agreements included herein, including, without limitation, statements related to the proposed REIT Conversion, the terms, structure and timing thereof, and the expected effects of the proposed REIT Conversion and the Blackstone Transaction on FFO, EBITDA, financial implications and business and operating strategies in the future, are forward- looking statements. All forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which are not within the control of HMC, that may cause actual transactions, results, performance or achievements to be materially different from any future transactions, results, performance or achievements expressed or implied by the forward-looking statements. Consummation of the transactions described herein is subject to a number of significant conditions and contingencies, including, among others: (a) the need to obtain required consents of stockholders, lenders, debt holders, partners and ground lessors of HMC and its affiliates and of other third parties; (b) if HMC does not complete the necessary reorganization of its operations in time to elect REIT status effective January 1, 1999, it likely would not be able to qualify as a REIT until January 1, 2000; (c) the terms and structure of the REIT Conversion (including, among others, the particular assets to be owned by the Operating Partnership, its taxable Special Subsidiaries and SLC, the magnitude of HMC's earnings and profits and the value of the distribution of SLC stock and cash required to be made by HMC, the terms of the leases between the Operating Partnership and SLC, the form of the Limited Service Partnerships transaction and whether or not a Special Subsidiary will be the lessee of their hotels, the identity of the private and public partnerships that will participate in the rollup of their partnerships into the Operating Partnership and the consequences if one or more do not elect to do so, the terms of the refinancing of the HMH Properties' bonds and other debt of HMC and its affiliates, and the magnitude and effect of the QUIPS conversion ratio adjustment) have not yet been finalized and will be affected by events and circumstances outside HMC's control; (d) the effects of potential tax legislative or regulatory action; and (e) consummation of the Blackstone Transaction is subject to HMC's consummation of the REIT Conversion, to closing prior to March 31, 1999 and to various other conditions and contingencies, and acquisition of the equity interest in the Four Seasons Beverly Hills is subject to execution of a definitive agreement and satisfaction of conditions set forth therein. Likewise, future results, performance and achievements of HMC, Host REIT and SLC will be affected by the foregoing factors as well as a number of additional factors, including, among others: (i) national and local economic and business conditions that will, among other things, affect demand for hotels, senior living properties and other properties, the level of rates and occupancy that can be achieved by such properties and the availability and terms of financing; (ii) the ability to maintain the properties in a first-class manner (including funding of maintenance and capital expenditures); (iii) competition; (iv) acquisition and development risks; (v) governmental approvals, actions and initiatives, including the need for compliance with environmental/safety requirements, and changes in laws and regulations or the interpretation thereof; (vi) in the case of Host REIT, the need to satisfy complex rules in order to qualify for taxation as a REIT for federal income tax purposes and to effectively operate within the limitations imposed by these rules. Other factors are described in other filings of HMC with the Securities and Exchange Commission. While HMC believes that the expectations reflected in these forward- looking statements are based on reasonable assumptions, it can give no assurance that its performance of other expectations will be attained, that the transactions described herein will be consummated or that the terms of the transactions or the timing or effects thereof will not differ materially from those described herein. -----END PRIVACY-ENHANCED MESSAGE-----